Q4 2024 Douglas Emmett Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Douglas <unk> quarterly earnings call today's call is being recorded.
At this time all participants are in a listen only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session. I would now like to turn the conference over to Stuart Mcelhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.
Jordan Kaplan: Thank you joining us today on the call are Jordan Kaplan, our president and CEO, Kevin Crummy, our CIO and Peter Seymour our CFO.
Jordan Kaplan: Call is being webcast live from our website and will be available for replay during the next 90 days.
Jordan Kaplan: You can also find our earnings package at the Investor Relations section of our website.
Jordan Kaplan: You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.
Jordan Kaplan: 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.
Jordan Kaplan: They are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences maybe material.
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 <unk>.
Jordan Kaplan: 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.
Jordan Kaplan: Good morning, and thank you for joining us the recent fires and then around Los Angeles had been devastating impacting many of our friends and partners and coworkers.
Jordan Kaplan: Douglas Emmett is supporting the city's recovery efforts with our personnel and expertise Fortunately none of our properties were damaged by the fires.
Jordan Kaplan: We've made significant progress on several key growth initiatives in January we purchased an office property and by write residential development site at the corner of Wilshire and Westwood Boulevard.
Jordan Kaplan: Burbank following to move out of Warner Brothers, we have begun redevelopment of our 456000 square foot.
Jordan Kaplan: Studio Plaza office building to convert it into a multi tenant.
Jordan Kaplan: Property.
Jordan Kaplan: We are signing leases that will commence as common areas and the related floors are completed.
Jordan Kaplan: Our 712 unit Barrington Plaza, a residential property now has a permit to begin construction.
Jordan Kaplan: As expected our fourth quarter was adversely affected by the Warner Brothers departure.
Jordan Kaplan: Lower office occupancy and higher interest rates also negatively impacted 2024 revenues and F O.
Jordan Kaplan: However, we maintained stable office rental rates good control over our operating expenses and continue to produce strong performance across our residential assets.
Jordan Kaplan: Excluding the Warner Brothers move out we achieved positive absorption during the second half of 'twenty 'twenty four.
Jordan Kaplan: Even with muted fourth quarter leasing due to the holidays, both falling midweek.
Jordan Kaplan: Looking ahead, our 2025 lease explorations are 25% lower than 'twenty 'twenty four is record high and well below our five year average.
Jordan Kaplan: We're also seeing a rebound in demand from larger office tenants.
Jordan Kaplan: Given these factors I'm optimistic that we will achieve positive absorption during 2025 I.
Jordan Kaplan: I am also excited that our ongoing development projects will provide strong long term growth.
Kevin: Kevin can provide some details on our new development project.
Kevin: Thanks, Jordan and good morning, everyone.
Kevin: As Jordan mentioned, we formed a new joint venture to acquire a 17 story 247000 square foot office building and a joining residential development site in Westwood.
Kevin: We estimate the JV is total investment, including the acquisition of <unk>.
Kevin: Grades to the existing tower and construction of a new residential building will be approximately $150 million to $200 million.
Kevin: Over a three to four year period, depending upon our final plan.
Kevin: The new JV obtained to $61.8 million secured non recourse interest only loan immature.
Kevin: That matures in January 2030.
Kevin: As a fixed rate of 6% until July 2027, and $6 two 5% thereafter.
Kevin: We manage and own a 30% interest in the new JV and expect to enjoy significant operating and leasing synergies due to the proximity of our other western properties.
During December 2024, we also closed a $325 million alone for another of our joint ventures in which we own 20%.
Kevin: The loan to replace the $400 million alone that we paid down using cash on hand and that JV.
Kevin: The new debt matures in December 2028, and is secured by five office properties with interest swap at a fixed rate of 6.36% until January 2028.
Stuart: With that I will turn the call over to Stuart.
Stuart: Thanks, Kevin Good morning, everyone for all of 'twenty 'twenty four we signed 876 office leases totaling a record $3 8 million square feet for an average of 945000 square feet per quarter.
Speaker Change: During the fourth quarter, we signed 204 office leases covering 796000 square feet.
Speaker Change: <unk> 242000 square feet of new leases and 554000 square feet of renewal leases.
Speaker Change: New leasing demand from tenants over 10000 square feet improved again in Q4 and is now back to our pre pandemic average.
Speaker Change: The overall value of new leases, we signed in the quarter increased by 4% with cash spreads down 7%.
Speaker Change: At an average of only $5.46 per square foot per year, our leasing costs during the fourth quarter remained well below the average for other office Reits and our benchmark group.
Speaker Change: Our residential portfolio remained essentially fully leased at 99, 1% with good demand.
Speaker Change: With that I'll turn the call over to Peter to discuss our results.
Peter: Thanks, Stuart good morning, everyone.
Peter: Reviewing our results compared to the fourth quarter of.
Peter: 2023.
Peter: Revenue decreased by five 5% due to lower office occupancy, which combined with higher interest expense lowered F. O to 38 cents per share and <unk> to $58 $7 million and same property cash NOI decreased by four 5% due to lower office revenues partly offs.
Peter: Set by 6% multifamily growth and good expense control.
Peter: At just under 5% of revenue, our G&A remains low relative to our benchmark group.
Peter: Turning to guidance, we expect our 2025 net income per common share diluted to be between negative 17 and negative 11.
Peter: And our episodes per fully diluted share to be between $1 42, and $1 48.
Our guidance includes the consolidation of our previously unconsolidated fund and the new joint venture that we just formed however, we did not expect a significant contribution to <unk> from the new joint venture during 2025.
Peter: We only own 30% and we expect NOI to be impacted by construction.
Peter: For information on assumptions underlying our guidance please refer to the schedule in the earnings package.
Peter: 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 one on your Touchtone phone.
Speaker Change: Youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And in consideration of other participants we ask that you. Please limit your queries to one question and one follow up thank you.
Speaker Change: And our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Speaker Change: Hey, good morning, good morning out there and certainly thoughts and prayers with those affected in the communities.
Jordan.
Speaker Change: First question I'm sure you can imagine as you know we're reading a lot about you know.
Speaker Change: Some local politicians proposing yeah, we're wanting to have rent freezes or eviction moratoriums, just you have a sense of on the ground. What you think the likelihood of any of these happening and you know how you think if sequence and the coastal commission truly will stand down and allow the.
Speaker Change: It meant to go on or if you think theyre also going to be you know challenging some of the governor's emergency emergency initiatives.
Speaker Change: In terms of that ran phrases I mean I.
Speaker Change: I hope they don't do anything I know it was like.
Speaker Change: Kind of off the agenda for a while it's not back onto the agenda I don't know, what's going to happen with that I I I'm hopeful from conversations that we don't have to face that again, it certainly hasn't been good for the production of rental housing.
Speaker Change: And.
Speaker Change: In terms of the coastal commission.
Speaker Change: And she was impacting their redevelopment of the Palisades. When you were talking about the palisade for coastal Commission for sure I think the Governor's order was extremely clear and then he reissued a second order to make sure. It was triple a clear window coastal commission came back and said, we still want to be involved and in terms.
Speaker Change: They're kind of politics in a way that coastal commission's created yeah. What he wants is that not to be involved they're not going to be involved.
Speaker Change: And he came on Super strong.
Speaker Change: And by the way the city also came on Super strong they want to fast track, the reconstruction and Theyre working pretty hard to make sure.
Speaker Change: And in and in their words in conversations I've had with them to make sure they stay out of their own way, so I'm optimistic on that.
Speaker Change: Okay and then the second question Jordan is you gave the optimistic.
Speaker Change: Outlook that you'll see positive absorption this year and that leasing is trending the right way, but when we look at the occupancy for the year. The guidance is 78 to 80, which is basically you know I think we're 79 now so how do we drive you know that that average office occupancy, which basically implies flat with <unk>.
Speaker Change: Your positive comments on absorption and leasing trends.
Speaker Change: Well I mean, the upside you mentioned a range to be fair, but I will also say.
Speaker Change: Occupancy is people moving and we're working on a lot of leasing leasing is it has a lag time and especially if we're successful and we get positive absorption out of the year and you've seen this I know you've seen this in the past that when our leasing and stop the spread between leased and occupied widens.
Speaker Change: So I'm hopeful that we see positive absorption are on leasing and of course, that's always a great sign for occupancy moving up or eventually moving up but theres a real lag there all the time.
Speaker Change: Thank you.
Speaker Change: Alrighty.
Speaker Change: Our next question will come from Nick <unk> with Scotiabank. Please go ahead.
Speaker Change: Ah Thanks following.
Speaker Change: Following up on on the leasing topic and in guidance are is there a is there a way you could give us a feeling for you know leasing volume are assumed in guidance. This year, you know versus last year, yeah flat up down in order to get to you know the occupant.
Speaker Change: C range that you're talking about.
Speaker Change: So last year at the end of the year.
Speaker Change: We saw a real slowdown, which you know are leading indicator for us selling so we saw really slow down I mean really you know like Oh, you know substantially below the amount of showings, we would expect to have even in December because of the way that kind of those two where there were two wednesdays with holidays and people see the sort of blown out both weeks at the end.
But but yeah. So it didn't even get to our average and we're now seeing showings in January and going forward that are way above our average.
Speaker Change: And that's one if not there's others of the reasons I'm just feeling.
Speaker Change: You know, it's it's that combined with that we have historically very low move outs or very low role. This year I'm sure shows at Royal not move outs, we have very little roll this year, which we typically expect to get about 70% up. So when you have lower role and then you turnaround and you go on feeling good about showing setting.
Speaker Change: I'm feeling good about the pipeline and then I'm gonna be optimistic and I'm, telling you guys that I am.
<unk>.
Speaker Change: Okay. Thanks, and then I guess second Lea is just a in terms of you know if you could just talk about how a little bit more about how January leasing is shaping up I know you know I don't know how much January really makes or breaks a year or not but anything you could talk about in terms of.
Speaker Change: You know if the fire has impacted you know, whether it's sort of existing tenants thinking about space or you know yeah leasing decisions that were you know kind of in the works with people if there's been any impact so far on leasing.
Speaker Change:
Speaker Change: I think it's.
Speaker Change: Very hard to tell whether the fire is going to have any impact on our big quite frankly, I don't think it is but I E.
Speaker Change: Not any data out there to figure that out yet.
Speaker Change:
Speaker Change: And even if it does have a tiny impact and I couldn't even tell you it would be plus or minus D did that tie the general positive tide that I just described.
Speaker Change: In terms of kind of our outlook and what's going on.
Speaker Change: Think would overwhelm it so I don't think it would be meaningful anyway.
Speaker Change: Alright, Thanks I appreciate it.
Speaker Change: Alright.
Speaker Change: Our next question will come from Steve Sakura with Evercore. Please go ahead.
Steve Sakura: Yeah. Thanks, Good morning, Jordan, I know, you're probably loathe to talk about like cap rates on individual deals, but can you just help us kind of size up maybe what the economics look like for both kind of the office in a planned apartment.
Steve Sakura: At the new acquisition of 10 900, just so we can kind of help think about either stabilized yields IRR as you know how do we think about that investment.
Steve Sakura: Yeah.
Steve Sakura: So that's great that you know I mean, we've only been working together for but it's almost hard 20th 20th year. Okay. So that's true I hate cap rates I don't think cap rates are particularly indicator of it other than the cap rate on it like app market leased apartment building, but I will.
Steve Sakura: Yeah, I will say with you know I really don't like cap rates as an indicator of anything that I think we're where we're going in at a little over a 10 cap rate and I expect when we're done with all of our work to be over 10 cap rate.
Steve Sakura: And that just to be clear that's on the debt. That's just on the office component or that office and residential combined.
Steve Sakura: Well going in and couldn't be on anything but the obviously the the office and then coming out that's combined.
Steve Sakura: Okay.
Steve Sakura: And then moving up to the Warner Brothers building them, just as we think about the the money youre putting in the 75 to 100 million of Capex will be development. You know I know Warner brothers was paying kind of low sixty's rent on that building when you're done with the work how do you think the new rents for the multi tenant build.
Steve Sakura: <unk> will will stack up to that prior rent.
Steve Sakura: I think that well.
Steve Sakura: Well I will say too so remember they just moved out like a month or two ago.
Steve Sakura: I think that we're very pleased with our leasing and wherever you are and when I talk about individual deals, but we try to describe and our prepared remarks that you know were already leasing and what what's now is like we gotta get this work done and get the commentary is done and get so many florida not so we can get.
Steve Sakura: These people end up paying so I.
Steve Sakura: I would say this we feel very good about what's going on there.
Speaker Change: Okay. Thanks.
Dan: Okay. Thanks, Dan.
Speaker Change: Our next question will come from Blaine Heck with Wells Fargo. Please go ahead.
Speaker Change: Great. Thanks, Good morning out there just to follow up on a couple of your answers can you remind us what the lag is between leasing and occupancy that's typical in your portfolio and I guess, you mentioned, 70% for retention. So just to confirm that's what you guys are expecting this year, especially given that we noticed you've got a lot of exploration.
Speaker Change: Valley towards the end of the year are there was a concern at all.
Speaker Change: Yeah.
So we are expecting and I and I got to tell you historically with a lot of regularity experience I think the real numbers like 69 point something and that's very has historically court a court or does it not a big deal, but its very reliable over you know three four.
Speaker Change: Four quarters. So that's why we're expecting and I would expect it here.
Speaker Change:
Speaker Change: And and so that that that was your question on renewal and what was your other what was your other question.
Speaker Change: Just the typical lag between leasing and occupancy.
Speaker Change: So.
Speaker Change: That number can range from 100 to like 350 basis points and even higher I mean, if you really leasing had it at a torrid pace. It gets up above 300, when things are extremely lackluster. It gets down it can get down to 100 I would say.
Speaker Change: If you just look at it like it is.
Speaker Change: Theres never a normal time in real estate that bad, but anything you would call normal time, maybe 150 basis points.
Speaker Change: But I got to tell you if you go back.
Speaker Change: A few years.
Speaker Change: When we were doing a ton of leasing Greg I don't know if you remember going back, but there was a time when like sort of COVID-19 was over but I know people weren't talking about recession.
Speaker Change: We had a kind of a weird year, there, where we got positive again and I remember, we got up to about 350 and everyone was saying what are they going to move it and why do they kind of move in and I said well you just want to keep that $3 50, because it means we're just doing a lot of leasing.
Speaker Change: Because they were trying to like get to $3 50 back down again, you don't want it to go down because you know those people movie and you want to have more people that are in that pipeline, but that seems to be the nature of it and Blaine if you're asking about timing on moving folks in after we've signed a lease typically it's you know very quickly we can move most folks in the quarter or within two quarters when they sign their lease.
But of course on studio Plaza with building out multi tenant quarters and that kind of stuff, it's going to take longer.
Speaker Change: Great very helpful.
Speaker Change: Yes.
Speaker Change: No. It's fine that was helpful commentary from you to Jordan and then just secondly on the acquisition you know it looks like this is a new JV partner. If that's the case can you tell us anything about that partner and their willingness to do more deals with you and then whether Q I E was considered as a partner and kind of their ongoing interest in it.
Speaker Change: Investing with you. Thanks.
Speaker Change: So we don't really like to talk about our JV partners and to be perfectly Frank they don't they're not anxious to be in the press. If they wanted to say something themselves are always welcome to do it.
Speaker Change: But you know we've been asked the question I got to tell you I think every quarter for now.
Speaker Change: Four or five years, we've been asked whether our JV partners still had an interest in buying office still had an interest and had an interest in rather than you had at this that now than I said, yeah, but they definitely do and you can look at the fact of how.
Speaker Change: We got squeezed down on this dishing out didn't know how aggressively they do want to be in these deals I mean that that money is out there.
Speaker Change: And I'm happy that we were able to do a deal and and and give those guys. Some way to have some participation because if you don't give them deals youre going to lose their attention and I now like Kevin spent a.
Speaker Change: Do you want a good amount of travelling with steward and Griffin, they've been getting out and <unk>.
Speaker Change: Continuing saying those guys. We think we're gonna be able to make deals and while we're making them. So I'm super happy about that.
Speaker Change: Thank you.
Jeff Spector: Our next question will come from Jeff Spector with Bank of America. Please go ahead.
Speaker Change: Great. Thank you Jordan a follow up question on your comments around absorption.
Speaker Change: We've met you in the past you've talked about you know and a healthy I guess, if there's you know helped positive absorption you want to see one third new you want to see two to 410 to 15000 square foot tenants can you.
Speaker Change: Provide a bit more color on what you're seeing in the market that backs up your thoughts for twenty-five. Besides the fact that you have less role. Thank you.
Speaker Change: So we less rolled makes a big difference for sure, but we're just saying we're just getting a lot of activity as as Stuart has said and you know it.
Speaker Change: One of the questions he was going to answer but we again.
Speaker Change: So all last quarter.
Speaker Change: Great returned of the over 10000 square foot tenants and back to like at or above our norm, which has been what's been missing in terms of us achieving really the big goal, which is to get something in the 800000 and to be one third now and so we were really having trouble getting there.
Speaker Change: The one third new because we need some of these larger guys to come back and they've come back and then and then.
Speaker Change: Add on to that that as this year has launched out I mean, we're just saying we're just feeling much better about everything that's going on in terms of the actual lease activity the showings and all the rest of it I mean that that's what caused me to write that.
Speaker Change: And in our prepared remarks.
Speaker Change: Yeah.
Speaker Change: Thank you and I guess could you talk a little bit more about that that new demand and in particular, the larger tenants what type of industries, they're coming from.
Speaker Change: Are there and I should say thank you.
Speaker Change: Yeah, we saw demand across the board you know it wasn't.
Speaker Change: It wasn't concentrated in any particular industry. So we saw real estate, we saw across the across the board kind of demand Oh.
In Q4 for those larger tenants.
Speaker Change: Thank you.
Speaker Change: Question will come from Michael Griffin with Citi. Please go ahead.
Speaker Change: Great. Thanks, maybe to expand a little bit on Jeff's question surrounding B b large tenant demand I mean in your summation you know what has maybe changed in that.
Speaker Change: Tenants mindset that makes them more confidence to go out and sign leases as it improved business confidence is at an updated outlook on the economy I know that work from home was never really an issue with your tenant base, but maybe just kind of the why you're seeing those sort of tenants come back to the market.
Speaker Change: You know.
Speaker Change: I might say I didn't know why they weren't back late last year I I didn't really I I know that many large tenants, we're taking sort of a posture of prepare to be and a like extreme recession or that's what it's timing or whatever.
Speaker Change: And I'm sure that attitude has changed and that play some role, but I got to tell you.
Speaker Change: I also watched.
Speaker Change: Our leasing group.
Speaker Change: Our operating platform and I will add our corporate development group, which we kind of maintained and actually oddly grew.
Speaker Change: During this time and a lot of people are kind of falling away from some of those things and they've adjusted strategies, David they've been figured out how to be and where to be aggressive in this market and how to get attention and I don't know whether.
Speaker Change: It's us it's everybody it's them changing their attitude, but we are.
Speaker Change: Some of it is just I can see it in our platform because I saw when we were bidding against that or the deal what was going on and other people that we're trying to come in the market and because they might've thought that would be a good deal and I could see that where we are now.
Speaker Change: Actually more qualified to to handle and take advantage of these opportunities both from leasing perspective in terms of even though our platforms, even more robust now and from the perspective of having not only maintained but sort of built up our development platform. I mean, this is where we were.
Speaker Change: King on multiple development deals.
Speaker Change: And I know on that deal. We just bid on I don't think anyone of us even realizing there was another development opportunity there.
Speaker Change: So I am feeling really good about all I I mean, I feel great about it and not even just really good about our growth stuff and I wrote that in my prepared remarks, like we have a lot of growth things going on now.
Speaker Change: No. That's a helpful color I can definitely.
Speaker Change: Gage the excitement in your voice there.
Speaker Change: And then just maybe one follow up on the 10 900 Wilshire acquisition do you envision this as a big tenant building you know would it be more your bread and butter kind of tenants and anything you can comment on the upcoming rent roll or lease maturities and whether or not there was a mark to market opportunity in the building.
Speaker Change: That building uniquely has presented us with more than one extremely good option and we need to do before we talk more about it we need to decide what direction, we're going and so where we need to spend a little more time on that I I feel that that building provides a lot of opportunity, but we got to decide in which.
Speaker Change: What direction, we're gonna go on and we need to get that done in the next.
Speaker Change: Relatively soon so.
Speaker Change: So I'm going to let that sit for a while.
Speaker Change: Sounds good I appreciate it that's it for me.
Speaker Change: Thanks.
Rich Anderson: And the next question will come from Rich Anderson with Wedbush. Please go ahead.
Speaker Change: <unk>.
Speaker Change: Good morning.
Speaker Change: So.
Speaker Change: A quarter or two ago Jordan you.
Speaker Change: Had mentioned you know in Warner Center, I Hope, it's not single tenant.
Jordan Kaplan: No it's definitely not single tenant it sounds like there could be some of the money you're spending.
Speaker Change: Have you guys done.
Speaker Change: The market.
Speaker Change: Get us to the point, where you are.
Speaker Change: <unk> committed to a multi.
Speaker Change: Tenant execution that you're spending that kind of money on it was there was there some work done on the ground and say, okay. We got some real opportunity here, but it's not going to be 450000 square feet. I was just curious what the process was.
So I think I'm talking about studio Plaza excuse me excuse me that the tenant was warranted.
Speaker Change: Warner brother.
Speaker Change:
Speaker Change: So it would've been.
Speaker Change: Right.
Speaker Change: Look I'm not going to say just like all good.
Speaker Change: Developers and leasing guys I mean, if a foreign or 15, if we would've had the problem of we're turning down a 450000 foot tenant I guess maybe.
Speaker Change: I don't know that we would've turned that down I had never seen us do that but so I'm not sure that we had really the options the way you're describing it I will say that we like that market a lot our comfort level is not with large tenants we liked the distributed risk of awe.
Speaker Change: Multi tenant buildings, it's a great market, we did benefit from it being a single tenant building or where we had a decade isn't there when it wasn't but in general two of the three decades. It was a single tenant building and.
Speaker Change: And I'm pleased now to be a b.
Speaker Change: And obviously nobody likes on their building vacate but I'm pleased that we have an opportunity now to extremely derisk that building and lease it up and like I said, we like what we're seeing on the lease up I mean, we like what's going on so that's good.
Speaker Change: You'll have some real concrete stuff to talk about in the quarter that quickly.
Speaker Change: From a leasing perspective, well I'm, where I'm, telling you we're signing leases.
Speaker Change: But if you don't get me are we going to start like tracking it that way now, but we're not kind of just take one building and start tracking it but if you're asking me in terms of like having the building ready for those tenants to move in we have actually given a bunch of info on that and that work's going on I think we might even have some imagery and stuff on our web.
Speaker Change: Site on that building and you can see what it's going to look like going forward as as as as.
Speaker Change: It has been seen by the people, we're leasing to end up on our prospects.
Speaker Change: Okay, and then second question.
Corporate expenses are projected to be up 15% year over year, a lot of you know.
Speaker Change: The rationale behind that swap explorations and so on I'm wondering if the environment is causing you to sort of change your way.
Speaker Change: Our approach to the balance sheet at any level.
Speaker Change: You are kind of exposed to quite a bit of variable rate debt and that increases as time passes in 2025 any anything you can share with how you might manage.
Speaker Change: Manage this situation.
Speaker Change: In the current macro environment.
Speaker Change: So.
Speaker Change: Well, we've never been in love of variable rate debt. It's just that we gotta go variable amount of loans come off you're right. So we never really borrow seven years and fix it for five and we expect to refinance and because of the way the market has been we've been stuck with.
Speaker Change: This kind of during those two years just gone to floating it's not that that's been our strategy.
Speaker Change: And as you can see from the deals that we did.
Speaker Change: Which Kevin described in his prepared remarks that those deals are fixed right, they're up there they're both in the sixes.
Speaker Change: So I mean, we're willing to live with that and and as stuff comes up and we have the opportunity to make those changes.
Speaker Change: With a longer term loan and in those opportunities and where we're probably going to swap it or or do fixed rate deals.
Speaker Change: Okay. Good enough thanks very much.
Speaker Change: Alright.
Speaker Change: Next question will come from Anthony Polone with J P. Morgan. Please go ahead.
Speaker Change: Thanks.
Speaker Change: He will stay on that for a minute. If we look out to 'twenty six I think you have about 1 billion three coming due.
Any likelihood of addressing some of that earlier than next year and is any of that in guidance and also just anything we should be looking out for as we look out to that whether it's.
Speaker Change: A big increase in spreads are where some of that debt marry reside at the asset level that we need to consider.
Speaker Change: So.
Speaker Change: Well, we just announced two deals so you have some comps on it.
Speaker Change: Right.
Speaker Change: In terms of.
Speaker Change: Our work on them, we definitely want to deal with them. This year and are are working on that but because of the way the market is it.
Speaker Change: It's equally in Commvault for US is everybody that we're having to walk down the line so far and deal with these laws when there's so much closer to the maturity, but the 26 that we at this time are very focused on dealing with now and making deals and extending out and we're for sure where we're definitely working on that.
Speaker Change: Sure.
Speaker Change: So that that theres some of that in the interest rate guidance I assume.
Speaker Change: No no because we don't include in our guidance.
<unk> said aren't done so when those deals are done and then that will go in there but until they're done. We don't include like perspective or potential deals in the guidance.
Speaker Change: Got it Okay, and then just a follow up.
Speaker Change: 10, 900, you talked about you know how much you like to do and it's pretty unique so should we think about that as one offered are you seeing a capital market start out there and deal pipeline starting to build more broadly.
Speaker Change: Do you want it.
This is Kevin and Anthony.
Speaker Change: So we did see a number of larger tenant format buildings are traded last year.
Speaker Change: That's not what we do we're looking for more.
Speaker Change: Multi tenant assets that we can apply our operating platform to and so this was a great opportunity. It was a perfect fit and you know I'm optimistic that there's going to be more of that are in our markets.
Speaker Change: Over the coming year.
Speaker Change: Okay. Thanks.
Speaker Change: And the next question will come from John Kim with BMO capital markets. Please go ahead.
John Kim: Thank you I could see why you wanted to disclose the 10% cap rate on 10 900.
John Kim: But I wanted to ask about that so on the office side I think Jordan you mentioned, that's the going in cap rate, but you do have some options. So I was wondering if there was some maturities and maybe some upside to that 10%. If it's a if you redevelop it.
And then on the multifamily developing at a 10% yield.
Speaker Change: Is that an affordable housing.
Speaker Change: Multifamily.
Speaker Change: Development and that's the reason why you can get that attractive yields I'm just wondering.
Speaker Change: For more details if you could provide it.
Speaker Change: So I said above 10% I didn't say, 10% just to be clear.
Speaker Change: And in both instances and the multifamily.
Speaker Change: Is not low income at that market.
Speaker Change: So how are you able to get that I mean, it's hard to develop.
Speaker Change: About six I think in multifamily.
Speaker Change: Right right.
Speaker Change: It's a function of our it's a function of you know.
Speaker Change: Anything surrounding the deal is.
Speaker Change: That's in the area, it's a cost to build a building it's the.
Speaker Change: Price, we paid and how that that option was included in the deal I sat in on an earlier.
Speaker Change:
Speaker Change: There's oh Kevin's remind me by writing on a piece of paper that it does not include there's no allocation of land because I'm, telling you right now we bought it with no building and I just gave you that.
Speaker Change: The cap rate so there's no matter when I and you're assuming that we're building it for 10 cap rate, but anyway.
Speaker Change: And what I told you.
Speaker Change: As for the entire project is not just for the for the apartment building not to say that it won't be a high cap rate.
Speaker Change:
Speaker Change: But it's.
Speaker Change: It is what I described earlier about.
Speaker Change: Kind of.
Speaker Change: Peoples recognition of that opportunity with respect to this deal I I'm pretty sure. We're the only ones that thought because we have such a kind of a robust development platform to begin with I know and we know what's going on here, obviously and you know theres been some changes in state law that were very familiar with and I've been pointing out to you guys. If there's locations.
Speaker Change: Along wilshire that we own today and ended that that now like it's a new world now you bought can buy right build Ramsey and you know with all of that knowledge here and and our development group and being able to understand costs and the fact that literally.
Speaker Change: No.
Speaker Change: On our blocks blocks away in Brentwood, we just built the high rise and we just have a lot of information on this front.
Speaker Change: And so we were able to recognize the opportunity and be able to also.
Speaker Change: And that in and there's you know, it's very easy to do.
Speaker Change: We paid a price that I think when we're bidding on so everybody just contemplated that they did it was the building that standing there today.
Speaker Change: Congrats it sounds great.
Speaker Change: Just wanted to follow up on the.
Speaker Change: On your guidance, what is contemplated as far as capitalized interest and how did capitalized interest.
Speaker Change: Last year I think you were at an 8 million dollar run rate in 2024.
Peter: Yeah, It's it's Peter.
Peter: I mean, we we don't give guidance specifically on capitalized interest, but you can assume that as we as we expand development there'll be a bit more of it and.
Peter: Yeah, I think that's that's all I have to say on that.
Speaker Change: Can you remind us of studio Plaza is a secured debt.
Peter: It does not.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: The next question will come from Dylan person scheme with Green Street. Please go ahead.
Dylan: Good afternoon, guys. Thanks for taking the question Jordan just wanted to go back to your previous comment about having existing density within our the operating portfolio today, how you guys kind of alluded it alluded to it in the past, but can you kind of described as how big of an opportunity set that is.
Speaker Change: And I told people that in the past.
Dylan: Thousands of years.
Dylan: Okay.
Dylan: It's thousands of units.
Dylan: And I mean is there any sense for a lot of these to be near term endeavors or are these sort of longer term in nature in terms of being able to actually get at that and you start did all in process.
Dylan: So I.
Dylan: As in the past like how rapidly our were going because there was changes in state law and whatnot, how rapidly ever going to move it in and build and and and and continue building units because we read.
Dylan: Primary owner, along Wilshire, where most of this is impacted by these changes.
Dylan: And I had said in the past I you know what I think our goal would be to do.
Dylan: Yep Yep I.
Dylan: Deal in Hawaii, and it deal and in L. A.
Dylan: I have two deals going at a time at any particular time, but the deals take a few years and then you can finish up and then you go to the next thing.
Dylan: Got you.
Dylan: You would say well wait a minute you're already in like more than one deal here, because we're doing Barrington complete redo and now we all jump. She just took on another one.
Dylan: And.
Dylan: So and as I said, I mean, I think it's a function of how.
Dylan: How strong our development group has become and maybe it is the case that we could take on more than one but I'm not anxious to take on many more than we we have to know and it just takes a lot. We have three now we have three now.
Speaker Change: Yeah, Okay, we have to read out.
Speaker Change: Stewart's put fingers of three so yeah, we have a lot going on.
Speaker Change: Great and one more if I may you mentioned.
Speaker Change: And in activity over over 10000 square feet getting back to sort of pre pandemic levels can you kind of just talk about what you guys think is sort of driving this renewed optimism amongst this cohort of tenants.
Speaker Change: Well.
Speaker Change: Is that so.
Speaker Change: So I think there's two kind of.
Speaker Change: Big things going on number one is I do believe larger tenants are doing a bit of an about face and they're no longer than a completely gartner positioned vis vis like at a dramatic recession, that's going to come in and beat the place up and I think that shift is definitely making a difference, but I'm going to tell you I also see a difference.
Speaker Change: And our penetration in the market and our teaching out tenants and getting access to tenants and getting these two major deals made and it's hard for me to I don't know how to separate the two I can tell you. We got a lot more big tenant deals going up but we got a lot of people focused on it I mean, if you ask any you know we have 800 people and if you go to any of them go what what's going on at Douglas Elliman.
They're gonna go leasing leasing leasing I.
Speaker Change: I mean that that that's what's been going on so.
So if you say that long enough and hard enough and focus enough and you.
Speaker Change: Strategic enough you're going to do leasing as you know so and that's what's happening.
Speaker Change: Great I appreciate your comments.
Speaker Change: Question comes from Opel Rana with Keybanc capital markets. Please go ahead.
Opel Rana: Great. Thanks for taking my question the $335 million loan that matures in March and are you currently in the process of negotiating an amendment and extension on what are the conversations have been been there like and what's the probability of the amendment are finalizing by the due date.
Opel Rana: I mean, I don't think I'm prepared to discuss at anything that's going on there right now I mean, obviously you.
Opel Rana: You've already.
Opel Rana: Outline what's going on and that's probably the amount we're willing to discuss if we don't like to discuss deals certainly in process and we really actually announce them after they're gone and closed.
Speaker Change: Okay sure and then my other question would be on the 10 900 acquisition.
Speaker Change: You have about 40000 square feet expiring this summer with some of it being sublet as well what's your confidence that those tenants may resign and have you had any preliminary conversations with those tenants prior to purchasing the asset, especially with your plans to upgrade the existing tower.
Speaker Change: Well.
Speaker Change: I mean, we're in the market, we're obviously familiar with all the tenants. So so are you now.
Speaker Change: I don't know that I can I mean, we're not going to talk about individual tenants.
Speaker Change: You kind of gave you we have a couple of pads, we can follow and we have to decide what path, we're going to follow a I'm not you know.
Speaker Change: I I don't want give guidance on a building like for midterm. We kind of gave you where we are today and where we're confident we're headed it has a lot going on at as redevelopment and has the residential it has a lot going on so we need to just play that out and make some better decisions about it.
Speaker Change: Make some make some decisions about it I'm sure will be good.
Okay. Thank you.
Speaker Change: And our next question will come from Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman: Great. Thanks for taking the question.
Speaker Change: Thinking big picture about the impact of the wildfires you know if you fast forward a couple of years here you know what do you think it's going to be most different about Los Angeles are going forward.
Jamie Feldman: And then.
Jamie Feldman: Based on the conversations going on with rebuilding and planning what are you most optimistic about and what causes you. The most concern about things moving forward.
Jamie Feldman: So this morning, there was an article in the New York Times about the Palisades.
Jamie Feldman: And it made a lot of projections.
Jamie Feldman: Projections about where the Palisades is headed in terms of our market in terms of the people that are going to be there.
Jamie Feldman: And and how the Palisades just kind of change in that focus that's getting.
I read it and I thought.
Jamie Feldman: Yeah.
That outcome.
Jamie Feldman: Was.
Jamie Feldman: That was probably a good a guess as anything.
Jamie Feldman: Because theres a lot of history around other communities that have been impacted.
Jamie Feldman: By fire, which is devastated.
Jamie Feldman: I didn't spend a lot of time at the beginning of this thing, but you can imagine how much time.
Speaker Change: Personally exactly that people here at Douglas Emmett I personally can I mean, Stuart Kevin Peters not even back in his house I mean, what what's going on now as you I would have never imagined, but if you wanna like jumped very far forward and say like.
Speaker Change: Where does this all go in the end you look at what has happened in Malibu and other markets where fires come through you already know that the kidney is dedicated to making a bunch of them.
Speaker Change: Extremely positive changes to that area in terms of where you now supportive of development, allowing development to be more rapid I know a lot of people are talking about la comedy I know very few people that are just saying I'm out of here I actually.
Speaker Change: Almost to a tee people either like how fast can I rebuild and then and and they're also in the market for their neighbours lot. So.
Speaker Change: I see that happening.
Speaker Change: And I think to myself. This is been horrible destruction, we're going to go through a rough few years, but it does give me optimism about where the palisades is headed.
Speaker Change: And so we'll see.
Speaker Change: Okay. Thank you for that and I know, it's a difficult topic.
Speaker Change: And then I guess, just thinking about commercial real estate.
Speaker Change: We've heard about some high school leases in Santa Monica and anything you're seeing changes in terms of the demand profile for the different submarkets, you're in or other submarkets that might be more interesting for you guys going forward as you know with the rebuild and changes.
Speaker Change: Well.
Speaker Change: I know I know, we're talking to some schools too.
Speaker Change: I know there are some schools that are like kind of look for space because of course.
Speaker Change: They wont stay open right now.
Speaker Change: All the kids in that whole thing and I know that other schools that are.
Speaker Change: You know were not damaged around Santa Monica I'm on the board of one school in Culver City online I don't mention them, but I know there now accommodating other schools students in programs to try and help out so I know that that is all going on.
Speaker Change: Putting that aside.
Speaker Change: I I have to say again I'm, what the actual Pacific Palisades area, Yes.
Speaker Change: Yeah that one or two medical office buildings.
Speaker Change: Medical was a little bit of normal office or some other normal office there are the schools and there are businesses.
Speaker Change: But I'm not sure that that trends that transplant and the size of our market is going to be the thing that makes a big difference and as I said the tide.
Speaker Change: Just kind of tired of leasing I think would overwhelm any yet.
Speaker Change: Any of that I know that I was asked earlier.
Speaker Change: He says I got a lot of people just had been displaced and theyre renting houses there might not be as big as our other were where they were before work from home to the small degree that it existed might be much more difficult now people want to come in the office, maybe they're renting renting a smart place. They don't have an office or saying until they build their house back I don't really know.
Speaker Change: I think work from home was impacting us that much so I'm not even I can't even say that I think that will make a big difference to leasing and especially against where I think the tide of leasing is going.
Speaker Change: Okay, I would assume Santa Monica cancer.
Speaker Change: No. That's super helpful. I mean that would seem to Santa Monica is we get the benefit from.
Speaker Change: Reconstruction type architects engineers, I mean is that the closest.
Speaker Change: Santa Monica and Brentwood and Westwood all of these areas here I think you will have that its way too early for that to happen, but if you're saying to me. There's a lot of capital that's about to come into this place in my more capital comes in that means they need more office space and theres going to be construction and activity.
Speaker Change: Here in a big way for quite a few years, yeah, I mean that will incrementally I'm sure make a difference but the difference is there a chance to get made yet so we arent seeing it yet.
Speaker Change: Okay, Alright, thank you and we send our best your entire team.
Speaker Change: Thanks.
Speaker Change: Our next question is a follow up from Nick <unk> with Scotiabank. Please go ahead.
Nick <unk>: Thanks, just going back to a 10 900 will sure not to beat a dead horse on this but it looks to US that you bought the leasehold and that asset you don't own. The ground. So is that is that correct and is that also why the you know the cap rate yield expectation, you're you're citing is higher than what some would expect.
Speaker Change: No we bought it in fee.
Speaker Change: Okay. Thank you on the ground in the building we own both on the whole. Thank you.
Speaker Change: Alrighty.
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.
Speaker Change: Okay, well. Thank you for joining us I know this was a complicated release and I. Appreciate that you guys spent the time to look at over and had a lot of good questions and we will at.
Speaker Change: These speaking with you again in a quarter goodbye.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].