Q3 2023 Douglas Emmett Inc Earnings Call
Ladies and gentlemen, thank you for standing by and 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 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 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.
When we reach the question and answer portion in consideration of others. Please limit yourself to one question and one follow up.
I will now turn the call over to Jordan.
Good morning, and thank you for joining us.
Our office leasing activity during the third quarter continued at a strong pace we.
We executed 225 office leases covering close to 1 million square feet.
Third quarter activity had a much higher percentage of new leases as compared to second quarter. It also included quite a few new tenants over 10000 square feet.
All very good news as.
As we indicated last quarter, one large tenant in woodland hills renewed, but downsized, which was the primary cause of our negative absorption.
Nationally office spaces three challenges many commentators have simply focused on the narrative that work from home has permanently weekend office demand.
That is wholly inconsistent with our experience and long term expectations.
Once vaccinations became ubiquitous and office since reopened we saw meaningful jumps in leasing volume absorption and building utilization.
It was not until the fed raised rates to control inflation that we saw the slowdown in large tenant leasing that impacted our absorption.
Even with that slowdown our office utilization has returned to very high levels, which was likely aided by our market short average commute times and lower reliance on public transportation.
We feel that the remaining two challenges have had a more meaningful national impact.
One of those challenges is that many gateway markets are suffering from new construction overhang as a result of recent overbuilding.
Fortunately that has not been a problem in our markets were strong supply constraints have limited new construction in fact over the past 15 years, our markets have only added 3% to total office inventory.
The third challenge, which has been most impactful for US is that tenants in particular large tenants have become cautious about new investment.
This is understandable and likely unintended reaction to the fed raising the cost of capital to slow the economy.
Our results in recent quarters have been significantly impacted by this last factor, though the fed's intervention is clearly cyclical.
This is our fourth experience managing Douglas Emmett through a recession, which typically comes with a mix of pain and opportunity we feel well prepared for both and are confident in the long term health and resilience of our markets.
With that I will turn the call over to Kevin.
Thanks, Jordan and good morning, everyone.
Our two recent multifamily development projects continue to progress nicely.
Our 376 unit landmark L. A property in Brentwood is now almost 90% leased.
At our office to residential conversion in Honolulu, we.
We've completed 424 of the 493 units and are on track to convert another floor into 'twenty two apartment before year end.
We've been leasing these units as fast as we can convert them.
As the remaining few office tenants move out we will convert the last two floors.
This quarter, we closed the new $350 million alone that was mentioned in our last call.
The loan is secured by the two development properties, which were built using our free cash flow.
The new loan bears interest at Sofa, plus $1 37.
It matures in August 2033.
At Barrington Plaza, our 712 unit apartment complex in Brentwood.
A significant majority of the tenants have already vacated in preparation for the installation of upgraded fire life safety systems.
What's occupying 170 units have the right to remain until next May and we expect them to move out at an uneven pace in the intervening period.
The transaction market has remained slow but as acquisition opportunities come to market, we are ready with ample liquidity.
With that I will turn the call over to Stuart.
Thanks, Kevin Good morning, everyone during.
During the third quarter, we signed 225 office leases covering 934000 square feet, consisting of 267000 square feet of new leases and 667000 square feet of renewal leases.
As Jordan noted, we're pleased to see more demand for new tenants over 10000 square feet.
Reflecting the fixed annual rent growth built into our office leases average rent on our in place office leases continues to rise, reaching a record high in the third quarter.
However, as leases expire these higher ending rents put pressure on cash leasing spreads still the overall value of our new leases increased by three 6%, even though cash spreads were down nine 7%.
At an average of only $5 59 per square foot per year, our leasing costs. During the third quarter remained well below the average of other office Reits and our benchmark group.
Our residential properties continue to perform well during the third quarter, providing 18% of our overall revenues, even with increasing vacancy at Barrington Plaza, which is being emptied and preparation for a major fire life safety upgrades.
Our portfolio was 99% leased at quarter end with healthy rent roll ups across all markets.
With that I'll turn the call over to Peter to discuss our results.
Thanks, Stuart good morning, everyone.
Reviewing our results compared to the third quarter of 2022.
Revenue increased by <unk>, 7%, primarily due to higher tenant recoveries and parking revenue from our office portfolio and new units delivered in our multifamily portfolio, partly offset by tenants vacating Barrington Plaza.
F O decreased by 15% to 45 cents per share primarily as a result of higher interest expense on our floating rate debt.
<unk> decreased 24% to $68 $7 million as we built out more square footage this quarter as a result of higher leasing volume.
And same property cash NOI increased by <unk>, 4%, driven primarily by our higher revenues.
Our G&A remains very low relative to our benchmark group and only 5% of revenue.
Turning to guidance, we increased our assumptions for occupancy and same property NOI growth.
But the positive impact from these changes was not enough to increase the epiphone guidance outside of the range. We gave you last quarter.
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 to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys again in consideration of other participants please limit yourself to one question and one follow up on today's call.
To withdraw question from the queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Michael Griffin with Citi. Please go ahead.
Great. Thanks, maybe just on the leasing front I'm curious if you need to see margins.
<unk> got more kind of in order to see that absorption rate earned positive.
Later in the year 2024, and then any comment there would be helpful.
Yeah, Michael Thanks, Yale So happy to see the you know the increase and in particularly in new leasing in Q3 that was good to see we need that ratio of new to renewal to be you know in that 30% range. Because we know on average were going to renew you know and that's high Sixty's is kind of where our historical renewal rate is so well.
We do need to see that new leasing kind of in that range to see positive absorption of course this quarter. We werent you do we have that large move out at woodland Hills, which drove most of the negative.
We've talked a lot about Warner brothers, we know that's going to be a headwind for absorption next year when they move out you know at the end of Q3.
Great. Thanks.
The new term loan you've got ample dry powder cash on the balance sheet can you maybe talk a little bit about opportunities youre seeing out there in the market the office or multifamily how or when we could see apple leinbach potential distress in the market.
Yeah I mean.
You know.
I I I hope I don't want to hope for distress for anybody, but I can't I can't tell you we've seen.
Anyone coming to Westwood significant distress, although we are working on stuff.
I have said before our preference is to try and buy some some of the there are some really great buildings that we don't own in these markets and we still have a real positive view of the markets but.
People aren't.
I don't think people are private it's mostly in private hands and I don't think our internal values or anywhere.
Around clearly where maybe.
So people are certainly valuing rates or anything else similar to that.
Great. That's it for me thanks for the time.
Thanks.
And our next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good.
Good morning, good morning out there.
I guess I have Jordan to that point.
The Blackstone Howard Hughes project has gotten a lot of a lot of <unk>.
Interest alright, sorry, it made a lot of headlines I should say headlines that is but clearly is outside of your core markets.
Are there when you say you guys are working on distress would you say are underwriting deals is it deals like that like private equity type deals from the last cycle that are are are the ones that you guys are looking at or are there other deals be it like a family that had loans coming up that they don't have the cap.
To put it in just trying to get a framework for what kind of distress. If it's like the typical sort of over Levered P. E type thing and not to say the Blackstone deal is that way or is it like perhaps long held family or partnership where the partners just don't want to put any more money in and therefore, it is quote unquote distress, even though to those of us it wouldn't look like.
Distress.
Uh huh, okay. So.
That Howard Hughes project hasn't been offered for sale just by the way if I've got it but I know I've been reading the same articles you guys have been reading the.
The the stuff that.
I'd say, we're working on them.
Hardest or the most helpful or are so a lot of assets at the parent one for very long time.
By families that might you know have debt coming up or the dead coming up it's going to be at a much higher rate or do they want to put you know a lot of capital under re margin those loans at this time is that it.
Some of it is that kind of thing and some of it is what you would describe you know you were kind of loosely having Howard Hughes represent which as you know institutional institutionally owned real estate that the institution certainly could put the money into every margin, but they're just not and they're going well you don't Wanna.
We're not happy with this and you know with with Boenning as we've gone too long I mean, you got to remember a lot of these guys.
We've gone through a oddly long period, I mean, we had COVID-19, which was its own thing and now we're in what I would call like probably what would be a typical recession or is that you know what.
You know recession or last couple of years, but adding the two together has been a lot worse than anyone might have imagined of any one of these events happening so.
It's worn out some big institutional companies in terms of their ownership and they've just said, we're just stick a scoring with this.
Okay and then the second question is.
On the Barrington can you just sort of walk through.
What is reflected in third quarter.
As far as the impact and then the remaining 170 units that through I guess you guys had may of next year, but just want to understand is is all of you know basically where are we with regards to modeling the Barrington impact how much more should we take out for the fourth quarter based on the move outs.
That occurred during the third quarter, and then trying to get a sense of the earnings impact when the remaining 170 units vacate.
Well, there's less than 200 tenants in there right now.
So.
It's pretty impacted [laughter] anyway.
<unk> is <unk> the full impact of all of those move outs to date or that's what I'm trying to get at.
No no I mean, there's still people moving out people moved out last week I've had people people that go ahead.
Peter Alex it's the people who are still in they still pay rent they have to pay rent in order to stay and so youre going to yeah. So now you know how many people they have the right to stay until May and then it's anybody's guess how fast they.
They moved out.
We got the holidays coming up and we've got you now.
And until May and.
That trajectory ultimately gets down to zero, but we don't you know.
No that's the pace that it's going to move that no I understand that Peter but I'm trying to get at in the third quarter, how much how much of the impact because presumably the people didn't move out the first day of the third quarter. So the people right. So how do you more.
Right.
I mean, I don't think we're ever.
Pretty even even if I was happy to just tell you that I don't know the number and I don't think anyone here knows exactly.
One other thing so there was a big day, which was the beginning of September when a large number of people who had a deadline to move out so that people were moving out in advance of that but a lot of there was a lot of activity in September. So I don't think you've seen the yeah I think the fourth quarter will be a lot less and that building than the third quarter and I'll even go more that.
I I actually think there'll be.
Meaningless rounding error of people like when as you get into the second quarter of next year.
Okay. Thank you.
Okay. Thank you.
Okay.
And our next question will come from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thank you so just to clarify on guidance first you know clearly there were some positive revisions with respect to occupancy and same store, but can you just talk a little bit more about the decision not to boost <unk> guidance and whether there are any factors that might be kind of offsetting those improvements or is it just kind of conservatism given the overall.
Environment.
Yeah, I mean, it's Peter again.
The we did have some slight positives yeah, you know adjustments to our assumptions, but they weren't enough to take us outside the range.
Yeah, we just talked about Barrington, which of course, we can't predict very well.
Okay, that's helpful and probably sticking with you Peter.
We noticed that the line of credit expired during the quarter and it didn't look like it was renewed or re cast can you just talk about that decision kind of whether you have the ability to replace it but just didn't like pricing and I guess, whether the process to establish a new line in the future as any more difficult than it would've been to keep one in place this quarter.
Yeah.
Number one number two.
We didn't like the pricing so when you look at the cost.
So first of all it's expensive to borrow for office right now I don't think there's any secret about that and then when you. When we're a company that is yeah, Berkeley. We also have cash and we don't tend to be huge users of our credit line.
I think they want to charge, even more and now really gigantic unused fees.
And when you look at it you kind of end up feeling like.
Wow, I mean, I'd, rather just do alone and get the interest in the bank then pay this colossal piece to get into it and then colossal unused fees of not even having.
Having the money. So it was just priced outside of what we thought was reasonable now we still like it was secured by six buildings and now those buildings are completely no debt on them and by the way. There's still another 30, plus billings that are that way. So we have a ton of buildings that we could use.
Is to secure a credit line, but.
It's very poor economics right now.
Yeah.
Great. Thank you guys.
Okay.
And our next question will come from John Kim with BMO. Please go ahead.
Thank you can you just talk about the.
The uplift in your occupancy guidance for the year.
It looks like Theres still a lot of leasing you need to do in leasing activity was up quite a bit.
This quarter, but just wanted some additional color on it.
The change in guidance.
Yeah, I think that you know I think we did a little bit better on leasing than we expected. So that was reflected in the range, but you're right. We still got a lot of leasing to do in Q4, and that's certainly what we're focused on and that's been the focus around here as we've been saying for you now.
A lot of quarters here now as office leasing and getting back to positive absorption is our number one focus so that remains true.
You know I in my opening remarks, I said you know this quarter I was glad to see we did a little better on new.
And we did a little better on.
On larger now and like both of those are.
Really kind of that that's the issue because we're doing.
Good amount of renewal, we're doing a good amount of small tenants.
So that's what they're so one quarter doesn't create a pattern for sure and it might have just been a great quarter, but that's kind of what you want to keep an eye out for it because that's where we that's what we mostly see driving our negative absorption.
And Jordan those new leases are those tenants that are downsizing from other spaces or are they businesses that is.
And belts operating margin now basically looking to lease office space.
I think we see a mixed bag of everything I mean, we've got guys growing we've got new business formation, we've got guys moving from other buildings.
So you know we did 225 deals. So you get a lot of variety of kind of a story behind those deals and that's that's always true when kind of typical for what we are used to seeing.
Okay. Thank.
Thank you.
Our next question will come from Jay <unk> with Evercore. Please go ahead.
Hey, Thanks for taking my question I was wondering if you could just provide a breakdown on just the leasing pipeline between new and renewal tenants and just some of the main industries that are looking for space now.
Yeah, Jay we don't we don't provide pipeline new renew.
You all like that that's not something we've ever focused on where you know we're kind of a flow business with all these small tenants and in so many transactions happening so and it's it's a relatively short pipeline as you know we're not negotiating leases.
Excuse me for you know for the end of 'twenty 'twenty four we're still working on 2023 leasing in Q1 'twenty for leasing in the pipeline that we've got so.
No real color to provide there as far as the industries. It's a you know you can look at the Pie chart in our supplemental and assume that it's going to look pretty much just like that we haven't seen any real major changes.
And trends among the industry. So it's still very diverse still pretty typical for what we've historically seen.
I think that Pie chart.
Barely moves I mean, if you look at it yeah. You can go back way back and you'll go Wow, they've had the same mix of industries and tenants for a very long time and similarly, we have another chart in there to represent the size of our tenants that has been very consistent for a very long time.
That's helpful. Thank you and then just a quick question on the renewal percentage in the quarter and then you had that one larger tenant that renewed but downsize, but just wondering if there's anything else that helped drive that higher attention in the quarter.
Yeah, I don't know that it was I know you in your note focused on kind of.
The remaining explorations that we showed you at 630 that we had left to do and you're right that we did renew a slightly higher percentage is actually a meaningfully higher percentage with with a quarter to go then we had typically over the over the prior year, but you know I think that was just timing of a couple of guys waiting you know a little longer to make their renewals.
<unk> decision, so that it fell into Q3, rather than into the quarter before that which might be more typical.
That's great. Thanks.
And our next question will come from Upolu runner with Keybanc. Please go ahead.
Yeah.
Hey, Thanks for taking my question I, just want to circle back to the Barrington Plaza just quickly.
Do you fully intend to expect all the tenants to be out by May of 2024 and <unk>.
When do you expect the sprinkler installations to be <unk>.
So I'm just trying to look for a sense of the timeline here for the going forward.
Yeah, I expect the tenants to be out and its year. This.
Years to do all the fire life safety work and all the modifications that I mean.
You know obviously you have had for years, because we had to vacate all the buildings.
And.
To do all the work that the city required as an immense project.
I mean years.
<unk> four.
While.
Okay, great. Thank you that's helpful and then in regards to the space at Warner Brothers.
Giving back next year.
How confident are you in potentially in leasing that up maybe before they exit the space.
I would not say, we're confident that we're leasing it up before they exit this space I would say that I'll give you I can tell you this that market historically in L. A like 30 year Ron has been one of the best markets in L. A.
Now with that said, there's a lot of turmoil and its driven by the fact that the studios actually have their studios there I mean, so it's not just like they might have office space. There I mean, they're studios all right. There it's called the media discharge for the right reason.
And so like for instance, the building that we own that's being vacated has never had one foot vacant for 30 years.
So a fantastic market now.
What's happening right now right now large tenants are pulling back there's a lot of consternation in the entertainment industry. So you know this has to be coming maybe.
Reasonably because it's a studio the churn there.
Not a great time to have vacancy there is the long term prospects of the building are outstanding because it's a fantastic market, but right now I I havent seen where like a volatile large tenant deals happening.
So you know this is a fantastic.
Fantastic building, it's extremely well located I mean, I can tell you a lot of great stuff about the building, but it's also going to be a big job to lease it up.
Great that was that that was all.
And our next question will come from doing Brzezinski with Green Street. Please go ahead.
Hi, guys. Thanks for taking the question.
I guess just any update on some of the zoning changes that were made at the state level for multifamily don't even though you guys have.
Well the.
The state has been our friend in this.
And so there was a a b 2011, which L. A just gave guidance on this.
In July and it allows us to do his own change without a public hearing process and it waves sequel, if theres, an affordable component and so you know that that's great for getting more housing done and getting around the NIMBY squad.
And L a and so are.
The state has been throwing things out some are helpful. Some aren't.
But.
One was real harmful, but that one was super helpful. Yeah that one was like telling kids they no longer have to take to SaaS to go to college.
The big one.
Does that change sort of.
Any immediate impact on on and.
On a project outside of Barrington or is it still a longer term.
Yes.
It's shorter than it was before that much shorter and it probably.
It it's the value we've been talking about and it's a very concrete realization of the impact of sites that we own.
Does that change happens, that's really big I mean.
You guys won't see it because we still have to go through the city's process to get entitlements and we have to want to build the buildings and think it's the right time and right construction costs and everything but I.
I mean, it's a completely different conversation and and much more able to realize and a timeline. That's because you know like where you're making the decision in that same time period.
Really a big.
Great. That's all I had thank you.
And our next question will come from Rich Anderson with Wedbush. Please go ahead, hey, good.
Good morning out there.
First question you know your thought of as an office REIT, but we talk more and more about multifamily lately for all the different things that you're doing.
And you know we have a fair amount of your REIT peers.
Look at L. A in southern California in General and say you don't want to get out of here given all the regulatory political risks of owning multifamily real estate in this area of the country.
Do you have any have you ever had any interest or if you had seen any of that come to market and market rate type multifamily product from.
Peer Reits that might become interesting to you is that a part of your pipeline.
We're saying.
Multifamily we are much more than we're saying a quality office that we want.
And some of its new somebody's coming off of a construction loan that you can talk about a cut on it some.
It's definitely it's a combination of some institutional owners that are looking to get out and <unk>.
Multifamily in L. A is still attractive relative to.
Other markets and then.
We also have seen some people who bought with floating rate debt and we're planning on doing a repositioning that are getting squeezed right now and so.
But I Wouldnt say that Theres, a wholesale bank.
And in many of the.
La <unk> due to the politics, it's the politics of moved a little bit left and we're all working on moving that back to the center, but.
Keep in mind, those politics that make it difficult to build.
Also make it great to own.
Yeah, I think to say I think Kevin said, it real accurate which is.
If you want to generate.
Profit or money or capital you can still sell apartments in these markets at very low cap rates.
Okay, and those trades are happening and they do.
I mean, it's why.
I keep saying to you guys, we can build way cheaper.
The cap rate than what people are selling apartments for right now.
Okay.
Good enough. Okay, and then second question for me is you probably get a derivative of this question every other quarter about expanding your geographical horizons, but this is a different world in different environment, and you said, you're not seeing <unk>.
Yes, but you're really you're kind of waiting and looking.
What would you say about nearby markets to the extent that you have some intel there like Orange County, or San Diego.
Does that ring a bell to you at all in terms of having to look at are you sticking to your knitting, where you are now.
Where I I I would love to get a law. It can be it can you talk about the market and give you a long and real great sounding answer but the short answer is what you said.
Coming from a book from the eighties about to turn that had 10 habits of successful companies when they go stick to your knitting.
That's what we're doing.
Okay. That's good enough.
Alright, I think our markets.
Our fantastic I tried to I don't we haven't gotten any of your questions about like the three things I laid out in the prepared remarks, I really tried to say in his prepared remarks like here's what's impacting office and this is why I'm. So optimistic about our buildings in our markets and our tenant demand and I just.
I just can't find a better mix.
Drivers supply constraint environmental and quality of life I mean, the whole deal than the markets that we're focused on here and when we go to another market out of course, yeah, but you can build a ton or whatever the case may be and I mentioned, the overbuilding is one of the issues.
Hum.
And then of course, we also have that Super good short commute here.
The housing nearby them you know the.
The supply constraint. So I, just it's very hard to find a mixed it's that good and you know their markets. Although I think it's now more people are realizing I mean, obviously San Francisco has a.
Very powerful drivers and the universities out there and I think that prices have gone way down.
Probably have gone too low at this point, but I would still stay of our capital to do stuff here.
Fair enough thanks very much.
Our next question will come from Camille in Bonnell with Bank of America. Please go ahead.
Hello, So bigger picture think your leasing teams deserve credit for the activity to date just given this challenging market. However, if we look at the portfolio's occupancy trends it really hasn't been enough to offset the decline and since 2019.
So are you seeing this vacancy being concentrated in one or few of your assets and can you talk to the sort of downtime you're seeing in some of this vacancy.
Yeah, no we're not seeing vacancy concentrated in any particular assets I mean, if you look at the Submarket stats, we give you.
Fortunately, we've seen declines it kind of across markets as we face the challenges of Covid and now facing.
Challenges than more recent challenges that George spoke about in his prepared remarks so.
It's not as it's not a specific asset issue, it's really a demand issue based on the kind of uncertainty in the market. We have primarily small tenants and when they are feeling good about their business and they are in growth mode, and we see incredible pick up and we know that.
That we can turn things around quicker quickly here and get good positive absorption growth cycles.
But we haven't seen that yet I mean, we're still facing some downsizing from large tenants that we mentioned and so far the you know the trend is still slightly negative.
So we just need to see that turnaround we didn't see the confidence changed in us and the small guys. The larger guys feel more comfortable about growing again.
But what you said about the leasing group.
It's something we've said in good markets, which we've said we spent a ton of money building, a very very sophisticated leasing platform.
In order to you know, obviously make the highest higher and make the lows last slow and I mean, we're doing if you look at the just the amount of leasing we're doing we're doing incredible amount of leasing.
Now two quarters that were close to a million feet. That's a lot of leasing I mean, I look at our peers that are three times our size four times outside for doing more leasing than they're doing so well.
Where there's a ton.
Activity and we have a platform that's designed properly to.
Really capture our fair share and more than our fair share of that activity and that and as Peter alluded to and as I said I really do believe this is a function of the larger tenants doing exactly what the fed has asked him to do which is shrink back.
I mean, they're making capital more expensive, they're trying to shrink the economy. They said, we know there's going to be a lot of pain, we want a cut.
We wanted to address inflation and people.
People running large companies that would normally be saying I'm, hoping this new division I'm doing this new thing I'm Gonna do this whatever this new movie or whatever it is are all in the mode of I'm kind of here's how I'm cutting expenses and when I read outside of our industry I'm constantly reading about People's plan for cutting expenses.
Of course, it's impacting these guys, but that is that's a cyclical effect of a recession. That's the point I was trying to make in my prepared remarks.
Well were used in like a 19 seventies typewriter.
[laughter] I liked the mechanical typewriters there it's good feedback.
I guess the point as you know from a liquidity standpoint.
And granted yes, youre doing a lot of leasing activity, but there's still occupancy pressures going forward just based on.
Your lease.
Exploration schedule. So how do you balance that that liquidity then.
The flexibility you have on the balance sheet with the declining or risk of declining income versus opportunistic investments in this type of market.
Well, we've been balancing it for the last three or four years.
We have plenty of cash flow to do our leasing so that's not really an issue.
Even in excess of the dividend and everything else I mean, he and even after we finished all of our leasing and pay it all off we still have plenty of cash flow.
Okay. Thank you.
And our next question will be a follow up from John Kim with BMO. Please go ahead.
Thank you and once you get an update on the bad debt that you had during the quarter a lot of your multifamily peers talked about this.
Quite extensively this quarter.
And also at Barrington. It has had an impact on bad debt I can imagine some of these tenants being kicked.
Kicked out maybe bad actors.
Yeah, It's Peter I mean, we're really not seeing anything out of the ordinary in terms of bad debt on the multifamily side, So I am not.
Yeah, you know we're.
We're seeing good a good thing and good collection trends on the on the multifamily side.
And.
I don't think there's a meaningful impact on from Barrington.
Would you say that that has come down since the second quarter.
Yeah.
Well, we never represent as a percentage of our collections in the quarter ever handle that much bad debt on the multifamily side to you know to begin with that didn't have it in Florida come there's nothing to come down I mean pretty much everyone pays.
Okay.
And looking at your top tenants list and just curious.
The tenant that you mentioned that downsize during the quarter was it among your top five tenants there were a couple of very small movements this quarter.
And then secondly, just going back a couple of calls going.
Going back a couple of quarters, what happened to me switch they fall off the top 10 list.
Yeah, So John no. The the tenant that I mentioned the downsides in Q3 was not on the top list that list I think we cut off at 1% of of of our rents I understand is it that list is a tenant that could have like 20 locations. Yeah. So we gave you. The we gave you the ones the tenants that are over 1%.
<unk> of our rent, which is kind of how we assign.
Assign that list and race, which fell off that would they downsized a little bit I think last year and fell out of that and then the other tenant I mentioned was not on that list to begin with.
Okay.
Thank you.
And again, if you have a question you May press Star then one to join the queue.
Hey, good morning, I guess out there George question for you years ago, we talked about the potential of reducing your equity investment in the Hawaii and that I don't think that market has got much discussion last few quarters is it more tempting given that youre seeing some acquisition opportunities in that way either.
To start to think about downsizing your Honolulu exposure.
Yeah, it would be more tempting, if we weren't making so much money and why.
I mean, that's a really successful marketing out for us.
So you're right to say that yes, it would be structured correctly, you're smart to remember that.
That had.
More to do with we have a lot of construction opportunity there for units.
And it presents a great opportunity to bring in a partner for capital to do that with what we already own there.
But I don't right now it hasn't gotten much discussion because it's not.
A big one on our list right now to start we have some new construction. We can startup we have units we can build out that right now, but we don't like that now we don't like that combination of construction costs.
Against were much.
But construction costs are a little out of control. So we're gonna we're watching it more for a while but it is a really good market to bring capital and due to a joint venture with us to do that and we actually have people that want.
I wanted to do that so we're the ones that are like.
Kind of put them put that on hold for a little while.
Okay follow up question different subject, but the step up in the parking revenues.
I'm curious, whether that's a volume issue or whether that's a rate issue.
Are you just talking about the increase in parking and other income and yeah, I'm curious, whether you're getting more activity levels or I'm.
I'm sorry.
It's been a steady its Peter speaking, it's been a relatively steady increase as utilization you know just continues to it was relatively high last year, but it's higher now.
Well I hope it both.
[laughter] I hope it is.
We're getting.
A little more for the spaces.
I suspect Geismar I mean, it has a lot more to do with.
Just more people.
Yeah.
Yeah, well, that's what I'm trying to get at is yeah yeah.
Uh huh.
Alright, thanks for the time guys.
Thank you.
And our next question will come from Steve <unk> with Evercore. Please go ahead.
Yeah. Thanks, Good morning, Jordan.
I just wondered if you've made any progress with the insurance companies broadly speaking on the payments for the Barrington a redevelopment.
Well.
Is it progress to know that we're in he didn't disagree with that.
Cause we've definitely gotten that far.
Where we're in you know, we're an extreme disagreement with those guys.
Are we.
We have a lot of wood to chop, there, where obviously now.
Let it go as they wanted to do so is this just going to take.
Years, probably to work out.
But.
So it is what it is.
Okay.
And then maybe just circling back on some of the questions around development I mean, it sounds like you're maybe tapping the brakes are not aggressive about moving forward I guess what would it take you know you've got some entitlements on some other Honolulu assets you know I think you own a bunch of other redevelopment sites for multifamily and L.
You know what I guess, what would the yields need to be on your capital or how much have you raise them in well I guess, well where are you relative to those new hurdles to potentially start a project.
Well that's a good question so.
I think a lot of that why we're not because it's funny I mean, even now when what what what Kevin said, so many sites are.
And L a and L. A I mean not in a Y on y or we have a lot of buy right but.
Some of these sites in L. A are like Virgin on by right now with these changes which is incredible I mean.
Incredible and I'm talking about by right like a major amount of units and on slide 21.
But then of course steer.
Still Anna and I will also say to argue for it is that is there.
I mean, even today at today's numbers much higher cap rates than what anything is trading floor.
So the last thing you get to is well how do we want to use our capital. So do we want to use our capital to just start building apartment buildings and places where now we can do it do we want to use our capital to buy buildings, but you probably wouldn't be apartment, probably be office I mean.
We obviously wanted to use some to guard our building I mean, we we have.
We have a whole list of uses.
And.
An easy one that you don't have to do now because it's still going to be there like it's not an opportunity that goes away is is building. These apartments. So that was an easy one to put on hold and go well, we're going to save capital for some of these other things nothing materializes, then probably we will use it to do that or bring.
Some partners and to do that or do but but right now it's an easy one upon hope because it's not something that's going to go away.
Great. Thanks, that's it for me.
And this concludes our question and answer session I would like to turn the conference back over to Jordan Kaplan for any closing remarks.
Yeah.
Well. Thank you all for joining us and we look forward to speaking with you again next quarter Goodbye.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.