Douglas Emmett (DEI) Q1 2021 Earnings Call Transcript

Douglas Emmett (DEI -0.07%)
Q1 2021 Earnings Call
May 05, 2021, 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 conference 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.

Stuart McElhinney -- Vice President of Investor Relations

Thank you. Joining us today on the call are Jordan Kaplan, our president and CEO; and 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. [Operator instructions] I will now turn the call over to Jordan.

Jordan Kaplan -- Chief Executive Officer

Good morning, everyone. Thank you for joining us. In Los Angeles, we have seen a remarkable shift in the prevalence of COVID over the last six weeks. During the first quarter, L.A.

County was reporting three times the infection rate of any other U.S. County. By early April, L.A. County was reporting the lowest infection rate among the nation's 10 largest counties.

On April 5, L.A. County permitted nonessential workers to return to their offices. And on April 6, Governor Newsom announced plans to fully reopen California by June 15. Our first-quarter results still reflect the impact of the pandemic.

Our collections during the quarter continued to improve so that during the four quarters, affected by the pandemic, our aggregate rent collections totaled 93.1%, including 96% of our residential rent, 96% of our office rent, and 44% of our retail rent. We executed more workout agreements with minimal rent forgiveness. Less than $100,000 in the first quarter, mostly for retail tenants. But the big catalyst for collections will come once the eviction moratoriums expire, which we believe will accompany the full reopening in June.

Some medium and larger tenants are starting to make leasing decisions. In the first quarter, we signed leases totaling 750,000 square feet. Given our seasonally larger expirations, this leasing was not enough to create positive absorption. As we have said, we expect to lose occupancy during the first half of the year.

I feel confident and optimistic as the pandemic subsides. Our operations and our markets are uniquely positioned considering our supply constraints, industries driving demand, and tenant build-outs that already accommodate a COVID-sensitive return to work. Our operating platform, which is designed for the small tenants that are leading office reoccupancy is the largest and most effective in our markets. Our development and repositioning activities are progressing nicely, and our balance sheet is strong.

We are pursuing refinancing opportunities that may even further lower our cost of debt and working on new acquisitions as they emerge. Last quarter, we discussed our now completely digitized leasing experience. This quarter, Kevin will describe the progress we have made on sustainability. With that, I will turn the call over to Kevin.

Kevin Crummy -- Chief Investment Officer

Thanks, Jordan, and good morning, everyone. We remain very pleased with the progress of our two multifamily development projects. At 1132 Bishop, our downtown Honolulu office to residential conversion, we have now leased 100% of the 174 total units we've delivered, validating the demand for high-quality rental housing in the heart of Honolulu. Our Brentwood high-rise apartment construction has topped off at 34 stories.

Once finished, our 376 units will offer stunning ocean views and the first new high-rise residential tower west of the 405 Freeway in more than 40 years. We plan to begin pre-leasing the units after the summer and remain on schedule for occupancy in early 2022. Property transactions in our markets remained slow with potential sellers still in a watch and wait mode. We're hopeful that the signs of recovery and planned reopening will bring some deferred sales to the market.

Our investment in sustainable systems and technology at our properties continues to produce outstanding results. At year-end, more than 88% of our eligible office space had qualified for ENERGY STAR certification. During 2020, we took advantage of lower tenant attendance at our properties to aggressively accelerate our LED lighting retrofit program. These efforts will generate annual energy savings of 3.3 million kilowatt-hours per year.

You can find more information about our environmental performance, as well as our social and governance efforts in our recently published 2020 ESG report on our website. I will now turn the call over to Stuart.

Stuart McElhinney -- Vice President of Investor Relations

Thanks, Kevin. Good morning, everyone. In Q1, we signed 199 office leases covering 751,000 square feet, including 204,000 square feet of new leases and 547,000 square feet of renewal leases. Our leasing in recent quarters has been led by our small tenants, although we saw some activity during the first quarter from a few medium and larger tenants.

This increased the average size of the leases we signed last quarter to 3,800 square feet from 3,100 square feet in the fourth quarter, though it is still below our 5,600-square-foot portfolio average. As a result of the seasonally high lease expirations during the first half of this year and lower recent leasing activity, Our office lease percentage declined 86 basis points to 87.7%. Our leasing spreads during the first quarter were negative 9.1% for cash and negative 0.3% for straight line. However, we have mitigated the impact to our net effective rents by lowering our leasing costs 10% from Q4 as tenants remain willing to trade tenant improvements for competitive office rents.

The lease rate for our multifamily communities has fully recovered at 99.6%. With that, I'll turn the call over to Peter to discuss our results.

Peter Seymour -- Chief Financial Officer

Thanks, Stuart. Good morning, everyone. Our first-quarter results reflected the continuing impacts from the pandemic. Compared to the first quarter of 2020, which was largely unaffected by the pandemic, FFO was down 19.6% to $0.44 per share.

AFFO declined 21% to $78.3 million, and same-property cash NOI declined by 16.8%. When we reported our results last quarter, We noted that our FFO per share included a net $0.04 gain from insurance offset by advocacy spending. Excluding this $0.04, our first-quarter FFO per share improved by $0.02 per share, primarily from better collections and lower expenses. And only 4.4% of revenues, our G&A for the first quarter remains well below that of our benchmark group.

Turning to guidance. We expect second-quarter FFO per share to be between $0.43 and $0.45. This reflects our belief that occupancy will continue to decline. We expect significant improvements in collections and parking revenue once the economy opens up and local moratoriums expire.

As usual, this 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 & Answers:

Operator

[Operator instructions] Our first question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Steve Sakwa -- Evercore ISI -- Analyst

Jordan or maybe whoever wants to take it on leasing. Can you maybe just talk a little bit about the pipeline? I realize given the smaller nature of your tenants, your pipeline may not be as visible as some of your peers that are dealing with larger tenants, but just sort of curious, what's kind of in the hopper today and as you look out one to two quarters? What's giving you the confidence to think that occupancy may bottom after Q2?

Jordan Kaplan -- Chief Executive Officer

Well, what's giving us the confidence is the amount of leasing that's getting done now and I was really happy about the 750,000 feet. And I know we had a little bit of negative absorption, but the work that was done, the hard work that was done to kind of -- what we shortened the name of to digitize our leasing experience and all of the work that was done around that, and the amount of flow we're now able to push and generate and speed up. I mean I just -- I know I keep reiterating it on every call, but as things open, I don't think you're going to see the full power of how this system has shifted itself until things really start rolling up because what we're seeing already against these horrific pandemics, shut things down, you know, wait for the coming open headwinds is just so impressive in numbers of deals and total square footage of deals and all the rest of it. And as we look forward, you know, you still face pandemic style move-outs or people that are calling it quits or whatever the case may be.

But at the same time, you're seeing very strong trend of returning, leasing, deal flow. And we gave you -- Stuart gave you some good info when we track like square footage of deals compared to our typical square footage and then, you know we were much smaller if you go back a quarter. But now even the average size is getting larger, the number of deals still in that 200 range, which is very strong and then now up to 750,000 feet in terms of volume. You go, "OK, all that's going in a very good direction." And I would say, "I'd like to say as expected, as hoped, as expected, all of -- both those words together," but that's what's giving me the confidence.

Steve Sakwa -- Evercore ISI -- Analyst

OK. And then, you know, you sort of mentioned the executive orders and, you know, L.A. opening, I guess, June 15. Can you just remind us kind of what the dollar size is of the bucket of tenants that are not currently paying or, you know, whether the retail tenants or some office tenants that are not paying but are maybe in current occupancy? How large is that bucket in dollar terms? And I guess, what would be your expectations of when that may start to flow back into the P&L?

Jordan Kaplan -- Chief Executive Officer

Well, you know, we've told you that we're making deals, right? And so -- and we said it's in the range of 15%. So each quarter, the same guys don't pay, but also we make deals. So the number is running in the $60 million to $70 million range of what's out there that we still want to get that we've written off, right? And you go -- that should be growing much faster if everyone who was just not paying, but we weren't making deals with people that had not been paying in the past, but we are making deals. So depending on when you catch us in the quarter, depending on the time during the month, and wherever you are, it seems to be running in that range, but we've stopped growing that number.

Actually, we stopped growing that number last quarter. So that's also a good kind of directional trend sign on all of that.

Steve Sakwa -- Evercore ISI -- Analyst

Great. Thanks, Jordan.

Operator

The next question comes from Manny Korchman with Citi. Please go ahead, sir.

Manny Korchman -- Citi -- Analyst

Can you remind us or help us think about how long it would take once sort of the small tenants, maybe the moratoriums burn off, small tenants decide they do want space. What's sort of the timing from them going on to your digital platform or calling you to sort of getting into that space and becoming cash volume?

Peter Seymour -- Chief Financial Officer

Yeah, Manny, what we've seen on average is that --

Jordan Kaplan -- Chief Executive Officer

It's Michael.

Peter Seymour -- Chief Financial Officer

Is that Michael?

Manny Korchman -- Citi -- Analyst

No, it's Manny.

Peter Seymour -- Chief Financial Officer

On average, from the time we sign an LOI with the tenant until they moved into our space is on average for us about four months. So it's very quick relative to probably the larger folks that our peers are talking to.

Manny Korchman -- Citi -- Analyst

Right. And then just has there been any activity that you can share on the space that's up for sublease within your portfolio?

Peter Seymour -- Chief Financial Officer

I mean we haven't seen a material uptick in sublease space in our own portfolio that we're tracking. I know the sublease space is up generally in the market pretty materially. What we've seen in those reports is that it's generally concentrated in the larger tenant space, [Inaudible] type style space, larger footprint. So we haven't seen a material impact.

Manny Korchman -- Citi -- Analyst

I could be wrong, but I thought there was a couple of news reports about some specific spaces in the sort of medium-sized space that your tenants had put up for sublease was the [Inaudible]?

Peter Seymour -- Chief Financial Officer

Yeah. I think -- I certainly think we've got tenants listing their space for sublease. I don't think it's material to the overall.

Jordan Kaplan -- Chief Executive Officer

Yeah. When you say -- I'm actually surprised to see a broker listing a space that's in our building that's a sublease deal because obviously, I get all of them. And I don't think there's a ton of it compared to how much we have. But what's most important is I don't think there's any meaningful competition being created by that sublease space against the direct leasing that we're doing.

Manny Korchman -- Citi -- Analyst

Thanks, everyone.

Operator

The next question comes from Frank Lee with BMO. Please go ahead.

Frank Lee -- BMO Capital Markets -- Analyst

Good morning, everyone. Can you talk a bit about what you're seeing in Century City and Beverly Hills? Curious those two submarkets experienced the largest sequential decline in terms of the lease percentage during the quarter. Thanks.

Peter Seymour -- Chief Financial Officer

Yeah, Frank, I don't -- when you look across all our submarkets, you know, we had some that went up a little bit this quarter, you know, most went down. I think that's kind of been the case we've seen kind of a downward trajectory in occupancy throughout the pandemic. We haven't seen a read-through specifically to any submarkets where they're acting – you know, a trend that we noticed or something different that would be worthy to point out to you guys between the submarkets. There's going to be noise from quarter to quarter.

Like we said, we're still expecting some declines overall in Q2, but, you know, nothing I would point you to in those specific submarkets that we're seeing.

Frank Lee -- BMO Capital Markets -- Analyst

OK. And then just a follow-up on the average lease size being modestly higher in the quarter. Are you starting to see any tenants taking more space now that rents have come down a bit or even tenants making floor plan changes where there's a higher square footage allocation per employee?

Peter Seymour -- Chief Financial Officer

I think on the attendance taking more space. You know, every quarter, we look at tenants expanding tenants contracting. And obviously, for a long time, we had our expansions kind of outpacing our contractions. Tenants are always kind of moving around and their space changes or shifting.

But I haven't seen like a material uptick in expansions that I would point you to in Q1 in the numbers. It seemed pretty consistent with what we've seen historically. Your second question about space needs changing. I think the great, you know, thing about our portfolio and the way our space is already built out, and we've talked a lot about this over the recent quarters.

But we think, on average, our tenants are already built out to 200-plus feet per person. If you think about a typical space that's 2,600 square feet, it's a couple of window line offices. It's a couple of workstations, kitchen, conference room. Everybody is pretty well distanced.

So we haven't had to make a material shift in how we plan our spec suites, for example, and those have been leasing at really a tremendous pace throughout. That's really been a strong point for us throughout pandemic. Those ready-to-build move-in spec suites that we build. So we haven't seen – you know, we haven't had to shift that.

I don't think we've seen tenants really changing that. They're pretty well set up, you know, the way they've been doing it.

Frank Lee -- BMO Capital Markets -- Analyst

OK. Thank you.

Operator

The next question comes from Jamie Feldman with Bank of America. Please go ahead.

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

Great. Thank you. So as your leasing pipeline starts to pick up, any kind of read-throughs for types of sectors or types of tenants that are either, you know, more aggressive than you thought coming back or maybe less aggressive and maybe, you know, shifting more toward a longer-term work-from-home strategy? Just wondering what the data is telling you.

Peter Seymour -- Chief Financial Officer

Yeah. You know that we have that great diverse pie chart in the supplemental of our tenants and all the industries driving demand here, and it continues to be pretty broad-based demand. We haven't seen any trends from industries or sectors that have shifted dramatically.

Jordan Kaplan -- Chief Executive Officer

We pointed out the one -- the only trend we've seen is in size, right? I mean, it's been a smaller guys coming earlier than the larger guys. And it's not in industry, it's not in market.

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

OK. More to get out of the house, I guess. And then, I guess, just shifting gears to the investment sales market. I mean, a, can you talk about anything new you guys are looking at or interested in? And then b, just what's the market overall feel like? Are you seeing a pickup or any changes in how people are underwriting or willing to take risk?

Jordan Kaplan -- Chief Executive Officer

The market is still fairly slow. Now that things have opened up, I'm hopeful that people are going to start bringing things back to market as people get a little bit more certainty and optimistic on the overall market. But it's been abysmally slow in our markets, and there just hasn't been a lot. We're underwriting everything that's out there, but there hasn't been a lot that is super appealing.

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

I mean is there any change in tone from either the brokers or competitors in terms of what people are willing to look at and how comfortable they are writing -- underwriting rents or occupancies?

Jordan Kaplan -- Chief Executive Officer

I think that people are bullish on L.A. long term in the industries that we've got here and the supply constraints in our markets. And so I think that when something does get offered, it's going to be a very competitive offering. And I just think that we're easier to underwrite a recovery than some of the other major markets out there that are more bigger buildings, more vertical, different transportation, et cetera.

So when it comes, I'm anticipating that pricing is going to be fairly aggressive.

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

OK. And then do you have an appetite for -- to try new submarkets that you're not in right now as we hit into a recovery?

Jordan Kaplan -- Chief Executive Officer

We're always looking at everything in our markets and in markets that we're not in, we're tracking it. I think that between the development platform and the repositions that we've got going that, you know, we're deploying a fair amount of capital. And then when things come out in our market, I think that the opportunities there are going to be more compelling and easier to fold into the portfolio than necessarily branching out to other submarkets. But we continue to underwrite them.

And if something really interesting comes up, you know, we'll definitely underwrite it.

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

OK. Thank you.

Operator

The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

I wanted to go back to Steve's initial question. And so I'm going to ask the, you know, standard sell-side two-parter. Jordan, the rents that you guys are still not being paid and you're not accruing from a GAAP perspective. Last quarter, you said it was $6 million a month.

So one, just want to confirm that $6 million is still the number. You know, and two, given the propensity for these moratoriums to get, you know, just sort of extended almost indefinitely. What is the local [Inaudible] in California on whether or not, you know, Newsom will stick to the June 30 extension? Or given his recall campaign, is up to punt it and extend it like they did here in New York?

Jordan Kaplan -- Chief Executive Officer

Well, I -- I mean, I know New York extended I think, August, but of course, they were expiring this like May, right? So they had to face it. I'm not sure, you know, by June, I think a little -- it will be quite ingenuine to extend it, but that doesn't mean I have any particular insight into what they're actually going to do. In terms of the rent, I mean if you -- when -- as we were getting into the pandemic, you may or may not remember, it was actually over $7 million a month. And then we started, you know, putting pressure on people.

It calmed down to $6 million a month. And it was really jumping around between $6 million, $6.2 million, $6.5 million, I remember watching that. Then as we started making deals and the month stretch out, now the numbers come down pretty substantially. I mean, if you count the -- people stop paying in April, and you go, here we are 12 months later, and I gave you a number, I think it's 60-something million.

You go, "Well, obviously, that's well below $6 million a month." And that's -- that number for better – you know, that number, you would think, it's just going to keep shrinking as we make deals, as people start paying again and coming back, as people start settling up. We ought to be able to keep shrinking that number, and it has been shrinking, right? I mean, it's now down in the $5 million range.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. And then just confirming, you're still not -- from a GAAP FFO perspective, you're not booking the accrued rents? You're only booking basically, what you receive on a cash basis, correct?

Peter Seymour -- Chief Financial Officer

Any -- it's Peter, everybody that, you know, we move to a cash basis, it's all – you know, the cash comes in, we book it, but we don't book it other than that.

Alexander Goldfarb -- Piper Sandler -- Analyst

Great. OK. So this is upside to the numbers. That's the point.

The second question is, you know, on the capex, normally in other markets, you know, is a sort of soft leasing or soft market, you know, concessions rise. But here, you had your leasing capex decline. Is it basically a one-for-one because a lot of what you do are prebuilt suite. So, therefore, you know, it's effectively a percentage of? Or do you see that there's going to be pressure from tenants? And therefore, you're going to have to increase your leasing capex.

Jordan Kaplan -- Chief Executive Officer

I would say our leasing capex has meaningfully gone down. Now and add, if you're -- the math of the question would be rents down and leasing capex causing that effective to be, you know, better than just what the rents are down by. It's improving the situation, not that bad for it. So right now, just like you think, right? You see the market and everybody starts losing occupancy, that starts impacting rents.

And then as that impact rents, our rent face rate impacted or face rate plus the leasing capex. And the leasing capex has shrunk in the face of the declining rents. So our net effectives are actually better than the reductions in just rents. And so when you look at some of the stats we give you roll down and whatnot, you know, when you start looking at net effectives you go, well, looks like things are actually not that bad.

Now I'm not saying not down, but I'm saying better than they look of just looking at roll downs.

Alexander Goldfarb -- Piper Sandler -- Analyst

So basically, Jordan, you don't expect concessions to suddenly rise absent rents rising. You view the two as moving in sort of lockstep. You don't think there's going to be pressure, competition for tenants where you're going to have to increase capex before the rents rise.

Jordan Kaplan -- Chief Executive Officer

OK. So just to be narrowly accurate, So you have commissions and TIs. And, you know, you've been tracking what's been happening. We have a, you know -- we went -- we digitized our platform.

We have some certain percent, and, you know, that's maybe not as much market-driven. When you say -- when you go over to the TI side of all of that. What I'm saying to you is our TIs per foot are coming down. Now, why are they coming down? One reason is we've just rolled through and we have a ton of space that generally works and it's built out to the right size and tenants want it.

Even when the guy does want something, it's paint, carpet, moving walls and that takes time to happen. I mean if you think all the way back to the Blackstone portfolio buying, you know, millions of square feet, it takes a long time for us to roll through and get that space more standardized so that the capex that we're spending is not as high. So that's one thing. Another thing is renewals are very much saying, we just want to renew and keep going.

And I told you guys about that a couple of quarters ago. And the last thing is, you know, we're doing deals with smaller tenants, and we all know there's less capex associated with small tenants. When you do big multi-floor tenants, they come in with big demands. And that's the reality, the net effective on large tenants is not as good as a net effective on small tenants.

And that's mostly because of the very demanding capex of carrying everything out and redoing it when you're a full-pledged tenant, right? So for all those reasons, probably and the fact that during the pandemic, we happen to be built out in ways that are already extremely user-friendly to someone that just wants to return to work. We're just seeing our TIs go down.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. Thank you.

Operator

Our next question comes from Rich Anderson with SMBC. Please go ahead.

Rich Anderson -- SMBC Nikko Securities --Analyst

Thanks. Good morning out there. So can you talk a little bit about or maybe bookend what making deals means? And what I mean by that is, are you just kind of deferring rent for a period of short period of time? Or there -- is anyone coming back to you and saying, you know, "Look, we'll sign something early, like we don't renew until next year, but we'll do it early at a depressed rent and you could keep us for four or five years at that level." Is any of that happening anywhere? Or is that not the right way to color it?

Jordan Kaplan -- Chief Executive Officer

Most of what I'm hearing is extensions, spreading what's due out, combination deals. That's most of what I'm hearing. I mean there's -- believe me, there's like 31 flavors, but most of what I'm hearing is extending leases and stretching out what's owed now as opposed to being bunk on the head with it, you know when the moratorium ends.

Rich Anderson -- SMBC Nikko Securities --Analyst

OK. And, you know, prior to all this, you had a nice little redevelopment business, as mentioned about, you know, outlaying capital in this market. You know, we're doing something like 30% returns on incremental dollars. I think last quarter, you said you're talking about ramping that business back up.

What's the pipeline there? And are you -- have you started to ramp that incremental business up?

Jordan Kaplan -- Chief Executive Officer

Yeah, we actually returned -- I guess we returned on paper more than two quarters ago. We returned physically doing more last quarter. So we have four projects now back in the pipeline.

Rich Anderson -- SMBC Nikko Securities --Analyst

And what kind of -- is it similar in terms of incremental return?

Jordan Kaplan -- Chief Executive Officer

Yeah. Yeah. One, there's a reskirting of the building, like we did at 1801. There's all kinds of stuff going on.

Yeah. And, you know, unfortunately, fortunate whatever. So if you look at the last projects we did, the numbers were spectacular. And by the way, in retrospect, panned out spectacular, right? We looked at like how rents changed, how leasing changed, all of that.

It's going to be harder to do during pandemic market with all the external noise against rents, hard to prepare whatnot. But it was such a successful program, and we're optimistic to where things are coming to returning. And we don't want to like, you know, putting our shoes on when the gun fires and everyone starts racing, we want to be like ready and fire off the line. And so we said this was just too successful, and we believe the market is going to recover in a strong way.

And so we're just -- we're back at it. And so we put forward projects in and we're doing them.

Rich Anderson -- SMBC Nikko Securities --Analyst

Awesome, thanks.

Operator

The next question comes from Craig Mailman with KeyBanc. Please go ahead.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Could you guys maybe touch on the refinancing opportunities? It looks like you have some expirations here about $600-plus million that probably makes sense to get to. Is there any costs associated with the swaps and, you know, getting rid of those? And where do you think you guys would price? And what term would you guys look to -- or what's the most interesting term at this point for a pricing perspective?

Jordan Kaplan -- Chief Executive Officer

First of all, of course, you're correct. Great time to look at refinancing. We are looking and fully working on it. We have a goal, and I think I had it and it wasn't one of ours -- I might have been Kevin, I thought I said, but we have a goal.

We are looking at refinancing, our average cost of debt right now is just a hair under three, like two 99, two 98, something like that. I'd like to see that number come down. And I think we have an opportunity to do that. You're naming some.

There's maybe even be more than that. We have very flexible debt. A typical loan for us is a seven-year loan, we swapped five years. And I don't know why we would go off that program.

And super aggressively in the – you know, Michelle Aronson and the team, and all the people over there are working on those -- on that.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

What do you think would be anticipate timing if you guys kind of pull the trigger?

Jordan Kaplan -- Chief Executive Officer

What I'd like to do is way to be able to announce and then you'll have the stats of an actual deal. So I'm just going to wait for that because I don't want to like sour my -- but we [Inaudible] with announcement aware of what needs to be. So let it play out. I mean, obviously, you know, I wouldn't be squawk at about refinancing, and I thought it was going to stay at 3%.

So, you know, we're headed down. So but see how much improvement Hearn or Tim can get out of the program as of course, rates have -- certainly, you can look at five-year swap, see where that is, then you could -- what can we do with spreads and then combine those and see how much can we improve our cost of debt and how fast can we move to take advantage of that.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

That's helpful. And then just 1 other one. You guys -- Brentwood resi developments coming on in '22. What's happened to rents for that type of product in L.A.? And do you still feel like you're in a good spot from an underwriting perspective?

Jordan Kaplan -- Chief Executive Officer

Yeah. Matter of fact, and I know I say this all the time, with the office leasing portfolio where people go, where do you think rents are -- don't worry about rents. It's all about -- rents follow occupancy. And we got to get occupancy up and then we push rents.

So as you watched us lease up the apartment portfolio, which we're now certainly, at or above what you would call fully occupied, now we're seeing rents move. So we're seeing rents start moving back up again. That's great. If you're more narrowly asking the question, in the higher-end market of the product that we're putting in Brentwood right now, we don't have any reason to believe that that's not going to be equivalently or more successful than we expected going into the pandemic.

And of course, we've been giving you some good feedback on what's happening in Honolulu with the project we did, and that has been during -- that's in leasing right now, right? And then we've leased 100-whatever, 175 units -- 174 units, and so we have really hard stats on that, and we know that that's been -- that would have been called very successful, not with the pandemic, almost stunning with the fact that the thing is still under construction and a pandemic.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

That's helpful. Thank you. All right.

Operator

The next question comes from Dave Rodgers with Baird. Please go ahead.

Dave Rodgers -- Robert W. Baird -- Analyst

Morning out there. Jordan, maybe you addressed this a little bit with your redevelopment comment, but I guess I was curious in terms of kind of flight to quality. We hear it pretty much across the country as tenants come back looking for better quality space. Curious if outside of the leasing capex bucket, tenants are asking for better air handling, better air movement, those types of things, just within the portfolio, and any movement you're seeing within existing submarkets within the Valley versus the Westside in terms of kind of flight to quality.

Jordan Kaplan -- Chief Executive Officer

Well, that's -- OK. So we keep looking -- we look at acquisitions and we look at our existing portfolio. And when we see something in the bottom quartile, we go, "How do we move it to the top quartile?" So I want to buy into the top quartile of quality. And when we look at our buildings, we go, that's in the bottom quartile, what can we do to it to put it to the top quartile, OK? So that type of aggressive recycling, which you've been seeing us doing now, we think you get paid for it.

And we were for sure being paid for it before the pandemic. Now the pandemic has completely shaken up the table. And so it's hard to go look at stats and just prove that in the direct way we were able to do before the pandemic. But we still think, as you're obviously indicating that, that exists at or -- or more today.

And that's why you hear us committing to capital and restarting for new projects. I mean to whatever ability someone can run on a treadmill, I want 100% about what we own to be in the top quartile and quality of what we own. I mean -- and whether it's through buying and or repositioning, that's our goal. And that goal puts you in the top and we're definitely in the top, and we're probably above the top quartile of our markets in terms of what we own.

Dave Rodgers -- Robert W. Baird -- Analyst

OK. Thanks for that. And then maybe just a question for Peter following up. Peter, you have mentioned a lot in terms of bad debt workouts and the like during the quarter.

Do you have the straight-line rent write-off and the cash bad debt for the quarter that you specifically recorded? And then maybe just a quick follow-up for Kevin. Rents in Honolulu for the conversion relative to pro forma?

Peter Seymour -- Chief Financial Officer

Yes. So for -- it's Peter. For the most part, the tenants who haven't been paying are still the tenants not paying. But every quarter, we have had a few new tenants come on the list and getting written off, not meaningful this quarter.

Kevin Crummy -- Chief Investment Officer

And then regarding the Honolulu rents, we're nailing pro forma, which in the middle of pandemic, who would have sunk, it's really unique product. It's very, very high quality, and we're 100% leased now. So it's in high demand. So we're very pleased with how that project is progressing.

Dave Rodgers -- Robert W. Baird -- Analyst

Thank you.

Operator

The next question comes from Jamie Feldman with Bank of America.

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

Thanks. I just had a quick follow-up. You have I think, four UCLA leases expiring this year. Do you guys have visibility on renewal yet?

Peter Seymour -- Chief Financial Officer

Yeah, you're right. They're 65,000 feet. I think you're right, there's four leases. There are different departments, different decision-makers on the leases, Jamie.

And, you know, we're not in the business of commenting on individual tenants and how they're going to work out. But it's not all just one big lease and it's not one decision. So, we'll see how those play out.

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

OK. But nothing has been renewed at this point?

Peter Seymour -- Chief Financial Officer

If it was renewed, it wouldn't be expiring this year. So no, it would have changed in the stats.

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

OK. All right. Thank you.

Operator

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

Jordan Kaplan -- Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Stuart McElhinney -- Vice President of Investor Relations

Jordan Kaplan -- Chief Executive Officer

Kevin Crummy -- Chief Investment Officer

Peter Seymour -- Chief Financial Officer

Steve Sakwa -- Evercore ISI -- Analyst

Manny Korchman -- Citi -- Analyst

Frank Lee -- BMO Capital Markets -- Analyst

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

Alexander Goldfarb -- Piper Sandler -- Analyst

Rich Anderson -- SMBC Nikko Securities --Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Dave Rodgers -- Robert W. Baird -- Analyst

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