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

Thank you for joining us today on the call; we have 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 Q&A portion, in consideration of others, please limit yourself to one question and one follow-up. Thank you. I will now turn the call over to Jordan.

Good morning, everyone. Thank you for joining us. We continue to recover from the impacts of the pandemic. In 2021, we leased more office space than in any prior year with strong tenant retention above 70%. In addition, we kept our lease transaction costs meaningfully below our pre-pandemic averages. Our multifamily properties are fully leased, with an average rent roll-up this quarter in excess of 8% across our portfolio. We completed construction of our 376-unit residential high-rise in Brentwood and delivered 101 new apartment units last year at our conversion project in Honolulu. Leasing at each project has exceeded our expectations. In 2021, we completed over $1.3 billion in financing transactions. Our average interest rate is now only 2.89%, and our next maturity is not until December 2024. We continue to convert non-cash to cash revenue. During 2021, our cash revenue represented over 99% of our total revenue. We estimate our office utilization at 70%. Despite lingering uncertainty around COVID, I remain optimistic about our improving fundamentals and our development pipeline that Kevin will discuss in more detail. Kevin.

Thanks, Jordan. And good morning, everyone. As Jordan mentioned, we are excited to report that we have completed construction of Landmark Los Angeles, our 376-unit, Brentwood residential tower. This is the first new residential high-rise development west of the 405 Freeway in more than 40 years, offering stunning ocean views and luxury amenities. We've already pre-leased just under 100 units and expect tenants to move in over the next month. At 1132 Bishop, our downtown Honolulu office to residential conversion, we have completed all our common areas and amenities and approximately half of our planned 493 units. The remainder of the units will be constructed in phases as office tenants move out. Given our progress at these two properties, we are focused on our next development projects. As we have mentioned in the past, we own a number of sites in Los Angeles and Honolulu that accommodate new ground-up residential development and we would expect to continue to finance our new development primarily through our excess operating cash flow. In addition, we continue to modernize and upgrade our portfolio through asset repositionings. In 2021, our repositioning program focused on two office buildings and two residential properties. In 2022, we plan to start repositioning an additional three office buildings. During the fourth quarter, we refinanced another $300 million of debt. The new secured non-recourse interest-only term loan matures in January 2029 with interest effectively fixed at 2.66%. Our overall portfolio weighted average interest rate is fixed at only 2.89%. And we have no outstanding debt maturing for nearly three years. Although property sales in our markets remain slow, I am hopeful that 2022 will bring more transactions to the market. Our access to liquidity remains excellent with over $330 million of cash on our balance sheet, nothing drawn on our credit line, good cash flow after dividends, strong JV relationships, low leverage, and approximately only half of our office properties unencumbered.

Thanks, Kevin. Good morning, everyone. We continue to see good leasing demand from a diverse set of industries in our markets. In Q4, we signed 216 office leases, covering 858 thousand square feet, consisting of 254 thousand square feet of new leases and 604 thousand square feet of renewal leases. For all of 2021, we signed 910 office leases covering 3.7 million square feet, including 1.2 million square feet of new leases and 2.5 million square feet of renewals. That is our highest leasing volume since becoming a public company. Our leasing spreads during the fourth quarter were positive, 3.5% for straight-line and negative 9.7% for cash. We are focused on recovering occupancy at this point in the cycle and expect rent spreads to remain choppy until our lease rate climbs back near 90% with an upward trend. Our leasing costs this quarter were $5.03 per square foot per year, in line with our recent trends and well below our benchmark group average. Turning to multifamily, our portfolio remains essentially full and 99.3% leased. We saw further strengthening in rents during Q4, with average rent roll-ups for new tenants over 8%. With that, I will turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone. Turning to our results compared to the fourth quarter of 2020, revenues increased by 10.9%. FFO increased by 5.3% to $0.48 per share. AFFO increased 20.1 million to $91.3 million, and same-property cash NOI increased by 19.1%. Our G&A remains very low relative to our benchmark group at only 5% of revenues. As we see promising signs of the pandemic abating, we are resuming full-year guidance. For 2022, we expect FFO to be between $2.1 and $2.7 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.

Thank you. As a reminder, if you’re using a speakerphone, please pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from Alexander Goldfarb with Piper Sandler. Alexander, your line is now open.

Oh, great. Hey. Morning out there.

Hey Alex.

Hey, how are you? Sorry. Been busy earnings day. So two questions. The first question, big picture is, if you look in Southern California this apartment earnings season, the rent growth rebound has been phenomenal. All the apartment owners have spoken about the amount of demand that has gone to the apartments, the amount that content is driving employment in LA. And when we look at your leasing, you guys have been phenomenal in leasing, but it's still like a treadmill. So I guess the question is, is there a read-through between the strong apartment results and the strong employment that's driving that, that we should start to see that translate to a positive absorption in the next few quarters? Or would you say, hey, while the two logically would seem to be tied, in this case, there's not necessarily that direct correlation.

Population is definitely linked to higher demand for real estate. However, our leasing has been on the upswing for some time. To give you some context, we faced a decline of 600 basis points during the COVID recession, with 500 of those points lost in 2020 and a significant portion in the first quarter. In the subsequent three quarters of last year, we managed to break even, with the last two quarters showing positive results. This suggests that the office leasing market is already showing signs of recovery. Additionally, we have noted a substantial increase in utilization, likely due to fewer residents affecting the residential leasing market, which has performed remarkably well.

Okay. So it sounds like what you just described suggests that we should expect this trend to continue and we should see you guys gain traction. That positive absorption on the lease rate translates to occupancy growing as we go on over the course of this year.

Yes. I mean, when you're talking about a subject like this, should and hope to kind of go together. But yes, I agree with you.

Okay. We love should and hope. The next question is you announced in the press release about starting the next batch of buildings on the rehab program. Historically, you've discussed that you only do that when you view that you can get rent that's commensurate with the spending. And you guys don't really have competitive supply, so there's probably less defensive CapEx. Is the read-through from that that you think rent growth is coming, so by the time that these upgrades deliver, rents will be higher, or is part of this just defensive, just to encourage tenants to come back to the office and make sure that they aren't relocating to other parts of the West side?

There are two things here. Number 1, let me just say, I think we'll recover our occupancy and get back in the 90s, and you'll see meaningful rent growth. So that's 100%, I think that's happening. Now separately, when you mention just redoing the buildings, does that mean we think we'll get rent growth? It's not rent growth, it's that I think we'll get a marginal increase as compared to them not being done. I believe we'll get a higher rent in that building as a result of redoing that building. That's not a statement about rent growth across the whole community, that's just a statement that I think that when we spend this money to redo the building, we're going to get much more per foot in rent, and that justifies that money being spent. I definitely still feel that way. I think the segregation of the nicer to medium to low-end buildings and the difference in rents that you get is going to get that gap to just widen more. So it's really well-spent money, and we're experiencing that we're getting much higher returns when we do that. But just putting that aside, I have absolutely no doubt in my mind that we will recover the occupancy that we lost during the pandemic and that we will see rent recover with that process, especially once, as Stuart said, once we get back to approaching that 90% number, I think it will recover smartly.

Okay. Thank you, Jordan.

Thanks.

Thank you, Alexander. Our next question comes from Craig Mailman with KeyBanc Capital Markets. Craig, your line is now open.

Hey, guys. Maybe just a follow-up on the leasing and ask it a different way. Jordan, I appreciate your commentary. But if you look at guidance, you guys are kind of flat on occupancy for the year from where you ended. You had an easier fourth quarter from exploration schedule and then it kind of ramps up again in '22 and accelerates in '23 and '24. So I'm just kind of curious. What on the demand side do you see accelerating further for you guys to keep retention high here, get back to 500 basis points, and kind of when do you see rent growth pick back up in that context?

So I know in the end it's a proxy, it's not a perfect proxy. I know you're using occupancy instead of lease rate. When I try to predict where we're headed, I look more at lease rate than occupancy because as you've seen in the past, lease rate and occupancy can gap out, which is always positive because when you're doing a lot of leasing, you'll gap out against occupancy. Because you've got more leases done, it takes time for them to move in. So when you ask about the next two years or the next year, I don't think the role might be slightly higher. It's not meaningfully higher. If you look at our historical trends over the next two years that we're facing, they don't look very different than the two years we're about to face. Separate from that, when you asked us the separate question about why I think that we're going to recover or regain, I'm seeing this average over 800,000 feet a quarter now, with very strong renewals. And we've been doing that for three quarters. When we get into those types of numbers, we start gaining in leasing. So I know if we do the leasing, the occupancy will catch up and catch us as people are moving in. That's what makes me optimistic about what's coming.

Okay. And so Stuart, I guess to the commentary is what you get to that 90% lease rate you guys feel better about spreads picking back up, not necessarily getting the spread to narrow to occupancy. I just want to try to be clear.

Certainly when you get over 90%, first of all, it's hard to make meaningful gains. You saw we were up at like 93.7 or something. So we were still inching up. I think we felt like 95 was where we would end up until we hit this recession. But at that time, you saw the least occupied had crunched way down because your churn on the amount of new people moving in shrunk way down. So then you're not going to have as big of a spread as we have right now where we’re doing a lot of leasing and filling space that was vacated.

And then just one quick question as you go ahead.

I was just going to say, Craig, but you're right. I was speaking about the leased rate moving over 90 where we think we'll be able to push on rates.

Rental rate.

Right. Right. Okay. And then just one quick one on as you guys restart the redevelopment program, kind of what's the how quickly do you get back to that kind of maybe 200 million of annual spend you guys had talked about pre-COVID?

Immediately, now we're there.

Okay.

We’re doing it.

Okay. Perfect. Great. Appreciate it.

Thanks.

Our next question comes from Alpha Rodriguez with Bank of America. Your line is now open.

Thank you. Good morning, everyone. I have a quick question. You mentioned that rental rates have returned to pre-COVID levels, but the cash spread was negative in the fourth quarter. Can you help clarify these two statements regarding the actual leasing spread?

I think we may have been discussing the residential market. If you're considering rents returning to pre-pandemic levels, we're definitely seeing that in our multifamily business. However, on the office side, our rental rates have decreased as you would expect compared to pre-pandemic levels. I'm not sure which gap you are referencing.

Yes. No, no. Well, the gap spreads were positive in Q4, but I thought I heard a comment that on a GAAP basis or maybe rents were sort of back to pre-COVID levels from that perspective. And so I was just trying to understand.

Oh, GAAP. You mean GAAP accounting?

To make the correlation between the two, yeah.

We didn't make that comment. As tenants are paying, I'm not sure if you're just looking at the same-store growth. There is significant same-store growth because it's a favorable comparison period. When you compare to the fourth quarter of 2020, that's quite an easy comparison. So that number is much higher. However, that's more about the comparison than indicating that rents have increased.

It sounds like you misheard us, Elvis, on the office side.

All right. Sorry about that, Stuart. And then in terms of, Stuart, you mentioned the volatility and rents are going to be choppy until you get into the higher occupancy levels and the market stabilizes. Can you talk about what we should be seeing quarter-to-quarter throughout the year, or what your expectations are?

It's very hard to predict because we do a lot of leases; we do 200 leases a quarter and we're still having plenty of leases that are rolling up. On average, on a cash basis, we've been rolling down. Depending on which sub-market we're doing, and what leases actually get signed, that number can move around a lot. We've seen that through the cycles where this number is really hard to predict; we spent a lot of time unsuccessfully trying to predict it. So that was my comment about it being choppy. Hopefully, we see this moving back in the right direction as rental follows occupancy up. But at this point, to see the cash spread negative, now, it's not surprising, glad that the overall economics with our strong rent bumps in the leases that we're still getting keeps those gap spreads positive at this point.

Thank you.

Thank you, Elvis. Our next question comes from Steve Sakwa with Evercore. Steve, your line is now open.

Yes. Thanks. Good morning. Jordan, I guess as we think about the model and the numbers, one of the big swing factors to me seems to be the retention rate. I know in your press release, you mentioned that you were 70% in 21, which if memory serves me, I thought the long-term average was probably closer to 60. So I'm just curious, what are you embedding in your 84% to 86% range because that just seems to be the big swing factor in terms of how quickly you can regain the occupancy.

So in terms of retention, our historical retention is like 69.8 percent, so that's our normal retention. I said it was above 70 and my recollection is, but Peter can correct me. I think it's around 72.

Something like that.

Retention has a significant impact. The numbers typically hover between 69.5 and 70, so it's somewhat surprising that we were well above 70 last year. Your next question pertains to how we can increase our leased rate from 87 back to 93, is that correct?

Well, retention is around 72 percent, which is above our normal retention of about 69.8 percent. Retention makes a big difference, and the numbers typically fall between 69.5 and 70. It's notable that we performed above 70 last year. Your next question was about how to increase our leased rate from 87 back to 93.

Our assumption was for retention in our guidance for 2022.

It's typically in the high 60's. We may have some insight into what certain tenants are doing, but with so many tenants moving in and out, averages tend to prevail. There can be quarters that are significantly different, with some quarters being very low and others being very high. However, when examining a series of quarters, it remains extremely challenging to deviate from the overall figure, which we could say is around 69.5.

Okay. And then second question. You sort of mentioned the other development sites that you have for residential with the Brentwood projects completed here. What are your thoughts on starting a new ground-up development, whether it's something in Hawaii or maybe a redevelopment or knockdown opportunity in LA?

My thoughts are we're doing it, and we're working on it. We've got politicians coming back into the office. We're talking to them, we're putting together all the pictures, and all the stuff to show them and we're saying this is what we want to do next, and we hope you're behind it since like all the development both in Hawaii and LA. People are talking about housing, and so we're fully working on it.

And Steve, I think we'd like to have projects going in both Hawaii and in LA concurrently.

Correct.

So you think it's likely that you could have actual announcements this year or is just the gestation period of getting these to the finish line longer than say, the next calendar year here?

I would say. I mean, I'm hopeful of some. I mean, when we announce it, I mean, I don't know if that would have to be near the end of the year, but we're doing it right now. We’re working on starting construction on new projects in LA and in Hawaii, and we're talking to cities and contractors about the whole thing.

Got it. Thank you.

Thanks.

Thank you, Steve. Our next question comes from John Kim with BMO Capital Markets. John, your line is now open.

Thank you. You mentioned the significance of the leased rate, noting that you achieve pricing power at 90%. Can you provide any insight on where you anticipate that lease rate will be by year-end?

Where are we? John, we don't give guidance on lease rate as well. Obviously, we're hopeful that it continues to go up. We've been doing a lot of leasing. Demand has been really good. But we gave you the guidance that we're going to give, which is on occupancy.

Wait, did he ask something about last year?

No, at the end of this year.

Are you asking at the end of this year, John?

Yes.

Did you ask about last year, but okay.

Put another way, it took you six quarters at the last recession to get from the trust leased rate to 90%. I'm assuming it's going to take a little bit longer this year because of that; what would take you to the end of this year to get from to 90? Is that a fair assumption, just given uncertainty in the market and you're starting at a lower lease rate than you did last recession?

You're trying to figure out when we're going to be able to put pressure on rents?

Pretty much.

I mean, I don't know. You know what, I think things are really opening up. I don't want to be overly optimistic and then that would be wrong. But I am optimistic that the economy's opening up. I see it opening here. I see the state saying mask mandates are going off and like next week, and kids are in school. All of this is happening and things are getting going. Now, all of that is going extremely well. I mean right up in the elevator this morning where I saw someone getting a new parking card. I think we’re all back in the office again. All of these things are happening everywhere. So I'm pretty positive that we should have a good year, but I don't know how it really will play out. I mean, we have a whole year ahead of us and we’ve been through like the punishing uncertainty over the last several quarters. So we got to see it play out.

My next question is about Landmark. You mentioned the lease presentation, which is about 25%. Can you provide insights on the occupancy trends for this year so we can estimate contributions for this year compared to next year? Additionally, how did your yield on the development turn out in relation to your initial expectations?

So we already said that we think we built it for a cap rate that's above a seven, and we'll have the answer when we finish leasing it. But I'm extremely confident that it's above seven. I'd like to wait and see how that plays out, where we end up. But having only leased a quarter of it, I can say it's well above seven, but I don't want to say where it's at because we've got to finish leasing it. How does that trend up? That's a tougher one. I don't know. Do you guys have any type of anything for that or?

It's Kevin. We're thinking that it's probably going to be a 2-year lease-up on this. And by the end of the year, you should have about half leased if things go as we're hoping.

That's great. Thank you so much.

That answer it for you? Thanks.

Yep.

Operator?

Our next question comes from Manny Korchman with Citi. Manny, your line is now open.

Jordan, you jumped ahead there. I thought that I missed something.

Well, I was ready to start wrapping it up.

Given everything we've talked about, whether it be the fact that it might be a tenants' market right now or that people are confident making their decisions. Are you seeing tenants come to you to renew early, and how are you thinking about those opportunities given the fact that you'll have better pricing power if you get to 90% but if you can lock them in now, then you've got the surety of that tenant renewing?

For sure, tenants are coming to us that owe us money and saying, 'Hey, can I renew at the same time to spread this out?' So yes, that's definitely happening. You've seen our collections just keep rising and that's one of the ways that they are rising. Now the second thing is, since we have a pretty positive view on where things are going, do we want to get into the system and hold off or press for shorter deals and push for higher rates? We've never done that; we always meet the market, we launch the longer leases, and we have so much churn that we're always able to pick up when there are gains in rate. But we just leased to the market, and I think, on a cash basis, we do better that way than trying to time rates or game our leasing program for rate.

Hey, Jordan, it's Michael Bilerman here with Manny, just as a follow-up, thinking about sources and uses of capital as you ramp up the desire for redevelopment and development opportunities, as well as continuing to scour the acquisition market. How are you thinking about funding those capital needs? Do you sort of have some goalposts in mind in terms of how much capital you're looking to deploy, let's say, over the next two to three years, and where that's going to come from? I suspect your stock is not going to be high on your list given its large discount to its inherent value. But I'm not sure if you're actively seeking to sell assets or enter into joint ventures in order to fund this increased spend and not take leverage up.

Okay, so first, my goal is to aim for between $200 million and $400 million a year in new capital. The company generates a significant amount of free cash flow, around $150 million, even after paying out dividends. So, the question is, where will the additional funds come from? We currently have a substantial amount of cash, access to credit lines, low leverage, and potential joint venture partners who are interested in collaborating. To reiterate, considering the lower stock prices, selling shares would not be a priority.

Do you have dispositions that you're working on? I mean, are you trying to generate more capital at this point? I know it's hard to buy, which means maybe it could be a good time to sell some things.

I don't know if we have any buildings for sale. We sold the one building I intended to sell, which was in Honolulu, at the beginning of last year or maybe at the end of 2020.

It seems like you’re just trying to focus on each other these days. Okay. All right. Thanks for the time. See you in Florida.

Thank you, Manny. Our next question comes from Blaine Heck with Wells Fargo. Blaine, your line is now open.

Great. Thanks. Just follow-up on that and maybe take the other side of that question. Given your low leverage profile and meaningful discount to NAV, your high implied cap rate, however you want to look at it, and kind of the lack of acquisitions that you've seen the bid on recently. I know you've addressed this Jordan on prior calls, but just for an update. Does it make sense to get active on share buybacks here or do you think you want to keep that dry powder for development and other opportunistic acquisitions that might come about in the future?

Well, obviously, I'll say, you're right, there’s no doubt. I mean, I've been buying our stock. I personally have been buying our stock. But when you talk about the company, it's a much more complicated decision. Our business isn't to participate in the stock market or guess the ups and downs of where the stock is going. Our business is to run the real estate and let the stock market run itself. And frankly, I'm wrong a lot of the time about what I think the stock will do. At times it goes down and at others it goes up. So I don't think I'm that good at predicting that. So, starting off, it’s a complicated decision. Unless you're selling something, it means, you're increasing leverage and you're taking away the opportunity to do some of these other things for development or acquisition. You really have to be in an extreme position to choose to raise your leverage and buy back stock when you're not an expert in the stock market. That’s why you don’t see us really. It’s very rare for us.

Okay, that's helpful. And then for my second question, can you just talk about the underlying health of your smaller tenants? We saw small business optimism numbers erode in January, and some of the commentary we heard around that release was that small businesses were struggling to handle the increase in inflation and associated increase in costs for their businesses. I know your tenant base is probably a lot different than the average business that's included in these studies. But when you talk to your tenants, are you hearing any rumors that they are having trouble keeping up with rising costs or even wage inflation?

So I think probably in small retailers that's the case. Although I actually think even with our retail, it's pretty healthy at this point. Now you're saying our office tenants? I think they should be embarrassed about how much money they're making if anyone has not paid us their rent. These people have colossal amounts of cash to run their company and employ people who live in expensive housing all around this area. It’s absurd for them not to pay their rent given how much money they're making.

Fair enough. Thanks, Jordan.

Thank you, Blaine. Our next question comes from Rich Anderson with SMBC. Rich, your line is now open.

Thanks. Good morning out there. For the guidance range, do you allow for any sort of hiccup in occupancy? I know you're expecting lease rate to ramp up, but as you know now, I think the statewide eviction moratorium burned off, but still some accounting level stuff continuing. I'm wondering what you're thinking about the behaviors of some of your tenants that might actually, despite what you said about the money they're making, have trouble paying rent when that time comes. Are you allowing for any of that in your range for this year?

The width of the range could encompass various possibilities. Some may occur, but currently, regarding the office sector, I believe it's more likely to see those issues in the residential sector. I don't view that as particularly significant at this moment, but we will observe how it unfolds.

And then a big picture question, I don't know if you’ve ever talked about expansion markets in any specific detail. But a lot of dislocation is going on in San Francisco these days. Is there anything about that market that's got any measure of your interest these days, or are you sticking where you're at right now and spending from within?

I understand that downtown San Francisco is currently experiencing extremely low conditions for various reasons, many of which seem to be self-inflicted. However, I believe it will ultimately become a strong market due to its proximity to major educational institutions like Stanford and CAL. This is distinct from the decision of whether to invest in that area versus here, whether for acquisitions or additional development. I feel that our local advantages offer better returns compared to the effort needed to operate effectively in San Francisco. While I recognize that the fundamentals in San Francisco are not favorable, I'm uncertain about how much the values have diverged from typical trading levels. Therefore, I don't view it as a market ripe for significant downturns.

Okay. Good enough. Thanks very much.

Thanks.

Thank you, Rich. Our next question comes from Bill Crow with Raymond James. Bill, your line is now open.

Thanks. Good morning, guys. Similar to Rich's question, but keeping it local, I guess. It struck me as I was out in LA not too long ago but the focus on the news about all the crime that's going on and it seems to be expanding in its areas. I guess my question is, what's going on from a sub-market perspective? How much change are you seeing in bettering sub-markets versus challenging sub-markets, et cetera? I guess, how do you play in the evolution of the market?

Your question suggests that I should respond by noting that the borders have become more defined. However, I actually believe they have broadened. I have always perceived that the eastern border would extend to West Hollywood, which seems promising. Conversely, the southern border might not encompass Culver City, and a decade ago, Playa Vista would not have extended that far since they are all strong markets. Playa Vista has developed and is maturing, while Culver City is experiencing some growth but remains a vibrant area with plenty of amenities and residents living close to their workplaces. I also think that the market east of Westwood has expanded. The developments along Pico are likely to foster growth in the surrounding area. The significant deal we made with Google indicates that some West L.A. sub-markets have actually grown rather than shrunk. While the community is understandably frustrated with crime and the current situation, I see positive movements with the recall of Gascon and even the leftist politicians in our areas now prioritizing law and order. The state legislature is considering repealing laws that allowed for some misdemeanor crimes, possibly making it to the ballot this year. There’s a lot happening that could lead to a return to a law-and-order environment. I hope this phase we are experiencing is behind us for good, and I feel optimistic about the direction things are heading. In California, candidates for city councils, counties, and mayoral positions are all discussing the need for improvement.

Now, I always appreciate your views on the city. Just as a follow-up, you talked about capital sources and uses before. There was talk before that you might look at a Hawaii joint venture and bring some of that money back into LA. I'm just wondering, is that off the table altogether at this point or what are your updated thoughts on doing a big JV in Hawaii?

I believe that with the right opportunity to bring the funds back, I would consider doing it. However, I still have confidence in Hawaii and am looking at investing more capital there and developing the area. Hawaii has transformed significantly; it is now thriving financially, with our office leasing and residential sectors performing exceptionally well. I really appreciate Hawaii.

Okay. All right. Listen, thanks guys. Appreciate.

All right. Thank you.

Thank you, Bill. Our next question comes from Daniel Ismail with Green Street. Daniel, your line is now open.

Great. Thank you. Curious if you can share what kind of recovery in parking revenue is embedded in 2022 guidance.

So our parking revenue is one reason why we're comfortable telling you that we're over 70% utilized; it's over 70% of what it would be if we're at full pre-pandemic levels. Does that answer your question?

Well, I think you can get a percentage of its either anticipated to be up with that 70% utilization throughout the year?

Actually, I think the last time we looked at it, it was almost 75. Do you remember, Stuart?

Yeah, it's over 70% adjusted for occupancy what it was before the pandemic. But you're asking how we think it's going to recover over the course of the year and how fast.

Right. So, I mean, you have to adjust for occupancy and the occupancy they would lose since 2019. So we're over 70% now, adjusted for occupancy, and then you expect that to improve. But it's all based on attendance coming back to the office at the existing occupancy levels. So it's hard to predict exactly how that's going to play out over the course of the next year. But we expect it to get better.

Okay. And lock in for me, Jordan. 2022 is an election year and we caught wind up another potential property tax challenge. I’m curious if that's something you guys are expecting on the November ballot and what you might have on any potential challenges that property tax rate.

You're talking about the nurses’ union up in Northern California?

Where it's not exactly what role but property over 5 million is subject to a cyber-audit of about 1% or so.

I'm not sure what will happen with that. I know they are in discussions about it; that's the current status. Did I address your question? I haven't seen any further developments.

Thank you, Daniel. Our next question comes from Elvis Rodriguez with Bank of America. Elvis, your line is now open.

Jordan, just a quick follow-up. I'm just curious your thoughts on WeWork and co-working. Are you finding them to be competition as you go lease-up space today? They've obviously had some good success in growing occupancy this last year. So just curious your thoughts there. Thank you.

No, I don't think we have. There aren’t a ton of WeWorks in the markets we're in, and I forgot about their enterprise business that takes entire leases and they sort of build out space and sublease to them. I think most of our tenants that want to occupy 2,500 or 3,000 square feet would prefer their own space. It’s just about as easy for them to go direct and pay the actual money, but we haven’t seen that at all, no.

I think co-working is only about 1% of the space on the website in our markets. It's not a huge chunk of space.

Yeah, it's not a big piece of it.

Thanks, guys.

Alrighty.

Anything else? Anyone else? Operator? I guess we lost our Operator. It seems Michael will have to answer.

Well, good speaking with all of you and I don't believe we have any further questions, so we look forward to speaking with you again next quarter. Thank you.

That concludes the Douglas Emmett fourth quarter 2021 earnings.