Douglas Emmett Inc (DEI) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded.

(Operator Instructions)

I would now like to turn the conference call over to Mr. Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.

Mr. McElhinney, the floor is yours, sir.

Thank you.

Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Mona Gisler, 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.

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 question and answer 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've started 2016 with a very busy and successful quarter. We closed on the Westwood portfolio at the end of February and have seamlessly integrated the properties into our leasing and operating platform. Initial results have met or exceeded our underwriting.

The leasing environment in our markets remains quite strong. During the last 12 months, L.A. County added 84,000 jobs, reducing the unemployment rate over 200 basis points from 7.1% to 5%. We had job gains across our diverse industry base led by healthcare, leisure and hospitality, and professional services.

Our submarkets continued to outpace Los Angeles as a whole, with March West L.A. unemployment at only 4.2%. Reflecting these trends, our average office rents are still rising at double-digit annual rates. And our core Los Angeles submarkets are 94.4% leased, despite adding the Westwood portfolio with its higher vacancy.

On the multifamily side, our portfolio remains fully leased, and we have raised asking rents by 3.4% over the last year. Overall, our same-property cash NOI for the first quarter increased by 4.3% year over year.

Taking all of these factors into account, we are raising the midpoint of our 2016 FFO guidance range by $0.03 and the midpoint of our AFFO guidance range by $0.04.

With that, I will turn the call over to Kevin.

Thanks, Jordan.

And good morning, everyone.

In Q1, we closed the 1.7 million square foot Westwood transaction. And we're very excited about the commanding market share we now have in Westwood. While we will remain disciplined, we expect additional acquisition opportunities this year.

Turning to our financing activities, we continue to employ our strategy of using non-recourse property level debt to avoid the risks of covenants or rating requirements that can be punitive during an economic downturn. We set leverage levels low enough to benefit from best pricing in the debt markets. During the first quarter, we closed two loans at very attractive interest rates.

In connection with the Westwood purchase, our consolidated joint venture closed a seven-year, $580 million non-recourse mortgage loan, which we swapped to a fixed interest rate of 2.37% for five years. One of our unconsolidated funds closed a seven-year, $110 million non-recourse mortgage loan, which we also swapped for five years at a rate of only 2.3%.

Looking forward, we plan to continue refinancing our 2018 debt, further extend our maturity schedule, and take advantage of the low interest rate environment.

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

Thanks, Kevin.

Good morning, everyone.

In the first quarter, we signed 176 office leases covering 671,000 square feet, including 259,000 square feet of new leases.

Including our new Westwood acquisition, the leased rate of our office portfolio decreased to 92.1% at quarter end. Excluding Westwood, our core Los Angeles submarkets in West L.A. and Sherman Oaks / Encino, remained fully leased at 96%. Rental rates continue to rise across our entire portfolio. Our cash rent roll-up this quarter was positive 7%, and the straight line rent roll-up was 22.7%.

We continue to push annual rent bumps higher in our new leases, with most of our new leases in Los Angeles now between 3.5% and 4%. Our portfolio lease rate still exceeds the relative market leased rate by an average of 304 basis points. On a mark-to-market basis, our office asking rents at quarter end exceeded our in-place rents by 14.9%, up 70 basis points from last quarter.

On the multifamily side, our 3,300 units were fully leased at quarter end. During the last 12 months, we raised our same-property residential asking rents by an average of 3.4%. At quarter-end, the annualized asking rents for our multifamily portfolio exceeded our in-place rents by $18.4 million per year, about half of which related to our 230 remaining pre-1999 units in Santa Monica.

I'll now turn the call over to Mona to discuss our results.

Thanks, Stuart.

Good morning, everyone.

I will begin with our results and then provide a short update on guidance.

As Jordan mentioned, we are pleased with our Q1 results. Compared to a year ago, in the first quarter of 2016, revenues increased by 8.9%. FFO increased 0.1% to $76.1 million, or $0.43 per share. Excluding a one-time non-cash item in 2015 related to the acquisition of ground lease, FFO increased by 9.7% year over year.

AFFO increased 17% to $62.5 million, or $0.35 per share. Comparing our same-property cash results in the first quarter of 2016 to the first quarter of 2015, revenues increased by 3.4%. Expenses increased by 1.7%. Overall same-property cash NOI increased by 4.3%. Core same-property cash NOI rose by 4.4%. G&A for the first quarter was $8.1 million and 4.8% of revenues and well below that of our benchmark group.

Finally, turning to guidance, we now expect FFO to be between $1.74 per share and $1.80 per share, and AFFO to be between $1.38 per share and $1.44 per share.

As I mentioned last quarter, we expect our growth to accelerate during the second half of the year, both because of the Westwood acquisition and our estimates for continuing properties. We have also raised guidance for same-store NOI for the year to be between 4.5% and 5.5%. For more information on some of our assumptions underlying guidance, please refer to the schedule in the earnings package.

With that, I'll now turn the call over to the operator so we can take your questions.

(Operator Instructions)

The first question we have comes from Jamie Feldman of Bank of America.

Great, thank you. I guess just talking about the acquisition opportunities you had mentioned on the call, can you just give us an idea of how we should think about future growth in the Westwood JV, your future funding commitments, and then what the acquisition opportunities are that might be out there?

Sure. Jamie, this is Kevin. I'll start with the latter half of your question.

We feel that the pipeline is pretty good and we're working hard on sourcing and underwriting properties. We're not going to lose any bids to anybody based on lack of information or anybody with a better platform.

But we're staying focused on making sure that it fits our investment criteria of opportunities where we can add value and properties with vacancy and we're hopeful we'll be able to hit on some of these. Related to Westwood, what was your specific question?

Just I think on the last call you were talking about potentially growing it and whether there would be -- like you were going to fund it with your initial capital and then depending what other opportunities were out there, maybe that capital would be spread to more assets?

Just kind of -- if you could talk bigger picture of how we should think about what this fund is going to look like going forward in terms of adding additional assets and then your financial commitment to it.

So yes, I'll answer it. So the -- we're -- there's a series of buildings we're working on buying. I don't know if we'll get them, we will or won't get them.

And fund is a little bit of a misnomer, because what we have is a set of joint venture relationships where everybody can vote to do or not do something. So we don't control anybody's capital.

We just have an understanding with a group that their understanding of what we're trying to achieve, saying, okay, we're going to go together and try to buy this group of buildings that we think are coming out over the next, let's say, 12 months. So we'll get a few and I'm sure we'll be outbid on a few. But we have, I think, a good bidding group that will move forward.

So that means you would contribute additional capital into each acquisition?

Yes. If we -- well, it's still hard. We put out things saying, as we sit right now, we have 30% of the Westwood deal.

But as time moves on, the biggest thing which I this said to you guys was, look, we feel we have around $400 million that we could put into this entire venture. And we have to see how successful we are, if you wanted to convert that over to percentages, to how many deals we get. You wouldn't want -- I wouldn't want to end up, as I explained to you guys before, I didn't want to end up with -- we got Westwood, that's the only thing we got and I only took a small interest in it and then I was stuck.

Boom, there I am. So I said I'm trying to keep a lot of optionality, which I know makes it a little more uncomfortable for you guys in terms of figuring out what's going to happen during the year, but we don't really know what's going to happen during the year.

What we try and do is, not really sell down or not really reduce our position until we have a good comfort of what's coming up and a use of the money. Now, at the same time, it's not a one-person dance, right? So we have partners.

We want them to be happy. And so we have to make commitments somewhat on their time line too, what they want to own and their interest in the deals. And that's why on our last call, I said to you, look, if we had unlimited money, I would own 100% of these buildings.

We don't have unlimited money. We have limited money, and so the percent of these buildings that we're going to own, is going to be a very large function to how much we're able to actually buy. And our partners, obviously, have a strong interest in owning a large percent too. So as we make deals with them, we commit, and with the progress of time and those guys, we end up saying, okay, we'll allow ourselves to go down to this percentage and we'll keep moving forward.

We're happy at 30%. I think it's -- it's a good portion to own of the deals.

Okay, but the bottom line is we should be thinking about $400 million as your investment?

Yes, yes.

Unless you sell more assets?

Yes, I mean, we have ways to change our equity stack, equity deck stack, by selling assets or [JVing] other buildings. We have a lot of options, that, as I've said in past calls, that we would look at before we would sell buildings, before we would sell stock; because it would be odd to sell stock at an effective price that's substantially below where we're buying buildings. We have good partners.

We could put our own buildings into deals and at least get like-for-like pricing and spread our reach a little better, spread our control a little better, without it being a dilutive transaction. And then of course as you just mentioned, we could flat-out sell a building, too.

Okay. All right. Thank you.

Next, we have Blaine Heck of Wells Fargo.

Great, thanks. Can you talk about the opportunity to increase NOI at the Westwood buildings, what you think stabilized lease rate is for them? What's the timing for getting to a stabilized level, and maybe what's the mark to market you think that exists in that portfolio?

I mean, I can answer that. The mark-to-market, if I'm thinking back, because I don't have that right in front of me, but the mark-to-market on that portfolio, if I remember, is a couple hundred basis points above the mark-to-market on the rest of our portfolio. So what's the rest of our portfolio right now? 15 or 16?

15.

15, so that one's probably around 17. In terms of the roll-up, I mean, we tend to maybe -- give ourselves plenty of time to lease a building up to what we would call stabilized, which is 95%.

But I think we feel fairly confident that with the Westwood buildings, and I think we mentioned this in the prepared remarks, that we are actually beating or exceeding our original proforma on where we thought that would go. That's pretty impressive since we've only really been running it for one month.

Or two months at this point. So they have been absorbed into the portfolio extremely well and they are performing very well, and kind of the super early, kind of like calling the election with only 2% results, but the super early results are very good.

Okay, great. Then maybe for Mona, how are you thinking about leverage at this point? You guys took on the high end of your range for the Westwood transaction.

Should we expect any near-term action to reduce leverage or maybe just natural declines through free cash flow generation and increasing EBITDA?

So can I answer that one, too? Since I'm the one that set that policy. So let me just -- I know some of you already heard this, but let me just say how we think about leverage in general. So in general, as a private company and as a public company, our history is, that we have kept even as a private company, I think our leverage ran 45 to 48%.

As a public company, we've been running around, I don't know, 38% to 45%, somewhere in that range. Low 40s, that's very comfortable for us. You might look at that number and say, wow, that looks higher than, let's say, your peer set.

Why is it comfortable for us? Number one, leverage has -- carries with it two risks, right? It carries payoff risk, right? Or the risk that there's a huge downturn in the market and it actually captures the value you're building. Okay.

Nobody ever lost in the 40s. Nobody's building, no matter what recession happened, no one leveraged in the 40s, particularly in the low 40s, ever lost their building. There's no kind of mortal attack on the company as a result of our leverage levels.

So the only question then is, okay, we're at a certain leverage level. If there was some bad times in our future, would that leverage level put us in a position with our back against the wall, let's say, having to refi at a bad time, and wishing we had maybe even lower leverage.

The way we protect against that is, we tend to do big windows at the end of our debt. So every loan comes on our radar two years before the maturity date. So we always have at least a two-year window to pay off a loan.

In fact, most of our loans are swapped LIBOR floaters, which means they'll have kind of a prepayment fee that might only last anywhere from 6 to 18 months, mostly one year, okay. So after a year into the loan, aside from the fact that we own this swap, those loans can be prepaid at any time. We can watch what's going on and we can extend them out.

And you guys see, if you watch our financing pattern, I think you'll notice that usually we don't have many maturities in the next two years because we're usually two years out in terms of what we are focused on refinancing. So we keep it pushed out so far, that we always feel like if there is a weird twist in the market, we wouldn't be forced to go looking for debt at the wrong time.

So when you combine the fact that we keep a large window at the end, we start refinancing early. Which is inefficient, right? You don't get the full benefit of whatever the points and whatever you paid on it, but still, it protects us from having to refinance with our back at the wall at the wrong time.

So when you take the fact, that fact, combined with the fact that we do all non-recourse, first trustee leverage on small pools of properties; so which means there's no debt at the corporate level. There's no covenants.

There's nothing that can happen to the stock price where a lender calls you and goes, oh, such and such covenant is violated. So all of our debt is non-recourse, does not flow up to the parent company and it's segregated in small pools.

So, we have a leverage level that doesn't threaten our properties. We have no leverage that could ever threaten the company as a whole. It's all non-recourse. It's all separate pools of properties. We keep them financed a couple years out. The last thing I'll say about that, which is why I'm very comfortable with our leverage strategy, is when we go out to finance and you guys see this because we publish it for you every time we do a new loan, we get best pricing.

When the lenders look at, the buildings that we're financing, they obviously think it's a very conservative loan. Because, I see what everyone's financing at and what the spreads are getting and I know our spreads tend to be well inside of those numbers, which means we're getting financing pricing based on an extremely conservative loan to values, cash coverage, et ceteras, as viewed by the lenders. I feel like that ratifies our strategy.

So put all of that together and that's why you see us financing at this level. I know that was a lot, but did that answer the question?

Yes, thank you. Thank you for the comments, Jordan.

Next we have Manny Korchman of Citi.

Jordan, if we go back to your earlier questions about sort of the group that you have assembled to do Westwood, can the others that are involved in the groups outside of Emmett, can they buy other assets within the market without you participating?

Can they compete with us?

Yes.

You mean our partners in Westwood, could they compete against us on another deal, maybe let's say with another partner? Because the partners we have, I don't think you would ever see show up direct buying something, right?

These are sovereigns. So they need the structure that we've put together.

I'm not saying we're the only ones that can put that together, but they need that structure. So to very directly answer your question, I'm sure they could find a way to compete with us if they wanted to. But I have not received any indication that any of them would be interested in competing with us.

Maybe asked in a less negative way, if you found that pricing was above what you wanted to pay, but they were comfortable with pricing, could you either take such a small piece in the stack that wouldn't matter or could they then go out and buy it on their own? Maybe that's a different way to ask it.

I would say the legal answer is yes and the practical answer is no. Well, let me say, if it's a deal we've worked on together, the legal answer is no.

But let's say I just kind of did a casual drive-by and said, hey, I just want to show you this deal that I'm not buying, but it's not part of the certain group. I guess they could go, and go well, you're not buying it I'm going to find someone to buy with. But that is -- I would put that as so unlikely that it's -- it wouldn't be worth consideration.

Once we work on something with them, then they cannot go around and buy it. Then they can't anymore.

Alright, could we just talk about the lease rates in some of your markets? They came down sequentially. You had negative absorption for the portfolio.

What's going on there? Is it a matter of timing or did you really sacrifice space to get better rates?

Manny, it's Stuart. I think it's just normal timing and we have a small tenant portfolio and we're pretty fully leased. It's normal fluctuations.

Thank you, sir.

The next question we have comes from Nick Yulico of UBS.

Thanks. I was hoping you could just talk about the reasons why you increased your same-store NOI guidance since the occupancy guidance looks like it's unchanged.

Yes, I'll take that. So we had mentioned before, but we still believe that our same-store NOI will be trending up towards the latter half of this year. Because of that, we've raised our guidance a half a percent.

Okay. I guess is there any assumption then that you're getting better rents on leases, or I'm just -- I'm sort of confused as to why it would have gone up versus last quarter.

Sure. It would be a combination of annual rent bumps and roll-ups.

We're getting good results out of the portfolio. So we raise the number. I guess that's a very simple way to say it.

Okay. And then I guess just one other one was on, you know, on the new lease signings, you did have -- sort of similar to the last question, but you did have your starting cash rents were up 7%.

This quarter they were up, I think, over 12% last quarter. How should we think about how that number should trend, if you're saying that rent growth is generally going up in core L.A. markets, that number came down. I mean, is this just sort of a one-time issue and it should be going back up, as far as a mark-to-market goes?

Nick, it's Stuart. Yes, we still had really nice roll-up. That's a number that's kind of choppy quarter to quarter.

Hard to predict in a short-term. But overall, trend looks pretty good. We're kind of happy with the way that looks.

Okay. I guess last one was on Century City. The percent leased went down there. Can you explain what's going on there? Thanks.

Yes, it's a small market for us. We only have three buildings there, so a couple of tenants could make a big impact there but that's just normal quarterly leasing fluctuations there with a small tenant portfolio.

Thanks.

The next question we have will come from Craig Mailman of KeyBanc Capital Markets.

Hi, guys. Mona, I was hoping you could break down the $0.03 increase at the midpoint between maybe the final kind of ownership level of Westwood versus the same-store improvement.

Okay. Let me give you a little bit of a breakdown on the 3% -- or $0.03 and see if that answers your question. So about half of that is coming from Westwood and the other half is coming from other properties.

And the other thing I should note is, that the 2% interest on the bridge equity does not have any impact on our FFO or AFFO guidance. That's part of the disposition of real estate interest. So that, that kind of hopefully is going to give you some sense of how that breaks down.

That's helpful. And then I know it's early, but you guys accumulated a much bigger presence in Westwood and obviously, you guys have some wood to chop there in the leasing.

Just curious with the bigger market share there, how you guys are viewing your ability to push rents versus your need to attract tenants?

Well, I mean, it's super early. So the only indication -- I mean, we knew going into that deal that it was going to have a positive ripple effect for us. It's kind of the center of the west side.

There was a lot of noise around the leasing in that portfolio, competitive noise for us. And we knew that once we controlled it, it would have a positive impact.

Not just for us in Westwood, which by the way, we only had 407,000 people for. But also in the adjoining, in both directions, Beverly Hills, Century City, and then down below, Brent Wood -- maybe not down to Santa Monica.

And I think, it's been as expected in terms of ripple effect impact and as I said earlier, so far we're -- on our own proforma, which we were expecting good stuff out of controlling this, I already said, in terms of the numbers we're putting up on a very short amount of time, it's only been two months, but we're beat on our assumptions so far, at this point.

Jordan, it's Jordan Sadler. The demand for office assets in Southern California remains as strong as it seems and you're able to identify assets, which it sounds like you are -- that you want to buy.

And presumably these assets have a better growth profile than, let's say the bottom 10%, 20% of your portfolio. Why can't you sell the bottom and recycle into better opportunities?

Well, I don't -- number one, it would be -- I don't know that I can sit and say this is the bottom. You could look at markets that we would pull out of or go more into.

And obviously, we've been pretty clear the way we do our disclosures and whatnot, that we could show the core, the heart of the company to be sort of this West side, and then along Ventura Blvd which acts similarly. We also -- so we get to the typical place where I get the questions isn't like, are there bottom buildings that you need to sell? Because you wouldn't tell me to sell a building -- if I found a building in Westwood that's inferior to a building I just bought, you wouldn't tell me to sell the neighboring building, right?

Because that's the way our whole strategy works. It would have more to do with looking at markets and saying, well, if you can --

(multiple speakers) Sell Honolulu.

Yes, you would say Honolulu, Warner Center, or a lot of times you go residential being fully -- that's more typical stuff that I get. And I understand that. But if I -- (multiple speakers)

Presumably these other assets are going to have a better growth profile longer term as you look at -- we'll all agree Honolulu does not have the growth drivers that offer, necessarily the long-term growth profile that whatever you're looking at may have. So that's what I'm asking. Like, why not upgrade the growth profile of your portfolio by dumping the slower growth profile stuff?

So I would say, I would look at it differently, which is there are markets that we're in that I would say, they're timing dependent. And at the right time, it's a good time to sell, and there's a good time to get in.

I don't feel that way about the residential. But I understand that when you look at a market like Hawaii or Warner Center, you could say, there could be a time to get in, and there could be a time to get out.

I just don't think it's the right time to get out right now. If you move inward and you start talking about Santa Monica, Beverly Hills, -- that kind of West side market and then along Ventura, I think there's very good long -- I don't feel they have a different growth profile.

In a strange way, the markets that you would say, you think have a weaker growth profile -- I would go, I don't know that I feel that way. I actually think they are even less fully valued on a shorter look than the west side.

I think they have more opportunity in the next few years to see a stronger run-up as those metrics improve because I've seen more volatility in those markets in the past. Whereas, when I look at the West side or the markets that we call our core markets, I say to myself, well, that's -- I mean, that market, regardless of the ups and downs that we all know the industry goes through, has a super good -- like 30-year trajectory in terms of the long angle.

And that's why I don't consider them the kind of timing markets that I would get in and out of. So when I look at those other markets, I say, frankly, we say to ourselves, is the timing right to get out of those? Probably not right now.

There will be -- unfortunately, probably the timing when it is right to get out, I don't know that I'll have somewhere else to put that capital. But I'll still manage that investment right and make the most out of that, that we can make. And then that capital has to go somewhere else, or go back to the investors or go wherever it goes.

Okay. Thanks for the color.

Next we have Rich Anderson of Mizuho Securities.

Jordan, I just want to make sure I understood. So the 30% interest in Westwood now could go to 25%, if you add a building or something like that. Is that the right way to think about it?

Well, I think the right way to think about it is, we have partners and the only way to change that number is to make a deal with the partners.

Right, but I mean you're willing to stay at 30% and add a building or two. Because last quarter you said between 20% and 30%, but if we say 30%, then that might suggest that other things aren't going to break free necessarily in a short timeframe.

Now you're at 30% in this, so I'm just curious what message you're sending by starting here at 30%.

Well, at 30%, I have the capacity to keep buying without changing that number, but if we keep buying even beyond that point, it would be hard for me to stay at 30%.

Okay. So you're comfortable being at 30%, even with a larger portfolio at this point, up to that $400 million number.

Yes.

Okay. Just wanted clarity on that. Just a question on dividend policy, I know you recently raised it by $0.01.

I think it was in December, but your coverage metrics look pretty good. I'm curious if you have given any thought or the board's given any thought to being a little bit more aggressive when it comes to raising the dividend in the future.

Well, every quarter there's a discussion about the dividend. The primary discussion about the dividend is the board meeting going into the new year, because we've tend to have shown pattern of making changes to the dividend that's paid on January 15, right?

So that means it's that December board meeting. So if you're asking just quarter to quarter early in the year, they look at it, but I can't say there's tons of discussion around it.

To more fully answer that question, generally I would say that we look at the dividend, in terms of not ever wanting it to be gating, in terms of holding back the stock price, right? I mean, I guess step number one for any REIT, dividend has to make sure you keep your REIT status.

Step number two, how much of your cash do you want to give out, what kind of yield do you want to pay? And I think we pay a reasonable yield on the dividend.

I don't think it holds back to stock price, at least not at the moment. And then the last thing is, I have said, although it's not my choice, that I would like to see annual growth in the dividend. Just for a person that really is a super long-term investor, to have some feeling like, without commitment, that a reasonable expectation is that they will see some growth out of the dividend.

I will say, I typically do ask the board for some kind of growth each year out of the dividend because we do have some pretty good running room in terms of coverage on that. But that, -- those are all a lot more from me than telling you -- than there's a board discussion.

Okay. Then if I could just quickly ask, is there anything at all that's interesting you in the downtown district yet or is it still just kind of a residential play at this point and not so much an office play?

I would say it's kind of a no play right now. I mean, it's not what we do.

That goes on the office side. On the resi side--

I wasn't thinking about you. I was just thinking how they've gentrified and if there's any reason to be looking at it from an office perspective.

Well, but downtown tends to be a low cost, large tenant environment for employers that draw from throughout the L.A. region. And that's just not the game that we play.

And so I'm not saying it's a bad environment to invest in for other folks, but for what our platform specializes in and the investment strategy that we've got, it's not really a target-rich environment.

Okay. Good enough. Thank you.

John Kim of BMO Capital Markets.

I had a question on your annual run bump of 3.5% to 4%. Is this the peak, or is there room to go? Because I would imagine it's the widest spread to CPI that you've seen.

No, it's not the peak. If you go back when rents were really running up and we looked on the West side, we were getting mostly 5%s. It's working its way up.

I will tell you that, that's one of those numbers that when you talk about 74% of Westwood Wilshire, when you talk about the type of control we get in these markets, that's one of those numbers that, that we're able -- that owning a large percentage is very impactful towards in terms of our ability to change the way -- change the expectations of tenants and tenant rent brokers.

When you don't own a lot of the market, it's hard to set expectation. When you own a lot, you -- you can get to broker buy-in, you can get to tenant buy-in a lot faster to moving those bumps up faster.

So as the market continues to tighten, do you think it could go towards 5% or potentially higher?

I've never seen it go higher than 5%, but I saw a ton of deals at 5% in like 2006 and 2007.

Okay. And then also on your increase in the same-store NOI guidance, is there a component of higher termination fees in there, or lower expenses, or is it just purely rents and occupancy?

Well, we give you both. So we give same-store NOI and core same-store NOI.

And we give same-store NOI, which obviously is what everybody gives, so of course we give that. And then because of the noise of early terminations and reconciliations of CAMs, which tends to throw off those first two quarters, that's why, in order for people to see a little bit more of an even trend of where things are going, we give that core number.

So that core number deducts those numbers. I will just say them again, which is early lease terminations and CAM reconciliations, from both the comparison period and the period we're in.

And there were increases in both of those items, the same-store cash NOI and core same-property cash NOI.

Okay. Thank you.

Next we have John Guinee of Stifel.

Great, great. Just a couple of curiosity questions, I guess.

On page 6, your asset page, it looks like your land component went up by $95 million, your building and improvements went up by $1.24 billion and your TIs went up by about $60 million. Does that mean that you attributed 90 plus percent of this acquisition to building and improvements and less than 10% to land?

You know, you should call Mona and you can walk through all of that. It's still hard for us to answer those questions.

(multiple speakers) John, just give me a call and I can walk you through that offline.

Then my next question, if you go to page 11, consolidated joint venture page, and I'm not really sure what goes into it, but if I take $1.34 billion and then I take the cash NOI and multiply it by 12, is that a good way to get to the cap rate on the acquisition, or is there a different way to go about it than that?

So again, that's going to be tough math to do on this. What we tried to do was provide you with the information that would work for you, So if there's something -- (multiple speakers)

You can't do that. I can say that.

I heard what you just said, that won't work.

Okay. And then are you assuming you have a disproportionate interest in the deal as long as the bridge equity is in place? Or are you always assuming it's a 30% even while the bridge equity loan is in place?

When we put a page that says our share of NOI, we're talking about the quarter that just ended and it's the accurate share, there's not assumption in there. That's accurate.

It's the right, you know, to the GAAP numbers.

It just happens to say, cash NOI, $3.5 million, but your share of $2.2 million, which is roughly 64% versus the 30% otherwise discussed. We'll talk about it after the call. Thanks a lot.

Okay.

All right.

Next we have Jed Reagan of Green Street Advisors.

Is there any update on Landmark? How is the entitlement process coming along there?

You know, I would say this -- I hate to be like a broken record, but slow, but steady. I mean, the only news, which is good news, is we haven't hit anything that stopped us.

And we're still moving forward. And that's kind of the way those work.

What are sort of the next milestone dates or hurdles to cross?

Meetings with homeowners groups, which are going on right now, and receiving and collecting their comments and getting a final version of the EIR published.

Okay. On the acquisition road map here, so is it fair to assume that you'll be bidding on other assets in the near term with the same partners that joined you for Westwood?

Yes.

Okay. And separately, which submarkets in L.A. are you seeing the best activity and rent growth today and then maybe just kind of your latest thoughts on what you're seeing up in Warner Center?

Which submarkets have had the fastest rent growth recently? Stuart, can you?

Look, I think we're seeing good rent growth across the whole portfolio, you know. I would include everything in L.A. in that, obviously Honolulu, but we're not seeing the same growth that we're seeing on the West side, but good growth across all of our markets.

And you wanted comments on Warner Center? I mean, Warner Center is inching and probably should be in the metric system instead, but it's slowly moving its way up.

And -- I still like the market. I like what's going on there. If you go there, you will see a ton of energy.

And you'll see a ton of energy in housing. You'll see a ton of energy in the stuff that Westfield's doing and you go, this has to be a winning bet. And I still believe that.

Okay. So no changes as far as your kind of expectations for how long the lease-up could take there?

I expect greatness out of Warner Center. But, so far, I'm feeling lonely in that expectation, but I still believe it.

Fair enough. All right. Thanks, guys.

And next we have Steve Sakwa of Evercore ISI.

One of my questions was about Warner Center, but you just answered it. I guess the other one, you do have an asset that's held for sale. To go back to Jordan's question about selling slower growth assets, can you talk about the assets you do have held for sale and kind of the thought process behind that and what else we might see over the course of the year?

That asset's Tower at Sherman Oaks. It's not a very large asset and there was a potential opportunity to sell it and we're looking at that. I don't want to go beyond that in terms of discussing the deal, but I'm happy to tell you the building.

I guess, just to try and flush it out a little bit, Jordan, is it because you think it's a slower-growth asset, is it a conversion opportunity, is it -- just trying to help figure out what the thought process was behind why that single asset.

Once we go through that process and decide what we're going to do, I'll go over that with you.

Okay. Thanks.

Next we have Bill Crow of Raymond James.

Jordan, there seems to be growing concern about the tech bubble, if you will, up in San Francisco and how that might impact L.A. eventually. I just wanted to get your bigger picture thoughts on your market and its exposure to the technology sector.

Well, our market -- number one, I think -- I understand people's concerns about technology and where it's founded. I wish there was a lot more technology in our market.

It happened that -- Kevin can answer this better than I can. We don't have as much as I would like to have, but the only good news of that is, for your question at this moment I would say, we're not very dependent on them.

But you know what? I would still open the doors and welcome them down because I think they are great growth generators and they spin off a lot of growth. And I certainly don't think they are going away, even though I do understand that they can get overheated and spike up a little and then shallow out and move up.

I think they have a good upward trajectory. So I wish we had more, but we don't have much. Go ahead, Kevin.

The Los Angeles region and West L.A. in particular, our tech is more related around defense for the region and media for West L.A. So we're less about social media and new startups.

I mean, if there was a local broker who put out a tech as a percentage of local leases signed, and L.A. is way, way down the list below, like, Indianapolis and Phoenix and other places; and relative to venture capital, we rank fourth nationally. But the bay area is 10 times the size of what's going on in L.A. and New York it's -- the Bay Area is four 4 times of what's going on in New York City. So it's just not a market driver.

And if you look at -- in our financials here and you look at our diversified tenant base, there's really no one sector that drives us. So the good news about our markets is we're not overly dependent on one particular sector. And so tech is a piece of what we do, but it's a very, very small piece of what we do.

I wish it was a larger piece. It's great in incremental pressure.

But it -- I mean, as Kevin says, it doesn't make or break us for tech to slow down. Or unfortunately, doesn't make us for tech to speed up.

Thanks for the time. Appreciate it.

And next we have a follow-up from Nick Yulico of UBS.

I just want it to be clear. What's the -- the asset -- one of the assets is excluded from the same-store this year. Looks like it's Trillium in Woodland Hills. Where it says -- the footnote says there's a gym undergoing repositioning. Could you just remind us sort of what's going on there and what was the decision to take out of same-store this year?

So we're doing a major renovation there of the gym and some common areas that we had talked about. So with that gym down and out of the leasing, we thought it was fair to take it out of both periods.

Yes, just so we cut the comparison. There's a bunch of work going on there.

The whole -- if you can picture the project at all, it's two towers and then it's detached parking structure and there's a big courtyard in the middle and we're doing a bunch of work there.

Okay. Thanks.

And next we have Alexander Goldfarb of Sandler O'Neill.

Just a quick question, Jordan. Your comments earlier to a question about not looking at downtown, we'll leave bunker hill aside and focus a little bit more on some of the sort of quote, unquote, edgier areas that have been growing.

Is your hesitation to look down there, more because you haven't seen it go through a few cycles to see how it goes over time? Or is it because the types of tenants who are there don't really lend themselves to this sort of multitenant building the way you like, having small multitenants where you can get more efficiency and such out of the properties?

Well, I would say, I don't want to beat up on downtown because I like what's going on down there with the housing and the more -- especially around AEG's project, more pedestrian-friendly stuff. Then there's a little bit of a creative area.

So all great stuff. That's all good stuff. But our program generally is to go into supply constraint, high amenity, smaller tenant, multi-industry areas.

And downtown, first of all, I don't think the tenants down there make their decisions on high amenity base. I don't think -- I think they are highly rent-sensitive and move over very small changes in rent, so they are not locationally or rent-sensitive. It's not supply constrained, right?

They tend to be very large tenants, which is costly to move in and out. And they put people through grueling bids. And we're just honestly, not set up for that.

And so, I'm not saying people can't make money down there. I'm not saying bad market or any of that. It's more what Kevin said. Just not a good fit for us.

Okay. Thank you. Thank you, Jordan.

John Guinee of Stifel.

Just one follow-up question. Jordan, you had made the comment that if you had unlimited cash, you would buy all of Westwood.

Yes.

And I would argue at $33 a share, you do have unlimited cash. So just -- that's a pretty full price and a pretty low implied cap. Do you think that your JV partners provide a lower cost to capital than common right now?

Well, I feel that at $33 -- I'm going to say it in reverse because there's too many, too many esoteric ways to calculate my cost of equity, my cost of debt equity, and my cost of partner equity. But I will say this.

A simple analysis of it, if I sold my stock, what would be the applicable price per foot I was selling my buildings at? And then if I go look at the buildings that I'm buying and see what I'm buying them for, and the price that I'm paying then I would say, well that's crazy. I should just buy more of my stock because I can get buildings for a lot cheaper price per foot.

So I would not sell my buildings for lower price per foot to buy another building for a higher price per foot. That's why I instead, partner up with joint ventures and take as much of it as I can.

If I thought my stock was trading on par with the pricing and metrics of what I'm buying buildings at, then I would go, yes, no problem. I would issue stock and gain more control and more synergies, et cetera, of the markets that I like. But that's not the case.

Great. Thank you.

Next we have Jamie Feldman, Bank of America.

Hi. I'm just wondering if, do you guys have a quarterly kind of post transaction run rate for EBITDA? Or even net debt to EBITDA, given the transaction was mid-quarter?

We don't. I know that transaction was a strange one.

We had one other thing, I think we were going to mention if it came up, which just a little I'll mention -- by the way, you're our last caller, so we might not have mentioned it at all. But we had originally told you guys -- I don't think we said this, that we thought Westwood was going to provide at least $0.03 to the Westwood deal to our FFO.

Now we're pretty sure it's more of the $0.04 to $0.05 instead of the $0.03 for the whole year, if you want kind of a run rate impact from that transaction. Well, it's not a run rate because it's only for the remaining part of the year but it's $0.04 to $0.05.

Okay and that's the bump was still half the transaction and internal growth?

So, I wasn't directly answering your question, I was just answering the fact that you said the transaction happened mid-quarter and I was trying to give you the overall for the whole year impact from that transaction.

Okay, and then in terms of a good EBITDA run rate to use, do you have one or try something - call you offline?

No, we don't have that. I think one thing you might look at, Jamie, what we provided this time was our share of cash NOI from our consolidated joint ventures and so for the quarter, that was $2.2 million. But we expect our share cash NOI from JVs to be between $14 million and $17 million for the year.

That helps.

Yes, thank you.

All right, thanks. And that looks like our last question. Thank you, everybody for joining us on the call and we look forward to speaking to you again in three months.

We thank you, sir, to the rest of the management team for your time also today. Again, the conference call has concluded.