Q2 2024 Douglas Emmett Inc Earnings Call

August 9, 2024

John Kim, John Kim, John Kim, John Kim, John

Operator: Ladies and gentlemen, thank you for standing by.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly conference call. Today's call is being recorded. At this time, all participants are enabled to remain muted. After management's prepared remarks, you will receive instructions for participating in a question and answer session. I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Summit's quarterly conference call.

Operator: Welcome to Douglas Emmett's quarterly conference call. Today's call is being recorded. At this time, all participants are in a listening mode.

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. 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 in 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.

Speaker Change: 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 a question-and-answer session.

Operator: After management's prepared remarks, you will receive instructions for participating in a question-and-answer session.

Operator: After management's prepared remarks, you will receive instructions for participating in a question and answer session. I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Stuart Mcelhinney: I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.

Stuart Mcelhinney: I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Stuart Mcelhinney: Please go ahead. Thank you.

Stuart Mcelhinney: 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 broadcast 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.

Speaker Change: 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.

Speaker Change: 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.

Stuart Mcelhinney: 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.

Stuart Mcelhinney: 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 may be material.

Stuart Mcelhinney: 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.

Stuart Mcelhinney: Therefore, our actual future results can be expected to differ from our expectations, and those differences may be 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. I will now turn the call over to Jordan.

Speaker Change: During the course of this call, we will make forward-looking statements.

Speaker Change: These four looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict.

Speaker Change: 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 may be material.

Stuart Mcelhinney: 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.

Jordan Kaplan: 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. I will now turn the call over to Jordan.

Stuart Mcelhinney: When we reach the question and answer portion in consideration of others, please limit yourself to one question and one follow-up.

Stuart Mcelhinney: 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.

Jordan Kaplan: I will now turn the call over to Jordan. Good morning, and thank you for joining us. Many of our most important operating metrics are comparable to, or even better than, levels before the pandemic. Rental rates have held and continue to show strength. We are achieving significant lease transaction volume. Our retention rate continues to be high. Our leasing concessions have remained minimal. Tenant defaults are back to our historic low. We continue to experience positive straight line rent roll-up, and our tenant improvements and leasing commissions per square foot remain below our 2016 to 2019 average.

Jordan Kaplan: Many of our most important operating metrics are comparable to or even better than levels before the pandemic. Rental rates have held and continue to show strength. We are achieving significant lease transaction volume. Our retention rate continues to be high. Our leasing concessions have remained minimal.

Jordan Kaplan: Good morning, and thank you for joining us.

Jordan Kaplan: Many of our most important operating metrics are comparable to, or even better than, levels before the pandemic.

Jordan Kaplan: Rental rates have held and continue to show strength.

Jordan Kaplan: We are achieving significant lease transaction volume.

Jordan Kaplan: Our leasing concessions have remained minimal, and tenant defaults are back to our historic low. We continue to experience positive straight-line rent rollup, and our tenant improvements and leasing commissions per square foot remain below our 2016 to 2019 average. Nevertheless, the most important metric at this time, new office leasing, was not sufficient to drive positive absorption. The shortfall, again, came largely from new leases over 10,000 square feet. My confidence in the long-term outperformance of our portfolio is validated by the continued strength and diversity of our tenant base and the severely restricted new office supply in our market.

Jordan Kaplan: Our retention rate continues to be high. Our leasing concessions have remained minimal.

Jordan Kaplan: Tenant defaults are back to our historic low, but we continue to experience positive straight-line rent rollup, and our tenant improvements and leasing commissions per square foot remain below our 2016 to 2019 average. Nevertheless, the most important metric at this time, new office leasing, was not sufficient to drive positive absorption. The shortfall, again, came largely from new leases over 10,000 square feet. My confidence in the long-term outperformance of our portfolio is validated by the continued strength and diversity of our tenant base and the severely restricted new office supply in our market. We are seeing some signs of increased activity from larger tenants. And I firmly believe that as soon as they abandon their defensive posture.

Jordan Kaplan: Tenant defaults are back to our historic low, we continue to experience positive straight line rent roll up, and our tenant improvements and leasing commissions per square foot remain below our 2016 to 2019 average.

Jordan Kaplan: Nevertheless, the most important metric at this time, new office leasing, was not sufficient to drive positive absorption. The shortfall, again, came largely from new leases. This is over 10,000 square feet. My confidence in the long-term outperformance of our portfolio is validated by the continued strength and diversity of our tenant base and the severely restricted new office supply in our markets. We are seeing some signs of increased activity from larger tenants, and I firmly believe that as they abandon their defensive posture, our portfolio will be among the strongest in the country.

Jordan Kaplan: My confidence in the long-term outperformance of our portfolio is validated by the continued strength and diversity of our tenant base and the severely restricted new office supply in our markets.

Jordan Kaplan: We are seeing some signs of increased activity from larger tenants, and I firmly believe that as they abandon their defensive posture, our portfolio will be among the strongest in the country. With that, I'll turn the call over to Kevin. Thanks, Jordan, and good morning, everyone.

Kevin Crummy: Our portfolio will be among the strongest in the country. With that, I'll turn the call over to Kevin. Thanks, Jordan, and good morning, everyone.

Kevin Crummy: With that, I'll turn the call over to Kevin. Thanks, Jordan, and good morning, everyone. Sales transaction volume remains depressed, although we are beginning to see some trades of multifamily crop.

Jordan Kaplan: With that, I'll turn the call over to Kevin.

Kevin Crummy: Sales transaction volume remains depressed, although we are beginning to see some trades of multifamily property. Sellers consist of core funds looking to raise liquidity and owners of floating rate finances. While cap rates have risen slightly, they remain at fairly low levels. There have been fewer office purchases, mostly by owner-users and high-net-worth individuals. The pricing for these trades has been quite high on a per square foot basis, reflecting the scarcity premium for quality West L.A. real estate.

Kevin Crummy: Sales transaction volume remains depressed, although we are beginning to see some trades of multifamily properties. Sellers consist of core funds looking to raise liquidity and owners of floating rate financing. While cap rates have risen slightly, they remain at fairly low levels. As a result, there have been fewer office purchases, mostly by owner-users and high-net-worth individuals. The pricing for these trades has been quite high on a per square foot basis, reflecting the scarcity premium for quality West L.A. real estate.

Kevin Crummy: Thanks Jordan and good morning everyone. Sales transaction volume remains depressed although we are beginning to see some trades of multifamily properties.

Kevin Crummy: Prities. The sellers consist of core funds, looking to raise liquidity and owners of floating rate financing. While cap rates have risen slightly, they remain at fairly low levels. There have been fewer office purchases, mostly by owner users and high net worth individuals. The pricing for these trades has been quite high on a per square foot basis, reflecting the scarcity premium for quality West LA real estate.

Kevin Crummy: The sellers consist of core funds looking to raise liquidity and owners of floating rate financing. While cap rates have risen slightly, they remain at fairly low levels.

Kevin Crummy: There have been fewer office purchases, mostly by owner-users and high-net-worth individuals.

Stuart: The pricing for these trades has been quite high on a per square foot basis, reflecting the scarcity premium for quality West L.A. real estate. With that, I will turn the call over to Stuart.

Stuart Mcelhinney: With that, I will turn the call over to Stuart. Thanks Kevin, good morning everyone. During the second quarter, we signed 222 office leases, covering 793,000 square feet, including 205,000 square feet of new leases and 588,000 square feet of renewal leases. The overall value of new leases we signed in a quarter increased by 1.1%, with cash breads down 12.4%. Of course, in any quarter, the specific leases rolling off and on can cause those numbers to vary substantially. Our total leasing cost during the second quarter average $5.62 per square foot per year, below our pre-pandemic long-term average, and well below the average for other office REITs.

Stuart Mcelhinney: With that, I will turn the call over to Stuart. Thanks, Kevin. Good morning, everyone.

Stuart Mcelhinney: With that, I will turn the call over to Stuart.

Stuart Mcelhinney: Thanks, Kevin. Good morning, everyone.

Stuart Mcelhinney: During the second quarter, we signed 222 office leases covering 793,000 square feet, including 205,000 square feet of new leases and 588,000 square feet of renewable. The overall value of new leases we sign in a quarter increased by 1.1%, with cash spreads down 12.4%. Of course, in any quarter, the specific leases rolling off and on can cause those numbers to vary substantially. Our total leasing cost during the second quarter averaged $5.62 per square foot per year, below our pre-pandemic long-term average and well below the average for other offices.

Stuart: Thanks, Kevin. Good morning, everyone. During the second quarter, we signed 222 office leases covering 793,000 square feet, including 205,000 square feet of new leases and 588,000 square feet of renewal leases.

Stuart Mcelhinney: During the second quarter, we signed 222 office leases covering 793,000 square feet, including 205,000 square feet of new leases and 588,000 square feet of renewable. The overall value of new leases we signed in the quarter increased by 1.1%, with cash spreads down 12.4%. Of course, in any quarter, the specific leases rolling off and on can cause those numbers to vary substantially. Our total leasing cost during the second quarter averaged $5.62 per square foot per year, below our pre-pandemic long-term average and well below the average for other office buildings. This success reflects several key advantages of our operating platform.

Stuart: The overall value of new leases we sign in the quarter increased by 1.1%, with cash spreads down 12.4%. Of course, in any quarter, the specific leases rolling off and on can cause those numbers to vary substantially.

Stuart: Our total leasing costs during the second quarter averaged $5.62 per square foot per year, below our pre-pandemic long-term average, and well below the average for other office rates.

Stuart Mcelhinney: This success reflects several key advantages of our operating platform. First, with our dominant market share and standardized buildouts, we have finished suites that can accommodate most tenant requirements without expensive modifications. In other words, we often already have a suite that fits the tenant, compared to other landlords who must incur significant TI cost to accommodate new tenants. Second, our upgraded customized website and search technology allows tenants to quickly find and virtually tour potential suites. Finally, by doing space planning, designing construction work ourselves, we control costs, design standardized buildouts that are reusable, accelerate move-in times, and improve tenant satisfaction.

Stuart Mcelhinney: This success reflects several key advantages of our operating platform. First, with our dominant market share and standardized buildouts, we have finished suites that can accommodate most tenant requirements without expensive modifications. In other words, we often already have a suite that fits the tenant, compared to other landlords who must incur significant TI costs to accommodate new tenants. Second, our upgraded, customized website and search technology allows tenants to quickly find and virtually tour potential suites.

Stuart: This success reflects several key advantages of our operating platform.

Stuart Mcelhinney: First, with our dominant market share and standardized build-outs, we have finished suites that can accommodate most tenant requirements without expensive modifications. In other words, we often already have a suite that fits the tenant, compared to other landlords who must incur significant TI costs to accommodate new tenants. Second, our upgraded, customized website and search technology allows tenants to quickly find and virtually tour potential suites. Finally, by doing space planning, design, and construction work ourselves, we control costs, design standardized build-outs that are reusable, accelerate move-in times, and improve tenant satisfaction. Our residential portfolio remains essentially fully leased at 99% and continues to generate healthy rent rollouts. With that, I'll turn the call over to Peter to discuss our results.

Stuart: First, with our dominant market share and standardized buildouts, we have finished suites that can accommodate most tenant requirements without expensive modifications.

Stuart: In other words, we often already have a suite that fits the tenant, compared to other landlords who must incur significant TI costs to accommodate new tenants.

Stuart: Second, our upgraded customized website and search technology allows tenants to quickly find and virtually tour potential suites.

Stuart: Finally, by doing space planning, design, and construction work ourselves, we control costs, design standardized build-outs that are reusable, accelerate move-in times, and improve tenant satisfaction.

Stuart Mcelhinney: Our residential portfolio remains essentially fully leased at 99%, and continues to generate healthy rent roll-ups.

Peter Seymour: Our residential portfolio remains essentially fully leased at 99% and continues to generate healthy rent roll-ups. With that, I'll turn the call over to Peter to discuss our results.

Peter Seymour: With that, I'll turn the caller to Peter to discuss our results.

Peter Seymour: Finally, by doing space planning, design, and construction work ourselves, we control costs, design standardized build-outs that are reusable, accelerate move-in times, and improve tenant satisfaction. Our residential portfolio remains essentially fully leased at 99% and continues to generate healthy rent rollouts. With that, I'll turn the call over to Peter to discuss our results. Thanks, Stuart. Good morning, everyone. I am reviewing our results compared to the second quarter of 2023. Revenue decreased by 3% as higher parking and residential revenue was more than offset by vacancy at Barrington Plaza and lower office occupancy. FFO decreased by 4.5% to $0.46 per share, primarily as a result of higher interest expense and lower revenues, partially offset by higher interest income and lower operating expenses.

Peter Seymour: Thanks, Stewart. Good morning, everyone. Reviewing our results compared to the second quarter of 2023, revenue decreased by 3%, as higher parking and residential revenue was more than offset by vacancy at Barrington Plaza and lower office occupancy. FFO decreased by 4.5% to 46 cents per share, primarily as a result of higher interest expense and lower revenues, partially offset by higher interest income and lower operating expenses. AFFO decreased slightly to $74.2 million, and same property cash NOI was essentially flat, with multifamily growth offset by lower office NOI. Our GNA remains very low relative to our benchmark group at only 4.7% of revenue.

Peter Seymour: Thanks, Stuart. Good morning, everyone.

Peter Seymour: AFFO decreased slightly to $74.2 million, and same-property cash NOI was essentially flat, with multifamily growth offset by lower office NOI. However, our GNA remains very low relative to our benchmark group at only 4.7% of revenue. Turning to guidance, our second quarter FFO benefited from anticipated property tax refunds and the timing of operating expenses. In determining our guidance for the rest of the year, we have not included similar benefits but have factored in the usual seasonal increase in our utility costs in the third quarter, the move out of Warner Brothers in Burbank, and Higher Interest Expense.

Peter Seymour: Looking at our results compared to the second quarter of 2023, revenue decreased by 3% as higher parking and residential revenue was more than offset by vacancy at Barrington Plaza and lower office occupancy. FFO decreased by 4.5% to $0.46 per share, primarily as a result of higher interest expense and lower revenues, partially offset by higher interest income and lower operating expenses. AFFO decreased slightly to $74.2 million, and same-property cash NOI was essentially flat, with multifamily growth offset by lower office NOI. Our GNA remains very low relative to our benchmark group at only 4.7% of revenue.

Peter Seymour: Thanks, Stuart. Good morning, everyone.

Peter Seymour: Reviewing our results compared to the second quarter of 2023, revenue decreased by 3% as higher parking and residential revenue was more than offset by vacancy at Barrington Plaza and lower office occupancy.

Peter Seymour: FFO decreased by 4.5% to $0.46 per share, primarily as a result of higher interest expense and lower revenues, partially offset by higher interest income and lower operating expenses.

Peter Seymour: AFFO decreased slightly to $74.2 million and same property cash NOI was essentially flat with multifamily growth offset by lower office NOI.

Peter Seymour: Our GNA remains very low relative to our benchmark group at only 4.7% of revenue.

Peter Seymour: Turning to guidance, our second quarter FFO benefited from anticipated property tax refunds and the timing of operating expenses. In determining our guidance for the rest of the year, we have not included similar benefits, but have factored in the usual seasonal increase in our utility costs in the third quarter. Stewart, the move out of Warner Brothers in Burbank, and higher interest expense. As a result, we are keeping the midpoint of our FFO guidance unchanged and narrowing the range to between $1.65 and $1.69 per share. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package.

Peter Seymour: Turning to guidance, our second-quarter FFO benefited from anticipated property tax refunds and the timing of operating expenses. In determining our guidance for the rest of the year, we have not included similar benefits but have factored in the usual seasonal increase in our utility costs in the third quarter, the move out of Warner Brothers and Burbank, and Higher Interest Expense.

Peter Seymour: According to guidance, our second quarter FFO benefited from anticipated property tax refunds and the timing of operating expenses.

Peter Seymour: In determining our guidance for the rest of the year, we have not included similar benefits, but have factored in the usual seasonal increase in our utility costs in the third quarter, the move out of Warner Brothers and Burbank, and higher interest expense.

Peter Seymour: As a result, we are keeping the midpoint of our FFO guidance unchanged and narrowing the range to between $1.65 and $1.69 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 property acquisitions or dispositions, Common Stock Sales or Repurchases, Financings, Property Damage Insurance Recoveries, Impairment Charges, or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions.

Peter Seymour: As a result, we are keeping the midpoint of our FFO guidance unchanged and narrowing the range to between $1.65 and $1.69 per share.

Peter Seymour: For information on assumptions underlying our guidance, please refer to the schedule in the earnings package.

Peter Seymour: As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financing, property damage, insurance recoveries, impairment charges, or other possible capital markets activities.

Operator: As usual, our guidance does not assume the impact of future property acquisitions or dispositions, Common Stock Sales or Repurchases, Financings, Property Damage Insurance Recoveries, Impairment Charges, or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

Peter Seymour: As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges, or other possible capital markets activities.

Operator: I will now turn the call over to the operator so we can take your questions. Thank you.

Speaker Change: I will now turn the call over to the operator so we can take your questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing a key.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speaker phone, we ask you to please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. And once again, in consideration of other participants, please limit your queries to one question and one follow-up.

Speaker Change: [inaudible]

Speaker Change: Thank you. We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.

Operator: If you're using a speaker phone, we ask that you please pick up your handset before pressing the key. To withdraw your question, please press star then 2. And once again, in consideration of other participants, please limit your queries to one question and one follow-up. We will now pause for a moment to assemble our roster. And today's first question comes from Blaine Heck with Wells Fargo. Please go ahead.

Speaker Change: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.

Operator: To withdraw your question, please press star then 2. And once again, in consideration of other participants, please limit your queries to one question and one follow-up. We will now pause for a moment to assemble our roster. And today's first question comes from Blaine Heck with Wells Fargo. Please go ahead.

Speaker Change: To withdraw your question, please press star then 2.

Speaker Change: Once again, in consideration of other participants, please limit your queries to one question and one follow-up. We will now pause for a moment to assemble our roster.

Operator: We will now pause for a moment to assemble our roster.

Blaine Heck: Great, thanks. Jordan, I think in your prepared remarks you mentioned rental rates that have held and continue to show strength. Can you just give a little bit more color on recent rental rate trends you've seen, whether that comment is based on asking rents or net effective rents, and maybe which submarkets are showing the best resiliency or even growth?

Jordan Kaplan: Great, thanks. Jordan, I think in your prepared remarks, you mentioned rental rates that have held and continue to show strength. Can you just give a little bit more color on recent rental rate trends you've seen, whether that comment is based on asking rents or net effective rents, and maybe which submarkets are showing the best resiliency or even growth?

Speaker Change: And today's first question comes from Blaine Heck with Wells Fargo. Please go ahead.

Blaine Heck: Great, thanks. Jordan, I think in your prepared remarks you mentioned rental rates that have held in...

Jordan Kaplan: Trends you've seen, whether that comment is based on asking rents or net effective rents, and maybe which submarkets are showing the best resiliency or even growth? Yeah. So, I'm saying rental rates have held for a couple of reasons. First of all, you know, there's the, and we report this to you guys. We've had a number of years and continue to have quarters of positive straight line roll-up, which, considering the strength of the markets from the previous period, '19 and earlier, that's I think pretty impressive. We're also seeing, but it's the only way to do like year to year is to look at asking rates, which you get out of CoStar or one of those places.

Blaine Heck: continue to show strength. Can you just give a little bit more color on recent rental rate trends you've seen, whether that comment is based on asking rents or net effective rents, and maybe which sub-markets are showing the best resiliency or even growth?

Jordan Kaplan: So, I'm saying rental rates have held for a couple reasons. First of all, you know, there's the fact, and we report this to you guys, we've had a number of years and continue to have quarters of positive straight line roll-ups, which considering the strength of the markets from the previous period 19 and earlier, is, I think, pretty impressive. We're also seeing, but the only way to do like year-to-year is to look at asking rates which you get out of CoStar or one of those places, and we're seeing that strength, and we're seeing that strength not being offset by concessions but actually existing in the net effectiveness of the deals.

Jordan Kaplan: Yeah, so I'm saying rental rates have held for a couple reasons. First of all, you know, there's the fact, and we report this to you guys. We've had a number of years and continue to have quarters of positive straight-line roll-up, which considering the strength of the markets from the previous period 19 and earlier, that's, I think, pretty impressive. We're also seeing, but the only way to do like year-to-year is to look at asking rates which you get out of CoStar or one of those places, and we're seeing that strength, and we're seeing that strength not being offset by concessions but actually existing in the net effective of the deals.

Jordan Kaplan: Yeah, so I'm saying rental rates have held for a couple reasons. First of all, you know, there's the fact, and we report this to you guys, we've had a number of years and continue to have quarters of positive straight-line roll-up.

Jordan Kaplan: which considering the strength of the markets from the previous period, 19 and earlier, that's I think pretty impressive. We're also seeing.

Jordan Kaplan: But the only way to do year-to-year is to look at asking rates, which you get out of CoStar or one of those places, and we're seeing that strength, and we're seeing that strength not being offset by concessions, but actually existing in the net effectiveness of the deals. We're seeing that ourselves.

Jordan Kaplan: And we're seeing that strength, and we're seeing that strength not being offset by concessions, but actually existing in the net effect of the deals. We're seeing that ourselves. So, as I said, we feel pretty good about where that rental rates haven't fallen off, and we saw them like after the 2008 recession. We saw them really fall off. We have not experienced that this time.

Jordan Kaplan: We're seeing that ourselves. So, as I said, we feel pretty good about where rental rates haven't fallen off. We saw them, like, after the 2008 recession, we saw them really fall off. We have not experienced that.

Jordan Kaplan: We're seeing that ourselves. So, as I said, we feel pretty good about where rental rates haven't fallen off. We saw them fall off after the 2008 recession, but we have not experienced that.

Speaker Change: Thank you very much. Thank you.

Speaker Change: So, as I said, we feel pretty good about where...

Speaker Change: that rental rates haven't fallen off. We saw them like after the 2008 recession we saw them really fall off. We have not experienced that this time.

Jordan Kaplan: Great. And any specific submarkets that you'd call out as being a little bit better or worse positioned within your portfolio?

Jordan Kaplan: Great. And any specific submarkets that you'd call out as being a little bit better or worse positioned within your portfolio? Well, I mean, I spent so many years making excuses for why and why it's just like a colossally strong market now because we took some of the product out of the market. So it's very strong.

Jordan Kaplan: Great. And any specific sub-markets that you'd call out as being a little bit better or worse positioned within your portfolio?

Speaker Change: Great, and any specific sub-markets that you'd call out as being a little bit better or worse positioned within your portfolio?

Jordan Kaplan: Well, I mean, I have to say that, you know, I spent so many years making excuses for why and why it's just like a glossary strong market now because we took some of the product out of the market. So, it's very strong. But, you know, I think beyond that, I think most of the west side is, you know, I don't think you would differentiate anything there. It all the way around, we're seeing that strength. And, you know, Warner Center has a lot of good things happening, but it still has its issues with respect to vacancy.

Jordan Kaplan: I mean, I have to say that, you know, I spent so many years making excuses for why and why it's just like a colossally strong market now because we took some of the product out of the market. So it's very strong. But, you know, I think beyond that, I think most of the West Side is, you know, I don't think you would differentiate anything there. All the way around, we're seeing that strength. And you know, Warner Center has a lot of good things going on, but it still has its issues with respect to vacancy.

Speaker Change: well

Speaker Change: I mean I have to say it that you know I spent so many years making excuses for why and why it's just like a colossally strong market now because we took some of the product out of the market so it's very strong.

Jordan Kaplan: But, you know, beyond that, I think most of the West Side is, you know, I don't think you would differentiate anything there. All the way around, we're seeing that strength, and, you know, Warner Center has a lot of good things happening, but it still has its issues with respect to vacancy. But that covers the whole gamut.

Speaker Change: But, you know, I think beyond that, I think most of the...

Speaker Change: West side is, you know, I don't think you would differentiate anything there All the way around we're seeing that strength and you know Warner Center has

Speaker Change: has a lot of good things happening, but it still has its issues with respect to vacancy. But that's probably...

Jordan Kaplan: But that probably...

Blaine Heck: But that probably covers the whole gamut. All right. Great.

Jordan Kaplan: Lee covers the whole gamut.

Jordan Kaplan: All right, great. And then just second question, can you just talk a little bit more about your plans for upcoming debt maturity? It's just looking past the swaps. You have a few upcoming maturities later this year in early 2025. Can you just talk us three plans for those? Will you be looking to pay those off at maturity with your cash balance, or is it more likely you look to refinance? And if you're looking into refinancing, can you just talk about the overall financing environment and whether you think you'll need to pay down the loans with cash to reset LTVs or add other assets as collateral?

Jordan Kaplan: All right, great. And then, just for the second question, can you just talk a little bit more about your plans for upcoming debt maturities? Just looking past the swaps, you have a few upcoming maturities later this year and in early 2025. Can you just talk us through your plans for those?

Jordan Kaplan: All right, great. And then, just a second question, can you just talk a little bit more about your plans for upcoming debt maturities? Just looking past the swap, you have a few upcoming maturities later this year and in early 2025. Can you just talk us through your plans for those? Will you be looking to pay those off at maturity with your cash balance, or is it more likely you will look to refinance?

Speaker Change: It covers the whole gamut.

Speaker Change: Second question, can you just talk a little bit more about your plans for upcoming debt maturities? Just looking past the swaps, you have a few upcoming maturities later this year in early 2025.

Jordan Kaplan: Will you be looking to pay those off at maturity with your cash balance? Or is it more likely you will look to refinance? And if you're looking into refinancing, can you just talk about the overall financing environment and whether you think you'll need to pay down the loan with cash to reset the LTDs or add other assets as collateral?

Speaker Change: Can you just talk us through your plans for those? Will you be looking to pay those off at maturity with your cash balance, or is it more likely you look to refinance? And if you're looking into refinancing, can you just talk about the overall financing environment and whether you think you'll need to pay down the loans with?

Jordan Kaplan: And if you're looking into refinancing, can you just talk about the overall financing environment and whether you think you'll need to pay down the loan with cash to reset LTDs or add other assets as collateral? So each...

Speaker Change: with cash to reset LTDs or add other assets as collateral.

Jordan Kaplan: So each loan has its own kind of thing that it will be done. We do have a plan for all of the loans. And I feel good about it, and I'm confident we'll get it all done. There are sometimes when we'll do; there'll be some cash pay down. I don't think that's as significant.

Jordan Kaplan: So each... Each loan has its own kind of thing that will be done. We do have a plan for all of the loans. I feel good about it, and I'm confident we'll get it all done. There are some times when we do, there'll be some cash pay down. I don't think that's as significant.

Jordan Kaplan: Each loan has its own kind of thing that will be done. We do have a plan for all of the loans. I feel good about it, and I'm confident we'll get it all done. There are some times when we do, there'll be some cash pay down. I don't think that's as significant.

Speaker Change: So each

Speaker Change: Each loan has its own kind of thing that will be done. We do have a plan for all of the loans.

Speaker Change: and I feel good about it and I'm confident we'll get it all done. There are some times when we'll do there'll be some cash pay down I don't think that's as significant. We have a lot of buildings that

Jordan Kaplan: We have a lot of buildings that are unencumbered, so we can actually extend loans by adding collateral and making everybody happy, especially ones that are a few years out. I'm happy to repeat that I feel confident about our debt, our portfolio; we're giving nothing back. We're all good on that. I mean, I don't like we're, no one to like where rates are a little, they're coming back our way a little bit. So that's also probably a piece of good news.

Jordan Kaplan: We have a lot of buildings that are unencumbered, so we can actually extend loans by adding collateral and making everybody happy, especially ones that are a few years out. I'm, I, I'm happy to repeat that I feel confident about our debt, our portfolio, we're giving nothing back. We're all good on that. I mean, I don't like what I mean; no one could like where rates are, although they're coming back our way a little bit. So that's also probably a piece of good.

Jordan Kaplan: We have a lot of buildings that are unencumbered, so we can actually extend loans by adding collateral and making everybody happy, especially ones that are a few years out. I'm happy to repeat that I feel confident about our debt, our portfolio, and we're giving nothing back. We're all good on that. I mean, I don't like what, I mean, no one could like where rates are, although they're coming back our way a little bit. So that's also probably.

Speaker Change: are unencumbered so we can actually extend loans by adding collateral and making everybody happy, especially ones that are a few years out.

Speaker Change: I'm happy to repeat that I feel confident about our debt.

Speaker Change: Our portfolio, we're giving nothing back. We're...

Speaker Change: All good on that. I mean, I don't like where... I mean, no one could like where rates are, although they're coming back our way a little bit. So that's also probably a piece of good news.

Blaine Heck: Great. Thanks, Jordan.

Jordan Kaplan: Great. Thanks, Jordan. And our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Hey, morning out there.

Alexander Goldfarb: All righty. And our next question comes from Alexander Goldfarb with Piper Sandler here. Please go ahead. Hey, morning out there. Two questions. First, Jordan on the national tenants, when you say they're still hesitant, is that like they wake up last Friday, look at the jobs print and go, we're not leasing space? Or is it really the way those outposts are doing in your market, those natural, those national tenants don't have the business that warrants them to be doing the leasing. I'm just trying to separate because clearly the local tenants are doing deals and leasing. I'm trying to figure out, is it the national tenants just aren't doing their business in your markets, isn't healthy?

Jordan Kaplan: Great. Thanks, Jordan.

Alexander Goldfarb: And our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Jordan Kaplan: All righty.

Speaker Change: And our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb: Hey, morning out there. Two questions. First, Jordan, on the national tenants, when you say they're still hesitant, is that like, they wake up last Friday, look at the jobs print, and go, we're not leasing space? Or is it really the way those outposts are doing in your market, those natural national tenants don't have the business that warrants them to be doing the leasing? I'm just trying to separate them because, clearly, the local tenants are doing deals and leasing.

Jordan Kaplan: Two questions first: Jordan on the National Tenant. When you say they're still hesitant, is that like, they wake up last Friday, look at the jobs print, and go, we're not leasing space? Or is it really the way those outposts are doing in your market, those natural, those national tenants don't have the business that warrants them to be doing the leasing? I'm just trying to separate them because, clearly, the local tenants are doing deals and leasing.

Alexander Goldfarb: Hey, good morning out there. Two questions first.

Jordan Kaplan: I'm trying to figure out if it's the national tenants just aren't doing their business in your markets isn't healthy, or it's someone at corporate that's getting scared because of a bad jobs print or something like that.

Speaker Change: Jordan, on the National Tenants...

Alexander Goldfarb: When you say they're still hesitant is that like

Speaker Change: They wake up last Friday, look at the jobs print and go, we're not leasing space. Or is it really the way those outposts are doing in your market those natural those national tenants?

Speaker Change: Don't have the business that warrants them to be doing the leasing. I'm just trying to separate because clearly the local tenants are doing deals and leasing. I'm trying to figure out is it the national tenants just aren't doing their business in your markets isn't healthy or it's someone a corporate that's getting scared because

Alexander Goldfarb: I'm trying to figure out if it's the national tenants just aren't doing their business and your markets aren't healthy, or it's someone at corporate that's getting scared because of a bad jobs print or something like that?

Alexander Goldfarb: Or it's someone, a corporate that's getting scared because of a bad jobs print or something like that?

Speaker Change: of a bad jobs print or something like that.

Jordan Kaplan: Well, that's a very refined question, and I don't know a lot of these guys. I don't want to overstate that. The larger tenants have just sort of dropped out completely. Stuart has some information about it, maybe I should turn the call over to Stuart, but I'm feeling better now. So I'm feeling better about leasing the pipeline and starting to see more. We are starting to see more activity from larger tenants.

Jordan Kaplan: Well, that's a very refined question. And I, you know, I don't know a lot of these guys. I don't want to overstate that. The larger tenants have just sort of dropped out completely. Stuart has some information about it, maybe I should turn the call over to Stuart, but I'm feeling better now. So I'm feeling better about it. Leasing, the pipeline, and starting to see more. We are starting to see more activity from larger tenants.

Jordan Kaplan: Well, that's a very refined question, and I don't know a lot of these guys. I don't want to overstate that larger tenants have just sort of dropped out completely. But Stuart has some information about it. Maybe I should have turned the call over to Stuart, but I want, I'm feeling better now. So I'm feeling better about leasing the pipeline and starting to see more, where we are starting to see more activity from larger tenants. So I don't want to pay into this, so we're still in the doldrums of a year ago or whenever it was at its worst.

Speaker Change: well that's a very refined question and I you know I don't I don't know a lot of these guys I don't want to overstate

Speaker Change: that

Speaker Change: The larger tenants have just sort of dropped out completely. Stuart has some information about it, maybe I should turn the call over to Stuart, but I'm feeling better now.

Speaker Change: So I'm feeling better about

Stuart: leasing the pipeline and and starting to see more where start we are starting to see more activity from larger tenants

Jordan Kaplan: So, I don't want to paint it as though we're still in the, you know, the doldrums of a year ago or whenever it was at its worst. We're actually probably feeling a little better now. But Stuart, do you want to add something to that? Yeah, sure.

Jordan Kaplan: I don't want to paint it as though we're still in the doldrums of a year ago or whenever it was at its worst. We're actually probably feeling a little better now. But Stuart, do you want to add something to that?

Stuart: So...

Stuart: I don't want to paint it as though we're still in the doldrums of a year ago or whenever it was at its worst. We're actually probably feeling a little better now.

Jordan Kaplan: We're actually probably feeling a little better now.

Stuart Mcelhinney: But Stuart, do you want to add something to that? Yeah, sure. So, you know, we made it a point of telling you last quarter that we only had signed one new lease over 10,000. on square feet in the first quarter. That was, you know, well below trend of what we typically do. So we saw improvement in that this quarter. We did three deals over 10,000 feet in the second quarter. So feeling better to see some momentum there. It's still not back to levels, pre-pandemic average levels. So we'd like to see that strength and more. But I'd echo Jordan's comments that we are starting to feel a little bit more optimistic with that segment.

Stuart Mcelhinney: Yeah, sure. So, you know, we made it, I think, a point of telling you last quarter that we only had signed one new lease over 10,000 square feet in the first quarter. That was, you know, well below the trend of what we typically do. So, we saw improvement in that this quarter. We did three deals over 10,000 feet in the second quarter. So, I'm feeling better to see some momentum there. It's still not back to levels, you know, the pre-pandemic average level. So, we'd like to see that strengthen more, but I'd echo Jordan's comments that we are starting to feel a little bit more optimistic with that segment.

Stuart Mcelhinney: Yeah, sure. So, you know, we made it, I think, a point of telling you last quarter that we only had signed one new lease over $10,000. In the first quarter, that was well below the trend of what we typically do. So we saw improvement in that this quarter. We did three deals over 10,000 feet in the second quarter. So, uh, feeling better to see some momentum there. It's still not back to levels, uh, you know, the pre-pandemic average level.

Stuart: But Stuart, do you want to add something to that? Yeah, sure. So, you know, we made it, I think, a point of telling you last quarter that we only had signed one new lease over 10,000 square feet in the first quarter.

Stuart: We saw improvement in that this quarter. We did three deals over 10,000 feet in the second quarter, so feeling better to see some momentum there. It's still not back to levels, you know, pre-pandemic average levels, so we'd like to see that strengthened more, but I'd I'd echo

Stuart Mcelhinney: So we'd like to see that strengthened more, but I'd echo Jordan's comments that we are starting to feel a little bit more optimistic about that. Okay, and then maybe just as a follow-up there, Stuart, you know, given that small tenants are active, is there something that impedes your ability to break up those over 10,000 square feet, and Male Speaker? Yeah, I understand. I think that no, we would still look to take larger spaces and break them up.

Stuart: Jordan's comments that we are starting to feel a little bit more optimistic with that segment.

Stuart Mcelhinney: Okay. And then maybe just as a follow-up there. Stuart, you know, given that small tenants are active, is there something that impedes your ability to break up those over 10,000 square feet spaces into smaller pre-built suites and lease them, or it's literally you've maxed out all the demand in the smaller tenants. And therefore, you're 100% least, you know, effectively on the small tenants. And really the only place where you're literally going to get incremental demand is from those larger tenants. So just trying to figure out how much you can set up the problem between the two.

Stuart Mcelhinney: Okay, and then maybe just as a follow-up there, Stuart, given that small tenants are active, is there something that impedes your ability to break up those over 10,000 square feet spaces into smaller pre-built suites and lease them, or it's literally you've maxed out all the demand for the smaller tenants, and therefore, you're 100% leased, you know, effectively, to the small tenants. And really, the only place where you're literally going to get incremental demand is from those larger tenants. I'm just trying to figure out how much you can feather the problem between the two. Yeah, no, I understand. I think that...

Speaker Change: Okay, and then maybe just as a follow-up there, Stuart, you know, given that small tenants are active...

Speaker Change: Is there something that impedes your ability to break up those over 10,000 square feet?

Stuart: Spaces into...

Stuart: smaller pre-built suites and lease them or it's literally

Stuart: You've maxed out all the...

Stuart: all the demand in the smaller tenants and therefore, you're 100% leased, you know, effectively on the small tenants.

Stuart: And really, the only place where you're literally going to get incremental demand is from those larger tenants. I'm just trying to figure out how much you can fathom the problem between the two.

Stuart Mcelhinney: That's still an option in our portfolio. By no means have we maxed out our, you know, our ability to break up larger space into smaller units. In fact, we've been vocal about doing that at Studio Plaza as we're looking to release the Warner Brothers Discovery Space. We'll break that up into smaller units. It's a floor-by-floor and kind of building-by-building decision. If we have a good product, that smaller spec suite product available at the moment, then we don't need to take a larger space and break it up.

Stuart Mcelhinney: Yeah, no, I understand. I think that, no, we still would look to take larger spaces and break them up. That's still an option in our portfolio. By no means have we maxed out our ability to break up larger spaces into smaller ones. In fact, we've been vocal about doing that at Studio Plaza as we're looking to release the Warner Bros. Discovery Space.

Stuart Mcelhinney: Yeah, no, I understand. I think that no, we still would look to take larger spaces and break them up. That's still an option in our portfolio. By no means have we maxed out, you know, our ability to break up larger space in a smaller. In fact, we've been vocal about doing that at Studio Plaza, as we're looking to release the Warner Brothers Discovery space. We'll break that up into smaller spaces. It's a floor by floor and kind of building by a billing decision. If we have good product that's smaller specs, we product available at the moment, then we don't need to take larger space and break it up.

Speaker Change: Yeah, no, I understand. I think that, no, we still would look to take larger spaces and break them up. That's still an option in our portfolio. By no means have we maxed out.

Speaker Change: Our ability to break up larger space in a smaller, in fact, we've been

Speaker Change: Vocal about doing that at Studio Plaza, as we're looking to release that Warner Brothers Discovery Space, we'll break that up into smaller spaces.

Stuart Mcelhinney: We'll break that up into smaller spaces. It's a floor-by-floor and kind of building-by-building decision. If we have a good product, that smaller spec suite product available at the moment, then we don't need to take larger space and break it up. So, you know, we've got a lot of leasing to do across the portfolio. We're very focused on it, large leasing, small leasing. We could get improvement out of all those categories. We could see better, smaller leasing, although it's still remaining very active.

Speaker Change: It's a floor-by-floor and kind of building-by-building decision. If we have good product, that smaller spec suite product available,

Stuart Mcelhinney: So, you know, we've got a lot of leasing to do across the portfolio. We're very focused on it, large leasing, small leasing. We could get improvement out of all those categories.

Stuart Mcelhinney: So, you know, we've got a lot of leasing to do across the portfolio. We're very focused on it: large leasing, small leasing. We could get improvement out of all those categories. We could see more; we could see better, smaller leasing, although it's still remaining a very active; that could improve. So, we could get improvement across the board. We're focused on small, large, medium tenants. We can break space up, build more specs weeks. We've been, we've been very aggressive about doing that, and it remains very successful for us.

Speaker Change: at the moment, then we don't need to take larger space and break it up. So, you know, we've got a lot of leasing to do across the portfolio. We're very focused on it, large leasing, small leasing. We can get improvement out of all those categories. We could see more.

Stuart Mcelhinney: That could improve. So we could get improvement across the board. We're focused on small, large, and medium-sized tenants. We can break space up, and build more spec suites. We've been very aggressive about doing that, and it remains very successful for us.

Stuart Mcelhinney: We could see better, smaller leasing, although it's still remaining very active. That could improve. So we could get improvement across the board. We're focused on small, large, medium tenants. We can break space up, and build more spec suites.

Speaker Change: we could see better smaller leasing, although it's still remaining very active. That could improve. So we could get improvement across the board. We're focused on small, large, medium tenants. We can break space up, build more spec suites. We've been very aggressive about doing that, and it remains very successful for us.

Stuart Mcelhinney: Okay. Thank you.

Stuart Mcelhinney: We've been very aggressive about doing that, and it remains very successful. Okay, thank you. And our next question today comes from Michael Griffin with Citi. Please go ahead.

Michael Griffin: And the next question today comes from Michael Griffin with City. Please go ahead. Great. Thanks. I want to go back just the comments on the leasing environment, and I realize kind of quarterly numbers can be choppy there.

Michael Griffin: And our next question today comes from Michael Griffin with Citi. Please go ahead.

Speaker Change: Okay, thank you.

Speaker Change: And our next question today comes from Michael Griffin with Citi. Please go ahead.

Michael Griffin: Great, thanks. I want to go back just to comments on the leasing environment, and I realize kind of quarterly numbers can be choppy there, but you know how many of these larger tenant deals do you think you need to be doing in order to get that negative net absorption to turn positive, and kind of when can we expect that inflection point for net absorption?

Stuart Mcelhinney: Great, thanks. I want to go back just to comments on the leasing environment. And I realize kind of quarterly numbers can be choppy there. But you know, how many of these larger tenant deals do you think you need to be doing in order to get that negative net absorption to turn positive? And kind of when can we expect that inflection point for net absorption?

Michael Griffin: Great, thanks. I want to go back just to comments on the leasing environment and

Michael Griffin: But, you know, how many of these larger tenant deals do you think you need to be doing in order to get that negative net absorption to turn positive, and kind of when can we expect that inflection point for net absorption? Hey Michael, you know, if we look back over a longer term average, we used to do five or six, you know, five or six deals, maybe over 10,000 feet and maybe kind of in a 90,000 foot average range per quarter. We've been below that. You know, we talked about how we've been below that. So we can see that improvement.

Michael Griffin: I realize kind of quarterly numbers can be choppy there, but you know, how many of these larger tenant deals do you think you need to be doing in order to get that negative net absorption to turn positive and kind of when can we expect that inflection point for net absorption?

Stuart Mcelhinney: Hey, Michael. You know, if we look back over a longer term average, we used to do five or six, you know, five or six deals, maybe over 10,000 feet, and maybe kind of in a 90,000 foot average range per quarter. We've been below that, you know; we talked about how we've been below that. So we can see the improvement. As to when, I have no idea, but I hope it's soon. Jordan, and I just told you, we're feeling a little bit better about what's going on with the larger guys. There's some dialogue and some activity. So that's optimistic, but I can't tell you exactly when we'll see it.

Speaker Change: Hey, Michael. You know, if we look back over a longer term average, we used to do five or six, you know, five or six deals, maybe over 10,000 feet, and maybe kind of in a 90,000 foot average range per quarter. We've been below that, you know, we've talked about how we've been below that.

Kevin Crummy: Jordan and I just told you we're feeling a little bit better about what's going on with the larger guys. There's some dialogue and some activity, so that's optimistic, but I can't tell you exactly when we'll see that. I appreciate that, Stuart. And then, just turning kind of to the transaction market, I think you mentioned distressed opportunities and maybe more coming to the market on the multifamily side relative to office. But, you know, as you sit out there today, are there any office properties that kind of meet that category of sort of your bread and butter type properties that you could see, you know, maybe these high-quality buildings come in at distressed prices? And if so, would you prefer to execute more on the office side? Or could we see it more on the multifamily? So, this is Kevin.

Stuart Mcelhinney: As to when, I have no idea; I hope it's soon. Jordan and I just told you we're feeling a little bit better about what's going on with the larger guys. There's some dialogue and some activity.

Speaker Change: We could see that improvement. As to when, I have no idea, I hope it's soon. Jordan and I just told you we're feeling a little bit better about what's going on with the larger guys. There's some dialogue and some activity. So that's optimistic, but I can't tell you exactly when we'll see that switch.

Stuart Mcelhinney: So that's optimistic, but I can't tell you exactly when we'll see that switch.

Michael Griffin: That's appreciate. That's do it.

Kevin Crummy: I appreciate that, Stuart. And then, just turning kind of to the transaction market, I think you mentioned distressed opportunities and maybe more coming to the market on the multifamily side relative to office. But, you know, as you sit out there today, are there any office properties that kind of meet that category of sort of your bread and butter type properties that you could see, you know, maybe these high-quality buildings come in at distressed prices? And if so, would you prefer to execute more on the office side? Or could you see it more on the multifamily?

Kevin Crummy: And then just turning kind of to the transaction market. I think you mentioned the stress opportunities and maybe more coming to the market on the multifamily side relative to office. But, you know, as you sit out there today, are there any office properties that kind of meet that category of sort of your bread and butter type properties that you could see, you know, maybe these high quality buildings come in at the stress pricing. And if so, you know, would you prefer to execute more on the office side, or could we see it more on the multi.

Speaker Change: I appreciate that, Stuart. And then just turning kind of to the transaction market, I think you mentioned distressed opportunities and maybe more coming to the market on the multifamily side relative to office, but, you know, as you sit out there today, are there any office properties that kind of meet that

Speaker Change: category of sort of your bread and butter-type properties that you could see, you know, maybe these high-quality buildings come in at distressed pricing, and if so, you know, would you prefer to execute more on the office side, or could we see it more on the multifamily?

Kevin Crummy: Lee Family.

Kevin Crummy: So this is Kevin. The multi-family is still trading it. It's not trading at the extremely low cap rates that it was, but it's still very, very low cap rates and fully priced. So there's going to be a better discount on the office side, but the office side is just taking a little longer to work its way through the system. And so, you know, I mentioned that there have been a couple of user trades, a couple little buildings behind that worth, but the multi-tenant class A office on the left side, we haven't seen as much. Although, you know, I'm thinking that if there are going to be opportunities, they'll be second half of this year or early part of next year.

Michael Griffin: So this is Kevin. The multifamily is still trading at, you know, it's not trading at the extremely low cap rates that it was, but it's still very, very low cap rates and fully priced. So there's going to be a better discount on the office side, but the office side is just taking a little longer to work its way through the system. And so, you know, I mentioned that there have been a couple of user trades, a couple of little buildings behind at Worth, but the multi-tenant class A office on the west side. We haven't seen as much, although, you know, I'm thinking that if there are going to be opportunities, they'll be in the second half of this year and early part of next year. So we're definitely watching.

Speaker Change: [inaudible]

Kevin Crummy: The multifamily is still trading at, you know, it's not trading at the extremely low cap rates it used to, but it's still very, very low cap rates and fully priced. So there's going to be a better discount on the office side. But the office side has just taken a little longer to work its way through the system. And so I mentioned that there have been a couple of user trades, a couple of little buildings behind that were at the multi-tenant class A office on the west side.

Kevin Crummy: So this is Kevin.

Speaker Change: The multifamily is still trading at you know, it's not trading at the

Kevin Crummy: extremely low cap rates that it was but it's still very very low cap rates and and fully priced

Speaker Change: So, there's going to be a better discount on the office side, but the office side is just taking a little longer to work its way through the system. And so, you know, I mentioned that there have been a couple of user trades, a couple little buildings behind At Worth.

Speaker Change: Multitenant, Class A office on the west side. We haven't seen as much, although I'm thinking that if there are going to be opportunities, they'll be second half of this year or early part of next year. [inaudible]

Kevin Crummy: We haven't seen as much, although I'm thinking that if there are going to be opportunities, they'll be in the second half of this year, early part. So we're definitely watching. Great, that's it for me. Thanks for the time.

Kevin Crummy: So we're definitely watching it.

Speaker Change: So we're definitely watching it.

Michael Griffin: Great.

Michael Griffin: Great. That's it for me. Thanks for the time.

Michael Griffin: That's it for me. Thanks for the time. Thanks.

Speaker Change: Great. That's it for me. Thanks for the time.

Steve Sackwell: And our next question comes from Steve Sackwell with Evercore ISI. Please go ahead. Yeah, thanks. Good morning. Jordan, just to kind of follow up on the leasing, you know, what industries is it tech? Is it media? Is it kind of everything?

Jordan Kaplan: And our next question comes from Steve Sakwa with Evercore ISI. Please go ahead. Yeah, thanks. Good morning.

Steve Sakwa: And our next question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Speaker Change: Thanks.

Speaker Change: And our next question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Jordan Kaplan: Yeah, thanks. Good morning, Jordan. Just to kind of follow up on the leasing, you know, what industries, is it tech, is it media, is it kind of everything, like where do you need to see the biggest, I guess, improvement in order to, you feel, get a kind of bigger upturn in the leasing activity overall?

Jordan Kaplan: Jordan, just to kind of follow up on the leasing, you know, what industries are it, is it tech? Is it media? Is it kind of everything? Like, where do you need to see the biggest, I guess, improvement in order to, you feel, get a kind of bigger upturn in the leasing activity overall? You know, it's probably not tech and media. We, as you know, we don't have a big concentration of them. So we've never kind of leaned back on them.

Steve Saquon: Yeah, thanks. Good morning. Jordan, just to kind of follow up on the leasing, you know, what industries is it tech? Is it media? Is it kind of everything? Like where do you need to see the biggest improvement in order to you feel get a kind of a bigger upturn in the leasing activity overall?

Jordan Kaplan: Like, where do you need to see the biggest improvement in order to you feel get a kind of a bigger upturn in the leasing activity overall? You know, it's probably not Tech and Media. We, as you know, we don't have a big concentration of them, so we've never kind of leaned back on them. But the other industries, the service industries, the other kind of general office and, you know, all of those guys, you know, that stuff we're feeling better about. I have to say I'm even; I feel that it's coming back.

Jordan Kaplan: You know, it's probably not tech and media. We, as you know, we don't have a big concentration of them. So we've never kind of leaned back on them. But the other industries, the service industries, the other kind of general office, and, you know, accounting, all of those guys.

Jordan Kaplan: You know, it's probably not tech and media. As you know, we don't have a big concentration of them, so we've never kind of leaned back on them.

Jordan Kaplan: But the other industries, the service industries, the other kind of general office, and, you know, accounting, all of those guys. You know, that's stuff we're feeling better about. I have to say that even I feel that it's coming back. So if I was to take a guess about this, I would say that we have a good chance. It's horrible to make this prediction. I don't want to do it with you, Steve, because you'll remember it.

Speaker Change: but the other industries, the service industries...

Speaker Change: The other kind of general office and accounting, all of those guys, you know, that's stuff we're feeling better about. I have to say, I'm...

Jordan Kaplan: You know, that's stuff we're feeling better about. I have to say I even feel that it's coming back. So if I was to take a guess about this, I would say that we have a good chance. It's horrible to make this prediction. I don't want to do it with you, Steve, because you're going to remember it.

Speaker Change: Even I...

Jordan Kaplan: So if I was to take a guess about this, I would say that we have a good chance. It's horrible to make this prediction. I don't want to do it with you, Steve, because you're going to remember it. But I think once we get past Studio Plaza, we are going to see we, we, we have a very good shot at heading back in more of an upward direction. And, and that's because of what we're seeing in terms of pipeline and activity.

Speaker Change: feel that it's coming back.

Speaker Change: So, if I was to take a guess about this, I would say that...

Speaker Change: We have a good chance, it's horrible to make this prediction, I don't want to do it with you, Steve, because you're going to remember it, but I think once we get past Studio Plaza, we are going to see, we have a very good shot at heading back in more of an upward direction.

Jordan Kaplan: But I think once we get past Studio Plaza, we're going to see that we have a very good shot at heading back in more of an upward direction. And that's because of what we're seeing in terms of pipeline and activity. Just a quick follow-up. I know big media and tech are not necessarily your tenants, but other companies and other smaller businesses feed off of them. So to the extent that streaming wars, you're laying off people and other businesses, I guess I'm trying to think about the feeder effect of tech and media being down as having a derivative impact on your customer base. And if they don't come back, can your tenants come back?

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly conference call. Today's call is being recorded. At this time all participants are in a listening mode. After management is prepared remarks, you will receive instructions for participating in a question and answer session.

Speaker Change: And that's because of what we're seeing in terms of pipeline and activity.

Jordan Kaplan: Just a quick follow up. I know big media and tech are not necessarily your tenants, but other companies and other smaller businesses feed off of those. So, to the extent that you're laying off people and other businesses, I guess I'm trying to think about the feeder effect of tech and media being down as having like a derivative impact on your customer base. And if they don't come back, can your tenants come back? Well, I, I'm not sure that the, so the, the director of an impact was a very large place that we had that already renewed in one 10 more years, which is an agency, right?

Jordan Kaplan: Do a quick follow-up. I know big media and tech are not necessarily your tenants, but other companies and other smaller businesses feed off of them. So, to the extent that streaming wars, you're laying off people and other businesses. I guess I'm trying to think about the feeder effect of tech and media being down as having a derivative impact on your customer base. And if they don't come back, then you become a tenant.

Stuart Mcelhinney: I will now turn the conference over to Stuart McElhinney, vice president of investor relations for Douglas Emmett. Please go ahead. 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 broadcast 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: Just do quick follow up there. I know big media and tech are not necessarily your tenants but other companies and other smaller businesses feed off of those so to the extent that streaming wars.

Speaker Change: you're laying off people in other businesses. I guess I'm trying to think about the feeder effect of tech and media being down as having like a derivative impact on your customer base. And if they don't come back, can your tenants come back?

Jordan Kaplan: Well, I'm not sure that the direct derivative impact was a very large lease that we had that already renewed and went ten more years, which is an agency right? The kind of secondary tertiary impacts, which are the accountants and the lawyers, they still seem to be going full tilt, I'm just going to tell you. Even though I know many of their clients are entertainers and this, that, directors, and producers and all of those people.

Jordan Kaplan: Well, I'm not sure that the direct derivative impact was a very large lease that we had that was already renewed and went 10 more years, which is an agency, right? The kind of secondary tertiary impacts, which are the accountants, the lawyers, they still seem to be going full tilt. I'm just going to tell you, even though I know many of their clients are entertainers and this, that, directors, and producers and all of those people.

Speaker Change: Well, I'm not sure that the direct derivative impact was a very large lease that we had that already renewed and went 10 more years, which is an agency, right? The kind of secondary, tertiary impacts, which is the accountant's...

Stuart Mcelhinney: 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.

Jordan Kaplan: The, the kind of secondary tertiary impact, which is the accountants, the lawyers, they still seem to be going full tilt. I'm just going to tell you, even though I know many of their clients are entertainers and, and, and, and directors and producers and all of those people. So, they for us. who's still seem to be moving along at a good clip. We're not, you know, the creative side, I would say. The sound stages, the studios, that activity doesn't need to be moving in any kind of meaningful way for the people that we're dealing with, whether they're working on deals good, bad, or indifferent, to be very active, and that is happening.

Stuart Mcelhinney: Therefore, our actual future results can be expected to differ from our expectations and those differences may be 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.

Speaker Change: The lawyers, they still seem to be going full tilt, I'm just going to tell you. Even though I know many of their clients are entertainers and directors and producers and all of those people. So they, for us,

Jordan Kaplan: So they, for us, still seem to be moving along at a good clip. We're not, you know, the creative side, I would say, the soundstages, the studios. That activity doesn't need to be moving in any kind of meaningful way for the people that we're dealing with, that are, whether they're working on deals, good, bad, or indifferent, to be very active. And that is happening.

Jordan Kaplan: So they, for us, still seem to be moving along at a good clip. We're not, you know, the creative side, I would say. The sound stages, the studios.

Speaker Change: still seem to be moving along at a good clip. We're not, you know, the creative side, I would say, the sound stages, the studios.

Jordan Kaplan: That activity doesn't need to be moving in any kind of meaningful way for the people that we're dealing with, whether they're working on deals, good, bad, or indifferent, to be very active. And that is happening. Okay, thanks. Peter, just as a follow-up, I know in the last two quarters you guys have had these tax refunds that have benefited your property operating expenses in the office. So we're just trying to really figure out what is kind of run rateable and would continue and how much of these are truly just one-time payments that don't really lower the overall basis because it feels like you guys have benefited.

Speaker Change: That activity doesn't need to be moving in any kind of meaningful way for the people that we're dealing with, that are, whether they're working on deals, good, bad, or indifferent, to be very active. And that is happening.

Peter Seymour: Okay, thanks. Peter, just as a follow-up, I know in the last two quarters you guys have had these tax refunds that have benefited your property operating expenses in the office. So we're just trying to really figure out what is kind of run rateable and would continue and how much of these are truly just one time. Payments that don't really lower the overall basis because it feels like you guys have benefited and I'm trying to figure out if that's just a function of COVID problems that have allowed you guys to reduce the property values and it's more of a permanent savings and how much of that savings was really one time only. Yeah, Steve, yeah, it's Peter.

Peter Seymour: Okay, thanks. Peter, just as a follow-up, I know the last two quarters, you guys have had these tax refunds that have, you know, benefited your property operating expenses in the office. So we're just trying to really figure out what is kind of run rateable and would continue, and how much of these are truly just one-time payments that don't really lower the overall basis because it feels like you guys have benefited.

Speaker Change: Okay, thanks. Peter, just as a follow-up, I know the last two quarters...

Operator: When we reach the question and answer portion in consideration of others, please limit yourself to one question and one follow-up.

Jordan Kaplan: I will now turn the call over to Jordan.

Peter Seymour: You guys have had these tax refunds that have benefited your property operating expenses in the office.

Jordan Kaplan: Good morning, and thank you for joining us. Many of our most important operating metrics are comparable to, or even better than, levels before the pandemic. Rental rates have held and continue to show strength. We are achieving significant lease transaction volume. Our retention rate continues to be high. Our leasing concessions have remained minimal. Tenant defaults are back to our historic low. We continue to experience positive straight line rent roll-up and our tenant improvements and leasing commissions per square foot remain below our 2016 to 2019 average.

Peter Seymour: So we're just trying to really figure out what is kind of run rateable and would continue and how much of these are truly just one-time

Speaker Change: payments that don't really lower the overall basis because it feels like you guys have benefited. I'm trying to figure out if that's just a function of COVID problems that have allowed you guys to reduce the property values and it's a more of a permanent savings and how much of that savings was really one-time in nature.

Jordan Kaplan: I'm trying to figure out if that's just a function of COVID problems that have allowed you guys to reduce property values, and it's more of a permanent savings, and how much of that savings was really one-time in nature. Yeah, Steve. Yeah, it's Peter.

Peter Seymour: So the tax refunds are generally related. They have a long life cycle. These are things that, you know, we appeal and start the appeal process years ago, and you don't know, for some time, when they're going to resolve. And we had some of them resolve in the first quarter and the second quarter.

Peter Seymour: Yeah, Steve. Yeah, it's Peter. So the tax refunds are generally really, they take their long life cycle. These are things that, you know, we appeal and start the appeal process years ago. And you don't know, you know, for some time, you know, when they're going to resolve, and we had some of them resolve in the first quarter. In the second quarter, it's, you know, we are expecting a bit more, but it's a multi-year process, and we have incorporated what we know into our guidance. I'm sorry, Peter, so there are more pending; you just don't know when, so there is no guidance.

Peter Seymour: Yeah, it's Peter. So tax refunds are generally, they have a long life cycle. These are things that we appeal and start the appeal process years ago, and you don't know for some time when they're going to resolve. And we had some of them resolve in the first quarter and the second quarter. It's, you know, we are expecting a bit more, but it's a multi-year process, and we have incorporated what we know into our guidance.

Speaker Change: Yeah, yeah, it's Peter. So the tax refunds are generally…

Peter Seymour: They're a long life cycle, these are things that we appeal and start the appeal process years ago.

Peter Seymour: And you don't know, you know, for some time, you know, when they're going to resolve. And we had some of them resolve in the first quarter and the second quarter.

Peter Seymour: It's, you know, we are expecting a bit more, but it's a multi-year process, and we have incorporated what we know into our guidance. I'm sorry, Peter, so there are more pending. You just don't know when, so there's no guidance? Well, you know, what we know, we've incorporated into our guidance, and we always, every time we buy a building, there's an appeal, there's a lot of these in the process over a period of time. Got it.

Peter Seymour: It's, you know, we are expecting a bit more, but it's a multi-year process and we have incorporated what we know into our guidance.

Peter Seymour: I'm sorry, Peter, so there are more pending, you just don't know when, so they're not in guidance? Well, you know, what we know we've incorporated into our guidance, and we always, every time we buy a building, there's an appeal, there's a lot of these in the process over a period of time. Got it. Thank you.

Peter Seymour: I'm sorry, Peter, so there are more pending, you just don't know when, so there's no guidance? Well, you know, what we know we've incorporated in our guidance and...

Peter Seymour: You know, what we know, we've incorporated in our guidance, and, you know, and we always, you know, every time we buy a building, there's an appeal. There's, you know, there's a lot of a lot of these in process over, you know, over a period of years. Got it.

Peter Seymour: Every time we buy a building there's an appeal, there's a lot of these in process over a period of years.

Kevin Crummy: Prities. The sellers consist of core funds, looking to raise liquidity and owners of floating rate financing, while cap rates have risen slightly, they remain at fairly low levels. There have been fewer office purchases, mostly by owner users and high net worth individuals. The pricing for these trades has been quite high on a per square foot basis, reflecting the scarcity premium for quality West LA real estate.

Steve Sackwell: Thank you.

Steve Sackwell: Steve?

Peter Seymour: Got it. Thank you.

John Kim: Next question today comes from John Kim at BMO Capital Markets. Please go ahead. Thank you. Jordan, I know we're harping on this little bit, but we're still interested in your commentary of, you know, large tenants coming back or feeling better about national tenants in the market. Is there any way to quantify what that has been as far as tour activity or what percentage of releasing pipeline that is? And what submarkets that may benefit from that?

John Kim: And our next question today comes from John Kim at BMO Capital Markets. Please go ahead.

Peter Seymour: Thank you. And our next question today comes from John Kim at BMO Capital Markets. Please go ahead.

Peter Seymour: David.

Speaker Change: And our next question today comes from John Kim at BMO Capital Markets. Please go ahead.

John Kim: Thank you. Jordan, I know we're harping on this a little bit, but we're still interested in your... world, and what sub-markets that may benefit from that.

Jordan Kaplan: Thank you. Jordan, I know we're harping on this a little bit, but we're still interested in yours. Are there any commentaries, or is there any effort to quantify that?

John Kim: Thank you. Jordan, I know we're harping on this a little bit, but we're still interested in your...

John Kim: commentary of, you know, large tenants coming back or feeling better about national tenants in the market. Is there any way to quantify what that has been as far as tour activity or what percentage of releasing pipeline that is and what sub markets that may benefit from that?

Jordan Kaplan: and what sub-markets may benefit from that. There is, but I'm not anxious to do it, but I can tell you that the reason I feel that way is as a result of our activity with larger tenants. So when you look at who we're talking to as we're approaching deals, what kind of deals we're working on, I go, oh, there are some good, big guys coming back. And that's expansions in your market, or just moving around from downtown to West L.A. Uh, it's... I'm not sure.

Jordan Kaplan: There is, but I'm not anxious to do it, but I can tell you that the reason I feel that way is as a result of our activity with larger tenants. So when you look at, like, who we're talking to, as we're approaching deals, what kind of deals we're working on, I go, oh, there's some good, big guys coming back. And that's like expansions in your, in your market, or just moving around from downtown to West LA. It's, I'm not, I'm not sure that I would call it moving around. I mean, I have to look at each one and see where you're asking where that those tenants are coming.

Jordan Kaplan: There is, but I'm not anxious to do it, but I can tell you that the reason I feel that way is as a result of our activity with larger tenants.

Jordan Kaplan: So, when you look at like, who we're talking to as we're approaching deals, what kind of deals we're working on, I go, oh god, there's some good big guys coming back.

Jordan Kaplan: And that's expansion in your market or just moving around from downtown to West L.A.?

Jordan Kaplan: And that's expansions in your market, or just moving around from downtown to West L.A.? Uh, it's... I'm not...

Jordan Kaplan: I'm not... I'm not sure that I would call it moving around. I mean, I'd have to look at each one and see where you're asking where those tenants are coming from. One that's noteworthy for me is an expansion.

Jordan Kaplan: I'm not sure that I would call it moving around. I mean, I'd have to look at each one and see where you're asking where those tenants are coming from. One that's noteworthy for me is an expansion, one that I'm OK with. On your credit facility a few quarters ago, you let it expire. Now, with rates coming down and stabilizing, are there any signs that the fees have come back so that it would be attractive for you to secure another one? Um, I have not seen that yet.

Speaker Change: I'm not sure that I would call it moving around. I mean, I'd have to look into each one and see where you're asking where those tenants are coming from. One that's noteworthy for me is an expansion, one that I'm familiar with.

Jordan Kaplan: from one that's noteworthy for me as an expansion. One that I'm familiar with. Okay.

Jordan Kaplan: On your credit facility a few quarters ago, you let it expire. Now, with rates coming down and stabilizing. Are there any signs that the fees have come back so that it would be attractive for you to secure another one? I have not seen that. I mean, we can; we allowed ourselves to build up a lot of cash. As you know, we let that expire. We cut the dividend, and we allowed the cash to build up, which you guys have seen. The, we did one loan that brought a lot of cash into on one of the, on the color apartments.

Speaker Change: [inaudible]

Jordan Kaplan: OK. On your credit facility a few quarters ago, you let it expire. Now, with rates coming down and stabilizing, are there any signs that the fees have come back so that it would be attractive for you to secure another one?

Speaker Change: Okay.

Speaker Change: On your credit facility a few quarters ago, you let it expire. Now with the rates coming down and stabilizing, are there any signs that the fees have come back so that it would be attractive for you to secure another one?

Speaker Change: Um...

Jordan Kaplan: I have not seen that. I mean, we can. We allowed ourselves to build up a lot of cash. As you know, when we let that expire, we cut the dividend, and we allowed the cash to build up, which you guys have seen. Then... We did one loan that brought in a lot of cash in, too, on a couple of apartments. I think that trade, that cost of us carrying more cash in an apartment today, where rates are still pretty good, is substantially better than what I would have to pay to create availability through a credit line. So even if rates come down, they'd have to come down even more, and costs would come down. I mean, it would be a waste.

Jordan Kaplan: I mean, we can. We allowed ourselves to build up a lot of cash. As you know, when we let that expire, we cut the dividend, and we allowed the cash to build up, which you guys. We did one loan that brought a lot of cash in, too, on a couple of apartments. I think that trade, that cost of us carrying more cash in an environment today where rates are still pretty good, is substantially better than what I would have to pay to create availability through a credit line. So even if rates come down, they'd have to come down even more and costs come down. I mean, there's still, Okay, so it's well on your checklist.

Speaker Change: I have not seen that. I mean we can

Speaker Change: We allowed ourselves to build up a lot of cash. As you know, we let that expire, we cut the dividend, and we allowed the cash to build up, which you guys have seen.

Stuart Mcelhinney: Our residential portfolio remains essentially fully leased at 99%, and continues to generate healthy rent roll-ups.

Speaker Change: The

Speaker Change: David.

Speaker Change: We did one loan that brought a lot of cash in, too, on a couple of apartments.

Jordan Kaplan: I think that that trade, that cost of us carrying more cash in an environment today, or there's still rates are still pretty good, is substantially better than what I would have to pay to create availability through a credit line. So even if rates come down, they'd have come down even more, and costs come down. I mean, there's still, would be a way to go. Okay. So it's lower on your checklist as far as, um, the buyer did get another one. Well, thank you. If the cost, where if the costs were good, I, I would, but I, I just don't, I don't even think they're close right now.

Peter Seymour: With that, I'll turn the caller to Peter to discuss our results. Thanks, Stewart.

Speaker Change: I think that trade, that cost of us carrying more cash in an environment today where rates are still pretty good.

Peter Seymour: Good morning, everyone. Reviewing our results compared to the second quarter of 2023, revenue decreased by 3%, as higher parking and residential revenue was more than offset by vacancy at Barrington Plaza and lower office occupancy. FFO decreased by 4.5% to 46 cents per share, primarily as a result of higher interest expense and lower revenues, partially offset by higher interest income and lower operating expenses. AFFO decreased slightly to $74.2 million, and same property cash NOI was essentially flat, with multifamily growth offset by lower office NOI.

Speaker Change: is substantially better than what I would have to pay to create availability through a credit line. So even if rates come down, they'd have to come down even more and costs come down. I mean, there still would be a ways to go.

Jordan Kaplan: Okay. I desire to get another one. Well, thank you.

Speaker Change: Okay, so it's lower on your checklist, as far as I'm concerned.

Jordan Kaplan: Desire to get another one. Well, if the costs were good, I would, but I just don't even think they're close right now. Right. Thanks a lot.

Jordan Kaplan: Well, if the costs were good, I would, but I just don't even think they're close.

Speaker Change: Desire to get another one

Speaker Change: Well, if the costs were good, I would, but I don't even think they're close right now.

Jordan Kaplan: Right.

Jordan Kaplan: Thanks a lot. Thanks.

Speaker Change: Fred. [inaudible]

Peter Abramowitz: Thank you. And our next question comes from before, you know, with the bank capital markets. Please go ahead. Great. Thanks for taking my question.

Jordan Kaplan: Thank you. And our next question comes from Upal Rana with KeyBank Capital Markets. Please go ahead.

Jordan Kaplan: Thank you. And our next question comes from Upal Rana with KeyBank Capital Markets.

Speaker Change: Thanks a lot.

Speaker Change: Thank you. And our next question comes from Upal Rana with KeyBank Capital Markets. Please go ahead.

Peter Seymour: Our GNA remains very low relative to our benchmark group at only 4.7% of revenue. Turning to guidance, our second quarter FFO benefited from anticipated property tax refunds and the timing of operating expenses. In determining our guidance for the rest of the year, we have not included similar benefits, but have factored in the usual seasonal increase in our utility costs in the third quarter. Stewart, the move out of Warner Brothers in Burbank, and higher interest expense.

Upal Rana: Great. Thanks for taking my question. Maybe, regarding Barrington Plaza here, expectations have shifted following the tentative ruling from this past June?

Upal Rana: Please go ahead. Great. Thanks.

Jordan Kaplan: Great, thanks for taking my question. Just maybe regarding Barrington Plaza here, you know, have expectations shifted following the tentative ruling from this past June? Now, I mean, there's a variety of ways we use that way.

Peter Abramowitz: Just the, maybe regarding Barrington Plaza here, you know, have expectations shifted following the tentative ruling from this past June? Now, I mean, there's a variety of ways we use that way. There's a variety of ways we, we always do. We feel well to get, they're, you know, get in a position to do the work. The building's about 90% vacant right now. So, you know, by one way or another, I, I, I'd always assume there'll be some tenants that will have to, like, figure out how, finish off with it. Okay.

Upal Rana: Great, thanks for taking my question. Just maybe regarding Barrington Plaza here, you know, have expectations shifted following the tentative ruling from this past June ?

Jordan Kaplan: Well, I mean, there's a variety of ways we use that way; there's a variety of ways we always do. It can be a while to get there, you know, get in a position to do the work. The building's about 90% vacant right now, so. You know, by one way or another, I'd always assume there'd be some tenants that we'll have to, like, figure out how to finish off

Upal Rana: Now.

Speaker Change: I mean there's a variety of ways we use that way. There's a variety of ways we always do EWIL.

Jordan Kaplan: There's a variety of ways we always do. We feel well to get there, you know, get in a position to do the work. The building's about 90% vacant right now, so. You know, by one way or another, I'd always assume there'd be...

Speaker Change: to get in a position to do the work. The building is about 90% vacant right now.

Speaker Change: You know, by one way or another, I'd always assume there'd be some tenants that we'll have to, like, figure out how to finish off with.

Jordan Kaplan: Okay, are they all sort of in one building, or is that something you can move into one building so you can start on the other parts of the project, or...? or how that works.

Jordan Kaplan: Okay, are they all sort of in one building, or is that something you can move into one building so you can start on the other parts of the project, or? or how that works. Well, there are some city programs that, depending on which we use, that would leave us in, you know, some are better or worse. We'll start with the ones that are better, and the position permit, but I don't think it's very material in any case to our numbers because there are so few people.

Peter Abramowitz: Is, are they all sort of in one building? Or is that something you can move into one building? So you can start on the other parts of the project or, or how that works? Well, there's some city programs that, depending on which, what we use, that would leave us in, you know, summer better or worse. We'll start with one that are better and the position impairment. But I don't think it's very material in any case to our numbers because there's so few people left. Okay.

Speaker Change: Okay, are they all sort of in one building or is that something you can move into one building so you can start on the other part of the project or? [inaudible]

Jordan Kaplan: Well, there are some city programs that, depending on which we use, that would leave us in, you know, some are better or worse. We'll start with the ones that are better, and the position permit, but I don't think it's very material in any case to our numbers because there are so few people left.

Speaker Change: or how that works.

Speaker Change: Well there's some city programs that depending on which what we use that would leave us in you know some are better or worse we'll start with the ones that are better that and the position impairment but I don't think it's very material in any case to our numbers because there's so few people left.

Operator: I will now turn the call over to the operator so we can take your questions. Thank you.

Jordan Kaplan: Okay, thank you. And then my second question was just on, you know, when you said rent roll up in your prepared remarks, is that because a relatively larger percentage of the portfolio has already rolled since COVID? And do you think that the rent roll-up can continue over the near, medium, or even the longer term? Well, I don't know about future predictions about where rental rates are going. But, you know, if you look at the..., more what my commentary was revolving around, we've held rates and actually, to some degree, rates improved, so I know we were looking back at roll-up stats for the last four years average without putting weight on four years ago, I mean, including recent numbers, and we're averaging over 7%. That, I mean, if you would have told me the COVI Great, thank you; that was awesome.

Peter Abramowitz: Thank you. And then, my second question was just on, you know, when you said rent roll-up in your prepared remarks, you know, is that because of a relatively larger percentage of your portfolio has already rolled since COVID? And do you think that rent roll-up can continue over the near, medium term, or even the longer term?

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, we ask to you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And once again in consideration of other participants, please limit your queries to one question and one follow-up.

Speaker Change: Okay, thank you. And then my second question was just on, you know, when you said rent roll-up in your prepared remarks, you know, is that because a relatively larger percentage of your portfolio has already rolled since COVID? And do you think that rent roll-up can continue over the near medium term or even the longer term?

Peter Abramowitz: Well, I don't know about future predictions about where rental rates are going. King. But, you know, if you look at the more, what my commentary was revolving around is, we've held rate, and actually, to some degree, rates improved. And so, I know we were looking back. I don't know, roll up stats for the last four years average, without putting weight to four years ago, I mean, including recent numbers. And we're averaging over 7%. I mean, if you would tell me the COVID recession doll drums, and we were going to average over 7%. I would have said, "Wow, that's a good time."

Jordan Kaplan: Well, I don't know about future predictions about where rental rates are going, but you know if you look at the more what my commentary what was revolving around is we've held rate and actually to some degree rates improved and so I know we were looking back roll up stats for the last four years average without putting weight to to four years ago I mean including recent numbers and we're averaging over seven percent that that I mean if you would have told me the COVID recession doldrums and we were going to average over seven percent I would have said, wow, that's a good time. And that's a basis, a lot of basis for why I say, I feel like rates of health in our market.

Operator: We will now pause for a moment to assemble our roster.

Speaker Change: Well, I don't know about future predictions about where rental rates are going.

Blaine Heck: And today's first question comes from Blaine Heck with Wells Fargo. Please go ahead. Great. Thanks. Jordan, I think in your prepared remarks, you mentioned rental rates that have held and continue to show strength. Can you just give a little bit more color on recent rental rates? Trends you've seen, whether that comment is based on asking rents or net effective rents and maybe which submarkets are showing the best resiliency or even growth?

Speaker Change: But, you know, if you look at the...

Moore: more what my commentary was revolving around is we've held rate and actually to some degree rates improved and so

Blaine Heck: Yeah. So, I'm saying rental rates have held for a couple of reasons. First of all, you know, there's the, and we report this to you guys. We've had a number of years and continue to have quarters of positive straight line roll-up, which considering the strength of the markets from the previous period, 19 and earlier, that's I think pretty impressive. We're also seeing, but it's the only way to do like year to year is to look at asking rates, which you get out of co-star or one of those places.

Speaker Change: I know we were looking back at roll-up stats for the last four years average without putting weight to four years ago, I mean including recent numbers.

Speaker Change: And we're averaging over 7%. I mean, if you would have told me COVID, recession, doldrums, and we were going to average over 7%?

Peter Abramowitz: And that's a basis, a lot of the basis for why I say, I feel like rates have helped in our markets.

Speaker Change: I would have said wow that's a good time and that's a basis a lot of basis for why I say I feel like rates of health in our markets.

Peter Abramowitz: Great, thank you. That was helpful.

Speaker Change: Great, thank you. That was helpful.

Peter Abramowitz: And our next question today from some Peter Abramowitz with Jefferies. Please go ahead. Thanks, yes, I just wanted to go back to the comments that you're feeling better about national tenants. Could you elaborate and possibly quantify what this means in terms of your leasing pipeline, overall leasing activity, or tour activity? Any comments to quantify or operate again would be helpful.

Jordan Kaplan: And our next question today comes from Peter Abramowitz with Jefferies. Please go ahead. Thanks, Yes, I just wanted to go back to the comments that you're feeling better about national tenants. Could you elaborate and possibly quantify what this means in terms of your leasing pipeline, overall leasing activity, or tour activity? Any comments to quantify or elaborate again? uh, The short answer is no, not really, but I mean, I, I, I. I felt like I didn't want to overdo it or underdo it. I just want to get it right.

Peter Abramowitz: And our next question today comes from Peter Abramowitz with Jefferies. Please go ahead.

Speaker Change: [inaudible]

Speaker Change: Our next question today comes from Peter Abramowitz with Jeffries. Please go ahead.

Jordan Kaplan: Thanks. Yes, I just wanted to go back to the comments that you're feeling better about national tenants. Could you elaborate and possibly quantify what this means in terms of your leasing pipeline, overall leasing activity, or tour activity? Any comments to quantify or elaborate again would be helpful.

Peter Abramowitz: Thanks. Yes, I just wanted to go back to the comments that you're feeling better about national tenants. Could you elaborate and possibly quantify what this means in terms of your leasing pipeline, overall leasing activity or tour activity? Any comments to quantify or elaborate again would be helpful.

Blaine Heck: And we're seeing, we're seeing that strength and we're seeing that strength not being offset by concessions, but actually existing in the net effect of the deals. We're seeing that ourselves. So, as I said, we feel pretty good about where that rental rates haven't fallen off and we saw them like after the 2008 recession, we saw them really fall off. We have not experienced that this time.

Jordan Kaplan: The short answer is no, not really, but you mean, I felt like I don't want to over do it, under do it, I just want to get it right. And what I'm telling you guys is we're seeing larger tenants start working their way back, and I'm very pleased to see some in the pipeline. We need, let's get those deals made, and then we'll come back and then we'll really be able to talk about them. I'm not ready now, and it's still going to be a battle to get back and lease up the properties, and that's still in front of us.

Jordan Kaplan: The short answer is, no, not really. But I mean, I felt like I didn't want to overdo it or underdo it. I just wanted to get it right.

Speaker Change: The short answer is no, not really, but I mean I

Speaker Change: felt like it was I don't want to over overdo it under do it I just want to get it right and what I'm telling you guys is we're seeing larger tenants start working their way back and I'm very pleased to see some in the pipeline and

Jordan Kaplan: And what I'm telling you guys is we're seeing larger tenants start working their way back, and I'm very pleased to see some in the pipeline. Let's get those deals made, and then we'll come back, and then we'll really be able to talk about them. I'm not ready now, and it's still going to be a battle to get back and lease up the properties, and that's still in front of us. So I don't want to exaggerate. I'm just saying that I'm feeling more positive.

Jordan Kaplan: Great. And any specific submarkets that you'd call out as being a little bit better or worse positioned within your portfolio? Well, I mean, I have to say that, you know, I spent so many years making excuses for why and why it's just like a glossary strong market now because we took some of the product out of the market. So, it's very strong. But, you know, I think beyond that, I think most of the west side is, you know, I don't think you would differentiate anything there.

Speaker Change: We need, let's get those deals made and then we'll come back and then we'll really be able to talk about them. I'm not ready now and it's still going to be a battle to get back and lease up the properties and that's still in front of us. So I don't want to overstate, I'm just saying I'm feeling more positive.

Jordan Kaplan: So I don't want to overstate; I'm just saying I'm feeling more positive.

Peter Abramowitz: Okay, that's all for me. Thanks.

Peter Abramowitz: Okay, that was helpful. That's all for me.

Bank of America: And if I have questions today, I'm showing to me over now with Bank of America, please go ahead.

Speaker Change: Okay, that's helpful. That's all for me.

Camille Bonnel: And our next question today comes from Camille Bonnel with Bank of America. Please go ahead.

Speaker Change: Peter Seymour, Stuart McElhinney, Stuart McElhinney, Stuart McElhinney,

Stuart Mcelhinney: And our next question today comes from Camille Bonnel with Bank of America. Please go ahead.

Jordan Kaplan: It all the way around, we're seeing that strength. And, you know, Warner Center has a lot of good things happening, but it still has its issues with respect to vacancy. But that probably... Lee, covers the whole gamut.

Bank of America: Hi there, I wanted to follow up on an earlier question. Can you quantify the impact of tax refunds that contributed to the second quarter? I assume the outcome came in line with your expectations given you didn't adjust guidance, or was it more favorable with offsets elsewhere? No, it was; it's Peter. It was in line with what we expected for the year. And when we take those refunds, they're, you know, they're reflected in office expenses. You can see the big reduction in office expenses versus prior year, and most of that is from the tax refunds.

Camille Bonnel: Hi there. I wanted to follow up on an earlier question. Can you quantify the impact of tax refunds that contributed to the second quarter? I assume the outcome came in line with your expectations, given you didn't adjust guidance, or was it more favorable with offsets elsewhere?

Jordan Kaplan: I wanted to follow up on an earlier question. Can you quantify the impact of tax refunds that contributed to the second quarter? I assume the outcome came in line with your expectations given you didn't adjust guidance, or was it more favorable with offsets? No, it was, it's Peter.

Jordan Kaplan: All right, great.

Camille Bonnel: Hi there. I wanted to follow up on an earlier question. Can you quantify the impact of tax refunds that contributed to the second quarter? I assume the outcome came in line with your expectations given you didn't adjust guidance or was it more favorable with offsets elsewhere?

Jordan Kaplan: And then just second question, can you just talk a little bit more about your plans for upcoming debt maturity? It's just looking past the swaps. You have a few upcoming maturities later this year in early 2025. Can you just talk us three plans for those? Will you be looking to pay those off at maturity with your cash balance or is it more likely you look to refinance? And if you're looking into refinancing, can you just talk about the overall financing environment and whether you think you'll need to pay down the loans with cash to reset LTVs or add other assets as collateral?

Peter Seymour: No, it was, Peter, it was in line with what we expected for the year, and when we take those refunds, they're, you know, they're reflected in office expenses. You can see the big reduction in office expenses versus the prior year, and most of that is from the tax.

Peter Seymour: It was in line with what we expected for the year. And when we take those refunds, they're, you know, they're reflected in office expenses. You can see the big reduction in office expenses versus prior. And can you quantify what that was?

Camille Bonnel: No it was, it's Peter, it was in line with what we expected for the year and when we take those refunds they're, you know, they're reflected in office expenses. You can see the big reduction in office expenses versus prior year and most of that is from the tax refunds.

Bank of America: Can you quantify what that was? You can go through it with Peter later; you can quantify it; you can look at the expense change.

Peter Seymour: And can you quantify what that was?

Camille Bonnel: [inaudible]

Camille Bonnel: and can you quantify what that was?

Peter Seymour: You can go through it with Peter later, but you can quantify it; you can look at the expense chart.

Peter Seymour: You can go through it with Peter later, but you can quantify it; you can look at the expense change. And then just changing gears, I noticed your signed lease does not commence gap to occupancy has been trending lower the past three quarters. So I was wondering if you could provide any guideposts.

Camille Bonnel: You can go through it with Peter later, but you can quantify it, you can look at the expense change.

Jordan Kaplan: So each loan has its own kind of thing that it will be done. We do have a plan for all of the loans. And I feel good about it and I'm confident we'll get it all done. There are sometimes when we'll do, there'll be some cash pay down. I don't think that's as significant. We have a lot of buildings that are unencumbered so we can actually extend loans by adding collateral and making everybody happy, especially ones that are a few years out.

Camille Bonnel: Okay. And then just shifting, I noticed your signed lease not commenced gap to occupancy has been trending lower for the past three quarters, so I was wondering if you could provide any guidance on... How much of these leases are commencing in the rest of this year versus 2025? Yeah, generally speaking.

Bank of America: And then just to shifting, I noticed your lease finally not commence gap to occupancy has been trending lower the past three quarters. So I was wondering if you can provide any guide post on how much of these leases are commencing in the rest of this year versus 20, 20 for us. Thanks.

Camille Bonnel: Okay.

Speaker Change: I noticed your signed lease not commenced gap to occupancy has been trending lower the past three quarters. So I was wondering if you can provide any guideposts on...

Stuart Mcelhinney: How much of these leases are commencing in the rest of this year versus? Yeah, generally, our leases commence, For the most part, over the next three quarters after they've been signed, that's generally the majority of the... We were getting a lot of attention when that spread gapped out. A few years ago, we had a pretty widespread, which actually we like. It means we're doing a lot of leasing. The long-term average for that spread is 180-170 bps, something like that.

Speaker Change: How much of these leases are commencing in the rest of this year versus 2025? Thanks.

Bank of America: Yeah, generally our leases commence for the most part over the next three quarters after they've been signed. That's generally the majority of the leases. We were getting a lot of attention when that spread gapped out a few years ago. We had a pretty widespread, which actually we like means we're doing a lot of leasing. I think long-term average for that spread is 180, 170 basis points, something like that. So the more leasing we can do, the wider that spread usually gets. We like that, so we'd like to see that improve in that upward direction. But generally, our leases are commencing very quickly with our small attendance.

Stuart Mcelhinney: Yeah, generally, our leases commence, for the most part, over the next three quarters after they've been signed. That's generally the majority of the leases. We were getting a lot of attention when that spread gapped out. A few years ago, we had a pretty widespread, which actually we like, means we're doing a lot of leasing. I think the long-term average for that spread is 180, 170 basis points, something like that. So the more leasing we can do, the wider that spread usually gets.

Speaker Change: Yeah, generally our leases commence, for the most part, over the next three quarters after they've been signed. That's generally the majority of the leases.

Jordan Kaplan: I'm happy to repeat that I feel confident about our debt, our portfolio, we're giving nothing back. We're all good on that. I mean, I don't like we're, no one to like where rates are a little, they're coming back our way a little bit. So that's also probably a piece of good news. Great. Thanks Jordan. All righty.

Speaker Change: We were getting, you know, a lot of attention when that spread gapped out. A few years ago, we had a pretty widespread, which actually we like. It means we're doing a lot of leasing. I think long-term average for that spread is 180, 170 basis points, something like that.

Stuart Mcelhinney: So, you know, the more leasing we can do, the wider that spread usually is. We like that, so we'd like to see that improve in that upward direction, but generally, our leases are starting very quickly with our smaller tenants. We get them in that quarter or over the next couple.

Speaker Change: The more leasing we can do, the wider that spread usually gets.

Alexander Goldfarb: And our next question comes from Alexander Goldfarb with Piper Samler here. Please go ahead. Hey, morning out there. Two questions. First, Jordan on the national tenants, when you say they're still hesitant, is that like they wake up last Friday, look at the jobs print and go, we're not leasing space? Or is it really the way those outposts are doing in your market, those natural, those national tenants don't have the business that warrants them to be doing the leasing.

Stuart Mcelhinney: We like that. So we'd like to see that improve in that upward direction. But generally, our leases are starting very quickly with our smaller tenants. We get them in that quarter or over the next couple of quarters.

Bank of America: We get them in that quarter or over the next couple of quarters.

Bank of America: Thank you.

Speaker Change: Thank you very much for watching this video, and if you enjoyed this video, please leave a like and share it with your friends and family.

Stuart Mcelhinney: Thank you. And our next question today comes from Richard Anderson at Wedbush. Please go ahead.

Camille Bonnel: Thank you. And our next question today comes from Richard Anderson at Wedbush. Please go ahead.

Richard Anderson: Anna, would you like to ask questions from Richard Anderson at Woodbush?

Richard Anderson: Thank you. And our next question today comes from Richard Anderson at Wedbush. Please go ahead. Thanks. So is there another Bishop place in your future? Do you see in your portfolio anywhere, given the success you've had there, or is it tough to find an asset that would accommodate a conversion like that?

Richard Anderson: Please go ahead. Thanks.

Richard Anderson: Thanks. So is there another Bishop place in your future, do you see it in your portfolio anywhere, given the success you've had there, or is it, you know, tough to find an asset that would, you know, accommodate a conversion like that?

Jordan Kaplan: Thanks. So is there another Bishop place in your future? Do you see one in your portfolio anywhere, given the success you've had there, or is it tough to find an asset that would accommodate a conversion like that? I don't, it's not, we actually have a lot of assets that physically can accommodate the conversion. But financially, to have the conversion make sense.

Jordan Kaplan: Is there another bishop place in your future? Do you see in your portfolio anywhere, given the success you had there, or is it tough to find an asset that would accommodate a conversion like that? We actually have a lot of assets that physically can accommodate the conversion, but financially, to have the conversion make sense, you need a meaningful spread between a very meaningful spread between office rents and residential rents. If it's not very meaningful since our buildings are all in markets where you can lease up your buildings, and we're confident to get there, we aren't seeing that spread.

Alexander Goldfarb: I'm just trying to separate because clearly the local tenants are doing deals and leasing. I'm trying to figure out, is it the national tenants just aren't doing their business in your markets, isn't healthy? Or it's someone a corporate that's getting scared because of a bad jobs print or something like that? Well, that's a very refined question, and I don't know a lot of these guys. I don't want to overstate that larger tenants have just sort of dropped out completely.

Jordan Kaplan: I don't it's not We actually have a lot of assets that can physically accommodate the conversion. But financially, to have the conversion make sense. You need a meaningful spread between, a very meaningful spread between office rent and, um.., and Ken Burk, office rents were low and have been persistently low as a result of the low of the higher kind of stabilized vacancy of about 85 percent, but we saw that apartment rents were very strong, even in the exact same market.

Speaker Change: I don't it's not we actually have a lot of assets that physically can accommodate the conversion.

Speaker Change: But financially.

Jordan Kaplan: You need a meaningful spread between, a very meaningful spread between office rent and, um... Residential Rents, and if it's not very meaningful, since our buildings are all in markets where you can lease up your buildings and we're confident to get there, we aren't seeing that spread. So in Hawaii... Office rents were low and have been persistently low as a result of the higher kind of stabilized vacancy of about 85%. But we saw that apartment rents were very strong, even in the exact same market.

Speaker Change: to have the conversion make sense.

Speaker Change: You need a meaningful spread between, a very meaningful spread between office rents.

Speaker Change: and... [inaudible]

Speaker Change: residential rents and if it's not very meaningful since our buildings all are all in markets that where You know, you you can't lease up your buildings and we were confident to get there that we don't we aren't seeing that spread so in Hawaii

Alexander Goldfarb: But Stuart has some information about it. Maybe I should have turned the call over to Stuart, but I want, I'm feeling better now. So I'm feeling better about leasing the pipeline and starting to see more, where start we are starting to see more activity from larger tenants. So I don't want to pay into this, so we're still in the doldrums of a year ago or whenever it was at its worst. We're actually probably feeling a little better now.

Jordan Kaplan: But Stuart, do you want to add something to that?

Jordan Kaplan: So in Hawaii, office rents were low and have been persistently low as a result of a higher stabilized vacancy of about 85%. But we saw that apartment rents were very strong, which even in the exact same market.

Speaker Change: office rents were low and have been persistently low as a result of the low of the higher kind of stabilized vacancy of about 85 percent but we saw that apartment rents were very strong

Jordan Kaplan: So when we calculated and added in the cost of doing the conversion, considering the strength of the apartment rents and also the kind of reverb that would happen to the rest of our portfolio, we knew that one would make sense and in fact it more than made sense was extremely successful.

Jordan Kaplan: So when we calculated and added in the cost of doing the conversion considering the strength of the apartment rents and also the kind of reverberation that would happen to the rest of our portfolio, we knew that this one would make sense. And, in fact, it more than made sense. It was extremely successful.

Speaker Change: which even in the exact same market.

Speaker Change: When we calculated and added in the cost of doing the conversion, considering the strength of the apartment rents, and also the kind of reverb that would happen to the rest of our portfolio, we knew that one would make sense, and in fact, it more than made sense. It was extremely successful.

Stuart Mcelhinney: Yeah, sure. So, you know, we made it, I think, a point of telling you last quarter that we only had signed one new lease over 10,000, on Square feet in the first quarter. That was, you know, well below trend of what we typically do. So we saw improvement in that this quarter. We did three deals over 10,000 feet in the second quarter. So feeling better to see some momentum there. It's still not back to levels, pre-pandemic average levels. So we'd like to see that strength and more. But I'd echo Jordan's comments that we are starting to feel a little bit more optimistic with that segment.

Jordan Kaplan: That's not as easy to achieve in a larger market like this one where if you take a building out of the portfolio, it substantially changes. You take a building out of the office stock, and it substantially changes the amount of office that's available to be leased. So you don't have that, you know. Tailwind as part of the process. You have to just do it straight as a result of, like, this was an office building; now it's an apartment building. So you've got to really rely on that rent spread. I don't know that there's anything that we have at this time that's not there.

Jordan Kaplan: That's not as easy to achieve in a larger market where, like this one, if you take a building out of the portfolio, it substantially changes. If you take a building out of the office stock, it substantially changes the amount of office that's available to be leased. So you don't have that tailwind as part of the process; you have to just do it straight as a result of like this was an office building, now it's an apartment building. So you've got to really rely on that rent spread.

Jordan Kaplan: That's not as easy to achieve in a larger market like this one, where if you take a building out of the portfolio, it substantially changes. You take a building out of the office stock, and it substantially changes the amount of office that's available to be leased. So you don't have that, you know, Tailwind as part of the process.

Speaker Change: That's not.

Speaker Change: as easy to achieve in a larger market where, like this one, where if you take a building out of the portfolio, it substantially changes. If you take a building out of the office stock, it substantially changes the amount of office that's available to be leased. So, you don't have that, you know,

Jordan Kaplan: You have to just do it straight as a result of, like, this was an office building; now it's an apartment building. So you've got to really rely on that rent spread. And you know

Speaker Change: tailwind as part of the process. You have to just do it straight as a result of like, this was an office building, now it's an apartment building. So you got to really rely on that rent spread. And, you know,

Jordan Kaplan: I don't know that there's anything that we have at this time that's there.

Jordan Kaplan: I don't know that there's anything that we have at this time that's there. Okay. And then the second question is, you mentioned, and we all know, you don't have a whole lot of media exposure. I'm wondering why that's the case. Was that an intentional move on your part, or was it kind of lucky?

Stuart Mcelhinney: Okay. And then maybe just as a follow up there. Stuart, you know, given that small tenants are active, is there something that impedes your ability to break up those over, over 10,000 square feet spaces into smaller pre-built suites and lease them or it's literally you've maxed out all the demand in the smaller tenants. And therefore, you're 100% least, you know, effectively on the small tenants. And really the only place where you're literally going to get incremental demand is from those larger tenants.

Speaker Change: I don't know that there's anything that we have at this time that's there. Okay. And then the second question is, you mentioned, and we all know, you know, you don't have a whole lot of media exposure.

Richard Anderson: Okay, and then the second question is:

Jordan Kaplan: And then the second question is mentioned, and we all know you don't have a whole lot of media exposure.

Jordan Kaplan: The question is, you mentioned, and we all know, you don't have a whole lot of media exposure. I'm wondering why that's the case. Was that an intentional move on your part, or was it kind of lucky? Again, I don't mean to be throwing Hudson Pacific under the bus because I think that they'll ultimately do fine there, but is there something about that industry that you intentionally sort of veered away from?

Jordan Kaplan: I'm wondering why that's the case. Was that an intentional move on your part, or was it kind of lucky? Again, I don't mean to be throwing Hudson Pacific under the bus because I think that they'll ultimately do fine there, but is there something about that industry that you intentionally sort of viewed away from? from? No, I think it's more our strategy that we don't like relying on large tenants. We don't like single-tenant buildings, and both media and tech tend to be larger tenants. And so we just don't win a lot of bids on buildings, even if it's credit.

Speaker Change: I'm wondering why that's the case. Was that an intentional move on your part or was it kind of lucky?

Jordan Kaplan: Again, I don't mean to be throwing Hudson Pacific under the bus because I think that they'll ultimately do fine there. But is there something about that industry that you intentionally sort of veered away from? No, I think it's more our strategy that we don't like relying on large tenants. We don't like single-tenant buildings. And both media and tech tend to be larger tenants. And so we just don't win a lot of bids on buildings, even if it's on credit.

Speaker Change: be throwing Hudson Pacific under the bus because I think that they'll...

Speaker Change: Ultimately do fine there, but is there something about that industry that you intentionally sort of veered away from?

Stuart Mcelhinney: So just trying to figure out how much you can set up the problem between the two. Yeah, no, I understand. I think that no, we still would look to take larger spaces and break them up. That's still an option in our portfolio. By no means have we maxed out, you know, our ability to break up larger space in a smaller. In fact, we've been vocal about doing that at Studio Plaza, as we're looking to release the Warner Brothers Discovery space.

Jordan Kaplan: No, I think it's more our strategy that we don't like relying on large tenants. We don't like single-tenant buildings. And both media and tech tend to be larger tenants.

Speaker Change: No, I think it's more our strategy that we don't like relying on large tenants.

Speaker Change: We don't like single-tenant buildings.

Speaker Change: and both media and tech tend to be larger tenants.

Jordan Kaplan: And so we just don't win a lot of bids on buildings, even if it's on credit. We're more comfortable with small-tenant credit. And so we're just built for smaller tenants, which means we don't have buildings we're not leasing to. We're not focused on a lot of the larger tech and entertainment guys that are looking for big blocks of space, not that we probably, You know, we have that big block coming up in Warner Center, we'd be happy to, I mean, not in Warner Center, but..., and Berman, but they moved out, but so. That's the reason we don't have exposure to them. We don't have the types of buildings that they would probably find appealing.

Speaker Change: And so, we just don't win a lot of bids on buildings, even if it's credit. We're more comfortable with small tenant credit. Our small tenant credit profile has been outstanding historically and through this period of time.

Richard Anderson: Okay, thanks very much.

Jordan Kaplan: We're more comfortable with small-tenant credit; our small-tenant credit profile has been outstanding historically and through this period of time. And so we're just built for smaller tenants, which means we don't have buildings. We're not leasing to, we're not focused on a lot of the larger tech and entertainment guys that are looking for big blocks of space. Not that we probably, you know, we have that big block coming up in Warner Center; we have it every not in Warner Center, but in Burbank. But they moved out. So that's the reason we don't have exposure to them.

Jordan Kaplan: We're more comfortable with small-tenant credit. Our small-tenant credit profile's been outstanding historically and through this period of time, and so we're just built for smaller tenants, which means... We don't have buildings, we're not leasing to, and we're not focused on a lot of the larger tech and entertainment guys that are looking for big blocks of space. Not that we probably... You know, we have that big block coming up in Warner Center; we'd be happy to, I mean, not in Warner Center, but... and Berman.

Stuart Mcelhinney: We'll break that up into smaller spaces. It's a floor by floor and kind of building by a billing decision. If we have good product that's smaller specs, we product available at the moment, then we don't need to take larger space and break it up. So, you know, we've got a lot of leasing to do across the portfolio. We're very focused on it, large leasing, small leasing. We could get improvement out of all those categories.

Speaker Change: And so, we're just built for smaller tenants, which means we don't have buildings, we're not leasing to, we're not focused on a lot of the larger tech and entertainment guys that are looking for big blocks of space. Not that we probably...

Stuart Mcelhinney: We could see more, we could see better, smaller leasing, although it's still remaining a very active, that could improve. So, we could get improvement across the board. We're focused on small, large, medium tenants. We can break space up, build more specs weeks. We've been, we've been very aggressive about doing that and it remains very successful for us.

Speaker Change: You know we have that big block coming up in Warner Center. We'd be happy. I mean not Warner Center, but in

Jordan Kaplan: But they moved out. So that's the reason we don't have exposure to them. We don't have the types of buildings that they would probably find appealing.

Stuart Mcelhinney: Okay.

Speaker Change: Burbank and Burbank

Stuart Mcelhinney: Thank you.

Speaker Change: But, they moved out. So...

Jordan Kaplan: We don't have the types of buildings that they would probably find appealing. Yeah. Okay.

Speaker Change: That's the reason we don't have exposure to them. We don't have the types of buildings that they would probably find appealing.

Operator: Okay, thanks very much. Thank you, and this concludes our question and answer session. I'd like to turn the conference back over to the company for any closing remarks. Well, thank you all for joining us, and we'll be speaking again in another quarter. Thank you. This concludes today's conference call. We thank you all for attending today's presentation.

Jordan Kaplan: Thanks very much. All right. Thank you.

Speaker Change: Okay, thanks very much.

Operator: And this concludes our question-and-answer session.

Speaker Change: All righty.

Operator: I'd like to turn the conference back over to the company for the closing remarks. Well, thank you all for joining us, and we'll be speaking again in another quarter. Thank you.

Operator: Thank you, and this concludes our question and answer session. I'd like to turn the conference back over to the company for any closing remarks.

Michael Griffin: And the next question today comes from Michael Griffin with city. Please go ahead. Great. Thanks. I want to go back just the comments on the leasing environment and I realize kind of quarterly numbers can be choppy there.

Speaker Change: Thank you, and this concludes our question and answer session. I'd like to turn the conference back over to the company for any closing remarks.

Jordan Kaplan: Well, thank you all for joining us, and we'll be speaking again in another quarter.

Speaker Change: Well, thank you all for joining us, and we'll be speaking again in...

Operator: Thank you. This concludes today's conference call.

Speaker Change: and another quarter.

Operator: This concludes today's conference call. We thank you all for attending today's presentation. Even out of potential lines, we'll have a wonderful day.

Stuart Mcelhinney: But, you know, how many of these larger tenant deals do you think you need to be doing in order to get that negative net absorption to turn positive and kind of when can we expect that inflection point for net absorption? Hey Michael, you know, if we look back over a longer term average, we used to do five or six, you know, five or six deals, maybe over 10,000 feet and maybe kind of in a 90,000 foot average range per quarter. We've been below that. You know, we talked about how we've been below that. So we can see that improvement.

Stuart Mcelhinney: As to when I have no idea, I hope it's soon. Jordan and I just told you we're feeling a little bit better about what's going on with the larger guys. There's some dialogue and some activity. So that's optimistic, but I can't tell you exactly when we'll see that switch. That's appreciate.

Stuart Mcelhinney: That's do it.

Kevin Crummy: And then just turning kind of to the transaction market. I think you mentioned the stress opportunities and maybe more coming to the market on the multifamily side relative to office. But, you know, as you sit out there today, are there any office properties that kind of meet that category of sort of your bread and butter type properties that that you could see, you know, maybe these high quality buildings come in at the stress pricing. And if so, you know, would you prefer to execute more on the office side or could we see it more on the multi. Lee Family.

Kevin Crummy: So this is Kevin. The multi-family is still trading it. It's not trading at the extremely low cap rates that it was, but it's still very, very low cap rates and fully priced. So there's going to be a better discount on the office side, but the office side is just taking a little longer to work its way through the system. And so, you know, I mentioned that there have been a couple of user trades, a couple little buildings behind that worth, but the multi-tenant class A office on the left side, we haven't seen as much, although, you know, I'm thinking that if there are going to be opportunities, they'll be second half of this year or early part of next year. So we're definitely watching it.

Kevin Crummy: Great.

Kevin Crummy: That's it for me.

Operator: Thanks for the time.

Steve Sackwell: Thanks. And our next question comes from Steve Sackwell with Evercore ISI. Please go ahead. Yeah, thanks. Good morning. Jordan, just to kind of follow up on the leasing, you know, what industries is it tech? Is it media? Is it kind of everything?

Jordan Kaplan: Like, where do you need to see the biggest improvement in order to you feel get a kind of a bigger upturn in the leasing activity overall? You know, it's probably not tech and media. We, as you know, we don't have big concentration of them, so we've never kind of leaned back on them. But the other industries, the service industries, the other kind of general office and, you know, all of those guys, you know, that stuff we're feeling better about.

Jordan Kaplan: I have to say I'm even, I feel that it's coming back. So if I was to take a guess about this, I would say that we have a good chance, it's horrible to make this prediction. I don't want to do it with you, Steve, because you're going to remember it. But I think once we get past studio Plaza, we are going to see, we, we, we have a very good shot at heading back in more of an upward direction. And, and that's because of what we're seeing in terms of pipeline and activity.

Jordan Kaplan: Well, I, I'm not sure that the, so the, the director of an impact was a very large place that we had that already renewed in one 10 more years, which is an agency, right? The, the kind of secondary tertiary impact, which is the accountants, the lawyers, they still seem to be going full tilt. I'm just going to tell you, even though I know many of their clients are entertainers and, and, and, and directors and producers and all of those people.

Jordan Kaplan: So, they for us, who's still seem to be moving along at a good clip. We're not, you know, the creative side, I would say, the sound stages, the studios, that activity doesn't need to be moving in any kind of meaningful way for the people that we're dealing with that are whether they're working on deals good, bad, or indifferent to be very active, and that is happening.

Peter Seymour: Okay, thanks. Peter, just as a follow up, I know the last two quarters, you guys have had these tax refunds that have, you know, benefited your property operating expenses in the office. So we're just trying to really figure out what is kind of run rateable and would continue, and how much of these are truly just one time payments that don't really lower the overall basis because it feels like you guys have benefited.

Peter Seymour: I'm trying to figure out if that's just a function of COVID problems that have allowed us to be able to allow you guys to reduce the property values, and it's a more of a permanent savings. And how much of that savings was really one time in nature? Yeah, Steve, yeah, it's Peter. So the tax refunds are generally really, they take their long life cycle. These are things that, you know, we appeal and start the appeal process years ago.

Peter Seymour: And you don't know, you know, for some time, you know, when they're going to resolve, and we had some of them resolve in the first quarter. In the second quarter, it's, you know, we are expecting a bit more, but it's a multi-year process, and we have incorporated what we know into our guidance. I'm sorry, Peter, so there are more pending, you just don't know when, so there are no guidance. You know, what we know, we've incorporated in our guidance, and, you know, and we always, you know, every time we buy a building, there's an appeal. There's, you know, there's a lot of a lot of these in process over, you know, over a period of years.

Peter Seymour: Got it. Thank you.

John Kim: Steve? Next question today, come from John Kim at BMO Capital Markets. Please go ahead. Thank you. Jordan, I know we're harping on this little bit, but we're still interested in your commentary of, you know, large tenants coming back or feeling better about national tenants in the market. Is there any way to quantify what that has been as far as tour activity or what percentage of releasing pipeline that is? And what submarkets that may benefit from that?

John Kim: There is, but I'm not anxious to do it, but I can tell you that the reason I feel that way is as a result of our activity with larger tenants. So when you look at, like, who we're talking to, as we're approaching deals, what kind of deals we're working on, I go, oh, there's some good, big guys coming back. And that's like expansions in your, in your market, or just moving around from downtown to West LA.

John Kim: It's, I'm not, I'm not sure that I would call it moving around. I mean, I have to look at each one and see where you're asking where that those tenants are coming, from one that's noteworthy for me as an expansion. One that I'm familiar with. Okay. On your credit facility a few quarters ago, you let it expire now with rates coming down and stabilizing. Are there any signs that the fees have come back so that it would be attractive for you to secure another one?

John Kim: I have not seen that. I mean, we can, we allowed ourselves to build up a lot of cash. As you know, we let that expire. We cut the dividend and we allowed the cash to build up, which you guys have seen. The, we did one loan that brought a lot of cash into on one of the, on the color apartments. I think that, that trade, that cost of us carrying more cash in an environment today, or there's still rates are still pretty good, is substantially better than what I would have to pay to create availability through a credit line.

John Kim: So even if rates come down, they'd have come down even more and costs come down. I mean, there's still, would be a way to go. Okay. So it's lower on your checklist as far as, um, the buyer did get another one. Well, thank you. If the cost, where if the costs were good, I, I would, but I, I just don't, I don't even think they're close right now. Right. Thanks a lot. Thanks.

Jordan Kaplan: Thank you. And our next question comes from before, you know, with the bank capital markets. Please go ahead. Great. Thanks for taking my question.

Jordan Kaplan: Just the, maybe regarding Barrington Plaza here, you know, have expectations shifted following the tentative ruling from this past June? Now, I mean, there's a variety of ways we use that way. There's a variety of ways we, we always do. We feel well to get, they're, you know, get in a position to do the work. The building's about 90% vacant right now. So, you know, by one way or another, I, I, I'd always assume there'll be some tenants that will have to, like, figure out how, finish off with it.

Jordan Kaplan: Okay. Is, are they all sort of in one building? Or is that something you can move into one building? So you can start on the other parts of the project or, or how that works? Well, there's some city programs that, depending on which, what we use, that would leave us in, you know, summer better or worse. We'll start with one that are better and the position impairment. But I don't think it's very material in any case to our numbers because there's so few people left. Okay.

Jordan Kaplan: Thank you.

Jordan Kaplan: And then, my second question was just on, you know, when, when you said rent roll-up in your prepared remarks, you know, is that because of relatively larger percentage of your portfolio has already rolled since COVID? And do you think that rent roll-up can continue over the near, medium term or even the longer term? Well, I don't know about future predictions about where rental rates are going. King. But, you know, if you look at the more what my commentary was revolving around is, we've held rate and actually to some degree rates improved.

Jordan Kaplan: And so, I know we were looking back, I don't know, roll up stats for the last four years average, without putting weight to four years ago, I mean, including recent numbers. And we're averaging over 7%. I mean, if you would tell me the COVID recession doll drums, and we were going to average over 7%. I would have said, wow, that's a good time. And that's a basis, a lot of the basis for why I say, I feel like rates have helped in our markets.

Jordan Kaplan: Great, thank you, that was helpful.

Peter Abramowitz: And our next question today from some Peter Abramowitz with Jeffries. Please go ahead. Thanks, yes, I just wanted to go back to the comments that you're feeling better about national tenants. Could you elaborate and possibly quantify what this means in terms of your leasing pipeline, overall leasing activity or tour activity? Any comments to quantify or operate again would be helpful.

Jordan Kaplan: The short answer is no not really, but you mean, I felt like I don't want to over do it, under do it, I just want to get it right. And what I'm telling you guys is we're seeing larger tenants start working their way back and I'm very pleased to see some in the pipeline and we need let's get those deals made and then we'll come back and then we'll really be able to talk about them.

Jordan Kaplan: I'm not ready now and it's still going to be a battle to get back and lease up the properties and that's still in front of us. So I don't want to overstate, I'm just saying I'm feeling more positive.

Peter Abramowitz: Okay, that's all for me. Thanks.

Peter Seymour: And if I have questions today, I'm showing to me over now with Bank of America, please go ahead. Hi there, I wanted to follow up on an earlier question. Can you quantify the impact of tax refunds that contributed to the second quarter? I assume the outcome came in line with your expectations given you didn't adjust guidance or was it more favorable with offsets elsewhere? No, it was, it's Peter, it was in line with what we expected for the year.

Peter Seymour: And when we take those refunds, they're, you know, they're reflected in office expenses. You can see the big reduction in office expenses versus prior year and most of that is from the tax refunds. Can you quantify what that was? You can go through it with Peter later, you can quantify it, you can look at the expense change.

Peter Seymour: And then just to shifting, I noticed your lease finally not commence gap to occupancy has been trending lower the past three quarters. So I was wondering if you can provide any guide post on how much of these leases are commencing in the rest of this year versus 20, 20 for us. Thanks. Yeah, generally our leases commence for the most part over the next three-quarters after they've been signed. That's generally the majority of the leases.

Peter Seymour: We were getting a lot of attention when that spread gapped out a few years ago. We had a pretty widespread, which actually we like means we're doing a lot of leasing. I think long-term average for that spread is 180, 170 basis points, something like that. So the more leasing we can do, the wider that spread usually gets. We like that, so we'd like to see that improve in that upward direction, but generally our leases are commencing very quickly with our small attendance. We get them in that quarter or over the next couple of quarters.

Operator: Thank you.

Richard Anderson: Anna, would you like to ask questions from Richard Anderson at Woodbush? Please go ahead. Thanks. Is there another bishop place in your future? Do you see in your portfolio anywhere, given the success you had there, or is it tough to find an asset that would accommodate a conversion like that? We actually have a lot of assets that physically can accommodate the conversion, but financially to have the conversion make sense, you need a meaningful spread between a very meaningful spread between office rents and residential rents.

Richard Anderson: If it's not very meaningful since our buildings are all in markets where you can lease up your buildings and we're confident to get there, we aren't seeing that spread. So in Hawaii, office rents were low and have been persistently low as a result of a higher stabilized vacancy of about 85%. But we saw that apartment rents were very strong, which even in the exact same market. So when we calculated and added in the cost of doing the conversion, considering the strength of the apartment rents and also the kind of reverb that would happen to the rest of our portfolio, we knew that one would make sense and in fact it more than made sense was extremely successful.

Richard Anderson: That's not as easy to achieve in a larger market where like this one, where if you take a building out of the portfolio, it substantially changes. If you take a building out of the office stock, it substantially changes the amount of office that's available to be leased. So you don't have that tailwind as part of the process, you have to just do it straight as a result of like this was an office building, now it's an apartment building.

Richard Anderson: So you've got to really rely on that rent spread. I don't know that there's anything that we have at this time that's there. And then the second question is mentioned and we all know you don't have a whole lot of media exposure. I'm wondering why that's the case, was that an intentional move on your part or was it kind of lucky? Again, I don't mean to be throwing Hudson Pacific under the bus because I think that they'll ultimately do fine there, but is there something about that industry that you intentionally sort of viewed away from?

Richard Anderson: from? No, I think it's more our strategy that we don't like relying on large tenants. We don't like single-tenant buildings and both media and tech tend to be larger tenants. And so we just don't win a lot of bids on buildings, even if it's credit. We're more comfortable with small-tenant credit, our small-tenant credit propile has been outstanding historically and through this period of time. And so we're just built for smaller tenants, which means we don't have buildings, we're not leasing to, we're not focused on a lot of the larger tech and entertainment guys that are looking for big blocks of space.

Richard Anderson: Not that we probably, you know, we have that big block coming up in Warner Center, we have it every not in Warner Center, but in Burbank. But they moved out. So that's the reason we don't have exposure to them. We don't have the types of buildings that they would probably find appealing. Yeah. Okay. Thanks very much. All right. Thank you.

Jordan Kaplan: And this concludes our question and answer session.

Operator: I'd like to turn the conference back over to the company for the closing remarks. Well, thank you all for joining us and we'll be speaking again in another quarter. Thank you.

Operator: This concludes today's conference call. We thank you all for attending today's presentation. Even out of potential lines, we'll have a wonderful day.

Q2 2024 Douglas Emmett Inc Earnings Call

Request a DemoDemo

DEI

Douglas Emmett

Earnings