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Douglas Emmett (NYSE:DEI)
Q2 2020 Earnings Call
Aug 07, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded. [Operator instructions] I will now turn the conference over to Stuart McElhinney, vice president of investor relations for Douglas Emmett.

Please go ahead.

Stuart McElhinney -- Vice President of Investor Relations

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.

Jordan Kaplan -- President and Chief Executive Officer

Good morning, everyone. I hope you're staying healthy. Our rent collections continued to be negatively impacted by the pandemic and our market's very tenant-oriented lease enforcement moratoriums, which are considerably out of sync with the other gateway markets. However, our second-quarter collections were somewhat better than the numbers we previously disclosed for April.

As of today, we have collected 91% of our second-quarter billings, including 96% from residential, 93% from office, and 35% from retail. These numbers are based on our current tenants' pre-pandemic rent obligations. At the end of the second quarter, pursuant to GAAP, we wrote off certain tenant receivables. That reduced our second-quarter FFO by about $0.04 per share, most of which related to the retail and hospitality tenants in our portfolio.

We also wrote off all noncash straight-line balances related to those tenants, which further reduced FFO by $0.06 per share. Of course, any collections from those receivables will be included in future quarters' FFO. The pandemic also reduced second-quarter FFO by about $0.05 per share from lower parking income. Overall, the cash and non-cash write-offs and the lower parking income related to this crisis reduced our FFO for the second quarter by about $0.15 to $0.41 per share.

As the commercial moratoriums are amended and expired, we should see improved collections. During the past downturns, free from government intervention, our actual tenant defaults have been just under 2%. Despite the current uncertainties driven by the pandemic, during the quarter, we executed 125 office leases for over 650,000 square feet, only a notch behind Q1 and with longer average lease terms. This is a remarkable accomplishment and a testament to our investment in virtual tours and remote leasing technology.

We don't know exactly how the present challenges will impact our local economy, but having managed through three prior recessions, our strategy and platform are built to withstand downturns. We own a dominant share of the best buildings in the best markets in Los Angeles. Unlike some other markets, we do not face significant potential supply overhang from new buildings. We believe that our small tenant focus diversifies our risk.

In prior downturns, the impact of personal guarantees and the small business owners' commitment to their business have kept our defaults very low. We have a robust, vertically integrated operating platform, and we have no debt maturities before 2023. Our buildings have remained open and available to our tenants throughout the pandemic. Fortunately, we do not have the significant mass transit, parking, or vertical transportation concerns faced in other markets.

We are proud of the customer service our team has provided and the safety protocols we have implemented in response to this crisis. With that, I will turn the call over to Kevin.

Kevin Crummy -- Chief Investment Officer

Thanks, Jordan, and good morning, everyone. On the development front, construction is continuing on our two large multifamily development projects. Demand for the new apartments at our conversion project in Honolulu has exceeded expectations. By quarter-end, we have completed the first 98 units, and to date, we have leased 61 units at our pro forma rental rates.

We've begun construction for our next phase, which involves four floors and is comprised of 76 units and building amenities. Delivery of those units is expected to begin later this year. Construction is progressing steadily at our 34-story 376-unit apartment tower in Brentwood. This project will be the first residential high-rise west of the 405 in more than 40 years.

The development includes a one-acre park fronting Wilshire Boulevard. We still expect to deliver our first units in 2022. On May 15, 2020, we refinanced a loan for one of our consolidated joint ventures. The new secured, nonrecourse, $450 million interest-only loan will mature in May 2027 and bears interest at LIBOR plus 1.35%.

And we entered into interest rate swaps that effectively fixed the rate at 2.26% following the expiration of the current swaps for an average fixed interest rate of 2.6% per annum through April 2025. We used part of the proceeds to pay off a $400 million loan secured by the same properties that was scheduled to mature in July 2024. Deal volume is significantly below normal, but going forward, we hope to see more offerings as deferred transactions come to market. We and our joint venture partners have ample liquidity to capitalize on opportunities that match our investment criteria.

I will now turn the call over to Stuart.

Stuart McElhinney -- Vice President of Investor Relations

Thanks, Kevin. Good morning, everyone. In Q2, we signed 125 office leases, covering 651,000 square feet, including 151,000 square feet of new leases. Leasing spreads for the second quarter were 19.7% for straight-line rent roll-up and 6.7% for cash roll-up.

Our tenant retention was in line with our pre-COVID expectations. Although the decline in our office occupancy during the quarter was expected, leasing volume would have to improve significantly to recover that occupancy this year. On the multifamily side, several of our residential properties experienced higher-than-usual move-outs at the start of the pandemic. These move-outs came from a variety of factors, including the closing of nearby universities and military deployments in Hawaii.

As a result, our same-property comparison reflects lower-than-usual occupancy during the quarter. Fortunately, very strong leasing moved our residential portfolio back to 98.7% leased at quarter-end. I'll now turn the call over to Peter to discuss our results.

Peter Seymour -- Chief Financial Officer

Thanks, Stuart. Good morning, everyone. Compared to a year ago, in the second quarter of 2020, FFO declined 21.7% to $84.4 million or $0.41 per share. This decline was a result of the $0.10 COVID-related cash and noncash write-offs, as well as the $0.05 reduction in parking income that Jordan discussed.

AFFO declined 15.7% to $80.6 million. Same-property cash NOI declined by 9.4%. Same-property operating expense savings of 12.9% partly offset the cash write-offs and the decline in parking revenue. At only 4.7% of revenues, our G&A for the second quarter remains well below that of our benchmark group.

Given the continuing uncertainties around the pandemic and local government ordinances, we are not providing guidance this quarter. I can say that although it's still early in the process, so far, Q3 appears to be consistent with the trends in Q2. As moratoriums expire, we expect collections to improve and to collect some of the past due amounts, but it's too soon to tell. We expect that parking will stay at current levels until there is a change in office utilization.

Finally, as Stuart mentioned, to recover occupancy later this year, leasing volume would have to improve significantly. I will now turn the call over to the operator so we can take your questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] And the first question will come from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

OK. So that's a good question. That's complicated. So let's back up to just trying to understand the profile of tenants.

So one thing we did is we gave you the 91% collections, 9% not collected. So when you look at that, you would say, all right, 9% of tenants in some way during the second quarter didn't pay us. We tried to be really clear on that number because we used the rent that the tenant would have had to pay prior to COVID even happening. So that's a very clean number, right? Out of that 9%, we'll call 4% of that were tenants that amazingly aren't paying us but have such strong balance sheets, such strong collateral that it makes it -- it would not be reasonable to write them off, right? Then what are we left with? We're left with 5%, that last 5%.

Out of that last 5%, we have said you guys, we think that in past recessions, what our real defaults have been, have been less than 2%. So that's to say that out of that last 5%, we think that 60% of those tenants, at least, and I've seen better, are going to pay. Now, when you look at them, you go, all right, 9%. I believe that 9% is being driven by these moratoriums.

It's an absolutely penalty-free, do not pay your rent, regardless of who you are type of moratorium. So you could be a two-floor hedge fund. You still have nothing to do with means. You still don't have to pay a rent.

And when it is time to start paying, you still don't have any penalties or any fees, you get a free ride. That's very hard to collect against that. Now, I will say the cities are starting to make some changes, so we might see some improvements. But at the same time, as the Governor of California keeps moving the ordinance out, the cities make adjustments to that.

So it's hard to predict going forward, but we went to a lot of effort in what we prepared to try and make it clear where we are today. It seems like there's a lot of questions around that you asked, and I wanted to really kind of hit that straight on. Does that answer that question?

Alexander Goldfarb -- Piper Sandler -- Analyst

A bit more about – yes. There was -- it sounds, really, like it's not so much the office maybe a little bit. But it sounds like -- is it fair to say that the retail tenants are trying to work with you and that maybe more of the ghosting is in a little bit of office and in residential? Is that fair to think about it that way?

Jordan Kaplan -- President and Chief Executive Officer

Well, you know, the numbers we gave you, it was 93% office, 96% retail. And it was only...

Peter Seymour -- Chief Financial Officer

Residential.

Jordan Kaplan -- President and Chief Executive Officer

And the residential. And what was the retail?

Peter Seymour -- Chief Financial Officer

35%

Jordan Kaplan -- President and Chief Executive Officer

35% retail. So you know retail is mostly not paying. And we tried to include in there -- when we said hospitality, we've tried to include -- we have some -- what is that theaters they're in?

Peter Seymour -- Chief Financial Officer

Screening rooms.

Jordan Kaplan -- President and Chief Executive Officer

Yes. We have some screening rooms and stuff that aren't paying, too. They aren't just movie theaters. So we wanted to get them in there, some of the live venue stuff.

But we gave you that out of the numbers that we aren't collecting, when you shift over and you go now how much is uncollected, and we said, wow, they actually turn out to be a majority of that number. Still, it's very disheartening looking at a number of the office tenants that aren't paying us if you were to look at their profiles.

Alexander Goldfarb -- Piper Sandler -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

So, city of L.A. -- I'm not going to go after any individual politicians, but city of L.A. is very tough, very tough to get them to listen to us at all. And it's a mix of council members and Garcetti and getting them to pass up or do something to stop, what they put in motion, very tough.

When you go to the cities like Beverly Hills or Santa Monica, I mean, they want to do the right thing, but figuring out, from their point of view, the right thing is not that easy. Santa Monica has, for the most part, pulled commercial office out. They still have residential and they still have small retail and commercial office just is coming out now, like this month. So we'll see if there's some impact from that in September.

But it just ended this month. Beverly Hills had also followed Santa Monica but then when the governor extended the statewide...

Peter Seymour -- Chief Financial Officer

Statewide emergency order.

Jordan Kaplan -- President and Chief Executive Officer

The emergency order, right, the statewide emergency order. When the governor extended it, Beverly Hills took that extension to say we should extend our order. So they did. So theirs would have expired, but they've now extended for commercial for another couple of months.

Hawaii has generally done what I think most of these have done, which is they just stopped evictions and the rest of it is up to the negotiations between the landlords and tenants. And there, our collections have been better, and we've been able to work on deals with tenants, and that's worked out a lot better. Here, it's very hard to work on deals with tenants because unilaterally, they don't have to pay the rent without penalty. So until that's off, it's going to be hard to make a bilateral deal.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. Thank you, Jordan.

Jordan Kaplan -- President and Chief Executive Officer

All right.

Operator

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

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Good morning. Jordan, it was interesting to see that you guys actually had a decent amount of new leasing activity. I know it's lower than normal, but given what we've seen from some others, your number was a bit more encouraging.

Can you maybe just talk about the dynamic in the leasing environment, kind of what you're hearing from kind of the smaller tenants, and maybe what the pipeline looks like today for the back half of the year?

Jordan Kaplan -- President and Chief Executive Officer

Yeah. So I love our operations. I love what our operations are doing. And when we hit this, they went pretty quick.

And started really pressing harder on the virtual side, DocuSign, all the stuff that allows people to lease space right off. I have to say when we finish the quarter, and I'm watching this all quarter, and I saw that we had done actually 125 lease transactions, even my job could bounce off the floor. Now, that's not an anecdotal number, 125. That means assistant that got put in place, during that quarter, literally, was ramping up and getting working.

So from that perspective, if you said to me, what have I seen this quarter? And what have I seen in this recession so far that's maybe the happiest? It is the further and further refinement of the backbone of our leasing operations. And the fact that we were able to a do that many deals. Now, look, at the same time, we did about 650,000 feet. You would have expected us to do higher numbers.

750,000, 735,000, would be more typical. And most of that is the fact that we did about half of the new leasing, you would have you otherwise thought we would do in a normal time. But the impressive side of that is that we did a full 50% in new leasing compared to a normal time and did a lot of renewals. So I feel -- look, the pipeline is certainly slower, but I feel great about how leasing has been able to adapt to that and really drive transactions.

Now, we'll see how we do in the next quarter. It's very hard to predict right now. It's even harder to predict with the kind of up and down. We have totally stay at home, then we have lightened up and start going in.

And then we went back to stay-at-home. And maybe now we're getting some news of lightening up again, quite frankly, at least in the areas we're in. So I don't know how that mix will impact the next couple of quarters. But certainly, I'm very happy about the fact that we were able to knock out so many transactions.

Steve Sakwa -- Evercore ISI -- Analyst

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

Kevin Crummy -- Chief Investment Officer

Hey, Steve. It's Kevin. I'll take that. It's still slow.

A lot got put off by the pandemic, but we're just starting to get some inbounds. And so it's a type of thing where a lot of people deferred their transactions and wanted to wait and see what happens. And so I would expect over the next couple of months that we'll start seeing some things pop out, whether or not they meet our investment criteria or not, I'm not sure. We don't have a lot of assets where people levered up.

And so I think it's more about, as I said last call, discretionary sellers that are kind of tired of having to manage through this that might take something out to market. And we and our partners have ample liquidity, and for things that we really like, we're ready to pounce.

Operator

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

Craig Mailman -- KeyBanc Capital Markets -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Well, look, we want to -- we definitely want to buy, all right? So if the question is -- if there are opportunities that were in our wheelhouse, the right stuff, the stuff you know we typically buy, we would buy it. And then go to second thing. Are we actually doing our own outreach, trying to find stuff? That answer is even, yes. So we are working that avenue quite hard, and there's a variety of transactions that are super appealing right now, not that they're very plentiful, but one of them is certainly acquisitions.

We believe in the markets long term. You already heard from me that I believe in the tenant base. I actually think our tenant base has a better track record. And at the end of the day, regardless of the moratoriums will be better at paying long-term as the more times roll off, our defaults will be even lower than most.

But with that said, there's also refinancing, which we're trying to keep an eye on that and waiting for those banks to open. And we're continuing on our two big development projects, and they're moving along well. I know, Kevin, in his prepared remarks, gave you some information on the leasing that we're doing out in Hawaii. We're moving forward with another three floors there.

And the last thing is putting money into repositioning. And on the repositionings, we're kind of watching and seeing whether we still think there's a return there. I mean, we have capital. So we don't want to waste an opportunity to use it if a good opportunity comes up.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Well, out of that, there's over $100 million of it that comes out of just developing the two buildings, right, of new equity that goes in. And then you had repositionings and new acquisitions. Really, the number -- I mean, $200 million, in a normal time, I would like to see us put out more than that. Do I think that a new investment, we could hit a run rate of $200 million? Probably just with the construction, if we got lucky over a year and got one or two things came up, we would probably hit that number.

But as I said, I would hope to do better than that. But we're getting like inquiries, like, if this came out, it would be interested. Nobody's coming out and running a new bid on something that we would say, OK, this deal is in the market.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And then maybe just one quick one. The 13% expense savings this quarter, how much of that was R&M versus kind of just lower utilities? Just trying to figure out kind of the -- what may come in the next couple of quarters that may have just been deferred a little bit.

Jordan Kaplan -- President and Chief Executive Officer

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

Peter Seymour -- Chief Financial Officer

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

Jordan Kaplan -- President and Chief Executive Officer

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

Peter Seymour -- Chief Financial Officer

Yes.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

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

Rich Anderson -- SMBC -- Analyst

Thanks. Good morning out there. Hopefully, this isn't a question. I just want to make sure I understood what you said.

Jordan, you said 4% of the 9% that have strong balance sheets and great collateral, and you then said, just write them off. I assume you meant that they were...

Jordan Kaplan -- President and Chief Executive Officer

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

Rich Anderson -- SMBC -- Analyst

OK. I just didn't hear you correctly. OK. Understood.

Jordan Kaplan -- President and Chief Executive Officer

Yes. We didn't write them off. So what happens is 9% that didn't pay. So you start out going right off 9%.

They didn't pay us for three months, right? But then you look tenant by tenant, you go, well, wait a minute, maybe you're talking about telecom companies that didn't pay, they're obviously going to pay, and we have others like that. So we have, like I said, we might have hedge funds. We have accountants, lawyers, they might have a floor or two floors, they didn't pay, OK? We know they're going to pay. So there's a group that you have to sit there and go, OK, modern-day languages write them off.

If you would have gone a few years ago, we would have said reserve against them, OK, which sounds more like what it feels to me but now it's called write-off. So you don't write those people off. Now, you got 5% leftover, and we wrote them all off or, I would say, reserved them. And then I broke that down.

And I said, that's why we keep saying to you. When we look back in history, we go, look, our real default rate ends up being less than 2%. So you take that 5% and you go 3% of that 5%, are we going to collect it? And I think we are and better, right? That's 60% of that number. So that's why we keep getting back to this number that we keep telling you guys long term.

And it's unfortunate with what the cities have done. But long term, we don't expect our defaults to exceed 2%.

Rich Anderson -- SMBC -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Well, I don't have any experience. Nobody does in this. I think what's going to need to happen is the governor is going to have to do something that modifies emergency ordinance because there's too many cities that are just -- certainly, L.A., I think it will be very tough. Now, L.A.

is suffering from what they're doing because they're getting a tremendous number of complaints from landlords. And it's getting to be long enough that they're just trying to break some landlords. I don't know, though, that they have the -- that they care, quite frankly, to the level which they would react to that happening. I think that the constitution of the City Council is more focused, heavily focused to the tenant side.

Beverly Hills cares about both. They care tenant. They care landlords. They just want to do the right thing.

And I think it's unfortunate to what happened that they extended this thing for another month or two. But I'll say they care about both sides, and they're trying to get to the right place. And then Santa Monica, I think, actually put in place something that's very workable. They're protecting residential.

They're protecting small retail. They've said the larger guys, you got to pay. They said the office tenants, you got to pay.

Rich Anderson -- SMBC -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Yeah. I think that the stimulus checks made a big difference to them staying current. I thought that that was a great way to see it. That was actually something Stuart wrote.

And I thought it really captured it because in past recessions, if you look at -- large companies look, almost, at bankruptcy as an option. They're like, well, what's the financial result of that option? What's the financial result of not doing it? And if we do it, we get to close these 20 offices, etc., etc. The smaller tenants around our portfolio, I think they take personally that they own their companies. They are not looking at bankruptcy as an option, they're looking at a personal decision, and it slows them way down.

And once they drop that as an option because it doesn't work in their kind of framework of how they see themselves, it's not hard to make deals with them in the stretch of money, maybe stretch out what they owe, they come through, they pay it. That's why we keep saying that while I know that people have been characterizing our small tenants and profiling them as being less credit-worthy or less likely to pay. I've said on time and again, I think the reverse is true. I think they're more likely to pay and they're more interested in continuing for it.

They all just like old view and us, they're waiting for this thing to end. They want to go back to their old lives with their business and everything going. Maybe someone sitting in New York that's making decisions about offices all over the country and saying close, close, close. Leave that one open.

That one was profitable. That's not what's going on here, and that's why we have a lot of confidence in the long-term prospects of our markets.

Rich Anderson -- SMBC -- Analyst

That's great. Thanks very much.

Jordan Kaplan -- President and Chief Executive Officer

All righty.

Operator

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

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

I don't think a lot of it came out of discounting rent. What it came out -- so what really happened was, and I thought it was in the prepared remarks. We had some -- whether it be universities, whether it be military, we had just a little bit of a shock of move-outs, right? People think they're going to go to school, universities, and might have blocks of rooms, whatever. And so they all just went in one like snap of the fingers, whether it be in Hawaii or in L.A., the stuff you have with.

So we just had to really amp up our leasing team. It's good product. They're tight markets, and it's impressive that at least back up so quickly. I was very happy by that.

We went into the quarter good. We went the middle of quarter, horrible. And then at the end of the quarter, we were good again. So that did impact us in terms of overall revenue a bit, not terribly, but it also left us in good shape moving forward.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

I think rents -- I don't think we're increasing rents the way we were before. But I don't have a lot of information that we really dropped rents.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Well, I hate even saying this, but it doesn't -- like in Hawaii, they have not moved. Hawaii is a very tight market. Hawaii is still for the plus side. In L.A., I can't imagine we're going to go through this, and it's not going to impact rents, OK? So that was a double negative.

But as we sit here right now, we seem to be holding our own because they're relatively full markets. But I can't imagine that we're not going to see some of this entire pandemic recession reflect in rental rates.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Have you seen a change in concessions?

Jordan Kaplan -- President and Chief Executive Officer

No, not yet. No. It's not our style. We're kind of know your rates, your rate.

We don't love the method of concessions to boost up rate because we're such long term owners. So that's not -- I don't know that I would think that would be like the first sign of rates falling off. I think the first sign of rates falling off is rates just falling off.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. All right. Thank you.

Operator

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

Michael Bilerman -- Citi -- Analyst

It's Michael Bilerman here with Manny. Jordan, I just wanted to come back to this whole element on the rent and the collection and the reserves. So you talked about, historical, about 2% bad debt rate historically. What percentage would that be for each of the property types that you operate in? Because I would imagine that it's not uniform, at least in history between office, multi, and retail.

So can you just -- that's the first question, then I had some others.

Jordan Kaplan -- President and Chief Executive Officer

OK. So let me start by saying if you look back at our bad debt expense, when you say historically, I got to be very careful because it's typically like 20, 30 basis points. It's not 2%. So what I'm saying is, you go back to the recession, 2008, 2009, 2010, that's when it was 2%.

I'm not saying that's the number like one year ago, OK? But this is going to be an unsatisfactory answer to you because I don't know the numbers broken out by sectors. This is in the times of eight, nine, 10, I do know our default rate, and we've gone back and reflected on and looked at it. But at that time, maybe we just keep getting better and better. And I guess the longer we've been public, we've been better putting together the statistics that you guys care about, but I don't have that information.

Michael Bilerman -- Citi -- Analyst

Right. I mean, the issue today is the retail and other income part, which I think is only like 4% of your total or something. That is acting very different today than at any other point in any other recession, given the pandemic's effect on retail. So one would imagine, as you talk about that 9%, right, that 900 basis points is obviously in aggregate.

So if you could break down, you talked about 400 basis points that is well-capitalized. If you can break down that 900 basis points of reserve by property type, that would be helpful as well. And then between the 4% and 5% that you talked about -- yeah?

Jordan Kaplan -- President and Chief Executive Officer

Wait, Michael. We did not reserve 9%. 4% of the 9% wasn't reserved because reserved, written off, whatever the right word is, was not because you can't write off a tenant that has -- like I said, if they don't pay you, you don't write them off, then you do have to just -- then that just flows through income. It's not written off, it's a receivable.

It becomes receivable, OK? The 5% is what was written off. So I'm going to try -- so start with 9%, 9% didn't pay. 4%, we did not write-off, which means they didn't pay us, but we took it as owed revenue and put it as a receivable because they'll obviously pay. They're super strong.

It's a joke that they didn't pay, all right? So that would be...

Michael Bilerman -- Citi -- Analyst

Right. And just when you're on that 400 basis points of the 900 that didn't pay rent. Of that 400, how much of that was office versus retail and multifamily?

Jordan Kaplan -- President and Chief Executive Officer

Yes. So let me just keep going for sec, OK? I don't have that exact number. I'm going to give you another number. So now, we take the 5%, right? And the 5% that we did write off.

And I think we said or I'll say it right now, more than half of that was retail, and where we probably should have given a better title to we call hospitality, which was that the theaters and the screening rooms and...

Peter Seymour -- Chief Financial Officer

Live venue.

Jordan Kaplan -- President and Chief Executive Officer

Yes, live venue guys, all of that. So I don't have the reverse number that you asked for, but I'm able to tell you that over half of the 5%, that's remaining 5% with those guys.

Michael Bilerman -- Citi -- Analyst

Right. And then arguably, it just sounds like the 400 basis points is predominantly maybe office-related tenants where you have a good perspective of the quality here. The remaining 500 that you did write off was -- half of it was probably in these retail and other uses and half of it relative to multifamily. Is that probably directionally right?

Jordan Kaplan -- President and Chief Executive Officer

I wouldn't say -- I would say half retail, and I'd say the other half was a little mixture of office, whatever, the rest of the group.

Michael Bilerman -- Citi -- Analyst

OK. And then just as a request for -- in 90 days, when you report next quarter or any updates in between now and then. I would just say putting out all these details similar to the office and multifamily peers in terms of collection rates and by property type, I think it would be helpful to put out in the supplemental or the press release rather than trying to go through all the gymnastics on a call.

Jordan Kaplan -- President and Chief Executive Officer

Thanks.

Michael Bilerman -- Citi -- Analyst

And we can send you some examples of others.

Jordan Kaplan -- President and Chief Executive Officer

OK. Yeah. We have to choose somewhere to put it, and we chose to put it in the -- I mean, it's not like we're not giving it to you. You don't like where it ended up.

Michael Bilerman -- Citi -- Analyst

Yeah. I think just having the -- just given the fact that you are multi-property type and given the fact that you have other things going on, I think just getting out all the numbers in terms of collections and deferrals and reserves and abatement. I would say that the -- a lot of the office, multifamily and retail companies are putting out a lot of disclosure around those items. So analysts and investors can have a hard copy of something rather than numbers that are going around on a call where it's just as not as fluid to be able to capture.

Jordan Kaplan -- President and Chief Executive Officer

OK. All right.

Michael Bilerman -- Citi -- Analyst

Thank you.

Jordan Kaplan -- President and Chief Executive Officer

All right. Thanks.

Operator

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

Frank Lee -- BMO Capital Markets -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Well, that's an interesting way to ask that question. So the reverse of that question is, are the people going to move out of places like, I guess, for us, you're saying the Westside or downtown. I don't think that. I think the areas in the Valley, more to the point or beneficiaries of industries that are moving out there for the employment base and the fact that the housing is cheaper and quality of life.

I think that when you look at -- when this is over and you look at whether people want to be in cities or work at home or whatever, I think the thing that people don't like about going into work in the morning and being at work is the commute. And I think most of the people working on the Westside have a very short commute. So I don't think there's anything gating them from when they're able to and feel safe coming in. I think that people in the Valley sometimes are drawn to having to drive into the Westside because it's such a -- there's so much business here.

But as they kind of rise up, I think more and more of them make demand for offices to be out there, which is why we kind of took our positions out there, both along Ventura Boulevard and Warner Center. And we're seeing it. I mean, you're seeing the tension in those markets in terms of office space buildup, and you're seeing those populations grow very fast. I mean, there's been apartment building out there and, frankly, home building like crazy, and they're just -- they've been very successful and very rapid absorption.

So I think that's more driving the success that up until COVID times we've been seeing out in Warner Center and certainly along Ventura Boulevard. I don't see it as a shift from whether it be downtown or West L.A.

Frank Lee -- BMO Capital Markets -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Yes. So, you know, I think -- but for the fact that people have must takes and whatnot on parking, you'd expect parking income to track occupancy in the office buildings and retail has barely been getting anything done. I think our parking has been running about 50%. I think that relates to must takes.

But beyond that, I would expect parking level to track occupancy -- parking revenue to track occupancy. So we are a bit above occupancy, but from then on, to the extent occupancy increases, I think we'll get some pickup in parking.

Frank Lee -- BMO Capital Markets -- Analyst

OK. Great. Thank you.

Operator

The next question is from Daniel Ismail with Green Street Advisors. Please go ahead.

Daniel Ismail -- Green Street Advisors -- Analyst

Thank you. On the acquisition front, we've seen a few of your peers buying El Segundo and Culver City. Historically, these weren't markets on your radar, but I'm curious, can you guys expand into new submarkets and if -- or the acquisitions you're looking at or just color on your existing footprints?

Jordan Kaplan -- President and Chief Executive Officer

So, well, they are markets that we're following. So let's start out with that, particularly whether it be Culver City and everything all the way down to the south. I think one of the things going on is -- we're not in love with buying single-tenant buildings. And usually, we like multi-tenant.

We're set up for multi-tenant. And a lot of the trades that you've seen have been one or two large tenants in those buildings, and that's what's trading. And until those -- as those markets mature and gets more multi-tenant and all that, we might be better bidders for that kind of stuff. Then these sort of -- whether be triple net or just long-term credit-leased buildings with one or two tenants that have seven, eight years left on the lease, we're just not going to be winning bids on those.

Now, putting that aside, is Clover City a good market? Absolutely. I think it's a very good market. It's got a great mix of housing. They did a great job with their retail in their downtown area, and there's a lot of good companies that are out there.

And maybe similar could be said as you go further south, expect further the south, you don't have the supply restrictions that we're used to here on the Westside into these areas.

Daniel Ismail -- Green Street Advisors -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

Yes. I was referring to office. But I mean, refer to residential in a similar way, and we've got Playa Vista, which I think has done quite well. But, of course, they've added thousands of apartment units.

So because there's not a lot of supply constraint out there, it's harder to say this is a good idea for us to now buy apartment building. Now, in general, our markets trade at very low cap rates. And so why you see we've shifted over our construction platform, and we're being more aggressive on building apartments, which we're building at, obviously, much better cap rates. And that's most of the ground-up construction, most is residential, both in Hawaii and in L.A.

And most of the entitlements we're working on are for residential on excess land we have on the Westside and in the Valley.

Daniel Ismail -- Green Street Advisors -- Analyst

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

Jordan Kaplan -- President and Chief Executive Officer

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

Daniel Ismail -- Green Street Advisors -- Analyst

Thanks for the color.

Operator

And the next question will come from Venkat Kommineni with Mizuho. Please go ahead.

Venkat Kommineni -- Mizuho Securities -- Analyst

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

Just curious what drove that.

Peter Seymour -- Chief Financial Officer

Yeah. It's Peter. So overall, you also saw a decline in the rental revenue. There's sort of two offsetting issues associated with one property.

You'll recall that we had a fire at a property in January, and so you see lower rent and then the insurance recoveries run through parking and other income. So it almost net out when you get down to total multifamily revenue.

Venkat Kommineni -- Mizuho Securities -- Analyst

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

Peter Seymour -- Chief Financial Officer

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

Jordan Kaplan -- President and Chief Executive Officer

Yeah. Like I said in my prepared remarks, our retention was in line with our kind of pre-COVID expectations. Retention was, as we had previously said, we thought Q1 and Q2 were going to be rough quarters from a move-out perspective, but we had such releasing volume. We thought we recovered that throughout the year and kind of -- our original guidance was flat for the year.

Of course, we haven't seen the new leasing volume that we expected to see, see the declines in those markets. But none of it had to do with any like COVID move-outs or anything like that. These are all known and natural terminations we were expecting.

Venkat Kommineni -- Mizuho Securities -- Analyst

OK. Great. Thank you.

Operator

Next question is from Josh Burr with Scotiabank. Please go ahead.

Joshua Burr -- Scotiabank -- Analyst

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

Peter Seymour -- Chief Financial Officer

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

Joshua Burr -- Scotiabank -- Analyst

So is that in cash NOI also?

Jordan Kaplan -- President and Chief Executive Officer

Yes.

Peter Seymour -- Chief Financial Officer

Yes. Correct.

Jordan Kaplan -- President and Chief Executive Officer

You're talking about the not written-off cash that went to a receivable that goes into cash NOI.

Joshua Burr -- Scotiabank -- Analyst

Yeah. OK. Thank you.

Jordan Kaplan -- President and Chief Executive Officer

All right.

Operator

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

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

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

Peter Seymour -- Chief Financial Officer

Do you want to answer or want me to answer?

Kevin Crummy -- Chief Investment Officer

Sure. Jamie, it's Kevin. I would say that Bishop Street has been a pleasant surprise in this whole COVID mess. I mean, we're moving along at a pace that you would think in the middle of the pandemic, things have slowed down, we're hitting our underwriting.

And as we updated in my remarks, we're up to 61 units. We're like over 60% leased. So we're very, very pleased with the product we're delivering, and the market is responding in a very positive manner.

Jordan Kaplan -- President and Chief Executive Officer

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

All right. Great questions. So we're ending on the lights of one great piece of news. That's good.

All right.

Operator

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

Jordan Kaplan -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Stuart McElhinney -- Vice President of Investor Relations

Jordan Kaplan -- President and Chief Executive Officer

Kevin Crummy -- Chief Investment Officer

Peter Seymour -- Chief Financial Officer

Alexander Goldfarb -- Piper Sandler -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Rich Anderson -- SMBC -- Analyst

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Michael Bilerman -- Citi -- Analyst

Frank Lee -- BMO Capital Markets -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

Venkat Kommineni -- Mizuho Securities -- Analyst

Joshua Burr -- Scotiabank -- Analyst

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