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. Thank you for joining us. A successful fourth quarter capped off a very strong year and a great decade for Douglas Emmett. During 2019, we grew our FFO by 6.3%, our AFFO by 18%, our same property cash NOI by 7.5%, and raised our dividend by 8%. The straight line value of our office leases signed during the year was 28% greater than the prior leases for the same space. We significantly strengthened our balance sheet during the year, refinancing approximately $2 billion of debt, which added almost five years to that debt's average term. At year-end, we had no floating rate debt and no maturities before 2023. Our weighted average interest rate is only 3%, and our pool of unencumbered assets has increased to 41% of our office portfolio.
We purchased a fantastic multifamily asset in Westwood and completed a very successful lease-up of our first multifamily development in Honolulu. Taking a moment to reflect back on the entire decade, we grew our office portfolio by 38%, from 13.3 million to 18.3 million square feet. We grew our multifamily portfolio by 45% to over 4,000 units. We grew our FFO per share by 65% and our AFFO per share by 95%. As a result, our total shareholder return for the decade was 304%, 45% higher than the RMZ index and more than double the SNL U.S. Office REIT Index. Sustainability remains a key commitment for us. In 2019, we reduced our electrical usage per square foot by another 2%. This is our 12th consecutive year of reductions, bringing our total savings to more than 22%.
As most of you know, there was a fire last month at our Barrington Plaza apartment property. We currently expect that our insurance will cover our damages. Looking ahead, Douglas Emmett has never been better positioned. Our balance sheet is stronger than ever. Our supply-constrained markets continue to have robust tenant demand from a diverse set of industries. Our unique operating platform, dominant market share, and development opportunities have us very excited about growth in 2020 and the decade ahead. Now, I'll turn the call over to Kevin.
Thanks, Jordan, and good morning, everyone. In November, we acquired 16% of the equity in one of our unconsolidated funds, which owns six Class A office properties totaling 1.5 million sq ft in our submarkets. The net purchase price was approximately $91 million, which we paid through a combination of cash and operating partnership units. We now own 89% of the equity in what will be treated as a consolidated JV. As Jordan mentioned, we completed the successful lease-up of our 500-unit Moanalua development this year. Our two multifamily development projects in construction are also progressing well.
In Brentwood, we remain on track with the construction of our 376-unit high-rise apartment tower, which, when completed, will be one of the most exceptional residential developments in Los Angeles. In Honolulu, we are developing 500 apartment units at our office conversion project. We are currently building out four floors and expect to deliver those units in 2020. In addition to the growth from our development efforts, we expect more acquisition opportunities in our submarkets in 2020. With that, I will now turn the call over to Stuart.
Thanks, Kevin. Good morning, everyone. Q4, we signed 178 office leases covering 791,000 square feet, including 326,000 square feet of new leases. Leasing spreads for the fourth quarter were 28.6% for straight line rent roll up and 8.6% for cash roll up. We increased the lease rate for our total office portfolio to 93.3% and our occupancy to 91.4%. We were pleased to see that the lease rate in Warner Center moved up 220 basis points from a year ago, and our Hawaii portfolio occupancy finished the year at 94.3%. For all of 2019, we achieved straight line rent roll up of 28% and cash rent roll up of 10%. On the multifamily side, our portfolio remained fully leased at quarter end. Over the past year, we have increased our multifamily portfolio by 16%, or 566 units, while increasing our monthly rent per unit by 6.3%.
Before I turn the call over to Peter, we'd like to address the Split Roll Initiative expected to be on the November ballot. For those of you who are not focused on California, Split Roll is the term used to describe a ballot initiative to have commercial, but not residential, property reassessed every three years for property tax purposes. Under current law, property taxes for all property types are increased upon sale and increases are limited to 2% thereafter. Proposition 13 is very popular. All prior attempts to weaken Proposition 13 have failed, and we feel that this initiative will also be rejected. Indeed, even before the substantial voter education program is started, nonpartisan polls show only 46% support for Split Roll . Despite the low likelihood of passage, some of you have asked about the potential financial impact to Douglas Emmett.
There are just too many variables and unknowns to quantify an impact at this time. It is a highly political issue and speculation is not productive. Having said that, we can provide some observations. All properties in California already get reassessed on a Split Roll is not expected to impact asset pricing, NAV, or sales transactions. The county assessors who are responsible for valuations have said that they would not have sufficient resources and it would not be practical to implement Split Roll.
Although the rules involved are not clear, buildings with small tenants, which we think should include most of our buildings, would not even be subject to reassessment until mid-2025. Virtually all of our L.A. office leases require tenants to reimburse us for expense increases. Moreover, some analysts expect Split Roll will trigger rent increases to transfer some or all of the burden to tenants. I'll now turn the call over to Peter to discuss our results.
Thanks, Stuart. Good morning, everyone. We are pleased with our Q4 results. Compared to a year ago, in the fourth quarter of 2019, we increased revenues by 7.8%. We increased FFO 7% to $110 million, or $0.54 per share. We increased AFFO 12.8% to $91 million. We increased our same-property cash NOI by 7.3%. For all of 2019, we increased revenues by 6.3%. We increased FFO 6.3% to $425 million, or $2.10 per share. We increased AFFO 18% to $365 million. We increased our same-property cash NOI by 7.5%. At only 4% of revenues, our G&A for the fourth quarter remains well below that of our benchmark group. As Kevin mentioned, we increased our stake in one of our previously unconsolidated funds to 89%, and it is presented on a consolidated basis as of November 21st.
The effect of this transaction included recording a gain on our investment of about $308 million, which affects net income but not FFO. Turning to guidance, we are assuming same- property cash NOI growth will be between 4.5% and 5.5%, and average office occupancy will be between 90% and 91%. We expect 2020 FFO of between $2.23 and $2.29 per share. As usual, our guidance does not assume the impact of future acquisitions, dispositions, or financings. For more information on the assumptions underlying our guidance, please refer to the schedule in the earnings package. I will now turn the call over to the operator so we can take your questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In consideration of other participants, please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Jason Green at Evercore. Please go ahead.
Hi. Good morning. Just curious what you're seeing on the rent growth side from Hawaii office. We're hearing that year-over-year rent growth could be in the 20%-30% range, and just curious if that lines up with what you're seeing.
Hey, Jason. Look, there's a lot of things going on downtown that have been very good for that market, not just what we're doing with our conversion project there. We had Hawaiian Electric just signed a large lease down there for almost 200,000 sq ft to consolidate their space. Hawaii Pacific University also took almost 100,000 sq ft downtown recently. A lot of things putting pressure on that market, and rents are definitely moving up.
Got it. Just on the multifamily cash NOI going negative in the quarter, I guess, what should we read into there? Is that purely a function of same-store occupancy dipping, or is there another component that we should be thinking about?
Hi, it's Peter. Look, we always have some noise quarter to quarter. We had reasonable first three quarters. We're disappointed with this quarter. The issues are concentrated at a couple of properties, and we're focused on improving those results.
Got it. Thank you very much.
Thanks.
Our next question today comes from Alexander Goldfarb at Piper Sandler. Please go ahead.
Hey, good morning out there. Definitely appreciate you guys being upfront on the Proposition 13, but just sort of curious, as you're seeing the opposition to the Split Roll build, are you seeing it more come from the business community, given it would seem like they would obviously shoulder a huge burden of this? Or are you seeing most of the opposition being driven by the real estate industry?
It's really broad-based opposition. To explain that out, yeah, the business community, I think, is going to come out in a big way against this. You have a lot of large landowners in the state that have owned land here for a long time. It's not the real estate companies that have to be on the front lines of this, thankfully. We'll have broad opposition to this.
I'd like to add, I think you're actually already even seeing homeowners say, "Forget about it. I don't want to hear any trickery about modifying Proposition 13." I've actually heard a lot from homeowners say, "Oh, I already know I'm against that." That you wouldn't classify as business owner, real estate owner, or whatever.
Okay. On the acquisition front, just as you guys are looking at what's brewing for this year, do you think that there's potential to add to your multifamily in Hawaii, or do you think most of your acquisition activity will be in L.A.?
Well, I think on the multifamily side, the challenge in Hawaii is there just aren't that many large projects that are institutional. We're adding to the portfolio there through the 1132 conversion. The acquisition pipeline in L.A., it's looking pretty good. I think I mentioned last call that we were looking at a couple OP unit deals, and those tend to take a little longer. They're harder to make. You're dealing with long-standing partnerships, sometimes multi-headed decision-making. I feel pretty good about the pipeline.
Thank you.
Our next question today comes from Craig Mailman at KeyBanc Capital Markets. Please go ahead.
Hey, guys. Just curious, I appreciate the comments on the Barrington and the insurance coverage. If the city council were to kind of get rid of the exemption on some of these older vintage buildings not having sprinklers, how much could that cost you guys in CapEx and kind of downtime in some of these buildings?
Well, let's start out with, we would appreciate that. We want to sprinkler the buildings. We've wanted to sprinkler the buildings for a long time. We've been sort of trapped between conflicting rules coming out of the city in terms of to actually sprinkler the buildings, what you have to do, and then some of the housing ordinances. To figure out what the cost would be, we would need to know what did they put in place that allowed us to do it? Because that could cause things to vary a lot.
They put something in place that makes it cost-effective, and I suspect in the end they will. I hope they will. It would be probably all around a good thing to do. If they put something together that's so expensive that it still doesn't make any sense, and there's no way to really get there in any kind of reasonable way, then they'll still have problems getting people to do it.
Yeah. Just second on the acquisitions, just curious, is everything that you guys are looking at kind of new properties to the portfolio, or could there be more kind of increased ownership of some of the JVs?
Both could happen. God, that's a great question. Both could happen.
All right. Thanks.
Our next question today comes from John Guinee of Stifel. Please go ahead.
Great. A couple questions. First, the $308 million gain on the consolidation of the JV portfolio, does that trigger the need to do a 1031 exchange or a special dividend? That's one question. Second question. Deal traded in Warner Center, 513,000 sq ft campus at Warner Center. Any thoughts on that trade? The third question is, there's, for the first time in a while, a lot of product under construction in West L.A., including, say, the West Edge at Olympic and Bundy. Can you talk a little bit about the new product under construction in your backyard?
Okay. The answer to the first question is, that's just a GAAP accounting gain that you're required to do when you consolidate. No tax impact, it's stripped out also for AFFO, FFO, and all of that. That's, I almost want to say unfortunate that it has to run through our income statement, but it does, and that's just the impact of consolidating. Second one on Warner Center, that hasn't closed yet. We'll let that one play out. We don't want to comment on other people's deals. The third one.
Regarding the new construction, John, most of the new supply has been in markets that are adjacent to ours. You've got some things going on in Hollywood and in Culver City. You've got Google's campus, which is in the Westside Pavilion, which is now called One Westside, which is 100% leased. I think the project that you're referring to is the Martin Cadillac site.
That's it. That's what I think it is, too.
That's a mixed-use project that's primarily multi-family, with a small office component and a retail component to it.
It's got a supermarket, mostly multi-family, and a very small amount of office. It wouldn't click in my mind as something that we would say was a big office competitor. The whole Westside needs more multi-family. More multi-family, whether we're doing it or someone else is doing it, is good.
Great. Thank you.
Thanks.
Our next question today comes from Nicholas Yulico of Scotiabank. Please go ahead.
Thanks. Just looking at the lease expiration schedule over the next four quarters, you have higher than normal in the Westside in the fourth quarter of this year, over 500,000 square feet. Can you just describe whether that includes some sizable tenants and kind of how the conversations are going on that space?
Yeah, Nick. It's not one or two very large leases. It's spread across the portfolio with a number of leases. Pretty normal for us, nothing unusual, and we're actively working on those renewal discussions and feel good about how those are going.
Okay. Just another question on Honolulu. Can you give us a feel for how this is working from an accounting standpoint, going from an office to the multi-family building? Is the entire building being capitalized right now? Is it possible to get a feel for the NOI of that building as an office building? If we were to just value it separately as a multi-family building, we could do that?
Well, just from an accounting standpoint, we're doing this in phases, right? We're maintaining office tenants on many of the floors throughout this project. As we complete the residential units, those will come online and begin to roll through the multi-family side of our P&L. We do begin accelerated depreciation on the floors that we plan to demo, so those will start running through, or have started to run through depreciation.
Yeah. If you're saying, is the income and expense of the office building still running through our income statement? The answer is yes.
Yeah.
I think where the impact is, which what Peter just mentioned, has more to do with when you make a conversion like this. This all runs through depreciation, so I don't think you're seeing it in any of our FFO numbers. You write off chunks of the building that now being converted over, and you capitalize what you're spending to turn it to an apartment. The operations of it as an office building, and by the way, when we start renting the units as apartment buildings, will flow through our income statement.
Right. Is it possible just to get a feel for the ballpark, what the NOI of the building is from an office standpoint? If we wanted to take it out from an NAV standpoint and just value it as a future apartment building, we can do that?
Not easily, no. We don't typically take single buildings and say, "Here's what's going on in the building," other than when we buy it. We have tried to give some numbers and thoughts about what kind of returns we think we'll get out of that process. What we've said in the past is, we think, in general, we'll be developing the building, including whatever value, and everyone could subscribe different values, but whatever value we want to subscribe to the building as it is now, and then what we have to spend to convert it to an apartment building. We think we'll be developing it as an apartment building at an acceptable, not a knock out of the park, but an acceptable developer cap rate for an apartment building.
Okay. I guess the $80 million - $100 million that you have on construction costs, what is the return we should think about on that as we're getting to a multi-family type of NOI for that building?
Well, okay. I don't want to get into valuing individual buildings. I will say the return on that simple number would be extraordinary, but that's not probably the way it should be calculated. The way it should be calculated is, what's the value of the office building today? When we add this money, then what all-in do we have in it? With everything in, now I'm saying to you, I think we'll be to the acceptable level of an apartment development, which it's a cap rate around 6%. That wouldn't be on just the $80 million-$100 million. That's also saying we have an office building there that has value today. It's that plus the money that you have to do the cap rate on.
Of course, Nick, the whole reason we started this was to improve the office market down there. We kind of already told you about what's going on with rents and office. That's going exactly how we had hoped, or even better, frankly.
All right. Thanks, everyone.
All righty.
Our next question today comes from Manny Korchman at Citi. Please go ahead.
Hey. Stuart or Peter, the average office occupancy dip in guidance versus where you ended the year, is there anything specific driving that? Any large tenants moving out or anything like that?
Well, as you said, it is an assumption for the average for the year. We generally have more expirations impacting Q1 in any given year versus the remaining quarters of the year. We do expect an early dip this year, and then we should be making good progress over the rest of the year to build back up.
Thanks. Stuart, in your opening remarks, I think you commented on Proposition 13. You don't anticipate any changes in the transaction market as sold properties get marked to market anyway. Is there the potential that properties will come to market ahead of the proposition being voted on just as people worry about their Maybe if it's not even their cash flow, but their conversations with their tenants going into this, private owners may want to get out and sell to a more institutional owner like yourselves?
Man, this is Jordan. That would be such a great day, I can't tell you. We're not seeing it. We would love that. We're not seeing any uptick in transactions around that proposition, which would be a great day if there was, but there isn't.
All right. Michael has one as well here.
Yeah, Jordan, just in terms of, I know you can't expect or sort of isolate how much this could impact, I guess what % of your portfolio is already at market based on all the deals that you've done, new tenant buildings you've bought?
That's a hard question to answer for a few reasons. One of which is, and I've said this before, what everyone in the outside world thinks is market has nothing to do with market when it comes to Proposition 13. Proposition 13 has its own definition, if you read it, you'd be as cross-eyed as you are when we're looking at the way we do cap rates versus the way the public market does cap rates. For starters, the number you would come out with is probably a very different number than you guys would think of. Then you have, and as I said, we've continued over the past few years even doing Proposition 8. It's very hard to know because I don't think that proposition functionally works.
It's very hard to know how or what would happen if you ever wanted to postulate that, number one, that it passed, and then someone actually tried to do it. There's just no way to figure out a real number. You know better or as well as anybody, what the general growth of the company has been and all the buildings we bought recently, and I just gave you a quote about how much we've grown the portfolio, and you know that we had a chunk in the IPO.
We've added another, whatever it was, 45% or whatever I said since being public. You have all that, but you still don't even have the other side, which is where would they come out on those? On all those properties I just mentioned, including IPO properties, we've won Proposition 8. We've won Proposition 8. We've won contemporaneously arguments where that we've said, "You're valuing us too high.
Right.
It's just too hard to figure out where that would come out.
Right. I think you framed it right because even in implementation, it takes a long time. The assessors don't have the staff yet to do it, and you'll be able to recover a lot under your leases from the tenants. From a financial impact, I think the market may be overreacting, that there's this massive FFO destruction. I think you live in California, and I know it's beautiful, and I know you're looking at the water and it's 80 degrees. Do you think, I get the lure of where you live and where your assets are, and I'm jealous in the freezing cold. Do you think it leads to, if it does pass, because polling at 46, that polling could go up, too.
There's some potential, even though it's failed every other time, that this is the one that increases out-migration from the state, and therefore, growth in tenants is reduced, right? That, to me, is the bigger risk than the FFO impact of a couple of pennies here and there.
Well, I don't want to get too political on this call, but you're on the tip of the iceberg, the stuff the state of California is doing that creates issues. Now, I can give you another list of the stuff they're doing that turned us into an incubator state and draws population in. Proposition 13, the actual personal income tax rate, what's going on with the employment laws, how tough they make it to employ large amounts of people, how hard they are on mature companies that are actually employing a huge amount of middle-income people, which essentially almost get ejected out of the state. The list goes on. You're saying, is this Proposition 13 thing on the long shot of it passing, I assume there's somewhere where you break the camel's back. I thought that when they went to 13% income tax rate.
I thought that on the last set of rules that came into play for the employment thing. Net, it doesn't seem to be happening. I know, and I read the same stuff you do, the very loudness of wealthy people going, "Enough's enough." They go, "I'm making my permanent residence out of state somewhere," wherever they're going. You read about five different people, and you go, "They're all leaving." It's a state of 40 million people and growing. If you say here on the ground, if you want to know here on the ground, here's what we're seeing. We're seeing a light rail that doesn't even seem to have had any impact. The light rail's packed, and there's still too many people downtown Santa Monica and all around the West Side. We're seeing the population continue to densify.
We're seeing a shortage of housing at all levels, even expensive housing, medium-expensive housing. The stuff they're doing should be impacting people saying enough's enough, but they're not saying enough's enough. There's more people coming in. I'm saying enough's enough, but if you're saying for the whole state, we're not seeing that. Would this do it? I don't think it's going to pass, and I don't know what the straw is that breaks the camel's back.
Helpful color. Thanks for taking the time.
All right.
Our next question today comes from John Kim of BMO. Please go ahead.
Thank you. Good morning. Your 2020 earnings guidance includes the impact of the fire at Barrington. I'm wondering if you could quantify what the impact would've been had you kept that asset in your same-store pool to your same-store guidance.
We took it out of same-store guidance because we think our loss is going to be insured. What happens is, the way the insurance pays, and the rules around collecting insurance, and accounting around collecting insurance would make the number fluctuate a lot. It comes in in a completely different way than what you would normally say of a partner doing same-store. We took it out to let it settle out, to not have the insurance proceeds warp the same-store numbers. By the way, normally I would say they literally can warp them to the plus and the minus. It's not biased in one direction or another.
The delta, could it have been you would've fallen below the bottom range of your guidance of 4.5%-5.5%?
I'll say again, insurance proceeds can have both a positive and negative impact. There's no way to put a range on a same-store number when insurance comes in and doesn't come in, it can change the number. You could equally ask the question, would it impact that your range was too low? That's the result you get out of that stuff.
I hear you. Okay. Jordan, you gave your views on Prop 13 and Prop Eight. I might as well go to Proposition 10. Do you have the same level of comfort?
Do you want me to give you my whole slate of voting because?
Yeah. Go through all the propositions. We're 120.
Yeah.
Do you-
You're talking about the rent control one. I think that there's so little energy behind it. It's kind of a one man, one mission thing, this guy out in Hollywood. It was soundly defeated last time. Since then, literally the state legislature, the governor, all got behind a statewide rent control ordinance, which has been put in place. Even politicians are saying, "Hey, come on. You haven't even given our thing a chance to work." If the other one kind of came on the scene with low support, this one's coming on the scene with even lower support, with very little backing and very little energy.
You're not feeling the burn?
No. Well, I'm reading about the burn and seeing his election results, but I'm not feeling it when it comes to residential rent control.
Thank you.
All right.
Our next question today comes from Dave Rodgers of Baird. Please go ahead.
Hey guys. Wanted to go back to the office occupancy that was asked about earlier, understanding that there's a dip in the first quarter, but you ended the year, I think over 93% leased. Can we dive a little bit more into maybe do you expect to do some more redevelopments which could pressure that number this year? Is it fewer retentions or is it just kind of slower lease-up ? What's embedded, because you guys have made some pretty good progress in recent quarters, in terms of the lease-up?
Yeah. It's Peter. When you have the kind of lease- up that we had, the number of new leases that we wrote, it sort of automatically implies that you have existing tenants where you'll see some of those move-outs, and that's what typically happens in the first quarter. The assumption is not affected by estimates of the impact of redevelopment. This is just the straight We had a very strong leasing year and we normally see a bit of a dip in the first quarter, and then we build back up over the course of the year.
Okay. Thanks for that. Let me ask maybe straight about the redevelopment side. Jordan, you've updated us in the past. A quick update on kind of where you're at, and do you plan to add more assets to that in 2020 from the office on the west side?
Well, the stuff we kind of were crowing about in the last year or so is mostly done, and we're now onto additional assets. Of course, we've moved the Barrington Plaza up on the list, and we know that's certainly a 2020, 2021 project. That's a program that has legs . We didn't roll off those last seven and just say, "Good, we're done," and do the hand swipe and walk off the table. We're going to be rolling with that for years and years and years. Until the market really changes, those, which I wish it was more capital, but those make tremendously high returns, those repositioning that we're doing. We're not letting loose of that.
The volume of activity kind of in 2020 versus 2019, is that pretty similar? Will that be a steady state going forward?
Dollar volume, yeah. Dollar volume, yes. Number of buildings, I think it's probably fewer buildings, but dollar, I think we are keeping pretty consistent.
Okay, thank you.
All right.
The next question today comes from Rich Anderson in SMBC. Please go ahead.
Thanks. Good morning out there.
Hi, Rich.
I think. Yep. Yeah, how you doing? On the Brentwood high-rise development, is that an early 2021 delivery or something like that? Regardless, how much have you spent so far on the call $200 million total cost?
Rich, our construction is going to go all the way through to the end of 2021. I don't have the number of what we've spent so far, but we can get that to you.
One more on that. Can you do some sight unseen type of leasing? How do you foresee that asset coming to market? Will there be zero occupancy out of the gate, or will there be something much more substantial than that?
Our recent MHA development, we did have some pre-leasing that happened before the thing even opened. There was a lot of interest in that. I suspect this will be the same. This is going to be kind of an iconic high-rise, new high-rise on the West Side we haven't seen in a long time. I suspect there'll be strong interest, and we'll hopefully have a waiting list or be able to do some pre-leasing before it opens.
Okay. Looking back a year, your guidance for same-store was 5%-6%. You ended up 7.5%, I think, this year. A good beat and raise type of year. This year, 4.5%-5.5%. Is there anything about how 2020 looks versus 2019 that would preclude a similar type of event, or is there something that maybe would get in the way of your ability to sort of see your internal growth profile improve over the course of the year?
I don't want to limit our upside. We're trying to give you a reasonable range going into the year. Every year, we work to beat all our numbers, and I think that certainly we hope to beat these numbers, too. But I also think the range we gave you is a reasonable range for what we see going into the year.
Okay, good. That's all I got. Thanks.
Our next question today comes from Blaine Heck at Wells Fargo. Please go ahead.
Great. Thanks. Just following up on that last question. You guys had a great quarter from a cash same-store NOI perspective, mostly driven by the 6.5% increase in cash revenues. Can you just talk about the drivers of that growth, though? I know you've got some occupancy growth in there and rent growth has been strong, but it seems like, the burn-off of free rent must have been a big driver. I guess, is that right? If so, should we expect cash and GAAP same-store NOI to sort of converge in the next few quarters, or does that cash benefit from that free rent burn-off stick around for a while?
Well, yeah, I haven't heard, and to be fair, we haven't gone in and analyzed exactly that point, but I haven't heard any discussion that the same-store growth came from free rent burn-off. I think it comes from just very strong fundamentals in leasing that have converted to occupancy, and fundamentals in rental rate growth and getting higher bumps in leases and all the stuff that hopefully drives that. There's always another half of the equation, which is, what are you comparing to?
The fourth quarter of the last year or whatever. I think, when you go not noisy past to not noisy current is when you get your best and fairest comparison. Sometimes we've had wildly swinging numbers because we've had prior years that were noisy, so the comparison got screwy. I think it was not noisy to not noisy. It was just a comparison of fundamentals.
Okay. Just seems like the, I guess the 5.5% difference between GAAP same-store NOI and what you did on cash same-store NOI is a little elevated from what you usually do. I guess we can go through the details offline.
Okay.
Thanks.
Thanks.
Our next question comes from Jamie Feldman at Bank of America. Please go ahead.
Great. Thank you. Can you guys talk more about the transaction to buy out your JV partner? What was the yield on the deal, then just, why is your partner selling? You think we'll see more of this? Sounds like we will see more of this based on your answer to a question earlier, but maybe why your fund partner's looking to cash out.
We had come very close to the end of that fund. That was a place where we thought there probably was also some refinancing opportunities, but frankly, people came to us and said, "We're ready to get out. We've made pretty good money." They got a pretty good yield. I don't think we've said what their yield is. Maybe we should say. All right. We're not saying it. All right. They got a pretty good yield, and we had been buying interest all through the last decade. When we were buying the rest of the people out, we just went out to the because we were already up to 70%. We went to the last few, and said, "If you want to sell, we'll buy your interest now." Pretty much they said, yeah.
We bought them out at exactly the They think it's market valued every year, at the end of the year with appraisals, and we bought them right on the dot of that number of their equity count. One guy said, "I want to find any way to" It was multiple partners, not just one, but one guy said, "I want to find any way to stay in the market. Would you mind keeping the thing open?" We switched it to our new JV structure, which is our other large JVs, from the fund structure which we had had, because that one was 10 years old. He said, "Go switch the structure, I'm good with that, and do a new 30-year deal.
I want to be in it." We said, "Okay, you stay in." The others went out, and we all bought our interest to what we could get. It ended up like 89, 11. It's a good vehicle. Hopefully we'll now use it going forward to do some other stuff, because I think our partner wants to continue doing stuff and growing their position.
Sorry. The new structure is 30-year.
Yeah
How many partners?
It's just like the other JVs, the last two big JVs that we did. It's all on the modern terms that we've put in place, and it's ready to go. We can use it to buy stuff. We don't have any proclivity towards that or any of the others. They're all structured the same.
Okay. Then how large is the investment pipeline you're looking at today in terms of both acquisitions and buying out more JVs? How would you finance it?
I think, OP unit deals are tough. I think it's overweighted by OP unit deals in terms of the acquisition pipeline. Obviously, those have trouble going into the JVs, and it causes, obviously, you know how little we like issuing stock. How much we just like solutions. Those are tougher. From an earlier question, when it was asked here in California, whether people were trading ahead of the potential Split Roll, I thought that would be a godsend. It hasn't created additional straight-up sale deals.
Okay. Last from me, just what are you guys thinking on rent growth in your markets? How do you think this year is going to compare to last year across the sub-markets?
It depends on the markets, which is correctly you asked the question. As you know, Hawaii, very strong. Hawaii used to be a laggard. Westside, very strong. Parts of the Valley still very strong. Warner Center, actually finally showing some good positive movement. Probably the strongest is Hawaii at the moment. Certainly the Westside's very strong.
Do you think Westside and Valley will be similar this year? Better or worse?
I think parts of the Valley have been mimicking the Westside for a while. As you get farther out from Encino, Sherman Oaks, I think it's been slower than the Westside. By comparison to its past, it's running like the Roadrunner. The whole thing's picked up quite well, and I saw a lot of people's notes saying, wow, they're finally getting rate across at 90% mark. I think we're up at 89% there. That's what matters. Occupancy matters. Occupancy matters across the market, occupancy matters in your portfolio, and that's what changes to what rent rates are doing. If you look at these other markets, you're deep in the 90s. Of course, rents are moving.
Okay. All right. Thank you.
Yeah.
Our next question comes from William Crow at Raymond James. Please go ahead.
Hey, good morning, guys. Speaking of joint ventures, I think it was probably six or eight quarters ago, we were talking about the potential JV of Hawaii assets, and I'm just wondering whether that's off the table, whether you're still thinking about that, and kind of bringing the cash back to Los Angeles.
Well, it has always been the case when I've been asked about Hawaii. Hawaii's obviously very strong now. We've always said Hawaii's a place where we feel like this is where we want to characterize and get our growth going forward, primarily out of a market, which I feel is a 30-year market, which is this Westside market, in L.A., where we have a huge amount of our assets. Hawaii has created, and what's going on there, has created a lot of investment opportunity, a lot of capital investment opportunity. We've always said that that is an opportunity to do a JV or do some other structure like that because, obviously, that's a great place to stay involved, and as before, it's still a good opportunity to do that. The timing has to be right. The structure has to be right.
We have to be able to demonstrate quite clearly to our partners or whoever we would bring in on that this is why we like this is why it works. We don't want to do anything that looks like a fire sale or discounted sale, but we also want to make a deal where it works out good for everybody, for the JV partners and for us. That's tricky, but that's definitely a market where we think we could pull that off one day. I'm not saying on this day, but one day.
One more from me. Barrington Plaza, that was the site of another major fire not that long ago, and a lawsuit and everything else. Is there any reputational risk or longer-term impairment because of the sequence of the two fires and all the publicity and press they got?
Well, I guess the answer has to be yes, although I don't know that we're seeing it. I have to say, look, we were an advocate of sprinklering the building at the last fire. We're advocates of sprinklering the building today. This is adding pressure to the city council to create a path for these buildings to be sprinklered, because they're sort of trapped between the rent stabilization ordinance and the permitting process for sprinklering an entire building. We hope that that is also our path. Maybe it's a matter of the news cycle or whatever else. I actually don't think there's long-term reputational risk vis-a-vis these buildings. I guess you got to play that out and see what happens over the next year.
All right. Thanks for the time. Appreciate it.
All right. Thanks.
Our next question comes from Daniel Ismail of Green Street Advisors. Please go ahead.
Great. Thank you. Just a few quick ones from me. Can you provide an update on where in-place office rents fit relative to market these days?
Yeah, Danny, it's about what it's been. We're a little over 10% on the mark-to-market.
Okay. Then you were fairly busy this year refinancing debt and doing other things on the balance sheet. Do you see 2020 ending in the same spot where you guys ended 2019 on a debt-to-EBITDA basis?
Debt to EBITDA. Okay.
Net leverage 0.9 or eight or something like that.
I think we have a chance of improving that. I think our earnings are going to go up. I don't see a dramatic increase in the amount of debt that we have, so we have a chance of improving that number.
Okay. Just last one, actually, from me. Given the expirations this year, can you discuss the type of leasing economics you guys are expecting in 2020? Specifically, do you expect a tougher or a stable year for leasing concessions?
I don't, I don't think the expirations are that abnormal for us, Danny. I know that there's a little bit of chunkiness in Q4, but it looks like a pretty typical year for us. We've done a very good job, I think, of keeping our leasing costs stable at levels that are well below our peer set, which is really a function of our tenant size. I don't see any of that changing. The trends look very good. We're still getting robust demand. I wouldn't see that we'd see a major change in the concessions.
Okay, great. Thanks, everyone.
Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.
Thank you all for joining us, and we look forward to speaking with you again next quarter.
Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.