Q3 2024 Douglas Emmett Inc Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly earnings call.
Speaker Change: Today's call is being recorded at this time all participants aren't a listen only mode. After management for paratroomarks, you will receive instructions for participating in the question and answer session. If you require operator assistance, please press star then zero.
I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.
Stuart Mcelhinney: Thank you. Joining us today on the call or 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-gap financial measures to discuss during today's call in the earnings package.
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.
Speaker Change: For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. 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.
Jordan: Good morning and thank you for joining us.
Jordan: In the third quarter, we leased over 1 million square feet of office space, including over 350,000 square feet of new leases.
Jordan: Tenant demand from our diverse industries was strong in each of our three regions. Moreover, we had our best quarter for new leasing to tenants over 10,000 square feet since late 2022 when recessionary fears surfaced.
Jordan: Overall, we achieved positive absorption of approximately 90,000 square feet and improved our portfolio leased rate by 50 basis points to 82 percent.
Jordan: Turning to our financial results.
Jordan: We achieved FFO of 43 cents per share.
Jordan: Looking ahead, we are primarily focused on leasing up our office portfolio.
Jordan: We are seeing encouraging signs of increased tenant confidence overall, as well as good interest at Studio Plaza as it converts to a multi-tenant building.
Jordan: But I am encouraged by our lower-than-average lease expirations over the next five years.
Jordan: You can see the difference in the lease expiration chart in our earnings package.
Jordan: We are also focused on our repositioning projects.
Jordan: including Studio Plaza and Barrington Plaza and hope to acquire a few high quality assets at attractive prices during this part of the cycle.
Kevin: Now, I'll turn the call over to Kevin.
Kevin: Thanks, Jordan, and good morning, everyone. As Jordan mentioned, taking advantage of opportunities in the office market remains a key objective for us.
Kevin: The few recent transactions in our markets have so far been dominated by large tenant buildings, which are not our bread and butter.
Kevin: Larger tenants may mean fewer leasing transactions.
Jordan: But because of the concentration of risk and higher TIs, we prefer the stability of smaller, high-end tenants.
Jordan: As a result, our median lease size across our entire portfolio is only 2,400 square feet.
Jordan: In fact, out of our almost 2,700 office leases, we have only 28 leases over 40,000 square feet and only one, which was recently renewed through 2037, over 100,000 square feet.
Jordan: In addition, 73% of that square footage covered by those 28 leases was signed after the start of the pandemic.
Speaker Change: Learn more at www.plastics-car.com
Speaker Change: where we can leverage our operating platform to create value.
Speaker Change: Our company was founded in the early 90s, another period when office was an out-of-favor asset class. Our history, deep local knowledge, and unique operating platform give us the confidence to lean in at times like this, when others are overly cautious.
Stuart: With that, I will turn the call over to Stuart.
Stuart: Thanks, Kevin. Good morning, everyone. As Jordan mentioned, we had a terrific leasing quarter. We signed 236 office leases covering over 1 million square feet, including 353,000 square feet of new leases and 650,000 square feet of renewal leases.
Stuart: This strong new leasing increased our portfolio lease rate by 50 basis points to 82 percent.
Stuart: The overall value of new leases we signed in the quarter increased by 0.4%, with cash spreads down 11.2%.
Stuart: Because of better leasing to tenants over 10,000 square feet, we saw a slight increase in our average leasing costs during the quarter, though they remain well below the average for other office rates.
Stuart: Our residential portfolio remains essentially fully leased at 99.1% with rents continuing to rise.
Stuart: With that, I'll turn the call over to Peter to discuss our results.
Peter: Thanks Stuart. Good morning everyone. Reviewing our results compared to the third quarter of 2023, revenue decreased by 1.8 percent primarily due to lower office occupancy.
Peter: FFO decreased by 3.8% to 43 cents per share, primarily as a result of lower office NOI.
Peter: AFFO increased slightly to $68.8 million.
Stuart: And same property cash NOI decreased by 5.7% due to lower office NOI, partially upset by multifamily growth.
At only 4% of revenue, our GNA remains very low relative to our benchmark group.
Stuart: Turning to guidance, based on our Q3 results and higher expectations for fourth quarter operations, we have increased guidance for our full year FFO by four cents to between $1.69 and $1.73 per share.
Speaker Change: For information on assumptions underlying our guidance, please refer to the schedule in the earnings package.
Speaker Change: 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.
Speaker Change: I will now turn the call over to the operator so we can take your questions.
Speaker Change: 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, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, in consideration of other participants, please limit your queries to one question and one follow-up. Thank you.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Blaine Heck with Wells Fargo. Please go ahead.
Speaker Change: earmarking the majority for investment in acquisitions or funding to spend on Barrington.
Blaine Heck: Well, you named a lot of the good things that it's there for.
Speaker Change: Thank you.
Speaker Change: Number one is it's obviously there to guard the company and have liquidity considering what we've come out of and we hopefully are moving out of. But yeah, I mean, maybe there's some use for it with regard to debt.
Stuart: There's
Stuart: Hope I hope there's some good uses for it with regard to new acquisitions I think we'll also have our our partners involved in those but then we also have part of that. It's our investment
Speaker Change: So, I mean, it's for all those purposes. We have some relatively meaningful cash flow, you know, even following the dividend.
Speaker Change: and so we also use that for kind of a lot of the slower pace stuff like construction, property repositioning, and stuff like that.
Speaker Change: Yeah, Blaine, it's mostly normal seasonality. You know, tenant recoveries vary from quarter to quarter based on, you know, when we bill estimates, when we put out reconciliations, and so on. So it tends not to be smooth over the course of the year.
Blaine: Great. Thank you, guys.
Speaker Change: Thanks.
Speaker Change: The next question comes from Alexander Goldfarb with Piper Sandler.
Speaker Change: Please go ahead.
Alexander Goldfarb: Hey, good morning out there.
Alexander Goldfarb: First.
Alexander Goldfarb: It just, you know, it looks like, obviously, Warner Brothers is going to...
Alexander Goldfarb: fallout. I think as you guys said and there's going to be an occupancy drop in the fourth quarter.
Speaker Change: yet you're raising guidance.
Alexander Goldfarb: Can you just talk a little bit about what's going on?
Alexander Goldfarb: Sounds like there's better leasing coming and that the occupancy drop from Warner Brothers is going to be quickly offset or Just want to understand how we think about you know earnings going up and yet occupancy coming down
Alexander Goldfarb: Well...
Speaker Change: I mean, we...
Speaker Change: been planning for Warner Brothers moving out for.
Speaker Change: Jordan.
Speaker Change: Oh sorry, I lost you. I don't know why the thing just went to mute and I said that like the greatest thing while it was on mute but I won't even be able to remember it so let me go back to answer your question.
Speaker Change: Thank you very much.
Speaker Change: So, the Warner Brothers move out, we've known it's been coming for a very long time, obviously. But, you know, we've also been working super hard across leasing. The leasing group has been just...
Speaker Change: killing it I'm very pleased there and controlling expenses and getting revenue in and so we're we're really seeing improvement across everything I mean a little better on
Speaker Change: our GNA, better on our leasing, better on our expense controls. So it's really all the areas.
Speaker Change: You know, for the past few quarters, you know, national big tenants have been a weak spot.
Speaker Change: it sounds like those are coming back. So as you sit here today looking out, do you now feel comfortable that all aspects of leasing are now in a good spot going forward or do you think that is still going to be bumpy for the next few quarters?
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: Well
Speaker Change: I've been so bad at predicting the quarters that are coming up. I can tell you this. Our activity is very good.
Speaker Change: and I'm really pleased to see the tenants over 10,000 square feet. That activity is good. And so that coming out of leasing...
Speaker Change: Thank you.
Speaker Change: like I said couldn't be more pleased all right now go to the other side which is roll and roll outs you look over the next five years right starting in 25
Speaker Change: And it's down, I mean, it's less.
Speaker Change: It's lower and I think what's going on now because we've been reporting the terms of these leases is that we're going to
Speaker Change: a little bit over the more normalized pre-pandemic rates and the little bit longer leases. So all of those are tailwinds for us, right, in terms of kind of projecting out.
Speaker Change: Yeah one other thing Alex I'll just remind I know I remind you guys a lot but our leasing pipeline is extremely short so we meet these small tenants and we can kind of quickly get them through our system so that just means that we don't have a ton of visibility into 2025 activity is very good right now we still have a lot of work to do that that can impact the fourth quarter
Speaker Change: Okay, and then just one more if you don't mind.
Speaker Change: Jordan just
Speaker Change: You know.
Alexander Goldfarb: All these announcements out west, you know, Salesforce returned to office, Amazon returned to office. It reminded me that when I met you out, when they came to your office earlier in the year, you guys were suit-and-tie versus your traditional, you know, casual Southern Cal. So, I have to ask if you're following this return-to-office trend and are still suited up, or have you returned to the casual?
Speaker Change: Well, okay, so for starters...
Speaker Change: We return to the office in summer of 20.
Speaker Change: 2020, right? You can remember COVID, March, summer. I never felt that that program could work and keep a company healthy. So we've been in full five days a week since that time. So that's being in the office. And then at the beginning of this year,
Speaker Change: We went to suit-and-tie across the board. Ken's always been suit-and-tie, and Ken's reports have all been suit-and-tie.
Speaker Change: I was a criminal in this, and I was...
Speaker Change: and I was more casual and I wanted to be really clear that there's nothing casual about what we're doing. I wanted to be clear about our cultural, it was a cultural move to make sure everyone came focused, ready to work hard, ready to work longer. I mean this is a challenging economy and I just wanted to be clear.
Speaker Change: Clear about that from a cultural perspective that you know our job here is to make money for our Constituents and come dressed and ready to do that and I think it's made a little bit of a difference I'm wearing a suit and tie every day every day
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Michael Griffin with Citi. Please go ahead.
Michael Griffin: Great, thanks. Maybe just some more color around sort of net absorption in the quarter. You've obviously talked positively about the leasing trends and demand, but was this due to maybe some of those larger leases you had been working on finally getting executed in this quarter? And then, Jordan, maybe you can kind of give some insight into whether or not these larger leases, these signers have been more confident in signing leases than maybe what your expectations are in the quarters ahead.
Speaker Change: Hey, Michael, it's Stuart. Yeah, so, you know, really good volume, 236 leases, that's a lot of leasing, so we had good activity from our kind of core smaller tenants, and then also, as Jordan said, and we've said,
Speaker Change: So that over 10,000 category, which had been slower for us for the last couple of years.
Speaker Change: came back and was better than it's been in a while. So, pleased to see that. Honolulu was up. West L.A. was up.
Speaker Change: Valley was basically flat on the leasing, so we had good activity across the board.
Speaker Change: You know, Jordan, if you want to speak to the, you know, the pipeline of the larger tenants, I think we're still feeling good that that activity is there and better than it's been the last couple of years. Yeah, well, I mean, I've already said it. I can't say it enough.
Speaker Change: for, you know, better or worse.
Speaker Change: That is what pulls us out of these things. I mean, I can play every game in the world on the capital markets and loans and this and that, but that is what pulls us out. And it's doing it. I mean, it's just a ton of detailed work, and that's what's going on here.
Speaker Change: Thank you for watching!
Speaker Change: Thanks for that. I appreciate all the color there. And then maybe just going back to sort of opportunities you're seeing in the transaction market, it seems like
Speaker Change: It's been bigger deals that have mostly been out there now, but maybe nothing exactly in your wheelhouse. Can you give us a sense, when you're underwriting prospective transactions, you know, maybe from a IRR or return hurdle perspective, what are you getting to in order to make the math work on transactions?
Speaker Change: Hi, it's Kevin.
Speaker Change: We're not really in an IRR world right now, and the reason I say that is...
Speaker Change: If there were anything we were gauging by right now, it's probably about the price per square foot and the basis that you're getting into, and then where we think we're going to stabilize those buildings on a return basis.
Speaker Change: We're targeting properties that have vacancy in them because we want to take advantage of our operating platform. Vacancy doesn't scare us and you know, we're not good at buying buildings that are stabilized because we can't add that value.
Speaker Change: Thank you for watching!
Speaker Change: Great. That's it for me. Thanks for the time.
Speaker Change: Thanks.
Speaker Change: The next question comes from Jeff Spector with Bank of America. Please go ahead.
Jeff Spector: Thank you. I appreciate the comments and Jordan, I guess my first question is on
Jeff Spector: you know, your comment around
Jeff Spector: The you know leasing volume new tenants over 10,000 square feet. I know when we saw you in March
Jeff Spector: at your office, that was a big emphasis. What's happened there? And what gives you the confidence that that will continue into 25?
Jordan: Well, I can't say that I have confidence that it will continue into 2025. I can say that the kind of the short vision that we have around our pipeline today, that looks good. But what I can say about 2025 and forward is what I said earlier, which is that our role is more forgiving.
Jordan: We're going back to a more typical
Jordan: and it's the kind of...
Speaker Change: Part of it is a reflection of the incredible dominance of our operating platform.
Speaker Change: Thank you for watching!
Speaker Change: And what industries are driving this leasing? I know you have a lot of exposure to legal financial services, and that's been a big boost to New York City. What's happening in your key markets?
Speaker Change: Yeah, it was really broad-based. We looked, you know, we have that great pie chart that shows the diversity of our industries with legal and financial services, entertainment, health care, and we saw good leasing kind of across the board from all our industries.
Speaker Change: Thank you.
Jeff Spector: Thanks.
Speaker Change: The next question comes from Steve Sakwa with Evercore. Please go ahead.
Steve Sakwa: Thanks. I'll probably be the dead horse here on the leasing front, Jordan. But, you know, it was great to see the 350,000 feet in the quarter, you know, and I realized that there were a handful of large deals. I mean, do you feel like that level is sustainable or do you feel like?
Speaker Change: you know that kind of just
Speaker Change: Clicked on all cylinders this quarter and things might revert back a little bit Because it seems like in order to really move occupancy higher You probably need north of 300,000 feet per quarter of new deals to really sustainably move occupancy up and
Speaker Change: So I'm just curious, you know, how many of those larger deals do you have in the pipeline to kind of pull forward each quarter?
Speaker Change: As we sit right now,
Speaker Change: putting Studio Plaza to the side because that's going to go out in the fourth quarter, right? So that would be hard to get positive absorption. As we sit right now, I've already told you what the role going forward looks good to us in terms of being able to achieve
Speaker Change: positive absorption. And I'm also telling you that I like the look of the pipeline right now, but I really, to extrapolate that into a prediction.
Jeff Spector: of leasing next year or the next year, I mean, that would be extreme. I mean, right now we had...
Jeff Spector: a good quarter, which I think we actually foreshadowed for you guys a little bit on our last call, and then right now I'm saying I like the look of the pipeline right now. That's the amount I can say. I mean, we'll see. We'll have more information on the next call, and then you'll hear some more.
Speaker Change: Okay, and then follow up, just anything on Barrington Plaza at this point that you can sort of talk about, whether it's the kind of insurance claim or just the overall redevelopment process and kind of where are you in starting that whole project and the timeline would be helpful. Thanks.
Jeff Spector: kind of threw almost everything was
Speaker Change: And then I hope to start construction, and I think we will, in 2025.
Speaker Change: But it's been a very long road, and with respect to the insurance, I mean, we have an extremely significant claim, and, you know, I think it's very...
Jeff Spector: Honest to say the two sides are in extreme disagreement right now but you know I guess that will also get resolved eventually over the next year or two.
Jeff Spector: Thank you.
Speaker Change: Okay, great. Thanks for the comments.
Speaker Change: Thanks
Speaker Change: The next question comes from Rich Anderson with Wedbush. Please go ahead.
Rich Anderson: Thanks, guys. So.
Rich Anderson: On the idea of, you know, sort of feeling confident in executing on external growth in the office space, you said this is your fourth recession.
Rich Anderson: What gives you confidence that actual opportunities will materialize that fit? I mean, do you see a pipeline growing that is the small tenant variety or are you confident that you'll You're comfortable to act when that comes but you don't necessarily see Much on the horizon at the moment
Speaker Change: I think we see we see a pipeline growing of the type of buildings that we would like to buy.
Speaker Change: What is...
Speaker Change: Is there any reason why they're perhaps taking longer to come to market than those that you described that are of larger lease variety?
Speaker Change: or is it just happenstance? Well the the larger tenant deals
Speaker Change: people brought to market because they were you know it was the only thing they could have bring the market and they were getting very good price per foot I mean it looks at those larger tenant deals are trading for like eight hundred over a thousand bucks a foot
Rich Anderson: So they're kind of looking around the country and they're going, we can trade out of these things and, you know, stable cashflow for a long time. And they got very, very solid prices. I mean, you, you would go say they got prices that were, you know,
Rich Anderson: could have been a good price even before the pandemic.
Rich Anderson: And so the people that had sort of leasing challenges and all those things, I think, have been hanging out for a long time waiting to see if there's some kind of recovery, if they get saved, and it just takes time for them to get worn out. Remember, when you trade out of one of those buildings,
Rich Anderson: It's not like stock. You trade out, you're unlikely to get back in. I mean, we're a very dominant player in these markets, but there are a couple other players that also have...
Rich Anderson: much less than us, but they also have portfolios that they're unlikely to do any significant trading on. So it takes a long time to make a decision to sell something like that because it's not, you don't say to yourself, let's get out of this now and we'll get back in later. You're probably not getting back in.
Rich Anderson: Okay.
Speaker Change: Okay, and then second question is just in terms of the year-over-year growth obviously with Studio Plaza coming down or coming out of the system You know that creates a an earnings growth year-over-year headwind for you next year
Rich Anderson: Do you see any path to being able to produce positive FFO growth next year in light of that vacancy? If you moved quickly on it, could it potentially create enough cash flow for you to sort of break even from a growth perspective in 2025? Or is that too much to ask at this point?
Rich Anderson: Well...
Speaker Change: It's definitely too much to ask me to give guidance on next year's FFO, that's for sure. But I will say this, while we're doing leasing and we're getting some positive absorption in the lease rate.
Rich Anderson: I mean, especially a building like Studio Plaza, which I feel good about where we're headed and leasing there.
Rich Anderson: We have to still build up their space, have them move in, and now start paying rent. So for that in particular, even with very good news around leasing...
Rich Anderson: to have it flow all the way through to FFO, that takes some time. But putting that aside, I'm not giving any guidance about where we're headed next year, but we will in our next call be giving exact guidance.
Rich Anderson: You miss every shot you don't take. Thanks. Appreciate it. Oh, yeah. It's fine. It's fine. Thanks.
Speaker Change: The next question comes from Nick Ulico with Scotiabank. Please go ahead.
Nick Ulico: Thanks, yeah just going back to Studio Plaza, can you just explain how this is going to work in terms of the treatment of the building from a
Nick Ulico: If you're taking it out of service, I don't know if you're capitalizing pieces of it now going forward, just how we should think about the earnings impact there.
Speaker Change: Okay, so I'm going to leave the real technical stuff to Peter and maybe you can talk to him after this. Here's what I could, or you could talk now Peter, but but I will say that we are
Rich Anderson: really repositioning that building, and I'm talking about across the board, approach...
Rich Anderson: common areas, lobbies
Rich Anderson: everything to be a multi-tenant building so that's a very big move vis-a-vis that building and then at the same time we're leasing.
Rich Anderson: And we're trying to fit, we're showing them what we're doing, we're actually doing it.
Rich Anderson: Trying to fit the leasing in so there's a lot there's just a lot going on there That's in in process. I don't know if you want to get
Speaker Change: I mean, probably, obviously the biggest impact is you lose the NOI from Warner Brothers and then you have to build it back up as you move tenants in.
Rich Anderson: Jordan said earlier, you know, that process is going to take some time. I mean, obviously we're going to try to keep the day-to-day expenses as, you know, as low as possible and we'll probably capitalize, you know, some of the ongoing costs as you know, as we, until we lease it up fully.
Speaker Change: Okay, great, thanks. And then the second question is just on the swaps, you know, latest thinking there on, you know, for the maturities this year and next year, whether you're going to replace those or just, you know, deal with some floating rate debt exposure. Thanks.
Speaker Change: Well we need long, you know, the stuff that's coming up in this year and in the next two years, you know, there's no reason to swap it. It doesn't do anything. You need some longer-term debt to be in a position to swap and so we're working on getting into that position.
Speaker Change: Was there a follow-up, sir?
Speaker Change: No, that's good. Thanks.
Speaker Change: The next question comes from John Kim with BMO Capital Markets. Please go ahead.
John Kim: Good morning. I actually have questions on disclosure. So, this quarter was very unusual. You had the large Warner Bros.
John Kim: discovery exploration at the corner end, it didn't show up in your occupancy, it does show up in your short-term leases. But assuming that's consistent with how you've done it in the past, how should we think about that short-term lease bucket?
Speaker Change: Like how much of that short-term lease bucket are actual vacancies that have occurred at quarter end?
Speaker Change: Hey John, it's Stuart. Yeah, so we, I'm sorry there's been any confusion around the Warner Brothers. Their lease went through 930.
Rich Anderson: So they're, you know, they're still in occupancy as of 930.
Speaker Change: and we could have been maybe more clear that their vacancy started.
Speaker Change: on 10-1. So, but our long-term policy in regards to that short-term bucket is that leases that expire on the last day of the quarter like that move into that short-term bucket kind of signaling that they're almost over. So, you know, they are in the occupancy number as of 9-30 and we moved them into that short-term bucket.
Speaker Change: And do you have an estimate, like on the short-term lease bucket, what percentage of those are actual vacancies?
Speaker Change: I know I don't have an estimate I can look at I can look at that after the call of what's I mean this this happens every quarter you guys just don't notice it because it's typically our leases are small but any leases that expire on that last day the quarter would be in that bucket I can go back and look and see you know what kind of percentage that is
Speaker Change: Okay, and then we noticed on page 13 of your supplement you eliminated the sub-market occupancy and rents.
Speaker Change: It's now kind of consolidated into regions, but I'm wondering why you made that decision. Was it for competitive purposes or just too much of a distraction for investors?
Speaker Change: The latter. I mean, we've felt for some time and been saying for some time that because our individual submarkets
Speaker Change: that that data can be impacted even by a single lease and those those markets are pretty small that the confusion and the kind of the time spent focusing on small changes kind of outweighed the benefits of disclosing those markets. So we think about it internally along those three region lines and we thought that was a better way to present it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Peter Abramowitz with Jeffries. Please go ahead.
Peter Abramowitz: Yes, thank you for the time. I just wonder if we can get your latest thoughts and sort of how things feel on the ground in terms of leasing from the entertainment industry. I'm just curious if things are picking up anymore given the challenges of the last year and a half or two years or so.
Speaker Change: Yeah, when we looked at the Q3 stats, entertainment was kind of there in a typical pace of
Speaker Change: represented, you know, kind of as they'd normally be in our portfolio. I know there, you know, if you go back a ways that the entertainment got a little slow there, but I think it's been more normalized recently.
Speaker Change: Okay and then I noticed there's nothing particularly chunky next year but you do have about a hundred and twenty thousand square feet in total with UCLA I believe next year so just curious from your early conversations sort of where they stand on on those renewals and your thoughts on kind of the chances of keeping them in the same space.
Speaker Change: And they don't act like a large tenant, they act like a bunch of different small tenants, so they can be making different decisions on all those spaces.
Speaker Change: Literally, they've expanded with us in the same quarter they've given back space and other buildings.
Speaker Change: Thank you.
Speaker Change: You said it right there's nothing chunky coming up. We have pretty normal roll and actually as Jordan has mentioned
Speaker Change: The next question comes from Dylan Brzezinski with Green Street. Please go ahead.
Dylan Brzezinski: Good afternoon guys, thanks for taking the question. I guess just, you know, good to hear the comments on leasing picking up and in the pipeline potentially being strong. I mean, I guess is there certain sub markets where you're seeing, you know, outside strength and activity or is it pretty broad, very broad based across the portfolio today?
Speaker Change: Yeah, it was good broad-based activity across the three regions. Nothing that stood out as unusual, but we were happy to see good tenant mix and good region mix in the leasing this quarter.
Speaker Change: And then maybe just one on, in terms of, you know, acquisition opportunities. Obviously things are still tough out there in order to, you know, put capital work today, but I guess just looking at your guys' JV Funds platform, I mean, is there any appetite, you know, for your current partners to sell interest to you guys, or is that sort of a non-starter today?
Speaker Change: They're buyers.
Speaker Change: They're full-on buyers.
Speaker Change: Thank you for watching!
Speaker Change: Great. Thanks, guys.
Upal Rana: The next question comes from Upal Rana with KeyBank. Please go ahead.
Speaker Change: Thanks for watching. Please subscribe to my channel. I post weekly videos. Please like and subscribe to my channel.
Gabby: Thanks. This is Gabby on for OOPWL. It appears multi-family is performing better than anticipated. So are you able to provide some color on what's driving that? And then you've touched on this in past quarters, but do you see any potential opportunities for any more office to residential conversions where it would make sense to pursue?
Speaker Change: http://TheBusinessProfessor.com
Speaker Change: Well, I don't know what to say about the multifamily. Our multifamily has been...
Speaker Change: It's just such a strong performer all the time and and it's continued to be a strong performer So nothing about its performance is surprising me. We have incredible long-term Kager on that portfolio in terms of growth in terms of conversions, you know
Speaker Change: You really needed a proper mix of very high residential rates, low office rates, low value for the buildings. And it worked in Hawaii, no doubt about it, that worked in Hawaii.
Speaker Change: but it is in the markets we're in.
Speaker Change: We're in pretty strong office, I mean I know right now people aren't happy about what's going on in the office world, but we're in pretty strong office markets. They don't really get any new competition from new supply. We have a lot of really strong industries driving demand, so values...
Speaker Change: hold up quite well and Rents hold up quite well making it.
Speaker Change: extremely difficult to justify spending the, whatever it is, 500 bucks a foot or 600 bucks a foot on top of whatever you think the value of the building is today to convert it. You have to get extraordinary residential rates.
Speaker Change: I mean, there are circumstances that could occur to try and make that happen, but it's just
Speaker Change: really rare. We had that circumstance in Hawaii.
Speaker Change: very strong residential and very weak office and then once we took that building out even office rents went way up and and and and and they're still moving at a good clip because Another lady is doing it with two other Another developer student with two other buildings
Speaker Change: But I don't think that's
Speaker Change: I think that's going to be more rare here in the marks that we're in here in LA.
Speaker Change: Okay, that's helpful. That's it for me. Thank you for the time.
Speaker Change: Thanks.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.
Jordan Kaplan: Well thank you all for joining us and we look forward to speaking with you again next quarter.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Thank you for watching!