Good morning, everyone. Thank you for joining us. In the third quarter, we increased FFO per share by $0.08 compared to the prior year. Compared to last quarter, despite new loan costs and higher utilities, FFO per share was up $0.01 due to stronger rent collections, greater tenant recoveries, increased parking revenues, higher office occupancy, and better multifamily occupancy and rents. It is worth noting that only 1.5% of our FFO is non-cash. These results reflect our recovering submarkets where average vaccination rates now exceed 85% for people 12 and over and COVID rates are among the lowest in the nation. Increased tenant confidence has raised our office utilization to approximately 70% in Los Angeles and to over 80% in Honolulu. We had another strong office leasing quarter driving 30 basis points of positive absorption.
Our residential portfolio is fully leased with rents rising in all of our submarkets. Despite the recent California eviction moratorium extensions, past due rent collection continues to accelerate without any meaningful rent forgiveness. Office and residential rent collection for the quarters affected by the pandemic improved to 97% while retail rose to almost 70%. We continue to deliver highly accretive development projects while extending and lowering our cost of debt. We have the capital to pursue new acquisitions and development opportunities as they emerge. With that, I will now turn the call over to Kevin.
Thanks, Jordan, and good morning, everyone. I'm really pleased with the progress of our two multifamily development projects where we continue to lease units as quickly as they are built at rents above our pro formas. We are already pre-leasing units to our 376 unit Brentwood residential tower where we expect to begin delivering units before year-end. At 1132 Bishop, our downtown Honolulu office to residential conversion, we have completed and leased approximately 40% of our planned 493 units and continue to convert floors as office tenants vacate. On the debt front, we are lowering our average interest rate and extending our maturities, having closed two new loans totaling $740 million in the third quarter, with an average effective interest rate of 2.13% per annum.
This new non-recourse interest-only debt consisted of a $625 million loan due in August 2028 with interest effectively fixed at 2.12% until June 2025, which is secured by four properties owned by one of our consolidated joint ventures. A $115 million loan due in September 2028 with interest effectively fixed at 2.19% until October 2026, which is secured by two properties owned by our unconsolidated fund. After paying off the prior loans, we generated an additional $55 million in working capital. Our overall portfolio weighted average interest rate is fixed at only 2.94%, and we have no term debt maturities before 2024. We also have significant financing capacity as 46% of our office properties are currently unencumbered.
Office property sales in our markets remain slow, but we are starting to see some multifamily opportunities, and we have ample liquidity for acquisitions as they become available. I will now turn the call over to Stuart.
Thanks, Kevin. Good morning, everyone. We continue to see good leasing demand for both our smaller and larger tenant spaces. In Q3, we signed 242 office leases covering 819,000 sq ft, consisting of 262,000 sq ft of new leases, and 557,000 sq ft of renewal leases, including approximately 50,000 sq ft of expansions. As Jordan mentioned, our lease rate improved 30 basis points to 87.6%. Our occupancy increased 20 basis points to 85%. Due to our robust leasing activity during the last two quarters, the spread between our leased and occupied rate increased to 260 basis points. Our leasing spreads during the third quarter were positive 3.9% for straight line and - 6.1% for cash.
As a result of significant tenant improvement allowances for one large tenant, our leasing cost this quarter increased to $6.08 per sq ft per year. Excluding that tenant, our leasing costs remain below our pre-pandemic average at only $5.52 per annum. Our multifamily portfolio remains essentially fully leased at 99.3% leased with rents now back to pre-pandemic levels. With that, I'll turn the call over to Peter to discuss our results.
Thanks, Stuart. Good morning, everyone. Turning to our results, compared to the third quarter of 2020, FFO increased 19% to $0.48 per share. AFFO increased 26.6% to $87.6 million, and same property cash NOI increased by 13.5%. Compared to the second quarter of 2021, FFO per share increased by $0.01 due to higher rent collections, more tenant recoveries, increased parking revenues, and better multifamily occupancy and rents. Our expenses also increased as a result of fees and interest associated with our new loans and increased seasonal utilities.
As Jordan mentioned, only 1.5% of our FFO is non-cash, as we had minimal non-cash rent from straight-line and above and below market lease adjustments. Our G&A also remains very low relative to our benchmark group at only 4.8% of revenues. Turning to guidance, we expect fourth quarter FFO per share to be between $0.47 and $0.49. As usual, this guidance does not assume the impact of future acquisitions, dispositions, financings, or property damage recoveries. 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 telephone keypad. If you are 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. Thank you. At this time, we will pause momentarily to assemble our roster. Our first question is from Steve Sakwa with Evercore ISI. Please go ahead.
Thanks. A couple of questions. Jordan, on past calls, you sort of talked about, I'll call it the missing bucket of revenue that, you know, were due to tenants that were in place, but not paying. I think that number was somewhere in the $12 million range of money that was owed to you. Do you have an update on that figure, just based on some of the comments you made about better collections, and things improving on that front?
Well, I wish you were right that it was $12 million. It got as high as $70 million, t hen it came up, you know, came down. I said we were sort of down at $60 million for a few quarters. Now it came down to $50 million, high $40 million, $50 million, maybe a little over $50 million. That's kind of the zone we're at, although it's declining a little bit every quarter. I mean, I would say the last few quarters, it's been on a very similar trajectory. We gain a little bit of ground because more and more people kind of roll into paying. But I don't think we're going to gain big ground on that front until the moratoriums are off. Last time I looked at, it was like $47 million.
Right. Okay and j ust to be clear, that's an annual number, so quarterly, you're kind of in that 1 1 to 12.
No, no, t hat's not an annual number. That's everything from the beginning of the pandemic. Take anybody, wait, l ike, we have basically no defaults in normal times. I mean, it's less than 20 basis points. Go from the time of the moratorium, all money that's owed to us from that time, that's what I'm telling you. It's not a quarterly number, it's not an annual number. At this point, it's six quarters number, w hat's owed to us.
Okay, understood. Maybe just switching gears on the sort of maybe potential debt refinancings. I know you sort of talked about this a little bit. You've got, you know, some loans coming due, but not till 2024, but some swap rates that burn off, you know, maybe at the beginning part of next year. I'm just curious, how should we be thinking about that? Some of those look like they're above market today, and so I'm just curious of your ability to get it like that $300 million that comes due 1/1/2024 with a swap maturity of 1/1/2022.
Of course, as I said, I'm not trying to announce new loans or anything that we haven't already announced. We did announce $700 million, two loans. Don't worry, we didn't just do those loans and stop working. I'm on a tear to refi and bring our cost of debt down, and we've been quoting it to you. You'd be very reasonable to assume that we're able to read our debt chart the same way as you are, and we're working on everything.
Right. Okay. It 's fair to assume that the benefits will accrue to you sort of when the swap dates mature as opposed to the debt maturity dates.
You can even take swaps and extend and blend. You should just assume I'm doing the best economic thing for us I can do for anything, that's at rates that I think we can improve on, and extend out and lock in for longer periods of time. I mean, like, you know, I mean, we have very little, a side from swaps, we really don't have debt that has costs associated with, you know, redoing it or whatever. I mean, usually we have 18 months or something where you can't pay it off. That means that everything's there. You look at swaps. You look at where, when that expires.
I mean, you look at spreads on loans, and you go, you know, what's out there that we can work on to keep improving and lengthening our debt ladder at lower cost. W e're definitely doing that. I mean, it's what Michelle's like, super focused on it.
Okay, thanks.
The next question is from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning out there. Congrats on two things. One, people coming back to your offices, so hopefully they're paying a lot in parking, and t wo, the positive absorption. Digging into these, Jordan, what do you think is driving the office utilization? And don't say that you guys offer free coffee and concierge service when they come up to park. Is it really just a small tenant profile that a lot of those tenants are now coming back o r is there something specific to the Westside L.A. market and the Honolulu market that people in those markets are coming back to work in the office much quicker than we're seeing in the other CBDs?
I think there's probably three things that all kind of lean strongly our way. The first one is our markets, whether it be downtown and then Honolulu or, obviously, West L.A. or along Ventura in the Valley, have really sort of embraced vaccination. We're up in the 85% range on vaccination, and we're seeing super minimal COVID l ike, you know, when you do your hospital checks and you see, say, emergency rooms or just how many COVID patients are in the hospital. W e're talking about small numbers, like single-digit numbers in humongous hospitals, right? That's number one. Number two is, for better or worse, we haven't embraced mass transit, so it's really easy to get in your car and drive into work. W e don't have all the checking and everything when you come into the lobby.
I mean, you just drive in, park in your space, come up the elevator and go in your office. So because that's so easy and user-friendly, I think that's bringing a lot of people in. Now, the third one, which you brought up, which is right, which is whether it be our smaller tenants, the nature of our markets, the nature of our buildings, and our building floor plates. Most of our tenants are built out around 225 feet, something in that range. What happens is we don't have the dense packing here and without dense packing, you don't have, y ou know, people are more comfortable coming in.
T here's a fourth and the fourth is probably the biggest. I should have mentioned it first, which is small tenants, l ocal tenants are not driven by national policies. If you have a tenant that has to set a national standard for all over the country, if different things are going on, whether in Northern California or in Ohio or wherever they may be, they're running a lot more conservative than a local tenant says, "Hey, everything's good. Everybody get back in." Our tenants are much more nimble. Even we are seeing in our largest of tenants, which are driven by national, you know, national policies, mostly coming out of New York, and then they lean to an extremely conservative side of things.
We see them being slower to come in or many times told they can't come in, w hereas with smaller tenants, very fast to come in and say, "Everybody get back."
Okay. The second is on the absorption, c learly, great to see it in the quarter. You guys mentioned previously that you're focused on occupancy build before you deal with rent. Is third quarter, is this an anomaly and fourth quarter is going to be negative again or i s fourth quarter shaping up to be like third quarter? If that's the case, how many quarters of positive absorption do you need before you push more on rates?
I think the market's improving, straight up, t hat's for sure the case, and people coming back, and the pace of activity. I don't want that to take away from our leasing because they are running on, you know, one of those rat's treadmill wheels at a hyper pace. They are scrambling to get us back into the 90% range. There's sort of two things going on, s uper fast and aggressive leasing that just keeps getting better and better against a market that's also getting better and better. Y ou can't let up on either one. There's really no coasting. There's not going to be any kind of free ride.
Certainly all that hard work and all the lead generation and all the direct connect, it's all coming through, and it's all starting to pay. I'm just super happy to get that positive number, and I'm hopeful going forward about it. If you ask me kind of the question of pushing rents, I hope that we get, you know, tenants during the pandemic had shortened up their leases. That means we have a little more to lease each quarter, but of course, there's more people wanting to lease than wanting to extend. I hope we soon get into a position where we're getting more and better positive absorption. With that, first of all, direction matters, right? I f the direction is positive absorption, that matters.
As equally important is you got to be up around 90% before you're going to push rents. However time it takes to get to pick up the next 300 or so basis points, that'll give you the idea of when to push rents. That is dependent on our hard work but also equally dependent on the markets continue to improve. It's a big improvement to be at that 70+% utilization rate. That makes a big difference.
Okay. Thank you.
Thanks.
The next question is from Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Hey, guys. Jordan, maybe follow up on the utilization, how that kind of relates to the rebound in parking revenue. I know you guys had some improvement this quarter, but you're still probably, you know, 30%-ish off of where you were, third quarter of 2019, kind of pre-pandemic. Are you guys seeing any different patterns with hybrid work where people aren't buying monthlies, and they're buying daily passes, and that's impacting it? C ould you just walk us through how much more utilization you need to kind of get back to par pre-COVID.
Yeah, I saw you did that calculation so when we look back, parking as its calculation on its own, you know, we have access to more data than you do. T hat number would have given you numbers closer to 75%, okay? We have a lot of other ways that we can look at whether it be car count, whether it be tenant survey, and also just our managers at the buildings going through and seeing who's in, and occupancy. What we do to try and figure out utilization is we take all those numbers and try and triangulate. Frankly, that triangulation, we've leaned to the lowest end of that.
Some of the numbers, as I just then told you about parking, some of those numbers actually indicate an even higher number, and e ven to the lowest number of triangulating in Hawaii hit 80.
W hat I was getting at is you guys, in the buildings, utilization is increasing, but the revenues from parking are still off, right? How much more utilization do you need to get in the buildings to get kind of back to where you were pre-COVID? Is there anything in terms of the schedules of people coming in that's altering it, you know, if you're getting monthly versus daily or anything on that front?
Well, I would say that the parking utilization, the parking revenue is extremely well tied to utilization. Early on, which you might be indicating, it was not because there were expense savings over the fact that not as many people were using the garages. Now it's pretty closely tied. I think we need to get the utilization to get back to 100%. Now remember, I'm not sure anyone's ever utilizing their space 100%, but we need to get back to the point where people are buying, you know, t hey're expecting to use their space enough that the economic calculation around daily and monthly passes shifts back to monthly passes. Now we're, obviously, getting there at a pretty good clip because, you know, this is being driven by monthly, not daily, but y ou need to get the rest of the way.
No, that's helpful, then j ust separately on same-store. Peter, I don't know if you could kind of walk through the components of what drove the 13%. I know it's revenue, and so part of it is just occupancy, part of it's rate. I'm just kind of guessing, most curious about how much of that upside is driven by just better collections or the recovery, some of that, you know, $60 million, that's now at $47 million.
Yeah. It's a combination of all the things that, you know, Jordan laid out in the opening remarks that are, you know, driving the overall improvement. Yes, there's some collections improvement in parking, tenant recoveries, all those play into the, you know, the office numbers, you know, offset partly by slightly lower occupancy. On the multifamily side, you've got improvement in occupancy versus last year, as well as rent improvements and some collection improvement.
It's not one thing. It's kind of, t here's no standout that drove the upside.
It's not one thing. It's a combination of all those factors.
Great. Thank you.
The next question is from John Kim with BMO Capital Markets. Please go ahead.
Thank you. It looks like William Morris Endeavor has the option to terminate their lease next year. Do you get a sense that they will exercise that option? When will you know when they make a decision?
Well, we don't really discuss individual leases, but even if I would love to discuss that lease, I have no idea. I don't know.
Is the right option? They're not going to tip their hand?
T hey're not going to tip their hand before they need to.
Yeah.
It's going to be a negotiation there.
Yeah.
They're in one of our best properties in the heart of the triangle in Beverly Hills. They have an extremely below-market lease. It'd be hard to imagine they'd want to give that up, but we'll have to wait and see what they decide.
Can you tell us which quarter the tenant option is in?
Yeah. It's in.
Yeah. Well, they have to give us notice that by the end of this year.
Okay. Kevin, can you elaborate on your prepared remarks? You mentioned acquisition opportunities in multifamily. I'm just wondering, has pricing gotten better on a cap rate basis or versus replacement costs, or are you just seeing more, you know, sellers in the market today?
The multifamily market nationally is pretty hot. When you have a hot market, it draws out product. We're seeing a lot more product in the L.A. area of people that are offering properties for sale on the multifamily side than we are on the office side, which is still fairly slow.
Can you give an indication on cap rates, year-one cap rates of opportunities you're looking at?
Well, it's fairly low.
Well, let me put it this way. To me, I think 4% would be a good day. I don't think it's at that. It's really low.
Right. Okay. Thank you very much.
The next question is from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks. Good morning. Maybe to ask about occupancy a little differently. You guys have a 2.6% spread between your lease rate and actual occupancy within your portfolio. Based on your historical numbers, I think that's typically closer to about 1% on average. Do you guys see any major impediments to occupancy following that lease rate up in the next few quarters? Do you think that 1% spread between leased and occupied is a fair target for us to think about longer term?
Yeah. Blaine, I think if you look at the long-term average, it's more like, you know, 1.6%, 1.7%. Not down at 1%. 1% would be pretty tight for us. I think that, you know, as we're coming out of this and gaining occupancy, we're going to see choppiness quarter- to- quarter, so I don't know that it'll be a smooth line up. Y eah, this 260 is historically pretty high for us as we've been doing. You know, we had a huge leasing quarter Q2 and then another really solid leasing quarter Q3. We got to move folks in over the next few quarters.
As folks get moved in, you know, that gap should tighten, although, you know, we hope to continue doing a lot of leasing in the future quarters because demand has stayed really good. It's not a gap that's concerning in any way. I think we'd long-term average more like 170 basis points-160 basis points.
I think it's good. Look, I'm happy when that's a very wide gap because that means we're doing a lot of leasing, and those tenants are going to move in, and our overall occupancy number move up. That gap stays, w hen we get up to 93%, I think we were maybe even a little higher than that going into this thing, then it was very small because there's not a lot of room, not a lot of frictional activity happening. When you have a lot of leasing you need to do, you want that gap to get big because it means they're doing a ton of leasing, and those people move in, all your numbers will move up.
Right. No, that's helpful. Maybe sticking with you guys, Jordan or Stuart, can you talk about tenant concessions you're seeing at this point? We noticed, you know, leasing costs were up a bit this quarter, and I know that that can bounce around a lot from quarter to quarter. I think, you know, in the past couple of quarters, you guys highlighted that tenants were willing to trade TIs for competitive rents. Was there anything in the quarter that would suggest their mindset might have changed or was there something else in there that maybe skewed the numbers?
Yeah. I mentioned it briefly in my opening remarks but we did have one large tenant for us, pretty large tenant that skewed those numbers up this quarter. Taking that one tenant out, our leasing costs were actually below our pre-pandemic average. They went down to like $5.50 from the $6.08 that we posted. That definitely skewed numbers. We have kept concessions low, free rent, all that kind of stuff. It has never been high for us, has remained low throughout the pandemic, so that's been good to see. Nothing else that really changed. No trends to point to in the quarter other than that one very large lease.
Great. Thanks for the color.
The next question is from Manny Korchman with Citi. Please go ahead.
Hey, guys. Jordan, going back to the utilization for a second. Do you have any idea of how that compares to sort of neighboring buildings or your submarkets? Is everyone seeing that? I f people are looking at cash flow or some of the other national stats, are those stats just wrong? I s there something unique about your buildings, your tenants, your assets that's bringing that number higher than people expected?
I don't, I mean, well, obviously, we don't have the numbers. We don't have that kind of information on our neighboring buildings. All I have on those is kind of observation. I mean, I live here, and I will tell you, if you said traffic, community, people walking on the streets, restaurants being full, shops being full, sports events filling up, it's all of that, I see visually is consistent with what we just told you about people coming back into the office. W e don't have any data on them.
Manny, when you're looking at Kastle, you know, they're including obviously like Downtown Los Angeles in that for L.A., which is a totally different product type than what we have and has all of the national challenges that Jordan mentioned earlier. They've got corporate policy. They've got huge tenants that we're not dealing with.
Yeah. By the way, government, which is branch mostly downtown, is not in. They're not in. They're still home. All the city, state, all those guys downtown, federal courts, they're not in. Downtown is still lonely. If you came to the west side, you wouldn't know there was anything. You would just go at full tilt, you know, traffic and road jams.
Great and m aybe this is one for Stuart, j ust going back to lease occupied spread. Is there anything in the commencement timing of the new leases you're signing that would actually have that number expand near term where people are signing leases, but they're not moving in as quickly as you had in the past. Could we see a number expand without occupancy expanding but leasing continue to be good?
No. No, I don't think we've seen anything change in our typical kind of move-in schedule. Typically, our tenants move in pretty quickly. It does take a few quarters, you know, to get everybody moved in from when we're signing the leases. We haven't seen any trends where that's gapped out on us from what we're typically seeing.
It's Michael Bilerman here with Manny. Maybe one of you, can you just explain what is the actual utilization calculation to come up with that 70%? I don't know if that's unique visitors over the course of the quarter. I just, you know, you don't have the same sort of card swipes and things like that, so I'm just trying to understand what that 70% actually is based on.
Sure. It's what I said on that earlier one. There's four ways where we get information. One is parking revenue and parking cards coming in. There are some buildings with card swipes going up. That's the second way, that data. A third way is our managers and our, you know, day porters, that whole crew, through observation, questioning them, saying, "Where is it at? How full are the floors? How many tenants are actually coming in and using our space?" The fourth way is we actually sent out tenant questionnaires and asked them about their utilization of their space.
Are you, like, putting all these into a model and triangulating them? Is 70% what you believe was daily average occupancy over the quarter using these four techniques in some way, shape, or form? The only reason I'm asking is that 70% seems, even for friends I speak to on the West Coast like they don't say their buildings are 70% full every day. I wouldn't imagine it's Monday through Friday. I just want to really peel down what this actual number represents in terms of human bodies rather than the tenant.
Okay. They are each, you know, they're each unique in what they give you. We actually. When you say triangulate, as I said, we gave you kind of the lowest possible number. I know that's contradicts what you're expecting but we did. When we do tenant surveys and say, "We're back in your office," I don't know what, you know. I mean, f rom when they answer that survey, that's what they're talking about, o kay?
You're counting that as 100%. Like, if the tenant writes back and say, "We're back," you're assuming that it's 100% back.
Yeah. If a building has 100 tenants and 70 of them saying, "We're back in and, you know, working," then we go, that's 70.
Right. It's not counting actual people that are coming through each day, l ike here at Citi, right? I mean, we're, you know, Citi would say we're back in the office.
Okay.
Our density is on, y ou know, 35%, 40% on average o ver the course of the week, even though we're technically back in.
Yeah, I got it. There's four things, right? The second is parking. People are buying their parking passes, and we see that they're coming into the building, o kay? When you say, all right, we look at the revenue we're getting out of people that have come back, and because we know the revenue tracked very closely to utilization, you remember how low it dropped. We go, "Wow, that revenue." As I said, the revenue and people starting to pay again for parking is actually above the 70%. Then the third thing is, in buildings where we do have tracking of people doing the cards in the elevator, like ours, you've come and visited me, you guys do your card in the elevator to get up to your space.
There's a third method, right? Which one didn't I mention?
I think you covered them all.
What?
Top management.
Yeah, the fourth is the manager's going in and opening doors and saying, "Are people in here working?" Now, they're not going in the guy's suite and counting them, but if they're opening doors and now they're saying, "Yeah, we're at least at 70%. We open it. There's a receptionist. Yes, we're operating. We're back in the office." We go, "Okay, that counts."
Right.
I don't know that I can give you a, you know, a formula where all of those statistics go together, but I'm pretty confident in our numbers.
Does the parking affect sort of people that are not necessarily working in that building, but going to restaurants or other things and, you know, if people are not carpooling, so you have more people just driving to work on their own, you know, maybe they're not using any form of public transportation? I mean, could that be driving it relative to the past as well? I mean, certainly there's a lot more traffic here in New York, right? Because less people are taking public transport.
Yeah. I mean, all of those things that you're saying could be. The parking indicated actually a higher utilization rate than 70%. I don't think they're having the impact that you're indicating. They're pretty minor. I doubt those things really are highly impacting things.
Okay. Then, I'm just thinking about 2022 and 2023, right? You got about, I think it's like 30%-35% of the rent rolling. How far ahead of those can you get? Then can you just comment on sort of mark-to-market be cause those rents are a little bit higher than where you've been signing rents recently, and I know there may be a mix issue or a location issue.
Well, our mark-to-market historically has been like 10%, 11%, and now it's dropped almost to flat, m aybe it's that flat. My comment on mark-to-market is until we get back to lease rates up closer to the 90%, I don't think we're going to be able to do meaningful improvements to that mark-to-market number, o kay? That's number one. Then number two is you're asking sort of this timing question that for the entire pandemic, I've been saying is the $100,000 question, which is: How long is it going to take for us to recover our occupancy and lease rate? I'm just using occupancy separate from utilization. I think utilization's coming back super fast, p robably, youknow, going to help drive higher occupancy. I don't have a good prediction around that.
W e lost 600 basis points in essentially five quarters, right? Now we've turned it and, you know, I don't, I'm not foolish to think five quarters to recover 600, but I don't know how many quarters.
Right, bec ause the 2022 and 2023 rents are going to be comping some elevated as, you know, as you came out of the GFC and were pushing rent pretty hard with higher escalators. You're expiring or, you know, you're coming up to the higher rent years, just given the lease term that you've had in your markets and how well your markets have performed.
Yeah. I don't think, you know, that one stat that you're pointing out has not worked as you might instinctively think. I mean, actually in the higher rent markets, we tend to get like better roll-up, and the lower rent markets tend to stay flat longer because that's why they were lower rent markets. If you're looking at kind of higher rents rolling, usually that means that we're going to get better roll numbers than when you have lower rents rolling. I don't even. I would caution against using that to predict something. I mean, because I think markets like those higher rent markets, whether it be Santa Monica or most of West L.A. at some point, they've held up pretty well on rent, very strongly on rent.
Yep. Okay. All right. Thanks for the color, Jordan. Appreciate it.
All right.
The next question is from Jamie Feldman with Bank of America. Please go ahead.
Thanks. Not to beat a dead horse, but just to confirm the 70%, is that a percentage of pre-pandemic levels, o r no, that's just of all your tenants, 70% are in the office?
That's of all our tenants of how many who's coming into the office.
Okay, cool. Y ou've obviously had a big spike in leasing in the second quarter. It's held up pretty well. Can you just talk more about who is actually signing leases? How many of these are tenants that, you know, took some time off and are now coming back? How much is actually kind of incremental growth? Clearly, there's a lot of sectors that are expanding right now. Maybe just some more color on the current leasing pipeline and what we've seen in the last couple of quarters.
Yeah, Jamie, I mentioned in my remarks, you know, we did have a good expansion quarter. We did 50,000 sq ft of expansion, so great to see that our current tenants are growing, and that's net expansion. Our expansions have been outpacing contractions amongst our tenants for several quarters. That's great to see. We're seeing you know, the typical diverse set of tenants that we always see. We've got that great pie chart in the supplemental for you guys that shows all the different industries that we lease to. It's not dominated by any one industry or kind of tenant. We're seeing great demand from our smaller tenants. That's been true throughout the pandemic.
They've really held us in 2020 when the larger guys seemed to be sitting on the sidelines and that's remained true. But we've, you know, last quarter we talked about, and again, through this quarter, medium and larger tenants for us have started transacting again in a meaningful way. Positive kind of across the board. I think we're seeing, y ou know, I haven't heard that we've seen a huge trend of tenants that were sitting on the sidelines that are coming back. I haven't heard that but I've just been hearing that it's our kind of typical demand. We always have tenants moving from other buildings, new businesses being created. It's that same mix that we're used to seeing.
I was going to ask about, you know, taking from other buildings after the money you put into yours. I mean, is there a consistent trend there, certain assets that are losing tenants or types of assets that are losing tenants?
W e've always outperformed the markets that we're in, even, you know, even being 40% on average of these sub-markets. Ou r occupancy has typically outperformed the buildings in our markets. S ometimes it can be 700 basis points of occupancy outperformance. I think we run a great Class A portfolio. We have been investing in some of our buildings w ith these repositionings. I think those have been great returns and we have had tenants move from other buildings into our buildings. We 're going to continue that program. We think it's been successful. Yeah, it's not atypical for us to outperform the buildings around us in a meaningful way.
I agree with everything that he just said, but I'll also say those repositionings, even in this pandemic, even in everything, is paying off great. If you said to me, I mean, I think we underestimated the rent differentiation that we would be able to get from the money we're spending. I mean, I wish we had $1 billion of repositioning. T hat's why you saw us, even during the middle of pandemic, we restarted them.
Okay. Are tenants looking for any more flexibility in their leases? I know you have relatively short-term leases or smaller tenant leases, but is anyone asking for, you know, stuff that might look a little bit closer to what they can get from a co-working space or a flex office provider or maybe, you know, certain days of the week or anything different coming out of the downturn?
I haven't heard that. I think tenants are always looking for flexibility, where you know we're in the long-term leasing business. We're not in the flex workspace business. It's typical in a recession that tenants tend to go shorter on the leases, and we've seen that. We've seen that in every cycle. When the economy is doing great, tenants feel more comfortable signing longer term.
vice versa. That's been true, but you know, we're not offering anything that resembles select workspace.
Yeah, l ike early campsite, none of that.
We're not doing that.
Yeah. We're not doing that.
You said, a lot of the parking has come back, at least from your utilization count. I mean, where do you think you are versus pre-pandemic parking levels in terms of revenue?
Well, I actually said, p arking on its own would total 75% by itself.
Adjusted for vacancies.
Yeah. For the tenants that are in, y eah.
Okay. All right. Thank you.
The next question is from Rich Anderson with SMBC. Please go ahead.
Thanks. This four-pronged approach to calculating that 70%, is this the first quarter you've done that?
It's not the first quarter, but it's the first quarter I spent a lot of time really nailing down those four things, knowing that it was indicating a much larger number. I knew people were going to ask a lot about it. I didn't think they were going to ask this much about it but I knew they were going to ask a lot about it.
Whether 70 is the right or wrong number, I think the most important number is the trend. You don't have a reading from the second quarter to throw out there.
Yeah, we did have a reading from the second quarter. We gave it to you.
What was it?
You just didn't ask so many questions about it, and therefore, maybe it, like, came and went without a lot of discussion.
Okay. Remind me because I don't remember.
What did we give them for a second?
I think we thought we were in the 40 to 50.
Yeah. I think we said 40 to 50 for second quarter utilization. Yeah.
Okay. What do you think, you know, obviously, the tenant confidence and, you know, all that good stuff, but is this like foreshadowing to better leasing activity just because the people just feel better and you might even expect this to play a role in how well you lease space going forward, just because people feel better about things?
The leasing activity is foreshadowing of leasing activity.
Right.
The fact that we've turned this thing to positive absorption, which is no small feat, but that's the biggest foreshadowing thing. I don't know that, y ou know, obviously quarter to quarter, you're going to have some ups and downs. I mean, assuming pandemic and government and everybody stays out of the way and we get to keep going, yeah, I feel very good. I would say one of the symptoms of that is utilization, y ou know, like everything's recovering, and as is utilization.
Okay. Anything about wage pressure or supply chain disruptions that worries you about it for any reason? I mean, I assume it does to some degree, but perhaps less so in your neck of the woods, smaller tenants, less kind of CapEx bites and all that kind of stuff.
Well, I don't think this supply chain thing's horrible, and you know, you can kind of take the narrow view of our tenants, but it's the wrong way to look at our markets. I mean, we have the largest port in the United States, the most containers passing through it. This thing needs to get cleaned up. I mean, I look out my window, I see container ships out on, I mean, we never had container ships in Santa Monica Bay. Yeah, I mean, it needs to get fixed, and people need to get back to work.
Yeah. Okay. Last, Peter, any reason why we shouldn't expect double-digit type same store growth in the fourth quarter? You provided guidance. I'm wondering what the underpinnings are from the same-store perspective.
Well, I mean, we're not giving guidance on same store, but, you know, we did give guidance overall, and it was. You saw the range. We think it's consistent with what we performed this quarter. You got to go back and look at, you know, at last year, fourth quarter for the, you know, for the comparison. I think all the same factors we've talked about, collections, parking, tenant recoveries, you know, those probably all still hold. We'll see where expenses come in and so on. We gave you the overall guidance.
All right. Good enough. Thanks.
The next question is from Dave Rodgers with Baird. Please go ahead.
Yeah, m aybe for Jordan or Stuart can help out with some of the numbers, but I wanted to ask about the new leasing volume. It was down 45% this quarter sequentially, and I realize there might even be some catch-up. Can you guys give us some more color on kind of how the quarter trended? Because it looks like the quarter came out weaker than you left the second quarter, but that's not what you're saying. I'm wondering if there's an August impact in there. T hen also, can you give us some color on October leasing with October in the book, how that might have compared to a five-year average or something comparable to that?
Yeah. I'll just say, you know, second quarter was at all-time high for leasing for us. It was a record quarter, l ike record new, record renewal. I mean, we did more leasing than we've ever done. I wouldn't take an all-time record and, you know, expect to trend forward like that. Q3 was a very good leasing quarter for us, regardless of the pandemic, and anything like that. I'll just say, you know, we had the whole Delta surge that happened to us in the middle of the summer. A ugust is typically a slow month for leasing anyway. All things considered, very strong leasing quarter, new and renewal.
I wouldn't compare it to Q2 and say it was a big deceleration because I think Q2 was just an anomaly on the high side. We did some very large leases in Q2. It 's not typical for us, so we knew that wasn't going to be a repeat.
Yeah. I got to say, if you skip the second quarter, it's the largest quarter we've had since, like, all of 2020, all of 2021. I mean, only the second quarter was larger. It's our largest quarter in the last seven or eight quarters.
Fair point. As you guys look at October and how you maybe left August, how you left September, and how you left October, were those all sequential improvements in terms of what you're underwriting in terms of new lease deals?
I'd say that the pipeline still is very healthy on the leasing front. I think we're feeling good about leasing. The pipeline is looking good. I don't know about sequential monthly. We're not, you know, we're not getting into that. We feel good about the leasing. As Jordan said, you know, tenants seem to be feeling more confident. They're coming back. We're doing a lot of transactions. We have 242 leases. That's a lot of leases to sign in a quarter. The demand is still there, still looking good.
Maybe just one follow-up for Peter and on a specific dollar amount. What was the rent and/or reimbursements that you collected in the quarter that you didn't bill in a dollar amount?
Yeah, we're not breaking that out, but, you know, we gave you the overall trend in collections, that it's been, you know, gradually getting better each quarter. I think Jordan said earlier in the call that, you know, we're probably not going to see a meaningful impact on the big past due balances until the moratoriums expire. W e have a number of tenants who still have past due balances. A lot of the improvement is existing tenants paying their current rent and having that, you know, that number go up.
That's an important point because we've been asked this question a few times now on this call. One thing is collecting past due amounts, just to be clear, that's that number of 60% down to 50%, 47%, whatever. Another is tenants just going, "I'm just going to start paying now." and so like more and more people are just saying, "I'm just going to start paying now." Then, of course, they might be catching up on old rent. That's one of the drivers of the numbers getting better.
All right. Thank you very much.
The next question is from Daniel Ismail with Green Street Advisors. Please go ahead.
Great. Jordan, you mentioned in the past the apartment development pipeline on building on existing land, and I'm just curious about the status of that plan, and why not accelerate it, given how healthy multi-family pricing is?
I'd love to accelerate it, but you need the city to cooperate in both cities, and they haven't necessarily even been in the office. We can't, y ou know, accelerating those projects means that, you know, council members, and staffs, and all that has to be around and say, we're going to work on it. I mean, geez, getting their attention is, like, brutal. Frankly, we push to where we can, but there's a lot of agendas in the city right now, and us developing apartments isn't very high up on their agendas.
I mean, i s it your sense that, regardless of the state of the city's budgets or regardless any city's budgets, that the entitlement process has not gotten necessarily easier, since the pandemic?
Daniel, we're having a lot of trouble hearing you. There's a lot of static on your line.
Yeah.
I couldn't make out.
I couldn't understand the question.
Oh, apologies. Is this better?
No.
Try again.
Okay. Can you guys hear me?
Yes.
Okay, great. My question is related to the process of entitlement, given the state of city's budget. I assume it's not gotten any easier since the start of the pandemic and the overall deterioration of city budgets.
This is Kevin speaking. It's not really a budget issue in these cities because the federal government bailed them out. It's a workforce issue in that you have a lot of people that are Zooming from home, and they're not as efficient. You've also got some vaccination mandates that are hitting where some of the people don't want to vaccinate, and so they're out of the office. The cities are definitely less efficient than the private sector in adapting to the way that we work right now. That's kind of slowed down everything. On the political front too, it's just tougher to arrange meetings with homeowners groups and meetings with the various constituents and stakeholders in the marketplace. It's slowed down overall.
W e're still focused on areas that we think we can move it forward. We're definitely spending time.
Great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.
Okay. Well, just thank you all for joining us and we look forward to speaking with you again next quarter.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.