Douglas Emmett (DEI) Q4 2021 Earnings Call Transcript

Douglas Emmett (DEI -0.18%)
Q4 2021 Earnings Call
Feb 09, 2022, 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.

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. [Operator instructions].

Thank you. I will now turn the call over to Jordan.

Jordan Kaplan -- Chief Executive Officer

Good morning, everyone. Thank you for joining us. We continue to recover from the impacts of the pandemic. In 2021, we leased more office space than in any prior year with strong tenant retention above 70%.

In addition, we kept our lease transaction costs meaningfully below our pre-pandemic averages. Our multifamily properties are fully leased, with average rent roll-up this quarter in excess of 8% across our portfolio. We completed construction of our 376-unit residential high-rise in Brentwood and delivered 101 new apartment units last year at our conversion project in Honolulu. Leasing at each project has exceeded our expectations.

In 2021, we completed over $1.3 billion in financing transactions. Our average interest rate is now only 2.89%, and our next maturity is not until December 2024. We continue to convert noncash to cash revenue. During 2021, our cash revenue represented over 99% of our total revenue.

We estimate our office utilization at 70%. Despite lingering uncertainty around COVID, I remain optimistic about our improving fundamentals and our development pipeline that Kevin will discuss in more detail. Kevin?

Kevin Crummy -- Chief Investment Officer

Thanks, Jordan, and good morning, everyone. As Jordan mentioned, we are excited to report that we have completed construction of Landmark Los Angeles, our 376-unit Brentwood residential tower. This is the first new residential high-rise development west of the 405 Freeway in more than 40 years, offering stunning ocean views and luxury amenities. We have already pre-leased just under 100 units, and expect tenants to move in over the next month.

At 1132 Bishop, our downtown Honolulu office to residential conversion, we have completed all our common areas and amenities, and approximately half of our planned 493 units. The remainder of the units will be constructed in phases as office tenants move out. Given our progress at these two properties, we are focused on our next development projects. As we have mentioned in the past, we own a number of sites in Los Angeles and Honolulu that accommodate new ground-up residential development, and we would expect to continue to finance our new development, primarily through our excess operating cash flow.

In addition, we continue to modernize and upgrade our portfolio through asset repositionings. In 2021, our repositioning program focused on two office buildings and two residential properties. In 2022, we plan to start repositioning an additional three office buildings. During the fourth quarter, we refinanced another $300 million of debt.

The new secured nonrecourse interest-only term loan matures in January 2029, with interest effectively fixed at 2.66%. Our overall portfolio weighted average interest rate is fixed at only 2.89%. And we have no outstanding debt maturing for nearly three years. Although property sales in our markets remain slow, I am hopeful that 2022 will bring more transactions to the market.

Our access to liquidity remains excellent with over $330 million of cash on our balance sheet, nothing drawn on our credit line, good cash flow after dividends, strong JV relationships, low leverage, and approximately half of our office properties unencumbered. Stuart?

Stuart McElhinney -- Vice President of Investor Relations

Thanks, Kevin. Good morning, everyone. We continue to see good leasing demand from the diverse set of industries in our markets. In Q4, we signed 216 office leases, covering 858,000 square feet, consisting of 254,000 square feet of new leases and 604,000 square feet of renewal leases.

For all of 2021, we signed 910 office leases, covering 3.7 million square feet, including 1.2 million square feet of new leases and 2.5 million square feet of renewals, that is our highest leasing volume since becoming a public company. Our leasing spreads during the fourth quarter were positive 3.5% for straight line and negative 9.7% for cash. We are focused on recovering occupancy at this point in the cycle and expect rent spreads to remain choppy until our leased rate climbs back near 90% with an upward trend. Our leasing costs this quarter were $5.03 per square foot per year, in line with our recent trends and well below our Benchmark Group average.

Turning to multifamily. Our portfolio remains essentially full at 99.3% leased. We saw further strengthening in rents during Q4 with average rent roll-ups for new tenants over 8%. With that, I'll turn the call over to Peter to discuss our results.

Peter Seymour -- Chief Financial Officer

Thanks, Stuart. Good morning, everyone. Turning to our results compared to the fourth quarter of 2020, revenues increased by 10.9%, FFO increased by 5.3% to $0.48 per share, AFFO increased 20.1% to $91.3 million, and same-property cash NOI increased by 19.1%. Our G&A remains very low relative to our benchmark group at only 5% of revenues.

As we see promising signs of the pandemic abating, we are resuming full year guidance. For 2022, we expect FFO to be between $2.01 and $2.07 per share. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future acquisitions, dispositions, or financings.

I will now turn the call over to the operator, so we can take your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions]. Our first question comes from Alexander Goldfarb with Piper Sandler. Alexander, your line is now open.

Alexander Goldfarb -- Piper Sandler -- Analyst

Great. Good morning up there. Hey. How are you? And sorry, I've been -- a busy earnings day.

So two questions. The first question, big picture, is if you look in Southern California this apartment earnings season, the rent growth rebound has been phenomenal. All the apartment REITs have spoken about the amount of demand they've gotten to the apartments, the amount that content is driving employment in L.A. And when we look at your leasing, you guys have been phenomenal in the leasing, but it's still like a treadmill.

So I guess the question is, is there a read-through between the strong apartment results and the strong employment that's driving that, that we should start to see that translate to positive absorption in the next few quarters? Or you would say, hey, while the two logically would seem to be tied in this case, there's not necessarily that direct correlation?

Jordan Kaplan -- Chief Executive Officer

Well, population definitely correlates to more full real estate, so that's simply said. But I got -- I think we are seeing -- you've seen our leasing has been recovering for a while now. I mean, if you think about it, we lost 6% -- 600 basis points during this entire sort of COVID recession. 500 of it was in 2020.

Over 80 -- 86 or 90 of it was in the first quarter. And then the following three quarters of the last year, we pretty much broke even with the last two quarters being positive. So I mean, I think we're already seeing that office, at least on the leasing front recovery. Now you already know that we've told you that we think the utilization is way up.

So I mean maybe it's because of the -- if you're around the residential leasing, it certainly has been spectacular.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. So that -- so it sounds like there's -- than what you just described, it sounds like we should expect this trend to continue, and we should see you guys gain traction, that positive absorption on the lease rate translates to occupancy growing as we go on over the course of this year?

Jordan Kaplan -- Chief Executive Officer

Yes. I mean when you're talking about a subject like this, should and hope to kind of go together. But yes, I think I probably agree with you.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. We love should and hope. The next question is you announced in the press release about starting next three batch of buildings on the rehab program. Historically, you've discussed that you only do that when you view that you can get rent that's commensurate with the spending.

And you guys don't really have competitive supply that's -- there's probably less defensive capex. So is the read-through from that, that you think that rent growth is coming. So by the time that these upgrades deliver, rents will be higher? Or is part of this just defensive just to encourage tenants to come back to the office and make sure that they aren't relocating to other parts of the West side, I don't know, maybe down it's go maybe just away or imply investor other places?

Jordan Kaplan -- Chief Executive Officer

Well, there's two things there. Number one, let me just say, I definitely think we'll recover our occupancy get back in the 90s, and you'll see meaningful rent growth. So that's 100%, I think that's happening. Now separately, when you say just redoing the buildings, does that mean we think we'll get rent growth? It's not rent growth at that.

I think we'll get a marginal as compared to them not being done, I think we'll get higher rent in that building as a result of redoing that building. That's not a statement about rent growth across the whole community. That's just a statement that I think that when we spend this money to redo the building, we're going to get sudden such more per foot in rent, and that justifies that money being spent. So I definitely still feel that way.

I think that the segregation of the nicer to medium to low-end buildings and the difference in rents that you get is just getting that gap just even gapping out more. So it's really well spent money and we're experiencing that we're getting much higher returns when we do that. But just putting that aside, I have absolutely no doubt in my mind that we will recover the occupancy that we lost during the pandemic and that we will see rent recover with that process, especially once -- as Stuart said, once we get back to approaching that 90% number, I think it will recover smartly.

Alexander Goldfarb -- Piper Sandler -- Analyst

OK. OK. Thank you, Jordan.

Jordan Kaplan -- Chief Executive Officer

Thanks.

Operator

Thank you, Alexander. Our next question comes from Craig Mailman with KeyBanc Capital Markets. Craig, your line is now open.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey, guys. Maybe just a follow-up on the occupancy and I ask in a different way. And Jordan, I appreciate your commentary, but if you look at guidance, you guys are kind of flat on occupancy for the year from where you ended. And your -- you had an easier fourth quarter from an expiration schedule and then it kind of ramps up again in '22 and accelerates in '23 and '24.

So I'm just kind of curious what on the demand side do you see accelerating further for you guys to keep retention high here, get back that 500 basis points? And kind of when do you see rent growth pick back up in that context?

Jordan Kaplan -- Chief Executive Officer

So I know -- and it's a proxy. It's not a perfect proxy. I know you're using occupancy instead of lease rate. When we -- when I'm trying to predict where we're headed, I look more at lease rate than occupancy.

Because as you've already seen in the past, lease rate and occupancy can gap out, which is always positive. Because when you're doing a lot of leasing, you'll gap out against occupancy, right, because you got more leases done, it takes time for them to move in. So when you ask about the next two years or the next year. I don't think the roll -- it might be slightly, slightly higher, it's not meaningfully higher.

It's -- if you look at our historical of the next two years that we're facing, they don't look very different than the two years we're about to face. Separate from that, I do think we -- when you ask just the separate question, why would I from that think that we're going to recover or regain, I'm seeing us average over 800,000 feet a quarter now with very strong renewal, and we've been doing that now for, I guess, three quarters. And I know that when we get into those kinds of numbers, we start gaining on leasing. And so I know if we do the leasing, the occupancy will catch-up and catch us as people are moving in, that's what makes me optimistic about what's coming.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

OK. And so, Stuart, I guess, to the commentary is once you get to that 90% lease rate, you guys feel better about spreads picking back up, not necessarily getting the spread to narrow to occupancy? I just want to try to be clear.

Jordan Kaplan -- Chief Executive Officer

Well, certainly, when you get over 90%, first of all, it's hard to make meaningful gains, right? I mean, you saw we were up at like 93%, 97% or something. And so we were still inching up. I think we felt like 95% was kind of where we would end up until we hit this recession. But at that time, you saw the leased occupied a crunched way down because your churn on the amount of new people moving in shrunk way down.

And so then you're not going to have as big of a spread as we have right now where we're doing a lot of leasing and filling space that was vacated to catch-up from 86% to the 87% to the 88%, whatever.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

All right. And then just one quick one. As you guys restarted --

Kevin Crummy -- Chief Investment Officer

I was just going to Craig, but you're right. I was speaking about the leased rate moving over 90% where we think we'll be able to push on rate.

Jordan Kaplan -- Chief Executive Officer

Rental rate.

Kevin Crummy -- Chief Investment Officer

On Rental rate. Yes.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Right. OK. And then just one quick one on as you guys restart the redevelopment program, kind of what's the -- how quickly do you get back to that kind of maybe $200 million of annual spend you guys had talked about pre-COVID?

Jordan Kaplan -- Chief Executive Officer

Immediately. Now we're there.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

OK.

Jordan Kaplan -- Chief Executive Officer

We're doing that.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

OK. Great. Appreciate it.

Jordan Kaplan -- Chief Executive Officer

Thanks.

Operator

Thank you, Craig. Our next question comes from Elvis Rodriguez with Bank of America. Elvis, your line is now open.

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

Thank you. Good morning, guys. A quick question. I think you mentioned that rental rates are kind of back or rents are kind of back to pre-COVID levels, but that cash spread was negative in 4Q.

Can you help us sort of think about the two statements -- the statement you made relative to the actual leasing spread?

Stuart McElhinney -- Vice President of Investor Relations

I think we may have been speaking about residential, if you're thinking of rents being back to pre-pandemic levels. We're seeing that for sure on our multifamily business. On the office side, our rental rates are down, as you'd expect from pre-pandemic levels.

Jordan Kaplan -- Chief Executive Officer

Which gap are you talking? I didn't know what the gap. Elvis?

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

Yes. No, no, no. Well, the gap spreads were positive in 4Q, but I thought I heard a comment that on a GAAP basis or maybe rents were sort of back to pre-COVID level from that perspective. And so I was just trying to -- to make the correlation between the two?

Jordan Kaplan -- Chief Executive Officer

Yes, no, we didn't make that comment. I mean, as tenants are paying and -- go ahead that answer. I'm not sure. I mean, if you're just looking at the same-store growth, the huge same-store growth, it's because it's a great comparison period because -- you look at the fourth quarter of '21, you compared to the fourth quarter of '20, and like that's such an easy comparison.

So that number is way up. But that has more to do with comparison than something of rent -- of saying rents have risen.

Stuart McElhinney -- Vice President of Investor Relations

It sounds like you misheard us, Elvis, on the office side.

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

All right. Sorry about that, so. And then in terms of -- Stuart, you mentioned the volatility and rents are going to be choppy until you get some sort of high -- into the high occupancy levels and the market sort of stabilizes. Can you talk about what we should be seeing quarter to quarter throughout the year or what your expectations are?

Stuart McElhinney -- Vice President of Investor Relations

Very hard to predict because we have -- we do a lot of leases. We do over 200 leases a quarter, and we're still having plenty of leases that are rolling up. But on average, the -- on a cash basis, they've been rolling down. So you can see quarters were depending on what submarket you're doing more leases in or what leases actually get signed, that move -- that number can move around a lot.

We've seen that through the cycle where this number is really hard to predict. We spent a lot of time on successfully trying to predict it. So that was my comment about it being choppy. Hopefully, we see this moving back in the right direction as rent will follow occupancy up.

But at this point, to see the cash spreads negative, now it's not surprising. Glad that the overall economics with our strong rent bumps in the leases that we're still getting keeps those gap spreads positive at this point.

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you, Elvis. Our next question comes from Steve Sakwa with Evercore. Steve, your line is now open.

Steve Sakwa -- Evercore ISI -- Analyst

Yes. Thanks. Good morning. Jordan, I guess, as we sort of think about the model and the numbers.

One of the big swing factors to me seems to be the retention rate. And I know in your press release, you mentioned that you were 70% in '21, which, if memory serves me, I thought long term, the longer-term average was probably closer to 60. So I'm just curious, what are you embedding in your 84, 86% range because that just seems to be the big swing factor in terms of how quickly you can regain the occupancy?

Jordan Kaplan -- Chief Executive Officer

So in terms of retention, our historical retention is like 69.8, some number like that. So that's our normal retention. And I said it was above 70, and my recollection is, but Peter can correct me, I think it's 72 was last --

Peter Seymour -- Chief Financial Officer

Yes. Something like that. Yes.

Jordan Kaplan -- Chief Executive Officer

Which makes a big difference. I mean, I know that -- I will tell you that number loves to be like between 69.5 and 70. So it's almost odd that we got so far above 70 last year. And so we mentioned it.

Now your next question was, I think, how do we get from, what, 87 back to 93 in terms of our lease rate? Is that what it is?

Peter Seymour -- Chief Financial Officer

[Inaudible] assumption was for retention in our guidance for 2020?

Jordan Kaplan -- Chief Executive Officer

Our -- it's pretty much typically right there in the high-60s, it always is. We might have a little bit of info about what some tenants are doing. But statistically, there's so many tenants moving in and out all the time that the averages tend to dominate. You can have quarters that are way off.

You can have a quarter that's very low, and then you got a quarter that's very high. But whenever you look at a block a quarter, say, four quarters or whatever, it's just extremely hard to get free of that number of, say, call it, 69.5.

Steve Sakwa -- Evercore ISI -- Analyst

OK. So it sounds like for modeling purposes, you generally use 70 kind of as a placeholder for kind of retention and then you've got obviously backfill the 30% that's obviously not renewing?

Jordan Kaplan -- Chief Executive Officer

Well, our model is very complicated, but I probably if I view that, that I would do. Yes. I'm sure we spend a lot of time trying to guess what everyone is doing, but I suspect it comes out. Like I said, it's like 69.8 or something, it's an odd number.

Steve Sakwa -- Evercore ISI -- Analyst

OK. And then second question, you sort of mentioned the other development sites that you have for residential with the Brentwood project sort of completed here. What are your thoughts on starting a new ground-up development, whether it's something in Hawaii or on maybe a redevelopment or knockdown type opportunity in L.A?

Jordan Kaplan -- Chief Executive Officer

My thoughts are as we're doing it and we're working on it. We got politicians coming back in the office. We're talking to them. We're putting together all the pictures and all the stuff to show to them, and we're saying that's what we want to do next.

And we hope you're behind it since like all the -- both Hawaii and in L.A., people are talking about housing. And so we're fully working on it.

Stuart McElhinney -- Vice President of Investor Relations

And, Steve, I think we'd like to have projects going in both Hawaii and in L.A --

Jordan Kaplan -- Chief Executive Officer

Correct.

Stuart McElhinney -- Vice President of Investor Relations

Concurrently.

Jordan Kaplan -- Chief Executive Officer

Yes.

Steve Sakwa -- Evercore ISI -- Analyst

So you think it's likely that you could have actual announcements this year? Or is it just the gestation period of getting these to the finish line sort of longer than, say, the next calendar year here?

Jordan Kaplan -- Chief Executive Officer

I would say -- I mean I'm hopeful of some -- I mean when we announced it, I mean, in fact we have announced it right now because I know we're going to try to make that happen. I think we won't make it happen in both places. Now it's such a long process and it process going. I mean, I'm doing it right now.

So maybe we announced breaking ground or something. I don't know if that would have to be near the end of the year. But we're doing it right now. We're doing -- we're -- the basics of your question is, are you guys working as quickly as possible to start construction on new projects in L.A.

and in Hawaii? And the answer is, yes. And talking to cities and contractors and architects and the whole thing.

Steve Sakwa -- Evercore ISI -- Analyst

Got it. Thank you.

Jordan Kaplan -- Chief Executive Officer

Thanks.

Operator

Thank you, Steve. Our next question comes from John Kim with BMO Capital Markets. John, your line is now open.

John Kim -- BMO Capital Markets -- Analyst

Thank you. You guys talked about the importance of the leased rate, just given that you get the pricing power at 90%. Can you give any indication of where you think that lease rate is by the end of the year?

Jordan Kaplan -- Chief Executive Officer

Where are we?

Peter Seymour -- Chief Financial Officer

John, no, we give guidance on occupancy. We're not going to give leased -- we're not going to give guidance on leased rate as well. Obviously, we're hopeful that it continues to go up. We've been doing a lot of leasing.

Demand has been really good. But we gave you the guidance that we're going to give, which is on occupancy.

Jordan Kaplan -- Chief Executive Officer

We -- did you ask something in the last year?

Peter Seymour -- Chief Financial Officer

No, at the end of this year.

Jordan Kaplan -- Chief Executive Officer

Are you asking at the end of this year? John?

John Kim -- BMO Capital Markets -- Analyst

Yes.

Jordan Kaplan -- Chief Executive Officer

I'll tell you, just a minute in the last year, but -- OK.

John Kim -- BMO Capital Markets -- Analyst

Well, I'll put it another way, it took you six quarters at the last recession to get from trust leased rate to 90%. I'm assuming it's going to take a little bit longer this year because that will take you to the end of this year to get from trough to 90. Is that a fair assumption just given uncertainty in the market and you're starting off a lower leased rate that you did last recession?

Jordan Kaplan -- Chief Executive Officer

You're trying to figure out when we're going to be able to put pressure on rents?

John Kim -- BMO Capital Markets -- Analyst

Pretty much.

Jordan Kaplan -- Chief Executive Officer

Yes. I mean, I don't know. You know what, I think things are really opening up. I don't want to like be really optimistic and then don't be wrong.

But I'm optimistic that the economy is opening up, and I see it opening here. And I see the state saying master going off in like next week and kids are at school, and I mean all the stuff is happening and these are getting going. Now all of that bodes extremely well. I mean, right up in the elevator this morning with a girl that I watched, or she was getting a new parking card.

And I go get your parking card and said, well, we're all back in now, and I lost my parking card for being home so long, now we're all back in. So that's going on everywhere, OK? So with all that going on, I'm pretty positive that we should have a good year, but I don't know where we'll really play out. I mean we have a whole year ahead of us. And we've been through like paddle kind of lacking over the last seven quarters.

So we've got to see it play out.

John Kim -- BMO Capital Markets -- Analyst

OK. My next -- second question is on Landmark. You gave the leased percentage, which is roughly 25%. Where does occupancy trend for the year? Just so we can model what the contribution is for this year versus next? And also, what is -- what ended up being your yield on the development versus your initial expectations?

Jordan Kaplan -- Chief Executive Officer

So we already have said that we think we build it for a cap rate that's above a seven and we'll have the answer when we finish leasing it, but I'm extremely confident that it's above the seven. And so I'd like to wait and see as that plays out, where we end up. But having only leased one-fourth of it, I can say it's well above seven, but I don't want to say where it's at because we've got to finish leasing it. How does that trend up? That's a tougher one.

I mean, I don't know, if you guys have any type or anything for that or?

Kevin Crummy -- Chief Investment Officer

Yes, we -- it's Kevin. We're thinking that it's probably going to be a two-year lease-up on this. And so we're just opening up. So by the end of the year, you should have about half leased if things go as we're hoping.

John Kim -- BMO Capital Markets -- Analyst

That's great. Thank you so much.

Jordan Kaplan -- Chief Executive Officer

Did that answer it for you? Thanks.

John Kim -- BMO Capital Markets -- Analyst

Yes.

Jordan Kaplan -- Chief Executive Officer

Danny? Or --

Kevin Crummy -- Chief Investment Officer

Operator?

Operator

Thank you, John. Our next question comes from Manny Korchman with Citi. Manny, your line is now open.

Manny Korchman -- Citi -- Analyst

Jordan, you jumped ahead there. I thought that I'd missed something.

Jordan Kaplan -- Chief Executive Officer

Well, I was ready to start backing it.

Manny Korchman -- Citi -- Analyst

Given everything we've talked about with whether it be the fact that it might be a tenants -- the pricing power might be with a tenant right now or that people are confident in making their decisions. Are you seeing tenants come to you to renew early? And how are you thinking about those given the fact that you'll have better pricing power if you get to 90%, but if you can lock them in now, then you've got the surety of that tenant renewing?

Jordan Kaplan -- Chief Executive Officer

So for sure, tenants are coming to us say there was money and saying, "Hey, can I renew at the same time to spread this out." So yes, that's definitely happening. And you've seen our collections just keep rising and that's one of the ways that they're rising, right? Now the second thing of -- since we have a pretty positive view on where things are going, do we want to gain the system and hold off or press for to do shorter deals and press for higher rates? And there's never been a market where we've done that. We always meet the market. We signed the longer leases, and we have so much churn that we're always able to pick up.

When there's gains in rate, we pick it up. But we just lease to the market. And I don't -- I think actually we probably put on a cash basis at the bottom line. I think we actually do better that way than trying to top tick rates or gain our leasing program for winning.

Michael Bilerman -- Citi -- Analyst

Jordan, it's Michael Bilerman here with Manny. Just as a follow-up, I was thinking about sources and uses of capital as you ramp up the desire for redevelopment and development opportunities as well as continuing the scour of the acquisition market. How are you thinking about funding those capital needs? And do you sort of have some goal posts in mind in terms of how much capital you're looking to deploy, let's say, over the next two to three years, and where that's going to come from? And I suspect your stock is not going to be high on your list given it's a large discount to its inherent value. But I'm not sure if you're actively seeking to sell assets or enter the joint ventures in order to fund this increased spend and not take leverage up?

Jordan Kaplan -- Chief Executive Officer

OK. So first, my goal, we hope to put out between 200 and 400 million a year of new capital. The company itself actually generates a significant amount of free cash flow even after the dividend, somewhere in the 150 million range, OK? So you're saying beyond that number, where does the rest of the money come from? And I mean, we're obviously, we're sitting on a lot of cash right now, and we have credit lines, and we have low leverage. And we have joint venture partners that are anxious to be getting the stuff.

And that would be all the methods. You correctly stated that considering where stock prices are, that would not be -- that would be extremely low on the list.

Michael Bilerman -- Citi -- Analyst

Do you have dispositions that you're working on? I mean, are you trying to generate more capital at this point? Look, I know it's hard to buy, which means maybe it could be a good time to sell some things?

Jordan Kaplan -- Chief Executive Officer

I don't -- I mean if you're saying do, we have any building for selling? We sold the one building I wanted to sell and that was Honolulu, but beginning of last year. Maybe it was the end of '20.

Peter Seymour -- Chief Financial Officer

End of '20.

Michael Bilerman -- Citi -- Analyst

They'll blend it to each other these days. OK. All right. Thanks for the time.

See you in Florida.

Jordan Kaplan -- Chief Executive Officer

See you.

Operator

Thank you, Manny. Our next question comes from Blaine Heck with Wells Fargo. Blaine, your line is now open.

Blaine Heck -- Wells Fargo Securities -- Analyst

Great. Thanks. Just a follow-up on that and maybe take the other side of that, that question. Given your low leverage profile and meaningful discounts to NAV, your high implied cap rate, however you want to look at it, and kind of the lack of acquisitions that you've seen the bid on recently.

I know you've addressed this, Jordan, on prior calls. But just for an update, does it make sense to get active on share buybacks here? Or do you think you want to keep that dry powder for developments and other opportunistic acquisitions that might come about in the future?

Jordan Kaplan -- Chief Executive Officer

Well, Obviously, I'll say -- I mean, I know you're right, I've said this in the past. I mean, I've been buying our stock. I personally been buying our stock. But -- and I believe our stock is a very good buy.

But I don't -- when you talk about the company, it's a much more complicated decision because the company -- our business isn't to be participating in the stock market and guessing of ups and downs of the stock market and where the stock is going. Our business is to run the real estate and let the stock market run itself. And frankly, I'm wrong a lot by what I think is taking a lot of times. I think while we're killing it and the stock goes down and other times it goes high.

So I don't think I'm not good at predicting that. So let's start with that. Secondly, it's not -- that you would never buy back your stock because I have bought back our stock, but it's a complicated decision because unless you're selling something, it means your de facto, you're increasing leverage and you're taking away the opportunity to do some of these other things, whether it be development or an acquisition or whatever that may be. So that's a -- you have to really be not just a little thing, it's a good idea, you got to be wildly in extreme position to choose to raise your leverage, buy back your stock when you're not an expert in the stock market and then obviously reduce the range of things that you can now do vis-a-vis acquisitions or development projects or redevelopment projects.

So that's why you don't see us really -- that's why you see it being a very rare activity for us.

Blaine Heck -- Wells Fargo Securities -- Analyst

OK. That's helpful. And then for my second question, can you just talk about kind of the underlying health of your smaller tenants? We saw a small business optimism numbers erode in January and some of the commentary heard around that release was that these small businesses were struggling to handle the increase in inflation and associated increase in costs for their businesses. I know your tenant base is probably a lot different than the average business that's included in these studies.

But when you talk to your tenants, are you hearing any rumors that are having trouble keeping up with the rising costs or even wage inflation?

Jordan Kaplan -- Chief Executive Officer

So I think probably in small retailers, that's the case, although I actually think even our retail is pretty healthy at this point. But now you're saying our office tenants, I think they should be embarrassed to how much money they're making of anybody that hasn't paid us their rent. So that definitely is not the case. These people -- this colossal majority of the costs are in their company is in their people that they employ and they're employing people that live in expensive housing all around this area and to not pay the rent is absolutely observe with how much money they've been making.

A lot of them, they're making -- having some of their best years, whether it would be law firms, accounting firms, hedge fund managers, and wealth managers. I mean the list goes on. These small companies that see the entertainment industry and tech industry it's almost laughable that they would have thought that take advantage of not paying with the money they've been making. I know that's not the question you asked, but I'm still pissed off about that.

Blaine Heck -- Wells Fargo Securities -- Analyst

Fair enough. Thanks, Jordan.

Operator

Thank you, Blaine. Our next question comes from Rich Anderson with SMBC. Rich, your line is now open.

Rich Anderson -- SMBC Nikko Securities -- Analyst

Thanks. Good morning up there. For the guidance range, do you allow for any sort of hiccup in occupancy? I know you're expecting -- actually, excuse me, lease rate. I know you're expecting a ramp in that.

But as now, I think statewide eviction moratorium burned off, but still some county level stuff continuing. I'm wondering, what you're thinking about the behaviors of some of your tenants that might actually, despite what you said about the money they're making and some not paying, would they perhaps vacate when that time comes? And are you allowing for any of that in your range for this year?

Jordan Kaplan -- Chief Executive Officer

Well, certainly, the width of the range could allow for a lot of things to happen and that could be on the list and some of that might happen. I mean -- but I don't, I would -- right now, looking at the office side, I think that's more likely to happen on the residential side. On the office side, I don't see that necessarily being that meaningful, but we'll see as it plays out.

Rich Anderson -- SMBC Nikko Securities -- Analyst

OK. And then a big picture question. I don't know if you've ever talked about expansion markets to any specific detail, but a lot of dislocation going on in San Francisco these days. Is there anything about that market that's got any amount of your attention these days? Or are you sticking where you're at right now and expanded from within?

Jordan Kaplan -- Chief Executive Officer

I mean, I know that Downtown San Francisco has taken a liken right now for a number of reasons, in my opinion, a lot of itself from forfeit. But -- and I still think that, that is going to be a good market in the end because it's surrounded by -- like colossal incubator institutions, like Stanford and Bert, Macau and what are all the rest of them. That's actually separate from the issue of would we put money up there versus putting money here, whether it would be in an acquisition or into additional development. And I think that our kind of local edge that we have here and the returns we're able to get with our money, probably would argue at the moment just to stay here in comparison to kind of what we'd have to set up, up in San Francisco to be effective.

I'm also not so sure that values are -- even though I know the fundamentals in San Francisco are way off. I'm not sure how far off values are in terms of what stuff's trading for. So I don't think it's like -- I don't think it's some type of gray advancing market or anything.

Rich Anderson -- SMBC Nikko Securities -- Analyst

OK. Good enough. Thanks very much.

Jordan Kaplan -- Chief Executive Officer

Thanks.

Operator

Thank you, Rich. Our next question comes from Bill Crow with Raymond James. Bill, your line is now --

Bill Crow -- Raymond James -- Analyst

Thanks. Good morning, guys. Similar to Rich's question, but keeping it local, I guess. It struck me as I was out in L.A.

not too long ago, but the focus on the news about all the crime that's going on and it seems to be expanding its area. So I guess my question is, what's going on from a submarket perspective? How much change are you seeing in orders of good submarkets versus challenging submarkets, etc.? I guess, how do you play the evolution of the market?

Jordan Kaplan -- Chief Executive Officer

Well, your lead-in would cause me you want a answer that the borders have tightened up, but actually, I think the borders have expanded. So certainly, I always consider the border of concerts to the East or whatever to all the way out to West Hollywood and in that area to be very good. And I would say the border to the South of us, where I may not have included Culver City or certainly, if you go a decade ago, Playa Vista, now I would go down that deep because these are all great markets. And I think Playa Vista, for the most part, is built out, and it's now maturing as a market.

Culver City certainly has some development, but it's also a very hot market, and it's a classic submarket where you have a lot of amenities and people that are kind of living near where they're working. So that's also a very strong submarket. I think as you get up to like, I don't know what you would call East of Westwood, I think that market has also expanded. I think what Victor did over on Pico is going to like kind of incubate a lot around it.

The big deal that we did with Google. So I actually think what's considered like good West L.A. submarkets has expanded instead of contracted. Now look, that's not to say everyone is not very aggravated about the crime and what's happening.

But when I see what's going on the recall of [Inaudible], and even the extremely far left politicians that are running now in our markets are talking about law-and-order and crime in dealing with it. The state legislatures talking about repealing some of the things that made at misdemeanors smash-and-grab, which will probably be on the ballot this year. I mean, there's just a lot going on to shift back to a law and order kind of structure. That was a moment in time that I hope is way behind us and I'll never see again.

So I'm pretty optimistic about where all those things are going. In California and specifically here, when you look at people running for the Counsel, County, and Mayor across the board are all sort of now talking, clean it up, cleanup the homeless, cleanup the crime. So they're all going in that I think they got the message from the orders.

Bill Crow -- Raymond James -- Analyst

I appreciate your views on the city. Just as a follow-up. You're talking about capital sources and uses before. I don't know it's been several years, but there was talk before that you might look at a Hawaii joint venture and kind of bringing some of the back -- and the money back into L.A.

And I'm just -- is that off the table well together at this point? Or what are your updated thoughts on doing a big JV in Hawaii?

Jordan Kaplan -- Chief Executive Officer

My thoughts are that with the right opportunity, the right opportunity to bring some money back, I would do it, but I also like -- I still obviously believe in Hawaii. I'm talking about investing more capital there and building there. And Hawaii has been -- I actually think you can remember going back to a time when I was making excuses for Hawaii and now Hawaii is like a, a complete stud. I mean it's cranking out the money and our office leasing is doing great and residential is doing great.

So -- but I love Hawaii.

Bill Crow -- Raymond James -- Analyst

OK. All right. Thanks, guys. Appreciate it.

Jordan Kaplan -- Chief Executive Officer

All right. Thank you.

Operator

Thank you, Bill. Our next question comes from Daniel Ismail with Green Street. Daniel, your line is now open.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thank you. I'm curious, if you can share what kind of recovery in parking revenue is embedded in 2022 guidance?

Jordan Kaplan -- Chief Executive Officer

So our parking revenue, which is one of the reasons why we're comfortable telling you that we're over 70% utilized is over 70% of what it would be for a full boat. Does that answer your question?

Daniel Ismail -- Green Street Advisors -- Analyst

Well, I mean, can you give a percentage? Is it anticipated to be up with 70% utilization throughout the year?

Jordan Kaplan -- Chief Executive Officer

[Inaudible] it was almost 75%. Do you remember, Kevin?

Kevin Crummy -- Chief Investment Officer

Yes, it's over 70% of adjusted for occupancy, what it was before the pandemic. But you're asking how we think it's going to recover over the course of the year. I mean --

Jordan Kaplan -- Chief Executive Officer

You mean the 70 to the 100? That's he's asking.

Kevin Crummy -- Chief Investment Officer

That's what he's asking. Yes. And how fast. I mean, look, I think that's going to --

Jordan Kaplan -- Chief Executive Officer

Utilization.

Peter Seymour -- Chief Financial Officer

I mean it's based on people coming back to the office and when they're back to 100% utilization of the existing occupancy and then -- and how fast that happens. So [Inaudible]

Daniel Ismail -- Green Street Advisors -- Analyst

I mean apologies I just have the total parking revenue relative to 2019 levels is my question?

Kevin Crummy -- Chief Investment Officer

Right. So I mean, you have to adjust for occupant -- the occupancy that we've lost since 2019. So what we're saying is we're somewhere over 70% now adjusted for occupancy, and then you expect that to improve, but it's all based on attendance coming back to the office at the existing occupancy levels. So it's hard to predict exactly how that's going to play out over the course of the next year.

But we expect it to get better.

Daniel Ismail -- Green Street Advisors -- Analyst

OK. And just last one for me, Jordan. 2022 is an election year and we call wind of a -- another potential Prop 13 challenge. I'm curious if that's something you guys are expecting on the November ballot and any thoughts you guys might have on any potential challenges to Prop 13 in November?

Jordan Kaplan -- Chief Executive Officer

You're talking about the nurses union up in Northern California?

Daniel Ismail -- Green Street Advisors -- Analyst

Yes, we're -- not exactly split role, but properties over 5 million is subject to a surtax of about 1% or so?

Jordan Kaplan -- Chief Executive Officer

Yes. I don't know what -- I don't know whether they're going to actually -- I don't know what's going to happen time. I know that they -- they've discussed it. That's kind of the -- that's kind of where that's at right now.

I mean, there -- to answer your question. I mean, it's not -- I haven't seen it go much further than that.

Daniel Ismail -- Green Street Advisors -- Analyst

OK. Thanks. That's helpful. Appreciate it.

Operator

Thank you, Daniel. Our next question comes from Elvis Rodriguez with Bank of America. Elvis, your line is now open.

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

Jordan, just a quick follow-up. I'm just curious on your thoughts on WeWork and co-working. And are you finding them to be competition as you go lease-up space today? They've obviously had some good success in growing occupancy this last year. So just curious on your thoughts there.

Thank you.

Jordan Kaplan -- Chief Executive Officer

No, I don't think we have. We're -- they -- I haven't -- first of all, it's not a ton of WeWork's in the markets we're in. And secondly, I don't -- I forgot what the part of their business is it to call their enterprise business that takes entire leases and sort of they actively -- they build out the space and they subleased to them. I think most of our tenants that maybe whether they want 2,500 or 3,000 or whatever fee, they want their own space and they're -- it's just as easy for them to go to direct and to pay the extra money.

But we haven't seen that at all. No.

Kevin Crummy -- Chief Investment Officer

Elvis, we think co-working is only about 1% of the space on the West side in our markets. It's not a huge jump.

Jordan Kaplan -- Chief Executive Officer

Yes, it's not a big piece of it.

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

Thanks, guys.

Jordan Kaplan -- Chief Executive Officer

All right. Anyone else? Operator? All right. I guess we lost our Operator. [Inaudible] the answer.

Well, it's good speaking with all of you, and I don't believe we have any further questions. So we look forward to speaking with you again in next quarter. Thank you.

Operator

[Operator signoff]

Duration: 54 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

Alexander Goldfarb -- Piper Sandler -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Elvis Rodriguez -- Bank of America Merrill Lynch -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Manny Korchman -- Citi -- Analyst

Michael Bilerman -- Citi -- Analyst

Blaine Heck -- Wells Fargo Securities -- Analyst

Rich Anderson -- SMBC Nikko Securities -- Analyst

Bill Crow -- Raymond James -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

More DEI analysis

All earnings call transcripts