Douglas Emmett Inc (DEI) 2018 Q1 法說會逐字稿

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

Thank you. Joining us on the call today 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. 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. (Operator Instructions)

I will now turn the call over to Jordan.

Good morning, everyone. Thank you for joining us. We had a busy leasing quarter, executing 1.3 million square feet of leases, an all-time high. I'm especially pleased that we renewed the leases at our 2 single-tenant buildings, including the 456,000 square-foot lease at our Studio Plaza property. The occupancy decline this quarter resulted from higher-than-usual expirations impacting January, including an 89,000 square-foot downsizing at Warner Center.

Since quarter-end, we have made good progress in leasing, including backfilling almost 2/3 of the Warner Center downsize. We have only one lease left that is over 100,000 square feet in that submarket. More importantly, we are well positioned to move up occupancy across our entire portfolio as lease expirations until the end of 2019 are the lowest since we went public in 2006.

As Stuart will discuss, our leasing this quarter generated very healthy rent roll-up. Demand drivers in our submarkets remain strong, with L.A. County adding over 60,000 jobs during the 12 months ended in February.

Protected by high barriers to entry, we have grown our average in-place rent by 7.2% over the last year, setting another all-time record in every Los Angeles submarket other than Warner Center. At Warner Center, recent rent increases have driven in-place rents to their highest level in 5 years.

Mona will report on our financial results, where we achieved another quarter of strong FFO growth. Same-property cash NOI growth was impacted by expected timing issues in the first quarter. We remain confident in our same-property guidance for the year.

We are rapidly leasing up the new units at Moanalua. And in Brentwood, we achieved a notable milestone by breaking ground for our new residential tower.

I will now turn the call over to Kevin for a capital markets update.

Thanks, Jordan, and good morning, everyone. We continue to ramp up investment in internal growth opportunities with major expansion and repositioning projects across our portfolio.

Our 2 multifamily development projects are in full swing. As Jordan just mentioned, we commenced construction of our 34-story, 376-unit, high-rise residential tower in Brentwood. At Moanalua, we ended the first quarter with a total of 104 new units leased, with average rents that continue to exceed our pro forma. We expect to complete that project, including a new fitness center and the upgrade of our existing units, around the end of this year. We have also begun construction to reposition 4 office properties, where we think the investment can generate meaningfully higher rents. We expect to complete these projects within a year. We have several more projects in the pipeline, and continue to evaluate additional internal investment opportunities.

We have a number of potential acquisitions in our pipeline and plenty of dry powder. Our balance sheet remains strong with low leverage, many unencumbered properties and limited near-term maturities. Except for the loan on our Moanalua development, our next term loan maturity is 4 years away in 2022.

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

Thanks, Kevin. Good morning, everyone. Last quarter, we signed 206 office leases for a total of 1.3 million square feet. As Jordan mentioned, that included renewing the leases at our 2 single-tenant properties, which helped boost our leasing spreads to 40.4% for straight-line rent roll-up and 16.9% for cash rent roll-up. Even excluding those 2 leases, our leasing spreads were consistent with the strong rent roll-up in recent quarters.

On the multifamily side, we improved our lease rate to 98.9%, as we backfilled much of the temporary vacancy in the Honolulu property mentioned last quarter. We expect continued headwinds at our Moanalua community from ongoing construction and the recapture of our previously income-restricted units.

Over the last 4 quarters, we have grown rent per leased unit by over 4% in our Los Angeles submarkets and by 1% in Honolulu, reflecting the headwinds we discussed last quarter.

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

Thanks, Stuart. Good morning, everyone. We are pleased with our Q1 results. Compared to a year ago, in the first quarter of 2018, we increased revenues by 9.1%, increased FFO 14.7% to $96 million or $0.49 per share. We increased AFFO 1.8% to $71 million. Our renewal leasing volume during the quarter contributed to exceptionally high leasing commissions of $13.2 million. Had leasing commissions been in line with the trend for the prior 2 years, AFFO would have grown by 14.7%.

Our same-property cash NOI increased by 1.4%, including expected impacts from the timing of tenant recovery revenues, tenant reimbursements and lease settlements. As Jordan mentioned, we remain confident in our guidance for same-property cash NOI for this year.

Our G&A for the first quarter was only 4.5% of revenues, well below that of our benchmark group.

Finally, turning to guidance. We are raising FFO guidance for the year to between $1.98 and $2.04 per share. For more information on the assumptions underlying our guidance, please refer to the schedule in our earnings package. As usual, our guidance does not assume the impact of future acquisitions, dispositions or financings.

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

(Operator Instructions)

And our first question comes from Manny Korchman of Citi.

So with your earnings package, last night, you guys put out a presentation, and there was a slide in there showing your occupancy versus the market's occupancy. And what caught our eye here was that the spread that you've had in terms of your occupancy versus others has narrowed over time. I was just wondering how much of that had to do with you sort of controlling more the market in vacancy versus a more permanent trend.

Well, I hope it's not a permanent trend. I don't think it's a permanent trend. I think what it's being driven by is the fact that we recently added millions of square feet of buildings that had most of the vacancy in the market, and we're working through leasing those buildings up. So as we keep buying buildings with vacancy, it takes us a little while to sort of fight it back up. And you can see how those -- like if you look at our buying patterns and you see how that number ran up, you're going to see a correlation there.

Great. And then you took several buildings out of your same-store pool as you go and reposition those. I was just hoping you can remind us how much capital you're putting into that campaign and where you are in that process.

Sure. So we took -- I think starting this year, we took 4 buildings out of that pool. The projects, the capital going into those this year, not -- I'm not talking about TIs or any of the regular reoccurring maintenance type stuff for the buildings, the big things, that is, I think, a bit over $50 million, although a good -- it's a bit over $50 million.

And...

Go ahead, Manny.

Sorry. You broke up there. So I think you said a bit over $50 million?

So it's a bit over $50 million that we're putting in those buildings.

And where is that process? How long is that going to take?

Well, some of those projects will be finished this year, and some will flow into next year. I mean, we -- I mean, if you -- I know if you drive up and down Wilshire, you're going to see barriers around a lot of our buildings and construction going on like crazy. We know we're in the middle of it because now we're getting calls from tenants that are aggravated. Before they were all in a good mood seeing the pictures of what was coming. Now they're aggravated.

Our next question comes from John Guinee of Stifel.

Years ago, you talked about how you really had a small tenant focus. Therefore, you didn't move a lot of demising walls. You didn't have a lot of gut rehabs or full floors, et cetera. Can you talk about what happens to TI dollars and how much you have to spend for the big multi-floor givebacks you have in relation to the smaller sub-10,000 square-foot tenants?

It's a lot more. I mean, the big tenants demand big TIs. I don't even care -- sometimes, I feel like they look -- could look at a full floor and go, "Yes. We just want big TIs because we're big, I mean, without needing to redo it or not." A lot of times, when you pro forma a building -- a lot of times, all the time, you're usually safe. New tenants for -- new tenant TIs are a higher number. Tenant -- TIs for a small -- smaller or for renewal tenant's a smaller number. But the real split is large space, big number; small space, small number on a per-foot basis. And as we go through and keep rolling these, and as you've heard before, many of the buildings we bought, part of the reason for the vacancy in those buildings were full floors where they were waiting for full-floor tenants. We move in and immediately put a corridor in, start building out our spec suites, leasing them up. That's how we make a lot of gains at these buildings so quickly because we're prepared to break the space down and start leasing. More expensive at the front end, but since all these buildings we plan to hold long term, they generate a lot more cash flow over time. And you've seen that in the trajectory of our cash flow over the last few years if you're going back a ways. You saw in our call, we mentioned that is happening at Warner Center. We're down only to one tenant. That's over 100,000 feet. Nobody likes losing big tenants, but we are through a huge portion of the conversion that we had to start going through in the recession, and are now able to make gains without getting sort of torpedoed from the side every once a year, whatever it may be with a large tenant either dramatically shrinking or moving out. So we feel very good about that direction in our portfolio, even though it is much more expensive to roll those guys.

And the next question is, you mentioned 4 assets out of service, $50 million of capital. Does that level of capital trigger a tax reset in California? Or are you able to not trigger a tax reset?

It doesn't trigger a tax reset because you could remodel or reposition. That's not a reset on taxes from Prop 13. What resets taxes, if we increase the square footage of the building, then they would go, "Oh, you've got a larger building." And whether it's nice or worse, whatever, they don't care. That's how they come in and reassess you.

Your next question comes from Alexander Goldfarb of Sandler O'Neill.

So 2 questions. First, I understand the pressure on the payroll side on the expenses, but on utilities, could you just provide a little bit more color? Yes, I don't recall -- or maybe my memory's just bad, but I don't recall when oil was up at $100, you guys having similar pressure. But maybe you could just provide a bit more color on what's going on, especially with Hawaii, and why it's an issue now and it wasn't when oil was $100. And then overall, given payroll and utility seem to be growing issues this year, what's going to make them be better, so that your same-store NOI guidance you feel comfortable with?

So we feel comfortable with our same-store NOI guidance right now as we sit here. We knew what was coming on energy. So when you say when oil was at $100, so when you say same-store, you're talking about comparison over prior periods. So that's changing price. So for instance, if oil stayed at $100 for the next 10 years, it would play no role in impacting our same-store, right? What actually happened was we got for many years -- and we're still getting it. I think we did 2.5% last year. But for many years, we got huge gains out of reduction in the amount of energy we used through programs across the portfolio. Now for a bit of time during then, we saw a run-up in oil prices, particularly in Hawaii, because after the reactor accident in Japan, it turned out that Hawaii and Japan, to run their oil-generated energy generators, they happened to use this same type of oil, the special type of oil, rare type. So all of a sudden, they were trying to buy the same oil that they were buying in Hawaii. And it ramped prices up a lot because it's not a very -- it's not made a lot, and there's a narrow market for it. Now then, things kind of stabilized. We stabilized at actually a pretty good number for energy cost. Now energy costs are running up again, so you're seeing a change in the cost of running our usage. Now I would say, overall, we're still probably paying less for energy than we did some time ago. But -- and they're in Hawaii. They're also starting to look at making modifications to their equipment. And you would say, "Oh, that's good. The modifications should bring down the costs." Instead, they're passing through those capital costs and raising the rates to us. But all of that's a matter of change. So if it stayed at $100, then we wouldn't be talking about it. If it stayed at $50, we wouldn't be talking about it. The fact that it went came way down, and now it's moving up, is why we're talking about it. Now we've been able to not be impacted by the rise because we've been lowering our usage. But it rose faster than we were just our usage last year. And that's why we're being impacted by it this year. And for next year, it can go down. Therefore, it'd be a plus. Now in terms of payroll, payroll's pretty predictable. We -- there's a ton of move across the country in terms of minimum wage. There's a stronger move in California about minimum wage, and there's even a stronger move in the county of Los Angeles about minimum wage. So we're right in the hottest spot for minimum wage to move up the fastest. When minimum wage moves up, the people above them move up, up to a certain point. And that's impacting us. And a lot of those people, since we directly employ, or deal with almost of our services ourselves, are on our payroll, so you don't see it netted in our revenue number. Those people are being paid for by us or by us through a vendor, which we have a lot of control of our vendor relationships. And so you're seeing those costs pass through to us. It's statutory. There's nothing we can do about it. But that doesn't mean we don't have good visibility. We have great visibility because we know it's a legislation. We know how those numbers are going to move. So that's why we have a lot of confidence on how it's going to impact our numbers this year.

Okay. So the same is on utilities? You think that, that will improve?

I think that we have a good feel for where utilities are going to be this year over next year. But you know what? A lot can happen with utilities. So oil can go down again. And then utilities, the net price could go down, and that could be an improvement. I have a good feel that every year, we find ways to reduce our utilization. But I -- if you're saying a good feel for what oil prices are going to do, whether they're going to change or remain flat, I don't have any better feel than people to speculate in that.

And Alex, in Hawaii, the fee you see announced the first hike in electricity in 6 years. So that's something we have visibility to, but that's an increase that's going to be impacting us.

Okay. And then the second question is, on Burbank, you re-leased Time Warner there. So that's fully leased now. There seems to obviously be a hot, hot market for dispositions and people to buy assets. You guys only have one asset in Burbank. So now that it's fully relet, is there consideration to selling that asset? Or is that a market you think you can grow in?

Well, I think it's a very good building, and it's a building that we've made a lot of money with over a long period of time. So when we look at whether we want to sell something, we have to think, can that building make more? Is it flattened out in its earning capacity? Or is its earning capacity good and strong over the long haul? Our inclination is to keep properties, not to trade them. I still feel that's a very good property, and we're real comfortable with what we have invested there. And I'm real pleased to have a great tenant in it.

Our next question comes from Nick Yulico of UBS.

So going back to Warner Center. Can you just talk about the types of tenants that are driving the leasing there? And whether tech, is it all migrated up there? I know you'd spent some time with, I think, branding and brokers trying to get more of a tech presence up there. And then also just in terms of the -- how was the mark-to-market on the Warner Center leasing specifically?

Nick, so on the Warner Center, kind of the tenants in Warner Center, we actually have seen tech go out there. We've seen some entertainment folks go out there, too. Warner Bros. moved -- or Warner Music moved out there a few years ago. We do have several kind of more of the mature tech companies out in the Warner Center market. Facebook actually moved out not to Warner Center, but a nearby market in the valley, took a big chunk of space out there recently. So we have seen the migration of tech tenants out there as well as kind of our standard group of tenants that we see in our core portfolio. Activision went out to Warner Center as well. So we are seeing that. And then your second question was on roll-up. We don't break out roll-up kind of between the submarkets. I think we've been pretty clear in saying that the rent growth in Warner Center, given the occupancy there, hasn't been what it's been on the Westside. So you'd expect the roll-up to be more muted there than what we're getting on the Westside.

Okay. That's helpful. And then just secondly on the acquisition market in L.A. I think, Kevin, you cited looking at some opportunities. What did you guys think about the Santa Monica Business Park trade that happened? And is there much of size that's actually available to purchase in L.A. right now?

So I would say, look, Santa Monica Business Park was an outsized transaction for our market. The typical transactions are more in, call it, the $75 million to $150 million type of range. And so that was a large transaction that was very competitive. And we're seeing a lot of things in the pipeline that are in the more traditional range. The funny thing is we've had some very strong pricing on some assets. And typically, you would think that, that would slow down investment activity. But it actually brings more product to market as owners that are looking at their assets say, "Wow. That's pretty strong pricing. Maybe I should take advantage of this." And so the activity is generating more things in our pipeline, and the acquisitions team is busy underwriting things.

Our next question comes from Jed Reagan of Green Street Advisors.

Maybe just a follow-up to that last question. I mean, have you seen any changes in cap rates or pricing in your core markets recently, especially West L.A.? And then also curious just kind of the pace of year-over-year net effective rent growth you're seeing in West L.A. these days.

Well, I'll touch on that cap rate piece. I mean, our market typically doesn't price on a cap rate basis. I mean, people recognize it's no secret that there's a lot of constraints to new supply here as opposed to, say, New York City, where transaction volume dropped off pretty dramatically last year, as everybody recognized that there was a lot of new product on the Westside, and they were wondering how that was going to impact Sixth Avenue. And so it's more of a by-the-pound market, and the by-the-pound pricing has moved up. Jordan, you want to talk about the rental rate growth?

So it's funny because I was talking to Ken this morning almost about this exact same subject. We were going through like effective, net effective, what's going on with rents. Not looking to put quarter-on-quarter or year-to-year, but we were actually looking back a number of years. And if you look back a ways, effective, net effective -- it might be a little better on the net effective. But the growth has been spectacular, like you would have never thought it would have grown that fast if you were making a prediction. So we were trying to think about like where things are going, where occupancy in the market is, et cetera. We're very optimistic about where things are going. And a good chunk of that optimism comes from not only looking at the occupancy in the Westside markets, but also looking at our going forward, which we made mention. It might've been in our prepared remarks or might've been in our executive summary. But we mentioned that when we look out to the end of 2019, we have a very controlled role, which gives a lot of opportunity to make gains. We've gone through a period of time when we've been moving tenants a lot. We've done a good job of retaining them in the portfolio, but we've been moving themaround a lot, which has -- which still comes frictional vacancy, especially frictional loss in rent, right, during that moment in time. And as we look forward, we're kind of saying, "Wow. We're going into, at least for the next, call it, 7 quarters, of looking out to where you can kind of a feel for this, a very good period of time for the company."

Okay, that's helpful. I mean, I guess, just sort of generally, would you say -- is it fair to say that kind of rent growth decelerated in the market recently?

I think it's fair. I think phase rates are -- probably phase rates decelerated a little bit. And that's why we were having this conversation. I don't think net decelerated, no. I think that the effectives or the nets actually are kind of catching phase. So therefore -- so like when you -- when rents move up in a market, especially when -- some of this has been drained out in the market, but we had owners in the market that were pushing very high phase rates, but maybe there was a very big spread between phase and effective or net effective. Now we're a very, very large owner in the market, and we have no incentives to post a big phase rate versus effective rate. And so the 2 numbers are collapsing on each other, and fortunately collapsing upward toward phase rate. And therefore, we like that trend. And now it was the trend. I mean, we not only are discussing but e-mailing Stuart and getting information back and forth to really look and see if we're right. And I think we are right.

And that's because concessions are...

It's concessions, just TIs. It's concessions burning up from a former time that were spread. It's a lot of stuff like that.

Our next question comes from Craig Mailman of KeyBanc Capital Markets.

This is Laura Dickson here with Craig. So last year, you pursued some opportunities to delever. I was wondering what your thoughts are on issuing equity here ahead of any acquisition opportunities.

We're -- just in general, our history is that we're not big equity issuers. The dilution is painful. And a trade we have not enjoyed, I mean, it took -- the equity we issued last year took a very special cooperation or a set of circumstances that all came together that said, "This is an opportunity to substantially delever the company and recapture." We have done a lot of buying. We have done a lot of stuff. We want to be well positioned for stuff going forward. It was an opportunity, and to pay off some more expensive debt that have come from -- that we could do cheaply for nothing. And so we took that opportunity. In general, it would be -- it's generally pretty very unique circumstances that will cause us to issue equity. We have a lot of liquidity in general, and we have a lot of cash flow and capacity. And then we also have a very robust set of relationships with -- in our sovereign platform. So we can buy very large deals if we need to do only 20%, 30% of that deal and end up in controlling great assets without having deluded ourselves through the issuance of equity. So that's very low on the list.

Okay, that's helpful. And then -- and separately, given competition from new supply in L.A. in your multifamily portfolio, you're running at pretty high occupancy. Has rental rate growth moderated? Or do you expect it will moderate in the coming quarters?

So we've -- I've expected for 5 or 6 years that rental rent growth will moderate. I have been stunned that we've been running the last few years over 5%, 5%, 6%. I mean, wild numbers, which is when -- if it's an office, okay, those don't even roll for every 5 years. But when you're talking about in residential, where leases roll every year, it's really so. And I've been surprised at how it's been moving. I think it has moderated a bit, but it moderated a bit about 4 quarters ago. And I thought, "Okay. We're going to go back to a normal 3, 4, whatever that case may be." And then it went back up. So it's hard to predict.

Okay. And just one quick one regarding the multifamily developments. Can you remind us what the expected yields are on those 2?

We've said a few times, we will be -- we're building them for above a 7 cap rate.

Our next question comes from Mitch Germain of JMP Securities.

Maybe one for Kevin. Are you seeing any new pockets of capital, maybe foreign or private equity, in the market that you're bidding against now?

That we're bidding against? I would say that there is more capital that's been attracted to L.A. just given the fundamentals here. And so we are seeing -- and some Japanese capital that was kicking the tires in New York, and now it's starting to kick the tires out here. So that's something new. And they actually -- that Japanese group had bought that long-term Google lease down in Playa Vista last year. So there's more follow-on to that. But it's a competitive market out there. I don't think any one source of capital is -- we don't worry about the foreign guy or the high net worth guy or a REIT competitor any more than anybody else. It's a competitive market. And for the assets that we focus on, where we can leverage our platform, I think that we can come out on top.

Great. And then just the 4 assets that are undergoing repositioning right now, if you can just remind me, what kind of return potential are you expecting on those projects?

The returns for the repositioning are extreme -- if we were right, if we're right, are extremely high because if you think about it, you have a 400,000-foot building. You put in $15-plus million, $15 million to $20 million, even if you are -- you're absolute low end and only move rents $0.25 or $0.25 to $0.50, it's a colossal return on that money. I mean, you're in the 20s of IRRs. And if you can move rents up to a buck, it's almost absurd, which is something that, in a market we're in now, which differentiates a lot, differentiates between markets, differentiates between buildings, that creates that opportunity. If you're operating in a recession, then everyone is bidding on rental rate, and when everyone's bidding on rental rate, it flattens out rents across buildings and across markets. So when you see people put money into repositioning in a recession, they're really just doing it to gain occupancy. They don't really gain a lot in rental rate. When you see people put money in -- to repositioning in a good market, they're doing it to increase the revenue in the building per foot. And that's what we're doing.

Our next question comes from Rob Simone of Evercore ISI.

A lot of the questions I had have been answered already. So I was just wondering if you guys could comment a little bit as it relates to your developments on construction cost increase that you're seeing. We're obviously hearing about massive increases year-over-year pretty much in every sector we cover. So -- and I know that, obviously, you guys took up the development budget for your resi project 2 quarters ago, I believe. So I just wanted to see if things are kind of trending according to your most recent expectations or what should we expect there?

I think we're generally on in terms of our budgeting. But we took quite a while and went through a lot of more shenanigans than was expected in Hawaii in terms of getting that project started. And I think that time that it took there, that definitely cost us to when we actually started and got to work. And here, obviously, what's happening with labor and all of that, I mean, it's increasing the costs. I'm not sure that the cost increases are meaningful enough to change opinions or make big even impacts on where we think we're going to come out in terms of returns on the project, but they're definitely in an upward direction. In a lot of markets, you'll track the cost of construction because you'll sort of have confidence that when construction cost gets to too high a level, people stop buying, and you get some relief from new supply coming on. We don't really have a lot of new supply coming on. So construction costs, when you can build, because we're in a very supply-constrained market, usually aren't a gating issue. It has more to do with kind of where rents are and whether rents are moving kind of your way than construction costs.

Our next question is a follow-up from Jed Reagan of Green Street Advisors.

Just a couple of quick follow-ups. On the assets taken out of the same-store pool, one question is -- so I mean, if you were leaving those assets in the pool this year, would that change same-store guidance or occupancy guidance at all?

Well, the short answer's, I don't know, but I could say that if we kind of had everything in, I suspect the number would be stronger than as we sit today because we're doing a lot of work in markets where, as I just said, there's a lot of rent differentiations, a lot of rent differentiation because rents are moving quickly there. So they've been pretty positive contributors.

Okay. And this is mostly like Westood and Brentwood, if I'm correct?

Yes. It's a lot of Westside stuff, yes.

Okay. And I'm sorry if I missed this earlier, but there's the 4 you've already identified. I mean, behind that, how big is the pipeline of assets that you might be looking to do something similar with?

I think there's a lot of opportunity on all 3 fronts, where we're kind of growing that development or redevelopment of our existing portfolio, which is, number one, to build additional residential ground up on sites that we already own; number two, to reposition buildings that are geographically in fantastic locations, but we can make adjustments or reposition lobbies, the grounds around there, the amenities that support the building and change the rental rates that we get in the building; and then number three, community-focused benefits, parks or other types of things in areas where we have 70-plus penetration on the office maybe or where we have a lot of residential, where we can do something and change the feel of the area and just get benefits because we're such large owners in those areas. All 3 of those have way more opportunity beyond what we're doing now and very high -- if our estimates are anywhere near close, very high returns for the capital that we're putting in. Now we're not real quick to do everything at once. So we have that going on. We're building. We're repositioning. Now we'll look and see, were we right? Were we wrong? What happened to rents here? What happened to rents in the neighboring building? How fast do rents go up in our building? Will we build a park? Okay. Did that change the feel in this area? What kind of comments are we getting back from tenants? Are more tenants wanting to be in this area because this is here, because now you can go down there and eat lunch, and we have food service trucks out there or whatever we happen to have. We will gather that information, but we have lots of opportunity if the data comes in the way we expect.

Okay, great. I appreciate that. And then just last one. The topic came up earlier on expense growth, which obviously was a little elevated, especially on the multifamily side on a year-over-year basis. Is that kind of 9%, 8%, 9% apartment expense growth, 4%, 5% for office? Is that a decent set of run rate to think about for the rest of the year?

There were some timing issues that impacted multifamily that I wouldn't expect to see going forward. So the payroll and the utilities definitely is something we anticipate for the balance of the year, but there were some other repairs and scheduled services that impacted Q1 heavier than typical.

This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.

Well, thank you, everybody, for joining us, and we look forward to speaking with you again in a quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.