Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rental rates have held and continue to show strength.
- High retention rate and minimal leasing concessions.
- Tenant defaults are back to historic lows.
- Positive straight-line rent rollup and lower tenant improvement costs.
- Residential portfolio remains essentially fully leased at 99%.
Negative Points
- New office leasing was insufficient to drive positive absorption.
- Sales transaction volume remains depressed, particularly in office properties.
- Revenue decreased by 3% due to higher vacancy and lower office occupancy.
- FFO decreased by 4.5% primarily due to higher interest expense and lower revenues.
- AFFO decreased slightly, and same property cash NOI was flat.
Q & A Highlights
Q: Jordan, can you give more color on recent rental rate trends and which submarkets are showing the best resiliency or growth?
A: Rental rates have held strong, with positive straight-line roll-up and minimal concessions. Hawaii is particularly strong, and most of the West side is showing strength. Warner Center has good things happening but still faces vacancy issues.
Q: Can you talk about your plans for upcoming debt maturities? Will you pay them off with cash or refinance?
A: Each loan has its own plan. We feel confident about managing our debt, with some cash paydowns and adding collateral to extend loans. Rates are coming back our way, which is good news.
Q: On national tenants, are they hesitant due to market conditions or their business performance in your markets?
A: Larger tenants are starting to show more activity, and we feel better about the leasing pipeline. We are seeing improvement from larger tenants, though it's still below pre-pandemic levels.
Q: How many large tenant deals are needed to turn negative net absorption positive, and when can we expect that inflection point?
A: Historically, we did five or six deals over 10,000 square feet per quarter. We are below that now but are optimistic about seeing improvement soon.
Q: Are there any distressed office properties that meet your criteria for acquisition?
A: Multifamily properties are still trading at low cap rates, but office properties may offer better discounts. We expect potential opportunities in the second half of this year or early next year.
Q: What industries need to improve for a bigger upturn in leasing activity?
A: Service industries, general office, and accounting are showing positive signs. We feel optimistic about the pipeline and activity in these sectors.
Q: Can you quantify the impact of tax refunds on your second-quarter results?
A: The tax refunds were in line with our expectations for the year and are reflected in the reduction of office expenses.
Q: Are there any plans to secure another credit facility given the current rate environment?
A: We have built up cash reserves and find it more cost-effective than securing a credit line at current rates. We would consider it if costs come down significantly.
Q: Have expectations shifted for Barrington Plaza following the recent ruling?
A: No significant changes. The building is about 90% vacant, and we are working on plans to complete the necessary work.
Q: Can you elaborate on the feeling better about national tenants and their impact on your leasing pipeline?
A: We are seeing larger tenants starting to come back, which is reflected in our leasing pipeline. We are optimistic but cautious about making predictions until deals are finalized.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
