Hello, and welcome to the Q4 2020 American Assets Trust, Inc., Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the call over to your host for today, Mr. Adam Wyll, EVP and Chief Operating Officer. Sir, the floor is yours.

Thank you. Good morning, everyone. Welcome to American Assets Trust, Inc.'s Fourth Quarter and Year-end 2020 Earnings Call. Yesterday afternoon, our earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of our website, americanassetstrust.com. Telephonic replay and on-demand webcast will also be available for this call over the next week. During this call, we will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results in our earnings release and supplemental information. We will also be making forward-looking statements based on our current expectations. These statements are subject to risks and uncertainties discussed in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements. Actual events could cause our results to differ materially from these forward-looking statements for a number of reasons, including uncertainty related to the scope, severity, and duration of the COVID-19 pandemic on us and on our tenants. With that, I'll turn the call over to Ernest Rady, our Chairman and CEO, to begin the discussion of our fourth quarter and year-end 2020 results. Ernest?

Thanks, Adam. Great job. First and foremost, I would like to wish all our stakeholders and their loved ones continued health and safety during these truly unprecedented times. Now that people are starting to get vaccinated, we are optimistic and even hopeful that eventually this pandemic will no longer be a threat. Lives will return to some kind of normalcy, and the economy will recover. However, at the present time, this pandemic continues to create challenges within our portfolio, particularly for our three theaters, gyms, and our Waikiki Beach Walk properties. As most of you know, all of our properties in Hawaii are owned fee simple and are very valuable. We have a strong view that post-pandemic, Waikiki will return to normal with pent-up tourism returning and every night being like a Friday night. While this pandemic still remains a threat, we believe we are well prepared to endure a prolonged pandemic with our irreplaceable portfolio, our best-in-class operating platform, our top-notch management team, our disciplined financial strength, and a very strong balance sheet. In such regard, I am extremely proud to announce that our inaugural public offering, which we closed on January 26, 2021. The offering consists of $500 million of 3.375% senior unsecured notes due 2031, and by the way it was oversubscribed four times. This bond offering provides substantial liquidity, staying power and allowed for the repayment of $200 million -- $250 million of debt, and provides all funds needed for the development of La Jolla Commons III, which we plan to break ground this April. The success and demand of this bond offering in the midst of a pandemic is truly a testament to our incredible properties, efficient operating platform, and our top-notch management team. Bob will provide more financial details on the bond offering. Finally, I'd like to mention that the Board of Directors has approved a quarterly dividend of $0.28 for the first quarter, an increase of $0.03 from our previous dividend, which we believe is supported by our collection efforts in the fourth quarter and is an expression of our Board's confidence in the embedded growth of our portfolio that we believe will recover post-pandemic. Bob, Adam, and Steve will go into more detail on our various asset segments and financial results. I will be available for any questions you may have at the conclusion of our prepared remarks. I'm now going to turn the call back over to Adam. Adam, please.

Thanks, Ernest. Good job. We remain optimistic with the overall performance of our portfolio, even in light of the pandemic, and we are pleased to report that 100% of our properties are currently open and accessible by our tenants in each of our markets. Of course, we too have felt the bumps along the road, like everyone else in our sectors, yet our collections of monthly recurring billings due continue to improve in Q4 over Q3 and Q3 over Q2, with total collections to date of approximately 92% in Q4 versus 90% in Q3 and 87% in Q2. January is currently trending consistent with Q4, just over 91% to date, and likely to increase further, all despite the headwinds of Governor Newsom's shutdown restrictions in California that lasted through most of December and January. Collections for essential tenants in our retail portfolio, which represent approximately one-third of retail billed rents, were almost 100% in Q3 and Q4. And collections for non-essential tenants continue to improve from 69% in Q3 to over 74% in Q4. Of note, no tenant in our retail portfolio represents more than 2% of our ABR, and less than 6% of our retail portfolio is due to expire in 2021, assuming no exercise of lease options. And of the approximately 500 tenants in our retail portfolio, since the beginning of the pandemic, we have had 13 retailers file for bankruptcy, covering 18 total tenant lease spaces, of which 13 spaces have been assumed or are in the process of being assumed in bankruptcy, which we believe is a testament to us having superior locations that these restructured tenants want to remain in. Notably, the rejected leases to date were less than 13,000 square feet in the aggregate. As you would expect, our primary collection challenges remain in the retail segment with our movie theaters and gyms as well as many of our retailers at Waikiki Beach Walk, which until mid-October, had no incoming tourism to sustain meaningful revenue for our tenants. Though we believe the pent-up demand for travel to Hawaii is massive, we expect the tourism to rebound to occur at a more deliberate pace until a broader vaccine rollout is achieved, hopefully, by this upcoming summer. In the meantime, we are working with these challenged retailers who historically have been great operators to bridge them through to the recovery. This is part of our recurring thesis of prioritizing long-term strategic growth over the short term. Despite the uncertainty, we remain optimistic that we will continue to see sequential improvement spurred by the vaccine distribution, government stimulus, and anticipated pent-up travel demand in regions that had yet to fully reopen their economies. As Ernest mentioned, we believe that we are well positioned to navigate through and manage these challenges. We have been through challenging times before, and each time we have emerged stronger given our long-term focus and high-quality, diversified asset base. We expect this time will be no different. With that, I'll turn the call over to Bob to discuss Q4 and year-end results in more detail.

Good morning, and thank you, Ernest and Adam. Last night, we reported fourth quarter and year-ended 2020 FFO per share of $0.41 and $1.89, respectively, and fourth quarter and year-ended 2020 net income attributable to common stockholders per share of $0.05 and $0.46, respectively. The lower FFO in the fourth quarter, which is approximately $0.05 lower than the Bloomberg consensus, is primarily the result of additional reserves for theaters, gyms, and Waikiki Beach Walk Retail. Nevertheless, we remain optimistic about this portfolio even in light of the pandemic. The highlights of this quarter are: One, we have ample liquidity. As Ernest previously mentioned, we recently completed our inaugural public bond offering. In the midst of this unprecedented pandemic, we closed on $500 million of 3.375% 10-year senior unsecured notes. With the proceeds from the offering, we repaid $150 million senior guaranteed note Series A and repaid the $100 million outstanding on a revolving line of credit. We expect to use the remaining $236 million of proceeds to fund our La Jolla Commons III development in the UTC submarket of San Diego, as well as continue our renovation of One Beach Street in San Francisco, with the remaining amounts for general corporate purposes and potential accretive acquisition opportunities. At the beginning of this week, we had approximately $380 million of cash on the balance sheet with no outstanding on our $350 million line of credit. We chose to access the public debt markets now because of the low treasury yield and strength of the credit markets that we have been seeing during this pandemic. We had the ability to access the public debt market several years prior to this, but we weren't ready to commit to being a regular issuer on a frequent basis until now. What's changed is that we have the ability to ladder our existing debt maturities today so that we have close to, if not more than, $400 million in future debt requirements on a recurring basis over an 18- to 24-month period, while at the same time being laser-focused on a 5.5x net debt-to-EBITDA or less. A conservative balance sheet is very important to us. During this pandemic, our EBITDA has been challenged like others with exposure to retail and our hotel resulting in lower EBITDA. We believe that our high-quality portfolio in superior coastal West Coast locations will begin to return to normal post-pandemic. And our expectation is that our net debt-to-EBITDA will begin working its way back down to 5.5% or less based on the corporate model that I'm looking at. Number two, we have embedded contractual growth and cash flow in our office portfolio with approximately $24 million of in-place growth in just the office cash NOI in '21 and '22. Number three, our same-store cash office cash NOI came in at just 3% due to abatements that were provided to our GSA tenants at our First & Main building in Portland, Oregon, as part of their lease renewal package during Q1 2020. These abatements continue through February '21. Absent these short-term abatements, office same-store cash NOI growth in Q4 '20 compared to Q4 '19 would have been approximately 7%. Number four, multifamily properties incurred mixed results based on their geographic locations. For our multifamily properties located in Portland, occupancy was down 17% compared to the same quarter last year, while the weighted average monthly base rent increased approximately 1.4%. For our multifamily properties located in San Diego, occupancy remained stable at approximately the same over the prior year, while the weighted average monthly base rent increased 7.3% over the prior year. Of note, our occupancy levels in Portland have been trending much higher since the beginning of the year with our recent leasing momentum, bringing optimism that we will return to a more normalized pre-pandemic occupancy level. Number five, let's talk about guidance. As previously disclosed, we withdrew our guidance in April 2020 due to the uncertainty that the pandemic would have on our existing guidance, particularly in our mixed-use and retail sectors. Until we have a clear view of the duration of the economic impact and the economy shows signs of recovery, we will refrain from issuing formal guidance. However, what we can do is provide you a framework on how to think about our portfolio. We believe that Q4 '20 was close to, if not the bottom of the economic impact for us. We have taken approximately $18 million in combined bad debt expense reserves in 2020, including turning off most of the straight-line rent for which reserves have been taking. Included in this number is approximately $7.6 million or $0.10 of bad debt expense reserves that were included in our FFO number of $0.41 for Q4 '20. From my perspective, I believe $0.41 of FFO for Q4 '20 is the bottom. I would suggest that you conservatively use that as a starting base. Assume that continues for the first two quarters. Beginning in Q3 '21, assuming most everyone in America has been vaccinated, I would expect theaters, restaurants, and especially Waikiki Beach Walk Retail and the Embassy Suites Waikiki to begin their recovery. I would apply some percentage growth to the $0.41 of the Q4 2020 FFO beginning in Q3 '21 and continuing into Q4 '21. Adjustments that also would need to be made include: in Q1 '21, approximately $0.05 related to the yield maintenance make-whole payment on the Series A note prepayment will be a nonrecurring expense in Q1 '21. Also, in Q1 '21 through Q4 '21, the additional proceeds from the public bond offering are expected to increase our interest expense by approximately $0.03 per quarter. As we look beyond '21, we expect to see the following: first, we expect to see the Embassy Suites Waikiki coming back in full strength in '22, adding approximately another $0.13 of FFO; secondly, the Waikiki Beach Walk Retail coming back in partial strength in '22, adding approximately another $0.08 of FFO. Also, in our supplemental this quarter, we have included our estimated development yield for La Jolla Commons III, which is expected to take between 24 and 30 months to develop. The estimated yield for this development is approximately between 6.5% and 7.5% based on the market conditions today. We expect this project to be completed by the end of 2023. A 6.5% yield on $175 million is approximately another $11 million of NOI or $0.14 of FFO. In the meantime, the cash on the balance sheet earmarked for this development will be a short-term drag on earnings. And lastly, we expect our One Beach property on the North Waterfront of San Francisco to complete its renovation by the end of 2022. And we expect this property to produce approximately $0.05 plus of FFO upon stabilization in 2023. For now, this is our informal big picture framework of what we conservatively expect in '21, but it is not considered or it is not to be considered as formal guidance. As we have more clarity and conviction on the back half of '21, we will share it with you. We will continue our best to be as transparent as possible. I'll now turn the call over to Steve Center, our Vice President of Office Properties, for a brief update on our office segment.

Thanks, Bob. At the end of the fourth quarter, net of One Beach, which is under redevelopment, our office portfolio stood at approximately 95% leased, with just under 5% expiring through the end of 2021. Our top 10 office tenants represent 51.5% of our total office-based rent. Given the quality of our assets and the strength of the markets in which they are located, with technology and life sciences the key market drivers, we continue to execute leases at favorable rental rates, delivering continued NOI growth in our office segment even in this challenging environment. The weighted average base rent increase for the seven renewals completed during the fourth quarter was 5%. With leases already signed, we have locked in approximately $24 million of NOI growth in our office segment, comprised of approximately $14 million in 2021 and $10 million in 2022. We anticipate additional NOI growth in 2022 and 2023 through the redevelopment and leasing of 102,000 rentable square feet at One Beach Street in San Francisco and 33,000 rentable square feet at 710 Oregon Square in the Lloyd submarket of Portland. With the recent entitlements for two blocks at Oregon Square in Portland, we can add up to an additional 555,000 rentable square feet to the portfolio. However, we continue evaluating market conditions and prospective tenant interest before commencing development of that project. In the next few months, we will commence construction of Tower 3 at La Jolla Commons, a 213,000 rentable square foot, 11-story Class A plus office tower in the UTC submarket of San Diego. With expected completion in Q2 or Q3 of 2023, La Jolla Commons Tower 3 will grow our office portfolio by 6.1%. We're moving forward because we believe in the long-term fundamentals of the market, especially in UTC. Direct vacancy remains low at 6.5% and the inventory is aging, with just 26% or three out of 22 Class A office buildings being built since 2008, two of which are our own towers at La Jolla Commons. These three newer towers are 97% leased. The existing office inventory is actually shrinking due to conversion to life science and lab usage in and around UTC. Record-breaking venture capital is flowing into the region. San Diego companies raised a record-breaking $2.6 billion of venture capital funding in Q4 of 2020. The 2020 total reached $5.2 billion. Life science companies brought in a record $1.8 billion. The 2020 volume for life science investment reached a record shattering $3.8 billion. Tech investment hit a record high of $762.1 million for the quarter and $1.3 billion for the year. UTC is adjacent to UCSD, which pulled in $1.35 billion in research contracts and grants during the fiscal year that ended June 30, once again shattering a funding record and maintaining the university standing as one of the 10 largest research schools in the U.S. La Jolla Commons is just a few blocks away from the UTC Mall, which has undergone a $1.2 billion redevelopment, including nine new tenants and is Westfield's top-performing center. The San Diego Trolley operations serving UCSD and UTC are expected to begin operations in 2022. And as for the impact of work from home on our portfolio, based upon discussions with many of our tenants, not to mention significant expenditures our larger tenants are currently investing in their existing spaces, we expect the impact to be relatively short-term in nature. Beyond our portfolio, even though the tech giants have established long-term work-from-home protocols, they are massively increasing their office footprints by expanding, acquiring buildings and land, and leasing significant space across the country, all during COVID. Facebook has expanded by 2.2 million square feet, Microsoft by 1 million square feet, Amazon by 1.5 million square feet, and Google now plans three mixed-use projects on Google-owned land, 40 acres and 1.3 million square feet in Mountain View, San Jose, and Sunnyvale. Furthermore, in November, Google bought a 10-acre plot close to its existing campus in Kirkland, Washington, and plans to use it to expand in the area. Also, Apple just acquired a large land site in Culver City, which is Los Angeles, for a large office development for at least 1,000 people, and at least an additional 336,000 square feet in New York City. In summary, we have a stable office portfolio with a strong tenant roster, little near-term rollover, significant built-in NOI growth, and additional upside through repositioning and redevelopment within our existing portfolio, plus substantial new development on sites we already own. Operator, I'll turn the call over to you for questions.

[Operator Instructions]. Your first question comes from the line of Craig Schmidt from Bank of America.

I'm wondering what does the retail leasing pipeline look like heading into 2021? And what do you think you'll do relative to the 303,000 you leased in 2020?

Chris, can you answer that?

Yes. Craig, can you repeat the second half of your question? You had a number there. You said 300,000?

Yes. I had 303,000 total retail square foot leased in 2020.

All right. I was thinking you were referring to the roll that is going to -- that comes up through 2021. From a pipeline standpoint, you're starting to see retailers pop their heads back out. So given your activity started picking up a little bit in Q4, and it's continuing to roll some momentum coming into the first quarter of 2021. I can't give you the exact number, but I'm way more bullish that they're starting to look around. I'm starting to do tours. Again, the phones are ringing with more activity. And then of course as for the roll of our renewals coming up, I think the majority of those will probably get renewed. As Bob said earlier, I think we really hit the trough in Q4. There's still some turbulence ahead. But spring is coming, and you're starting to see talk of going back to school, vaccines are coming, and retailers are getting more optimistic.

Great. And then the trend of leasing spreads turned negative in the fourth quarter, but it sounds like you're going to -- you'll see more positive results on leasing spreads in '21?

Craig, I hope so. It's combat leasing from what I can tell you. The retailers, I don't know when the last time you bought a new suit was or any of us, but the retailers are still having their troubles in quite a few categories. So I don't want to lean to tell you that I'm going to be seeing rates come up. Some situations, it's a balancing act between occupancy and rate. And I'm always a fan of let's be there to fight another battle.

It's hand-to-hand combat, Craig, and the retailers at the moment have the upper hand. I think that the biggest cost in real estate is vacancy, and we're going to focus on keeping our properties well occupied as possible, particularly as we come out of this difficult pandemic.

Your next question comes from the line of Haendel St. Juste from Mizuho.

Ernest, a question for you, I guess on the dividend. I guess we're all -- some of us are scratching our head here on why you're raising the dividend now versus maybe saving the cash and delevering a bit more, your leverage is above 7x? I understand the higher collections and confidence, but there's still a lot of uncertainty, spreads are under a bit of pressure, it sounds, Hawaii seems like it's going to be soft good near term. So I guess why not hold off a bit and delever a bit more?

Haendel, that's a very good question. I suggested to the Board that to increase the dividend $0.01 or $0.02 to indicate that we have confidence in the quality of our portfolio, our financial position and our management. They felt that I was underestimating all those three, and they added another $0.01. So the Board made that decision independently. And I think they were fine. I mean we've differed by $0.01, but not much more. I think that -- this is going to be a significant recovery once we get a vaccine.

Yes. Haendel, let me just add to that, is -- it's -- the methodology is also consistent with our collections. And we try to stay consistent on that or the Board tries to stay consistent on that. The other thing is -- as we mentioned, is that we believe that Q4 is the bottom or if not close to the bottom. And what's changed is also too is that people are starting to get vaccines. So there's a lot more data points out there. And we think -- the Board thought that this is the right thing to do.

Thanks for that, Bob. Maybe as an add-on for you. You mentioned the mid-5x debt-to-EBITDA as a long-term target. Curious on when do you think we'll get there? And do we start to see some inflection here in the next quarter or two? The last couple of quarters, you've been trending up. So just curious on some perspective on reaching that long-term mid-size target?

He wants to know when you're going to hit 5.5x. You said you'd like to get there and he wants a timeframe.

Okay. Well, thanks for that question, Haendel. Ernest has been asked that before. I can't tell you what that percentage is for the second half of this year. But our view or my particular view would be -- is that once everybody in America is vaccinated or wants to be vaccinated, and we get that herd immunity, it gives us approximately 12 months from that period of time, and I think we will trend back down to that 5.5x. Based on the growth, think about how much we've lost out of Embassy and Waikiki Beach Walk Retail. I mean both of those -- each of those, the retail -- the Waikiki Beach Walk Retail and the Embassy are anywhere from $12 million to $14 million each of cash NOI. So that's probably about $0.14 each of them for additional FFO. So let us rebound. I mean let us get to the vaccine, get to that point and give us 12 months.

You have no idea how focused he is on 5.5x. I say good morning, Bob. He replies, 5.5.

And then on Hawaii, I guess, what are you hearing for tourism expectations for this year? Obviously, there's lots of uncertainty. But I guess, what's the latest? Any stats from the tourism board? Or anything that you could put some numbers around to help us understand perhaps what the expectation is?

I don't think we could tell you anything that you could take to the bank. It's just so uncertain. On the other hand, the direction seems to be right with vaccines becoming available. I feel strongly that there is a pent-up demand for Americans to travel. Many of us have the resources to travel. We've been pent-up for this last nine months. And once we get out of home, we're going to travel. So I think -- I don't know how and I don't know when, but I expect it's coming.

Your next question comes from Rich Hill from Morgan Stanley.

Ernest, I'm really curious about where you're going to go first when the world does reopen, but we can have that conversation offline. Bob, I do have some questions for you. I appreciate the guidance or the nonguidance guidance, is that the way we're supposed to call it, Bob?

Yes.

As you think about 2021, it occurs to us that there's a lot of noise on straight-line rents and abatements. 4Q is a miss versus our numbers was almost all straight-line rents. So as you think about the leasing environment in 2021, and I appreciate the guidance about how we should think about the velocity in 1Q, 2Q, 3Q, and 4Q. But can you maybe talk about what -- are all the abatements supposed to go away or all the deferrals supposed to go away? How are you thinking about that as you negotiate with retailers or retailers and office tenants for that matter?

Well, I think here, I'll try to answer that. I mean I think what is out there in terms of straight-line, in terms of deferred rents, we expect to collect those to the extent that we don't collect them or we don't think that we're 75% or more confident that we're going to collect them, we'll put a reserve up. But right now, I mean we're still confident on what remains on the books in terms of collecting those in 2021. We're hopeful. I think everybody in the real estate industry is hopeful that once this vaccine comes together, you will start seeing the retail to start opening. You'll start seeing the companies and the tenants that we do have straight-line rent across pursuing their growth in their companies that we've tried to nurse through this ugly pandemic. So we're still confident on what we got.

Got it. So it sounds like 1Q and 2Q are going to be still a little bit messy, hand-to-hand combat, but then the world get back to normal from an abatement and deferral standpoint and rent growth standpoint thereafter. Is that a right characterization?

That would be my perspective where I stand today. That's our best guesstimate. We think with the amount of vaccines that are being disseminated across at this point in time, I think Ernest had his second shot this last weekend.

I've been hugging everybody.

Yes. So Steve, one quick question for you. I'm nitpicking here, but it looks like occupancy maybe declined slightly for La Jolla and One Beach, if I was looking at it correctly. Again, very, very slightly. Could you just maybe go into a little bit more detail on any quarter-over-quarter change in demand that you're seeing on those two properties?

That wasn't One Beach. So I want to think about -- One Beach is kind of offline right now as we redevelop it. But in UTC, we had TriNet who had subleased their space, move out of a 6,000 foot space. That was the blip there, if you will. But we successfully renewed other tenants. It's smaller tenants now in that building. So we've been really successful holding rates. There's no COVID discount. We've been more flexible on lease term, with smaller tenants who are uncertain about their future. I mean I've got an engineering firm that's got three people over 65. And so they're kind of -- I don't know that I can commit long-term right now. Fortunately, as we pointed out on the call, we've got about 51.5% of our tenants are our top 10 and very stable. Furthermore, they continue to grow. I mean, VMware, they're coming up one -- they've got 35,000 feet rolling next year. And we're already in discussions about trying to find another full floor for them in the building as well as talking renewal. So we're fortunate in that regard. I don't know about the other property. And then here in Del Mar Heights, we've strategically let a couple of smaller tenants roll to aggregate bigger blocks of space. So that's being smart about commodity space versus big blocks, which are scarce, we're going to get premium rents for. So the blip that you saw -- I mean there is some softness due to COVID, clearly. I mentioned the engineering firm. Our teams are doing a great job of taking care of our tenants. They want to stay with us. Some just say, I don't need 5,000 feet, I need 3,000. And if we're able to accommodate them and keep our existing customers, we're doing it. But we'll get -- '21 is a year of a bunch of small tenants. We have still have 41 tenants rolling at an average of 3,700 feet in 2021. '22 is a much better story, and that about two-thirds of the tenants rolling are big. They're the VMwares, they're other bigger customers. And then in terms of pricing power, this quarter, the ending risk new rate is a bit muted, but that just depends on where. So going through the portfolio, Bellevue, we're 97% leased, but we've got 23.5% rolling through 2022. But those are going to be outsized increases in rent. We've been very successful with rent increases there, and that should continue. Portland, same story, we're 97% leased there. We've got 8.4% rolling. And again, the rates are holding up there. So we're doing well. San Francisco, that we're out of business there until we have to renew Autodesk in 2022. And then San Diego down here, the rent increases are 2% to 6% versus 20% in Portland or 30% to 35% in Bellevue. So it's kind of lumpy. It just depends on when you're going to make these renewals and reset rents and what level. So this was -- this last quarter, it was just a bit quiet and mainly focused on markets that aren't as hyperinflationary as Bellevue and Portland.

Got it. That's helpful.

One Beach, to make it clear, we emptied it so that we could reposition it.

Okay. I'll go back and look at the disclosure. Bob, just one more question for me. Given that you're guiding without guiding, can you talk about 2022 a little bit? And is it just going to be back to -- I actually don't -- I'm not sure the market even cares about 2021 at this point. Is 2022 business as usual and all the plans that we were previously discussing this time last year fully intact?

Yes. Nothing's changed on that. I mean we still expect our cash NOI to increase in the office sector by, I think, $12 million in '21, $13 million in '22. And we're just -- as we begin our development on La Jolla Commons III, which should conclude -- should be completed by the end of '23, I see a big pickup after that. And One Beach, One Beach should be finished by the end of '22. So what we're doing is we're taking advantage of the opportunities that currently exist within our own portfolio. We don't need any acquisitions to create value at this point in time. We're always looking. But we have plenty just within our home portfolio to create significant value.

Your next question comes from the line of Todd Thomas from KeyBanc Capital Market.

The first question just around the color in detail for '21 and '22. Bob, appreciate those comments. And you mentioned that 4Q would likely be the bottom or close to the bottom. Is that inclusive of the $0.05 make-whole that will be recognized in the first quarter? Meaning that excluding that make-whole, you would expect to be at around $0.46 as sort of a baseline, is that the right way to think about it?

Yes, that is. I mean -- so $0.41 does not include the make-whole. So that's -- so if you continue that, based on my comments, you would say, start with $0.41 in Q1. From that, you would deduct $0.05 for that make-whole and add -- and deduct another $0.03 for incremental interest expense in Q1. So on the script that we just shared with you, it will give you a road map on how we -- a road map for a framework on how I think or we think that you can view '21. And then in the second half of that, you make your own assessment or determine what you think the percentage should be on the pickup in that. But keep in mind, of that $0.41 for Q4 that I'm suggesting we start with in Q1, that includes $0.10 of reserves, $7.6 million of reserves in the fourth quarter. So as you start the second half, is that really going to happen? I don't think so.

Okay. Got it. So $0.41 goes to $0.36 with the make-whole in the first quarter less some incremental interest expense, and then you'd expect to build back throughout the year, obviously, adjusting for the $0.05 make-whole?

Yes. Yes.

All right. That's helpful.

And then if you get -- if you have any questions, please feel free to reach out.

Sure. I appreciate that. And then Steve or Bob, maybe regarding the $24 million of office cash NOI that's locked in, that's expected to commence during '21 and '22. How much of that is being straight-line today versus what has yet to commence for FFO purposes on a GAAP basis?

Yes. I don't have that in front of me. But really, that's been included in our presentation in terms of that -- the cash NOI growth. And really what we're showing is the growth in that FAD. And that obviously will drop on down and, obviously, has to be adjusted for anything related to the straight-line on that. But I don't have the exact number on that.

Okay. And in terms of the $14 million in '21, what's kind of the cadence sort of quarterly? How should we think about the timing of the cash commencements throughout the year?

Well, in Q1 and Q2, we have big TIs going out. We have probably $25 million of TIs related to large tenants up in Landmark. So it will probably be more in the second half of the year.

Okay. And then with -- at the multifamily assets, so it sounds like you saw a bounce in occupancy in January at Hassalo. Can you just talk a little bit about the pricing strategy there and use of concessions? And maybe provide some color on leasing activity in general? It sounds like you're -- it seems like you're holding rates in anticipation of a further return in demand. Just curious if you could sort of talk about Hassalo a little bit and the Portland assets?

Yes. As Steve pointed out, our office portfolio in Portland is excellent. Our portfolio of residential is we had a management issue, which we've now taken care of. So it's too early to say how much of a recovery we're going to make. But the early indications, as Bob pointed out in his report, is that we're leasing up. The biggest cost in real estate is vacancy. So we may do some things in the short run to increase our occupancy and eliminate some of the vacancy. So I don't know how to answer that question properly. It's too early to say, but we'll make it work. I'll tell you that.

Okay. And can you share what the occupancy build looked like in January?

Do we have that?

I don't...

I think we went from 75% to 85% or 87% occupancy, not that much...

Low 80s.

So I mean, yes, we don't have that right in front of us.

But we turned the corner. We're on an upward trajectory.

Okay. Got it. And just one last one, if I could, on the master lease at Loma Palisades and Pacific Ridge. Can you just remind us when that expires? And do you expect the school to re-up and renew that master lease? Or -- what do you expect to happen there?

I don't know that we have an expectation. We're certainly working on it. Abigail, do you want to say something, when it expires?

So that master lease for both Pacific Ridge and Loma expires on May 31 of this year.

And have you had any discussions about renewing it? Or is that still off the table?

So off the table. We all hope that with the vaccine, students will be able to return to school in the fall. And that is the hope, I think, of every university. We'll just have to play it by ear and hope that there's a renewal or that there's further partnership. But I don't have any further information at this current moment.

Your next question comes from the line of Daniel Ismail from Green Street.

This is Dillon on for Danny. Just a few questions on the development of One Landmark. You guys mentioned, I think, starting that sometime in the next few months. Are you guys -- is that subject to a pre-lease? Are you guys willing to start that on stack?

Which one?

One Beach probably.

Are you talking about One Beach or La Jolla Commons down in UTC?

Sorry, La Jolla Commons.

There's no pre-leasing. I had lunch yesterday with one of the senior partners in the law firm and they were considering that site, and they weren't sure if we'd start. There's never been pre-leasing in San Diego. So we have a couple of years to build it. During that time, we hope the market recovers. It's a very strong market. And that's kind of the story.

We're going.

Yes. Danny, I think Steve's comments that he shared are very strong reasons why we should pursue that without any pre-lease. For instance, on two remaining lots in Oregon Square, that's not a -- that is something that you would want to pre-lease.

You wouldn't go -- yes -- you [indiscernible]. Correct. Yes. Thank you. That you'd want to get a tenant before you build that. Like Ernest said, in UTC and for what Steve's comments were, those are all the comments why you would want to go forward without a tenant at this point in time. Obviously, you would love to have a tenant. But by the time you finish, that's going to be an even stronger market than it is today.

So we are going.

Perfect. That all makes sense. And then just kind of as a follow-up to that. I think our math where implies $80 rent a square foot at that property? Is that -- I guess, a, is that accurate? And b, how does that compare to where you guys signed the Illumina lease back in, I think, late '19 when you guys initially acquired those properties over there?

Rents for new product are much higher. We're in the high $4s, triple net with $1.70 expenses. I'm talking on a monthly basis. I haven't converted to a gross per annual, but the Illumina lease started at $490 full-service and has a 3% annual bump. So -- and that -- the rents I just mentioned -- the triple net rents I just mentioned are affirmed by two recent deals, one in June and one in December for deals in new product. So that's today's rents, and that's what we put in the pro forma, and we'll see how the market goes, but we're bullish.

Bullish, and we're also praying that the economy recovers. But in the short run, the leasing is less certain than we'd like. In the long run, it's a giant win. It's a great location, great property.

And I show no further questions at this time. I will now turn the call to Mr. Ernest Rady for any closing remarks.

Guys, thanks for all those great questions. I hope you're all able to get a vaccine as quickly as possible so that we can all end this distance of interacting, and we can all get together. I miss you all. I hope to work with you again as quickly as possible. And thank you for your interest in our great company.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now all disconnect.