Q4 2021 Douglas Emmett Inc Earnings Call
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Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session. I will now turn the conference over to Stuart McKaney, Vice President of Investors Relations for Douglas Emmett.
Ladies and gentlemen, thank you for standing by welcome to Douglas image quarterly earnings call. Today's call is being recorded at this time all participants are in a listen only mode. After management's pre.
Paired remarks, you will receive instructions for participating in the question and answer session.
I will now turn the conference over to Stuart Mckanie, Vice President of Investor Relations for Douglas Emmett.
Speaker 2: Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO , Kevin Crummey, our CIO, and Peter Seymour, our CEO .
Thank you joining us today on the call or Jordan Kaplan, our president and CEO , Kevin Crummy, our CIO and Peter Seymour our CFO .
Speaker 2: This call is 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.
Call is being webcast live from our website and will be available for replay during the next 90 days.
Also find our earnings package at the Investor Relations section of our website.
Speaker 2: 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 be back with more information on the earnings
You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package during.
During the course of this call we will make forward looking statements.
Speaker 2: These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict.
These forward looking statements are based on the beliefs of.
Assumptions made by and information currently available to us.
Our actual results will be affected by known and unknown risks trends uncertainties and factors that are beyond our control or ability to predict.
Speaker 2: Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect.
Although we believe that our assumptions are reasonable they are not guarantees of future performance and some will prove to be incorrect.
Speaker 2: Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material.
Therefore, our actual future results can be expected to differ from our expectations and those differences may be material.
Speaker 2: For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the investor relations.
For a more detailed description of some potential risks please refer to our SEC filings, which can be found in the investor Relations section of our website.
Speaker 2: When we reach the question and answer portion in consideration of others, please limit yourself to one question and one follow-up. Thank you. I will now turn the call over to Jordan. Good morning, everyone. I'm Jordan.
When we reach the question and answer portion in consideration of others. Please limit yourself to one question and one follow up.
Thank you.
I will now turn the call over to Jordan.
Good morning, everyone. Thank you for joining us we continue to recover from the impacts of the pandemic in 2021 released more office space than in any prior year with strong tenant retention above 70%.
Speaker 3: In 2021, we leased more office space than in any prior year, with strong tenant retention above 70%.
Speaker 3: In addition, we kept our lease transaction costs meaningfully below our pre-pandemic average.
In addition, we kept our lease transaction costs meaningfully below our pre pandemic averages.
Speaker 3: Our multifamily properties are fully leased, with average rent roll up this quarter in excess of 8% across our portfolio.
Our multifamily properties are fully leased with average rent roll up this quarter in excess of 8% across our portfolio.
Speaker 3: We completed construction of our 376 unit residential high rise in Brentwood and delivered 101 new apartment units last year at our conversion project in Honolulu. Leasing at each project has exceeded...
We completed construction of our 376 unit residential high rise in Brentwood and delivered 101, new apartment units last year at our conversion project in Honolulu.
Leasing at each project has exceeded our expectations.
Speaker 3: in 2021. We completed over $1.3 billion in financing transactions.
In 2021, we completed over $1 3 billion in financing transactions. Our average interest rate is now only $2 eight 9% and our next maturity is not until December 2024.
Speaker 3: Our average interest rate is now only 2.89%. And our next maturity is not until December 2024.
Speaker 3: we continue to convert non-cash to cash revenue. During 2021, our cash revenue represented over 99% of our total revenue.
We continue to convert non cash to cash revenue during 2021, our cash revenue represented over 99% of our total revenue.
Speaker 3: We estimate our office utilization at 70%.
We estimate our office utilization at 70%.
Speaker 3: Despite lingering uncertainty around COVID, I remain optimistic about our improving fundamentals and our development pipeline that Kevin will discuss in more detail.
Despite lingering uncertainty around Covid I remain optimistic about our improving fundamentals and our development pipeline that Kevin will discuss in more detail.
Kevin.
Speaker 3: Thanks Jordan and good morning everyone. As Jordan mentioned, we are excited to report that we have completed construction of landmark Los Angeles.
Thanks, Jordan and good morning, everyone. As Jordan mentioned, we are excited to report that we have completed construction of landmark Los Angeles.
Speaker 3: our 376 unit Brentwood residential tower.
376 unit Brentwood residential tower.
Speaker 3: This is the first new residential high-rise development west of the 405 Freeway in more than 40 years, offering stunning ocean views and luxury amenities.
This is the first new residential high rise development West of the 405 freeway in more than 40 years offering stunning ocean views and luxury amenities.
Speaker 3: We have already pre-leased just under 100 units and expect tenants to move in over the next month.
We have already pre leased just under 100 units and expect tenants to move in over the next month.
Speaker 3: At 1132 Bishop, our downtown Honolulu office to residential conversion, we have completed all our common areas and amenities and approximately half of our plan 493 units.
At 11, 32, Bishop our downtown Honolulu office to residential conversion, we have completed all of the common areas and amenities and approximately half of our planned 493 units.
Speaker 3: The remainder of the units will be constructed in phases as office tenants move out.
The remainder of the units will be constructed in phases as office tenants move out.
Speaker 3: Given our progress at these two properties, we are focused on our next development project.
Given our progress at these two properties. We are focused on our next development projects as we have mentioned in the past we own a number of sites in Los Angeles, and Honolulu that accommodate new ground up residential development and we would expect to continue to finance, our new development, primarily through our excess operating cash flow.
Speaker 3: As we have mentioned in the past, we own a number of sites in Los Angeles and Honolulu that accommodate new ground-up residential development, and we would expect to continue to finance our new development primarily through our excess operating cash.
Speaker 3: In addition, we continue to modernize and upgrade our portfolio through asset reposition.
In addition.
And we continue to modernize and upgrade our portfolio through asset repositioning.
Speaker 3: In 2021, our repositioning program focused on two office buildings and two residential properties.
In 2021, our repositioning program focused on two office buildings and two residential properties in 2022, we plan to start repositioning and additional three office buildings.
Speaker 3: In 2022, we plan to start repositioning an additional three office belts.
Speaker 3: During the fourth quarter, we refinanced another $300 million of debt.
During the fourth quarter, we refinanced another $300 million of debt.
Speaker 3: The new secured non-recourse interest only term loan ensures in January , 2029, with interest effectively fixed at 2.66%.
The new secured non recourse interest only term loan matures in January 2029, with interest effectively fixed at 266%.
Speaker 3: Our overall portfolio weighted average interest rate is fixed at only 2.89%.
Our overall portfolio weighted average interest rate is fixed at only 289%.
Speaker 3: and we have no outstanding debt maturing for nearly three years.
And we have no outstanding debt maturing for nearly three years.
Speaker 3: Although property sales in our markets remain slow, I am hopeful that 2022 will bring more transactions to the market.
Although property sales in our markets remained slow I am hopeful that 2022 will bring more transactions to the market.
Speaker 3: Our access to liquidity remains excellent, with over $330 million of cash in our balance sheet. Nothing drawn on our credit line. Good cash flow after dividends, strong JV relationships, low leverage, and approximately half of our office properties unencumbered.
Our access to liquidity remains excellent with over $330 million of cash in our balance sheet nothing drawn on our credit line. Good cash flow after dividends strong JV relationships low leverage and approximately half of our office properties unencumbered.
Speaker 2: Thanks, Kevin. Good morning, everyone. We continue to see good leasing demand from the diverse set of industries in our market.
Stuart.
Thanks, Kevin and good morning, everyone. We continue to see good leasing demand from a diverse set of industries in our markets. In Q4, we signed 216 office leases covering 858000 square feet.
Speaker 2: Q4 we signed 216 office leases, covering 858,000 square feet.
Speaker 2: up 2564,000 square feet of new leases and 604,000 square feet of renewal leases. For all of us, 2021, we find 910 office leases, covering 3.7 million square feet.
<unk> up 254000 square feet of new leases and 604000 square feet of renewal leases.
For all of 2021, we signed 910 office leases covering.
Covering $3 7 million square feet.
Holding $1 2 million square feet of new leases and $2 5 million square feet of renewals.
Speaker 2: that are highest leasing volumes since becoming a public.
That's our highest leasing volume since becoming a public company.
Speaker 2: are leasing spreads during the fourth quarter, were positive 3.5% for straight line, and negative 9.7% for cash. We are focused on recovering occupant
Our leasing spreads during the fourth quarter were positive three 5% for straight line and negative nine 7% for cash.
We are focused on recovering occupancy at this point in the cycle and.
Speaker 2: expect Brent spreads to remain choppy until our least rate climbs back near 90% with an upward.
And expect rent spreads to remain choppy until our leased rate climbs back near 90% with an upward trend.
Speaker 2: or at least in cost is quarter or $5.3 per square foot per year. In line with our recent trends and well below our benchmark group average.
Our leasing costs this quarter were $5 <unk> per square foot per year in.
In line with our recent trends and well below our benchmark group average.
Speaker 2: Turning to multi-family, our portfolio remains essentially full at 99.3%.
Turning to multifamily our portfolio remains essentially full at 99, 3% leased.
Speaker 2: We felt further strengthening in rents during Q4, with average rent roll-ups for new tenants over 8%. With that, I'll turn the call over to Peter to discuss our results.
We saw further strengthening in rents during Q4 with average rent roll ups for new tenants over 8%.
With that I'll turn the call over to Peter to discuss our results.
Thanks, Stuart and good morning, everyone.
Speaker 3: Turning to our results, compared to the fourth quarter of 2020, revenues increased by 10.
Turning to our results compared to the fourth quarter of 2020 <unk>.
Revenues increased by 10, 9%.
Speaker 3: FFO increased by 5.3% to 48 cents per share. AFFO increased 20.1% to 91.3 million dollars. In same property cash NLI increased by...
<unk> increased by five 3% to <unk> 48 per share.
<unk> increased 21% to $91 $3 million in.
And same property cash NOI increased by 19, 1%.
Speaker 3: G&A remains very low relative to our benchmark group at only 5% of revenue.
Our G&A remains very low relative to our benchmark group that only 5% of revenues.
Speaker 3: As we see promising signs of the pandemic abating, we are resuming full year guidance.
As we see promising signs of the pandemic abating, we are resuming full year guidance.
For 2022.
Speaker 3: We expect FFO to be between $2.1 and $2.7 per cent.
We expect <unk> to be between $2 and one and $2 seven per share.
Speaker 3: For information on assumptions underlying our guidance, please refer to the schedule in the earnings.
For information on assumptions underlying our guidance please refer to the schedule in the earnings package.
Speaker 3: As usual, our guidance does not assume the impact of future acquisitions, dispositions, or fanantics. I will now turn the call over to the operation.
As usual our guidance does not assume the impact of future acquisitions dispositions or financings.
I will now turn the call over to the operator, so we can take your questions.
Speaker 1: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before.
Asking your question, we will pause here briefly ask question are registered.
Speaker 1: Our first question comes from Alexander Goldfarb with HyperSandler.
Our first question comes from.
Alexander Goldfarb with Piper Sandler.
Alexander Your line is open.
Speaker 4: Oh great. Hey, morning out there. So
Oh, Great Hey, yeah.
Morning out there.
So Alex.
Speaker 4: Hey, how are you? And sorry, I've been busy learning today. So two questions.
Hey, how are you sorry, Ben.
Busy busy earnings day.
Two questions.
Speaker 4: The first question, a big picture is, if you look in Southern California, this apartment earnings season, the rent growth rebound has been phenomenal. All the apartment rates have spoken about the amount of demand that's gotten for the apartments, the amount that content is driving, you know, employment in LA.
The first question a.
Big Picture is if you look in southern California. This apartment earnings season, the rent growth rebound who's got a phenomenal all the apartment Reits have spoken about the amount of demand they've gotten for the apartments.
Now that content.
Is driving.
Employment in L. A.
Speaker 4: And when we look at your leasing, you guys have been phenomenal on the leasing, but it's still like a treadmill. So I guess the question is...
And when we look at your leasing you guys have been phenomenal on leasing, but it's still like a treadmill.
Speaker 4: Is there a read through between the strong apartment results and the strong employment that's driving that, that we should start to see that translate to positive absorption in the next few quarters, or you would say, hey, well, the two logically would seem to be tied. In this case, there's not necessarily that direct correlation.
The question is.
Is there a read through between the strong apartment.
Our results in a strong you know appointment that's driving that that we should start to see that translate to.
Positive absorption in the next few quarters or you would say hey, well the two logically would seem to be tied in this case, there is not necessarily that direct correlation.
Wow.
Speaker 3: population definitely correlates to more full real estate. So that's simply said. But I think we are seeing, you know, you've seen our leasing has been...
Population definitely correlates to more full real estate, so that simply said, but but I think we are seeing you know you've seen.
Our leasing has been.
Speaker 3: We're covering for a while now. If you think about it, we lost.
We're covering for a while now if you think about it we lost 6% 600 basis points during the during.
Speaker 3: 6% 600 basis points during the
Speaker 3: during this entire sort of COVID recession. 500 of it was in 2020, over 80, you know, 86 or 90 of it was in the first quarter. And then the following three quarters the last year, we pretty much broke even with the last two quarters being paused.
During this entire COVID-19 .
Recession.
500 of that was in 2020 over 80.
86, or 90 of it was in the first quarter.
And then <unk>.
Following three quarters of last year, we pretty much broke even with the last two quarters being positive.
Speaker 3: So, I mean, I think we're already seeing that office, at least on the leasing front recovery. Now, you already know that we've told you that we think the utilization's way up.
So.
<unk>.
We're already seeing that office at least on the leasing front recovery now you already know that we've told you that we think the utilization is way up.
Speaker 3: I mean, maybe it's custody, if you're around the residential leasing, it certainly has been spectacular.
So.
I mean, maybe its cuts as a.
If you're around.
The residential leasing it certainly has been spectacular.
Speaker 4: Okay, so that's so it sounds like there's then what you just described sounds like we should expect this trend to to continue and we should see you guys being traction. Yeah, that positive absorption on the least rate translates to occupancy growing as we go on over the course of this year.
Okay. So that so it sounds like.
Is that what you just described it sounds like we should expect this trend to continue and we should see you guys gained traction.
Yes that positive absorption on the lease rate translates to occupancy growing as we go on over the course of this year.
Speaker 3: Yeah, I mean, when you're talking about a subject like this, it should and hope that kind of go together, but yeah, I think that probably agree with you.
Yeah, I mean, when you're talking about a subject like this should and hope that kind of go together, but yes.
Speaker 4: Okay, we look, show them hope. The next question is, you announced in the...
I agree with you.
Okay, We love shouldn't hope.
Next question is you announced in the.
Speaker 4: and the press release about starting next three batch of buildings on the rehab program. Historically, you've discussed that you only do that when you do that you can get rent that commensurate with the spending. And you guys don't really have competitive supply that
In the press release about starting next three batch of buildings on the rehab program historically.
You've discussed that you only do that what do you view that you can get rent that's commensurate with the spending and you guys don't really have competitive supply that.
Speaker 4: you know, there's probably less defensive catback. So is the re-true from that that you think that rent growth is coming to by the time that these upgrades deliver, rents will be, you know, higher or is part of this just defensive just to encourage tenants to come back to the office and make sure that they aren't relocating the other parts of the west side, I don't know, maybe down the bridge that way or fly the thrower other place.
There's probably less defensive capex. So is the read through from that that you think that rent growth is coming so by the time that these upgrades deliver rents will be higher or is part of it is just defensive just to encourage tenants to come back to the office to make sure that they arent relocating to other parts of the.
Of the of the West side, I don't know maybe Dallas.
He is already here or fiber or other places.
Speaker 3: Well, there's two things there. Number one, let me just say, I definitely think we'll recover our occupancy, get back in the 90s and you'll see meaningful rent growth. So that's 100% I think that's happening. Now, separately, when you say, just redo in the buildings, does that mean we think we'll get rent growth? It's not rent growth, it's that. I think we'll get a marginal as compared to them not being done.
Well, there's two things here number one let me just say.
I definitely think we'll recover our occupancy get back in the nineties and youll see meaningful rent growth. So that that's 100% I think that's happening now separately. When you say just redoing. The buildings does that mean, we think will get rent growth has not rank growth that said I think we will get a marginal as compared to them not being done.
Speaker 3: I think we'll get higher rent in that building as a result of redoing that building.
I think we'll get higher rent in that building as a result of redoing that that building.
Speaker 3: That's not a statement about rent growth across the whole community. That's just a statement that I think that when we spend this money to redo the building, we're going to get such and such more per foot in rent, and that justifies that money being spent. So I definitely still feel that way. I think that the segregation of the nicer to the medium to low end buildings and the difference in rent that you get is just get that gap, just even gapping out more.
Yes, that's not a statement about rent growth across the whole community. That's just a statement that I think that when we spend this money to redo. The building, we're gonna get sudden such more per foot in rent and that justifies that money being spent so I definitely still feel that way I think that the segue.
The segregation of the nicer to medium to low end buildings and the difference in rent that you get is just get that gap.
Speaker 3: So it's really well spent money and we're experiencing that we're getting much higher returns when we do that. But just putting that aside, I have absolutely no doubt in my mind that we will recover the occupancy that we lost during the pandemic and that we will see rent recover with that process, especially once Stuart said, once we get back to approaching that 90% number, I think it'll recover smartly. ok.
Gapping out more.
So it's really well spent money and we're experiencing that we're getting much higher returns when we do that but just putting that aside I have absolutely no doubt in my mind that we will recover the occupancy that we lost during the pandemic and that we will see rent recover with that process, especially once U S.
Stewart said once we get back to approaching that 90% number I think it all recovered smartly.
Okay. Okay. Thank you Jordan.
Thanks.
Thank you Alexander.
Speaker 1: Our next question comes from Craig Mailman with Keepin' Capital Market. Craig, your line is now open.
Our next question comes from Craig Mailman with Keybanc capital market.
Craig Your line is now open.
Speaker 5: Hey guys, maybe just to follow up on the Occosine ask a different way. And Jordan, I appreciate your commentary. But if you look at guidance, you guys are kind of flat on occupancy for the year from where you ended. And you had an easier fourth quarter from the expiration schedule, and then it kind of ramps up.
Hey, guys.
Maybe just to follow up on the occupancy and ask it a different way Jordan I. Appreciate your commentary, but if you look at guidance you guys are kind of flat occupancy for the year from where you ended and your you had an easier fourth quarter from our exploration schedule and then it kind of ramps up again in <unk>.
Speaker 5: again in in twenty two and accelerates in twenty three and twenty four so i'm just you know kind of curious uh... what on the demand side you see accelerating further
Two and accelerate in 'twenty three 'twenty four so I'm just kind of curious.
What on the demand side do you see accelerating further.
Speaker 5: for you guys to keep retention high here. Get back to 500 basis points.
For you guys to keep retention high here get back that 500 basis points.
Speaker 5: and kind of when do you see ranked growth pick back up in that contact?
When do you see rank growth pick back up in that context.
Speaker 3: So I know, and it's a proxy, it's not a perfect proxy, I know you're using occupancy in the lease rate. When I'm trying to predict where we're headed, I look more at lease rate than occupancy because as you've already seen in the past, lease rate and occupancy can gap out, which is always positive because when you're doing a lot of leaching, you'll gap out against occupancy, right? Because you've got more leachers done and takes time for them to move in.
So I know and it's a proxy it is not a perfect proxy I know you're using occupancy instead of a lease rate.
When we when I'm trying to predict where we're headed I look more at lease rate and occupancy because as you've already seen in the past lease rate and occupancy can gap out which is.
Always positive because when youre doing a lot of leasing a gap out against occupancy right because you've got more lease has done and it takes time for them to move in.
Speaker 3: So when you ask about the next two years or the next year, I don't think the role...
So when you when you ask.
About the next two years or the next year I don't think the role.
Speaker 3: It might be slightly, slightly higher. It's not meaningfully higher. If you look at our historical of the next two years that we're facing, they don't look very different than the two years we're about to face.
It might be slightly slightly higher it's not meaningfully higher.
If you look at our historical of the next two years that were facing they don't look very different than the two years for about the face.
Speaker 3: Separate from that, I do think we, when you ask this, the separate question, why would I from that think that we're going to recover or regain?
Separate from that I do think we when you asked the separate question why would I from that think that we're going to recover regain I'm seeing us average over 800000 feet a quarter now.
Speaker 3: I'm seeing this average over 800,000 feet of quarter now with very strong renewal. And we've been doing that now for, I guess, three quarters. And I know that when we get into those kind of numbers, we start gaining on leasing, on leasing. And so I know if we do the leasing, the occupancy will catch up and catch us if people are moving in. That's what makes me optimistic about what's coming.
With very strong renewal.
And we've been doing that now for I guess, three quarters and I know that when we get into those kind of numbers, we start gaining on leasing on leasing and so I know if we do the leasing the occupancy will catch up and catch us as people are moving and that's what makes me optimistic about what's coming.
Speaker 5: And so I guess so the commentary is what you get to that 90% lease rate you guys feel better about Spreads picking back up not necessarily getting me spread to narrow to auto
Okay, and so Stuart I guess, so the commentary is once you get to that 90% lease rate you guys feel better about spreads picking back up not necessarily getting the spread to narrow to occupancy.
Speaker 3: I just want to try to be clear. Oh, well, certainly when you get over 90%,
I just want to try to be clear.
Oh, well certainly when you get over 90%.
Speaker 3: First of all, it's hard to make meaningful gains, right? I mean, you saw, we were up at like, 93, 7 or something. And so we were still inching up. I think we felt like 95 was kind of where we would end up until we hit this recession.
First of all it's hard to make meaningful gains right. I mean, you saw we were up at like 93, seven or something and so we were still lynching up I think we felt like 95 was kind of where we would end up until we hit this recession.
Speaker 3: But at that time, you saw the Elise Doggie pilot crunched way down because your churn on the amount of new people moving in trunk way down. And so then you're not going to have as big of a spread as we have right now where we're doing a lot of leasing and filling space that was vacated to catch up from 86 to the 7 to the 88, whatever.
At that time, you saw the least talking pilot crunched way down because your churn on the amount of new people, moving and shrunk way down and.
So so then youre not going to have as big of a spread as we have right now where we're doing a lot of leasing and selling space that was vacated the catch up from the 86% to eight 7% to 88 whatever.
Okay, and then just one quick one as you guys are going to start.
Yeah.
Speaker 2: i was just going to agree can't go ahead you're right i was thinking about the least the least rate moving over ninety where we think we'll be able to push on renal rate
I was just going to agree you cant go ahead, you are right I was speaking about the lease the lease rate moving over 90, where we think we'll be able to push on rate rental rate on rent rental rate.
Speaker 5: Okay, and then just one quick one on as you guys restart the redevelopment program, kind of what's the, how quickly do you get back to that kind of maybe 200 million of annual spend you guys had talked about pre-COVID? Immediately, now we're there.
Right right. Okay, and then just one quick one on as you guys restart the redevelopment program kind of what's the.
How quickly do you get back to that kind of maybe $200 million of annual spend you guys had talked about pre COVID-19 .
Immediately now we're there.
Okay, we're doing that okay perfect.
Great I appreciate it.
Thanks, Greg.
Thank you Scott.
Speaker 1: Our next question comes from Alva Sradriga with Bank of America. Alva's outline is now open.
Our next question comes from Elvis Rodriguez with Bank of America. Elvis Your line is now open.
Speaker 6: Thank you. Good morning, guys. Quick question, I think you mentioned that Reynolds rates are kind of back or RANs are kind of back to pre-COVID levels, but that cash spread was negative and for Q. Can you help us sort of think about the two statements, the statement you made relative to the actual leasing spread?
Thank you. Good morning, guys. A quick question I think you mentioned that.
Rental rates are.
Kind of back where rents are kind of back to pre COVID-19 levels, but.
Cash.
Spread was negative in <unk> can you help us sort of think about the two the two statements. The statements you made relative to the actual leasing spreads.
Speaker 2: I think we may have been speaking about residential if you're thinking of rents being back to pre-pandemic levels. We're seeing that for sure on our multi-family business. On the opposite, our rental rates are down, as you'd expect, from pre-pand.
I think we may have been speaking about residential if youre thinking of rents being back to pre pandemic levels, we're seeing that for sure on our multifamily business on the office side, our rental rates are down as you would expect.
From pre pandemic levels.
Which GAAP when you're talking I didn't know that.
Yeah.
Speaker 6: Yeah, no, no, no, the gap spreads were positive in 4Q, but I thought I heard a comment that, you know, on a gap basis or maybe rents were sort of back to pre-COVID level from that perspective. And so I was just trying to make the poor relation between the two, yeah.
Ellis.
Yes, no no no well the GAAP spreads were positive in <unk>, but I thought I heard a comment that.
On a GAAP basis, or maybe rents were sort of back to pre COVID-19 level from that perspective.
And so I was just trying to Oh gap can make the correlation between the two.
Oh yeah.
Speaker 3: Yeah, you know, we didn't make that comment. I mean, as tenants are paying and you're might, go ahead and get that answer. I'm not, I'm not, I'm not sure. I mean, if you're just looking at the same store growth, the huge chain store growth, it's because it's a great comparison period because you know, you look at the fourth quarter of 21 and you compare it to the fourth quarter of 20 and like that's such an easy comparison. So that number's way up.
Yeah.
No we didn't make that comment I mean, as tenants are paying and where might that go.
To that end, so I'm not I'm not I'm not sure I agree.
If you if youre just looking at the same store growth the huge same store growth, it's because it's a great comparison period because.
You look at the fourth quarter of 21% compared to the fourth quarter of 'twenty, that's such an easy comparison, so that number is way up.
Speaker 3: But that has more to do with comparison than something of saying that's the reason. It sounds like you misheard us, Elvis, on the office.
But that has more to do with comparison, then something upfront.
Yes, the answer of resident it sounds like you misheard us all of us on the office side.
Speaker 6: All right, sorry about that sort. And then in terms of, Stuart, you mentioned the volatility and rents, you know, you know, are gonna be choppy until you get.
Alright, sorry about that sorry, and then in terms of Stuart you mentioned the volatility and rents.
We're going to be choppy until you get.
Speaker 6: some sort of high into the higher occupancy levels and the market sort of stabilizes. Can you talk about what we should be seeing quarter to quarter throughout the year or what your expectations are?
Some sort of high end to the higher occupancy levels and the market sort of stabilizes can you talk about what we should be seeing quarter to quarter throughout the year or what your expectations are.
Speaker 2: Very hard to predict because we do a lot of leases. We do 200 leases a quarter and we're still having plenty of leases that are rolling up. But on average, on a cash basis, they've been rolling down. So you can see quarters where depending on what some market you're doing more leases in or what leases actually get signed, that number can move around a lot. We've seen that through the cycles where this number is really hard to predict. We spent a lot of time unsuccessfully trying to
It's very hard to predict because we have we do a lot of leases with U 200 leases a quarter and we're still having plenty of leases that are rolling up but on average.
On a cash basis, they've been rolling down so you can see quarters, where it depending on what submarket youre doing more leases in or what leases actually get signed that move that number can move around a lot. We've seen that through the cycles, where this number is really hard to predict we spent a lot of time unsuccessfully trying to predict it.
Speaker 2: So that was my comment about it being choppy. Hopefully we see this moving back in the right direction as it, you know, rental follow, occupancy up.
So that.
That was my comment about it being choppy.
Hopefully we see we see this moving back in the right direction as it rents will follow occupancy up but at this point to see the cash spreads negative.
Speaker 2: you know at this point to see the cash spreads negative uh... now's not surprising uh... glad that the overall economics you know with our strong rent bumps in the leases that we
Now it's not surprising.
Glad that the overall economics with our strong rent bumps in the leases that were still getting keeps those GAAP spreads are positive at this point.
Thank you.
Speaker 1: Our next question comes from Steve Sacqua with Evercore. Steve, your line-
Thank you Alvin.
Our next question comes from Steve <unk> with Evercore.
Steve Your line is now open.
Speaker 7: yeah thanks a good morning uh... to orin i guess you know as we sort of think about the model and the numbers you know one of the big swing factors to me seems to be the retention rate and i know when you press release you mentioned that you were seventy percent in twenty one which memory serves me i thought long-term the the longer term average was
Yeah. Thanks, good morning.
Jordan I guess as we sort of think about the model and the numbers you know one of the big swing factors to me seems to be the retention rate and I know in your press release, you mentioned that you were 70% in 'twenty, one, which if memory serves me I thought long term to the longer term average was probably closer to 60, So I'm just curious.
Speaker 7: So I'm just curious, you know, what are you embedding in your 84 to 86% range? Because that just seems to be the big swing factor in terms of how quickly you can rig-
As you know what are you embedding in your <unk>, 84% to 86% range because that just seems to be the big swing factor.
In terms of how quickly you can regain the occupancy.
Speaker 3: So in terms of retention, our historical retention is like 69.8, some number like that, so that's our normal retention.
So in terms of retention our historical retention is like 69, eight some number like that so that's our normal retention.
Speaker 3: and i said it was above seventy and my recollection is that peter can correct me i think it's seventy two was positive something like that which makes a big different i mean i i know
And I said it was above 70, and my recollection is what Peter can correct me I think it's 72 was last week or.
Something like that.
Which makes a big difference I mean I know.
Speaker 3: I will tell you that number loves to be like between 69 and a half and 70. So it's almost odd that we've got so far above 70 last year. So we mentioned it.
But.
I will tell you that number loves to be like between $69 five and seven days. So it's almost odd that we thought so far above 70 million last year.
Speaker 3: Now, your next question was, I think how do we get from what, 80s, seven back to 93 in terms of our least rate, without what it is? Well, I don't know how to answer it or something was for retention in our guides.
So we mentioned that.
Now your next question was how do we get from what 87 to 93 in terms of our leased rate.
<unk>.
Wow.
Our assumption was for retention in our guide.
Yes.
For 2012 O R R.
Pretty much typically.
Right there at that in the high <unk> as it always is.
Speaker 3: We might have a little bit of info about what some tenants are doing, but statistically, there's so many tenants moving in and out all the time that the average is.
We might have a little bit.
And Paul about what some tenants are delaying but statistically there are so many tenants moving in and out all the time that the averages.
Tend to dominate.
Speaker 3: You can have quarters that are way off. You can have a quarter that's very low, and then you have a quarter that's very high. But whenever you look at a block of quarters, take four quarters, whatever, it's just extremely hard to get free of that number of, say, call it 69.
You can have quarters that are way off you can have a quarter. That's very low and then you can have a quarter thats very high but whenever you look at our block of quarters say four quarters or whatever it's just extremely hard to get free of that that that that number.
All at 69 and a half.
Speaker 7: Okay, so it sounds like for modeling purposes, you generally use 70 kind of as a placeholder
Okay. So it sounds like for modeling purposes, you generally use 70 kind of as a placeholder for a.
Kind of retention and then you've got obviously backfill the 30% that's obviously not renewing.
Speaker 3: Well, our model is very complicated, but I probably if I was you, that's what I would do. I'm sure we spent a lot of time trying to guess what everyone's doing, but I suspect it comes out.
Well our model is very complicated, but probably a policy that's what I would do yeah I'm sure. We spent a lot of time trying to guess what everyone's doing but I'd suspect it comes out.
Speaker 3: Like I said, it's like 69.8 or something, it's an odd.
Like I said it like it's like 69.8.
Odd number.
Speaker 7: Okay, and then second question, you sort of mentioned the other development sites that you have for residential with the Brentwood project sort of completed here.
Okay, and then second question you sort of mentioned the other development sites that you have for residential with the Brentwood project sort of completed here.
Speaker 7: What are your thoughts on starting a new ground up development, whether it's something in Hawaii or maybe a redevelopment or knockdown type-off?
What are your thoughts on starting a new ground up development, whether it's something in Hawaii or.
Maybe a redevelopment or knockdown type opportunity in L. A.
Speaker 3: My thoughts are, we're doing it. And we're working on it. We've got politicians coming back in office. We're talking to them. We're putting together all the pictures and all the stuff to shut it up. And we're saying, that's what we want to do next. And we hope you're behind it. And it's like all the both Hawaiian and LA people are talking about housing. And so we're fully working on it.
My thoughts are as we are doing it and we're working on it. We've got you know we've got politicians coming back in the office, we're talking to them.
Putting together.
All the pictures and all the stuff to shuttle our saying that's what we wanted to next and we hope you're behind it since like all of US both Hawaii and in L. A because we're talking about housing.
And so we're fully working on it.
Speaker 2: Steve, I think we'd like to have projects going in both Hawaii and in LA. Correct, concurrently. Yep.
And Steve I think we'd like to have projects going in both Hawaii and in L. A correct concurrently yep.
Speaker 7: So you think it's likely that you could have actual announcements this year or is it just the gestation period of getting these to the finish line sort of longer than, you know, say the, you know, next calendar year here.
So you think it's likely that you could have actual announcements this year or is it just the gestation period of getting these to the finish line sort of longer than you.
Say the next calendar year here.
I would say.
Speaker 3: I mean, I'm hopeful. I mean, when we announce it, I mean, technically I've announced it right now, because I know I'm working on trying to make that happen. I think we won't make it happen in both places. Now, it's such a long process and it's process going, I mean, I'm doing it right now. So, maybe we've announced, you know, breaking ground or something, I don't know. If that, it would have to be near the end of the year. But we're doing it right now. We're doing, we're,
I mean, I'm hopeful of some I mean, when we announce it secondly announced there right now because I know I'm working on trying to make that happen I think we won't make that happen in both places now it's such a long process and this process is going I mean, I'm doing it right now so.
<unk> made me, we announced breaking ground or something I I don't know if that if that.
It would have to be near the end of the year.
We're doing it right now we're doing where we're.
The agents of your question there.
Speaker 3: Are you guys working as quickly as possible to start construction on new projects in LA and in and in quiet and that's where you're
Are you guys working as quickly as possible to start construction on new projects in L. A N N and then.
Speaker 3: and talk to new cities and contractors and architects and the whole thing.
Why yes.
And talking to cities and contractors and architects and the whole thing.
Got it thank you.
Thanks.
Okay.
Thank you Steve.
Speaker 1: Our next question comes from John Kim with Demo Capital Markets. John , your line is now open.
Our next question comes from John Kim with BMO capital markets.
John Your line is now open.
Thank you.
Speaker 8: You guys talked about the importance of the least rate, just given that you get the price in power at 90%.
You guys talked about the importance of the leased rate just given that you get the pricing power at 90%.
Speaker 8: Can you give any indication of where you think that least right is by the end of the year?
Can you give any indication of where you think that lease rate is by the end of the year.
Speaker 2: Where, where, where are we? John , no, you know, we give, we give guidance on occupancy. We're not going to give least, we're not going to give guidance on leads to rate as well. Obviously, we're hopeful that it continues to go up. We've been doing a lot of leasing demand. It's been really good. But, you know, we gave you the guidance that we're.
Where.
John No we give we give guidance on occupancy we're not gonna give least we're not going to give guidance on lease rate as well. Obviously, we're hopeful that it continues to go up we've been doing a lot of leasing demand has been really good but.
We gave you the guidance that we're gonna give which is on occupancy.
Speaker 3: We did, yes, I'm paying the last year.
Yes at the end of last year now at the end of this year or you're asking at the end of this year.
John .
Yes.
Speaker 3: I was a bit scared to quit. I thought you were out of the middle after you were good. Okay.
[laughter] Patrick.
I thought you were asking that of last year okay.
Speaker 8: Well, we'll put another way. It took you six quarters at the last recession to get from trust least rate to 90%. I'm assuming it's going to take a little longer this year because that will take you to the end of this year to get from drop to 90. Is that a fair assumption just given uncertainty in the market and you're starting out the lower least rate and you did last recession?
Well I'll put it another way it took us six quarters at the last recession.
From trough leased rate to 90%.
I'm, assuming it's going to take a little longer this year because that will take you to the end of this year to get some dropped to 90.
Is that a fair assumption just given uncertainty in the market and Youre starting off at a lower lease rate than you did last recession.
Speaker 3: You're trying to figure out when we're going to be able to put pressure on rent.
Ah you're trying to figure out what we're gonna be able to put pressure on rents.
Speaker 3: I don't know. You know what? I think things are really opening up. I don't want to be overly optimistic and then something long. But I'm optimistic that the economy's opening up. And I see it opening here.
Pretty much.
Yeah, I mean, I don't I don't know.
You know what I think things are really opening up I don't want them like they don't really optimistic in the long but.
I'm optimistic that the economy is opening up and I see it opening here.
Speaker 3: And I see the state saying, maps are going off and like next week and
And I see the state, saying master going often like next week.
Speaker 3: to kids who are in school and I mean all the stuff's happening and then he's getting going now all of that both extremely well I mean I right up in the elevator this morning
Kids are in school in Oh, I mean, all the stuffs happening and ease of getting going now all of that bodes extremely well I mean I.
Right up in the elevator this morning.
Speaker 3: with a girl that I watched her she was getting a new parking card and I go, I go, I need to get your parking card and she said, well, you know, we're all back in the house now and I lost my parking card from being home so long and we're all back in. So that's going on everywhere, okay? So.
Whereas it girl that.
I've watched her she was getting any parking cars and although I know, you're probably going to settle out well you know we're all back in the ops now and I lost my part quite for being lumps, along and we're all backend. So that's going on everywhere. Okay. So.
Speaker 3: All that going on, I'm pretty positive that we should have a good year, but I don't know where we'll really play out. I mean, we have a whole year ahead of us. And we've been through like...
With all that going on I'm pretty positive that we should have a good year, but I don't know where it will really play out I mean, we have a whole year ahead of us and we've been through like Macao.
Speaker 3: a paddle lacking over the last seven quarters. So we got...
Paddle paddle.
Paddle lacking over the last.
<unk>.
Seven quarters. So we got we got to see it play out.
Speaker 8: Okay, my next second question is on landmark. You gave the least percentage, which is roughly 25%. Where does occupancy trend for the year, just so we can model what the contribution is for this year versus next? And also what ended up being your yield on the development versus your initial expectation?
Okay.
My next second question is on landmark.
You gave the lease percentage, which is roughly 25%.
Where does the occupancy trend for the year just so we can model what the contribution is for this year versus next and also what is what ended up being your your your yield on the development versus your initial expectations.
Speaker 3: So we already have said that we think we build it for a cap rate that's above a seven and you know we'll have the answer when we finish leasing it, but I'm extremely confident that it's above a seven.
Yeah.
So we already had said that we think we built it for a cap rate that's above a seven.
And we will have the answer when we finish leasing yet, but I'm extremely confident that its above a seven.
Speaker 3: So I like the way and see as that plays out where we end up, but having only least a quarter of it, I can say it's well above a seven, but I don't want to say where it's at, because we've got to finish leasing it. How does this...
And so I'd like to wait and see as that plays out where we end up but.
Having only at least a quarter of it I can't say, it's well above a seven but I don't want to say.
With that because we've got to finish leasing it.
How does that trend up.
Speaker 3: That's a tough one. I don't know. Do you guys have any tough anything for that or? Yeah, we, it's a Kevin. We're thinking that it's probably going to be a two-year.
That's a tougher one I mean I don't know if you guys have any type of anything for that or.
It's Kevin.
We're thinking that it's probably going to be a two year lease up on this and so.
Speaker 3: If we're just opening up, so by the end of the year, you should have about half a week to things go as we're hoping.
We're just opening up so by the end of the year you should have about half from east as things go as we are hoping.
That's great. Thank you somewhat answered it for you.
Thanks.
Yes.
Yeah.
Manny.
Operator.
Thank you Ken.
Speaker 3: Our next question comes from many important with city. Many, your line is now open. Jordan, you jumped ahead there. I thought that I'd miss something. Well, yeah, I was ready to start talking to you.
Our next question comes from Manny Korchman with Citi.
Your line is now open.
Jordan you've jumped ahead, there I thought that I'd missed something.
Well, yes.
Right.
Speaker 5: Given everything we've talked about with...
Ready to start talking to you.
Given everything we've talked about with.
Speaker 3: you know whether it be that the fact that it might be a tenance uh... that the pricing power might be with a tenant right now or or that people are confident making their decisions are you seeing tenants come to you to renew early and how are you thinking about those given the fact that you'll have better pricing power if you get to ninety percent but if you can lock them in now then you've got the surety of that tenant renewing
Yes, whether it would be the fact that it might be a tenants.
Yes, the pricing power might be with a tenant right now or that people are confident making their decisions are you seeing tenants come to you to renew early and how are you thinking about those given the fact that you'll have better pricing power. If you get to 90%, but if you can lock them. In now then you've got the surety of that tenant renewing.
Speaker 3: So for sure tenants are coming to us at OS money and saying, hey, can I renew it the same time to spread this out? So yes, that's definitely.
So for sure tenants are coming to us would owe us money and saying Hey can I renew at the same time to spread this out so yes, that's definitely happening.
Speaker 3: And you've seen our collections just keep rising and that's one of the ways that they're rising. Right? Now the second thing of...
And you've seen our collections just keep rising and that's one of the ways that that rising right.
Now the second thing.
Speaker 3: Since we have a pretty positive view on where things are going, do we want to gain the system and hold off or press for, you know, to do shorter deals and press for higher rates? And there's never been a market where we've done that.
Since we have a pretty positive view on where things are going to want to game the system and called off our press for.
Shorter deals and pressed for higher rates.
And there's never been a market, where we've done that we always made the market we signed a launch the longer leases and we have so much. So much you know churn that we're always able to pick up when there's gains in rate we pick it up but we just we used to do.
Speaker 3: We always meet the market, we sign along the longer leases, and we have so much, so much, you know, churned that we're always able to pick up. When there's games in Rape, we pick it up, but we just, at least to the market, and I don't, I think actually we've probably put on a cash basis at the bottom line. I think we actually do better that way, than trying to top tick rates or game, or leasing program for Rape.
Market and I.
I think actually probably fit.
On a cash basis at the bottom line I think we actually do better that way than trying to top tick rates or game game, our leasing program for rate.
Speaker 6: Hey Jordan, it's Michael Belliman here with Mani. Just as a follow up, it's thinking about sources and uses of capital as you ramp up the desire for redevelopment and development opportunities as well as continuing to scour the acquisition market. How are you thinking about funding those capital needs? And do you sort of have some goal posts?
Hey, Jordan, it's Michael Bilerman here with Manny just as.
A follow up just thinking about sources and uses of capital as you ramp up the desire for redevelopment and development opportunities as well as continuing to scour the acquisition market. How are you thinking about funding those capital needs do you sort of have some goalposts in.
Speaker 3: in mind in terms of how much capital you're looking to deploy. Let's say I have an X, two to three years, and where that's gonna come from. And I suspect your stock is not gonna be high on your list given it's a large discount to the parent value. But I'm not sure if you're actively seeking to sell assets or enter the joint ventures in order to fund the same free spend and not take leverage up. Okay, so.
In mind in terms of how much capital Youre looking to deploy let's say over the next two to three years.
And where that's going to come from and I suspect your stock is not going to be high on your list given the large discount to its inherent value, but I'm not sure if youre actively seeking to sell assets or interpret joint ventures in order to fund this increased spend did not take leverage up.
Yeah.
Okay. So <unk>.
First my goals.
I mean.
Speaker 3: We hope to put out between $2.409 a year at New Capital.
We.
We hope to put out between two and $400 million a year of new capital.
Speaker 3: company itself actually generates a significant amount of free cash flow even after the dividend. You know, somewhere in them.
The company itself actually generates a significant amount of free cash flow even after the dividend.
Somewhere in the $150 million range okay.
Speaker 3: So you're saying beyond that number, where is the rest of the money come from? And I mean, we're obviously sitting on a lot of cash right now and we have credit lines and we have low leverage. And we have joint venture partners that are anxious to begin this stuff. And that would be all the methods. You correctly stated that considering what stock prices are, that would not be, that would be extremely,
So youre, saying beyond that number, whereas the rest of the money come from and I mean, we're obviously, we're sitting on a lot of cash right now and we have credit lines and we have low leverage and we have joint venture.
Part.
<unk> that are anxious to get into stuff and.
That would be all the methods you correctly stated that considering where stock prices are that would not be that would be extremely low on the list.
Speaker 3: Do you have dispositions that you're working on? I mean, are you trying to generate more capital at this point? I'm like, I know it's hard to buy, which means maybe could be a good time to sell some things.
Do you have dispositions that you're working on I mean are you trying to generate more capital at this point I mean look I know, it's hard to buy which means maybe could be a good time to sell some things.
I don't.
Speaker 3: If you're saying, do we have any buildings for a selling? We sold the one building I wanted to sell, and that was Hanlua's beginning of last year. Maybe...
I mean if.
If you're saying do we have any buildings for selling we sold the one building I want them to sell.
That was Honolulu.
Beginning of last year maybe.
At the end of 'twenty two.
Speaker 9: They all blend into each other these days. Okay, all right, thanks for the time. See you in Florida.
And it will be all blend into each other these days.
Okay Alright.
For the time you are in Florida.
Yeah.
Thank you Manny.
Speaker 1: Our next question comes from Blaine Heck with Wells Fargo. Blaine, you're...
Our next question comes from Blaine Heck with Wells Fargo.
Helane Your line is now open.
Speaker 3: Great, thanks. Just follow up on that and maybe take the other side of that and that question, you know, given your low leverage profile and meaningful discount to NAD, or high-implying caprate, however you want to look at it. And kind of the lack of acquisitions that you've seen the bid on recently, I know you've addressed this your ordinance on prior calls, but just for an update, does it make sense to get active on share buybacks here, or do you think you want to keep that drive powder for developments and other opportunistic acquisitions that might come about in the future?
Great. Thanks, just a follow up on that and maybe take the other side of that question you know given your low leverage profile and meaningful discount to NAV E or high implied cap rate. However, you want to look at it and kind of the lack of the acquisitions that you've seen the bid on recently I know you've addressed this jordan on prior calls but.
For an update does it makes sense to get active on share buybacks here or do you think you want to keep that dry powder for developments in other opportunistic acquisitions that might come about in the future.
Well.
Speaker 10: obviously i'll say i know you're i have to the past i mean i've been buying our stock i personally been buying our stock and i believe our stock is very good by but uh... i don't
Object.
I know you're right absolutely fantastic I mean, I've been buying our stock I personally have been buying our stock, but and I believe our stock is a very goodbye, but I don't.
Speaker 10: When you talk about the company, it's a much more complicated decision. Because the company...
When you're talking about the company, it's a much more complicated decision because the company.
Speaker 10: Our business isn't to be participating in the stock market and guessing a bunch and down to the stock market and where the stock's going. Our business is to run the real estate and let the stock market run itself. And frankly, I'm wrong a lot by what I think the stock and a lot of times, and I think, wow, we're killing it. And then the stock goes down, and then other times it goes out. So I don't think I'm that good at predicting that. So we'll start with that. Secondly,
Our business isn't to be participating in the stock market and guessing of ups and downs of the stock market and where the stock's going our business is to run the real estate and let the stock market run itself and frankly, I'm I'm wrong, a lot by what I think the stock in a lot of times and I think while we're killing it and then the stock goes down and then other.
So I don't think I'm not good at predicting that.
Let's start with that secondly.
Speaker 10: It's a not that you would never buy back your stock because I have bought back our stock.
It's not that you would never buy back your stock because I have bought back our stock.
Speaker 10: but it's a complicated decision because unless you're selling something, it means the fact that you're increasing leverage and you're taking away the opportunity to do some of these other things for the B development or an acquisition or whatever that may be. So that's a, you know, you have to really...
But it's a complicated decision because unless you're selling something it means youre. The fact, youre, increasing leverage and youre taking away the opportunity to do some of these other things whether it be development or an acquisition or whatever that may be so that's like you know.
Speaker 10: not just a little thing that gets a good idea. You got to be wildly, you know, in an extreme position to choose to raise your leverage, buy back your stock when you're not an expert in the stock market, and then obviously reduce the range of things that you can now do these of the acquisitions or development projects.
You have to really.
B not just a little thinking it's a good idea you gotta be wildly.
And then in an extreme position to choose to raise your leverage buy back your stock when you're not an expert in the stock market and then obviously reduce the range of things that you can now do vis vis acquisitions or development projects.
Speaker 10: or redevelopment projects. So that's why you see it being very rare activity.
Or redevelopment projects. So that's why you don't see US really that's why you see it being very aware activity for us.
Speaker 3: Okay, that's helpful. And then for my second question, can you just talk about kind of the underlying health of your smaller tenants? We saw small business optimism numbers a road in January .
Okay. That's helpful.
And then for my second question can you just talk about kind of the underlying health of your smaller tenants. We saw small business optimism numbers erode in January and some of the commentary we heard around that release was that the small businesses were struggling to handle the the increase in inflation and the associated increase in costs for their businesses I know your tenant.
Speaker 3: Some of the commentary we heard around that release was that these small businesses were struggling to handle these.
Speaker 3: The increase in inflation and associated increase in costs for their businesses. I know your tenant base is probably a lot different than the average business that's included in these studies. But when you talk to your tenants, are you hearing any rumors that they're having trouble keeping up with rising costs or even wage inflation?
It's probably a lot different than the average business. That's included in these studies, but you know when you talk to your tenants are you hearing.
And any rumors that they're having trouble keeping up with rising costs or even even wage inflation.
Yeah.
So.
Speaker 10: I think probably in small retailers that's the case.
I think probably in small retailers that's the case.
Speaker 10: Although I actually think he might retail pretty healthy at this point, but if now you're saying our office tenant.
Although I actually think even our retails pretty healthy at this point, but now you're saying our office tenants.
Speaker 10: I think they should be embarrassed to how much money they're making of anybody that hasn't paid us their rent. So that definitely is not the case. These people...
They should be embarrassed to how much money, they're making or anybody that hasnt paid us rent. So that definitely is not the case these people.
Speaker 10: A lot of the majority of the cost rent their company is in there. The people that they employ and they're employing people that live in expensive housing all around this area. And to not be there, rent is absolutely absurd with how much money they've been making. Well, they've been making some of their best years where they'll be law firms accounting firms.
Colossal majority of the costs around their company again, there the people that they employ and theyre employing people that live in expensive housing all of them at around this area.
I cannot pay their rent is absolutely absurd.
With how much money they have been making a lot of them and making having some of their best years, whether it'd be law firms accounting firms.
Speaker 10: you know head fund managers and you know uh... wealth managers i mean that the list goes on it on the other small companies that the entertainment industry and tech industry
Hedge fund managers.
Our wealth managers.
The list goes on it yeah.
The small companies that see the entertainment industry and tech industry.
Speaker 10: It's almost laughable that they would have thought to take advantage of not paying with the money.
It's almost laughable that David ever would have thought.
Take advantage of not paying what the money they've been making.
Speaker 10: I know that's not the question you asked, but I'm still pissed off about that.
I know that's not the question you asked but I'm still pissed off about that.
Fair enough. Thanks Jordan.
Yeah.
Yes.
Thank you Blayne.
Speaker 1: Our next question comes from Rich Anderson with SMB.
Our next question comes from Rich Anderson with S. NBC Rich your line is now open.
Speaker 11: Rich, your line is now open. Thanks. Good morning out there. For the guidance.
Thanks, Good morning out there.
Speaker 11: range do you allow for any sort of hiccup in occupancy i know you're expecting i should excuse me least rate uh... i know you're expecting a ramp in that but uh... as you know now i think the state wide-election moratorium burnt off but still
For the guidance.
Range do you allow for any.
Sort of hiccup in occupancy I know, you're expecting actually excuse me lease rate.
I know youre expecting a ramp in that but as you know.
Now I think statewide eviction moratorium burnt off but still some.
Speaker 11: uh... county level uh... stuff continuing i'm wondering you know what you're thinking about the behaviors of some of your tenants that might actually by what you said about the money they're making and and some not paying with with a perhaps vacate uh... when that that time comes and and are you allowing for any of that in your range for this year
County level stuff, continuing I'm wondering what youre thinking about the behaviors of some of your tenants that might actually despite what you said about the money they are making in some not paying.
Perhaps vacate when that time comes in are you, allowing for any of that in your in your range for this year.
Speaker 10: Well, certainly the width of the range could offer a lot of things to happen, and that could be on the list. And some of that might happen. I mean, but I know I'm right now.
Well certainly the width of the range could allow for a lot of things that happen that could be on the list and some of that might happen I mean, but.
Speaker 10: looking at the office side, I think that's more likely to happen on the residential side. On the off side, I don't see that, necessarily being that meaningful, but we'll see as it plays out. And then.
Right now.
Looking at the office side, I think thats more likely to happen on the residential side on the op side, I don't see that necessarily being not meaningful, but we'll see as it plays out.
Okay.
And then.
A big picture question I don't know if you've ever.
Speaker 11: talked about expansion markets to any specific detail.
Talked about expansion markets to any specific detail.
But a lot of dislocation going on in San Francisco. These days or is there anything about that market Thats got at any amount of your attention. These days or are you sticking sticking.
Speaker 11: going on in San Francisco these days. Is there anything about that market that's got any amount of your attention these days? Or are you sticking, sticking, you know, where you're at right now and expanded from within?
You are at right now and expanded from within.
Oh I mean.
Speaker 10: I know that downtown San Francisco is facing a lick in right now for a number of reasons in my opinion a lot of itself inflicted.
I know that downtown San Francisco stay ahead of Lincoln right now for a number of reasons.
And in my opinion, a lot of its self inflicted but.
Speaker 10: And I still think that that is going to be a good market in the end because it's surrounded by like colossal incubator institutions, my stance.
And I still think that that is going to be a good market in the end because it's surrounded by.
Like colossal incubator institutions like Stanford and Bert.
And what are all the rest of them.
Speaker 10: That's actually separate from the issue of, would we put money up there versus putting money here, whether it be an acquisition or into additional development? And I think that are kind of...
That's actually separate from the issue of when we put money out there versus putting money here, whether it be an acquisition or an additional development and I think that our kind of local edge that we have here and the returns we're able to get with our money probably would argue at the moment just to stay here.
Speaker 10: Local edge that we have here in the returns we're able to get with our money probably would argue at the moment just to stay here In comparison to kind of what we'd have to set up up in time just gonna be effective I'm also not so sure that values are that even though I know the fundamentals and fan fifths are way off I'm not sure how far off values are in terms of what's just trading for so I don't think it's like I don't think it's some type of gray dancing market or anything
In comparison to kind of what we'd have to setup up in San Francisco to be it could be effective.
I'm also not so sure that values are that even though I know the fundamentals in San Francisco are way off I'm not sure how far off values are in terms of what's frustrating for so I don't think it's like.
I don't think it's some type of grave dancing market or anything.
Okay.
Thanks very much.
Thanks.
Rich.
Speaker 1: Our next question comes from Bill Crow with Raymond James. Bill, your line is not...
Our next question comes from Bill Crow with Raymond James Bill Your line is now.
Speaker 12: Thanks. Good morning, guys. Similar to Rich's question, but keeping it local, I guess.
Thanks, Good morning, guys.
Similar to Richard's question.
But keeping it local I guess.
Speaker 12: struck me as I was out in LA and I had too long ago, but the focus on the news about all the crime that's going on and it seems to me.
It struck me as it was up a L. A not too long ago, but the focus on the news about all the crime that's going on and it seems to me.
Speaker 12: expanding its area. So I guess by question this.
Expanding its.
It's area. So I guess my question is what's going on from a Submarket perspective, how much change are you seeing in borders of good submarkets versus challenging submarkets, etc.
Speaker 12: What's going on from a submarket perspective? How much change are you seeing in borders of...
Speaker 12: Good submarkets versus challenging submarkets, et cetera. I guess, how do you play the evolution of the market?
I guess, how do you how do you play the evolution of the market.
Speaker 10: Well, you're lead in would would would cause me one answer that the borders have tightened up, but actually I think the borders have expanded. So certainly I always consider the border. So I'm concerned.
What are your lead and what would cause may want to add to that the borders and tightened up but actually I think the partners have expanded.
Certainly I always considered the border.
Speaker 10: out the west Hollywood and in that area to be very good. And I would say the border to the south of us.
Concerts in the east or whatever to all the way out to west Hollywood and in that area to be very good.
And I would say the border to the south of US where I may not have included Culver City or certainly if you go a decade ago Playa Vista Nahua would go go down that day, because these are all great markets and I think Playa Vista for the most part is built out and it's now maturing as a market Culver City.
Speaker 10: Where I may not have included Culver City, or certainly if you go a decade ago, apply a VISTA, now I would go down that deed to go these are all great markets, and I think apply a VISTA for the most part is built out, and it's now maturing as a market. Culver City certainly...
Speaker 10: Have some development, but it's also a very hot market and it's a classic sub market where you have a lot of amenities.
Certainly.
Some development, but it's also a very hot market and it's a classic sub market, where you'll have a lot of amenities and.
Speaker 10: people that are kind of living near where they're working. So that's also very strong sub market, I think.
People that are kind of living here, where they're working so that that's also very strong sub market I think.
Speaker 10: As you get up into like, I don't know what you would call east of Westwood, I think that market has also expanded. I think what Victor did over on Pico is going to like kind of incubate a lot around it. The big deal that he did with.
As you get up to like I don't know what you would call. It east of Westwood I think that market has also expanded I think what Victor did over on Pico is kind of like.
Incubate a lot around it.
The big deal that he did with.
Speaker 10: So I actually think what's considered like good West LA sub market has expanded instead of contracted. Now look, that's not to say everyone's not very aggravated about the crime and what's happening. But when I see what's going on, the recall of gas going, even the extremely far left politicians that are running now in our markets are talking about bond order.
Google.
So I I actually take what's considered like good West L. A submarkets is expand instead of contracted now look that's not to say everyone's not very aggravated about the crime and what's happening.
Got it.
When I see what's going on in the recall of Gasco.
Even even extremely far left politicians that are running now in our markets are talking about one or.
Speaker 10: and dealing with it. The state legislature is talking about repealing some of the things that made.
And crime and dealing with at this stage.
The state legislature is talking about.
Repealing some of the things that made you know.
Speaker 10: that Mr. Meters, Sebastian Grabe, which we'll probably on the ballot this year. I mean, there's just a lot going on to ship back to a lot in order.
But Mr meters smash and grab.
Which which will probably on the ballot. This year I mean, there's just a lot going on to shift back to a law and order.
Speaker 10: kind of structure those, a moment in time that I hope is way behind us and I'll never see again. So I'm pretty optimistic about where all those things are going and California is specifically here when you look at people running for this.
Kind of structure.
Moment in time that I hope is way behind us I will never see again, so I'm pretty optimistic about where all those things are going in California, specifically here when you look at people writing for that.
Speaker 10: Council, County and Mayor, cross the board, are all sort of now talking, clean it up. You know, clean up the homeless, clean up the...
Council County, and mayor across the board are all sort of now talking cleaned it up clean.
Speaker 10: clean up the crime. So they're all going in that track. I think I got the message from...
Clean up of homeless cleanup.
Clean up the crime so.
I'll go on and that tragedy I got the message from that voters.
Speaker 12: I was going to appreciate your views on the city. Just as a follow, you're talking about capital sources and uses before. And I don't know, it's been several years, but there was talk before that you might look at a Hawaii joint venture and kind of bring in some of the money back into LA. And I'm just, is that off the table well together at this point or what are your updated thoughts on doing a big JV in Hawaii?
I always appreciate your views of the city.
Just as a follow up.
Talking about capital sources and uses before I know its been several years, but there was talk before that you might look at a.
Hawaii joint venture kind of Brendan some of that back the money back into it.
And I'm just is that off the off the table will together at this point or.
What are your updated thoughts on doing a bit JV in Hawaii.
My thoughts are that.
Speaker 10: You know, with the right opportunity, the right opportunity to bring some money back, I would do it, but I also like, I still obviously believe in why. I'm talking about that thing more capital there and building there. And twice been...
With the right opportunity the right opportunity to bring the money to bring some money back I would do it but I also like I'd still obviously believe in Hawaii, I'm talking about investing more capital there and building their AD twice been.
Speaker 10: I actually think you could remember going back to the time when I was making excuses for why. And now why I think it...
No.
I actually think you can remember going back to a time when I was making excuses for why announce Wi Fi.
A complete start I mean, it's cranking.
Speaker 10: and our office leaking is doing great and residential is doing great. So, you know, but I love Hawaii. Okay.
Now.
The money yet.
Office leasing is doing great and residential is doing great. So.
But.
I Love Hawaii.
Okay Alright.
Alright, Thanks, guys appreciate it.
Alright, thank you.
Yeah.
Thank you Bill.
Speaker 1: Our next question comes from Daniel Ismail with Green Street. Daniel, your line is now open.
Our next question comes from Daniel Ismail with Green Street.
Daniel Your line is now open.
Speaker 13: Great, thank you. I'm curious if you can share what kind of recovery in parking revenue has been better than 2022 guys.
Great. Thank you.
If you can share what kind of recovery in parking revenue is embedded in 2020 guidance.
Speaker 10: So I are parking revenue, which is one of the reasons why we're comfortable telling you that we're over 70%.
So our parking revenue, which is one of the reasons why we're comfortable telling you that we're over 70%.
Speaker 10: utilized is over 70% of what it would be for full Bob. for Bob?
Utilized as over 70% of what it.
What it would be four at full full boat.
So does that answer your question.
<unk>.
Well I mean can you give a person.
Speaker 13: The last time we said it was almost 75.
<unk>.
It's anticipated to be up with the 70% utilization impact for the year last time I looked at it with almost 75 okay.
Speaker 10: Yeah, it's over 70% of, you know, just for occupancy, what it was before the pandemic.
Yeah.
Yes, it's over it's over 70% of adjusted for occupancy what it was before the pandemic.
Speaker 10: You're asking how we think it's going to recover over the course of the year. I mean, you mean the 70 to the 100? That's what he's asking. And you know, and then...
Youre asking how we think it's going to recover over the course of the year.
You mean, the 70 to 100 I think that's what he's asking yes.
And and how fast I mean look I think that's gonna.
Speaker 10: The utilization made it face time you know people coming back to the office and when they're back to 100% The utilization of the existing occupancy and then in how fast that that happens
So utilization I mean, it's based on people coming back to the office and 100% utilization of the existing occupancy and how fast that happens.
So.
Yes.
Speaker 13: I mean, I followed these, I just meant that, you know, total parking revenue relative to 20.
I apologize I just meant that total parking revenue relative to 2019 levels.
With my question.
Speaker 10: Right, so I mean you have to adjust for acupun, the Accumcanceur that we've lost since 2019.
Right. So I mean, you have to adjust for occupancy the occupancy loss since 2019.
What we're saying is we're somewhere over 70% now adjusted for occupancy in.
You expect that to improve but it's all based on attendance coming back.
Back to the office.
Speaker 9: So it's hard to predict exactly how that's going to play out over the course of the next year.
The existing occupancy levels.
So it's hard to predict exactly how that's going to play out over the course of the next year, but yeah.
<unk> it to get better.
Speaker 13: Okay, and just last one for me, Jordan, 2022 has been election year, and we caught wind of another potential proctor team challenge. I'm curious if that's something you guys are expecting and the number valid.
Yeah.
Okay.
One for me Jordan.
2022, there is an election year and fifth we car windows.
Another potential prop 13 challenge I'm curious if.
That's something you guys are expecting.
Speaker 13: and trust you guys might have on any potential challenges that pop routine and the thing.
A number of ballots.
And talk to you guys might have on any potential challenges to top 15 in November .
Speaker 10: You're talking about the nurses union of the Northern California.
Oh, you're talking about the nurses union up in Northern California.
Speaker 13: Yeah, we're not exactly what we're all but.
Yeah.
Not exactly split role but.
Speaker 13: property of over 5 million subject to a surretax about 1% or so.
Our properties over $5 million subject to a certain acts of about one 1% or so.
Speaker 10: Yeah, I don't know what's, I don't know whether they're gonna actually, I don't know what's gonna happen with that. I know that they've discussed it, that's kind of that, you know, that's kind of where that's at right now. I mean, you're, that's an example of that other question.
Yeah, I don't know what I don't know, whether they're going to actually I don't know whats going to happen with that I know that the.
<unk>.
They've discussed that's kind of the.
That's kind of where that's at right now.
Sure.
That answer your question.
<unk>.
I haven't seen it go much farther than that.
Okay.
That's helpful. I appreciate it.
Yeah.
Thank you Daniel.
Speaker 1: Our next question comes from Elvis Rodriguez with Bank of America. Elvis, your line is now open.
Our next question comes from Alex Rodriguez with Bank of America. Elvis Your line is now open.
Speaker 6: Jordan, just a quick follow up. I'm just curious on your thoughts on we work and co-working. And are you finding them to be competition as you go lease up space today? They've obviously had some good success and growing on a frequency this last year. So just curious on your thoughts there.
Jordan just a quick follow up I'm just curious on your thoughts on we work in co working and are you finding them to be competition as you go lease up space today.
Obviously, you had some good success in growing occupancy this last year. So just curious on your thoughts there. Thank you.
Speaker 10: You know, I don't think we have. Where they, I am in, first of all, there's not a ton of we works in the markets we're in. And secondly, I don't, I forgot what that part of their business is, what they call their enterprise, their enterprise business that takes entirely.
No I don't think we have.
Where are they.
Haven't first of all.
There's not a ton of Wee works and then the markets, we're in and secondly, I don't.
I forgot what that part of their businesses to call their enterprise their enterprise business that takes entire leases and sort of they act as they build out the space and that's a sublease to them.
Speaker 10: sort of they act as if they build out the space and it's a sub-lease to them. I think most of our tenants that maybe whether they want 2,500 or 3,000 or whatever,
I think most of our tenants that maybe whether they want 2500 or 3000 or whatever fee.
Speaker 10: They want their own space and their...
They want their own space and there there are.
Speaker 10: You know, just as easy for them to go to direct and to pay that extra money. But we haven't seen that at all. You know, as we think co-working is only about 1% of the space on the way.
It's just as easy for them to go to direct them to pay the extra money, but we haven't seen that at all no.
We've been co working is only about 1% of the space on the west side in our market. It's not it's not a huge jump in so that's not a big piece.
Uh huh.
Yeah.
Thanks, guys.
Alrighty.
Anything else.
Anyone else.
Yeah.
Operator.
Yes.
Speaker 10: All right, I guess we lost our operator. She didn't like the last answer.
Alright.
I guess, we lost our operator like last answer.
Speaker 10: Well, it's good speaking with all of you and I don't believe we have any further questions. So we look forward to speaking with you again. And.
Well good speaking with all of you and I don't believe we have any further questions. So we look forward to speaking with you again.
And next quarter.
Thank you.
Speaker 1: The Douglas Emmett fourth quarter 2021 earnings conference call. Thank you for your participation. You may now disconnect your line.
That's it.
<unk> the Douglas and then fourth quarter 2021 earnings Conference call. Thank you for your participation you may now disconnect your lines.