As a reminder, this conference call is being recorded. It is now my pleasure to turn the call over to your host for today, Mr. Adam Wyll, EVP and Chief Operating Officer. Sir, the floor is yours.
Thank you. Good morning, everyone. Welcome to American Assets Trust Inc.'s fourth quarter and year-end 2020 earnings call. Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the investor section of our website, americanassetstrust.com. Telephonic replay and on-demand webcast will also be available for this call over the next week. During this call, we will discuss non-GAAP financial measures which are reconciled to our GAAP financial results in our earnings release and supplemental information. We will also be making forward-looking statements based on our current expectations. These statements are subject to risks and uncertainties discussed in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements.
Actual events could cause our results to differ materially from these forward-looking statements for a number of reasons, including uncertainty related to the scope, severity, and duration of the COVID-19 pandemic on us and on our tenants. With that, I'll turn the call over to Ernest Rady, our Chairman and CEO, to begin the discussion of our fourth quarter and year-end 2020 results. Ernest?
Thanks, Adam. Great job. First and foremost, I would like to wish all our stakeholders and their loved ones continued health and safety during these truly unprecedented times. Now that people are starting to get vaccinated, we are optimistic and even hopeful that eventually this pandemic will no longer be a threat. Lives will return to some kind of normalcy, and the economy will recover. However, at the present time, this pandemic continues to create challenges within our portfolio, particularly for our three theaters, gyms, and our Waikiki Beach Walk properties. As most of you know, all of our properties in Hawaii are owned fee simple and are very valuable. We have a strong view that post-pandemic, Waikiki will return to normal, pent-up tourism returning, and every night being like a Friday night.
While this pandemic still remains a threat, we believe we are well prepared to endure a prolonged pandemic with our irreplaceable portfolio, our best-in-class operating platform, our top-notch management team, our disciplined financial strength, and our very strong balance sheet. In such regard, I am extremely proud to announce our inaugural public offering, which we closed on January 26th, 2021. The offering consists of $500 million of 3 and 3/8 senior unsecured notes due 2031. By the way, it was oversubscribed four times. This bond offering provides substantial liquidity, staying power, and provided for the repayment of $250 million of debt, and provides all funds needed for the development of La Jolla Commons III, which we plan to break ground this April.
Success and demand of this bond offering in the midst of a pandemic is truly a testament to our incredible properties, efficient operating platform, and our top-notch management team. Bob will provide more financial details on the bond offering. I'd like to mention that the board of directors has approved a quarterly dividend of $0.28 for the first quarter, an increase of $0.03 from our previous dividend, which we believe is supported by our collection efforts in the fourth quarter, and is an expression of our board's confidence in the embedded growth of our portfolio that we believe will recover post-pandemic. Bob, Adam, and Steve will go into more detail on our various asset segments and financial results. I will be available for any questions you may have at the conclusion of prepared remarks. I'm now going to turn the call back over to Adam.
Adam, please.
Thanks, Ernest. Good job. We remain optimistic-
As you can see, we're mutually cooperative.
We remain optimistic with the overall performance of our portfolio, even in light of the pandemic, and we are pleased to report that 100% of our properties are currently open and accessible by our tenants in each of our markets. Of course, we too have felt the bumps along the road like everyone else in our sectors. Yet our collections of monthly recurring billings due continue to improve in Q4 over Q3 and Q3 over Q2, with total collections to date of approximately 92% in Q4 versus 90% in Q3 and 87% in Q2. January is currently trending consistent with Q4 at just over 91% to date and likely to increase further, all despite the headwinds of Governor Newsom's shutdown restrictions in California that lasted through most of December and January.
Collections for essential tenants in our Retail Portfolio, which represent approximately 1/3 of retail billed rents, were almost 100% in Q3 and Q4. Collections for non-essential tenants continue to improve from 69% in Q3 to over 74% in Q4. Of note, no tenant in our Retail Portfolio represents more than 2% of our ABR, and less than 6% of our Retail Portfolio is due to expire in 2021, assuming no exercise of lease options.
Of the approximately 500 tenants in our Retail Portfolio since the beginning of the pandemic, we have had 13 retailers file bankruptcy, covering 18 total tenant lease spaces, of which 13 spaces have been assumed or are in the process of being assumed in bankruptcy, which we believe is a testament to us having superior locations that these restructured tenants want to remain in. Notably, the rejected leases to date were less than 13,000 square feet in the aggregate. As you would expect, our primary collection challenges remain in the Retail segment with our movie theaters and gyms, as well as many of our retailers at Waikiki Beach Walk, which until mid-October, had no incoming tourism to sustain meaningful revenue for our tenants.
Though we believe the pent-up demand for travel to Hawaii is massive, we expect that tourism to rebound to occur at more deliberate pace until a broader vaccine rollout is achieved, hopefully by this upcoming summer. In the meantime, we are working with these challenged retailers who historically have been great operators to bridge them through to the recovery. This is part of our recurring thesis of prioritizing long-term strategic growth over the short- term. Despite the uncertainty, we remain optimistic that we will continue to see sequential improvement spurred by the vaccines distribution, government stimulus, and anticipated pent-up travel demand in regions that have yet to fully reopen their economies. As Ernest mentioned, we believe that we are well-positioned to navigate through and manage these challenges. We have been through challenging times before, and each time we have emerged stronger, given our long-term focus and high-quality diversified asset base.
We expect this time will be no different. With that, I'll turn the call over to Bob to discuss Q4 and year-end results in more detail.
Good morning. Thank you, Ernest and Adam. Last night, we reported fourth quarter and year-ended 2020 FFO per share of $0.41 and $1.89, respectively. Fourth quarter and year-ended 2020 net income attributable to common stockholders per share of $0.05 and $0.46, respectively. The lower FFO in the fourth quarter, which is approximately $0.05 lower than the Bloomberg consensus, is primarily the result of additional reserves for theaters, gyms, and Waikiki Beach Walk retail. Nevertheless, we remain optimistic of this portfolio even in light of the pandemic. The highlights of this quarter are, one, we have ample liquidity. As Ernest previously mentioned, we recently completed our inaugural public bond offering. In the midst of this unprecedented pandemic, we closed on $500 million of 3 and 3/8 10-year senior unsecured notes.
With the proceeds from the offering, we repaid $150 million senior guaranteed notes Series A and repaid the $100 million outstanding on a revolving line of credit. We expect to use the remaining $236 million of proceeds to fund our La Jolla Commons III development in the UTC sub-market of San Diego, as well as continue our renovation of One Beach Street in San Francisco with the remaining amounts for general corporate purposes and potential accretive acquisition opportunities. At the beginning of this week, we had approximately $380 million of cash on the balance sheet, with zero outstanding on our $350 million line of credit. We chose to access the public debt markets now because of the low Treasury yield and strength of the credit markets that we have been seeing during this pandemic.
We had the ability to access the public debt market several years prior to this, but we weren't ready to commit to being a regular issuer on a frequent basis until now. What's changed is that we have the ability to ladder our existing debt maturities today so that we have close to, if not more than $400 million in future debt requirements on a recurring basis over an 18- 24-month period, while at the same time being laser-focused on a 5.5x net debt to EBITDA or less. A conservative balance sheet is very important to us. During this pandemic, our EBITDA has been challenged like others with exposure to retail and our hotel resulting in lower EBITDA.
We believe that our high-quality portfolio in superior coastal West Coast locations will begin to return to normal post-pandemic, and our expectation is that our net debt to EBITDA will begin working its way back down to 5.5% or less based on the corporate model that I'm looking at. Number two, we have embedded contractual growth and cash flow in our Office Portfolio, with approximately $24 million of in-place growth in just the office cash NOI in 2021 and 2022. Number three, our same-store cash, office cash NOI came in at just 3% due to abatements that were provided to our GSA tenants at our First and Main building in Portland, Oregon, as part of their lease renewal package during Q1 2020. These abatements continued through February 2021. Absent these short-term abatements, office same-store cash NOI growth in Q4 2020 compared to Q4 2019 would have been approximately 7%.
Number four, our Multifamily Properties incurred mixed results based on their geographic locations. For our Multifamily Properties located in Portland, occupancy was down 17% compared to the same quarter last year, while the weighted average monthly base rent increased approximately 1.4%. For our Multifamily Properties located in San Diego, occupancy remained stable at approximately the same over the prior year, while the weighted average monthly base rent increased 7.3% over the prior year. Of note, our occupancy levels in Portland have been trending much higher since the beginning of the year with our recent leasing momentum, bringing optimism that we will return to a more normalized pre-pandemic occupancy level. Number five, let's talk about guidance. As previously disclosed, we withdrew our guidance in April 2020 due to the uncertainty that the pandemic would have on our existing guidance, particularly in our Mixed-U se and Retail sectors.
Until we have a clear view of the duration of the economic impact and the economy shows signs of recovery, we will refrain from issuing formal guidance. What we can do is provide you a framework on how to think about our portfolio. We believe that Q4 2020 was close to, if not the bottom of the economic impact for us. We have taken approximately $18 million in combined bad debt expense reserves in 2020, including turning off most of the straight line rent for which reserves have been taking. Included in this number is approximately $7.6 million or $0.10 of bad debt expense reserves that were included in our FFO number of $0.41 for Q4 2020. From my perspective, I believe $0.41 of FFO for Q4 2020 is the bottom. I would suggest that you conservatively use that as a starting base.
Assume that continues for the first two quarters. Beginning in Q3 2021, assuming most everyone in America has been vaccinated, I would expect theaters, restaurants, and especially Waikiki Beach Walk retail and the Embassy Suites Waikiki to begin their recovery. I would apply some percentage growth to the $0.41 of the Q4 2020 FFO beginning in Q3 2021 and continuing into Q4 2021. Adjustments that also would need to be made include in Q1 2021, approximately $0.05 related to the yield maintenance make whole payment on the Series A note prepayment will be a non-recurring expense in Q1 2021. In Q1 2021 through Q4 2021, the additional proceeds from the public bond offering are expected to increase our interest expense by approximately $0.03 per quarter. As we look beyond 2021, we expect to see the following.
First, we expect to see the Embassy Suites Waikiki coming back in full strength in 2022, adding approximately another $0.13 of FFO. Secondly, the Waikiki Beach Walk retail coming back in partial strength in 2022, adding approximately another $0.08 of FFO. Also, in our supplemental this quarter, we have included our estimated development yield for La Jolla Commons III, which is expected to take between 24 and 30 months to develop. The estimated yield for this development is approximately between 6.5% and 7.5% based on the market conditions today. We expect this project to be completed by the end of 2023. A 6.5% yield on $175 million is approximately another $11 million of NOI or $0.14 of FFO. In the meantime, the cash on the balance sheet earmarked for this development will be a short-term drag on earnings.
Lastly, we expect our One Beach property on the north waterfront of San Francisco to complete its renovation by the end of 2022, and we expect this property to produce approximately $0.05+ of FFO upon stabilization in 2023. For now, this is our informal big picture framework of what we conservatively expect in 2021. It is not to be considered as formal guidance. As we have more clarity and conviction on the back half of 2021, we will share it with you. We will continue our best to be as transparent as possible. I'll now turn the call over to Steve Center, our Vice President of Office Properties, for a brief update on our Office segment. Steve?
Thanks, Bob. At the end of the fourth quarter, net of One Beach, which is under redevelopment, our Office Portfolio stood at approximately 95% leased, with just under 5% expiring through the end of 2021. Our top 10 office tenants represent 51.5% of our total office base rent. Given the quality of our assets and the strength of the markets in which they are located, with technology and life science as the key market drivers, we continue to execute leases at favorable rental rates, delivering continued NOI growth in our Office segment, even in this challenging environment. The weighted average base rent increase for the seven renewals completed during the fourth quarter was 5%. With leases already signed, we have locked in approximately $24 million of NOI growth in our Office segment, comprised of approximately $14 million in 2021 and $10 million in 2022.
We anticipate additional NOI growth in 2022 and 2023 through the redevelopment and leasing of 102,000 rentable square feet at One Beach Street in San Francisco and 33,000 rentable square feet at 710 Oregon Square in the Lloyd sub-market of Portland. With the recent entitlements for two blocks at Oregon Square in Portland, we can add up to an additional 555,000 rentable square feet to the portfolio. However, we continue evaluating market conditions and prospective tenant interest before commencing development of that project. In the next few months, we will commence construction of Tower III at La Jolla Commons, a 213,000 rentable square foot, 11-story, Class A plus office tower in the UTC sub-market of San Diego. With expected completion in Q2 or Q3 of 2023, La Jolla Commons Tower III will grow our Office Portfolio by 6.1%.
We're moving forward because we believe in the long-term fundamentals of the market, especially in UTC. Direct vacancy remains low at 6.5%, and the inventory is aging, with just 26%, or three out of 22 Class A office buildings, being built since 2008, two of which are our own towers at La Jolla Commons. These three newer towers are 97% leased. The existing Office inventory is actually shrinking due to conversion to life science and lab uses in and around UTC. Record-breaking venture capital is flowing into the region. San Diego companies raised a record-breaking $2.6 billion of venture capital funding in Q4 of 2020. The 2020 total reached $5.2 billion. Life science companies brought in a record $1.8 billion. The 2020 volume for life science investment reached a record-shattering $3.8 billion.
Tech investment hit a record high of $762.1 million for the quarter and $1.3 billion for the year. UTC is adjacent to UCSD, which pulled in $1.35 billion in research contracts and grants during the fiscal year that ended June 30, once again shattering a funding record and maintaining the university's standing as one of the 10 largest research schools in the U.S. La Jolla Commons is just a few blocks away from the UTC Mall, which has undergone a $1.2 billion redevelopment, including 90 new tenants, and is Westfield's top-performing center. The San Diego Trolley operations serving UCSD and UTC are expected to begin operations in 2022.
As for the impact of work from home on our portfolio, based upon discussions with many of our tenants, not to mention significant expenditures our larger tenants are currently investing in their existing spaces, we expect the impact to be relatively short-term in nature. Beyond our portfolio, even though the tech giants have established long-term work from home protocols, they are massively increasing their office footprints by expanding, acquiring buildings and land, and leasing significant space across the country, all during COVID. Facebook has expanded by 2.2 million square feet, Microsoft by 1 million square feet, Amazon by 1.5 million square feet, and Google now plans three mixed-use projects on Google-owned land, 40 acres and 1.3 million square feet in Mountain View, San Jose, and Sunnyvale.
Further, in November, Google bought a 10-acre plot close to its existing campus in Kirkland, Washington, and plans to use it to expand in the area. Also, Apple just acquired a large land site in Culver City, which is Los Angeles, for a large office development for at least 1,000 people and leased an additional 336,000 ft in New York City. In summary, we have a stable Office Portfolio with a strong tenant roster, little near-term rollover, significant built-in NOI growth, and additional upside through repositioning and redevelopment within our existing portfolio, plus substantial new development on sites we already own. Operator, I'll turn the call over to you for questions.
Good job.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypads. Again, to ask a question, please press star one on your telephone keypads. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Craig Schmidt from Bank of America.
Hello, I guess, and good morning.
Morning, Craig.
Good morning. I'm wondering, what does the retail leasing pipeline look like heading into 2021? What do you think you'll do relative to the 303,000 you leased in 2020?
Chris, can you answer that?
Yeah.
I know the pipeline is not as barren as the press says, but certainly it's not as brilliant as we'd like.
Yeah. Craig, can you repeat the second half of your question? You had a number there. You said 300,000?
Yeah. I had 303,000 total retail square feet leased in 2020.
I was thinking you were referring to the roll that comes up through 2021. From a pipeline standpoint, you're starting to see retailers pop their heads back out. Activity started picking up a little bit in Q4, and it's continuing to roll some momentum coming into first quarter of 2021. I can't give you an exact number, but I'm way more bullish that they're starting to look around and starting to do tours again. The phones are ringing with more activity. Of course, as for the roll of our renewals coming up, I think the majority of those will probably get renewed. As Bob said earlier, I think we really hit the trough in Q4. There's still some turbulence ahead, but spring's coming, and you're starting to see talk of going back to school. Vaccines are coming, and retailers are getting more optimistic.
Great. Then, the trend of leasing spreads turned negative in the fourth quarter, but it sounds like you'll see a more positive result on leasing spreads in 2021?
Craig, I hope so. It's combat leasing from what I can tell you. The retailers, I don't know when the last time you bought a new suit was, or any of us, the retailers are still having their troubles in quite a few categories. I don't want to lean to tell you that I'm going to be seeing rates come up. Some situations, it's a balancing act between occupancy and rate. I'm always a fan. Let's be there to fight another battle.
It's hand-to-hand combat, Craig, and the retailers, at the moment, have the upper hand. I think that the biggest cost in real estate is vacancy, and we're going to focus on keeping our properties well occupied as possible, particularly as we come out of this difficult pandemic.
Thank you. That's helpful.
Thank you, sir.
Your next question comes from the line of Haendel St. Juste from Mizuho.
Haendel, good morning.
Hey. Good morning. Good job, everyone. Thank you.
That's the one thing we always get.
Ernest, a question for you, I guess, on the dividend. I guess we're all Some of us are scratching our head here on why you're raising the dividend now versus maybe saving the cash and de-levering a bit more. Your leverage is above seven times. I understand the higher collections and confidence, but there's still a lot of uncertainty. Spreads are under a bit of pressure, it sounds. Hawaii seems like it's going to be soft but near-term. I guess, why not hold off a bit and de-lever a bit more?
You know, Haendel, that's a very good question. I suggested to the board that to increase the dividend $0.01 or $0.02 to indicate that we have confidence in the quality of our portfolio, our financial position, and our management. They felt that I was underestimating all those three, and they added another $0.01. The board made that decision independently, and I think they were fine. We differed by $0.01, but not much more. I think that this is going to be a significant recovery once we get a vaccine.
Yeah. Hey, Haendel.
Yeah.
Let me just add to that. The methodology is also consistent with our collections, and we tried to stay consistent on that, or the board tried to stay consistent on that. The other thing, as we mentioned, is that we believe that Q4 is the bottom, or if not, close to the bottom. What's changed is also too, is that people are starting to get vaccines. There's a lot more data points out there. We think the board thought that this is the right thing to do.
Thanks for that, Bob. Maybe as an add-on for you. You mentioned the mid-5x debt EBITDA as a long-term target. Curious on when do you think we'll get there, and do we start to see some inflection here in the next quarter or two? The last couple of quarters, you've been trending up. Just curious on some perspective on reaching that long-term mid-five target.
He wants to know when you're going to hit 5.5x . You say you'd like to get there, and he wants a timeframe.
Oh, okay. Well, thanks for that question, Haendel.
I get paid extra for being an interpreter also.
Thank you.
Well, Haendel, that's why we also set a framework on how to think about the portfolio. I can't tell you what that percentage is for the second half of this year. Our view, or my particular view would be, is that once everybody in America is vaccinated or wants to be vaccinated, and we get that herd immunity, give us approximately 12 months from that period of time, and I think we will trend back down to that five and a half. Based on the growth. Think about how much we've lost out of Embassy and Waikiki Beach Walk retail. Each of those, the retail, the Waikiki Beach Walk retail, and the Embassy are anywhere from $12 million-$14 million each of cash NOI. That's probably about $0.14 each of them for additional FFO. Let us rebound. Let us get to the vaccine.
Get me to that point and give us 12 months.
You have no idea how focused he is on 5.5. I say, "Good morning, Bob." He replies, "5.5.
Thanks. I love it. Then on Hawaii, I guess, what are you hearing for tourism expectations for this year? Obviously, there's lots of uncertainty, but I guess, what's the latest? Any stats from the tourism board or anything that you could put some numbers around to help us understand perhaps what the expectation is?
I don't think we could tell you anything which you could take to the bank. It's just so uncertain. The direction seems to be right with vaccines become available. I feel strongly that there is a pent-up demand for Americans to travel. Many of us have the resources to travel. We've been pent up for this last nine months, and once we get out of home, we're going to travel. I think, I don't know how, and I don't know when, but I expect it's coming.
Fair enough. Thank you, guys. Good luck.
Thank you, Haendel.
Thanks, Haendel.
Your next question comes from Rich Hill, from Morgan Stanley.
Hey, good morning, guys.
Morning, Rich.
Ernest, I'm really curious about where you're going to go first when the world does reopen, but we can have that conversation offline. Bob, I do have some questions for you. I appreciate the guidance or the non-guidance guidance. Is that what we're supposed to call it, Bob?
Yeah.
As you think about 2021, it occurs to us that there's a lot of noise on straight line rents and abatements. 4Q, the myths versus our numbers was almost all straight line rents. As you think about the leasing environment in 2021, I appreciate the guidance about how we should think about the velocity in 1Q, 2Q, 3Q, and 4Q. Can you maybe talk about are all the abatements supposed to go away, or all the deferrals supposed to go away? How are you thinking about that as you negotiate with retailers? Or retailers and office tenants for that matter?
Well, I think here, I'll try to answer that. What is out there in terms of straight line, in terms of deferred rents, we expect to collect those. To the extent that we don't collect them, or we don't think that we're 75% or more confident that we're going to collect them, we'll put a reserve up. Right now, we're still confident on what remains on the books in terms of collecting those in 2021. We're hopeful, and I think, everybody in the real estate industry is hopeful that once this vaccine comes together, you will start seeing retail to start opening. You'll start seeing the companies and the tenants that we do have straight line rent across pursuing their growth in their companies, so that we've tried to nurse through this ugly pandemic. We're still confident on what we got.
Got it. It sounds like 1Q and 2Q are going to be still a little bit messy hand-to-hand combat, but then the world should get back to normal, from an abatement and deferral standpoint, and rent growth standpoint thereafter. Is that a right characterization?
That would be my perspective, where I stand today.
Got it.
That's our best guesstimate. We think with the amount of vaccines that are being disseminated across at this point in time, I think Ernest has his second shot this last weekend.
I've been hugging everybody since.
That's right. That this world, this pandemic will ultimately come to an end.
Got it.
Things will get better.
From both your lips to God's ears, let's make it happen.
Yep.
Steve, one quick question for you. I'm nitpicking here, but it looks like occupancy maybe declined slightly, for La Jolla and One Beach, if I was looking at it correctly. Again, very, very slightly. Could you just maybe go into a little bit more detail on any quarter-over-quarter change in demand that you're seeing on those two properties?
It wasn't One Beach. You might want to think about One Beach is kind of offline right now as we redevelop it. In UTC, we had TriNet, who had subleased our space, move out of a 6,000-ft space. That was the blip there, if you will. We successfully renewed other tenants, smaller tenants now, that building. We've been really successful holding rates. There's no COVID discount. We've been more flexible on lease term with smaller tenants who are uncertain about their future. I've got an engineering firm that's got three people over 65, and so they're kind of, "I don't know that I can commit long- term right now." Fortunately, as we pointed out on the call, we've got about 51.5 % of our tenants are our Top 10, and very stable. Furthermore, they continue to grow.
VMware, they've got 35,000 feet rolling, next year. We're already in discussions about trying to find another full floor for them in the building, as well as talking renewal. We're fortunate in that regard. I don't know about the other property. Here in Del Mar Heights, we've strategically let a couple of smaller tenants roll to aggregate bigger blocks of space. That's being smart about commodity space versus big blocks, which are scarce, and we're going to get premium rents for. The blip that you saw, there is some softness due to COVID, clearly. I mentioned the engineering firm. Our teams are doing a great job of taking care of our tenants. They want to stay with us. Some just say, "I don't need 5,000 ft, I need three." If we're able to accommodate them and keep our existing customers, we're doing it.
2021 is a year of a bunch of small tenants. We still have 41 tenants rolling at an average of 3,700 ft in 2021. 2022 is a much better story in that about 2/3 of the tenants rolling are big. They're the VMwares, they're other bigger customers. In terms of pricing power, this quarter, the ending versus new rate is a bit muted, that just depends on where. Going through the portfolio, Bellevue, we're 97% leased, we've got 23.5% rolling through 2022. Those are going to be outsized increases in rent. We've been very successful with rent increases there, and that should continue. Portland, same story. We're 97% leased there. We've got 8.4% rolling. Again, the rates are holding up there, we're doing well. San Francisco, we're out of business there until we have to renew Autodesk in 2022.
San Diego down here, the rent increases are 2%-6% versus 20% in Portland or 30% and 35% in Bellevue. It's kind of lumpy. It just depends on when you're going to make these renewals and reset rents, and what level. This last quarter was just a bit quiet and mainly focused on markets that aren't as hyperinflationary as Bellevue and Portland.
Got it. That's helpful.
One piece to make it clear, we emptied it so that we could reposition it.
Okay. I'll go back and look at the disclosure. Hey, Bob, just one more question for me. Given that you're guiding without guiding, can you talk about 2022 a little bit? Is it just going to be back to I'm not sure the market even cares about 2021 at this point. Is 2022 business as usual, and all the plans that we were previously discussing this time last year fully intact?
Yeah, nothing's changed on that. We still expect our cash NOI to increase in the Office sector by, I think, $12 million in 2021, $13 million in 2022. As we begin our development on La Jolla Commons III, which should be completed by the end of 2023, I see a big pickup after that. One Beach should be finished by the end of 2022. What we're doing is we're taking advantage of the opportunities that currently exist within our own portfolio. We don't need any acquisitions to create value at this point in time. We're always looking, but we have plenty just within our own portfolio to create significant value.
Perfect. Thanks, Bob. Thanks, everyone. I appreciate the additional color.
Thank you, Rich.
Thanks, Rich.
Your next question comes from the line of Todd Thomas from KeyBanc Capital Markets.
Hi, Todd.
Hi. Thanks. Hi, good morning. First question just around the color and detail for 2021 and 2022. Bob, appreciate those comments. You mentioned that 4Q would likely be the bottom or close to the bottom. Is that inclusive of the $0.05 make-whole that'll be recognized in the first quarter, meaning that excluding that make-whole, you would expect to be at around $0.46 as sort of a baseline? Is that the right way to think about it?
That is. $0.41 does not include the make-whole. If you continued that based on my comments, you would, say, start with $0.41 in Q1. From that, you would deduct $0.05 for that make-whole, and deduct another $0.03 for incremental interest expense in Q1. On the script that we just shared with you, it'll give you a roadmap for a framework on how I think, or we think that you can view 2021. In the second half of that, you make your own assessment or determine what you think the percentage should be on the pickup in that. Keep in mind, of that $0.41 for Q4 that I'm suggesting we start with in Q1, that includes $0.10 of reserves, $7.6 million of reserves in the fourth quarter.
As you start the second half, is that really going to happen? I don't think so.
Okay, got it. $41 goes to $36 with the make-whole in the first quarter, less some incremental interest expense, and then you'd expect to build back throughout the year.
Yes.
Obviously adjusting for the $0.05 make-whole.
Yes.
All right. That's helpful.
If you have any questions, please feel free to reach out.
Sure. I appreciate that. Steve or Bob maybe, regarding the $24 million of office cash NOI that's locked in, that's expected to commence during 2021 and 2022. How much of that is being straight-lined today versus what has yet to commence for FFO purposes on a GAAP basis?
Yeah, I don't have that in front of me. Really, that's been included in our presentation in terms of the cash NOI growth. Really what we're showing is the growth in that FAD, and that obviously will drop on down. Obviously has to be adjusted for anything related to the straight line on that. I don't have the exact number on that.
That's a good question. Thank you for asking.
Okay. In terms of the $14 million in 2021, what's kind of the cadence sort of quarterly? How should we think about the timing of the cash commencements throughout the year?
Well, in Q1 and Q2, we have big TIs going out. We have probably $25 million of TIs related to our large tenants up in Landmark. It'll probably be more in the second half of the year.
Okay. At the Multifamily assets, so it sounds like you saw a bounce in occupancy in January at Hassalo. Can you just talk a little bit about the pricing strategy there and use of concessions and maybe provide some color on leasing activity in general? Seems like you're holding rates in anticipation of a further return in demand. Just curious if you could sort of talk about Hassalo a little bit and the Portland assets.
Yeah. As Steve pointed out, our portfolio of residential is we had a management issue, which we've now taken care of. It's too early to say how much of a recovery we're going to make. The early indications, as Bob pointed out in his report, is that we're leasing up. The biggest cost in real estate is vacancy, so we may do some things in the short run to increase our occupancy and eliminate some of the vacancy. I don't know how to answer that question properly. It's too early to say. We'll make it work, I'll tell you that.
Okay. Can you share what the occupancy build looked like in January?
Do we have that?
I don't-
I think we went from 75%- 85% or 87% occupancy. Not that much.
I think low 80s.
No.
Low 80s?
Yeah.
Okay.
We don't have that right in front of us.
We turned the corner.
Yeah. We're in an upward trajectory.
Okay, got it. Just one last one, if I could, on the master lease at Loma Palisades and Pacific Ridge. Can you just remind us when that expires, and do you expect the school to re-up and renew that master lease, or what do you expect to happen there?
I don't know that we have an expectation. We're certainly working on it. Abigail, do you want to say something when it expires?
Hi, good morning. That master lease for both Pacific Ridge and Loma expires on May 31st of this year.
Have you had any discussions about renewing it, or is that still off the table?
Still off the table. We all hope that with the vaccine, students will be able to return to school in the fall. That is the hope, I think, of every university. We'll just have to play it by ear and hope that there's a renewal or that there's further partnership. I don't have any further information at this current moment.
Okay. All right. Thank you.
Thank you.
Thanks, Todd.
Your next question comes from the line of Daniel Ismail from Green Street.
Morning, Daniel.
Hey, guys.
Good day.
This is Dylan on for Danny. Hey, how you guys doing this morning?
Nobody here has COVID. We tested everybody.
Just a few questions on the development of One Landmark. You guys mentioned, I think, starting that sometime in the next few months. Is that subject to a pre-lease, or are you guys willing to start that on spec?
Which one?
One Beach probably.
Are you talking One Beach or La Jolla Commons down in UTC?
Sorry, La Jolla Commons.
There's no pre-leasing. I had lunch yesterday with one of the senior partners in a law firm, and they said they were considering that site, and they weren't sure if we'd start. There's never been pre-leasing in San Diego, so we have a couple of years to build it. During that time, we hope the market recovers. It's a very strong market, and that's kind of the story. We're going.
Yeah. Hey, Danny. I think Steve's comments that he shared are very strong reasons why we should pursue that without any pre-lease. For instance, on two remaining lots in Oregon Square, that is something that you would want to pre-lease.
That you wouldn't want to pre-build.
You wouldn't go spec.
You wouldn't go
Yeah. Correct.
Yeah. Thank you.
Right.
You'd want to get a tenant before you build that. Now, like Ernest said, in UTC, and for what Steve's comments were, those are all the comments why you would want to go forward without a tenant at this point in time. Obviously, we'd love to have a tenant, but by the time you finish, that's going to be an even stronger market than it is today.
We've used this time to buy the project out, and I think we've had some savings that we would not have had if we were trying to build it a year from now. We are going.
Perfect. That all makes sense. Just as a follow-up to that, I think our math implies $80 a square foot at that property. A, is that accurate, and B, how does that compare to where you guys signed the Illumina lease back in, I think, late 2019 when you guys initially acquired those properties over there?
Rents for new product are much higher. We're in the high fours triple net, with $1.70 expenses. I'm talking on a monthly basis. I haven't converted it to a gross per annual. The Illumina lease started at $490 full service and has 3% annual bumps. The rents I just mentioned, the triple net rents I just mentioned, are affirmed by two recent deals, one in June and one in December, for deals on new product. That's today's rents, and that's what we put in the pro forma, and we'll see how the market goes. We're bullish.
We're bullish. We're also praying that the economy recovers. In the short run, the leasing is less certain than we'd like. In the long run, it's a giant win. It's a great location, great property.
Perfect. That was very helpful. Thanks, guys.
Thank you.
I show no further questions at this time. I will now turn the call to Mr. Ernest Rady for any closing remarks.
Guys, thanks for all those great questions. I hope you're all able to get a vaccine as quickly as possible so that we can all end this distance of interacting, and we can all get together. I miss you all. I hope to work with you again as quickly as possible. Thank you for your interest in our great company.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now all disconnect.