Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After managements prepared remarks, you will receive instructions for participating in the question-and-answer session.

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

Thank you for joining us today on the call are Jordan Kaplan, our President and CEO. Kevin Crummy, our CIO, and Peter Seymour, our CFO. This call is being webcast live from our website, and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website.

You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us.

Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect.

Therefore, our actual future results can be expected to differ from our expectations, and those differences 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 Q&A portion in consideration of others, please limit yourself to one question and one follow-up. Thank you. I will now turn the call over to Jordan..

Good morning, everyone. Thank you for joining us. We continue to recover from the impacts of the pandemic. In 2021, we leased more office space than in any prior year with strong tenant retention above 70%. In addition, we kept our lease transaction costs meaningfully below our pre-pandemic averages.

Our multifamily properties are fully leased, with average rent roll-up this quarter in excess of the 8% across our portfolio. We completed construction of our 376 unit residential high-rise in Brentwood and delivered a 101 new apartment units last year at our conversion project in Honolulu. Leasing at each project has exceeded our expectations.

In 2021, we completed over $1.3 billion in financing transactions. Our average interest rate is now only 2.89%. And our next maturity is not until December 2024. We continue to convert non-cash to cash revenue. During 2021, our cash revenue represented over 99% of our total revenue. We estimate our office utilization at 70%.

Despite lingering uncertainty around COVID, I remain optimistic about our improving fundamentals and our development pipeline that Kevin will discuss in more detail. Kevin..

Thanks, Jordan. And good morning, everyone. As Jordan mentioned, we are excited to report that we have completed construction of Landmark Los Angeles. Our 376 unit, Brentwood residential tower. This is the first new residential high-rise development West of the 405 Freeway in more than 40 years, offering stunning ocean views and luxury amenities.

We've already pre-leased just under a 100 units and expect tenants to move in over the next month. At 1132 Bishop, our downtown Honolulu office to residential conversion, we have completed all our common areas and amenities and approximately half of our planned 493 units.

The remainder of the units will be constructed in phases as office tenants move out. Given our progress at these two properties, we are focused on our next development projects.

As we have mentioned in the past, we own a number of sites in Los Angeles and Honolulu that accommodate new ground-up residential development and we would expect to continue to finance our new development primarily through our excess operating cash flow. In addition, we continue to modernize and upgrade our portfolio through asset repositionings.

In 2021, our repositioning program focused on two office buildings and two residential properties. In 2022, we plan to start repositioning an additional three office buildings. During the fourth quarter, we refinanced another $300 million of debt.

The new secured non-recourse interest-only term loan matures in January 2029 with interest effectively fixed at 2.66% Our overall portfolio weighted average interest rate is fixed at only 2.89%. And we have no outstanding debt maturing for nearly three years.

Although property sales in our markets remained slow, I am hopeful that 2022 will bring more transactions to the market. Our access to liquidity remains excellent with over $330 million of cash in our balance sheet.

Nothing drawn on our credit line, good cash flow after dividends, strong JV relationships, low leverage, and approximately only half of our office properties unencumbered. Stuart..

Thanks, Kevin. Good morning, everyone. We continue to see good leasing demand from the diverse set of industries in our markets. In Q4, we signed 216 office leases, covering 858 thousand square feet, consisting of 254 thousand square feet of new leases and 604 thousand square feet of renewal lease.

For all of 2021, we signed 910 office leases covering 3.7 million square feet, including 1.2 million square feet of new leases and 2.5 million square feet of renewals. That is our highest leasing volumes since becoming a public company. Our leasing spreads during the fourth quarter were positive, 3.5% for straight-line and negative 9.7% for cash.

We are focused on recovering occupancy at this point in the cycle, and expect rent spreads to remain choppy until our leased rate climbs back near 90% with an upward trend. Our leasing costs this quarter were $5.03 per square foot per year in line with our recent trends and well below our benchmark group average.

Turning to Multifamily, our portfolio remains essentially full and 99.3% leased. We saw further strengthening in rents during Q4, with average rent roll-ups for new tenants over 8%. With that, I will turn the call over to Peter to discuss our results..

Thanks, Stuart. Good morning, everyone. Turning to our results compared to the fourth quarter of 2020, revenues increased by 10.9%. FFO increased by 5.3% to $0.48 per share. AFFO increased 20.1% million to $91.3 million and same-property cash, NOI increased by 19.1%. Our G&A remains very low relative to our benchmark group at only 5% of revenues.

As we see promising signs of the pandemic abating, we are resuming full-year guidance. For 2022, we expect FFO to be between $2.1 and $2.7 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 acquisitions, dispositions, or financing's. I will now turn the call over to the Operator so we can take your questions..

Thank you. [Operator Instructions] As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from Alexander Goldfarb with Piper Sandler. Alexander your line is now open..

Oh, great. Hey. Morning out there..

Hey Alex.

Hey, how are you? Sorry. Been busy earnings day. So two questions.

The first question, big picture is, if you look in Southern California this apartment earnings season, the rent growth rebound has been phenomenal, all the apartment [Indiscernible] have spoken about the amount of demand that got to the apartments, the amount that content is driving employment in LA.

And when we look at your leasing, you guys have been phenomenal and leasing, but it's still like a treadmill. So I guess the question is, is there a read through between the strong apartment results and the strong employment that's driving that, that we should start to see that translate to a positive absorption in the next few quarters.

Or you would say, hey, while the two logically would seem to be tied, in this case, there's not necessarily that direct correlation..

Well, population definitely correlates to more full real estate. So that simply said, but I think we are seeing -- you've seen our leasing has been recovering for a while now. And if you think about it, we lost 6% -- 600 basis points during this entire COVID, recession. 500 of it was in 2020, over 80, 86 or 90 of it was in the first quarter.

And then the following three quarters of last year, we pretty much broke even with the last two quarters being positive. So I think we're already seeing that office, at least on the leasing front recovery. Now you already know that we've told you that we think the utilization's way up.

So I mean, maybe it's because of the fewer around the residential leasing, it certainly has been spectacular..

Okay. So it sounds like there's -- what you just described sounds like we should expect this trend to continue and we should see you guys gain traction. That positive absorption on the lease rate translates to occupancy growing as we go on over the course of this year..

Yes. I mean, when you're talking about a subject like this, should and hope to kind of go together. But yes. I agree with you.

Okay. We love should and hope. The next question is you announced in the press release about starting next batch of buildings on the rehab program. Historically, you've discussed that you only do that when you view that you can get rent that's commensurate with the spending.

And you guys don't really have competitive supply that's -- there's probably less defensive CapEx.

So is the read through from that that you think that rent growth is coming, so by the time that these upgrades deliver rents will be higher or is part of this just defensive, just to encourage tenants to come back to the office and make sure that they aren't relocating to other parts of the West side? I don't know.

Maybe that was still [Indiscernible] five [Indiscernible] other places..

Well, there's two things here. Number 1, let me just say, I definitely think we'll recover our occupancy, get back in the 90s and you'll see meaningful rent growth. So that's 100%, I think that's happening.

Now separately, when you say just redoing the buildings, does that mean we think we'll get rent growth? It's not rent growth it's that I think we'll get a marginal as compared to them not being done. I think we'll get higher rent in that building as a result of redoing that building.

That's not a statement about rent growth across the whole community, that's just a statement that I think that when we spend this money to re-do the building, we're going to get such and such more per foot and rent and that justifies that money being spent.

I definitely still feel that way, I think that the segregation of the nicer to medium to low-end buildings and the difference in rents that you get is just get that gap, just human gasoline out more. So it's really well spent money and we're experiencing that we're getting much higher returns when we do that. But just putting that aside.

I have absolutely no doubt in my mind that we will recover the occupancy that we lost during the pandemic and that we will see rent recover with that process especially once, as Stuart said, once we get back to approaching that 90% number, I think it will recover smartly..

Okay. Thank you, Jordan..

Thanks..

Thank you, Alexander. Our next question comes from Craig Mailman with KeyBanc Capital Markets. Craig, your line is now open..

Hey, guys. Maybe just a follow-up on the [Indiscernible] and ask it a different way. And Jordan, I appreciate your commentary. But if you look at guidance, you guys are kind of flat on occupancy for the year from where you ended.

And your -- you had an easier fourth quarter from exploration schedule and then it kind of ramps up again in '22 and accelerates in '23 and '24. So I'm just kind of curious.

What on the demand side do you see accelerating further for you guys to keep retention high here, get back to 500 basis points, and kind of when do you see rent growth pick back up in that context?.

So I know end it's a proxy, it's not a perfect proxy. I know you're using occupancy instead of lease rate. When we -- when I'm trying to predict where we're headed.

I look more at lease rate than occupancy, because as you've already seen in the past, lease rate and occupancy can gap out, which is always positive, because when you're doing a lot of leasing you'll gap out against occupancy. Because you got more leases done, it takes time for them to move in.

So when you ask about the next two years or the next year, I don't think the role -- it might be slightly, slightly higher. It's not meaningfully higher. It's -- if you look at our historical of the next two years that we're facing, they don't look very different than the two years we're about to face.

Separate from that, I do think when you asked us the separate question, why would I from that think that we're going to recover or regain? I'm seeing this average over 800,000 feet a quarter now, with very strong renewal. And we've been doing that now for, I guess three quarters.

And I know that when we get into those kind of numbers, we start gaining on leasing. And so I know if we do the leasing, the occupancy will catch up and catch us as people are moving in. That's what makes me optimistic about what's coming..

Okay. And so Stuart, I guess to the commentary is what you get to that 90% lease rate you guys feel better about spreads picking back up, not necessarily getting the spread to narrow to occupancy. I just want to try to be clear..

Oh, well, certainly when you get over 90%, first of all, it's hard to make meaningful gains, right? I mean, you saw we were up at like 93, 7 or something. And so we were still inching up. I think we felt like 95 was where we would end up until we hit this recession.

But at that time, you saw the least occupied had crunched way down because your churn on the amount of new people moving in shrunk way down. And, so then you're not going to have as big of a spread as we have right now where we're doing a lot of leasing and filling space that was vacated to catch up from 86 to 87 to the 88, whatever..

And then just one quick one as you guys -- Go ahead..

I was just going to ahead Craig, but you're right. I was speaking about the leased rate moving over 90 where we think we'll be able to push on rates..

Rental rate..

On rental rate, yeah..

Right. Right. Okay.

And then just one quick one on as you guys restart the redevelopment program, kind of what's the how quickly do you get back to that kind of maybe 200 million of annual spend you guys had talked about pre-COVID?.

Immediately, now we're there..

Okay..

We’re doing it..

Okay. Perfect. Great. Appreciate it..

Thanks..

Our next question comes from Alpha's Rodriguez with Bank of America. Your line is now open..

Thank you. Good morning, guys. Quick question. I think you mentioned that rental rates are back or renter back to pre-COVID levels, but that cash spread was negative in 4Q.

Can you help us think about the two the two statements -- the statement you made relative to the actual leasing spread?.

I think we may have been speaking about residential, if you're thinking of rents being back to pre-pandemic levels, we're seeing that for sure on our multifamily business. On the office side, our rental rates are down as you would expect from pre-pandemic levels.

Which gap were you talking -- I don't know that -- what's the gap?.

Yes. No, no. Well, the gap spreads were positive in four Q, but I thought I heard a comment that on a GAAP basis or maybe rents were sort of back to pre-COVID level from that perspective. And so I was just trying to.

Oh, GAAP.

You mean GAAP accounting?.

To make the correlation between the two, yeah..

Yeah, no, we didn't make that comment. I mean, as tenants are paying and there might -- I'm not sure if you're just looking at the same-store growth, there's huge same-store growth, it's because it's a great comparison period. I mean, you compared to the fourth quarter of '20 like that's such an easy comparison. So that number's way up.

But that's more to do with comparison than something of saying, rents have risen..

It sounds like you misheard us Elvis, on the office side..

All right. Sorry about that Stuart. And then in terms of, Stuart, you mentioned the volatility and rents are going to be choppy until you get into the higher occupancy levels and the market stabilizes. Can you talk about what we should be seeing quarter-to-quarter throughout the year, or what your expectations are..

It's very hard to predict because we have -- we do a lot of leases, we do 200 leases a quarter and we're still having plenty of leases that are rolling up. But on average, on a cash basis, they've been rolling down. So you can see quarters where depending on what sub-market you're doing, more leases in or what leases actually get signed.

That move -- that number can move around a lot. We've seen that through the cycles where this number are really hard to predict, we spent a lot of time unsuccessfully trying to predict it. So that was my comment about it being choppy. Hopefully, we see this moving back in the right direction as rental follow occupancy up.

But at this point to see the cash spread negative, now it's not surprising, glad that the overall economics with our strong rent bumps in the leases that we're still getting, keeps those gaps spreads positive at this point..

Thank you..

Thank you, Elvis. Our next question comes from Steve Sakwa with Evercore. Steve, your line is now open..

Yes. Thanks. Good morning. Jordan, I guess as we think about the model and the numbers, one of the big swing factors to me seems to be the retention rate. And I know in your press release, you mentioned that you were 70% in 21, which if memory serves me, I thought long term, the longer-term average was probably closer to 60.

So I'm just curious, what are you embedding in your 84% to 86% range because that just seems to be the big swing factor in terms of how quickly you can regain the occupancy..

So in terms of retention, our historical retention is like 69.8, some number like that, so that's our normal retention. And I said it was above 70 and my recollection is, but Peter can correct me. I think it's 72 was less or [Indiscernible].

Something like that..

Rich makes a big difference. I know that -- I will tell you that numbers loves to be between 69.5 and 70. So it's almost odd that we thought so far above 70 last year. And so we mentioned it. Now your next question was, how do we get from 87 back to 93 in terms of our leased rate is that what it is.

Well --.

[Indiscernible] assumption was for retention in our guidance for 2020..

It's pretty much typically right there at -- in the high 60's as always is. We might have a little bit info about what some tenants are doing. But statistically, there's so many tenants moving in and out all the time that averages tend to dominate.

You can have quarters that are way off, you can have a quarter that's very low and then you have a quarter that's very high. But whenever you look at a block of quarters, like four-quarters, whatever. It's just extremely hard to get free of that number of say, call it 69.5..

Okay.

So it sounds like for modeling purposes, you generally you 70 kind of as a placeholder for kind of retention and then you've got obviously back-fill the 30% that's obviously not renewing?.

Well, our model is very complicated, but probably a policy, that's what I would do. I'm sure we've spent a lot of time trying to guess what everyone is doing, but I suspect it comes out. Like I said, it's like 6.89 or something, it's an odd number..

Okay. And then second question. You sort of mentioned the other development sites that you have for residential with the Brentwood projects completed here.

What are your thoughts on starting a new ground-up development, whether it's something in Hawaii or on maybe a redevelopment or knockdown type opportunity in LA?.

My thoughts are, is we're doing it, and we're working on it. We've got politicians coming back in the office.

We're talking to them, we're putting together all the pictures and all the stuff to show to them and we're saying this is what we want to next, and we hope you're behind it since like all the development both Hawaii and LA people are talking about housing, and so we're fully working on it..

And Steve, I think we'd like to have projects going in both Hawaii and in LA.

Correct..

Concurrently?.

Yep..

So you think it's likely that you could have actual announcements this year or is it just the gestation period of getting these to the finish line sort of longer than say, the next calendar year here?.

I would say. I mean, I'm hopeful of some. I mean, when we announce it, mean secularly announced it right now because I know I'm not going to try to make that happen. I think we will make it happen to both places. Now, it's such a long process and process going. I mean, I'm doing it right now. So. So maybe we announced breaking ground or something.

I don't know if that would have to be near the end of the year, but we're doing it right now. We're doing we're -- these are [Indiscernible] your question you have are you guys working as quickly as possible to start construction on new projects In LA and in [Indiscernible] and the answer is yes.

And talking to cities and contractors and artex in the whole thing..

Got it. Thank you..

Thanks..

Thank you Steve. Our next question comes from John Kim with BMO Capital Markets. John, your line is now open..

Thank you. You guys talked about the importance of the leased rate, just given the -- you get the pricing power at 90%.

Can you give any indication of where you think that lease rate is by the end of the year?.

Where are we? John no, we give guidance on occupancy. We're not going to give guidance on lease rate as well. Obviously, we're hopeful that it continues to go up. We've been doing a lot of leasing. Demand has been really good. But we gave you the guidance that we're going to give, which is on occupancy..

Wait, did he ask something about last year?.

No, at the end of this year..

Are you asking at the end of this year, John?.

Yes..

[Indiscernible] last year, but, okay..

Well, put another way, it took you six quarters at the last recession to get from trust leased rate to 90%. I'm assuming it's going to take a little bit longer this year because of that, what would take you to the end of this year to get from [Indiscernible] to 90.

Is that a fair assumption, just given uncertainty in the market and you're starting at a lower lease rate than you did last recession..

You're trying to figure out when we're going to be able to put pressure on rents?.

Pretty much..

I mean, I don't know. You know what, I think things are really opening up. I don't want to like be overly optimistic and then that would be wrong. But I am optimistic that the economy's opening up. And I see it opening here. And I see the state saying master going off and like next week, and kids are in school.

I mean, all the stuffs happening and things are getting going. Now all of that, both extremely well.

I mean right up in the elevator this morning where the girl that I watched her as she was getting a new parking card and I go, maybe get your parking card and set it out while we're all back in the office now and I lost my parking card for being home so long, and we're all back in. So that's going on everywhere. Okay.

So with all that going on, I'm pretty positive that we should have a good year, but I don't know where will really play out. I mean, we have a whole year ahead of us and we've been through like the pedal, pedal whacking over the last seven quarters. So we got to see it play out..

Okay. My next and second question is on Landmark. You gave the lease presented, which is roughly 25%. Where does occupancy trend for the year just so we can model what the contributions for this year versus next and also what is -- what ended up being your yield on the development versus your initial expectations..

So we already had said that we think we build it for a cap rate that's above a seven, and we'll have the answer when we finish leasing it. But I'm extremely confident that it's above a seven.

And so I'd like to wait and see as that plays out, where we end up, but having only leased a quarter of it, I can say it's well above seven, but I don't want to say where it's at, because we've got to finish leasing it. How does that trend up? That's a tougher one. I mean, I don't know.

Do you guys have any type anything for that or?.

We -- It's Kevin. We're thinking that it's probably going to be a 2-year lease up on this. And so we're just opening up. So by the end of the year, you should have about half leased if things go as we're hoping..

That's great. Thank you so much.

That answer it for you? Thanks..

Yep..

Operator?.

Our next question comes from Manny Korchman with Citi. Manny, your line is now open..

Jordan, you jumped ahead there. I thought that I missed something..

Well, I was ready to start docketing it..

Given everything we've talked about with whether it be the fact that it might be a tenants -- the pricing power might be with the tenant right now or that people are confident making their decisions.

Are you seeing tenants come to you to renew early and how are you thinking about those given the fact that you'll have better pricing power if you get to 90% but if you can lock them in now, then you've got the surety of that tenant renewing..

So for sure tenants are coming to us that owe us money and saying, hey, can I renew at the same time to spread this out? So yes, that's definitely happening. And you've seen our collections just keep rising and that's one of the ways that they are rising.

Now the second thing up since we have a pretty positive view on where things are going, do we want to get in the system and hold off or press for -- do shorter deals and press for higher rates? And there has never been a market where we've done that.

We always meet the market, we launch the longer leases, and we have so much, so much churn that we're always able to pick up. When there's gains in rate, we pick it up, but we just leased to the market.

And I don't -- I think I actually we probably on a cash basis at the bottom line, I think we actually do better that way than trying to top tick rates or game our leasing program for rate..

Hey, Jordan, it's Michael Bilerman here with Manny just as a follow-up, thinking about sources and uses of capital as you ramp up, the desire for redevelopment and development opportunities. As well as continuing to scour the acquisition market. How are you thinking about funding those capital needs.

And do you sort of have some goalposts in mind in terms of how much capital you're looking to deploy. Let's say over the next two to three years. And where that's going to come from. And I suspect your stock is not going to be high on your list given its large discount to its inherent value.

But I'm not sure if you're actively seeking to sell assets or enter into joint ventures in order to fund this increased spend and not take leverage up..

Okay, so first my goal -- we hope to put out between $2 million and $400 million a year of new capital. The company itself actually generates a significant amount of free cash flow even after the dividend. Somewhere in the $150 million range. Okay.

So you're saying beyond that number, where is the rest of the money come from and we're obviously we're sitting on a lot of cash right now and we have credit lines and we have low leverage and we have joint venture partners that are interested in getting their stuff in.

That would be all the message, you correctly stated that considering where stock prices are, that would be the extremely low on the list..

Do you have dispositions that you're working on? I mean, are you trying to generate more capital at this point? Look, I know it's hard to buy, which means maybe could be a good time to sell some things..

I don't -- I mean, if you're saying, do we have any buildings we're selling? We sold the one building I wanted to sell and that was Honolulu, well, beginning of last year, maybe at the end of '20..

[Indiscernible] to each other these days. Okay. All right. Thanks for the time. See you in Florida..

Thank you, Manny. Our next question comes from Blaine Heck with Wells Fargo. Blaine, your line is now open..

Great. Thanks. Just follow-up on that and maybe take the other side of that and that question, given your low leverage profile and meaningful discount to NAV, your high implied cap rate. However you want to look at it. And kind of the lack of acquisitions that you've seen the bid on recently.

I know you've addressed this Jordan on prior calls, but just for an update. Does it make sense to get active on share buybacks here or do you think you want to keep that dry powder for development and other opportunistic acquisitions that might come about in the future..

Well, obviously I'll say, you're right, there's no tax. I mean, I've been buying our stock. I personally been buying our stock. But -- and I believe our stock is a very good buy.

But I don't -- when you talk about the company, it's a much more complicated decision, because the company our business isn't to be participating in the stock market and guessing of ups and downs of the stock market and where the stock's going. Our business is to run the real estate and let the stock market run itself.

And frankly, I'm wrong a lot by what I think the stock and a lot of times when I think, wow, we're killing it, and then the stock goes down and other times it goes out. So I don't think I'm that good at predicting that. So did start with that. Secondly, it's not that you wouldn't ever buy back your stock because I have bought back our stock.

But it's a complicated decision because unless you're selling something, it means you're de facto, you're increasing leverage and you're taking away the opportunity to do some of these other things for the [Indiscernible] development or an acquisition or whatever that may be.

So that's -- you have to really be not just a little thinking it's a good idea. You've got to be wildly in an extreme position to choose to raise your leverage, buyback your stock when you're not an expert in the stock market.

And then obviously reduce the range of things that you can now do be it with the acquisitions or development projects, or redevelopment projects. So that's why you don't see us really -- That's why you see it being a very rare activity for us..

Okay, that's helpful.

And then for my second question, can you just talk about kind of the underlying health of your smaller tenants? We saw small business optimism numbers, erode in January, and some of the commentary we heard around that release was that the small businesses were struggling to handle the increase in inflation and associated increase in costs for their businesses.

I know your tenant base is probably a lot different than the average business that's included in these studies.

But when you talk to your tenants, are you hearing any rumors that they are having trouble keeping up with rising costs or even wage inflation?.

So I think probably in small retailers that's the case. Although I actually think even our retails pretty healthy at this point, but now you're saying our office tenants, I think they should be embarrassed and how much money they're making of anybody that hasn't paid us their rent. So that's definitely not the case.

These people, this colossal majority of the cost run their company is in there. The people that they employ, and they're employing people that live in expense on housing all around this area.

And to not pay their rent is absolutely absurd with how much money they have and making Wildman than making having some of their best years, whether it be law firms, accounting firms, hedge fund managers, and wealth managers. I mean, the list goes, these small companies that feed the entertainment industry and tech industry.

It's almost laughable that they would have thought to take advantage of not paying with the money they've been making. I know that's not the question you asked, but I'm still pissed off about that..

Fair enough. Thanks Jordan..

Thank you, Blaine. Our next question comes from Rich Anderson with SMBC. Rich, your line is now open..

Thanks. Good morning out there. For the guidance range, do you allow for any sort of hiccup in occupancy? I know you're expecting, excuse me, lease rate. I know you're expecting a ramp in that, but as you know now, I think statewide eviction moratorium burnt off, but still some accounting level stuff continuing.

I'm wondering what you're thinking about the behaviors of some of your tenants that might actually, despite what you said about the money they're making and some not paying, would they perhaps vacate when that time comes, and are you allowing for any of that in your range for this year?.

Certainly the width of the range could allow for a lot of things that happen. That could be on the list. And some of that might happen.

I mean, but I don't -- right now looking at the office side, I think that's more likely to happen on the residential side, on the office side, I don't see that necessarily being that meaningful, but we'll see as it plays out..

And then a big picture question, I don't know if you've ever talked about expansion markets to any specific detail. But a lot of dislocation going on in San Francisco these days is there anything about that market that's got any amount of your attention these days or are you sticking where you're at right now and spending from within..

I mean, I know that Downtown San Francisco stays at ILEC right now for a number of reasons, and in my opinion, a lot of it's self-inflicted. But and I still think that that is going to be a good market in the end, because it's surrounded by like colossal incubator institutions, like Stanford and CAL and whatever all the rest of them.

That actually separate from the issue of would we put money out there versus putting money here, whether it be on an acquisition or into additional development. And I think that are local edge that we have here, and the returns we're able to get with our money.

Probably would argue at the moment just to stay here in comparison to what we'd have to set up in San Francisco to be effective. I'm also not so sure that values or -- even though I know the fundamentals in San Francisco are way off, I'm not sure how far off values are in terms of what [Indiscernible] trading for.

So I don't think it's like -- I don't think it's some type of grave dancing market or anything..

Okay. Good enough. Thanks very much..

Thanks..

Thank you, Rich. Our next question comes from Bill Crow with Raymond James. Bill, your line is now..

Thanks. Good morning, guys. Similar to Rich's question, but keeping it local, I guess. It struck me as I was out in LA not too long ago but the focus on the news about all the crime that's going on and it seems to be expanding its areas.

I guess my question is, what's going on from a sub-market perspective? How much change are you seeing in borders of goods sub-markets versus challenging sub-markets, et cetera.

I guess, how do you play in the evolution of the market?.

Well, your lead in would cause me want to answer you that the borders have tightened up, but actually I think the boarders have expanded. So certainly I always considered the border concerts of the East or whatever to out all the way out to West Hollywood, and in that area to being very good.

And I would say the border to the South of us, where I may not have included Culver City or certainly if you go a decade ago, Playa Vista now would go down that deep, because these are all great markets and I think Playa Vista for the most part is built out and it's now maturing as a market.

Culver City certainly have some development, but it's also a very hot market and it's a classic sub-market where you have a lot of amenities and people that are kind of living near where they're working. So that's also very strong sub-market, I think. As you get up to like, I don't know what you would call east of West-wood.

I think that market has also expanded. I think what Victor did over on Pico is going to like kind of incubate a lot around it. The big deal that we did with Google. So I actually think what's considered like good West L.A. sub-markets has expanded instead of contracting.

Now, look, that's not to say everyone is not very aggravated about the crime and what's happening but I see -- when I see what's going on, the recall GasCo and even the extremely far left politicians that are running now in our markets are talking about law and order, and crime and dealing with it.

The, state legislature's talking about repealing some of the things that made misdemeanor, smash and grab, which were probably on the ballot this year. I mean, there's just a lot going on to shift back to a law and order kind of structure. [Indiscernible] moment in time that I hope is way behind us and we'll never see again.

So I'm pretty optimistic about where all those things are going. In California, specifically, here when you look at people running for the council, county, and mayor across the board are all now talking, clean it up, clean up the home. Let's clean up the crime. So they're all going in that I think they got the message from the loaders..

Now, I always appreciate your views on the city. Just as a follow-up, you talked about capital sources and uses before.

And I know it's been several years, but there was talked before that you might look at a Hawaii joint venture and bring in some of the money back into LA and I'm just wondering is that off the off the table all together at this point or what are your updated thoughts on doing a big JB in Hawaii?.

My thoughts are that with the right opportunity, the right opportunity to bring the money -- to bring some money back, I would do it, but I also I still obviously believe in Hawaii, but I'm talking about investing more capital there and building there.

And Hawaii has been -- I actually think you could remember going back to a time when I was making excuses for Hawaii. And now Hawaii is like a complete star. I mean, it's cranking -- cranking out the money and our office leasing is doing great and residential is doing great. So. I love Hawaii.

Okay. All right. Listen, thanks guys. Appreciate..

All right. Thank you..

Thank you, Bill l. Our next question comes from Daniel Ismail with Green Street. Daniel, your line is now open..

Great. Thank you. Curious if you can share what kind of recovery in parking revenue is embedded in 2022 guidance..

So our parking revenue, which is one of the reasons why we're comfortable telling you that we're over 70% utilized is over 70% of what it would be if we're at full [Indiscernible].

That answered your question?.

Well, I think you can get a percentage of its either anticipated to be up with that 70% utilization throughout the year?.

Actually, I think the last time we looked at it, it was almost 75.

Do you remember Stuart?.

Yeah, it's over 70% of adjusted for occupancy what it was before the pandemic. But you're asking how we think it's going to recover over the course of the year. I mean,.

You mean the 70 to the 100, is that what you're asking?.

That's what he's asking? Yes. And how fast I mean look, I think that's going to -- I mean it's based on people coming back to the office and when they're back to 100% utilization of the existing occupancy, and then how fast that happens..

Probably I just meant that total parking revenue relative to 2019 levels, was just my question?.

Right. So I mean, you have to adjust for occupancy and the occupancy they would lose since 2019. So we're what we're saying is somewhere over 70% now adjusted for occupancy, we and then you expect that to improve, but it's all based on attendance. Coming back to back to the office at the existing occupancy levels.

So it's hard to predict exactly how that's going to play out over the course of the next year. But we expect it to get better..

Okay. And lock in for me, Jordan. 2022 is an election year and we caught wind up another potential proper team challenge. I'm curious if that's something you guys are expecting on the November ballot and cross, you guys might have on any potential challenges that property team [Indiscernible]..

You're talking about the nurses’ union up in Northern California.

Where it's not exactly what role, but property of over 5 million is subject to a cyber -attacks of about one, about 1% or so..

Yeah, I don't know what I don't know whether they're going to actually I don't know what's going to happen to them, I know that they are discussed it, that's where that's at right now. Did I answer your question? It's not -- I haven't seen it go much farther than that..

Okay. That's helpful. Appreciate it..

Thank you, Daniel. Our next question comes from Elvis Rodriguez with Bank of America. Elvis. Your line is now open..

Jordan, just a quick follow-up. I'm just curious on your thoughts on WeWork and Co-working. And are you finding them to be competition as you go lease-up space today, they've obviously had some good success in growing occupancy this last year. So just curious on your thoughts there. Thank you..

No, I don't think we have. We're -- they -- I haven't -- first of all, there's not a ton of we-work's in the markets we're in. And secondly, I don't -- I forgot what the part of their businesses that -- to call their enterprise. Their enterprise business that takes entire leases and sort of they build out space. And it's the -- they sublease to them.

I think most of our tenants that maybe whether they want 2500 or 3,000 or whatever feet. They want their own space. And they're -- just as easy for them to go direct and to pay the actual money, but we haven't seen that at all, no..

We think co-working is only about 1% of the space on the website in our markets, it's not a huge chunk of space.

Yeah, it's not a big piece of it..

Thanks, guys..

Alrighty..

Anything else? Anyone else? Operator? I guess we lost our Operator. It seems Michael will have to answer..

Well, good speaking with all of you and I don't believe we have any further questions, so we look forward to speaking with you again next quarter. Thank you..

That concludes the Douglas Emmett fourth quarter 2021 earnings..