Ladies and gentlemen, thank you for standing by, and Welcome to the Douglas Emmett Quarterly Earnings Call. Today's call is being recorded, and at this time, all participants are in listen-only mode. After management's prepared remarks, you will receive instructions for participating in the question- and- answer session. I would now like to turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.
Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO, Kevin Crummy, our CIO, and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the investor relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect.
Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the investor relations section of our website. When we reach the question and answer portion, in consideration of others, please limit yourself to one question and one follow-up. I will now turn the call over to Jordan.
Good morning, everyone. Thank you for joining us. I'm pleased to report that our rent collection and leasing activity improved during the Q4, despite continued headwinds from the pandemic and tenant-oriented lease enforcement moratoriums. In recent months, we have started to see movement on tenant payment plans for rent deferred under the pandemic. To date, we have reached agreements with tenants who owed about 15% of the outstanding balances. These deals are exempt from the moratorium protections, and we have already begun collecting deferred rent under them. Except for immaterial amounts, we have not forgiven rent, and we still expect to collect a large majority of all past due amounts. In prior downturns, the impact of personal guarantees and small business owners' commitment to their companies have kept our default rate extremely low. Our cash collections have also improved.
As of today, we have collected 92.7% of our rent from the three quarters affected by the pandemic, including 96% of our residential rent, 95% of our office rent, and 45% of our retail rent. We saw stronger leasing demand last quarter, driven primarily by small tenants. We signed an impressive 197 leases, and retention was also above average. We see the economy beginning to recover, with tenants increasingly confident about their future. As more tenants engage, we should shift back to positive absorption. Of course, predicting the pace of recovery remains challenging at this early stage. Because occupancy is a lagging indicator, we expect to see some further decline during the first half of this year. Overall, we remain confident over the longer term. As I've said throughout the pandemic, I believe that companies will return to the office.
Our tenants generally have short commutes, and they don't face significant mass transit, parking, or vertical transportation barriers to reoccupancy. In the meantime, Douglas Emmett remains well capitalized, with no debt maturities before 2023. We own a dominant share of the best buildings in the best markets in L.A., and there is no threat of material new office supply in the near future. Our integrated operating platform is built to withstand recessions, and our team continues working to get better every day. With that, I will turn the call over to Kevin.
Thanks, Jordan, and good morning, everyone. Our two multi-family development projects continue to make impressive headway. The demand for new units at 1132 Bishop, our office to residential conversion project in downtown Honolulu, remains robust. As I previously mentioned, we have fully leased the first phase of 98 units, and by year-end, had already leased 29 out of the 76 units in the second phase. Construction at our Brentwood high-rise apartment has nearly topped off, and delivery of the first units remains on schedule for early 2022. In December, one of our joint ventures sold an 80,000 sq ft Honolulu office property for $21 million. Our decision to close the health club as a result of the pandemic triggered interest from a number of owner users targeting that type of space. The buyer will use the club for space for youth vocational training and after-school programs.
Property transactions in our markets remain slow as many potential sellers are in a watch and wait mode given current uncertainties. I will now turn the call over to Stuart.
Thanks, Kevin. Good morning, everyone. In Q4, we signed 197 office leases covering 612,000 sq ft, including 202,000 sq ft of new leases and 410,000 sq ft of renewal leases. As Jordan said, the recovery and demand from our tenants last quarter was led by our smaller tenants. As a result, the average size of the leases we signed last quarter was 3,100 ft, compared to our overall portfolio average of 5,600 sq ft. This resulted in our office lease percentage declining to 88.6%. The leases we signed during the Q4 will provide almost 10% more rent than the expiring leases for the same space. Although the initial cash rents were 5.8% lower as a result of large annual rent bumps over the term of the prior leases. On the multifamily side, our lease rate improved to 98.2% from 97.5%, with gains in both West L.A. and Hawaii.
I'll now turn the call over to Peter to discuss our results.
Thanks, Stuart. Good morning, everyone. The Q4 reflected the continuing impacts from the pandemic. FFO was $0.46 per share, down 15% from Q4 2019. AFFO declined 16% to $76 million, and same property cash NOI declined by 20%. Compared to the Q3, FFO increased by $0.06 from fire insurance proceeds and $0.02 from better collections and lower expenses. Those increases were partly offset by $0.02 of issue advocacy expenses for the November election. As a result, FFO increased by a net $0.06 per share compared to Q3. At only 4.6% of revenues, our G&A for the Q4 remains well below that of our benchmark group. Given the continuing uncertainties around the pandemic and local government ordinances, we are not providing guidance. However, I do want to share some general observations based on what we currently see.
We expect further improvements in collections and parking revenue as the economy opens up and local moratoriums are loosened. These will be gradual at first, but prior history suggests that we will collect a large majority of past due amounts in the end. We expect that leasing will recover over the course of the year. Because it is a lagging indicator, we expect occupancy to decline at least through the first half of the year. We expect straight-line rent to be minimal in 2021, largely as a result of tenants who were put on a cash basis in 2020. We expect revenue from above and below market leases to resume its normal decline. As usual, these observations do 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.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Again, in consideration of other participants, please limit your queries to one question and one follow-up. At this time, we'll pause momentarily to assemble the roster. Our first question today will come from Nick Yulico with Scotiabank. Please go ahead.
Hey there, this is Josh Burr with Nick. I was hoping you could dig into kind of what drove the decision not to provide 2021 guidance, and then maybe you could provide some of your assumptions a little deeper on office occupancy, such as like retention rates on upcoming lease expirations and then new leasing volumes versus pre-COVID levels.
Okay. That's a lot of questions, but I'll hit them all. We didn't provide guidance because we don't have confidence in the way the pandemic is going to kind of withdraw and the economy is going to recover. That just plays a huge role in it, more so even in our markets, because when all the stay-at-home and the moratoriums are off, we think we're going to see a big change. You saw, and we said it in our prepared remarks, that we're happy with what we're seeing on the leasing because as you look at the last three quarters were the impacted quarters, you saw 125 new deals the Q2, 150 the Q3, and now 200 new deals the Q4.
That's a very good trajectory, and it gives us confidence that when the market loosens up, when the stay-at-home orders are off, when people are feeling more confident about going out, we're going to do a lot of leasing. We know we have a strong market here. The question of when that happens plays such a huge role in the way we lease and what our numbers end up being, that we don't feel confident that we can give you good information and guidance to the way the year is going to roll out. That's why we didn't give guidance. In terms of the leasing, it depends on that same set of issues. What was your last question?
Yeah, it was just your thoughts on retention rates and then what level of new leasing you would need for occupancy to actually improve.
Well, I would say that retention usually runs in the very high 60s up to 70. When you get above 70, you're doing very good on retention. I would say that what kind of leasing do we need to reverse things? Our history has been 750,000-1 million sq ft. When we were running at those kinds of numbers and even plus, you saw our lease rate go up, and even at the 93+ level, we were still moving up. When we're operating down in the 600,000-700,000 sq ft, okay, now you start slowly sliding backward, even with good retention. It's somewhere in that range that we need to get to reverse things. The reason I'll say again that I feel good about all that is, last quarter was brutal. The ones that were poking their head up got sent back home again.
Because it was so tough because of the pandemic. Still, we did a lot of deals. I understand that it was 3,100 ft, but our typical is 5,600 ft. That gives you a very good feel for how the market feels about wanting to come back. It supports the fact that we've said our kind of our core strategy and our expectation was that the small tenants were going to lead the recovery, and they are. Was that too much, or did I answer all your questions?
No. Yeah, you did. Thank you.
All righty.
Our next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning out there. Sorry, I just hopped off another call, so apologies if you answered. Jordan, I think in your opening comments, you said that you have addressed 50% of the uncollected rents. I recall you guys mentioning that there's about $6 million a month from people basically opting to voluntarily not pay you. Is the 50% addressed, is that around the $6 million, the people who are voluntarily not paying you?
Alex. It's 15%. Not 50%.
Oh, okay. That's why I asked.
You want to know the funny thing is? [crosstalk] Okay. When I was practicing reading the script, I think that Stuart or someone, or Peter actually said, "They're gonna think you said 50%." I'm like, "No way. I'm such a good orator. There's no way that'll happen." Apparently it happened.
Okay. Well, I hope whoever took the over on that, you settle up with them.
Yeah
The 15% of that $6 million monthly that's not paying that you've addressed, how did those discussions go? Do you anticipate that increasing, or was that 15%, those were the tenants who are going to settle up and the rest are only going to do it when the eviction moratoriums end?
I think that process is going to continue. I think it will be much more rapid once the moratoriums are over. I think people are trying to get back to work and are trying to settle up on all their impacts from the pandemic, and that's why we're able to start making deals now. Basically, if you look at what we're showing you outstanding, it was kind of all the rent that was due to us. We made deals on 15% of those deals. What I thought was noteworthy about it is we didn't really have to give up any rent. It was really immaterial amounts, like tiny amounts.
That tells you that as we had expected, that these people have the ability to pay, and they're getting to the point now where they're like, "Well, I need to make a deal now because when the moratorium's up, they're going to just tell us I have to pay the whole thing." They'll do it now while the moratorium's there and say, "Well, I'll make a deal and I'll get some trajectory to pay," because they kind of see it coming to an end, right? Vaccines are out. The level of hospitalizations is dropping very fast in our area. With that visibility offset against the vaccines, I think people figure it's time to reengage, and they want to get back in their space.
Okay. The second question is, Stuart, appreciate the comments on the increase in leasing activity of the smaller tenants, but on your rent spreads, they're sort of eroding from where they were in the Q3. As you guys mentioned, the drop in anticipated occupancy, just residual, how should we think about the sort of trajectory of rents going forward? The market returns to normal, leasing resumes, and it gets more active. How do you think about where the rents will ultimately go and sort of as a prospective view that when we see your upcoming earnings releases over the next few quarters, sort of what we should anticipate as far as rent trajectory?
He just pointed me. I can tell you this. Number one, you need to see positive absorption. I think once you start seeing positive absorption, you need a couple quarters of positive absorption, and you'll see rent take off again. I think the markets are still relatively full. They're in pretty good shape. As long as people's view going forward is a positive view, once we get beyond kind of all the lockdowns and the moratoriums, I think you'll see rent pick up again. I think you already see that level of attitude from the number of small tenants that came in and made deals. They want space. They want to keep their space.
The reason our renewal rates are high is that tenants are coming in and saying, "I don't want to lose my space." It may be easy for a small guy to say, "I haven't been in my space in months. I'll just lease space in the future." They're not doing that. They want to hold onto their space. First step is we need to see some positive absorption quarters, but then I feel confident that rents will return to start their trajectory to return to the levels they were at before.
Okay. Thank you, Jordan.
Our next question will come from Frank Lee with BMO. Please go ahead.
Hi. Morning, everyone. Just a follow-up on your comments on occupancy expecting to decline through the first half of 2021. Are you guys seeing any green shoots in any sub-markets where occupancy has perhaps bottomed a bit, or is the expectation that occupancy could continue to slip across each of the sub-markets?
Well, right. Green shoots. Okay. That reminds me of a decade. I had these conversations in the last recession. To me, the biggest green shoots are, I love the number of deals that were done. I said it, and I've been very focused on that because in terms of telling me that the market's still healthy and its ability to recover strong, that was the most important thing. It actually told me a second thing too, which was that we've retooled our leasing operation. That backbone is so much stronger now, with the way it works online. To think that in a quarter where we were the most shut down, we did the most new deals, is just absolutely incredible. That's applause to that group. When you say it's one market impacted differently than another market, the impact is coming at a city level. Right?
You would say L.A., Beverly Hills, Santa Monica, and Honolulu. Okay. Honolulu doing obviously better than those other markets. Santa Monica, I know you guys see some negative numbers in Santa Monica, but we're in downtown Santa Monica, and the numbers that you're seeing are East Santa Monica. Downtown Santa Monica is still pretty strong. Santa Monica has also backed off quite a bit on the moratoriums. Doesn't really apply to office. When you move to the City of L.A., the City of Beverly Hills, which covers a lot of markets, I mean, I know Beverly Hills is one market, but that would cover Westwood, Century City, et cetera. They're all impacted by the same thing. It's going to be hard to see a reverse in occupancy or positive absorption until the city lightens up on us.
Okay, thanks. Any initial thoughts on the bill that's being floated around in Hawaii, regarding the eviction moratoriums and commercial leases? It seems to be even more tenant-friendly versus the ordinances in California. Just curious, what do you think the likelihood that this passes, and thoughts on the impact it could have on the office market there?
We're just at the beginning of the fun political season, and there's a lot of stuff that floats around. We got to get more into it. I can't comment on all that stuff yet. I feel like I just finished the last round. I don't have much for you on that stuff yet. Sorry.
Okay. Thank you.
Our next question will come from Steve Sakwa with Evercore ISI. Please go ahead.
Yeah, thanks. Good morning. Jordan, you mentioned parking, but one line item that's also been negatively impacted has been tenant reimbursements. I assume that's largely a function of occupancy going down, but you had a pretty big drop between 2019 and 2020. How do we think about the recovery of tenant reimbursements? Is that solely a function of occupancy or is there something else going on?
Yeah. Well, frankly, that's an extremely complicated line item, but I think the primary thing going on there is that our costs of running the buildings have really gone down a lot relative to last year, previous years, maybe even people's base years. It's hard. If you say what's going to happen in the bottom line part, that's a different issue. I think we're just looking at things and saying, we just have less costs, and then they keep kind of re-looking at where CAMs are going to come in. It's more a function of that than anything. There is lower occupancy, so that has a very small impact. I think the bigger impact of when you see smaller expenses, which our expenses are way down, then I would say you better see smaller CAMs, right? We are.
Okay. Well, it's just the percentage. If you looked at reimbursements as a percentage of expenses, it went down about 600, 700 basis points. I realize expenses may be coming down, but it just seemed like the percentage dropped quite a bit. I can follow-up with Peter offline. Maybe just switching to the fire insurance proceeds and kind of business interruption. I know that's a very lumpy sort of figure that you guys get. How do we sort of think about the timing of getting the units that were damaged back online, and what's the kind of the timetable? Is that going to be ended by 2021, or is that sort of an indefinite time period there?
I'll tell you. What's going on is we're working with the city to make some very substantial changes to the fire life safety across all three towers that are in that project. When you say work with the city, there's a lot of it. There's fire department, there's Department of Building and Safety, there's the Department of Housing, because this is subject to rent stabilization. Yes, if you said typical Douglas Emmett, is getting those units back online moving slower than we would like? Yes. I would say, I like the progress we're making with the city.
Every department I named said, "We're going to find a way to get there, to get you to be able to do a lot of the activities in those buildings, the fire life safety stuff, modifications that you want to do." I actually feel good about where that's headed, but just like many things, you don't always get what you want, you get what you need. I think we will get what we need in the end of the day. What we're not getting is speed out of the city. I think we will end up with something that was worth waiting for.
Got it. Thank you.
Our next question will come from Emmanuel Korchman with Citi. Please go ahead.
Hi, everyone. Good afternoon. Jordan, or maybe Stuart, can we dig into those small tenant leases that you discussed earlier, the larger volume? Just give us some flavor as to maybe the types of tenants they are and where they're coming from, and were these tenants maybe that broke leases earlier and now just coming back as the moratoriums start to wear off?
Do you know an answer?
I think what we've seen is, it's our typical diverse set of industries. We're seeing demand from tenants across the board, which is typical. It's not concentrated in one area or one type of tenant. That was good. What was the second part of your question, Manny?
It was the industry. Was there an industry concentration?
No. I think this is Dylan. Is this Manny or Dylan?
[crosstalk] It's Manny. Sorry, am I starting to sound like Dylan now?
Yeah, you've been working with him for too long, I guess.
You want me to rephrase the question for him? He was really trying to get into all the leasing, of where it's coming from. Is there any differences from what you'd been doing before? Any green shoots of the types of people that are leasing? Just trying to get more details around it.
Yeah. The only thing I checked was, it wasn't Because I think I saw something, was it industry specific, and it wasn't. It was the same kind of spread on industries. I did get that info. It's a lot of deals. I don't think it's any one market that got a lion's share of the deals. Beyond that, I don't have a lot. To me, the green shoot is I'm really happy we did 200 deals. That's a lot of deals. If this is non-pandemic time, and I know it's only 3,100 ft average instead of normal 5,600 ft, you would normally say, "Wow, that was a lot of deal flow for new deals to do 200 deals."
Right. If we can turn back to operating expenses for a minute. I guess you guys have cut those as much as you could in the buildings. How much of that is sustainable, whether or not occupancies come up, or is it going to be in lockstep with people coming back to the buildings that the expenses increase?
If you say looking at our goals for next year, I think there are energy savings that we will continue to get over the next few years and we will get this year. I think they're not necessarily huge payroll style savings. Those just come back as people come back. We've cut the cost around the buildings dramatically. When the buildings are full again, we will keep a little bit, but not a ton. Of course, insurance is up, so we'll be living with higher insurance. Thankfully, property taxes will only move at the pace that they are prescribed to move under Prop 13, so we know what that increase will be. I think every year we've done a good job of controlling and keeping the growth of expenses down.
I don't know that something happened this year that caused us to say, "Wow, expenses compared to a full building before and a full building today will be down in some dramatic way." Beyond the gains that we made on energy conservation.
Thanks, Jordan.
Our next question will come from Jamie Feldman with Bank of America. Please go ahead.
Great. Thank you. Can you remind us just the timing on some of the moratoriums that are impacting you and your thoughts on leasing? I guess as we think about when they do start to burn off, as we think about the fact that occupancy was down 100 basis points this quarter, do you think the decline starts to moderate from here until the time the moratoriums burn off? How should we be thinking about that?
First of all, I don't have that answer. Let me just start. I don't have that answer. The two things that I think about when you ask that question is, first, I hate to keep coming back to this, but we did a lot of new deals, okay? That means that the guy that's not paying us and a guy moved in next door to him that just leased a space, okay, that's giving a different feel to our community. The second thing is 15% of money that was owed to us, they showed up on our door and said, "We want to make deals. We know we're going to have to pay you, and we want to make deals," and blah, blah. Okay, I go, that's a very good sign. This is all about attitude.
If they can see that these cities have kept doing moratoriums, say the moratorium will end on such and such a date, and then they go in on that date, and they get political pressure, and they go, "Okay, now extend it another month. Now extend it three months." Okay. I think the community is now thinking, wow, these extensions are coming to an end, and therefore, they're making their own decision about those moratoriums, and they're coming in and wanting to make deals, lease space, whatever the case may be. That makes me very hopeful for next year, and I don't know whether that will play out in a logarithmic way or just at a 45-degree angle, or what'll happen. It's obviously starting to happen.
Okay. Do you have the latest dates for these moratoriums? You're saying it doesn't even matter because they can always get extended.
I don't want to be such a negative guy, but you're probably right to what you're saying. I've gone and testified in front of city councils and done all kinds of stuff. They're nodding their head and they're going, "You're right. We need to pull office out," because I don't know why it applied. They just don't seem to be able to do it. Maybe the issue's too complicated to them. You get a lot of people on these city council. The city councils never thought they were going to ever be doing this type of thing. Many of them have never seen a commercial lease. I'm not sure how it wound, and I'm not sure how it's going to unwind.
Okay. We'll watch closely. [crosstalk] You made the comment about short commute times to your buildings. I'm just curious, have you guys run data that shows the commute time by the different sub-markets that you guys are in, or different buildings you're in? I'm just curious how it ranges across the different assets you own.
If you say, have we done a real surveying on what's your commute to work, the answer's no. If you're saying, do we have a feel for the communities that we draw from for what buildings they're in, that answer is yes, and we put that together, and it's in a chart that we have.
It's on our investor overview presentation, Jamie. Basically what we've done is saying, the decision-maker, the guy that's signing the lease, deciding where the office is likely to live in the Palisades or Brentwood or Bel Air or Beverly Hills, right up the street from Wilshire, where we're concentrated on the Westside, and then in Sherman Oaks or Encino in the Valley. Those commutes are 10, 15 minutes down the hill to those major boulevards. Versus, on the Westside, if you're going from the Palisades to downtown, you're more than an hour, you're in the car for two hours total for the day. We've compared those, and we have a chart in there that illustrates that, and that's what's driving the decision to stay closer to home for those decision-makers to have that short commute.
We know that because our leasing people look at where the decision-maker lives when they're showing them space and when they're making a decision about whether they're going to engage in space we're showing them or whether they're going to renew or whatever the case may be. That's one of the factors that we look at.
Right. A guy that lives in Beverly Hills, the 405 acts as a pretty big barrier, right? A guy that lives in Beverly Hills, he'll want to stay on the east side of the 405. He'll want to be in Westwood or Beverly Hills or Century City, and same for west of the 405, Palisades, Santa Monica, Brentwood. They'll want to stay west of the 405, typically.
Would you say that the buildings you bought in recent years extend the average commute time for your portfolio, or not necessarily?
No. I don't think it extends the commute. Most of what we've bought's been on the Westside. [inaudible] Yeah, I think it shortened it. I think we have a bigger concentration in Beverly Hills, which draws a lot from that kind of that Bel Air, Beverly Hills, and even the East Brentwood market. The stuff we've bought kind of rolling down towards Santa Monica draws out of Palisades, Santa Monica, in these areas.
Okay. All right, thank you.
Our next question will come from Rich Anderson with SMBC. Please go ahead.
Hey, good morning, folks. You talked about this 15% of the non maybe moratorium manipulators or whatever you want to call them, starting to make deals. Assuming you weren't booking that revenue last year, how will this impact your earnings profile this year? Will you have sort of a recapture number in some of your quarterly results that could make it kind of lumpy, just in terms of the revenue stream?
Well, I think most of these deals kind of go during this year, and they pay monthly, and they pay what they owe. As more and more deals are made, lumpy might not be exactly the right word, but it is additive to the rental income each year, the rental revenue, each quarter.
Right. you were not [crosstalk]
We didn't include it last year.
Right. You're kind of getting doubling up on the number, even though maybe it's a small impact, but that's the right way to think of it.
Yeah. I don't know if I'd say doubling up since we didn't get it last year.
Well, right.
You're right. It will be a boost to this year since we didn't get it last year.
The other question I have is, you'd mentioned the leasing smaller average users. I think you said that the GAAP rents are up 10%, but the starting rent is down 5.8%, and you attributed that to big bumps over the course of the lease. Can you give some color on that? How much bigger are these rent escalators, and how were you able to negotiate them down?
Yeah.
I think what we're saying, Rich, is that if you have our typical five-year lease with a 4% bump, that ending rent is 17% higher than the starting rent was. That's a big gap to overcome on the ending starting number, which is the down 5%. The overall economics are still 10% better for the new lease. We're just pointing out that our average contractual increases are probably higher than a lot of other markets that you look at. That was the point there.
What are typical rent escalators then relative to, say, other areas of the country?
Yeah, typically we're getting 3.5 , I mean [crosstalk] Yeah, three to five. Up until recently, a lot of our deals, 3.5 s and fours on the majority of our deals in the recent years.
Okay. Good stuff. Thanks. That's all I got.
All right.
Our next question will come from Blaine Heck with Wells Fargo. Please go ahead.
Thanks. Good morning out there. Maybe for Kevin and Jordan, can you just talk about what you guys are seeing on the investment sales side of things? It's clearly been pretty subdued recently relative to normal deal flow, but are you seeing any deals start to shake loose? If so, are you focused more on office or multi-family opportunities, or just kind of the best deal that comes across your table?
The answer is yes. We're always looking for the best deal. Recently, we've been underwriting more multifamily than office, but frankly, it's been slim pickings. I mean, if you look nationally, the hot hand is industrial, there's a lot of trades in the industrial market because that's a very strong market. On the office side, it's been relatively anemic. We don't have a lot of high-leverage players in our market, there hasn't been a huge pressure for people to put things on the market and we're starting to see the green shoots. As that happens and people get more bullish about the market, they're gonna be more inclined to put their assets out into a market that people are more positive about.
Okay, that's helpful and kind of dovetails into the next question. Given your low leverage profile, your discount to NAV or high implied cap rate, however you want to look at it, and the current lack of deals to bid on, and Jordan, I know you've addressed this on prior calls, but just for an update, does it make any sense to get active on share buybacks here? Do you think you want to keep that dry powder for opportunistic acquisitions that might come about in the future?
I'm not against share buybacks. The problem is share buybacks for the company are very different decision than a buyback decision for an investor. I know you guys know I've been buying the stock myself because I'm an investor, right. When I look at decisions for the company, I know that if I'm doing share buybacks, it's either because I'm selling assets and getting cash from that, as was pointed out to me last time, or it's just because I'm raising my leverage level and trading debt for equity, which has a double side, sort of a compounding effect. I would say that because of those facts, I lean more to the conservative way that we manage a company's balance sheet and capital structure.
Because I lean in balance sheet and capital structure, I lean very conservative, it causes there to be less times when I'm pounding the drum of share buybacks for the company, not for investors.
All right. Makes sense. Thanks.
Our next question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Hey, guys. Just a question on the leasing front. I did notice your short-term leases and the expiration schedule kind of ticked up about 60,000 sq ft quarter-over-quarter. Could you just talk about what was going on there? Is that just kind of limited visibility on the tenant side? Do they want shorter term renewals or maybe there's something else going on there?
Yeah, I think you said it right, which is typical for us in a downturn. Tenants feel less secure about the future. They tend to go a little shorter on their lease terms. That's what we'd expect, and that's what we saw. With all the uncertainty, we did see some tenants that elected to sign shorter term extensions, which is a great sign that they're not giving up their space. They don't want to just go home work. They want to keep their space, but they want to sign shorter term during this period. When they feel more certain about their business going forward, they tend to sign a little longer. It's very typical for what we've seen through the cycle.
I have to say that what I've noticed over a long time, one of the strengths of the company is, everybody does this, when the market's off and rents are off, people sign shorter deals. When the market's up and rents are high, they sign longer deals, which would be obviously the opposite of what you would normally want to do. It is coordinated with their two types of fear, right? Fear of their company, they sign shorter deals when there's a bad economy. Fear of keeping their space, they sign longer deals when the rate's higher. That's been very good for us, obviously. Because it's allowed us to have a very good kind of accelerated growth path in terms of our income, our FFO, all those numbers.
Okay. That's helpful. I know with what's been going on, you guys clearly turned off kind of the redevelopment program here, but it sounds like you're encouraged by the number of leases you've been signing and the platform that you guys have there. I mean, what do you need to see for you guys to feel confident to restart some of those plans that you had pre-pandemic?
I can answer that two ways. If you say, what do we need to see to start planning some of those projects, we've already seen it and we've already started planning them again. If you say to actually start them, I need more visibility on this economy opening up again. We know it's coming, and therefore, we are starting to plan again for some of that stuff.
Does the math change at all? I know on a GAAP basis, you guys are seeing still upticks, but at least on the cash side of things, there's been some roll downs. Are your underwriting rents kind of getting impacted at all with what's going on in your markets, or are those still generally in a place that it pencils from an economic perspective?
Most of the repositionings and work we were doing, it'd be hard not to be worth doing other than right now the market's in such turmoil because, frankly, it's very hard to tell where rents are at the moment. I still feel. Let me say it differently. We feel very good about where these markets are going to end up after this is over, and therefore we still want to do the planning. To do the hard analysis that we always do about if we spend this much money, what's the return going to be? We're certainly not using what's happening today to figure that out because we're seeing negative absorption, right? We feel confident enough that we think that as things turn this year, that we will see something that'll cause us to really start spending money.
Great. Thanks.
Our next question will come from Bill Crow with Raymond James. Please go ahead.
Yep. Appreciate it. Thanks. Jordan, how confused are your tenants about the future use and demand of the space? You signed a lot of short-term leases. I assume it didn't have expansion space for de-densification. Can you just kind of take us inside the mind of the tenants and maybe if there's a difference between smaller tenants and larger tenants that you're seeing?
That's a tall ask. Let me give you some I know this. More expansions than contractions on renewals. It is actually a lot of expansion. I have not talked to any of my friends that are tenants, both on our portfolio and other portfolios. I'm not talking to anybody that's saying, "Oh, yeah, we're sending tons of people home, and we think we're going to stay that way." I know some people are making adjustments to their space or just figure they're just coming back to their space, and they were already built out at sort of very liberal numbers. You want to add something to that?
Yeah. I would say the way that we were building our If you think about our typical suite, our small suite, 3,000 ft, the way it was built out pre-pandemic was probably, like Jordan said, 225 sq ft per person, window line offices, a couple of workstations, a conference room, a kitchen. That's a very typical build-out for us. That doesn't really need to change. We haven't seen a massive change in the way people are planning their space going forward because they were already distanced in a way that they feel comfortable. That's why I think you've seen our attendance be a lot higher than some of the other markets you're looking at.
What has happened to that attendance rate if you go back six months ago to today?
At the very beginning, I'd say they were definitely confused, and so were we. That would be in Q2. The occupancy rates were very low. I think the last time I saw some type of real look at this, we figured our buildings were about 30%-40% occupied. I can tell you that everyone, all four of us on this call for sure, would tell you that the traffic in the morning and the evenings is up. I'm talking about just driving your car, trying to leave work, come to work, whatever the case may be. I get my best read on the building I'm sitting in, and I know that parking garage is more full now because I just see it. I know there's more traffic.
I don't know everybody else's buildings or what's going on, but there's way more traffic on the road in the going to work time and the going home time than there was even four to six weeks ago.
Great. Thanks for the color.
Our next question will come from Daniel Ismail with Green Street Advisors. Go ahead.
Great. Thank you. Maybe just sticking with the mind of the tenants, how are you perceiving tenants looking to upgrade your space? Are you noticing any flight from Class B to Class A as tenants look to trade up? How are they looking at the quality of their space as they're out in the market?
That's a good question. I remember when we were coming out of the last recession, we had a ton of rebalancing. That recession was long, and it gave a lot of people opportunities that still had businesses they were confident in to move into much nicer space than, let's say, they typically would be in. Then as we came out of the recession, we started literally letting them out of leases and re-leasing that space and moving them back to, let's say, where they more properly would be. I don't know that this has been around long enough for that kind of shift to happen, and I haven't heard anyone say that there's a shift in that way. I think this will be in terms of us kind of returning to some sort of normalcy.
I don't think we'll see that big kind of shift back and forth that we saw in the recession that happened in 2008, 2009, 2010, where I remember 2011, 2012, you guys were asking us questions. We're like, "Yeah, we're literally letting people out of leases in our most expensive markets and letting them sign leases in cheaper markets because we have tenants for that space right now." I don't think we've seen that shift. There hasn't even been time for people to do that shift. I doubt that will happen this time.
Last quarter, you mentioned rents sitting, I believe, portfolio-wide, about 6% above markets. Is that still a decent line to use, or is this most recent quarter's cash re-leasing spread more indicative of where rents sit relative to market?
Yes, that's still a good estimate for where things are.
Okay, great. That's all I had.
Thanks.
All right.
This will conclude the question- and- answer session. I'd like to turn the conference back over to Jordan Kaplan for any closing remarks.
Well, thank you all for joining us, and I look forward to speaking with you next quarter.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.