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 Investor Relations for Douglas Emmett.

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. Thank you for joining us. For Douglas Emmett, 2022 was a year of real accomplishments in the face of notable challenges. In our markets, during the first three quarters, the impacts of COVID dissipated; we leased 3 million square feet and office utilization rates rebounded to over 80%. During the fourth quarter, as economic concerns grew, we saw a slowdown in new and renewal demand from large tenants. Fortunately, we continue to see good activity from the small tenants who dominate our markets and leased 770,000 square feet during the quarter. Overall, our absorption was slightly negative for the year. Given the macroeconomic climate, we believe it is prudent for our guidance to assume no meaningful recovery in office occupancy during this year. During 2022, the value of both our residential and commercial leases increased. Our straight line office rates were up 5.8% and our residential rents increased an average of 7.8%. In addition, our two multifamily development projects added 505 units to our portfolio. The current state of the national economy is challenging for all of us, but remote work, oversupply, the reliance on large tenants, and concerns about reduced urban appeal seem to pose additional obstacles for some office CBDs. Fortunately, our markets, supply constraints, smaller tenants, short commutes, and low reliance on public transit have supported relatively high leasing volume and utilization during the pandemic. This recent experience, combined with our industry diversification and strong operating platform, gives us confidence in the long-term prospects for our markets. With that, I'll turn the call over to Kevin.

Thanks, Jordan, and good morning, everyone. Our multifamily development projects continue to exceed pro forma. In April, we delivered Landmark, Los Angeles, a new 376 unit residential high-rise in Brentwood, and have already leased over 60% of the units. In addition, we have now delivered and leased over 350 of our eventual 493 units at Bishop Place in Honolulu, and we expect to substantially complete the conversion by year-end. Asset sales in our markets have remained slow, but we continue to search for opportunities. Regarding our balance sheet, we have no outstanding debt maturing until December of 2024, and almost half of our office portfolio remains unencumbered. With that, I'll turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone. We did a substantial amount of leasing this quarter, primarily driven by the small tenants that support our markets. We signed 218 office leases, covering 772,000 square feet, consisting of 244,000 square feet of new leases and 528,000 square feet of renewal leases. For all of 2022, we signed 924 office leases, covering 3.7 million square feet, including 1.3 million square feet of new leases and 2.4 million square feet of renewals. Nonetheless, during 2022, our leased rate declined by 53 basis points to 87% and our occupied rate declined to 83.7%, driven mostly by the slowdown in activity during the fourth quarter and recapturing space from non-paying commercial tenants as local moratoriums expired. Our leasing spreads during the fourth quarter were positive 1.8% for straight line and negative 9.9% for cash. As I've been saying in recent quarters, we remain focused on occupancy at this point in the cycle and expect rent spreads to remain choppy until our lease rate climbs back near 90%. Our leasing costs this quarter of $5.80 per square foot per year are in line with our recent trends and well below average for other REITs in our benchmark group. Our multifamily portfolio remains essentially full at 99.4% leased. We saw continued strength in rent growth during Q4 with average rent roll up for new tenants over 5%. We assume that extraordinary 7.8% increase in multifamily rents during 2022 will moderate somewhat in 2023. We are pleased that the residential rent moratoriums in our markets are ending, although the payback periods have been extended into 2024 for some of our residential tenants. With that, I'll turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone. Turning to our results. Compared to the fourth quarter of 2021, revenues increased by 6.4%, FFO increased by 7.2% to $0.51 per share. AFFO decreased 11.1% to $81.2 million, reflecting more tenant improvement expenditures as a result of our robust leasing in Q2 and Q3. Same property cash NOI increased by 1.4%, primarily as a result of higher rental revenue and parking, partly offset by inflationary impacts on expenses and lower office occupancy. For all of 2022, FFO increased by 9.4% over the previous year. Our G&A remains very low relative to our benchmark group at only 4.4% of revenues. Turning to guidance, as Jordan said, our guidance assumes that office occupancy growth may not start in 2023. We elected to allow interest on one loan to float when the related interest rate swap expired on January 1st. Our guidance also assumes we will do the same when two other swaps expire in March. Due to increasing interest rates, expiring swaps, and the new residential acquisition loan, we expect interest expense in 2023 to be between $192 million and $196 million. Overall, we expect FFO to be between $1.87 and $1.93 per share with higher NOI more than offset by approximately $0.16 per share of additional interest expense in 2023. 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.

Our first question is from Blaine Heck with Wells Fargo.

Just starting with guidance, can you guys provide the assumptions for retention in 2023 and rent spreads on executed leases during the year, if possible?

Blaine, we have never given guidance on those particular items. I think for retention, our retention rates have historically stayed in a pretty tight band in kind of mid-60s. So I think you could assume that this year we'll probably be like most years before it. And trying to predict rent spreads, it's been impossible. We've tried that in the past; we were not very good at predicting them ourselves, and it's nothing we've ever provided guidance on. As I said, we're focused on retaining occupancy and growing occupancy. So I think you should expect spreads to be kind of how they've been, but it's hard for us to make predictions quarter-to-quarter on how they're going to play out.

Second question, Jordan, I think you've been pretty focused on getting your development team working on some new projects now that Landmark is done and Bishop is wrapping up. Is there anything you can talk about on that side of your initiatives, have you identified the next project or projects? And does the increase in cost of capital make you any less likely to move forward with development projects at this point?

The next major focus will be on the construction at Barrington Plaza, where a fire occurred several years ago. We've been navigating through various discussions with the city regarding insurance and the necessary preparations to begin work there, including the installation of fire sprinklers. This is likely our next significant step. Although it may not seem like the perfect timing, recent changes in state law have simplified the process for many of our sites in Wilshire, Beverly Hills, and the Valley, making it more cost-effective and less time-consuming regarding entitlements. These changes have resolved quite a few issues, but we need to fully understand their impact. We were expecting some guidance this month or next on how these changes would be implemented, but we've now learned that we won't receive any guidance until June or July. However, we believe that the forthcoming guidance should be favorable for us concerning some of those sites.

The next question is from Michael Griffin with Citi.

I wanted to ask on the Warner Bros Discovery leases expiring over here in '23 and '24. Just curious about the demand that you're tracking on that space. I know the lion's share expires in 2024. Is there a sense that that's weighted toward the first or the second half of '24 for that? And any other color you can provide would be helpful.

I believe there are only two leases, one of which is a whole building at 3400 Riverside Drive. This building is approximately 450,000 square feet, and its lease ends in the second half of 2024. I think there’s a general curiosity about their future decisions, and to be honest, I'm not very optimistic given the current economic conditions when considering the economy two years from now. I’m uncertain about their plans or desires since they no longer have many options, and I doubt they even have a clear direction right now. The real estate team we initially worked with, who seemed to expect to retain the building, is no longer around. Therefore, we lack a solid way to gauge the situation. We’re aware of what’s happening, like their cost-cutting measures, but I can't predict where they'll be in two years.

Then I wanted to turn to your thoughts just on capital allocation for '23. Obviously, with the announced dividend reduction in share reauthorization program at the end of last quarter. I mean, could we potentially see you being more acquisitive if the right opportunities came about, be they for either office or multifamily or do you think it's more pragmatic to stick to potential share buybacks?

Well, just a general answer because share buybacks, multifamily as points are all being acquisitive, I guess, acquiring. And I think it's a good time to acquire. I think we're well organized to acquire. Certainly, the dividend cut gave us even more firepower to do that. We have unleveraged buildings, cash. I mean, we have a whole list of things. And my goal is not to allow the opportunities in any particular recession, particularly one that's this extreme, to pass us by taking advantage of it, and I want to do that.

The next question is from Alexander Goldfarb with Piper Sandler.

So two questions. First, regarding the Barrington fire project, Jordan, we talked about this in the last call. I want to clarify how it affects FFO. Is any part of that project included in the guidance you provided for this year, or is it likely that it won’t have an impact on FFO until next year due to timing?

No, there's some in the FFO guidance for this year. But it's hard depending on the pace at which we work things out with the city and with insurance, it's hard to know how much will impact this year, and I suspect the largest impact will be next year. Even if everyone says like open, do it everyone, everyone do whatever you want, you have a lot of groundwork to do in terms of installing core equipment that may not impact units as much before we can go in and start impacting the buildings.

So it's in guidance, but the bulk of the impact is really a 2024 event, that's the way to understand it?

Yes, and even that, yes, that should be true. But this all relies on like what kind of deals we make also with insurance and the pace at which we move people out, and those are like giant numbers, right? I mean, we make a deal of insurance vis-a-vis the revenue, that's one thing, that maybe you guys have never seen an impact, and then, of course, the speed at which we move people outside. So if I'm guessing now, yes, '24.

In the second question, I appreciate your comments on the changes at the state level. It's always encouraging to hear positive developments for landlords. However, with LA recently passing their good cause eviction law, I would like to know how you perceive the impact on your potential apartment pipeline, particularly in LA and Santa Monica. Considering the positive support from the state against the backdrop of LA's new regulation, does this change your underwriting in any significant way? Does it make things a bit harder, a bit easier, or is it kind of balanced out when you account for these two policy shifts?

I don’t generally support restrictions on rent or similar measures. However, I don’t believe the recent good cause eviction law conflicts with our practices. If someone is nearing the end of their lease, we collect the fees, and we certainly don’t retain them. If you’re suggesting raising rent for current tenants by more than 10%, anyone in the apartment business for a while knows better than to do that. I’m not planning to project more than 10% growth in rent, especially when I’m assessing a new purchase. While I’m not fond of the city’s recent legislation, I doubt it will significantly affect us. I brought up state-level changes because they could have a significant impact. I used to tell you it would take years to establish titles, but now it seems we could potentially proceed at our own speed. It’s a remarkable shift, and I’m surprised it was approved.

Maybe they don't know that they gave you guys a gift.

Well, if they had known that, they wouldn't have passed it because there's no love for developers in Sacramento, but that's done.

The next question is from Steve Sakwa with Evercore ISI.

Jordan, I know that you guys were guiding to sort of average office occupancy. But within that range of 82 to 84, could you maybe just give us a little color on what you expect for new leasing volumes in '23? I know the fourth quarter was probably the lowest quarterly volume on new leasing in about two years. So just any thoughts on the pace of new leasing and the pipeline that you're seeing today?

We've really been affected by the shifts in people's economic outlook. I was surprised going into the fourth quarter by how quickly attitudes changed toward the possibility of a recession, which impacted leasing significantly. One aspect of absorption and leasing is the roll, which we report every quarter. The other aspect has been highly sensitive to people's perceptions of the economy. After experiencing three strong quarters, a sudden turn to negative news led to a 25% drop, which is quite striking. It’s difficult to predict what next year will hold, and I feel somewhat cautious. We didn't want to assume that confidence in the economy would return and that leasing would increase again. We believe we are likely at a steady state, and while the fourth quarter provided some guidance, I expect there will be changes next year. It was challenging to provide a specific forecast because even with a rough fourth quarter, there was still considerable activity, over 700,000 square feet.

And I know you sort of guided broadly to interest expense. I know you have a couple of swaps that are coming up, the debts not due, but the swaps are burning off at relatively low rate fee, and I think they're burning off relatively soon, one in March and one in April. So do you have a sense given where the market is today on kind of where that debt would reprice today? Well, the debt is not repricing, only the swaps are burning off.

So Steve, no, we're not super excited about swapping in the current environment. And we think that when you look at the forward curves, that things are going to start coming down. And so we're monitoring the market every day, and when we find the right opportunity, we'll swap. We set up our debt specifically for this where we have a two-year runway to refinance an asset. And we're entering that with these where we've got 24 months to figure out and replace the loan.

Just to be clear though, we are assuming that those loans float, and that's included in our guidance.

The same loan is not repricing; we are just utilizing what we can by looking at the forward curve on floating rates and incorporating that into our model.

I just wanted to clarify. You're just going to let them float for the time being, and so they'll just go to the SOFR curve plus their spread.

Yes, there is a lot of uncertainty right now regarding where interest rates are headed. The cost of swapping to manage people's caution is just too high. Therefore, while it may be difficult and costly to remain unswapped for a while, I believe this is the right choice, at least for a short time longer.

The next question is from Camille Deville with Bank of America.

Following up on your occupancy outlook from another angle. Relative to the amount of expiries you have coming due this year, the midpoint of your occupancy guidance isn't really implying a steep drop-off, which I assume is partially supported by the leases that have not yet commenced. So just curious, like what are you seeing on the demand side that gives you comfort here that occupancy doesn't trend below these levels?

The demand side is influenced by our quarterly leasing. While we can make informed guesses about demand, we previously indicated that as we approached the fourth quarter, there was a significant change in our leasing pipeline. Although there is always activity, we do not track individual leases; instead, we focus on overall flow. Recently, we noticed a slowdown in that flow, which is down by about 25%. This change is significant for us. Currently, we are monitoring the activity and have determined that we are operating at this level, and we are using this information to guide our projections.

And more specifically, thank you for the update on Warner Bros. Are you able to provide any comment or indication on the UCLA lease that's coming due and their likelihood to renew there?

UCLA has about 25 or 26 leases with us, each associated with different departments at the university that do not coordinate their actions. We occasionally have quarters where they will sign a new lease while simultaneously returning some other space. These are mostly smaller leases. We do not have specific guidance on them, but they do not function like a large tenant.

The next question is from Nick Yulico with Scotiabank.

First question is just in terms of various reports, everything we hear about the downtown LA office market being very weak and firms considering moving out of that area. I guess I'm just wondering if you're seeing any impact to your portfolio, realizing that's maybe more of a larger tenant issue, but law firms or others looking to, let's say, move back to Century City, Beverly Hills, or any benefit you're seeing from a leasing demand standpoint from that?

Well, Nick, you understand the issue very well for someone in New York. It seems that larger tenants are completing their moves out of downtown. The main area benefiting from this shift so far has been Century City, with a bit of activity in Beverly Hills. Ideally, we hope to capture some of that movement in Westwood as well, but Century City has certainly been a significant beneficiary of this trend. I don’t believe we have available space in our portfolio that could meet the needs of some of the more high-profile relocations that have been reported recently.

And then I guess just a second question is going back to the buyback, Jordan, maybe just talk a little bit about how the Board is thinking about deploying that? I mean, it doesn't look like there's anything assumed in the guidance or really anything that was done so far unless I'm missing something. But how you're thinking about that? Are you waiting to find a JV sale or some source of funds that would go towards that buyback? And presumably, you think the stock is cheap because you put the buyback in place. So any thoughts on that would be helpful.

The buyback is one of several options we are considering, all of which involve some form of capital that we can access. It's not really a significant concern. We need to evaluate various options, and the buyback is included in our considerations. While it's an attractive option, we would prefer to focus on making strong real estate investments, as acquiring valuable property is beneficial for the long-term health of the company. However, we cannot overlook the potential of a stock buyback, so everything remains on the table. That's our current stance.

The next question is from John Kim with BMO.

I wanted to get your updated views on resi conversion opportunities. If there are any assets or maybe some markets contemplating offering incentives that would make it more economically viable for you to pursue the change of use of the building?

It's interesting because residential conversion essentially involves examining the difference between office and residential rents, which can lead to insights about specific buildings. You might observe that residential rents are rising while office rents are under pressure, but we aren't in markets where office rents are significantly struggling. There could be potential opportunities, but they're not immediately clear, and you can't approach a market in the same way we did in Hawaii and assume it will be an obvious choice. The situation is much more complex than that. However, we gained valuable experience, and the team did an excellent job with the 1132 Bishop building, which gives us confidence in that area. Ultimately, you have to assure yourself that both the economic factors and the building itself are appropriate; it's not as straightforward as the deal in Hawaii.

I was thinking more like a market like Warner Center, which you've mentioned in the past was perhaps a non-core market for you, and it sits today at…

Yes. While the market in Warner Center hasn't been devastated, there's actually a lot of new development happening in the area. I see it as having a lot of potential. Some buildings are being taken off the market for various reasons; for example, a developer for the Rams recently purchased a site for $500,000 that won't be resold, as they're building practice fields there. That means fewer options available. There are other buildings that may also be removed from the market. It’s possible that the market could return to where it was before the LNR project, which was among the best markets in LA during a typical economy. It began to struggle only after LNR expanded the market by 25% to 30%. If there is a reversal, everything else in the market would look favorable for office or residential investment. The area has a significant amount of residential construction, rents have remained strong, and most of those projects are fully leased. Moreover, the amenities have seen significant improvements; the main mall has been restructured and sold partially, and there are other developments including two large blocks for the Rams practice field and a sports center for visitors. So, there's a lot of amenities and housing developments happening simultaneously, making it a promising investment.

My second question is a follow-up to Michael's question on retained cash flow from your dividend cut and the use of proceeds. You talked about buybacks as an opportunity, multifamily, but you didn't mention the office. And I was wondering if you…

I didn't mention office or residential, but all of those are opportunities. I think there is a reasonable chance that the opportunity could be better in office than in residential. I suppose I would definitely prioritize office over residential, but keep in mind that residential has generally held up better than everything else.

The next question is from Dylan Burzinski with Green Street.

I guess, just sort of on that acquisition piece. When you look at it or in your discussions with JV partners, are they interested in deploying capital in today's environment?

Yes, we have been in touch with all our partners to explain the situation regarding our leasing pipeline and our optimism about LA. We consistently receive positive feedback, which is encouraging. If you come across an interesting opportunity, please share it with us. Our partners seem to have confidence in our investment approach; they feel that if we believe in a deal, they are likely to support it too.

The next question is from Tayo Okusanya with Credit Suisse.

Thank you for your earlier comments about Warner Bros. I'm curious about some of the larger leases expiring in 2023 and 2024, such as UCLA and William Morris, and would like to hear your initial thoughts on those.

So we really only have two big leases in the portfolio; it's Warner Bros. and then William Morris that you mentioned the act like large tenants. The rest of that list is multiple leases. I already spoke about UCLA. I think they have over 20 leases with us. They don't act as a single entity or unit. But it's Warner Bros. Jordan already kind of gave you his thoughts on prospects for that. William Morris has a bunch of years left. So I don't think there's anything to talk about with them for a while. And then everything else, like I said, all the other tenants on the list act like smaller tenants; they aren't super material, it's a bunch of leases.

And then also from a leasing perspective, again with your tenants, anything changing in terms of type of terms they're looking for? Is it taking longer for them to make decisions? Can you just kind of talk a little bit about just kind of what you're seeing in that respect?

I think the notable change that we already talked about was that the average lease size for the Q4 results that we just published was down. It was smaller tenants that really held up our activity in Q4. We saw larger tenants not as active, not surprising given kind of what's going on with the economy. Our tenants tend to generally zero in on a five-year lease because they're smaller, and most of them are personally guaranteeing the leases; they don't tend to feel comfortable going longer than that. Usually, what happens in a cycle is when the economy is down, they're nervous, and they tend to go a little shorter term. And then when the economy is doing well and they're feeling good about their prospects, they're a little comfortable going a little longer. But we're almost always still zeroing in around that five-year average, and that's still what we saw last quarter.

And I mean since smaller tenants, they're using more of your prebuilt product or are they actually building out space on their own?

We always prefer to build space for them. We're very good at it. We do a lot of prebuilt suites; we call it our spec suite program. So we'll go in and make a suite totally move-in ready. We've had a lot of success with that product. So that's something we continue to ramp up on. But yes, these are small tenants; they don't have real estate departments. So as much as we can help them with the process, make it easy for them and get the space built for them, that's a much better turnaround. So we do that as much as possible, and the tenants appreciate it.

And they also don't have large TI demands. So our TI costs are substantially lower than when you lease into large tenants.

The next question is from Dave Rogers with Baird.

Maybe one question for me. Just in terms of the evictions, the tenants that haven't been paying. I know last quarter, you were down to the last handful, maybe 100,000 square feet or so of tenants that you were still working through. Can you just give us an update on where you are there? How much of an impact you're anticipating maybe to occupancy and where most of those blend and extend kind of done by the end of the year? Just so we can kind of think about the run rate for that group of tenants.

That group is done, it's in the numbers, it's dealt with. So there's no more people that weren't paying are out, and the other people are paying. There's money still owed to us by some people that are paying, and we work out deals that they pay over time.

And there's money still owed to us by some people that are out that we're still pursuing.

But in terms of occupancy, you have this strange impact on occupancy of people that were in occupancy, but they weren't paying. So that was weird, right? You're used to if they're in, they're paying. And that's what COVID and the moratoriums did, and that's resolved now for residential, it’ll be resolved by the end of March.

In the occupancy number, okay?

Yes.

The next question is a follow-up from Blaine Heck with Wells Fargo.

Jordan, just circling back to the state legislation that opened up residential zoning in certain areas in LA. I guess, do you think that change is going to trigger a lot of additional supply in the market? And have you seen any projects announced as a direct result of that legislation or is it just too early to tell?

I don't believe that it's going to result in a significant increase in new supply, mainly because we are a developer that owns a substantial amount of land in those areas. From our perspective, there isn't much opportunity for infill-type projects. The legislation hasn't reduced costs; in fact, if someone decided to buy land based on this rule, they wouldn't be getting that land at a lower price—it might even be more expensive. This legislation has increased the value of our land because it allows us to develop residential properties with fewer obstacles. In the areas where we own land, I want to clarify that while I don't want them to repeal the rule, I don't think it has made a notable impact aside from benefiting us because we have many sites. It hasn’t significantly boosted apartment production.

And then last one from me. There were some reports that came out earlier this year that Regal Cinema was looking to close the Sherman Oaks location there, I think, leasing from you. Can you just comment on that situation, the potential earnings impact, and any plans you may have for that space?

I prefer not to discuss individual tenants. We have observed similar situations, but I'm uncertain of the outcomes. However, we do not provide details about specific tenants.

The next question is from Rich Anderson with SMBC Nikko.

So I was intrigued by your comment in the call here, Jordan, where you thought that there was more opportunity, I think I heard you right, more opportunity in office than there was in residential. First of all, did I catch that comment correctly?

Yes.

The answer to the question is why. In a world where hybrid office settings are becoming popular, it is often more about wants rather than needs. Residential situations are quite different, as you have a very unique residential platform. What makes the office sector more appealing from an investment perspective in your view?

I want to share my thoughts on why I remain positive about our office markets. Although we are currently experiencing a recessionary economy in real estate, I don't believe that the challenges often mentioned, such as remote work, decreased interest in urban offices, or issues with commutes and public transit, are significant factors in our markets. When COVID reduced its impact last year, our leasing activity surged, and I felt extremely optimistic—not just because of my disposition, but because we experienced some of our strongest leasing quarters in the company's history, consistently over several periods. This gives me a lot of confidence in our situation. Additionally, we are one of the few major gateway markets with a truly diverse tenant base, which includes various industries beyond just technology, entertainment, or finance. Throughout the pandemic, we have strengthened our operational capabilities, and I believe our platform is unmatched in our market. Given the current conditions, I see significant buying opportunities, particularly in office properties, as there seems to be more uncertainty surrounding that sector compared to residential real estate, where confidence remains high. This belief supports my view that the office portfolio's long-term performance will be positive.

And so kind of related to that, you had a couple or three quarters in 2022 where things were moving along nicely and then you had this hiccup in the fourth quarter, and that experience kind of did a lot to inform you about 2023 guidance and the flat occupancy scenario and so on. So that seems like a really kind of sensitive topic in the sense that it could turn back on pretty quickly, right? Like if the Fed gets it right…

It turned off quickly, and that's what I tried to say when I was asked about our occupancy guidance.

That's my point. So maybe the very fact that it moves so quickly in one direction, is your confidence behind office, and I guess I'm kind of parodying what you just said, but so setting flat occupancy is the absolute probably worst-case scenario, and more likely, you probably see occupancy lift as the year goes on as long as we kind of get the macro right and we don't have like a really disruptive economic scenario from Fed activity and so on. Is that the way you're thinking about it, setting a floor?

Real estate is not meant to be evaluated on a quarter-to-quarter basis, even though that’s the approach we've adopted. People tend to focus more on that perspective. While I'm optimistic about the long-term outlook for our market, I'm less so when considering a quarterly viewpoint and the trajectory of the economy, particularly with how the Fed may act. We need to see how this year unfolds, and much of our guidance reflects our uncertainty about how much further the Fed will raise rates. The strong employment numbers suggest that the Fed may continue tightening, which is likely to have a greater impact on real estate compared to other sectors. Although some industries are experiencing growth and hiring, which could give them confidence, this situation raises my concerns about our own market.

So you're ready to start acquiring, if you can, sooner rather than later before there is any sort of recovery when entering more competition and so on, right? Like you want to get moving before all that starts to happen again.

When we take action, it mainly depends on the opportunities that arise rather than my internal timeline. I need a solid opportunity. It's important to note that this is not a public call, and it's clear that many people do not own office buildings. If you have even a small stake in a building in West LA, you're not thinking that you're out of luck forever since you can observe activity. Therefore, we are looking for the right opportunity to present itself.

This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.

Thank you for joining us. And we look forward to our call a quarter from now. Bye-bye.

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