Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After management's prepared remarks, you will receive instruction for participating in the question-and-answer session. I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow-up. I will now turn the call over to Jordan.

Good morning, everyone. I hope you're staying healthy. Our rent collections continued to be negatively impacted by the pandemic and our market's very tenant-oriented lease enforcement moratoriums, which are considerably out of sync with the other gateway markets. However, our second-quarter collections were somewhat better than the numbers we previously disclosed for April. As of today, we have collected 91% of our second-quarter billings, including 96% from residential, 93% from office, and 35% from retail. These numbers are based on our current tenants' pre-pandemic rent obligations. At the end of the second quarter, pursuant to GAAP, we wrote off certain tenant receivables. That reduced our second-quarter FFO by about $0.04 per share, most of which related to the retail and hospitality tenants in our portfolio. We also wrote off all non-cash straight-line balances related to those tenants, which further reduced FFO by $0.06 per share. Of course, any collections from those receivables will be included in future quarters' FFO. The pandemic also reduced second-quarter FFO by about $0.05 per share from lower parking income. Overall, the cash and non-cash write-offs and the lower parking income related to this crisis reduced our FFO for the second quarter by about $0.15 to $0.41 per share. As the commercial moratoriums are amended and expired, we should see improved collections. During the past downturns, free from government intervention, our actual tenant defaults have been just under 2%. Despite the current uncertainties driven by the pandemic, during the quarter, we executed 125 office leases for over 650,000 square feet, only a notch behind Q1 and with longer average lease terms. This is a remarkable accomplishment and a testament to our investment in virtual tours and remote leasing technology. We don't know exactly how the present challenges will impact our local economy, but having managed through three prior recessions, our strategy and platform are built to withstand downturns. We own a dominant share of the best buildings in the best markets in Los Angeles. Unlike some other markets, we do not face significant potential supply overhang from new buildings. We believe that our small tenant focus diversifies our risk. In prior downturns, the impact of personal guarantees and the small business owners' commitment to their business have kept our defaults very low. We have a robust, vertically integrated operating platform and we have no debt maturities before 2023. Our buildings have remained open and available to our tenants throughout the pandemic. Fortunately, we do not have the significant mass transit, parking, or vertical transportation concerns faced in other markets. We are proud of the customer service our team has provided and the safety protocols we have implemented in response to this crisis. With that, I will turn the call over to Kevin.

Thanks, Jordan, and good morning everyone. On the development front, construction is continuing on our two large multifamily development projects. Demand for the new apartments at our conversion project in Honolulu has exceeded expectations. By quarter-end, we have completed the first 98 units, and to date, we have leased 61 units at our pro forma rental rates. We've begun construction for our next phase, which involves four floors and is comprised of 76 units and building amenities. Delivery of those units is expected to begin later this year. Construction is progressing steadily at our 34-story 376-unit apartment tower in Brentwood. This project will be the first residential high-rise west of the 405 in more than 40 years. The development includes a one-acre park fronting Wilshire Boulevard. We still expect to deliver our first units in 2022. On May 15th, 2020, we refinanced a loan for one of our consolidated joint ventures. The new secured, non-recourse, $450 million interest-only loan will mature in May 2027 and bears interest at LIBOR plus 1.35%. We entered into interest rate swaps that effectively fixed the rate at 2.26% following the expiration of the current swaps for an average fixed interest rate of 2.6% per annum through April 2025. We used part of the proceeds to pay off a $400 million loan secured by the same properties that was scheduled to mature in July 2024. Deal volume is significantly below normal, but going forward, we hope to see more offerings as deferred transactions come to market. We and our joint venture partners have ample liquidity to capitalize on opportunities that match our investment criteria.

Thanks Kevin. Good morning, everyone. In Q2, we signed 125 office leases, covering 651,000 square feet, including 151,000 square feet of new leases. Leasing spreads for the second quarter were 19.7% for straight line rent roll-up and 6.7% for cash roll-up. Our tenant retention was in line with our pre-COVID expectations. Although the decline in our office occupancy during the quarter was expected, leasing volume would have to improve significantly to recover that occupancy this year. On the multifamily side, several of our residential properties experienced higher-than-usual move-outs at the start of the pandemic. These move-outs came from a variety of factors, including the closing of nearby universities and military deployments in Hawaii. As a result, our same-property comparison reflects lower-than-usual occupancy during the quarter. Fortunately, very strong leasing moved our residential portfolio back to 98.7% leased at quarter-end. I'll now turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone. Compared to a year ago, in the second quarter of 2020, FFO declined 21.7% to $84.4 million or $0.41 per share. This decline was a result of the $0.10 COVID-related cash and non-cash write-offs, as well as the $0.05 reduction in parking income that Jordan discussed. AFFO declined 15.7% to $80.6 million. Same-property cash NOI declined by 9.4%. Same-property operating expense savings of 12.9% partly offset the cash write-offs and the decline in parking revenue. At only 4.7% of revenues, our G&A for the second quarter remains well below that of our benchmark group. Given the continuing uncertainties around the pandemic and local government ordinances, we are not providing guidance this quarter. I can say that although it's still early in the process, so far, Q3 appears to be consistent with the trends in Q2. As moratoriums expire, we expect collections to improve and to collect some of the past due amounts, but it's too soon to tell. We expect that parking will stay at current levels until there is a change in office utilization. Finally, as Stuart mentioned, to recover occupancy later this year, leasing volume would have to improve significantly.

Thank you. We will now begin the question-and-answer session. The first question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey Good morning out there.

Good morning Alex.

Hey good morning Jordan. So, two questions. The first is can you just give a little bit more perspective on the tenants and the rent collections? We hear a lot that L.A., in particular, as you mentioned, Jordan, is really an outlier as far as the eviction moratoriums and that there are a number of people basically ghosting their landlords. So, across your office, retail and residential, can you give us a sense for how many people are basically ghosting you versus how many of the tenants are actually engaged in trying to do lease modification discussions?

That's a complex question, so let's start by examining the tenant profile. We reported a 91% collection rate, meaning 9% of tenants did not pay during the second quarter. This figure is meaningful because it uses rental amounts from before COVID. Within that 9%, around 4% of the tenants who aren't paying have strong financial foundations, making it unreasonable to write them off. This leaves us with the remaining 5%. Historically, we've seen that in past recessions, our actual default rates have been below 2%. Therefore, we believe that at least 60% of this 5% will ultimately pay. The 9% non-collection seems influenced by moratoriums that allow tenants, regardless of their situation, to avoid paying rent without penalties. This creates significant challenges in collection efforts. While cities are beginning to make changes that could lead to improvements, the situation remains uncertain as California's Governor continues to extend the ordinances. We put a lot of effort into clarifying our current position, and I hope this addresses your question.

It seems that the retail tenants are trying to collaborate with you, while the issues may be more pronounced in some office spaces and residential areas. Would you agree with that assessment?

The numbers we provided were 93% for office and 96% for retail, but only 35% of the retail sector is paying. This indicates that most of the retail is not making payments. When we mentioned hospitality, we were also including some other venues; we have screening rooms that are not paying as well, along with some live venue spaces. Our data shows that the majority of uncollected amounts falls into this category, which is quite discouraging, especially when examining some office tenants who are also not paying based on their profiles.

Okay. So, Jordan, that leads to the second question. You've been active and vocal in trying to get the local regulations to change last time? You said you mentioned specifically about getting office out of there and having more of the eviction moratoriums for like retail, which actually needs it. How are the conversations going with either Garcetti or the local officials or Newsom around trying to modify these evictions to really get it to the people who need it versus giving it carte blanche?

So, City of L.A., I'm not going to go after any individual politicians, but city of L.A. is very tough, very tough to get them to listen to us at all. And it's a mix of council members and Garcetti and getting them to pass up or do something to stop, what they put in motion, very tough. When you go to cities like Beverly Hills or Santa Monica, I mean, they want to do the right thing, but figuring out, from their point of view, the right thing is not that easy. Santa Monica has, for the most part, pulled commercial office out. They still have residential and they still have small retail and commercial office just is coming out now, like this month. So, we'll see if there's some impact from that in September. But it just ended this month. Beverly Hills had also followed Santa Monica, but then when the governor extended the statewide emergency order, the emergency order, right, the statewide emergency order, when the governor extended it, Beverly Hills took that extension to say we should extend our order. So, they did. So, theirs would have expired, but they've now extended for commercial for another couple of months. Hawaii has generally done what I think most of these have done, which is they just stopped evictions and the rest of it is up to the negotiations between the landlords and tenants. And there, our collections have been better, and we've been able to work on deals with tenants, and that's worked out a lot better. Here, it's very hard to work on deals with tenants because unilaterally, they don't have to pay the rent without penalty. So, until that's off, it's going to be hard to make a bilateral deal.

Okay. Thank you, Jordan.

All right.

And our next question comes from Steve Sakwa with Evercore. Please go ahead.

Thanks. Good morning.

Hi Steve.

Jordan, it was interesting to see that you guys actually had a decent amount of new leasing activity. I know it's lower than normal, but given what we've seen from some others, your number was a bit more encouraging. Can you maybe just talk about the dynamic in the leasing environment, kind of what you're hearing from kind of the smaller tenants, and maybe what the pipeline looks like today for the back half of the year?

Yes, I am really pleased with our operations and their performance. When we reached this point, things progressed quickly, and we began to focus more on the virtual aspects, like DocuSign, which facilitate immediate leasing. As we concluded the quarter, I noticed that we completed 125 lease transactions, which was surprising even for me. This figure is significant because it reflects the effective assistance we had in place during that quarter. If you asked me what I've observed this quarter and in the current recession that makes me feel positive, it’s the ongoing improvement of our leasing operations and the substantial number of deals we managed to complete. That said, we leased about 650,000 square feet, which is lower than expected—typically we would have seen around 735,000 to 750,000 square feet. A major factor is that we completed roughly half of the new leasing we would normally anticipate during standard times. However, it’s noteworthy that we achieved 50% in new leasing compared to normal periods while also managing a significant number of renewals. Although the pipeline is slower, I am optimistic about how our leasing operations have adapted and successfully facilitated transactions. We will have to see how the next quarter unfolds; predicting is challenging, especially with the fluctuations between working from home and returning to the office. Recent updates suggest some regions are easing restrictions again, which adds to the uncertainty about how this variability will affect the upcoming quarters. Nevertheless, I am very satisfied with the volume of transactions we accomplished.

Okay. And I guess the second question. I realize it's still sort of early and there's probably not a lot that shakes and lose. But just anything on the transaction side that maybe is getting a bit more interesting? Any kind of distress in the system that would allow you and your partners to take advantage of some investment opportunities?

Hey, Steve. It's Kevin. I'll take that. It's still slow. A lot got put off by the pandemic, but we're just starting to get some inbounds. And so it's a type of thing where a lot of people deferred their transactions and wanted to wait and see what happens. And so I would expect over the next couple of months that we'll start seeing some things pop out, whether or not they meet our investment criteria or not, I'm not sure. We don't have a lot of assets where people levered up. And so I think it's more about, as I said last call, discretionary sellers that are kind of tired of having to manage through this that might take something out to market. And we and our partners have ample liquidity, and for things that we really like, we're ready to pounce.

And our next question will come from Craig Mailman with KeyBanc Capital Markets. Please go ahead.

Hey, guys. Maybe just following on to the investment question a little bit. You guys have, in the past, been pretty opportunistic with buybacks. Are you at the level where that starts to make sense versus investment opportunities or do you want to keep kind of the powder dry?

We definitely want to make acquisitions if the right opportunities arise that align with our focus. We're actively seeking out potential deals. While there aren’t many options available, acquisitions are certainly appealing to us. We have confidence in the long-term viability of the markets and believe our tenant base has a strong track record. Over time, we expect our defaults to be lower than average. We're also keeping an eye on refinancing as we wait for banks to become more active. Our two major development projects are progressing well, and we've received updates on leasing activities in Hawaii, where we're expanding with additional floors. Lastly, we're considering investments in repositioning properties, as we want to ensure we're making the best use of our capital for promising opportunities.

Okay. And you brought repositioning is kind of the $200 million of spending you guys have talked about over the last couple of quarters. I mean, how should we think about the probability of that kind of being viable here in the next year or two as we emerge from COVID?

Well, over $100 million is tied to the development of just the two buildings, representing new equity investment. Besides that, we also have repositionings and new acquisitions. Normally, I would prefer us to invest more than $200 million. If we consider new investments, we could potentially reach a run rate of $200 million, especially if we are fortunate and have one or two projects materialize over the year. However, I would aim to exceed that figure. We are receiving inquiries, indicating interest, but so far, no one is actively submitting new bids on deals we would consider market-ready.

Could you clarify how much of the 13% expense savings this quarter came from repairs and maintenance compared to just lower utility costs? I'm trying to understand what might be anticipated in the next couple of quarters that could have been postponed.

I don't think the expense savings came from any source of deferrals. I think they're spread across all the categories.

I mean some of the lower parking expenses, lower janitorial, and a lot of scheduled services, and not a whole lot on the R&M side. It's Peter, by the way.

Yes. I think the expense savings comes from acting quickly when billings aren't as fully occupied to not spend the money that gets spent on a fully occupied building.

Great. Thank you.

The next question will be from Rich Anderson with SMBC. Please go ahead.

Thanks. Good morning. I just want to clarify what you said. Jordan, you mentioned 4% of the 9% that have strong balance sheets and good collateral, and then you said to just write them off. I assume you meant that they were.

No, I didn't. Yes, we didn't write them off.

Okay. I just didn't hear you correctly. Okay understood.

Yes. We didn't write them off. So, what happens is 9% that didn't pay. So, you start out going right off 9%. They didn't pay us for three months, right? But then you look tenant by tenant, you go, well, wait a minute, maybe you're talking about telecom companies that didn't pay, they're obviously going to pay, and we have others like that. So, we have, like I said, we might have hedge funds, we have accountants, lawyers, they might have a floor or two floors, they didn't pay? We know they're going to pay. So, there's a group that you have to sit there and go, okay, modern-day languages write them off. If you would have gone a few years ago, we would have said reserve against them, okay, which sounds more like what it feels to me but now it's called write-off. So, you don't write those people off. Now, you got 5% leftover, and we wrote them all off or, I would say, reserved them and then I broke that down. And I said, that's why we keep saying to you. When we look back in history, we go, look, our real default rate ends up being less than 2%. So, you take that 5% and you go 3% of that 5%, are we going to collect it? And I think we are and better, right? That's 60% of that number. So, that's why we keep getting back to this number that we keep telling you guys long-term and it's unfortunate with what the cities have done. But long-term, we don't expect our defaults to exceed 2%.

Okay. Can you talk about the range of time that moratoriums will expire? I know perhaps they just kind of keep getting reset, particularly in the city. But I'm just curious if you can give your expectation of how the cadence by which moratoriums will expire over the next whatever period of time.

I don't have any experience in this matter, and neither does anyone else. It seems that the Governor will need to take action to modify the emergency ordinance since many cities, especially Los Angeles, are facing significant challenges. Los Angeles is receiving numerous complaints from landlords, and the situation is dragging on long enough that it feels like they are trying to put some landlords at a disadvantage. However, I doubt they are concerned enough to respond to this issue adequately. The City Council's constitution appears to prioritize tenant issues over everything else, while Beverly Hills takes a more balanced approach, considering both tenants and landlords. Unfortunately, the extension of these measures for another month or two is regrettable, but Beverly Hills seems genuinely committed to finding the right solution. Santa Monica has implemented a more workable approach, effectively protecting residential areas and small retail businesses while requiring larger businesses and office tenants to continue paying their dues.

Okay. And then finally, you mentioned your small tenants, they sort of have a commitment to their business sort of like it's personal to them, I guess. Do you have an idea of how much and what degree it mattered that they were able to get some of the stimulus checks, small business, and whatnot?

I believe that the stimulus checks significantly helped them stay on track. It was a valuable perspective, one that Stuart mentioned, and it resonated well. Historically, during recessions, larger companies often consider bankruptcy as a viable option, weighing the financial implications of doing so against the consequences of not proceeding with it. They look at the possibility of closing multiple offices, among other factors. In contrast, our smaller tenants tend to view their businesses as personal commitments and don’t contemplate bankruptcy as an option; instead, this decision feels very personal to them, which can impede their progress. Once they eliminate bankruptcy from their considerations, negotiating with them becomes easier, whether it involves extending payment terms or other arrangements, and they tend to follow through with their obligations. Hence, despite some perceptions that our smaller tenants are less reliable or less likely to fulfill their financial commitments, I believe the opposite is true. They are more inclined to pay and are motivated to sustain their businesses. Like us, they are awaiting the end of this challenging period and eager to return to their previous routines. Unlike decision-makers in New York who may be making broad cutbacks on offices nationwide, that's not the reality we are facing, which bolsters our confidence in the long-term outlook for our markets.

That's great. Thanks very much.

All right.

And our next question is from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

Great. Thank you. So, it's impressive you guys were able to get the multifamily occupancy back up after the dip when the quarter started. Can you talk about how you're approaching rents? And was that a big factor in terms of getting people into the buildings or how were you able to get that leasing done so quickly?

I don't believe a lot of it was due to rent discounts. What really happened was we experienced a slight shock with move-outs, particularly from universities and the military. People who thought they would attend school and needed blocks of rooms suddenly moved out all at once, whether in Hawaii or Los Angeles. This situation required us to significantly enhance our leasing efforts. Our product is solid, the markets are competitive, and it was impressive to see occupancy rebound so quickly. I was quite pleased with that. We started the quarter strong, faced challenges in the middle, but ended on a positive note. This did have some impact on our overall revenue, but not severely, and it also positioned us well for the future.

So, you feel like you didn't really have to move rents much. You can kind of keep knocking rents forward.

I don't believe we're raising rents as we did in the past. However, I don't have much information suggesting that we have significantly lowered rents.

And then what about on the office side? I mean, where would you say face rents and net effective rents have moved since this whole thing started, if they moved at all?

Well, I dislike saying this, but in Hawaii, there hasn't been much movement. Hawaii is a very tight market, still leaning towards the positive. In L.A., I can't imagine we will get through this without it affecting rents. So, that was a roundabout way of saying we seem to be maintaining our position for now because the markets are relatively full. However, I can't envision that we won’t see some impact from the pandemic recession reflected in rental rates.

Have you seen a change in concessions?

No, not yet. It's not our style. We prefer to understand the correct rates. We don't favor using concessions to artificially inflate rates because we are long-term owners. So, I don't see that as an early indicator of rates declining. I believe the initial sign of rates decreasing is simply rates decreasing.

Our next question is from Manny Korchman with Citi. Please go ahead.

It's Michael Bilerman here with Manny. Jordan, I wanted to revisit the topic of rent, collections, and reserves. You mentioned a historical bad debt rate of about 2%. What percentage does that break down to for each of your property types? I would assume it's not consistent across office, multi-family, and retail sectors. So, could you address that first? I have additional questions afterward.

Okay. So, let me start by saying if you look back at our bad debt expense, when you say historically, I got to be very careful because it's typically like 20, 30 basis points. It's not 2%. So, what I'm saying is, you go back to the recession, 2008, 2009, 2010, that's when it was 2%. I'm not saying that's the number like one year ago, okay? But this is going to be an unsatisfactory answer to you because I don't know the numbers broken out by sectors. This is in the times of 2008, 2009, 2010, I do know our default rate, and we've gone back and reflected on and looked at it. But at that time, maybe we just keep getting better and better. And I guess the longer we've been public, we've been better putting together the statistics that you guys care about, but I don't have that information.

Right. I mean, the issue today is the retail and other income part, which I think is only like 4% of your total or something. That is acting very different today than at any other point in any other recession, given the pandemic's effect on retail. So, one would imagine, as you talk about that 9%, right, that 900 basis points is obviously in aggregate. So, if you could break down, you talked about 400 basis points that is well-capitalized. If you can break down that 900 basis points of reserve by property type, that would be helpful as well and then between the 4% and 5% that you talked about?

Yes. So, let me just keep going for a sec, okay? I don't have that exact number. I'm going to give you another number. So, now, we take the 5%, right? And the 5% that we did write off. I think we said or I'll say it right now, more than half of that was retail, and where we probably should have given a better title to we call hospitality, which was that the theaters and the screening rooms and live venue guys, all of that. So, I don't have the reverse number that you asked for, but I'm able to tell you that over half of the 5%, that's remaining 5% with those guys.

I would request that in 90 days, during your next quarterly report or any updates leading up to that, you consider providing detailed information similar to what your office and multifamily peers share regarding collection rates and property types. This information would be beneficial to include in the supplemental materials or press release instead of discussing it all during the call.

Thanks.

And we can send you some examples of others.

Okay, yes, we have to decide where to allocate it, and we chose to place it there. It’s not that we’re withholding information; you just aren’t satisfied with its placement.

Yes, I think it's important to provide all the numbers related to collections, deferrals, reserves, and abatements, especially considering the various property types involved and other ongoing activities. Many office, multifamily, and retail companies are offering significant disclosure on these matters. This way, analysts and investors can have a tangible reference rather than just relying on figures presented during a call, which can be difficult to follow.

Okay, all right.

Next question is from Frank Lee with BMO. Please go ahead.

Good morning, Jordan. Just want to get your thoughts on your Sherman Oaks and Warner Center markets. With all the ongoing discussions of a potential shift away from urban markets, do you think maybe in the medium or longer term, the value could be a beneficiary if this plays out?

That's an interesting way to ask that question. The reverse of that inquiry is whether people will move away from areas like the Westside or downtown. I don't believe that's the case. I think the Valley is going to benefit from industries relocating there due to the employment options, lower housing costs, and improved quality of life. When this situation is over and we assess whether people prefer to be in cities or work from home, it seems clear that the main drawback of going to work is the commute. Most individuals working on the Westside have short commutes, so I don't see any barriers preventing them from returning when they feel safe to do so. People in the Valley may need to drive to the Westside because of the ample business opportunities, but as their presence grows, there’s an increasing demand for office space in their area. That's why we have invested in locations along Ventura Boulevard and Warner Center, and we're noticing the growth in those markets regarding office space and the rapid population increase. There has been significant apartment and home construction out there, with strong demand and swift absorption rates. Therefore, I see this as more indicative of success in Warner Center and Ventura Boulevard, rather than a shift away from downtown or West L.A.

Okay. Thank you. And then can you update us on how parking revenue has been trending so far? Did you see this pick up in July or should we expect a similar level of parking income that was in the second quarter?

Yes. I think that aside from the must-take policies affecting parking, we would expect parking income to correlate with occupancy levels in the office buildings, while retail has seen minimal progress. Our parking operations have been running at about 50%, which I believe is influenced by must-takes. However, I expect parking revenue to align with occupancy levels. Currently, we're slightly above occupancy, and as occupancy increases, I anticipate an uptick in parking revenue. Thanks.

And the next question will come from Daniel Ismail with Green Street Advisors. Please go ahead.

Thank you. Regarding acquisitions, I've noticed that some of your competitors are purchasing properties in El Segundo and Culver City. These areas haven't traditionally been on your radar, so I'm interested to know if you plan to expand into new submarkets or if you can provide updates on your current locations.

We are closely monitoring various markets, starting with Culver City and extending southward. One key point is that we prefer not to invest in single-tenant buildings; our focus is on multi-tenant properties. We are structured to support multi-tenant arrangements, and many of the recent transactions have involved one or two large tenants, which isn’t our preference. As these markets develop and become more multi-tenant, we may be in a better position to compete for those opportunities. Currently, we are unlikely to succeed in bids for properties that are triple net or long-term leased to just one or two tenants with several years remaining on their leases. However, I do believe Culver City is a strong market with a great housing mix and well-developed retail downtown. There are also many promising companies in the area. It’s worth mentioning that further south, there are fewer supply restrictions compared to what we experience on the Westside.

And presumably, these would all be office investments, correct? You're not looking at any multifamily.

Yes, I was referring to office. But I mean, refer to residential in a similar way, and we've got Playa Vista, which I think has done quite well. But, of course, they've added thousands of apartment units. So, because there's not a lot of supply constraint out there, it's harder to say this is a good idea for us to now buy apartment building. Now, in general, our markets trade at very low cap rates. And so why you see we've shifted over our construction platform, and we're being more aggressive on building apartments, which we're building at, obviously, much better cap rates. And that's most of the ground-up construction, most is residential, both in Hawaii and in L.A. And most of the entitlements we're working on are for residential on excess land we have on the Westside and in the Valley.

And just shifting over to the tenant side, is it your sense that tenant retention will be higher over the next few quarters as tenants choose to stay in place as they figure out their space-telling needs or how are you seeing tenant behavior changing?

Well, if you say exactly what's the impact of COVID on tenant retention, I don't know that we have enough information to give that answer. I can give you like a longer-term answer, which is over all the time we've tracked tenant retention, we've had quarters that have been fluctuated highly, which had to do with maybe a larger tenant moving out or something like that. But if you started to average it, rows of quarters, like four quarters at a time, a lot of times, you end up at that 69% to 70%. So, there's some other kind of force on that process that causes tenant retention to want to zero in on that 70% number.

The next question will come from Venkat with Mizuho. Please go ahead.

Good morning. This is Venkat on for Tayo. Just a few quick ones. It looks like multifamily parking and other income doubled quarter over quarter. Just curious what drove that.

Yes, it's Peter. So, overall, you also saw a decline in the rental revenue. There's sort of two offsetting issues associated with one property. You'll recall that we had a fire at a property in January, and so you see lower rent and then the insurance recoveries run through parking and other income. So, it almost nets out when you get down to total multifamily revenue.

Okay. Thanks. And then it looks like the lease rate in the Valley declined about 240 basis points sequentially. Could you provide some color on that?

The lease rate in the Valley declined 240 basis points sequentially.

Yes. As I mentioned in my prepared remarks, our retention aligned with our pre-COVID expectations. We initially anticipated that Q1 and Q2 would be challenging in terms of move-outs, but we experienced significant releasing volume. We believe we recovered throughout the year, and our original guidance was for flat results. However, we have not seen the new leasing volume we expected and have noticed declines in those markets. Importantly, these issues were not related to COVID move-outs; they stemmed from known and anticipated terminations.

Okay, great. Thank you.

Thanks.

The next question is from Josh Burr with Scotiabank. Please go ahead.

Hey, thanks. I want to go back to the uncollected rents. And specifically, the 4% of rents that were not collected but still deemed collectible and booked as revenue. It makes sense that those are straight-lined in GAAP NOI, but are those also included in cash same-store NOI numbers for the quarter or is there a negative adjustment, I mean, since the cash wasn't collected?

Well, everything that we write-off comes out of the NOI, and anything that's still receivable stays in the NOI.

So, is that in cash NOI also?

Yes.

Yes. Correct.

Okay. Thank you.

All right.

And the next question will come from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

Hi. I just want to get some thoughts on your progress at Bishop Street, the conversions. I mean, do you think that the second-quarter pace is about what you had expected in terms of getting leases signed? And then how do the rents compare to your initial underwriting?

Sure. Jamie, it's Kevin. I would say that Bishop Street has been a pleasant surprise in this whole COVID mess. I mean, we're moving along at a pace that you would think in the middle of the pandemic, things have slowed down, we're hitting our underwriting. And as we updated in my remarks, we're up to 61 units. We're like over 60% leased. So, we're very, very pleased with the product we're delivering and the market is responding in a very positive manner.

Yes, Jamie, I'm going to just add to that. There's no way I thought that within four months, we'd have at least 61 out of the first 98 units out of the gate. And this is during the COVID, that's even crazier. I mean we've already launched the next three floors, getting back and building.

All right. Great. Congratulations.

Thank you. So, we're ending on the lights of one great piece of news. That's good. All right.

Ladies and gentlemen, this concludes our question-and-answer session. Now, I'd like to turn the conference back over to Jordan Kaplan for any closing remarks.

Well, thank you all for joining us and we look forward to speaking with you again next quarter.

Thank you, sir. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.