Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session.
I will now 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. I hope you are staying healthy. Our rent collections continue to be negatively impacted by the pandemic and our markets very tenant oriented lease enforcement moratoriums, which are considerably out of sync with the other gateway markets. However, our Q2 collections were somewhat better than the numbers we previously disclosed for April. As of today, we have collected 91% of our 2nd quarter billings, including 96% from residential, 93% from office, and 35% from retail.
These numbers are based on our current tenants' pre pandemic rent obligations. At the end of the Q2, pursuant to GAAP, we wrote off certain tenant receivables that reduced our 2nd quarter FFO by about $0.04 per share, most of which related to the retail and hospitality tenants in our portfolio. We also wrote off all non cash straight line balances related to those tenants, which further reduced FFO by $0.06 per share. Of course, any collections from those receivables will be included in future quarters' FFO. The pandemic also reduced 2nd quarter FFO by about $0.05 per share from lower parking income.
Overall, the cash and non cash write offs and the lower parking income related to this crisis reduced our FFO for the 2nd quarter by about $0.15 to $0.41 per share. As the commercial moratoriums are amended and expire, we should see improved collections. During past downturns, free from government intervention, our actual tenant defaults have been just under 2%. Despite the current uncertainties driven by the pandemic, during the quarter, we executed 125 office leases for over 650,000 square feet, only a notch behind Q1 and with longer average lease terms. This is a remarkable accomplishment and a testament to our investment in virtual tours and remote leasing technology.
We don't know exactly how the present challenges will impact our local economy, but having managed through 3 prior recessions, our strategy and platform are built to withstand downturns. We own a dominant share of the best buildings in the best markets in Los Angeles. Unlike some other markets, we do not face significant potential supply overhang from new buildings. We believe that our small tenant focus diversifies our risk and prior downturns, the impact of personal guarantees and the small business owners' commitment to their business have kept our defaults very low. We have a robust vertically integrated operating platform and we have no debt maturities before 2023.
Our buildings have remained open and available to our tenants throughout the pandemic. Fortunately, we do not have the significant mass transit, parking or vertical transportation concerns faced in other markets. We are proud of the customer service our team has provided and the safety protocols we have implemented in response to this crisis. With that, I will turn the call over to Kevin.
Thanks, Jordan, and good morning, everyone. On the development front, construction is continuing on our 2 large multifamily development projects. Demand for the new apartments at our conversion project in Honolulu has exceeded expectations. By quarter end, we had completed the first 98 units and to date, we have leased 61 units at our pro form a rental rates. We have begun construction for our next phase, which involves 4 floors and is comprised of 76 units and building amenities.
Delivery of those units is expected to begin later this year. Construction is progressing steadily at our 34 storey, 376 unit apartment tower in Brentwood. This project will be the 1st residential high rise west of the 405 in more than 40 years. The development includes a 1 acre park fronting Wilshire Boulevard. We still expect to deliver our first units in 2022.
On May 15, 2020, we refinanced a loan for 1 of our consolidated joint ventures. The new secured non recourse $450,000,000 interest only loan will mature in May 2027 and bears interest at LIBOR plus 1.35%. We entered into interest rate swaps that effectively fixed the rate at 2.26 percent following the expiration of the current swaps for an average fixed interest rate of 2.6% per annum through April 2025. We used part of the proceeds to pay off a $400,000,000 loan secured by the same properties that was scheduled to mature in July 2024. Deal volume is significantly below normal, but going forward, we hope to see more offerings as deferred transactions come to market.
We and our joint venture partners have ample liquidity to capitalize on opportunities that match our investment criteria. I will now turn the call over to Stuart.
Thanks, Kevin, and good morning, everyone. In Q2, we signed 125 office leases covering 651,000 square feet, including 151,000 square feet of new leases. Leasing spreads for the Q2 were 19.7 percent for straight line rent roll up and 6.7% for cash roll up. Our tenant retention was in line with our pre COVID expectations. Although the decline in our office occupancy during the quarter was expected, leasing volume would have to improve significantly to recover that occupancy this year.
On the multifamily side, several of our residential properties experienced higher than usual move outs at the start of the pandemic. These move outs came from a variety of factors, including the closing of nearby universities and military deployments in Hawaii. As a result, our same property comparison reflects lower than usual occupancy during the quarter. Fortunately, very strong leasing moved our residential portfolio back to 98.7% leased at quarter end. I'll now turn the call over to Peter to discuss our results.
Thanks, Stuart. Good morning, everyone. Compared to a year ago, in the Q2 of 2020, FFO declined 21.7 percent to $84,400,000 or $0.41 per share. This decline was a result of the $0.10 COVID related cash and non cash write offs as well as the $0.05 reduction in parking income that Jordan discussed. AFFO declined 15.7 percent to $80,600,000 Same property cash NOI declined by 9.4%.
Same property operating expense savings of 12.9% partly offset the cash write offs and the decline in parking revenue. At only 4.7% of revenues, our G and A for the 2nd quarter remains well below that of our benchmark group. Given the continuing uncertainties around the pandemic and local government ordinances, we are not providing guidance this quarter. I can say that although it's still early in the process, so far Q3 appears to be consistent with the trends in Q2. As moratoriums expire, we expect collections to improve and to collect some of the past due amounts, but it's too soon to tell.
We expect that parking will stay at current levels until there is a change in office utilization. Finally, as Stuart mentioned, to recover occupancy later this year, leasing volume would have to improve significantly. I will now turn the call over to the operator so we can take
And the first question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, Eric. Good morning, Adam.
Hey, good
morning, Jordan. So two questions. The first is, can you just give a little bit more perspective on the tenants and the rent selections? We hear a lot that LA, in particular, as you mentioned, Jordan, is really an outlier as far as the eviction moratoriums and that there are a number of people basically ghosting their landlords. So across your office, retail and residential, can you give us a sense for how many people are basically ghosting you versus how many of the tenants are actually engaged in trying to do lease modification discussions?
Okay. So that's a good question. That's complicated. So let's back up to just trying to understand the profile of tenants. So one thing we did is, we gave you the 91% collections, 9% not collected.
So when you look at that, you would say, all right, 9% of tenants in some way during the Q2 didn't pay us. We try to be really clear on that number because we used the rent that the tenant would have had to pay prior to COVID even happening. So that's a very clean number, right? Out of that 9%, we had, we'll call, 4% of that were tenants that amazingly aren't paying us, but have such strong balance sheets, such strong collateral that it makes it it would not be reasonable to write them off, right? Then what are we left with?
We're left with 5% that last 5%. Out of that last 5%, we have said to you guys, we think that in past recessions, what our real defaults have been, have been less than 2 at least, and I think better, are going to pay. Now when you look at them, you go, all right, 9%. I believe that 9% is being driven by these moratoriums. It's an absolutely penalty free, do not pay your rent regardless of who you are type of moratorium.
So if you're you could be a 2 floor hedge fund, you still it has nothing to do with means. You still don't have to pay your rent. And when it is time to start paying, you still don't have any penalties or any fees, you get a free ride. That's very hard to collect against that. Now, I will say the cities are starting to make some changes, so we might see some improvements.
But at the same time, as the Governor of California keeps moving north and south, the cities make adjustments to that. So it's hard to predict going forward, we went to a lot of effort in what we prepared to try and make it clear where we are today. Does that answer it seems like there a lot of questions around that in U. S. And I want to really kind of hit that straight on.
Does that answer that question?
A bit more about, yes, there was maybe so it sounds really like it's not so much the office, maybe a little bit, but it sounds like it is fair to say that the retail tenants are trying to work with you and that may be more the ghosting is in the in a little bit of office and in residential, is that fair to think about it that way?
Well, the numbers we gave you was 93% office, 96% retail and it was only under residential and what was retail? 35. 35% retail. So retail is mostly not paying and we tried to include in there when we said hospitality, we've tried to include we have some what are the theaters that we had? Screening rooms.
Yes, we have some screening rooms and stuff that aren't paying too, that aren't just movie theaters. So we wanted to get them in there, some of the live venue stuff. But we gave you that out of the numbers that we aren't collecting, when you shift over, you can go now how much is uncollected, we said, wow, that's actually they actually turn out to be a majority of that number. Still, it's very disheartening looking at a number of the ops tenants that aren't paying us if you were to look at their profiles.
Okay. So, Jordan, that leads to the second question. You've been active and vocal in trying to get the local regulations to change. Last time you said you mentioned specifically about getting office out of there and having more of the eviction more times for like retail, which actually needs it. How are the conversations going with either Garcetti or local officials or Newsom around trying to modify these evictions to really get it to the people who need it versus giving it carte blanche?
So City of LA, I'm not going to go after any individual politicians, but City of LA, very tough, very tough to get them to listen to us at all. And it's a mix of council members and Garcetti and getting them to pass something or do something to stop what they put in motion, very tough. When you go to the cities like Beverly Hills or Santa Monica, I mean, they want to do the right thing, but figuring out what from their point of view, the right thing is not that easy. Santa Monica has, for the most part, pulled commercial office out. They still have residential and they still have small retail in.
Commercial office just is coming out now like this month. So we'll see if there's some impact from that in September, because this is just it just ended this month. Beverly Hills had also filed suit with Santa Monica, but then when the Governor extended the the emergency order, right. The statewide emergency order, when the governor extended it, Beverly Hills took that extension to say, we should extend our order. So they did.
So theirs would have expired, but they've now extended for commercial for another couple of months. Hawaii has generally done what I think most of the most cities have done, which is they just stopped evictions and the rest of it is up to the negotiations between the landlords and tenants. And there, our collections have been better and we've been able to work on deals with tenants and that's worked out a lot better. Here, it's very hard to work on deals with tenants because unilaterally they don't have to pay the rent without penalty. So until that's off, it's going to be hard to make a bilateral deal.
Okay. Thank you, Jordan.
All right.
And our next question comes from Steve Sakwa with Evercore. Please go ahead.
Thanks. Good morning. Jordan, it was interesting to see that you guys actually had a decent amount of new leasing activity. I know it's lower than normal, but given what we've seen from some others, your number was a bit more encouraging. Can you maybe just talk about the dynamic in the leasing environment, kind of what you're hearing from kind of the smaller tenants and maybe what the pipeline looks like today for the back half of the year?
Yes. So I love our operations. I love what our operations are doing. So they when we hit this, they went pretty quick and started really pressing harder on the virtual side, DocuSign, all the stuff that allows people to lease space right off. I have to say, when we finished the quarter, and I'm watching this all quarter, and I saw that we had done actually 125 lease transactions, even my job could bounce off the floor.
Now that's not an anecdotal number, 125. That means the system that got put in place during that quarter literally was ramping up and getting working. So from that perspective, if you said to me, what have I seen this quarter and what have I seen in this recession so far that's made me the happiest? It is the further and further refinement of the backbone of our leasing operations. And the fact that we're able to have doing that many deals.
Now look, at the same time, we're about we did about 650,000 feet. You would have expected us to do more higher numbers 750,000,000, it says 7.25 dollars would be more typical. And most of that is the fact that we did about half of the new leasing you would have otherwise thought we would do in a normal time. But the impressive side of that is that we did a full 50% of new leasing compared to a normal time and did a lot of renewals. So I feel, look, the pipeline is certainly slower, but I feel great about how leasing has been able to adapt to that and really drive transactions.
Now we'll see how we do in the next quarter. It's very hard to predict right now. It's even harder to predict with the kind of up and down. We had totally stay at home, then we had lighten up and start going in, now and then we went back to stay at home. And maybe now we're getting some news of lighten up again, quite frankly, at least in the areas we're in.
So I don't know how that mix will impact the next couple of quarters, but certainly I'm very happy about the fact that we were able to knock out so many transactions.
Okay. And I guess the second question, I realize it's still sort of early and there's probably not a lot that's shaken loose, but just anything on the transaction side that maybe is getting a bit more interesting, any kind of distress in the system that would allow you and your partners to take advantage of some investment opportunities?
Hey, Steve, it's Kevin. I'll take that. It's still slow. A lot got put off by the pandemic, but we're just starting to get some inbounds. And so, it's the type of thing where a lot of people deferred their transactions and wanted to wait and see what happens.
And so I would expect over the next couple of months that we'll start seeing some things pop out. Whether or not they meet our investment criteria or not, I'm not sure. We don't have a lot of assets where people levered up. And so I think it's more about, as I said last call, discretionary sellers that get kind of tired of having to manage through this that might take something out to market. And we and our partners have ample liquidity and for things that we really like, we're ready to pounce.
And our next question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Hey, guys. Maybe just following on to the investment question a little bit. You guys have, in the past been pretty opportunistic with buybacks. Are you at the level where that starts to make sense versus investment opportunities or do you want to keep kind of the powder dry?
Well, we want to we definitely want to buy, all right. So, if the question is, if there are opportunities that were in our wheelhouse, the right stuff, the stuff you know we typically buy, we would buy it. And then go to the second thing, are we actually doing our own outreach trying to find stuff? That answers even yes. So we are working that avenue quite hard and there's a variety of transactions that are super appealing right now, not that they're very plentiful, but one of them is certainly acquisitions.
We believe in the markets long term. You've heard that you've already heard from me that I believe in the tenant base. I actually think our tenant base has a better track record. And at the end of the day regardless of the moratoriums will be better at paying long term as the moratoriums roll off our defaults will be even lower than most. But with that said, there's also refinancings, which we're trying to keep an eye on that, waiting for those banks to open.
And we're continuing on our 2 big development projects and they're moving along well. I know Kevin in his prepared remarks gave you some information on the leasing that we're doing out in Hawaii. We're moving forward with another 3 floors there. And the last thing is putting money into repositioning. And on the repositionings, we're kind of watching and seeing whether we still think there's a return there.
I mean, we have capital. So we don't want to waste an opportunity to use it if a good opportunity comes up.
Okay. And you brought repositioning is kind of the $200,000,000 of spending you guys have talked about over the last couple of quarters. I mean, how should we think about the probability of that kind of being viable here in the next year or 2 as we emerge from COVID?
Well, out of that, is over 100 of it that comes out of just developing the 2 buildings, right, of new equity that goes in. And so and then you had repositionings and new acquisitions. Really the number, I mean, dollars 200,000,000 in a normal time, I would like to see it put out more than that. Do I think that new investment we could hit a run rate of $200,000,000 probably just with the construction, If we got lucky over a year and got 1 or 2 things came up, we would probably hit that number. But as I said, I would hope to do better than that.
But we're getting like inquiries, like little like if this came out, you'd be interested. Nobody's coming out and running a new bid on something that we would say, okay, this deal is in the market.
And then maybe just one quick one. The 13% expense savings this quarter, how much of that was R and M versus kind of just lower utilities? Just trying to figure out the kind of the what may come in the next couple of quarters that may have just been deferred a little bit?
I don't think the expense savings came from any source of deferrals. I think they're spread across all the categories. And I think I mean, it's some of
the lower parking expenses, lower janitorial and a lot of scheduled services in there, not a whole lot on the R
and M side. It's Peter, by the way. Yes. I think the expense savings comes from acting quickly when billings aren't as fully occupied to not spend the money that gets spent on a fully occupied building. Great.
Thank you.
The next question will be from Rich Anderson with SMBC. Please go ahead.
Thanks. Good morning out there. Hopefully, this isn't a question. I just want to make sure I understood what you said, Jordan. You said 4% of the 9% that have strong balance sheets and great collateral, you then said just write them off.
I assume you meant that they will have.
No, I didn't. Yes, we didn't write them off.
Okay. I just didn't hear you correctly. Okay, understood.
Yes, we didn't write them off. So what happens is you have 9% that didn't pay. So start out going right off 9%, they didn't pay us for 3 months, right? But then you look tenant by 10, you go, well, wait a minute, maybe you're talking about telecom companies didn't pay, they're obviously going to pay. And we have others like that.
So we have like I said, we might have hedge funds, we have accountants, lawyers, they might have a floor, 2 floors, they didn't pay. We know they're going to pay. So there's a group that you have to sit there and go, okay, modern day, we're going to just write them off. If you would have gone a few years ago, we would said reserve against them, okay, which sounds more like what it feels to me, but now it's called write off. So you don't write those people off.
Now you got 5% left over and we wrote them all off or I would say reserve them. And then I broke that down and I said that's why we keep saying to you when we look back in history, we go, look, our real default rate ends in less than 2%. So you take that 5% and you go 3% of that 5% are we going to collect it? And I think we are and better, right? That 60% of that number.
So, that's why we keep getting back to this number that we keep telling you guys long term. It's unfortunate with what the cities have done, but long term, we don't expect our defaults to be to exceed 2%.
Okay. Can you talk about the range of time that moratoriums will expire? I know perhaps they just kind of keep getting reset, particularly in the city. But I'm just curious if you can give your expectation of how the cadence by which moratoriums will expire over the next whatever period of time?
Well, I don't have any experience. Nobody does in this. I think what's going to need to happen is the Governor going to have to do something to modify his emergency ordinance because there's too many cities that are just certainly LA, I think it would be very tough. Now LA is suffering from what they're doing because they're getting a tremendous number of complaints from landlords and it's getting to be long enough that they're starting to break some landlords. I don't know though that they have the that they care quite frankly to the level which they would react to that happening.
I think that the constitution of the city council is more focused heavily focused to the tenant side. Beverly Hills cares about both. They care tenant, they care landlord. They just want to do the right thing. And I think it's unfortunate to what happened that they extended this thing for another month or 2, but I'll say they care about both sides and they're trying to get to the right place.
And Santa Monica, I think actually put in place something that's very workable. They're protecting residential. They're protecting small retail. They said the larger guys you got to pay. They said the office tenants you got to pay.
Okay. And then finally, you mentioned your small tenants, they sort of have a commitment to their business, sort of like a it's personal to them, I guess. Do you have an idea if how much to and what degree it mattered that they were able to get some of the stimulus checks, small business and whatnot?
Yes. I think that the stimulus checks made a big difference to them staying current. I thought that, that was a great way to say it. That was actually something Stuart wrote. And I thought it really captured it because in past recessions, if you look at large companies look almost at bankruptcy as an option, right?
Well, what's the financial result of that option? What's the financial result of not doing it? If we do it, we get to close this 20 offices, etcetera, etcetera. The smaller tenants throughout our portfolio, I think they take personally that they own their companies. They are not looking at bankruptcy as an option.
They're looking as a personal decision and it slows them way down. And once they drop that as an option because it doesn't work in their kind of framework of how they see themselves, It's not hard to make deals with them and the stretch of money, maybe stretch out what they owe, they come through, they pay it. That's why we keep saying that while I know that people have been characterizing our small tenants and profiling them as being less creditworthy or less likely to pay, I've said on time and again, I think the reverse is true. I think they're more likely to pay and they're more interested in continuing forward. They all just like all of you and us, they're waiting for this to end.
They want to go back to their old lives with their business and everything going. Unlike maybe someone sitting in New York that's making decisions about offices all over the country and saying close, close, close, leave that one open, that one was profitable. That's not what's going on here and that's why we have a lot of confidence in the long term prospects of our markets.
Yes. That's great. Thanks very much.
All righty.
And our next question is from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Great. Thank you. So it's impressive you guys were able to get the multifamily occupancy back up after the dip when the quarter started. Can you talk about how you're approaching rents? And was that a big factor in terms of getting people into the buildings?
Or how are you able to get that leasing done so quickly?
I don't think a lot of it came out discounting rent. What it came out well, so what really happened was and thought it was in the prepared remarks, we had some whether it be universities, whether it be military, we had just a little bit of a shock of move outs, right? People think they're going to go to school, universities might have blocks of rooms, whatever. And so they all just went in one like snap of the fingers, whether it be in Hawaii or in LA, the stuff we haven't went. So we just had to really amp up our leasing team.
It's good product. They're tight markets. And it's impressive that it leased back up so quickly. I was very happy that we went into the quarter good, we went the middle of the quarter horrible and then by the end of the quarter we were good again. So that did impact us in terms of overall revenue a bit, not terribly, but it also left us in good shape moving forward.
So you feel like you didn't really have to move rents much? You can kind of keep market rents from lower?
I think I don't think we're increasing rents the way we were before, but I don't have a lot of information that we really dropped rents.
And then what about on the office side? I mean, where would you say, face rents and net effective rents have moved since this whole thing started, if they moved at all?
Well,
I hate even saying this, but it doesn't like in Hawaii, they have not moved. Hawaii is a very tight market. Hawaii in Phoenix, it's still on the plus side. In LA, I can't imagine we're going to go through this and it's not going to impact rents, okay. So that was a double negative.
But as we sit here right now, we seem to be holding our own because they're relatively full markets. But I can't imagine that we're not going to see some of this entire pandemic recession reflect through rental rates.
Have you seen a change in concessions?
No, not yet. No. I don't it's not our style. We're kind of your rate is your rate. We don't love the method of concessions to boost up rate because we're such long term owners.
So that's not I don't know that I would think that would be like the first sign of rates falling off. I think the first sign of rates falling off is rates just falling off.
Okay. All right. Thank you.
Our next question is from Manny Korchman with Citi. Please go ahead.
Hey, it's Michael Bilerman here with Manny. I just wanted to come back to this whole element on the rent and the collections and the reserves. So you talk about a historical about 2% bad debt rate historically. What percentage would that be for each
of the property types that you operate in?
Because I would imagine that it's not uniform, at least in history between office, multi and retail? So can you just that's the first question, then I had some others.
Okay. So let me start by saying, if you look back at our bad debt expense, when you say historically, I got to be very careful because it's typically like 20, 30 basis points. It's not 2%. So what I'm saying is, you go back to the recession, 2,008, 2,009, 2010, that's when it was 2%. Okay.
I'm not saying that's the number like 1 year ago, okay. So if you but this is going to be an unsatisfactory answer to you because I don't know the numbers broken out by sectors. This is in the times of 8, 9, 10, I do know our default rate and we've gone back and reflected on and looked at it. But we at that time, maybe we just keep getting better and better. And I guess the longer we've been public, we've been better at putting together the statistics that you guys care about.
But I don't have that information.
Right. I mean the issue today is the retail and other income part, which I think is only like 4% of your total or something. That is acting very different today than at any other point in any other recession given the pandemic's effect on retail. So one would imagine, as you talk about that 9%, right, that 900 basis points is obviously in aggregate. So if you could break down, you talked about 400 basis points that is well
the
the situation between the 4% and 5% that you talked about.
Yes. Wait, Mike. We did not reserve 9%. We reserved 4% of the 9% wasn't reserved because reserved written off, whatever the right word is, was not because there you can't write off a tenant that has like I said, like it tells they don't pay you, you don't write them off, then you do have to just then that just flows through income. It's not written off to receivable.
It becomes a receivable, okay? The 5% is what was written off. So I'm going to try so start with 9% didn't pay. 4% we did not write off, which means they didn't pay us, but we took it as though it was revenue and put it as a receivable because they'll obviously pay. They're super strong.
It's a joke that they didn't pay. All right.
So that would be like a cash like taking. Right. And just one more on that 400 basis points of the 900,000,000 that didn't pay rent. Of that 400,000,000 how much of that was office versus retail and multifamily?
Okay. So let me just keep going for a sec, okay? Okay. So then I don't have that exact number, I'm going to give you another number. So then now we take the 5%, right?
And the 5% that we did write off. And what we I think we said or I'll say it right now, more than half of that was retail and what we probably should have given a better title to we call hospitality, which was the theaters and the screening rooms and live venue guys, all of that.
So I don't have
the reverse number that you asked for, but I'm able to tell you that over half of the 5, that's remaining 5 with those guys.
And then arguably then, it just sounds like the 400 basis points is predominantly maybe office related tenants where you have a good perspective of the quality. The remaining 500 that you did write off was half of it was probably in these retail and other uses and half of it relative to multifamily. Is that probably directionally?
I would say half retail and I'd say the other half was a little mixture of office, multi whatever the rest of the group. Okay.
And then just as a request for in 90 days when you report next quarter or any updates in between now and then, I would just say putting out all these details similar to the office and multifamily peers in terms of collection rates and by property type, I think would be helpful to put out in the supplemental or the press release rather than trying to go through all the gymnastics on a call.
Okay. Thanks. And we can send you some examples of others. Yes. We have to choose somewhere to put it and we chose to put it in there.
I mean, it's not like we're not giving it to you. You don't like where it ends up.
Yes. I think just having the just given the fact that you are multi property type and given the fact that you have other things going on, I think just getting out all the numbers in terms of collections and deferrals and reserves and abatements, I would say that the a lot of the office multifamily and retail companies are putting out a lot of disclosure around those items. So analysts and investors can have a hard copy of something rather than numbers that are going around on a call where it's just not as fluid to be able to capture.
Okay. All right. Thank you. All right. Thanks.
The next question is from Frank Lee with BMO. Please go ahead.
Good morning, Jordan. Just want to get your thoughts on your Sherman Oaks and Warner Center markets. With all the ongoing discussions of a potential shift away from urban markets, do you think maybe in the medium or longer term, the Valley could be a beneficiary if this plays out?
Well, that's an interesting way to ask that question. So the reverse of that question is, are people going to move out of places like, I guess, for us, you're saying the Westside or Downtown. I don't think that. I think the areas in the Valley, more to the point are beneficiaries of industries that are moving out there for the employment base and the fact that the housing is cheaper and the quality of life. I think that when you look at when this is over and you look at whether people want to be in cities or work at home or whatever, I think the thing that people don't like about going into work in the morning and being at work is the commute.
And I think most of the people working on the Westside have a very short commute. So I don't think there's anything gating them from when they're able to and feel safe coming in. I think that people in the Valley sometimes are drawn to having to drive into the Westside because it's such a there's so much business here. But as they kind of rise up, I think more and more of them make demand for offices to be out there, which is why we kind of took our positions out there, both along Ventura Boulevard and Warner Center. And we're seeing it.
I mean, you're seeing the tension in those markets in terms of office space build up and you're seeing those populations grow very fast. I mean, there's been apartment building out there and frankly home building like crazy and they're just they've been very successful and very rapid absorption. So I think that's more driving the success that up until COVID times we've been seeing out in Warner Center and certainly along Ventura Boulevard. I don't see it as a shift from whether it be Downtown or West LA.
Okay, thanks. And then can you update us on how parking revenue has been trending so far? Did you see this pick up in July or should we expect a similar level of parking income that was in the second quarter?
Yes. So I think but for the fact that people have must takes and whatnot on parking, you'd expect parking income to track occupancy in the office buildings and retail has barely been getting anything done. I think our parking has been running about 50%. I think that relates to must takes. But beyond that, I would expect parking level to track occupancy, parking revenue to track occupancy.
So we are a bit above occupancy, but from then on to the extent occupancy increases, I think we'll get some pickup in parking.
Okay, great. Thank you.
Thanks.
Next question is from Daniel Ismail with Green Street Advisors. Please go ahead.
Great. Thank you. On the acquisition front, we've seen a few of your peers buy an El Segundo and Culver City. Historically, these were in markets on your radar, but I'm curious if we could see you guys expand into a new submarkets and if or if the acquisitions you're looking at or just color in your existing footprints?
So, well, they are markets that we're following. So let's start out with that, particularly whether it be Culver City and everything all the way down to the South. I think one of the things going on is we like we're not in love with buying single tenant buildings. I mean and usually, we like multi tenant. We're set up for multi tenant.
And a lot of the trades that you've seen have been 1 or 2 large tenants in those buildings, and that's what's trading. And until those as those markets mature and gets more multi tenant and all that, we might be better bidders for that kind of stuff than these short whether it be triple net or just long term credit leased buildings with 1 or 2 tenants that have 7, 8 years left on the lease. We're just not going to be winning bids on those. Now putting that aside, is Culver City a good market? Absolutely.
I think it's a very good market. It's got a great mix of housing. They did a great job with their retail in their downtown area and there's a lot of good companies that are out there. And maybe similar could be said as you go farther south, except farther south, you don't have the supply restrictions that we're used to here on the west side in these areas.
And presumably, we'd be to go to the office investments, Chris, not you're not looking at any multifamily?
No, I was referring to office, but I mean, you prefer to residential in a similar way and we've got out of Playa Vista, which I think has done quite well, but of course they've added thousands of apartment units. So because there's not a lot of supply constraint out there, it's harder to say that's a good idea for us to now buy apartment building. Now in general apartments in our markets trade at very low cap rates. That's why you see we've shifted over our construction platform and we're being more aggressive about building apartments, which we're building at, obviously, much better cap rates. And that's most of the ground up construction, most is residential, both in Hawaiian and LA.
And most of the entitlements we're working on are for residential on excess land we have West side and in the Valley.
And just shifting over to the tenant side, is it your sense that tenant retention will be higher over the next few quarters as tenants choose to stay in place as they figure out their space planning needs? Or how are you seeing tenant behavior changing?
Well, if you say exactly what's the impact of COVID on tenant retention, I don't know that we have enough information to give that We've had quarters that have been fluctuated highly, which had to do with maybe larger tenant moving out or something like that. But if you started to average rows of quarters, like 4 quarters at a time, a lot of times you end up at that 69% to 70%. So there's some other kind of force on that process that causes tenant retention to want to 0 in on that 70% number.
That's helpful. Thanks, Roberto.
And the next question will come from Venkat Khomeini with Mizuho. Please go ahead.
Good morning. This is Venkat on for Tayo. Just a few quick ones. It looks like multifamily parking and other income doubled quarter over quarter. Just curious what drove that?
Yes. It's Peter. So overall, you also saw a decline in the rental revenue. There's sort of 2 offsetting issues associated with one property. You'll recall that we had a fire at a property in January.
And so you see lower rent and then the insurance recoveries run through parking and other income. So they almost net out when you get down to total multicannel revenue.
Okay. Thanks. And then looks like the lease rate in the Valley declined about 240 basis points sequentially. Can you provide some color on that?
The lease rate in the valley declined 240 basis points sequentially.
Yes. Like I said in my prepared remarks, our retention was in line with our kind of pre COVID expectations. Retention was, as we had previously said, we thought Q1 and Q2 were going to be rough quarters from a move out perspective, but we had such good leasing volume. We thought we'd recover that throughout the year and kind of our original guidance was flat for the year. Of course, we haven't seen the new leasing volume that we expected to see.
So you've seen the declines in those markets, but none of it had to do with any like COVID move outs or anything like that. These are all known and natural terminations we were expecting.
Okay, great. Thank you. Thanks.
The next question is from Josh Bir with Scotiabank. Please go ahead.
Hey, thanks. I want to go back to the uncollected rents and specifically the 4% of rents that were not collected, but still deemed collectible and booked as revenue. It makes sense that those are straight lined and then GAAP NOI, but are those also included in cash same store NOI numbers for the quarter? Or is there a negative adjustment made since the cash wasn't collected?
Well, everything that we write off comes out of the NOI and anything that's still receivable stays in the NOI.
I think you just
That's in cash NOI also?
Yes. Yes. Yes, correct. Okay. You're talking about the not written off that went to receivable that goes into cash NOI.
Okay. Thank you.
All right.
And the next question will come from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Hi. I just want to get some thoughts on your progress at Bishop Street conversions. I mean, is it do you think that the second quarter pace is about what you had expected in terms of getting leases signed? And then how do the rents compare to your initial underwriting?
So, Jamie, it's Kevin. I would say that Bishop Street has been a pleasant surprise in this whole COVID mess. I mean, we're moving along at a pace that you would think in the middle of a pandemic, things have slowed down. We're hitting our underwriting. And as we updated in my remarks, we're up to 61 units, so we're like over 60% leased.
So we're very, very pleased with the product we're delivering and the market is responding in a very positive manner.
Yes, Jamie, I'm going to add to that. There's no way I thought that within 4 months we'd have leased 61 out of the first 98 units out of the gate. I mean, and this is during the COVID, that's even crazier. I mean, we've already launched in the next three floors for getting back and building.
All right, great. Congratulations.
Thank you. Thank you. So one, ending on the likes of one great piece of news. That's good. All right.
Ladies and gentlemen, this concludes our 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 we look forward to speaking with you again next quarter.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.