Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net operating income improved across all real estate operating segments, including office, multifamily, and hotel.
- Same-store office segment NOI increased 9% year-over-year, driven by an increase in JV income.
- Multifamily segment occupancy improved significantly to 92.5% from 79.3% at the end of 2023.
- Lending segment NOI increased 42% year-over-year due to decreased interest expense from principal repayments.
- Development projects are ahead of schedule, with the 4750 Wilshire project nearing completion and expected to generate high-end residential units.
Negative Points
- Cash flow continues to be impacted by elevated short-term interest rates and challenges in the office market.
- Rental rates at Bay Area multifamily assets remain below expectations.
- A large tenant gave back approximately 130,000 square feet at the 1 Kaiser Plaza office building, impacting future occupancy.
- FFO and core FFO remain negative, although improved from the prior year.
- The Oakland multifamily market continues to face high vacancy rates and is a high concessions market, impacting rental rate growth.
Q & A Highlights
Q: Can you provide more color on the leasing situation at Kaiser and how the give-back space will impact things in Q3?
A: We are negotiating with Kaiser, our largest tenant, who currently leases about two-thirds of the building. They gave back approximately 130,000 square feet at the end of July, which is not part of the future lease negotiations. We are working on extending their lease for space expiring in 2025 and 2027. - Steve Altebrando, Portfolio Oversight
Q: What are you seeing on the demand side for multifamily in the Oakland market?
A: We've seen a pickup in demand, with occupancy increasing to the low 90s. However, market-wide vacancy is still around 10%, and rental rates remain a challenge due to high concessions. Lease velocity has improved, but rate increases are not yet significant. - Steve Altebrando, Portfolio Oversight
Q: At what occupancy level do you think you can start reducing concessions and increasing rates in Oakland?
A: We would likely need to reach mid-90% occupancy before we can start pushing back on concessions and increasing rates more aggressively. - Steve Altebrando, Portfolio Oversight
Q: How do recent interest rate movements impact your refinancing outlook?
A: The decrease in interest rates is beneficial for our floating rate debt, offering significant savings. We are considering swapping some of our floating rate debt into longer-term fixed rate debt as the five-year rates have come down. - Steve Altebrando, Portfolio Oversight
Q: Have negotiations or talks regarding asset dispositions picked up, especially with cheaper financing for counterparties?
A: We are still in the evaluation phase, focusing on reducing recourse and overall debt. We are assessing asset-by-asset to generate the most value, including non-core assets like the hotel and lending division. - Steve Altebrando, Portfolio Oversight
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
