Image source: The Motley Fool.
Douglas Emmett Inc (DEI 0.23%)
Q3Â 2018 Earnings Conference Call
Nov. 02, 2018, 2:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. And 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 would now like to turn the conference over to Mr. Stuart McElhinney, Vice President of Investor Relations at Douglas Emmett. Please go ahead with your presentation.
Stuart McElhinney -- Vice President of Investor Relations
Thank you. Joining us on the call today are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Mona Gisler, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You could 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 and consideration of others please limit yourself to one question and one follow-up.
I will now turn the call over to Jordan.
Jordan Kaplan -- President and Chief Executive Officer
Good morning, everyone. Thank you for joining us. I'm very pleased to report another strong quarter for Douglas Emmett. Compared to last year we grew revenue by 7%; FFO by 10%; and same property cash NOI by 4.2%. Our leasing success in the first half of the year drove a 60 basis point increase in our office occupancy this quarter. Overall we continue to benefit from robust economic trends in Los Angeles. During the last 12 months LA County added 62,000 jobs and we still did not see any meaningful new supply in our sub-markets. As a result we have a healthy leasing pipeline and with demand coming from a wide range of industries.
Our cash and straight-line rent roll up remained very strong. Our unique operating platform has kept our G&A, recurring TIs, leasing commissions and CapEx fairly well. In fact, our lease turnover cost represent only 15% of our NOI versus an average of 24% for our benchmark growth. Considering our better-than-expected fundamentals, we are raising our 2018 guidance for same property cash NOI and FFO. Looking ahead, I am excited about our long term growth prospects, LA's dynamic fundamentals are driving fairly healthy rent roll-up.
We are uniquely positioned for more successful acquisitions in our markets. We are midway through delivery of 851 new residential units in Los Angeles and Hawaii. Our repositioning program is in full swing. And over the next few months, we expect to complete a number of projects in our current $100 million pipeline. Of equal importance, we have additional opportunities for future repositioning and development within our existing portfolio.
I'll now turn the call over to Kevin.
Kevin Crummy -- Chief Investment Officer
Thanks, Jordan, and good morning, everyone. We continue to make good progress with our two multifamily development projects. In Brentwood, we are building a 34 story, 376 unit residential tower, the first residential high-rise, west of the 405 freeway in more than 40 years. We remain on budget and on schedule for 2021 completion. As part of that development, we are also creating the first privately owned public park in Brentwood which will benefit all of our nearby office and residential properties as well as the local community.
In Honolulu, we are more than halfway through the delivery of 475 new residential units. We ended the quarter with 221 of these new units leased at average rents above our pro forma. We expect to complete the remaining units as well as the new fitness center and pool by the year end. As we've mentioned in recent quarters, we are making investments in a number of our existing properties where we believe that targeted capital will allow us to significantly increase rent. We expect to complete the first of these repositioning projects next quarter. We continue to evaluate additional investment opportunities within our portfolio where we can generate attractive returns.
Our balance sheet remains strong and our leverage is low. With the exception of the loan on our development project at Moanalua, our next term loan maturity is approximately 3.5 years away in 2022. We also have a large number of unencumbered properties that provide flexibility for future financings.
With that, I will now turn the call over to Stuart.
Stuart McElhinney -- Vice President of Investor Relations
Thanks, Kevin. Good morning, everyone. Last quarter we signed 196 office leases for a total of 740,000 square feet including 294,000 square feet of new leases. Over the last 12 months we have increased the average annualized rent per square foot in our office portfolio by about 6%. That trend continued in Q3 as we achieved 23.6% straight-line rent roll-up and 11.1% cash roll-up. Our leased rate ended the quarter at 91.4% with nice increases in Sherman Oaks/Encino and Westwood. Our remaining lease expirations over the next four quarters totaled less than 10% of our portfolio, well below our recent historical averages.
At quarter-end, our residential portfolio was again fully leased. Over the past year, we have increased our total annualized rent for the multifamily portfolio by 8.6%, reflecting the appeal of our newly developed units at Moanalua and continued rent growth from the rest of the portfolio. During the quarter, we continue to lease new units at the Moanalua development where we expect it to deliver another 246 units over the next few months.
I'll now turn the call over to Mona to discuss our results.
Mona Gisler -- Chief Financial Officer
Thanks, Stuart. Good morning, everyone. Compared to a year ago, in the third quarter of 2018 we increased revenues by 7%. We increased FFO by 10.3% to $100.1 million or $0.51 per share. We increased AFFO by 10.3% to $82.5 million. Our same property cash NOI increased by 4.2% based on strong revenue growth from both our office and multifamily portfolios. With respect to our GAAP NOI, our non-cash revenue declined by about $2 million compared to the second quarter of 2018. Excluding the impact of future acquisitions we expect non-cash revenue to decline at an accelerated pace. Our G&A for the third quarter was only 4.2% of revenues, well below that of our benchmark group.
Most of you are aware of the accounting change that will require REITs to explain certain internal leasing costs but not external leasing costs starting in 2019. Had this will be in place in 2018, it would have reduced FFO but not our cash metrics by about $0.04. Our internal leasing platform provides significant benefits. Regardless of this accounting change, we will continue to have lower leasing costs in our peers.
Finally, turning to guidance. As Jordan mentioned, we are increasing our guidance range for same property cash NOI growth to between 3% and 4%, and for FFO to between $2.01 and $2.03 per share. For more information on the assumptions underlying our guidance please refer to the schedule in 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.
Questions and Answers:
Operator
Thank you. And we will now begin the question-and-answer session. (Operator Instructions) And our first questioner today will be John Guinee with Stifel. Please go ahead.
John Guinee -- Stifel Nicolaus -- Analyst
Hey, thank you. Very, very strong quarter. Can you give a little more -- can you give a little more guidance as to what you think the full development budget is on the 475 units out in Hawaii and then Brentwood? And what sort of yield on cost you might have assuming a fair market value for the land?
Jordan Kaplan -- President and Chief Executive Officer
Yeah. So, for Moanalua, the total cost about $120 million, and in Brentwood, between $180 million and $200 million.
John Guinee -- Stifel Nicolaus -- Analyst
And that --
Jordan Kaplan -- President and Chief Executive Officer
(inaudible)
John Guinee -- Stifel Nicolaus -- Analyst
That's zero for the land.
Jordan Kaplan -- President and Chief Executive Officer
Yeah, that's zero for the land.
John Guinee -- Stifel Nicolaus -- Analyst
So, when you think --
Stuart McElhinney -- Vice President of Investor Relations
Yeah, that's zero the land -- so we have the -- so, remember we brought these projects more than a decade ago and we bought them and they support themselves and have been very good investments just with the -- was built on the property. So as we sit today you can make some estimates, that we've never sort of tried to parse off, because this is just excess land that we've on those sites. But, certainly what you're alluding to which is correct, which is that, we've said to everybody, we'll build that for way above the 7 cap rate. And of course that does not include the cost of land. So, that -- maybe that's an easier statement to make than usual.
It still turned out to be a very successful project. And if you added land, it would, that would change those cap rate metrics. But, I will say that these projects have been a very, very successful. And as we've told to you, it's well above 7 cap rate that we expect to finish.
John Guinee -- Stifel Nicolaus -- Analyst
Second question. Over the last two or three years you've averaged about 8% to 11% cash spread on releasing and GAAP spread of around 27% and your cost per square foot per lease year, say it under $6. Can you maintain that? Or is that going to inevitably slow?
Jordan Kaplan -- President and Chief Executive Officer
Well it's impressive, not years we've had this cash roll up, and we're still continue to have it. And I don't see any reason. I mean, it seems higher than it should be, just because it's just so high. But if you look at what's going on in terms of the market fundamentals here and the lack of supply and the amount of tenants that are growing and the relative cost of occupancy for our tenants compared to other sub-markets, other markets that they are in, whether it'd be in San Francisco, New York, et cetera, it seems like the numbers have a lot of running room. They're Just driven by rents moving up to the most part, and in the angle of that line. And that angle of that line is just, still seems to be pretty strong.
John Guinee -- Stifel Nicolaus -- Analyst
Great. All right. Thank you.
Jordan Kaplan -- President and Chief Executive Officer
Thanks.
Operator
And the next questioner today will be Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Great. Thank you.
Jordan Kaplan -- President and Chief Executive Officer
Thank you, Jamie.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
So you had some meaningful moves in some of the first time leased and some of the sub-markets. Can you just talk about some of the changes and then the -- your prospects to backfill some of the spaces that did go dark or did had some lower 100% leased basis?
Stuart McElhinney -- Vice President of Investor Relations
Sure. Jamie, I think you're referring to Century City and Santa Monica. We've had a couple of tenants, and those markets move out. Thank fully, those are some of our stronger sub-markets, they're both still very highly leased and we're feeling really good about our prospects to backfill few of those spaces very quickly.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
And how large of the leases?
Stuart McElhinney -- Vice President of Investor Relations
You know full force for us are typically about 20,000 feet, and we had two full force in Century City, another larger-than-average tenant move out in Santa Monica.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. And how do those rents compare to market?
Stuart McElhinney -- Vice President of Investor Relations
I think we're in a good position to see nice roll up on those spaces.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. And then just generally, just thoughts on kind of net effective rent growth across the markets and maybe an outlook if you can do that?
Jordan Kaplan -- President and Chief Executive Officer
Well, net effective rent growth across the markets has been obviously very strong in the Westside, Encino, Sherman Oaks. It's been a little slower, but happily growing in Woodland Hills. And in Hawaii, we are really outperforming the market. And as you know, we're trying to make some -- we're working through a process that we're hopeful end up with us redeveloping one of the buildings. We're not 100% there yet, we're still looking into what needs to be done to make it happen. But that would be impactful there. But I would say, Hawaii, slowest, real happy with growth getting growing in the Woodland Hills area and very strong in the other markets.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Including Brentwood and Westwood?
Jordan Kaplan -- President and Chief Executive Officer
Definitely.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. All right. Thank you.
Jordan Kaplan -- President and Chief Executive Officer
All right.
Operator
And our next questioner today will be Nick Yulico with Scotiabank. Please go ahead.
Nicholas Yulico -- Scotiabank -- Analyst
Okay. Thanks. First question is, what drove the same store NOI guidance increase? And then also how, you're thinking about expenses, it's been kind of drag on your growth this year, maybe we can get a preview for how expenses might trend next year?
Mona Gisler -- Chief Financial Officer
Hey, Nick, I am -- so the same store cash NOI, I mean were three quarters in. So, looking at our run rate so far this year and then looking ahead through Q4, we felt comfortable with that, an increase in that range, 3% to 4% made sense. I think we've said all year long, we don't want to look at any single quarter, but look at the year as a whole, the guidance will be provided to the year. And so we're feeling good about the 3% to 4% for the full year guidance. And as far as expenses go, the two major expense areas that we've continued to talk about have been payroll and utilities. On the payroll side we made some moves last year to try to get ahead of the mandated minimum wage increases in Los Angeles.
So we think that we've addressed that and then going forward you should see a better kind of comparable comparison between this year and last year. Obviously it's a good market with low unemployment. So we'll have to see what the market pressures are. But in terms of just those mandated increases, we think that we've addressed that at this point. On the expense side with regards to utilities, we talked about our sustainability in the past and we've really put in some great measures to try to minimize our utilization. And that being said, the rates are going up. And so that's something that we continue to see quarter-over-quarter. And your guess is as good as mine as to what happens going forward on that one, but it's something that we're keeping an eye on.
We're pretty happy with our lower utilization and sustainability factors that we put in to place and we'll continue to look for ways to improve that, but it's been a weird long summer/fall, I keep waiting to have to put on a coat, and that's going to drive our utilities going forward as well. So we're going to have to just wait and see on that one.
Nicholas Yulico -- Scotiabank -- Analyst
Okay. Yeah. That's helpful.
Jordan Kaplan -- President and Chief Executive Officer
Either way, Nick, that the same store roll-up, but it's driven by stronger-than-expected fundamentals. I mean, your fundamentals just keep getting stronger and stronger, and you guys see it in that, in those roll-up numbers which we answered in the last question going back just quarter after quarter sustaining.
Nicholas Yulico -- Scotiabank -- Analyst
Right. And Jordan, what are your latest thoughts on potential for Prop 13, split roll and a couple of years? And how does that affect any decision making you'd make on your portfolio or even acquisitions, you had mentioned you sound like you're positive on your acquisition opportunity. How does that thinking on Prop 13 affect your decision making there?
Jordan Kaplan -- President and Chief Executive Officer
Well, in general, in terms of modifying Prop 13 doing the split roll, that was being relatively low probability thing, Prop 13 is very popular. And in polling at any way you cut it, all people, young people, business people. I mean, it doesn't even matter, it pulls very strong and week to make any changes including pulling for split roll and all the rest of it. It's a complicated, and there is never been much appetite for making any changes to it.
We have -- it's worth saying about Prop 13 and its impact on property taxes that we actually have had very, in general for the State of California we've had very similar property tax growth in revenue as many other states. And we're actually, I think -- in terms of property, we're something around 19 or I think under 20 in terms of property taxes.
So, we're -- it's not like we're very low state on that front. We're also a state with a balanced budget and with actually excess tax income because we have very high personal income tax in the state with the kind of excess amount was added in over a certain number. So, I'm pretty optimistic that there won't be any changes to that. Now if you go to the very specific question you asked me about buying buildings for what happens with Prop 13, the most of whatever happened is that building would be valued or whatever you would buy for it, the time you bought it or some approximation of that number. So, wouldn't get in the way of anyone buying buildings, because they're going to pay the current tax rate.
But the whole thing about Prop 13 is that the building value only resets when there is a transfer, if you hold the property, it only moves up 2% a year. So it wouldn't stop everybody buying buildings, that's included, everybody. Put to pro forma about full property taxes when they are buying it, because that's it, they're going to be impacted by after the purchase. So it wouldn't impact the value of buildings at all. I've never seen, analysis or someone would just claim selling a building where they've got anything but full property taxes were going to impacted.
Nicholas Yulico -- Scotiabank -- Analyst
I guess, that my point was that, if you already have some low property taxes within your portfolio, because you've owned assets for a while, and there is some real estate, your property taxes are going up, doesn't make sense to buy more in the market ahead of that?
Jordan Kaplan -- President and Chief Executive Officer
I think it makes sense to buy more in the market, because I'm bullish on the market. We have mixed that in property tax bases in our existing portfolio, because remember you can have a higher property tax number, then you can file Prop 8, when you think the market is down, it can go down. But, then when it goes down, it could raise it very quickly on you again, because still you're only capped by that higher number.
So, those numbers actually move around quite a bit. But in terms of buying or building value, even if you -- for anybody that understands Prop 13, even if you were guaranteed that there was going to be a split roll, it would have no impact on value, no seller would make their price lower, because of that, because it doesn't have any impact on our recently sold building. But I think in general if you said, are we bullish for buying buildings? We are -- and hope to make more deals but for all the reasons of fundamentals, that you guys are familiar with.
Nicholas Yulico -- Scotiabank -- Analyst
All right. Thank you.
Operator
And the next questionnaire today will be Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Laura Dickson -- KeyBanc Capital Markets -- Analyst
Hey, everyone. This is Laura Dickson, here with Craig.
Jordan Kaplan -- President and Chief Executive Officer
Hi, Laura.
Laura Dickson -- KeyBanc Capital Markets -- Analyst
So, first -- hey, afternoon. So, you mentioned that you start to complete several of your repositioning projects in 1Q, I was just wondering if you could give us some detail on which assets, the associated spend, and then how big the pool of remaining assets is currently?
Jordan Kaplan -- President and Chief Executive Officer
So, we've been spending in terms of the repositioning projects, we've been spending anywhere from $5 million to $15 million and in some cases even a little more than $15 million on a building. And when you look at the size of the buildings we're working on, that's a very small amount relative to the impact that we feel we can have in rental rate. So, the returns on these things are enormous. So that's all the very good news.
Now, the bad news is -- it's very disruptive, the building. You don't want to take on too many at a time. And it can only -- you can only put out so much capital in that process. We've already told you that we -- the process we're in right now, the combination of buildings that we've purchased, the JVs and buildings that we wholly own total up for about $100 million. We're rolling through that process now and a good chunk of them, low JV and wholly owned ones will start rolling out of over the next few months. So, end of this quarter, beginning -- next quarter and then as it rolls forward.
And as we do that, we have a very strong pipeline to roll more in. And so we're looking at, doing the preparatory work for what we want to roll in, and we're also doing the completion work on those projects. At the same time just because you asked the question, I didn't get a chance to say it, we're also looking at other sides for ground at development, so we have ground at development at various stages now, we have -- getting completed in Hawaii for -- the first 500 units. We're coming out of the ground, clearly out of the ground now in Brentwood. But we have other sites where we are starting to work through entitlements, to be able to keep that program rolling.
And I think we have -- in both fronts, which is really the best, the most exciting thing about what we are coming up, because it's our opportunity to take advantage of the position we have in this market. On the front of repositioning buildings and on the front of ground at construction, we feel real good about those opportunities. And I'm not trying to take anything away from the acquisition side, but those opportunities we think it will carry you for a while. They are not necessarily, I would say the most appealing at the public markets, because they are slower. I mean we do the work and the revenue rolls in overtime, but in terms of long term, extremely strong growth that come out of our earnings, especially on per share basis and all the rest, that's a great source of that. So I'm excited about those programs.
Laura Dickson -- KeyBanc Capital Markets -- Analyst
Can you just remind, the ground at development is that primarily multifamily?
Jordan Kaplan -- President and Chief Executive Officer
It's all multifamily.
Laura Dickson -- KeyBanc Capital Markets -- Analyst
All multifamily. Yeah. Okay. I appreciate the color. And then just to follow-up on Jamie's question regarding moveouts in Century City and Santa Monica, what kind of downtime are you expecting to backfill those leases?
Stuart McElhinney -- Vice President of Investor Relations
Laura, we're not -- we don't kind of give any timelines on that, but I will say, I mean, we've looked at, historically at Santa Monica and Century City, they have been very strong performers for us. There's a lot of activity in those spaces. So, I know we have tenants out there, and I think we're feeling good about the prospects to do that quickly.
Laura Dickson -- KeyBanc Capital Markets -- Analyst
Okay, great. Thank you.
Jordan Kaplan -- President and Chief Executive Officer
Thanks.
Operator
And the next questioner today will be Manny Korchman with Citi. Please go ahead.
Manny Korchman -- Citi -- Analyst
Thanks, everyone. Stuart, just not to beat a dead horse, but I'll try anyway. Those spaces, given that they were large tenants, I assume you knew in advance they're moving out. Was there a reason that there couldn't have been store activity that you wouldn't more confidence in the time frame that they get done? Or do you have the confidence and you just, don't want to lock yourself and tell us what the time frame is?
Stuart McElhinney -- Vice President of Investor Relations
I'm not sure I understood the question.
Jordan Kaplan -- President and Chief Executive Officer
He wants to know how confident you are in your answer, that, look -- look, we have a very good pipeline of interest in those spaces. Now, that -- it take time, because, get leases done and build the space before they're paying rent, that's a little tougher to predict. But if you're asking about confidence level of those spaces being backfilled with solid good tenancy, the answer is, extremely confident.
Michael Bilerman -- Citi -- Analyst
Well, I guess, is there a way Michael Bilerman speaking, your average tenant size is 5,000 square feet, median of like 2,500. So, I guess from a larger tenant space, I think you said, one will -- it's like 50,000, the other two are like 20, a piece. Is there anyway that you can give us a little bit more color, because I assume those larger leases, you do have a little bit more of negotiating window with that tenant, because it's a big space relative to the 1,000 leases that you're doing all the time with a much smaller tenancy. So, I guess that's where our question is really coming from?
Jordan Kaplan -- President and Chief Executive Officer
Well, larger leases are definitely slower to get done, than smaller ones. Sometimes we choose to break it, space up. I'm not completely sure in this case, we need to do that, because I think we have a lot of interest like multiple tenant interest in the spaces. But still to predict for you, how quickly they will be -- the lease will be signed and they will be paying rent. I mean, we're not in the business of doing that, especially on single leases.
Michael Bilerman -- Citi -- Analyst
Well, I guess what was the -- what's the story behind these larger leases, about why the tenant decided to leave? What you think, the significant mark up? Is there a lot of CapEx that needs to be put in those spaces? Because typically, we wouldn't be talking about leases on your call with the 2,500 or 5,000 square foot lease, right -- we're only going to talk about larger which is a very rare, and so it did cause a decline in occupancy which is why we're asking about it?
Jordan Kaplan -- President and Chief Executive Officer
I don't -- I don't, I think tenants are mostly like 20 --
Stuart McElhinney -- Vice President of Investor Relations
I don't think that's rare.
Jordan Kaplan -- President and Chief Executive Officer
You're talking about 20,000 foot tenants.
Stuart McElhinney -- Vice President of Investor Relations
Yeah.
Jordan Kaplan -- President and Chief Executive Officer
We have tenants that roll like that all the time in (inaudible).
Stuart McElhinney -- Vice President of Investor Relations
Yeah.
Jordan Kaplan -- President and Chief Executive Officer
It's nothing common.
Stuart McElhinney -- Vice President of Investor Relations
No, you know, in that same market, we might do other leasing, so you guys don't notice it. I don't think those guys moving around that, much of that rare, and I think we have a good pipeline. But either case, I don't have, I mean, I give you the guidance, if we had some good guidance, but those guys just don't know -- those tenants are what you're pointing out, it's correct, they're not as much of the flow business where we can kind of credit what's going on when you're dealing with 2,500, 5,000. They're little more chunky and therefore they pop up that way. But I don't have a -- the only prediction I can give you, if you're asking from timing is, we've a -- really a lot of interest in a lot of tenants who want the space, we got to make a deal that we like. And then we got to get it, built them in.
Jordan Kaplan -- President and Chief Executive Officer
And Michael, with the nature of the portfolio, with having a small tenant that we have, it's why we tell -- we tell that 95% for us is what we consider for, these markets today are sitting at 94%, 93%. I mean, Santa Monica has been basically more than full, operating above that level for a long time, don't we -- and once in a while you haven't moved out, and it will take you a little while to backfill it, and that's what we're going through now. But look, we're very confident these basis will --
Stuart McElhinney -- Vice President of Investor Relations
If you're going to have a space, just as a great markets to have in.
Michael Bilerman -- Citi -- Analyst
Yeah, no -- I mean look, it's only out of your 2,900 leases only 5% are greater than 20,000 square feet. Okay. So that's why we -- a little bit more focused on it, right. That's not in your true bread and butter or was 95% of the other leases you have are sort of that. But anyways, then it's a quick question for Kevin, if you want to talk a little about the investor pipeline and sort of market overall from an acquisition perspective?
Kevin Crummy -- Chief Investment Officer
So, it's a little slower. I mean, the era of EOP is over and we've reverted back to a normalized environment where it's fewer buildings are being offered out on the market, we're underwriting everything and frankly there's a couple of things in the pipeline that we're pretty excited about, that haven't come out yet. We're still in the acquisitions business, as Jordan said, we're doing a lot of development and redevelopment, but acquisitions are definitely part of the growth strategy going forward. But, we're going to maintain our discipline and chase after the assets that fit our portfolio, and not just the ones for properties, because they're on the market.
Michael Bilerman -- Citi -- Analyst
Yeah. Got it. Thank you.
Jordan Kaplan -- President and Chief Executive Officer
Thanks, Mike.
Operator
Sorry about that. Our next questioner today will be Alex Goldfarb with Sandler O'Neill. Please go ahead.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Hey, all. Good morning. Two questions, first just going on the interest rate side. I think the next floater that you have up is the $145 million in next -- in August of 2019 unless I missed something on some refinance. But, just curious with the sharp backup in rate, your traditional model of doing a seven year floater with a five year swap, have the economics of that changed versus a straight seven year order 10 year fixed mortgage? Or as you get calls from your banks, your traditional seven with a five year swap is still far more competitive option than traditional fixed financing.
Jordan Kaplan -- President and Chief Executive Officer
Well, at first of all I love how well you know ours, the way we do our financing. That's great. I feel like it has taken 12 years or so, I'm going to call and say back, what we actually like to do. But the reason we've always focused on the type of -- so first of all, we've never been big on making kind of a bet on interest rates or the direction of interest rates. But we have recognized is that just in general for real estate financing, I think people undervalue the optionality of being able to pay a loan of the optionality of -- or the lack of optionality that you have, when you do a fixed rate long term loan.
So, I've really seen big fixed rate long term loans where the borrower was -- wasn't somewhere down the line, wondering why do I do this. So, the reason we structure the loans the way we do is not because, I'm saying, hey I think, the interest rates are going to go down or up or sideways or whatever, it's because, that's the longest we can go. And still maintain the optionality that you get through swapping and not having lock-outs from lenders and stuff, so before trying to appeal for the big banks et cetera, we can't -- we just can't push them longer than seven years and they're the ones that allow you to do those floaters where you swap and why is that important, the swap is a two-way street, right.
So if I do swap and rates go up that's why past value. Rates go down, it doesn't have value. If I do a fixed rate loan and rates go up, they'd still charge me a point to pay it off. Even though their loan rate is very low. And when rates go down I get charged yield and maintenance plus a point. So that's not evenhanded right trade. So that's why we've always maintain the direction of the swabs and the seven year deals.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. So, it doesn't matter what the rate change would happen in the economics, your view is that, this is the way you like to do it, for these reasons and the economics or sort of not as a relative part, is that correct?
Jordan Kaplan -- President and Chief Executive Officer
No that's not correct to say that, the economics aren't relative because we look at whatever swapping as to what the curves look like, and then wouldn't swap, and they're still part of the curve. But in general, we always start with that structure and I try not to take large positions on what direction I think interest rates are going to go on. I mean, the markets already figured that out and those rates are laid out for you at all various times. Because many people over the last 10 years, rates are going up, they went down, they got caught, it's better just to do the financing that fits with what we like, our operation of the company and what fits with the buildings that we're financing.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. And then the second question is going back to Bilerman's deal pipeline question. If there has been some chatter about LA sort of, the opportunities set, South of LAX, some of the markets down there, among the beach that are attracting executives that don't want to sort of cross above LAX and they want to office down there. So, one curious your take on that? And then two, is that something that you think is a valid, do you think that you guys may look at opportunities down there, because it would fit with your office proximity to the high-end executives? Or those sub-markets don't share the qualities that Brentwood, Santa Monica et cetera share?
Kevin Crummy -- Chief Investment Officer
Well you are right. There is a very large executive community that's in the South Bay. And a lot of the kids when they finish from LA, big cities are their first stops. So, those are very good labor pool down there. But, within the South Bay markets there is a lot of diversity on where you'd want to be. And so, if you're asking if we want to be near 190th Street in Torrance, the answer is probably no. We don't want to be in (inaudible) and Manhattan beach, that's an area that could make a lot of sense, although it's dominated by one large avenue. And then you get up toward a second though, there's a lot of corporate ownership that has a lot of entitlement. And so it's not very supply constraint. So it's definitely a market that we're tracking. And someday will there be an opportunity where we would pounce into that market potentially, but it's something that we track, but it's not something that we're quite ready to go into yet although if the right opportunity came along, it would be something we would definitely evaluate.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. Thank you.
Operator
And the next questioner today will be Rich Anderson with Mizuho Securities. Please go ahead.
Richard Anderson -- Mizuho Securities -- Analyst
Thanks. Good morning. So, whether you meant to signal it or not, you're -- as a thesis your leverage has come down over the past few years, Jordan, I know it wasn't meant to be thought of as sort of the sudden deleveraging initiative by the Company. With that in mind, the developments that you've had in mind looking at redevelopment activity perhaps buying some assets, where are you comfortable bringing leverage up if you were to use sort of a debt-to-EBITDA type of metric over the next couple of years? And maybe that question from --
Jordan Kaplan -- President and Chief Executive Officer
Debt-to-EBITDA, sorry debt-to-EBITDA now is like 0.9. Well, as I've said it in the past, we look more at the properties that we're financing. We don't put any properties at risk, we wouldn't put the Company at risk, when we look at the way our financing played out, and then bunch of stuff like that. We have a lot of excess cash flow. As you know we're in a fortunate position that, even beyond our dividend, we've had a lot of cash flow to do stuff and our cash flow has been growing. And I think, maybe as we mentioned earlier on this call, but our cash flow, our real cash flow has been growing at a herculean pace.
And that's all -- that's a combination of things. As the apartments we're building roll in and as the repositionings role in and then just as our core markets improve as we continue to lower the cost the turnover, I mean all those things and all those programs we've got and running here for years and keep every year tightening up, they're all coming more and more to fruition. And I'm not thinking -- anything our numbers, but I'm just saying we see that cash flow coming out. So, we feel like there is a lot that we can do with that cash flow, certainly it supports the repositioning projects.
When you move on to the construction and you say building something or doing whatever that -- those construction costs when we're doing it, they're a little bit short-term, because when they are done and building is build, then you have all that revenue and then you would appropriately leverage that revenue. So that's kind of an up and down, when you're looking at it. So I wouldn't say that we're looking at really changing our leverage level. Now if you switch to the third thing, which is stuff that Kevin is working on, as we have said in the past, anything that was large enough to be meaningful to our system would be large enough that we would bring in those same JV partners or maybe some others that we've been working with and actually together trying to find and put together some of those deals. So we would be a piece of the deal we wouldn't be the whole deal.
Richard Anderson -- Mizuho Securities -- Analyst
Okay. Good enough. And then my second question is, Mona, you talked about the minimum wage issue and its implications on your same-store growth profile. I'm wondering if you could, if there is a way to quantify how that has impacted your numbers this year, if you are running at 5% or 6% same store NOI growth in the past, now more like 3% to 3.5%. Would you say that large chunk of the decline is from that factor? Or is it relatively small impact on the -- on how you're going same store?
Mona Gisler -- Chief Financial Officer
I would say for this year that wasn't a factor. That was a factor, so if you're comparing 2018 so far and to year end compared to prior years that absolutely was -- we haven't given guidance going forward. So I don't want really speak to what the expectations are going forward. But for this year that was something that was an impact, if we knew that going in.
Richard Anderson -- Mizuho Securities -- Analyst
I know is a factor, I'm just trying to get a sense of magnitude of the fact. I mean how many minimum wage folks and related type of the people do you employ?
Jordan Kaplan -- President and Chief Executive Officer
Well, I would say more importantly, if you ask what the big driver is, same store roll out it's rental rates. So expenses, though all the expenses as a percentage of what's driving things are -- we can, even lower expenses as far as impactful then the top line rental rates moving. Now, with that said, and it was in the executive summary and I think Mona had it in her section. This year has been impacted on the expense side by, because when you do same store you have a lot of the people that were impacted by those change in pay rates or relative properties -- properties or whatever in the same store. So, and especially even at the apartments and there is a lot of them there.
And so we kind of last year or maybe end of the year we took that on. There has been some minimum rate wage, there are some aggressive minimum wage moves made in California, not only just in California, but actually in LA. And so we took on last year, we decided to get ahead of it. And make some big moves there, and we also rolled out of an equity program. We did a lot of things. But actually has been very successful in terms of retention, allow us to keep pushing our training programs, all that good stuff. But we did near the end of the year.
So we bought ourselves another, we'll call it three or four quarters that would be tough comparison quarters compared to even third quarter of 2017. And so we have had to aware for that, for three quarters of that big move that we've made. The point we've been trying to make in some of our responses is, once that big move is now in the comparison quarter that will lighten up the paying going forward in terms of just same store and the kind of other competitive metrics going forward, because that move was really very outsized. But then beyond that still, it's low unemployment, there is pressure on wages, there is pressure on some of the other expensing that you talked about. Still, we're very good at controlling expenses. And with all that together the big mover is, the roll up in rents.
Richard Anderson -- Mizuho Securities -- Analyst
Okay. All right. Good enough. Thanks very much.
Operator
And the next questioner today will be Steve Sakwa with Evercore ISI. Please go ahead.
Steve Sakwa -- Evercore ISI -- Analyst
Thanks. Good morning.
Jordan Kaplan -- President and Chief Executive Officer
Hi, Steve.
Steve Sakwa -- Evercore ISI -- Analyst
Jordan, I was wondering if you could talk a little bit about Honolulu? That market lost about 130 basis points on your percent leased? And I guess I'm just wondering if you could tie in sort of the leasing activity there, and I know that you guys have been actively trying to find a rental conversion property to multifamily. I'm just wondering if you could provide us any updates on that? And tied in with the -- kind of the office leasing environment Honolulu?
Jordan Kaplan -- President and Chief Executive Officer
So, the office leasing environment in Honolulu has been very flat. And it's flat, the larger reason it's flat is that, while it's the lowest unemployment state of all states, all 50, under 3%. It's very hard to draw a population, permanent population in, employees in. So everybody is looking for employees there. It's hard to draw them in, because of the cost, the workforce housing is very expensive there. The cost to live there is high, mostly driven by the cost of workforce housing.
So, we know and anybody -- everybody there knows that they have a horrific for the size of the -- they have a horrific surge of workforce housing. We bet on that, we basically build price wise, we build workforce housing at Moanalua. You guys have seen a tremendous success we've had leasing those units. They had a pro forma, above pro forma, all of the rest of stuff good stuff. So they're being really just snapped up, and the MHA project I would say is like a 15 minute drive from downtown something like that. So we took that and we said, all right, downtown has had a very steady tenant base, as a matter of fact they're tenants that are -- by kind of swirled around or saying, we want to move and consolidate in the downturn. But that on the margin, isn't enough to push occupancy over 90% and really impact that downtown market.
And since it's a longer term program to draw in our more population to allow these tenants to grow, we thought maybe we can do something on the supply side. With the experience that we had in MHA, we looked at building similarly workforce priced units, we have to get, the cost have to work and that's why we're not raised -- build them -- but we're working very hard on getting or evaluating the roadblocks to getting there. And we said, can we look at one of these buildings and literally take it out of the spot, but pulling one building of the supply would shift market occupancy over 90%. So, that's how small that market is.
And so we're looking at doing that and we're trying to kind of go through that process with them. If we're successful it will be tremendously impactful combined with other tenants that are even trying to move into the market or would be really tremendously impactful. So we're working our way through that. And I -- and it's something that Kevin is working, and a lot of people are on, expensive people, because we want to get there.
But we're not there yet, because there is still some roadblocks that we have to get there.
Steve Sakwa -- Evercore ISI -- Analyst
Okay. And then maybe just kind of switching gears to Warner Center. I thought in one of your comments to may be a question, you said that you were seeing kind of good growth on the rent side but that percent lease figure for you was flat this quarter, it's still around 86%. So I'm trying to sort of reconcile the rent growth with you're still having 14% I guess vacancy, if you will in that marketplace?
Jordan Kaplan -- President and Chief Executive Officer
Well, so rent growth in the market, we should depend in on the occupancy in our portfolio, but it depends on the occupancy in the market. And the occupancy in that market has been strengthening and it's now I think it's 89% almost 90%. So that's what's driving rent growth in the market. Now you go what's wrong with you guys. Okay. You're supposed to be super good at least, why are you, underperform in the market at we're on our way 86%. At 86%, it's the only market we underperform. So I can give you the reason for that. The reason for that is in that market you still have a number of large tenants to at least 100% of buildings, therefore when you look at the whole market 100% come in on some of the larger buildings.
We own a disproportionate share of the buildings where we -- I mean, we've done this to ourselves, but we're at smaller tenants, all right. So, the smaller tenants there is still more space there. So, our occupancy is about 86% against the market that's 89% actually heading with an up arrow, so yes rates are moving. Yes we're getting the benefit of that, but we are holding more the vacant space than the remainder of the market for that reason I just described because we have more of the smaller tenants. Now with that said I do think as we rolled out more and more large tenants we are less subject to shock. I still like, our format for focusing on the small attendance. And I think that will serve us well over the coming years.
And I think we will catch up to the market and in fact I have a lot of comments, we'll beat the market when all set and done. But we're working through that process. We're probably one of the few landlords that, of course the number of how we've reduced the number of tenants over 100,000 most of the people put big announcement and say how great is they just did it 200,000, 300,000 for lease. So we're happy that those are rolling out, we're backfilling with smaller tenants. It's a process we're comfortable with. We're building our floors and it gives us more stable set of assets on the long terminal, that's risky set of assets.
Steve Sakwa -- Evercore ISI -- Analyst
Okay. If I could just may be quickly follow up. Do you see the pipeline of smaller tenants kind of growing in that marketplace? Or do you think that sort of something on the -- come into '19 and beyond?
Jordan Kaplan -- President and Chief Executive Officer
We see it growing. We see it growing. And you've seen us I mean I think when we boarded we had six or maybe a more tenants over 100,000 feet when we bought one in center, we figured a day with one, that is just slightly over. And by the way, we backfilled all that space with small tenants and they sit there. So that's a very robust pipeline and we've been doing a lot of leasing out there. There are couple of quarters going back, where you guys, we're seeing, hey what's going on with the numbers when our rollup was -- if it's still very strong, but it was all restaurant we call it. And we said, because we're doing a lot of leasing one in center, where the number is not moving up as fast, that they are on the left side. But we're doing a lot of leasing out there, and that leasing has allowed us to build out a smaller space and given us some more stable long term occupancy rate. We'll get there.
Steve Sakwa -- Evercore ISI -- Analyst
Okay. Thanks. That's it from me.
Operator
And the next questioner today will be Dave Rodgers of Baird. Please go ahead.
Dave Rodgers -- Robert W. Baird -- Analyst
Yeah. Good morning, there. Maybe I'll start with you just in terms of whether the Century City and Santa Monica leases that you've addressed before or just maybe even some broad commentary about. Are you seeing changes in the reasons for moveouts i.e. price bad credit can accommodate growth. Can you add any color around those issues?
Jordan Kaplan -- President and Chief Executive Officer
So, I can directly answer the question and say no, but to the amount of color, I will say this. We're living through and I feel like I've said this the last three years, one of the best leasing markets I've ever seen. And especially if you're talking about the Westside and West LA, broader West LA and that's shift, you know in Sherman Oaks. I mean is just a very strong market. And we're not, I mean take all the signs, pick up in the fall, we're not seeing yet. Pickup in concessions, we're not seeing in -- pipeline, deal flow all of those states that we see, because we have so many transactions here all strong. Everything is strong, rental growth, net effective rental growth, all strong.
Dave Rodgers -- Robert W. Baird -- Analyst
That's helpful. And then maybe just a follow up for Kevin and I appreciate the color on the redevelopment pipeline and how that will start to deliver in '19. I'm trying to make sense out of this question, but is there a higher degree of vacancy or as you look at your '19 redevelopment deliveries is there a higher component of vacancy where you can kind of immediately start to grab back some occupancy. You a sense of what that number is versus kind of recapturing leases overtime that make sense?
Kevin Crummy -- Chief Investment Officer
The projects that we're developing are all on the Westside which is very very highly leased. And so, it's a combination of we're doing some of the recent purchased buildings and some of the legacy portfolio buildings. So, it's more of a rolling overtime. I mean our leases are not 10 or 15 year type of leases. So there is going churns through of weighted average lease term. So, we should be mark-to-market on most of these, and call it either side of 16 months.
Jordan Kaplan -- President and Chief Executive Officer
Yeah. If you -- the buildings, I'm pretty confident the buildings will perform consistent with the chart we have in our supplemental that shows kind of the role going out that. That curve that so -- there is sort of a curve to our rollout that's extremely reliable. I think barely every moves in terms of we show you the three years going back average and then we show you what's exactly now with the rollers going to whatever money is, 7, 10, years. And I suspect that the buildings themselves have exhibited exactly that. So, you kind of as you approach the year right for, you're around 10%, you tend to be like 13% to 14% and then you're following and then it tend to drop like 11%. I mean, that is sort of the way it rolls, but every year that the way it goes, because of the size of tenants and larger tenants tend to go a little longer. We have so many tenants that are just to drive itself toward that curve.
Dave Rodgers -- Robert W. Baird -- Analyst
Great. So, I guess when you say, you get to talked about disruption in the redevelopment to some degree, you mentioned it earlier, Jordan, I guess it really haven't created a sizable vacancy number that's monetizable immediately, that was the answer, right?
Jordan Kaplan -- President and Chief Executive Officer
We have been disruptive but it hasn't created vacancy, it's -- it just means we have to go and talk to the tenants and show how our goods kind of later. And I mean, it's just disrupt, I mean -- it's not in the economics, it's just want to, just make a lot of people angry. And for better, for worse which I get it, they don't like it when they pull into the garage and they're turning, now they're blocked they got to turn left, they can't get directly to their space, we're doing construction in the garage. They can't get into the lobby of the building, let's go around the back, because a lot aggravates them.
Dave Rodgers -- Robert W. Baird -- Analyst
Thanks for the clarity. That's helpful.
Operator
And our next questioner today will be Mitch Germain with JMP securities. Please go ahead.
Mitch Germain -- JMP securities -- Analyst
Kevin, I think you said that there is not a lot of product for sale in the market. I was curious about your thoughts around that, is it maybe there is not as much active capital as a lot more families and the one that hold the inventory. What you attribute that to?
Jordan Kaplan -- President and Chief Executive Officer
Well, I think that it's -- it's slowed down. As I said before we had that one seller in Blackstone that had a very, very large portfolio. And they sold 11 buildings over 2.5 year period of which we bought eight of them. And so we're not, that's like an unsustainable pace, that would be amazing churn, given the long term owners in our marketplace. And so it has slowed down, I mean you know the properties that are on the market, but not everything is necessarily a fit for what we do.
And so you might have larger properties that have a long term single tenant lease or you might have buildings that we looked at in the past but we aren't excited about because of the floor play and it's come back again. And so we pass on for that. So it's just the pace has slowed down but that doesn't mean that there won't be any trades and it certainly doesn't mean that when the right product comes out that we won't aggressively pursue it.
Mitch Germain -- JMP securities -- Analyst
Thank you.
Operator
And this concludes our question-and-answer session. I would now like to turn the conference back over to Jordan Kaplan for any closing remarks.
Jordan Kaplan -- President and Chief Executive Officer
I just like to thank everyone for joining us. And we look forward to speaking with you again next quarter.
Operator
Thank you for attending today's presentation. And you may now disconnect your lines.
Duration: 56 minutes
Call participants:
Stuart McElhinney -- Vice President of Investor Relations
Jordan Kaplan -- President and Chief Executive Officer
Kevin Crummy -- Chief Investment Officer
Mona Gisler -- Chief Financial Officer
John Guinee -- Stifel Nicolaus -- Analyst
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Nicholas Yulico -- Scotiabank -- Analyst
Laura Dickson -- KeyBanc Capital Markets -- Analyst
Manny Korchman -- Citi -- Analyst
Michael Bilerman -- Citi -- Analyst
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Richard Anderson -- Mizuho Securities -- Analyst
Steve Sakwa -- Evercore ISI -- Analyst
Dave Rodgers -- Robert W. Baird -- Analyst
Mitch Germain -- JMP securities -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
