Q2 2023 Douglas Emmett Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to Douglas <unk> quarterly earnings call.
Today's call is being recorded.
At this time all participants are in a listen only mode.
After managements prepared remarks, he rolls receive instructions for participating in the question and answer session.
I will now turn the conference over to Stuart Mcelhinney, Vice President of Investor Relations for Douglas Emmett.
Thank you joining us today on the call are Jordan Kaplan, our president and CEO , Kevin Crummy, our CIO and Peter Seymour our CFO .
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.
You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.
During the course of this call we will make forward looking statements. These forward looking statements are based on the beliefs 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 although we believe that our assumptions are reasonable.
They are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences maybe material.
For a more detailed description of some potential risks please refer to our SEC filings, which can be found in the investor Relations section of our website.
When we reach the question and answer portion in consideration of others. Please limit yourself to one question and one follow up.
Now I'll turn the call over to Jordan.
Good morning, and thank you for joining us.
Since we last spoke we took two very positive strategic steps toward enhancing the long term health of the company and ensuring meaningful growth.
First we have formally begun the process of reconstructing our Barrington Plaza apartment community to install modern fire life safety systems, and otherwise bring the asset up to date.
And then as had been notified that they are required to vacate the property and approximately half have already done so.
This is having a current impact on our earnings but we have waited three years to begin this process and I am very happy that it has started.
Second in July we closed a new 10 year $350 million non recourse interest only loan secured by two recently completed residential projects.
Loan is floating at 137 over chauffeur, which we feel is a very good rate. Both properties were built using our free cash flow. So they were completely unencumbered.
In a difficult loan environment. We are pleased to have this additional source of cash to take advantage of future opportunities.
While new leasing from larger tenants has been slow tenants over 10000 square feet did account for nearly half our renewals in the second quarter. Overall, we signed 210 office leases covering nearly 1 million square feet. We are seeing tenants renew further ahead of their expirations and for longer lease terms.
This returns us to a more typical lease exploration pattern reversing the short term mentality, we saw during the pandemic.
I am also pleased that we have been successfully maintaining rental rates and controlling leasing costs. The overall value of leases we signed during the second quarter was higher than the prior lease value for the same space.
At the same time, our focus on smaller tenants and simplifying the office leasing process has kept our leasing costs below our long term pre pandemic average and well below other office Reits.
While Barrington Plaza reconstruction and the new loan are very positive for the long term, we're reducing our 'twenty to 'twenty three guidance to reflect their short term impacts.
We have significant cash on hand strong cash flow after dividends no corporate level debt and almost half of our office properties remain unencumbered.
I am very happy to report that over the past two quarters, we repurchased nine 1 million shares at an average price of just over $12 per share.
I am confident that our buildings and markets will perform extremely well over the long term, which is supported by our substantial leasing activity. During this downturn and a long term supply demand metrics of our markets.
With that I will turn the call over to Kevin.
Thanks, Jordan and good morning, everyone leasing remains strong and our two new multifamily development projects at.
At the landmark L. A in Brentwood, we have now leased almost 85% of our 376 new units.
Bishop place in Honolulu, our office to residential conversion project.
Units continue to lease as quickly as we can deliver them.
In July we closed a new $350 million nonrecourse interest only loan secured by these properties.
Both properties are built using our free cash flow and more formally unencumbered.
The new loan bears interest at Sofa plus 1.37%.
It matures in August 2033.
The new loan proceeds add to our liquidity so that moving forward, we can take advantage of new investment opportunities.
As Jordan mentioned, we have begun to vacate Barrington plaza because of requirement to install new fire life safety systems.
Barrington Plaza is a 712 unit apartment complex.
Spread across three high rise towers in Brentwood.
About half of the units have already been vacated.
Most of the remaining units are scheduled to be vacated this fall with some tenants have any right to remain until next may.
With that I will turn the call over to Stuart.
Thanks, Kevin and good morning, everyone.
During the second quarter, we signed 210 of office leases covering 957000 square feet consisting.
Consisting of 188000 square feet of new leases and 769000 square feet of renewal leases.
While we were pleased to see an overall increase in leasing activity our.
Our leasing did not include many new tenants over 10000 square feet and remains below levels needed to create positive absorption.
As Jordan mentioned, our leasing activity was characterized by tenants renewing further ahead of their expirations and for longer lease terms.
Nearly half of our renewals came from tenants over 10000 square feet.
Our office leasing spreads during the second quarter were positive four 1% for straight line and negative six 6% for cash reflecting the strong annual rent growth built into our office leases.
At only $5 23 per square foot per year are.
Our leasing costs during the second quarter remained well below the average for other office Reits and our benchmark group.
Turning to multifamily our portfolio was 99.2% leased at quarter end and rent roll up remained healthy across our portfolio.
With that I'll turn the call over to Peter to discuss our results.
Thanks Stuart.
Morning, everyone.
Reviewing our results compared to the second quarter of 2022.
Revenue increased by two 6%, primarily as a result of our multifamily portfolio, which now represents approximately 20% of our annual revenue.
F O decreased by eight 4% to 48 cents per share primarily as a result of higher interest expense on our floating rate debt.
F O decreased 16, 5% to $74 $9 million the construction cost impacting a F O this quarter related to our significant leasing last year.
And same property cash NOI decreased by <unk>, 9% with higher rental revenue and parking revenue offset by higher insurance janitorial and parking expenses.
Our G&A remains very low relative to our benchmark group and only four 3% of revenue.
Over the last two quarters, we have repurchased nine 1 million shares at an average price of $12 three per share.
These repurchases were accretive for both our <unk> and our cash flow.
Turning to guidance.
We are adjusting our F O guidance to reflect our Barrington Plaza move outs, and our new loan offset by a number of positive developments, including the impact of the share buyback.
Collectively we expect those items to reduce F O by about seven cents per share.
As a result, we now expect <unk> per share to be between $1 81, and $1 85 per share.
For information on assumptions underlying our guidance please refer to the schedule in the earnings package.
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.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone fan.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Again.
Iteration of other participants please limit your query to one question.
One follow up.
Thank you.
And at this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question today is from Steve <unk>.
Of Evercore. Please go ahead.
Oh, great. Thanks, I guess good morning, Jordan I, just wanted to start on leasing.
And you know, it's nice to see I guess, the renewal activity pick up but you know as you mentioned you know you really need more new activity in order to drive net absorption and ultimately occupancy I'm just curious sort of if the pipeline is changing or what you think ultimately gets you know folks off the site.
Lines to want to sign new deals and you know do you feel like the writer's strike an actor strike us as keeping any lid on that new activity.
I'm not I I mean, I can answer some of that but I'm going to let Stuart generally answer it.
How're you doing yeah, I think you know very encouraged to see a larger tenants on the very active on the renewal side. So I think that's a really good sign hopefully that translates over to kind of new business soon and we see more new tenants coming through of a larger size.
I can't say, yet that we've seen that in the pipeline. So no no no real trend there to speak of yet, but you know we're we're encouraged by the renewal activity that we saw.
I think as far as the writer's strike and he actually strike I think that maybe on the margin a tiny bit I don't think it's gonna be something that's real material for our business, we do a little bit of that type of leasing, but it's not a huge part of the business.
Okay and then.
Oh go.
Go ahead.
Oh I was just going to mention is when we're talking about leasing I was just gonna mentioned that you know if you look at if you look at explorations for next quarter Q3 exploration. They are elevated a we've got one very large tenant that is expiring next quarter, we're expecting that tenant to renew but give back a large amount of space. So just wanted to kind of give you guys. A heads up if that's coming next quarter.
Explorations look more normal in Q4.
Yeah.
Okay, and then Jordan as it relates to Barrington, I know that there's been a lot of discussion with the insurance proceeds and you know what might be covered and not covered do you have any kind of update on the timeline as to kind of win.
Might have an idea of what percentage of the costs are covered by insurance and what is is out of pocket from Douglas summit.
Yeah, I mean, I wish I did I do it's been very difficult with the insurance company.
We're going through it with them. We've obviously just started the work and set a wall Oregon.
We're starting it.
Are we.
I mean, I'm going to say I mean, we feel that's covered and we've had a hard it's been very complicated to work with them.
And so I wish I had a better answer for you than that but I don't in terms of the eye something I wanted to mention if I was asked about bearing turned out I wanted it.
Also get out well.
Was the impact of Barrington coming out of our.
Earnings.
While we don't want to give kind of some future guidance about it I wanted to kind of give you. Some guardrails can make those estimates so I can maybe do that now with you and.
2019, before the fire and the pandemic Barrington was contributing about nine cents to our F. L.
And in 2022, following the fire in the pandemic and you've got to remember we had some units burned out lot issues. It dropped down and it was contributing about seven cents.
And this year 2023, and this expectation now that we have to move out some moving we only expect that property to contribute about four cents to <unk> and.
And I know that's been like a question Ive asked have passed and we Havent really felt like it was time to answer it but I wanted to give you guys a sample.
You know because I think it's something he wanted it now.
Yes.
Great.
For me the correct answer to what you asked right.
Yeah.
I appreciate the color there.
It sounds like we'll have to wait a few more quarters, perhaps to get a I guess to get to finalization on that but.
Yeah I'm good for now thanks, that's great. Okay. Thanks, Steve.
Yeah.
Our next question today will come from Alexander Goldfarb of Piper Sandler. Please go ahead.
Hey, good afternoon, good morning out there Jordan and team.
George maybe sticking with the Barrington. The other item has has been the news articles about the tenant litigation and I am guessing they are not.
Doing being upset that youre trying to make the building safer and less fire prone. So im guessing. This is more just trying for them to extract a financial settlement, but maybe you could just provide an update of what you can discuss.
If this is just a standard sort of shakedown or if this is something that the city could decide.
Hold pull your permits are your approvals to do this and if it could complicate your plans too.
Yes make the building safer.
So this is not to say that this litigation is not.
Not really have anything to do with the city. This is a couple of tenants and we're having trouble figuring out exactly who or how many.
That are you know have engaged in this litigation I can't speculate what their purpose says I know I know that I mean at least we believe that few of them have already left the building, but we don't have it you don't really have a lot of answers.
But that said our position we're very confident in our position is very strong and so you know litigation is always disruptive, but we're confident in our position and that's kind of where I have to leave it until this thing it finishes playing out.
Okay. So your view is though as far as the city goes in this litigation from the tenants I understand separate related but you don't think that they would be able to win over any of the city people, who would suspend your ability to.
Undertake the work.
I don't want to I mean, I guess it mitigates you name it can happen, but you know as I said I don't want to speculate too much about what Canada can happen in litigation, but as I said.
I think our position is inordinately strong in terms of what we're doing in our processes that were following and we're following the law perfectly.
Okay. The second question is on the on the Mortgaging of landmark in Bishop place you guys have had a strong capital position. You said you built both of those with free cash flow I don't recall you guys using our corporate line of credit that often so just sort of curious the use of the proceeds the decision to encumber the assets.
And then I'm, assuming this isn't just to buy back stock. So I'm guessing that maybe this is either to help fund the rehab of Barrington until you get the insurance proceeds or maybe start another apartment or residential conversion. So just sort of the thoughts behind the mortgage the mortgaging of those two assets and then the use of the proceeds.
So.
Just to take the beginning of the question, which is that we.
We felt like.
They're quite a best least expensive debt, we could get we're on those two assets and and we think we did get the lease expenses that we hit I thought I think 137 hours very good debt right 10 year 137 over now right rates are high and I understand it it's still a punishing to pay the interest on that loan.
But.
Without you know.
Anything specific allocations I can tell you. The reason we did it was because I thought it was really important to have a lot of liquidity I I.
Think that this recession is not substantially dissimilar from the one in the early nineties and and and and like.
Everybody is sitting around in 2000 or the dotcom bust thinking they're gonna be grave dancing taken advantage or the one in 2008, nine and really no real product came out.
And the opportunities were more around buying debt, which isn't even a core business for us.
I think in this one.
Might be some stuff that will want to buy in and obviously I felt like the stock presented a good opportunity and we did buy stock and so I just thought it was worth it.
To take the the pain right now we're paying the interest on that loan to have that that you know on a in terms of our current earnings because I think there's going to be some good opportunities coming up and I don't want to Miss on <unk>.
Want to take advantage of them.
Okay. Thank you Jordan.
Thanks.
Our next question will come from Blaine Heck of Wells Fargo. Please go ahead.
Alright, great. Thanks, Jordan can you talk about the zoning changes that were made at the state level late last year that gave multifamily multifamily zoning to certain parcels on major thoroughfares I think you were expecting to get guidance on that in July .
So any update there and do you think it could result in more development opportunities for you guys in the next year or two.
To answer the last part of your question first is as I am sure. It will result in that I mean, we have sites that that that those state level changes, we know directly impact I mean, an impact in a way where I thought Oh. This is gonna be a long process and they completely shortcut. It. Okay. So we think I think we have many sites that will benefit.
From from.
From that now going to at the beginning of your question.
This thing Super complicated the cities not payments for moving fast and we still have not gotten guidance.
And here we sit.
But you're right I'm anxious to see the guidance I'm anxious to make sure the guidance complies with what the state is requiring.
And and I do think.
I mean, we have the set of opportunities. We always had that I felt we had but to talk about but you know like in terms of zoning and what type of changes do you need to make to achieve what we wanted to achieve on the site I mean with the things that the state passed or just very beneficial to us, but we need everybody to be rolling in the same direction.
Including the people that really sign off on our our approvals to do the construction that happens at the building and safety and then the city and so that and then those people need guidance here in the city hasn't don't developed in an issue that.
Alright, that's helpful. And then just switching gears can you guys talk about the increase youre seeing in property insurance that affected your same store projection. This year just give some color on that situation and maybe how long you expect that to be a headwind and then if you could also touch on what youre seeing on the property tax side and whether you might be in.
For some breaks there in the future.
Okay. So in terms of any insurance.
You know and you know whatever it is 30 30, plus plus plus years, Ken and I have run this place, but we've seen insurance go up and down it. So one of those odd expenses that actually doesn't just trajectory. It mean when the market's tight it can spike way up and then maybe those insurance companies fall.
Away new ones come they are aggressive and you can see your rates cut cut cut for a number of years and we've seen both of those happen.
Right now, what we're seeing and I'm not sure it's totally familiar to us maybe some of it is but I don't think at all it is not at the lower level not at the level of like first loss positions, but at the very high levels. The reinsurers it reinsure up in stratus for numbers that never.
Expect to pay anything I think not necessarily here in our portfolio, but across the.
Country, they've been getting claims that they didn't expect whether it be flood fire yeah.
And and hurricane or whatever it is but they're getting claims so bad weather at Florida, all around that are penetrating into levels that they didn't expect to pay off and so they've gone now a few years with that very high disaster.
Insurance actually not being sort of a free dangerous freebie in collecting a premium as a result of that.
What's impacting it because we have to buy a lot of insurance and watch and we have to be you know ensure it might hold the line and so that those higher levels of insurance have just become much more expensive and that's what's impacting US now you know.
Yeah.
Farmer change and things change and guys without losses, you know deal with them and then they ship back to folks on being profitable. So I'm not sure it'll stay that way, but we've seen the last two or three years, we've seen just monumental increases ad.
And really aside from that Barrington fire with virtually no claims.
At least on our part so.
I'm sure will eventually correct itself, but the increases are really stunning okay. So that's on the insurance.
In terms of property taxes, there is an opportunity, especially with what's going on in the city right now to appeal, what's called prop eight appeal.
On your property taxes.
If you feel that there is a.
Period of time when the value of your property is has dropped below where it's being taxed at that moment. It still has a maximum tax equivalent to your prop 13 number that grows by 2% a year, but you can appeal to have it reduced and then it'll be reduced down when it goes back up it goes back up again.
And people do do that appeal that appeal is not necessarily perfectly connected to the.
You know third party market value, it's a complicated formula that they use where they lease up the entire building at that in current rates and they have a different set of cap rates I used that eliminate the property taxes, but with all of that said there are opportunities there and we're focused on them I don't know how much will come out of it but there are.
Unities, Aaron we are focused on them.
Very helpful. Thanks Darren.
Okay. Thanks Blayne.
And our next question is from Michael Griffin of Citi. Please go ahead.
Great. Thanks, maybe going back to the leasing pipeline I'm curious what you're seeing is the cause of driving these longer lease terms that you mentioned in the release is it more certainty about space requirement needs, maybe a shifting in people's kind of view of the macro or anything else you could add on that would be helpful.
Yeah, Michael I think that kind of during the pandemic. We saw tenants have a shorter term mentality, which is understandable there was a lot more uncertainty in the market down in terms.
Term shortened up and so I think now we're you know we're certainly pleased to see that the average lease terms have gone back to five years, which is our historical average you know kind of pre pandemic average and what we did this quarter. So I think that tells you that tenants are starting to feel more confident and more willing to go you know longer term rather than just kicked out the can down the road for.
A year or two so that should help kind of normalize this lease expiration schedule. We've had it's been a little chunkier earlier, you know in the process than we're used to.
So that so that's a good sign.
I am sorry, I thought you had mentioned I mean that million square feet that were done last quarter I am.
Beyond happy about that and of course I wish there was more new whatnot.
But.
Once again, we're getting a ton of evidence of the strength of this market and the strength of the activity that's out there.
On a wall or existing larger tenants are renewing and renewing for longer which is a great sign certainly the next step for us is to get bigger tenants to come into.
Some of the space, but the activity is just.
Fantastic I mean, if you look at you know they want a million feet and you look at our history, that's a great quarter.
And and and and holding rate and holding lease cost.
So I.
<unk>.
I really haven't thought that and I know many people did mentioned their notes, but I would put it in my double Bull capitals in the top of my note.
But I just thought that was a really big point.
Great. Thanks, that's helpful.
And then just on the transaction market and opportunity Youre seeing out there.
Kidney for offset a small T. I mean, I know you've got ample dry powder, you've kind of talked about it but we're if anything are you seeing transaction activity across both of your property types.
You know.
I'm not seeing a lot of transactions in general and and I will tell you it's not for lack of looking I we we.
We actually have called all of that we always called lenders during a time like this to tell them that we're the best at in their portfolio and then don't worry, but we I've been asking all of that and do you have anything we can focus on that's in any of our markets that you is wobbly. It's on your watch list I mean, it doesn't even have to be all the way down the law.
Line in terms of being in trouble and so far I am I haven't heard anything.
So that's on that side now I do think the pandemic combined with whatever is happening now which is certainly targeting real estate in terms of the you know if you want to talk about you know maybe the countries not in a recession, but real estate is I think that is going to maybe not generate opportunities that are related to someone you know.
That's really that but I think people are going to finally do some things.
If I was to guess at where the best opportunities will be it's gonna be in office.
I think rajeev is still relatively strong.
You saw our numbers are very strong in these markets, but I think some office guys are hopefully just running out of breath.
And and that's where I am on the most helpful.
Great. That's it for me thanks for the time.
Right.
Our next question today is from John Kim of BMO. Please go ahead.
Good morning.
There has been seemingly some strong interest from global investors in multifamily and Prime office.
Wondering if you can comment on that as it pertains to your portfolio both for West L. A office and if you had considered going that route the JV routes on multifamily.
Yeah.
Yeah, and you know we did on our last purchase and and yes, we do.
Yeah, So I like the JV structure, even when we have a lot of cash I think it's smarter idea that JV structure, because they are great partners and and and and you know you want it if you don't keep coming up with good product that we're willing to do that that is their primary criteria. Frankly, then you're going to lose her attention and so I think the platform in <unk>.
Ralph has value and the fact that you know they've been coming into our deals my intention would be to continue.
Two.
Could do you know high quality institutional deals that are appealing to them and to us.
Are you seeing that same level of interest, though in west L. A office, we see it in New York in a couple locations, but just.
Wanted to know about your region.
You know we haven't had that at all but you know we have not had an opportunity to present any right. I mean, we did one large deal which you saw as people S here with.
Yeah last year.
That was a little over 300 million and there was a lot of interest in that we did that like any split with a partner.
And but that was residential I havent had an opportunity to offer.
An office deal though.
I think that if we found a great. Obviously, all we would have liked.
We have their attention, but I I don't know that answer I havent had an opportunity to offer it.
Okay.
Question is on bad debt or uncollectible revenue of at least revenue.
Can you comment on what that was in your multifamily and office portfolio this quarter and how that's trended from last quarter.
Yeah. This is Peter so our total past due balances continues to decline we've been working this now for you know for some time and it keeps going down it's somewhere under 17 million all told and you know we're continuing our collection efforts we're continuing to.
Pursuit of tenants, who owe us money and we have.
Pretty high confidence, we're going to get it back.
Yeah.
Great. Thank you.
Our next question today will come from Kevin <unk> of Bank of America. Please go ahead.
Hi to ask an earlier question in another way.
The recurring theme. These past few months have been around preserving liquidity, which has been reflected in your actions to rightsize. Your dividend is when you are evaluating the best sources of capital how do you balance deleveraging versus buybacks because I think everyone recognizes earnings will be under pressure given the current environment. So intake.
Instead of taking out that loan could you have used the additional liquidity to address your needs.
Well.
For a number of reasons right and happy to say right now I don't feel we have.
Any need to reduce our debt level, our debt levels are pretty low right now.
So just as a reminder, we have a trend beyond everything beyond the dividend beyond you know beyond our debt service beyond our operating costs of the company, which we keep very low anyway.
We have a tremendous amount of cash flow, so that's and it turns out.
Just a question about covering payments covering the fact that interest rates have gone up and all the rest of it then in terms of repayment.
Almost half of our office portfolio. It doesn't even have a loan on it we have no corporate level debt, we have a ton of extremely high class buildings with no debt on them at all you just happen to see two residential deals.
That didn't have any debt we have a lot. So we have enormous amount of capacity to delever by adding real estate to cover.
Now we have a lot of cash and also to cover.
You know to do pay down we have every I mean, we have every tool in the shed.
In terms of debt and we don't even have any meaningful debt coming up until the end of next year, and we really don't have any meaningful debt coming up until 2025.
So I, while we've always taken a posture of the car the company and I know this is Kansas.
Canton My fourth I want to call it our fourth recession. So we've learned many lessons through that.
And of course, we entered this recession and we entered the pandemic in extremely strong shape and that's played out.
So I don't feel we have any issues there, but the other lessons I learned is.
Don't waste these opportunities to grow the company because that growth is super meaningful and I'm not going to waste it and that's why I wanted to have the liquidity to take advantage of things and we have it and it's my intention to do that.
And as my follow up I appreciate your comments there.
Jordan I was just running some quick math on the updated interest expense guidance seems to be $5 million to $10 million higher than what's implied in the sofa curve in the new residential loan. So just wondering if you could help us bridge the gap here.
I I can't do the math, you're doing I think it is the cause of that those two things I'm almost 100% sure. It's a cause of those two things, but you know you can get theater, a call and we can walk through you could try and understand what you're doing and compare it to whatever is there.
Sounds good thank you.
Alrighty.
Our next question will come from Dylan Burzynski of Green Street. Please go ahead.
Thanks for taking the questions guys, I guess sort of going back to the capital allocation question that was just asked.
Asking it a little bit differently in terms of.
I guess, how do you guys weigh share buybacks versus being opportunistic on the acquisitions front is it simply just some spread to your implied cap rate or just what is the internal process look like.
It's not that.
Wait you know where.
Where.
Yeah.
I in General if you said, where we're at what what what's our inclination.
Our inclination is to buy great buildings, I mean, they sustain us for the long term I am very confident that in their earnings growth. We've experienced earnings growth for the last 35 years and in a way this market's matured and I I love owning high quality buildings in a concentration here in these markets.
But.
Sometimes it's just becomes impossible to ignore the opportunity in the stock, but you know I don't want to just like you know.
Buy back stock and Miss the opportunity to buy a building. So we're just always balancing those two things.
That's helpful and I guess, just one other one going back to Daniel clauses are you guys able to share any yield on cost expectations at this point in time.
Not really I mean that that's a long way out what we're focused on right now it's just getting this building to this.
Standards that we have in all our other buildings of safety of having these fire sprinklers and.
Getting all this fire life safety stuff done I mean, two fires and this building is just way more than that.
We can stomach and that that is something that.
Just career wise, we had to just get resolved and we are now resolved and that's why as I mentioned in my prepared remarks, I'm. So happy that we're finally kind of firmly on this road to getting this done.
That's it for me thanks.
Thanks.
So again it is star then one to ask a question. Our next question will come from Bill Crow of Raymond James. Please go ahead.
Thanks, Good morning, Jordon is it fair and I'm, sorry to ask another capital allocation question, but is it fair to assume that your decisions, including taking on more debt maybe.
Share repurchases and prospective new investments et cetera are done against the backdrop that you assume that Warner brothers discovery does not renewing next year.
Yes, we assume they're not renewing that's correct yes.
So you do the test against that Okay, and then just a couple of real quick ones Barrington.
Do you have.
Business interruption insurance in addition to the actual physical cost of carrying the ball.
Yes.
Okay.
<unk> this year might be recouped.
And then finally.
Any comments on the way to statewide rent control ballot.
And any initial reactions to the end of the depth of the moratorium related to Covid.
Okay. So obviously the ballots unfortunate it's driven high one guy.
And the valve initiative and it's just.
You know one more thing that we have to fight in our group we'll fight it.
He's proposed it.
In the past its unpopular and its been roundly base, but you know you never know every time nobody likes the attack.
In terms of the.
Mortara ending for the sort of the first half of the rent.
Rent relief on apartments.
I'm not sure that's super impactful on US, we don't have a lot of that.
Because what we.
We don't have a lot a lot.
Of.
We don't have a lot due from apartment tower.
And we have so not not a ton so no matter, what they do with that and I'm not sure you guys are going to see a meaningful impact to us.
Okay alright. Thanks.
Our next question is a follow up from Blaine Heck of Wells Fargo. Please go ahead.
Great. Thanks.
Just wanted to circle back Stuart you mentioned that a large tenant giving back some space in the third quarter can you give any more detail there around where it is how much is giving back in and the reason they might be movie.
Yeah, you know, we don't like to talk about individual tenants to specifically as you know we're kind of a flow business. But this was this was noteworthy because it's large and you guys are likely to see the impact in the numbers next quarter. So it's a tenant in woodland hills, they're they are renewing but about downsizing, which you know.
I'm happy to have them stay in a portion of the space, but they they didn't wanted to get back from what they had so not much to say beyond that.
Not an atypical situation, but I wanted to mention it because you know it's likely to be noticeable.
Got it thanks.
At this time, we will conclude our question and answer session I'd like to turn the conference back over to Jordan Kaplan for any closing remarks.
Thank you all for joining us and we'll speak to you again next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.