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spk04: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmet'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 McElhaney, Vice President of Investor Relations for Douglas Emmett.
spk02: Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO, Kevin Crummey, 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.
spk07: Good morning and thank you for joining us. Since we last spoke, we took two very positive strategic steps toward enhancing the long-term health of the company and ensuring meaningful growth. First, we have formally begun the process of reconstructing our Barrington Plaza apartment community to install modern fire life safety systems and otherwise bring the asset up to date. Tenants have been notified that they are required to vacate the property and approximately half have already done so. This is having a current impact on our earnings, but we have waited three years to begin this process, and I am very happy that it has started. Second, in July, we closed a new 10-year, $350 million non-recourse interest-only loan secured by two recently completed residential projects. The loan is floating at 137 over SOFR, which we feel is a very good rate. Both properties were built using our free cash flow, so they were completely unencumbered. In a difficult loan environment, we are pleased to have this additional source of cash to take advantage of future opportunities. While new leasing from larger tenants has been slow, tenants over 10,000 square feet did account for nearly half our renewals in the second quarter. Overall, we signed 210 office leases covering nearly 1 million square feet. We are seeing tenants renew further ahead of their expirations and for longer lease terms. This returns us to a more typical lease expiration pattern, reversing the short-term mentality we saw during the pandemic. I am also pleased that we have been successfully maintaining rental rates and controlling leasing costs. The overall value of leases we signed during the second quarter was higher than the prior lease value for the same space. At the same time, Our focus on smaller tenants and simplifying the office leasing process has kept our leasing costs below our long-term pre-pandemic average and well below other office REITs. While Barrington Plaza reconstruction and the new loan are very positive for the long-term, we are reducing our 2023 guidance to reflect their short-term impacts. We have significant cash on hand, strong cash flow after dividends, no corporate level debt, and almost half our office properties remain unencumbered. I am very happy to report that over the past two quarters, we repurchased 9.1 million shares and an average price of just over $12 per share. I am confident that our buildings and markets will perform extremely well over the long term, which is supported by our substantial leasing activity during this downturn and the long-term supply-demand metrics of our markets. With that, I will turn the call over to Kevin.
spk01: Thanks, Jordan, and good morning, everyone. Leasing remains strong in our two new multifamily development projects. At the Landmark LA in Brentwood, we have now leased almost 85% of our 376 new units. At Bishop Place in Honolulu, our office to residential conversion project, units continue to lease as quickly as we can deliver them. In July, we closed a new $350 million non-recourse interest-only loan secured by these properties. Both properties are built using our free cash flow and were formerly unencumbered. The new loan bears interest at SOFR plus 1.37% and matures in August 2033. The new loan proceeds add to our liquidity so that moving forward we can take advantage of new investment opportunities. As Jordan mentioned, we have begun to vacate Barrington Plaza because of a requirement to install new fire life safety systems. Barrington Plaza is a 712 unit apartment complex spread across three high rise towers in Brentwood. About half of the units have already been vacated. Most of the remaining units are scheduled to be vacated this fall. with some tenants having a right to remain until next May. With that, I will turn the call over to Stuart.
spk02: Thanks, Kevin. Good morning, everyone. During the second quarter, we signed 210 office leases covering 957,000 square feet, consisting of 188,000 square feet of new leases and 769,000 square feet of renewal leases. While we were pleased to see an overall increase in leasing activity, our leasing did not include many new tenants over 10,000 square feet and remains below levels needed to create positive absorption. As Jordan mentioned, our leasing activity was characterized by tenants renewing further ahead of their expirations and for longer lease terms. Nearly half of our renewals came from tenants over 10,000 square feet. Our office leasing spreads during the second quarter were positive 4.1% for straight line and negative 6.6% for cash. reflecting the strong annual rent growth built into our office leases. At only $5.23 per square foot per year, our leasing costs during the second quarter remained well below the average for other office REITs in our benchmark group. Turning to multifamily, our portfolio was 99.2% leased at quarter end, and rent rollup remained healthy across our portfolio. With that, I'll turn the call over to Peter to discuss our results.
spk05: Thanks, Stuart. Good morning, everyone. Reviewing our results, compared to the second quarter of 2022, revenue increased by 2.6%, primarily as a result of our multifamily portfolio, which now represents approximately 20% of our annual revenue. FFO decreased by 8.4% to 48 cents per share, primarily as a result of higher interest expense on our floating rate debt. AFFO decreased 16.5% to $74.9 million. The construction costs impacting AFFO this quarter related to our significant leasing last year. And same property cash NOI decreased by 0.9% with higher rental revenue and parking revenue offset by higher insurance, janitorial, and parking expenses. Our GNA remains very low relative to our benchmark group at only 4.3% of revenue. Over the last two quarters, we have repurchased 9.1 million shares at an average price of $12.03 per share. These repurchases were accretive for both our FFO and our cash flow. Turning to guidance, we are adjusting our FFO guidance to reflect our Barrington Plaza move outs and our new loan offset by a number of positive developments including the impact of the share buyback. Collectively, We expect those items to reduce FFO by about $0.07 per share. As a result, we now expect FFO per share to be between $1.81 and $1.85 per share. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future acquisitions, dispositions, or financings. I will now turn the call over to the operator so we can take your questions.
spk04: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Again, in consideration of other participants, please limit your queries to one question and one follow-up. Thank you. And at this time, we will pause momentarily to assemble our roster. Our first question today is from Steve Sacwa of Evercore. Please go ahead.
spk06: Great, thanks. I guess good morning, Jordan. I just wanted to start on leasing. And, you know, it's nice to see, I guess, the renewal activity pick up at, you know, as you mentioned, you know, you really need more new activity in order to drive net absorption and ultimately occupancy. I'm just curious sort of if the pipeline is changing or what you think ultimately gets, you know, folks off the sidelines to sign new deals. And, you know, do you feel like the writer's strike and actor's strike is keeping any lid on that new activity?
spk07: I'm going to – I mean, I can answer some of that, but I'm going to let Stuart – Generally answer it.
spk02: Yeah. Hey, how you doing? Yeah, I think you know very encouraged to see Larger tenants on the very active on the renewal side. So I think that's a really good sign Hopefully that translates over to kind of new business soon and we see more new tenants coming through of a larger size I can't say yet that we've seen that in the pipeline and So no real trend there to speak of yet, but we're encouraged by the renewal activity that we saw. I think as far as the writer's strike and the actor's strike, I think that maybe on the margin a tiny bit, I don't think it's going to be something that's real material for our business. We do a little bit of that type of leasing, but it's not a huge part of the business.
spk06: Okay, and then – go ahead.
spk02: Oh, I was just going to mention, when we're talking about leasing, I was just going to mention that if you look at expirations for next quarter, Q3 expirations, they're elevated. We've got one very large tenant that is expiring next quarter. We're expecting that tenant to renew but give back a large amount of space. So I just wanted to kind of give you guys the heads up that that's coming next quarter. Expirations look more normal in Q4.
spk06: Okay, and then Jordan, as it relates to Barrington, I know that there's been a lot of discussion with the insurance proceeds and what might be covered and not covered. Do you have any kind of update on the timeline as to kind of when you might have an idea of what percentage of the costs are covered by insurance and what is out of pocket from Douglas Summit?
spk07: Okay. I mean, I wish I did. I don't. It's been very difficult with the insurance company, and we're going through it with them. We've obviously just started the work and said, well, we're starting it. I mean, I'm going to say, I mean, we feel it's covered, and it's been very complicated to work with them. And so I wish I had a better answer for you than that, but I don't. In terms of something I wanted to mention if I was asked about Barrington that I wanted to also get out was the impact of Barrington coming out of our earnings. And while we don't want to give some future guidance about it, I wanted to give you some guardrails to make those estimates so I can maybe do that now with you. And 2019, before the fire and the pandemic, Barrington was contributing about $0.09 to our FFO. And in 2022, following the fire and the pandemic, and you've got to remember, we had some units burned out, a lot of issues, it dropped down, and it was contributing about $0.07. And this year, 2023, this expectation, now that we have the move-outs moving, we only expect the property to contribute about $0.04 to FFO. And I know that's been like a question we've been asked in the past, and we haven't really felt like it was time to answer it, but I wanted to give you guys this info, you know, because I think it's something you wanted to know. Great.
spk06: Thanks.
spk07: I know that was a direct answer to what you asked.
spk06: What? I appreciate the color there. It sounds like we'll have to wait a few more quarters, perhaps, to get, I guess, to get a finalization on that.
spk07: But yeah, I'm good for now. Thanks. That's right. Okay. Thanks, Steve.
spk04: Our next question today will come from Alexander Goldfarb of Piper Sandler. Please go ahead.
spk12: Hey, good morning out there, Jordan and team. Jordan, maybe sticking with the Barrington, the other item has been the news articles about the tenant litigation. And I'm guessing they're not suing being upset that you're trying to make the building safer and less fire prone. So I'm guessing this is more just trying for them to extract a financial settlement. But maybe you could just provide an update of what you can discuss and if this is just a standard sort of shakedown or if this is something that the city could decide to pull your permits or your approvals to do this, and if it could complicate your plans to make the building safer.
spk07: So this litigation has not really anything to do with the city. This is a couple of tenants, and we're having trouble figuring out exactly who or how many, that are... You know, I've engaged in this litigation. I can't speculate to what their purpose is. I know that, I mean, at least we believe that a few of them have already left the building. But we don't really have a lot of answers. With that said, our position, we're very confident in our position. It's very strong. And so, you know, litigation is always disruptive, but we're confident in our position, and that's kind of where I have to leave it until this thing finishes playing out.
spk12: Okay, so your view is, though... As far as the city goes and this litigation from the tenants, I understand separate related, but you don't think that they would be able to win over any of the city people who would suspend your ability to undertake the work?
spk07: I don't want to, I mean, I guess in litigation anything can happen, but, you know, As I said, I don't want to speculate too much about what can and can't happen in litigation, but as I said, I think our position is inordinately strong in terms of what we're doing and the processes that we're following, and we're following the law perfectly.
spk12: Okay. The second question is, on the mortgaging of Landmark and Bishop Place, you guys have had a strong capital position. You said you built both of those with free cash flow. I don't recall you guys using a corporate line of credit that often. So just sort of curious, the use of the proceeds, the decision to encumber the assets, and then I'm assuming this isn't just to buy back stock. So I'm guessing that maybe this is either to help fund the rehab of Barrington until you get the insurance proceeds or maybe start another apartment or residential conversion. So just sort of the thoughts behind the mortgaging of those two assets and then the use of the proceeds.
spk07: So... To take the beginning of the question, which is that we felt like the kind of best, least expensive debt we could get were on those two assets, and we think we did get the least expensive debt we could get. I think 137 over is a very good debt, right? Ten-year, 137 over. Now, rates are high, and I understand that it's still punishing to pay the interest on that loan, but without... making specific allocations, I could tell you the reason we did it was because I thought it was really important to have a lot of liquidity. I think that this recession is not substantially dissimilar from the one in the early 90s. And unlike everybody sitting around in 2000 or the dot-com bust thinking they're going to be grave dancing taking advantage or the one in 2008 and 2009 and really no real product came out, and the opportunities were more around buying debt, which isn't even a core business for us. I think in this one, there might be some stuff that we'll want to buy, and obviously I felt like the stock presented a good opportunity, and we did buy stock. And so I just thought it was worth it to take the pain right now of paying the interest on that loan to have that that, you know, in terms of our current earnings, because I think there's going to be some good opportunities coming up, and I don't want to miss on. I want to take advantage of them.
spk12: Okay. Thank you, George.
spk07: Thanks.
spk04: Our next question will come from Blaine Heck of Wells Fargo. Please go ahead.
spk03: Great, thanks. Jordan, can you talk about the zoning changes that were made at the state level late last year that gave multifamily zoning to certain parcels on major thoroughfares? I think you were expecting to get guidance on that in July. So any update there, and do you think it could result in more development opportunities for you guys in the next year or two?
spk07: The answer to the last part of your question first is I'm sure it will result in that. I mean, we have sites that those state-level changes we know directly impact. I mean, and impact in a way where I thought, oh, this is going to be a long process, and they completely shortcut it. Okay, so I think we have many sites that will benefit from that. Now, going to the beginning of your question, This thing's super complicated. The city's not famous for moving fast, and we still have not gotten guidance. And here we sit. But you're right. I'm anxious to see the guidance. I'm anxious to make sure the guidance complies with what the state is requiring. And I do think, I mean, we have the set of opportunities we always had that I felt we had, but to talk, you know, like in terms of zoning and What type of changes do you need to make to achieve what we want to achieve on the site? I mean, the things that the state passed are just very beneficial to us, but we need everybody to be rolling in the same direction, including the people that really sign off on our approvals to do the construction. That happens in the building safety and in the city. And so then those people need guidance, and the city hasn't developed and issued that.
spk03: All right, that's helpful. And then just switching gears, can you guys talk about the increase you're seeing in property insurance that affected your same-store projection this year? Just give some color on that situation and maybe how long you expect that to be a headwind. And then if you could also touch on what you're seeing on the property tax side and whether you might be in for some breaks there in the future.
spk07: Okay. So in terms of the insurance, you know, in the, you know, whatever it is, the 30, 30 plus, plus, plus years, Ken and I have run this place, but we've seen insurance go up and down. It's one of those odd expenses that actually doesn't just, you know, trajectory up. I mean, when the market's tight, it can spike way up and then maybe those insurance companies fall away. New ones come, they're aggressive and you can see your rates cut, cut and cut for a number of years. And we've seen both those happen right now. what we're seeing, and I'm not sure it's totally peculiar to us, maybe some of it is, but I don't think it all is, is not at the lower level, not at the level of like first loss positions, but at the very high levels, the reinsurers that reinsure up and stratus for numbers that never expect to pay anything. I think not necessarily here in our portfolio, but across the country, they've been getting claims that they didn't expect, whether it be flood, fire, and hurricane or whatever it is. But they're getting claims in Florida, all around, that are penetrating into levels that they didn't expect to pay on. And so they've gone now a few years with that very high disaster insurance rate. actually not being sort of a freebie and just freebie and collecting a premium as a result of that what's impacting it because we have to buy a lot of insurance and what's and we have to be you know insured like all the way up the line and so that those higher levels of insurance have just become much more expensive and that's what's impacting us now you know you know, the forms change and things change and guys that have losses, you know, deal with them and then they shift back to focusing on being profitable. So I'm not sure it'll stay that way. But we've seen the last two or three years, we've seen just monumental increases. And really, aside from that Barrington fire with virtually no claims, at least on our part. So I'm sure it'll eventually correct itself, but the increases are really stunning. So that's on the insurance. In terms of property taxes, there is an opportunity, especially with what's going on in the city right now, to appeal what's called Prop 8 appeal on your property taxes. If you feel that there's a period of time when the value of your property has dropped below where it's being taxed at that moment. It still has a maximum tax equivalent to your Prop 13 number that grows by 2% a year, but you can appeal to have it reduced and then it'll be reduced. Then when it goes back up, it goes back up. And people do do that appeal. That appeal is not necessarily perfectly connected to the third party market value. It's a complicated formula that they use where they lease up the entire building, at the then current rates and they have a different set of cap rates they use that eliminate the property taxes. But with all of that said, there are opportunities there and we're focused on them. I don't know that much will come out of it, but there are opportunities there and we are focused on them.
spk03: Very helpful. Thanks, Jordan.
spk07: Okay. Thanks, Blaine.
spk04: And our next question is from Michael Griffin of Citi. Please go ahead.
spk08: Great, thanks. Maybe going back to the leasing pipeline, I'm curious what you're seeing as the cause of driving these longer lease terms that you mentioned in the release. Is it more certainty about space requirement needs, maybe a shifting in people's kind of view of the macro? Anything else you could add on this would be helpful.
spk02: Yeah, Michael, I think that kind of during the pandemic, we saw tenants have a shorter-term mentality, which is understandable. There was a lot more uncertainty in the market then, and so terms shortened up. And so I think now we're certainly pleased to see that the average lease terms have gone back to five years, which is our historical average, kind of pre-pandemic average, and what we did this quarter. So I think that tells you that tenants are starting to feel more confident and more willing to go longer term rather than just kick the can down the road for a year or two. So that should help kind of normalize this lease expiration schedule we've had that's been a little chunkier earlier in the process than we're used to. So that's a good sign.
spk07: I'd like to mention, I mean, that million square feet that were done last quarter, I am beyond happy about that. And of course, I wish there was more new in that. But once again, we're getting a ton of evidence of the strength of this market and the strength of the activity that's out there. And while our existing larger tenants are renewing and renewing for longer, which is a great sign, Certainly the next step for us is to get bigger tenants to come into some of this space, but the activity is just fantastic. I mean, if you look at doing a million feet and you look at our history, that's a great quarter. And holding rate and holding lease cost. So I, you know, I really had the thought that, and I know many people did mention their notes, but I would put it in like double bold capitals in the top of my notes. But I just thought that was a really big point.
spk08: Great, thanks. That's helpful. And then just on the transaction market and opportunity you're seeing out there, you know, there are opportunities for office, multi. I mean, I know you've got ample dry powder. You've kind of talked about it. But where, if anything, are you seeing transaction activity across both of your property types?
spk07: You know, I'm not seeing a lot of transactions in general. And I will tell you, it's not for lack of looking. We – We actually have called all our lenders. We always call our lenders during a time like this to tell them that we're the best debt in their portfolio and don't worry. But we have been asking all of them, do you have anything we can focus on that's in any of our markets that is wobbly, it's on your watch list? I mean, it doesn't even have to be all the way down the line in terms of being in trouble. And so far, I haven't heard anything. So that's on that side. Now, I do think the pandemic combined with whatever's happening now, which is certainly targeting real estate in terms of the, you know, if you want to talk about, you know, maybe the country's not in a recession, but real estate is, I think that is going to maybe not generate opportunities that are related to someone, you know, necessarily dead, but I think people are going to finally do some things. If I was to guess at where the best opportunities will be, it's going to be in office. I think Resi is still relatively strong. You saw our numbers are very strong in these markets. But I think some office guys are hopefully just running out of breath. And that's where I'm the most hopeful.
spk08: Great. That's it for me. Thanks for the time.
spk07: Thanks.
spk04: Our next question today is from John Kim of BMO. Please go ahead.
spk10: Good morning. There's been seemingly some strong interest from global investors in multifamily and prime office. I'm wondering if you can comment on that as it pertains to your portfolio, both for West LA office and if you had considered going that route, the JV route, on multifamily.
spk07: Yeah, and we did on our last purchase. And yes, we do. Yeah, so I like the JV structure. Even when we have a lot of cash, I think it's smart to do the JV structure because they're great partners. And if you don't keep coming up with good product that we're willing to do, that is their primary criteria, frankly, then you're going to lose their attention. And so I think the platform itself has value. And the fact that they've been coming into our deals, my intention would be to continue to do high-quality institutional deals that are appealing to them and to us.
spk10: Are you seeing that same level of interest, though, in West LA office? We see it in New York on a couple of occasions, but just wanted to know about your region.
spk07: You know, we haven't had an opportunity to... present any, I mean, we did one large deal, which you saw us do last year, yeah, last year, that was a little over $300 million, and there was a lot of interest in that. We did that lickety-split with a partner, but that was residential. I haven't had an opportunity to offer an office deal, though I think that if we found a great office deal, we'd have a, you know, we'd We'd have their attention, but I don't know that answer. I haven't had an opportunity to offer it.
spk10: Okay. My second question is on bad debt or uncollectible lease revenue. Can you comment on what that was in your multifamily and office portfolio this quarter and how that's trended from last quarter?
spk05: Yeah. This is Peter. So our total past due balance just continues to decline. We've been working this now for some time, and it keeps going down. It's somewhere under $17 million, all told. And, you know, we're continuing our collection efforts. We're continuing to pursue tenants who owe us money. And we have a pretty high confidence we're going to get it back.
spk10: Great. Thank you.
spk04: Our next question today will come from Camille Bono of Bank of America. Please go ahead.
spk00: Hi. To ask an earlier question in another way, as the recurring theme these past few months have been around preserving liquidity, which has been reflected in your actions to right-size your dividend, is when you're evaluating the best sources of capital, how do you balance deleveraging versus buybacks? Because I think everyone recognizes earnings will be under pressure. given the current environment. So instead of taking out that loan, could you have used the additional liquidity to address your needs?
spk07: Well, for a number of reasons, but I'm happy to say right now, I don't feel we have any need to reduce our debt level. Our debt level is pretty low right now. So just as a reminder, we have a tremendous Beyond everything, beyond the dividend, beyond our debt service, beyond our operating costs of the company, which we keep very low anyway, we have a tremendous amount of cash flow. So that's in terms of just the question about covering payments and covering the fact that interest rates have gone up and all the rest of it. Then in terms of repayment, almost half of our office portfolio doesn't even have a loan on it. We have no corporate level debt. We have a ton of extremely high class buildings with no debt on them at all. You just happen to see two residential deals that didn't have any debt. We have a lot. So we have an enormous amount of capacity to de-lever by adding real estate to cover, you know, we have a lot of cash and also to cover, you know, to do payment. We have every, I mean, we have every tool in the shed that in terms of debt, and we don't even have any meaningful debt coming up until the end of next year, and we really don't have any meaningful debt coming up until 2025. So while we've always taken a posture to guard the company, and I know that this is, Kent, my fourth, I want to call it our fourth recession. So we've learned many lessons through that. And, of course, we entered this recession, and we entered even the pandemic in extremely strong shape. And that's played out. So I don't feel we have any issues there. But the other lessons I learned is don't waste these opportunities to grow the company because that growth is super meaningful. And I'm not going to waste it. And that's why I wanted to have the liquidity to take advantage of things. And we have it. And it's my intention to do that.
spk00: And as my follow-up, I appreciate your comments there, Jordan. I was just running some quick math and the updated interest expense guidance seems to be 5 to 10 million higher than what's implied in the SOFR curve and the new residential loan. So, just wondering if you could help us bridge the gap here.
spk07: I can't do the math you're doing. I think it is the cause of those two things. I'm almost 100% sure it's the cause of those two things. You know, you can give Peter a call and try. Yeah, we can walk through it. You can try and understand what you're doing and compare it to whatever's there.
spk00: Sounds good. Thank you.
spk07: All righty.
spk04: Our next question will come from Dylan Berzinski of Green Street. Please go ahead.
spk09: Thanks for taking the question today, guys. I guess sort of going back to the capital allocation question I was just asked, asking it a little bit differently in terms of, I guess, how do you guys weigh share buybacks versus being opportunistic on the acquisitions front? Is it simply just some spread to your implied cap rate, or just what does that internal process look like?
spk07: It's not that. You know, we're... In general, if you said, what's our inclination? Our inclination is to buy great buildings. I mean, they sustain us for the long term. I'm very confident in their earnings growth. We've experienced earnings growth for the last 35 years. And in a way, this market's matured. And I love owning high-quality buildings and the concentration here in these markets. But Sometimes it just becomes impossible to ignore the opportunity in the stock. But I don't want to just buy back stock and miss the opportunity to buy a building. So we're just always balancing those two things.
spk09: That's helpful. And I guess just one other one going back to Barrington Plaza. Are you guys able to share any yield on cost expectations at this point in time?
spk07: Not really. I mean, that's a long way out. What we're focused on right now is just getting this building to the standards that we have in all our other buildings of safety, of having these fire sprinklers in and getting all this fire life safety stuff done. I mean, two fires in this building is just way more than we can stomach. And that is something that Just career-wise, we had to just get resolved, and we are now resolving it. And that's why I mentioned in my prepared remarks, I'm so happy that we're finally kind of firmly on this road to getting this done.
spk09: That's it for me. Thanks. Thanks.
spk04: Again, it is star and then one to ask a question. Our next question will come from Bill Crow of Raymond James. Please go ahead.
spk11: Yes. Thanks. Good morning. Jordan, is it fair, and I'm sorry to ask another capital allocation question, but is it fair to assume that your decisions, including taking on more debt and maybe surrey purchases and prospective new investments, et cetera, are done against a backdrop that you assume that Warner Brothers Discovery does not renew next year?
spk07: Yes, we assume they're not renewing. That's correct.
spk11: So you do the test against that. Okay. And then just a couple real quick ones. Barrington Plaza, do you have business interruption insurance in addition to the actual physical cost of repairing the building? Yes. So the four cents this year might be recouped. And then finally, any comments on the way to statewide rent control ballots? and any initial reactions to the end of the debt or the rent moratorium related to COVID?
spk07: Okay, so obviously the ballot's unfortunate. It's driven by one guy and the ballot initiative, and it's just, you know, one more thing that we have to fight, and our group will fight it. He's proposed it Times in the past, it's unpopular and it's been roundly beaten, but you never know every time. Nobody likes to be attacked. In terms of the moratorium ending for the first half of the rent relief on apartments, I'm not sure that's super impactful on us. We don't have a lot of... We don't have a lot... of we don't have a lot due from apartment and we have some not not a ton so no matter what they do with that i'm not sure you guys are going to see a meaningful impact to us okay all right thanks our next question is a follow-up from blaine heck of wells fargo please go ahead uh great thanks um
spk03: Just wanted to circle back. Stuart, you mentioned a large tenant giving back some space in the third quarter. Can you give any more detail there around where it is, how much is giving back, and the reason they might be moving?
spk02: Yeah. We don't like to talk about individual tenants too specifically. As you know, we're kind of a flow business. But this was noteworthy because it's large, and you guys are likely to see the impact in the numbers next quarter. So it's a tenant in Woodland Hills. They are renewing, but downsizing, which, you know, happy to have them stay in a portion of the space, but they wanted to give back some of what they had. So not much to say beyond that. You know, not an atypical situation, but wanted to mention it because, you know, it's likely to be noticeable.
spk03: Got it. Thanks.
spk04: At this time, we will conclude our question and answer session. I'd like to turn the conference back over to Jordan Kaplan for any closing remarks.
spk07: Thank you all for joining us, and we will speak to you again next quarter.
spk04: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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