Q1 2024 Douglas Emmett Inc Earnings Call
Hello, ladies and gentlemen.
We're having technical issues and we will be delayed five minutes.
[music].
[music].
Speaker Change: Pardon me, ladies and gentlemen, sorry for the delay. Thank you for standing by welcome to Douglas Emmett 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.
Speaker Change: You will receive instructions for participating in the question and answer session. I will now turn the conference over to Stuart Mcalarney, Vice President of Investor Relations for Douglas Emmett.
Stuart McElhinney: Thank you joining us today on the call are Jordan Kaplan, our president and CEO, Kevin Crummy, our CIO and Peter Seymour our CFO.
Speaker Change: 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.
Speaker Change: You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 Change: When we reach the question and answer portion in consideration of others. Please limit yourself to one question and one follow up.
Speaker Change: Now I'll turn the call over to Jordan.
Jordan: Good morning, and thank you for joining us.
Jordan: During the first quarter, we leased one 2 million square feet of office space, which includes renewing a 250000 square foot lease with W. M E through 'twenty 37.
Jordan L. Kaplan: Even excluding that lease we still did 950000 square feet of leasing.
Jordan: New leasing was just over 200000 square feet.
Jordan: Still not quite enough to drive positive absorbed yet.
Jordan: As we said in February we are not assuming a significant increase in new leasing demand. This year. However, our strong renewal rate tells us that our existing tenants, especially the smaller tenants on which we have built our portfolio are not reducing their space needs.
Jordan: Despite challenges in new large tenant dead band, our office leasing economics continued to perform well and leasing concessions remain low.
Jordan: We are still signing leases that are more valuable than the prior lease for the same space with straight line roll up this quarter over 23%.
Jordan: That number benefited from the WNBA lease even excluding that lease we achieved straight line roll up of over 11%.
Jordan: As we mentioned before our average leasing cost since the pandemic have actually been lower than our prior long term average and remained below that of other office REIT.
Jordan: We are well positioned to navigate this downturn and emerge stronger in the next growth cycle I am confident in the long term performance of our portfolio as our markets have excellent supply constraints and diversified demand from high growth industries.
Jordan: With that I'll turn the call over to Kevin.
Kevin: Thanks, Jordan and good morning, everyone.
Kevin: Now that we have stabilized our landmark L. A residential development and are waiting for the exploration of office leases to finish the final two floors at our office to residential conversion in Honolulu, we.
Kevin: We have shifted our focus to the fire life safety upgrades at Barrington Plaza.
Kevin: Office sale transactions remained slow in our markets. However, we are starting to see some sales and surrounding markets and hope that similar opportunities will soon come available in our markets.
Kevin: We remain ready to pursue acquisitions that fit into our strategy.
Kevin: With that I will turn the call over to Stuart.
Stuart: Thanks, Kevin Good morning, everyone. During the first quarter, we signed 214 office leases covering one 2 million square feet, including 202000 square feet of new leases and 987000 square feet of renewal leases. This was the second highest quarter of renewal activity in our history.
Stuart: As Jordan mentioned office rental rates remained strong despite the challenges in new large tenant demand.
Kevin: This quarter, we achieved a 23, 8% increase in the value of signed leases.
Kevin: Our in place office rent per square foot is now the highest in our history.
Kevin: Our high fixed annual rent increases mathematically lower our cash leasing spreads, though the Wm you lease signed this quarter lifted our average cash spread to a positive one 9%.
Kevin: Even excluding the impact of the Wm Elyse.
Kevin: Great line spreads this quarter were positive 11, 6%.
Kevin: Our total leasing cost during the first quarter averaged $6 11 per square foot per year slightly above our recent average due to some larger renewals.
Kevin: Leasing costs on new leases were only $5 64 per square foot per year.
Kevin: So even our recent trend and well below the average of other office Reits.
Kevin: Our residential portfolio remains essentially fully leased at 98, 9% and is generating healthy rent roll ups with that I'll turn the call over to Peter to discuss our results.
Peter D. Seymour: Thanks, Stuart good morning, everyone.
Peter: Reviewing our results compared to the first quarter of 2023.
Peter D. Seymour: Revenue decreased by two 9% as increased revenue from new residential units higher in place office rents and increased parking revenue were more than offset by lower office occupancy lower tenant recoveries and the removal of Barrington Plaza apartments from the rental market.
Peter: F O decreased by eight 7% to 45 per share primarily as a result of higher interest expense and lower revenues, partially offset by lower operating expenses.
Peter: <unk> decreased eight 2% to $74 $7 million and same property cash NOI increased by <unk>, 7%, reflecting lower expenses, including some property tax refunds.
Peter: Our G&A remains very low relative to our benchmark group at only 4.7% of revenue.
Peter: Turning to guidance first quarter <unk> per share was above expectations due to lower operating expenses and we expect straight line revenue to be higher during the balance of the year.
Peter: Nevertheless, we have left <unk> guidance for the year unchanged, because we expect the operating expense savings and higher straight line revenue to be offset by higher interest expense as a result guidance for full year F. O remains between $1 64, and $1 70 per share.
Peter: 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.
Speaker Change: I will now turn the call over to the operator, so we can take your questions.
Speaker Change: We will now begin question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Peter: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two are.
Peter: Our first question comes from Steve Sackcloth with Evercore. Please go ahead.
Stephen Thomas Sakwa: Yeah. Thanks, I guess, good morning out there still Jordan I know given the small nature of the tenancy, it's hard to really discuss much about pipeline because it's.
Stephen Thomas Sakwa: A little bit more like apartment leasing it happens pretty quickly, but can you maybe just talk about kind of what you were saying are in the marketplace and and you know what are some of the upcoming plans and tourists looking like for Oh, we tenet in how the Warner brothers, a known vacancy are up in the third quarter. Thanks.
Speaker Change: Okay. So sorry about the delay we had trouble getting on the website, but.
Speaker Change: Yeah. So in terms of I'll take them in reverse in terms of studio Plaza, you know they move out and two quarters and we're going to probably do some work for the building and we are having showings.
Speaker Change: And or working on releasing it and you know my hope is that we release it.
Speaker Change: There are a multitude of tenants not a single tenant so that it's no longer kind of hanging over us away, but you know, it's a great building and I'm confident we will be set up.
Speaker Change:
Speaker Change: In terms of the leasing pipeline.
Speaker Change: I I don't know, whether that's a that's a tough one because the small tenant leasing pipeline is better than strong I mean, it's great that we do.
Speaker Change: Nine you know she's just leave out the large lease that we did 950.
Speaker Change: <unk> thousand square feet, it's just a fantastic amount of leasing.
Speaker Change: It's really being driven by our small guys who are doing a lot of.
Speaker Change: Renewing and even new deals.
Speaker Change: But because of some larger ones, we're just not getting the one third of new because when a large one lives that we're not getting the one third of new that we need to make gains and you know that that's what's happening and you know.
Speaker Change: In terms of taking temperatures I I can tell you a large tenants.
Speaker Change: Our very cautious regardless of whether you believe we're in a recession going into recession or simply because the cost of capital that new investment has become so high that they're just.
Speaker Change: And improving earnings by shrinking their expenses as opposed to driving for new business or or creating new revenue.
Speaker Change: Okay. Thanks, and then maybe the follow up question I don't know Stewart or Peter If you think about kind of where our guidance is and you look at what you did in the first quarter. It kind of implies something like a 41 cents plus or minus quarterly run rate moving forward and I realize there was a little bit of seasonality in expenses, but.
Speaker Change: As you think about the cadence of F. F over the next couple of quarters and really the exit rate how.
Speaker Change: How do you think about sort of where we'll be at the fourth quarter are moving into 'twenty five.
Peter: Yeah, I mean, it's Peter Steve.
Peter: So look I mean, you're you're asking for a quarterly guidance, we don't really give quarterly guidance, but you know that there are a number of factors that affect us in the tail end of the year studio Plaza, We mentioned so they move out right. So that's you know that's a negative in the last quarter and then of course, our Barrington Plaza.
Peter: As the other factors. So you see a couple of those you also see.
Peter: As you saw we raised our interest expense guidance and.
Peter: Yeah.
Peter: That reflects our expectations that interest is going to be higher over the remainder of the year. So I think that can give you a sense of you know where.
Peter: Where we're at it.
Speaker Change: Great. Thanks.
Peter: The next question comes from Anthony <unk>.
Anthony: Our loan with J P. Morgan. Please go ahead.
Anthony: Yeah. Thanks.
Anthony: This maybe sounds great quarterly guidance, but just thinking about your occupancy because we kept the range. The same for the year, but you also talked about just the retention coming in stronger so.
Anthony: Any thoughts on like when that drops or if theres, a part of that range that you feel a bit more comfortable with at this point or has anything changed there.
Peter: Well.
Speaker Change: I think we're pretty comfortable with the middle of the range, but you know that's why we gave a range the.
Speaker Change: I'll tell you.
Speaker Change: I don't want to say this because we're in the middle of the year, but I always thought this was the year to hit the trough and but you know I'm still you.
Speaker Change: Maybe probably because I'm still a little surprise that inflation backed up but then I was.
Speaker Change: Surprised that we had a lower than expected new you know new hiring that just came out so I.
Speaker Change: You know I don't think we have.
Speaker Change: You, probably even a better information than we have because I really do feel like we're floating on the larger national economic trends I mean, everything that's impacting us and I said important point.
Peter: Is that we're not really impacted by you know, we're not getting hit with work from home were not getting hit with.
Peter: Oh man you know over supply of buildings and therefore, we're just going to take a long time to absorb that but that that new space in old space and all the rest of it. We just have one simple thing happening which is in this economy large tenants are scaling back.
Peter: And they're not saying, they're not selling at least I can't believe they can't they can't stay that way I mean, I know they have to be in business and make money set. So we're just waiting for people to have confidence in the economy and the costs of putting out new capital would be good and then you'll get there and I think they'll say all right. We've hit a bottom bottom are climbing out because everything else about the we're working like crazy to control expenses were acts.
Peter: Doing a lot of leasing activity in our market Theres nothing about our market that's bad actually most of our market is good.
Peter: Our people are in the office in terms of utilization, it's basically like fall I mean, maybe friday's a little late but a little light, but that's it so I can't see anything else. So I think it all gets down to all of ours prediction about.
Peter: The national economy kind of encouraging large new investment again, which is the opposite of what the fed is trying to encourage.
Speaker Change: Okay. Thanks, and then just my other question is can you comment on just any sort of capital markets activity Youre seeing or investment sales in your markets and you know maybe where were values may be and also.
Peter: Just your own desire to put any capital out right now.
Kevin Andrew Crummy: Hey, Anthony it's Kevin.
Peter: Logan.
Kevin Andrew Crummy: Downtown is absorbing all the headlines right now and so.
Kevin Andrew Crummy: There is activity is as I mentioned in my remarks, and the surrounding markets, we haven't really seen that much activity in <unk>.
Kevin Andrew Crummy: Our markets with properties that fit.
Peter: Fifth.
Peter: Our investment objectives, but we definitely are interested in them.
Peter: Putting out some capital in this market, because we think that theyre going to be some.
Peter: Really incredible buying opportunities as most people are shunning office and we're very very confident that the office market here.
Peter: Is it based on the fundamental supply and demand, we're very confident in our long term.
Peter: That are we're going to do well and we want to buy as many office buildings as we can at good pricing.
Peter: Yeah.
Speaker Change: Okay. Thanks.
Speaker Change: Yeah.
Peter: The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander David Goldfarb: Hey, and good morning out there Jordan just going back to Steve's back with a question on the on the tenants larger tenants.
Alexander David Goldfarb: Given that you've described L. A and certainly the west side is not oversupplied or work from home issues is this a matter of where the larger tenants are choosing to grow elsewhere, meaning that as these companies are re staffing in contending whatever theyre emphasizing other office markets versus.
Peter: Is there like outposts just trying to understand because to your point. It's not like you know your tenants are huge 500000 square foot square foot or is that where you're talking 10 2030 millions of dollars of investment the tenant the investment is still small so just trying to get better color into the mindset of these larger.
Peter: <unk> could certainly there is smaller compared to your bigger CBD brother.
Speaker Change: I I, that's a good question actually and I've been asked that I I I I do not think our problem is one of our tenants choosing to relocate not only out of out of west L. A or out of L. A but out of state which I.
Speaker Change: Okay. That's the gist of what you're saying I and I'll I'll admit I'm not happy about that you know that some of the population statistics for California.
Peter: And movement, that's happened, but I don't think that's actually happening in our markets and we are not seeing tenants say.
Peter: You know great. Knowing you now are leaving we're just saying <unk> seen them say, we're doing layoffs and we don't need this space now and I don't think they're going to.
Peter: Never hire people again or or never need the space again, I, just don't think they need it right now.
Peter: And a lot of that you know you see that coming from tech companies, which you're you're here I mean.
Peter: If people that drives a lot of that large tenant space, even larger than what works, where we use our tech companies entertainment companies like.
Peter: Like the research guys are still taking large amounts of space.
Peter: And I don't think they're saying were abandoned in California or was banning L. A I think they're just literally laying people off and saying, we're taking less space and cutting our cost.
Peter: Okay.
Speaker Change: Second question is.
Speaker Change: As you look at your peers your landlord peers.
Speaker Change: Are you seeing tangible signs, where you I mean I have to believe that given your balance sheet capital position that there are some financially stressed landlords or maybe institutional landlord to one out of the business, where you guys would be able to win because you're willing to invest in the asset.
Speaker Change: Fund the commission the Ti what have you are you seeing tangible signs that that's the case or not really I would just think that that would play to your advantage, but maybe it is and maybe that's why you know 70 bps down as the negative absorption not more I'm just trying to get a sense for how your capital position.
Speaker Change: Yeah, I will tell you part of what he is saying I definitely think I think that there are landlords.
Speaker Change: That have vacancy.
Speaker Change: That's where the decision about whether they retain the building is not just a decision around.
Speaker Change: You know I have a loan coming up or maybe I'm over leveraged or maybe they're not even over leverage but its also a decision about.
Speaker Change: The work and maybe even suffering and capital expense, if theyre going to have to go through to lease up a building.
Speaker Change: And they might be saying boy, we don't even have that people are going to do this anymore.
Speaker Change: And that's a battle, we just don't want to own right now in terms of like dedication of expertise and all the rest that that that probably will create most of the opportunities that we'll see I don't I think there might be a tiny amount of over leveraged opportunities I think most of the rest of them will revolve around.
Speaker Change: <unk>.
Speaker Change: People, just being burnt out and not wanting to carry the load of the operating load of who you know leasing up a building where they've let the cabinets you slide a lot through an attention or distraction.
Speaker Change: Okay. Thank you.
Speaker Change: And the next question comes from Michael Griffin with Citi. Please go ahead.
Michael Anderson Griffin: Great. Thanks, I wanted to go back to the commentary on the large space takers being hesitant to kind of commit polices should we interpret that as meaning there is going to be continued negative net absorption. Later this year and you know is it possible that you would look to.
Speaker Change: Cut up that space for some of your smaller guys or would you rather wait for large tenants to come back. So maybe you could charge higher rents.
Speaker Change: Well, the absorption or or whatever it is in our guidance of what we think this year.
Speaker Change: But in terms of cutting up space, where superfast to cut up space, because we leased a small tenants very fast now.
Speaker Change: Fast to cut up space.
Speaker Change: It's like talking to a guy I don't want to run a 10-K go I'm going to run a marathon fast I mean, it's just a much longer process.
Speaker Change: So when we but we don't hang out if you get a floor back.
Speaker Change: You don't think there's a good tenant for basketball or we cut it off and we lease it out and it's probably want because we have such a and that takes a very large.
Speaker Change: And focused and it just takes a great amount of expertise to be able to do that.
Speaker Change: And so that's been one of our kind of superpowers is that we can quickly cut up space and we haven't missed you both have a construction company and the expertise to breakup space put in spaces that are very appealing to the market to take a data says and we're able to then lease it like that very quickly and that is to a great extent.
Speaker Change: I know it doesn't feel like it made a giant difference for us because we're we've lost one and two floor tenants, we have gotten in and dealt with it and we've leased them up that's why we're just getting like little loss around the edges were not getting colossal losses.
Speaker Change: So that's probably that it has been a very big deal and it kind of relates back to the last question, which is why I think there's people that have had some large tenants move out of their buildings, and they're saying that which might be good buildings for small tenants, but theyre, saying to myself Oh My God I mean step one for me is I got a for hire architect I got a higher space planners.
Speaker Change: They've got a higher contract or I got to go through the city with plans and I got to turn this into a multi tenant fun like just like I don't want to deal with it and that's before I even have a lease.
Speaker Change: So that might create opportunities for us and it is something that I'm positive. We're the best in this market at.
Speaker Change: And Jordan, how many of those large leases do you need to do in a quarter to really move the needle and then how many are you doing actually on a quarterly basis.
Jordan L. Kaplan: We need to do three or four and we're doing one.
Jordan L. Kaplan: And by the way largest like over 10000 feet. It doesn't even have to be a bag 10 to 30000 foot leases that we used to do like for every quite set so we just need to get a couple more back.
Speaker Change: Gotcha, and then I was curious if you could give a little more color on the Wm Elise.
Jordan L. Kaplan: On concessions why offer the early termination right and then Stuart I think you gave the GAAP rent spreads ex the William Morris lease, but can you give us the cash rent spreads extra leafs.
Speaker Change: You understand so no question Stuart.
Stuart: Yeah, I think so so taken in order to the congestion in the lease.
Speaker Change: Very reasonable.
Speaker Change: Essentially, especially considering you know tenant of this size. There you know they were larger than our average small tenant concession as you'd expect but yeah very reasonable T eyes on that deal.
Speaker Change: You know very importantly, they renewed all of their space. We've made that point they didn't give us back anyway. They took the full amount of space that they had they extended it out 10 years out to 2037.
Speaker Change: The straight line roll up without them in was 11 six I gave that I don't have the cash roll up number in front of me excluding the way Marci. It was it was slightly negative and it was better than the prior quarter I remember that but I don't have the exact figure in front of me.
Speaker Change: Ooh sounds good that's it for me thanks for the time.
Speaker Change: The next question comes from Rich Anderson with Wedbush. Please go ahead. Thanks.
Richard Charles Anderson: Thanks, everyone. So back to Warner Brothers, Jordan, You said Gee I hope, it's not a single tenant again, but why even let that into the the process why why not sort of drive it home. This is break up the building as you. Just described are good at and end and takes out that bulky.
Richard Charles Anderson: He situation out of out of the you know that the future for yourselves. So what why is why are you even entertaining a full building.
Speaker Change: Release, there or maybe you're not I just didn't understand that you know what.
Speaker Change: Ed.
Speaker Change: You should know better that we're in a real estate business. So you know what that makes us right.
Speaker Change: That's right photonic tons do we have that kind of.
Speaker Change: Resistance I don't know that we have that in us that's why I say I hope instead of iron Fist, I I I I never you know that.
Speaker Change: It's probably been built into our nature that when we have a deal. We know we can make it and that's going to get done we're probably gonna do that deal and get that dealt with.
Speaker Change: But you know we might eat but I will say it in reverse which is that we are much faster than I think anyone else with a building like this we'd say I need to get another big tenant for it and we don't do that we will start doing deals a couple of floors here and there and we'll just start leasing it up so.
Speaker Change: That's that I think in the end.
Speaker Change: That is the best way to run that it's an outstanding building its the best way to run the building and building a spectacularly located we have an amazing signage, we can offer it as a huge amenity space exactly what people are looking for so I'm very confident in the success of the building.
Speaker Change: And and that's that's probably the reason why there is a chance that one tenant would come and try and take it but you know as I said.
Speaker Change: You know my hope is that we don't have to face that in that what happens is we get.
Speaker Change: 678 tenants and that's the way we've set up and then we no longer have a this kind of event risk.
Speaker Change: Okay second question just looking at the same store stats on slide nine.
Speaker Change: And multifamily.
Speaker Change: Revenues were exactly the same in both periods through $35 million 672 first of all make sure. There's a typo second what what flattened out revenue was at Barrington impact was there something else. Just curious you know if theres anything <unk>.
Speaker Change: Onetime ish.
Speaker Change: And the multifamily performance, Yeah I mean.
Speaker Change: They're there they're looking at it I mean, I think multifamily revenue has gone up and Barrington is going down and all you're saying is that's kind of insane and that those are the exact same amount of Barrington.
Speaker Change:
Brian: So Brian.
Speaker Change: Barrington not in there.
Brian: Okay. Yeah look we're always going to have some variability quarter to quarter on revenues.
Speaker Change: Not in this case, there's nothing.
Brian: Yeah, No I know that there's nothing nothing variability.
Brian: I've never I guess.
Speaker Change: Yeah.
Speaker Change: Oh the lottery.
Speaker Change: Yeah, Okay, let's triple quadruple check that that's not a typo, but I don't think it is we should get a lot of accounts to look at this thing before it goes out that's right now we've looked at it several times multiple die yeah.
Speaker Change: So there's nothing worse than what explains the flatness and if we assume its the right number.
Speaker Change: I mean, it's not quarters, Yeah. I mean look you have your rent increases and you have changes in occupancy and different.
Speaker Change: Different different buildings.
Speaker Change: Yeah, that's I don't think there's anything yet on that.
Speaker Change: I think it's pretty hot if there's a meaningful increase or decrease you can look at something in the cards for it if there's a lot of ups and downs in the half in Atlanta at the same number that's harder to explain I know, we don't have an explanation here for it I just think in your multifamily product is a little bit different a little bit more predictable and so on so it just occurred to me, but I'll leave it at that.
Speaker Change: <unk>.
Speaker Change: Alright, thanks, guys.
Speaker Change: And the next question comes from Peter.
Peter: After <unk> with Jefferies. Please go ahead.
Peter: Thank you I'm just wondering if you could kind of comment on the.
Peter: The pockets of demand youre seeing within the different Submarkets I think Boston properties mentioned on their call century city looking a lot stronger than Santa Monica and in other parts of the West L. A so just just curious if you could provide some context on your own thoughts on that.
Speaker Change: Yeah, I think that lines up with with what we saw in the quarters. While we made some gains in century city century City has definitely as we've discussed before been the beneficiary of some tenants that have less downtown L. A these are generally very large tenants. So the large tenant demand in century city has served.
Peter: That market, well and our buildings are doing quite well there as well other than that I'd say you know we're seeing we're continuing to see as Jordan said not quite enough new leasing to go positive in the rest of our markets.
Speaker Change: Got it that's helpful. And then I guess just to follow up on that if there's any kind of spillover from from century City I know I think you guys have done pretty well.
Speaker Change: Pretty filled up their.
Speaker Change: Where's it going I guess, where are those tenants prioritizing if they can't find what they need and centricity.
Speaker Change: The natural alternatives or Beverly Hills, and that will sure Westwood corridor is where I would expect they go but I can't give you an exact answer.
Speaker Change: Got it that's all for me thanks.
Speaker Change: The next question comes from Dylan Burzynski with Green Street. Please go ahead.
Dylan Robert Burzinski: Okay. Thanks for taking the question.
Dylan Robert Burzinski: Just going back to the property taxes I mean.
Dylan Robert Burzinski: There is it your sense that you can continue to see relief on this front as you get through the remainder of the year and ended and then your 2025 and then I know several quarters ago, you guys flagged higher insurance costs.
Dylan Robert Burzinski: As being a potential headwind just curious sort of if you guys have worked your way through that or if you guys sort of envision that potentially coming up and being a risk to expense growth in the near future.
Dylan Robert Burzinski: Well in terms of property taxes.
Dylan Robert Burzinski: The simple answer to your question is.
Dylan Robert Burzinski: I think that.
Dylan Robert Burzinski: It's likely that we where we will be able to file appeals and get adjustments now be impact is years away I mean, when you do that it takes them years to even if they accept even if they're not going to you're in a meaningful way challenge. It. It can be years before you get the refunds because you.
Dylan Robert Burzinski: Have to keep paying on the old number so.
Dylan Robert Burzinski: So there show that when we get refunds or complete their very disjointed from when the original appeal win yet.
Dylan Robert Burzinski:
Dylan Robert Burzinski: But of course, it seems like the.
Dylan Robert Burzinski: The assessor roles right now are overstating the value of many buildings, although there probably hasn't been as much trouble figuring out the value of the buildings as well as anybody else.
Dylan Robert Burzinski:
Speaker Change: That was your first what was your what was your what was your second question.
Speaker Change: Just.
Speaker Change: I think you guys have like interfere yeah, yeah. So we had some dramatic increases in insurance and insurance.
Dylan Robert Burzinski: I still think there.
Dylan Robert Burzinski: Our increases in insurance, they're probably not as bad as they were the last couple of years, but.
Dylan Robert Burzinski: The insurance industry is going through a lot right now.
Dylan Robert Burzinski: On on many fronts.
Dylan Robert Burzinski: Not just on in terms of.
Dylan Robert Burzinski: Insurance property claims about liability claims and all the rest of it and it's causing us.
Dylan Robert Burzinski: To do that.
Dylan Robert Burzinski: You know to really have to work hard to keep those costs in line. Although it's in general we think we're able to do it including making adjustments to policies, taking some of the early risk and stuff like that because we're pretty good at controlling.
Dylan Robert Burzinski: Controlling our costs and clients are very good at it actually but because of things that are happening all around the world. We're caught up in just increases.
Dylan Robert Burzinski: And so.
Dylan Robert Burzinski: Yeah.
Dylan Robert Burzinski: I don't think it's as bad as it was the last couple of years.
Speaker Change: That's helpful. And then maybe just a quick one on parking you know you guys are still below pre COVID-19 levels is this sort of the run rate that we should expect until you guys are able to drive occupancy in office or is there some other potential.
Speaker Change: Upside to parking income even absent additional occupancy gains.
Speaker Change: Yeah, Okay, so I actually think.
Speaker Change: Parking income is up relative to occupancy and all that's left is to get.
Speaker Change: Hi, I used to get higher occupancy to increase parking.
Dylan Robert Burzinski: So it shows even more accurately I think that's all we have left as a way to get back to those and above because we've already probably exceeded for the level of occupancy. We're at now we've actually already you know rates are up.
Dylan Robert Burzinski: Yeah.
Speaker Change: And sorry, I kind of cut out but he said he said our rates are up on parking yeah. So for the level of occupancy. We're at now rates are actually up so.
Speaker Change: Probably all we have left is to lease more space and then if you're just comparing just the gross number two the gross number before it. That's all that's left is to lease more space and more people come into the building.
Dylan Robert Burzinski: Because theres not its not like I mean, we can continue to make great games and overcome it that way, but but the easiest ways to finish the leasing back up.
Dylan Robert Burzinski: Yeah.
Speaker Change: Makes sense. Thanks.
Dylan Robert Burzinski:
Dylan Robert Burzinski: And the next question comes from you Paul Arena with Keybanc capital markets. Please go ahead.
Paul Arena: Great. Thanks for taking my question. So you get about three swaps expiring this year with about $1 billion total.
Paul Arena: Is it still your expectation to let those loans float or has that changed and that's like sort of a follow up you know what where you are.
Paul Arena: How many rate cuts that you had priced at the beginning of a your initial guidance versus where you are today.
Dylan Robert Burzinski: How many rate cuts.
Speaker Change: Yeah in terms of.
Speaker Change: Assumptions changed since.
Speaker Change: And so now Oh, Oh, you mean rate increases.
Speaker Change: The tons that we increase but we expect the rate to be so if youre looking at the forward curve I mean, basically when we do our interest guidance.
Dylan Robert Burzinski: It's obviously people have different points of view on what's going to happen over the rest of the year. We just use the sofa curve the forward curve at the time that we're putting our guidance together.
Speaker Change: That's essentially it.
Speaker Change: Well, we used so yeah, obviously the curve is expecting.
Speaker Change: Rates to stay higher for monitor.
Speaker Change: Got it right.
Speaker Change: Yeah.
Speaker Change: The next question comes from Alexander Gar FAP with Piper Sandler. Please go ahead.
Speaker Change: Hey, I'm still Alex Goldfarb, but Alex Goldfarb is wants to ask a follow up.
Speaker Change: Question on <unk> and Stuart maybe you said this in the in spattered about the responses you guys spoke about ensuring you spoke about real estate taxes, but what were the items that were below your expectations in opex in the first quarter were those the two items or those were just referencing other trends just trying to break.
Speaker Change: And then why do you think that the savings in the first quarter well.
Speaker Change: We'll continue on.
Stuart: Yeah, I mean, it's Peter Alex.
Peter: Hey, Peter.
Peter: And my name Hasnt changed.
Peter: Yeah.
Peter: Yeah. So I mean, we talked about the tax refunds.
Peter: That was a portion of the.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: The up in this quarter. The other savings I mean, there were a bunch of different categories and you know some of it was really timing and may come back later in the year.
Speaker Change: Hard to say.
Speaker Change: We're controlling expenses pretty closely but yes.
Speaker Change: Yeah.
Speaker Change: If you factor in that there are some things that it's just a timing difference and that's that's in our in our guidance for the year.
Speaker Change: Yes, Peter on that front Youre your renewal leasing activity is pretty healthy it's the new that's the issue. So it doesn't sound like the hesitancy to change guidance is based on the leasing because that market sort of is what it is but it sounds like you guys have some potential operating savings that maybe are hesitant to really.
Speaker Change: <unk> commit to at this point it almost sounds that way is that is that a fair way it sounds like there could be further.
Speaker Change: The biggest factor is the increase in interest expense right I mean in that outweighs.
Speaker Change: All the good things that we've talked about.
Speaker Change: Yes, we have increased our straight line guidance and yes, we saw some expense savings, but we're also.
Speaker Change: Anticipating pretty steep increases in the interest expense that you see in that change in our assumptions.
Speaker Change: So let me ask you this.
Speaker Change: But let me ask you this theater.
Speaker Change: I mean, we sort of know what interest rates are going to be if we assume flat. So my question is if you achieve the same level of operating savings in the first quarter through the balance of the year would that put you through would that make you at the high end of guidance exceed the top end.
Speaker Change: All else equal.
Speaker Change: Ah, yes, it depends on where the savings are in there.
Speaker Change: Some of it not all of the expense savings.
Speaker Change: We're consolidating a bunch of J P is yeah, I guess relatively complicated.
Speaker Change: But obviously if we are.
Speaker Change: You know if we were able to maintain savings through the rest of the year we would.
Speaker Change: Current guidance range, probably well.
Speaker Change: Okay.
Speaker Change: Their savings their savings from property taxes, which he mentioned there are some timing savings and theres, some permanent savings, but that but the interest costs overwhelmed it yeah.
Speaker Change: So if all you're saying is if you just didn't have any interest costs than we'd have savings that's correct.
Speaker Change: No no I didn't mean that Jordan I just spent.
Speaker Change: Thank you Ms Bosco.
Speaker Change: Okay.
Speaker Change: Cooled listen thank you.
Jordan L. Kaplan: Alright, Thanks Alan.
Jordan L. Kaplan: This concludes our question and answer session I would now like to turn the conference back over to Jordan Kaplan for any closing remarks.
Jordan L. Kaplan: Okay, well, thank you for joining us and sorry about the delay at the beginning and I'm sure we'll be speaking to most of you individually later take care.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.