Douglas Emmett (DEI) Q1 2022 Earnings Call Transcript

Douglas Emmett (DEI 1.80%)
Q1 2022 Earnings Call
May 04, 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 earning 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 reached the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow up.

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

Jordan Kaplan -- Chief Executive Officer

Good morning, everyone. Thank you for joining us. I'm pleased to report that 2022 is off to a good start. Compared to a year ago, FFO was up over 15% and AFFO is up over 20%.

We continue to see strong demand from our affluent small tenant base and increasing interest from larger tenants. We leased almost 900,000 square feet last quarter, including more than 325,000 square feet of new leasing. I was very pleased to see positive absorption for the third consecutive quarter, especially considering our typically high roll during the first quarter each year. In addition, our leasing spreads meaningfully improved.

After quarter end, we acquired 12 21 Ocean Avenue in Santa Monica, one of the most prestigious and best-located multifamily assets on the West Coast with panoramic ocean views from every unit. Looking forward, rising interest rates and inflation will present us with both challenges and opportunities. We are prepared for the challenges and remain ready to take advantage of the opportunities. With that, I will turn the call over to Kevin.

Kevin Crummy -- Chief Investment Officer

Thanks, Jordan, and good morning, everyone. As Jordan said, on April 26, we acquired 12 21 Ocean Avenue, an iconic apartment property overlooking the beach in Santa Monica. The property is currently 98% leased and includes 120 units, with an average unit size of 1,500 square feet. The purchase price is $330 million, which works out to $2.75 million per unit or $1,800 per square foot.

The purchase is made by a new joint venture that we manage and in which we own a 55% interest. The joint venture obtained $175 million secured, nonrecourse interest-only term loan that matures in April 2029. The loan bears interest at SOFR plus 1.25%, which we fixed at 3.9% through April 2026 with an interest rate swap. Turning to development.

We continue to see strong tenant interest and rents above our pro formas at both 1132 Bishop in downtown Honolulu and the Landmark Los Angeles in Brentwood. When completed, these projects along the 12 21 Ocean, add almost 1,000 units to our portfolio. As I mentioned last quarter, we are also working on repositioning a number of properties that should substantially boost rents. At our recently acquired 12 21 Ocean Avenue, we will be continuing on a major renovation project, which includes significant upgrade to every unit as well as the common areas.

We have plenty of dry powder and strong JV relationships. I remain hopeful that 2022 will bring more transactions to the market. Stuart?

Stuart McElhinney -- Vice President of Investor Relations

Thanks, Kevin. Good morning, everyone. Leasing demand was strong during the first quarter. In Q1, we signed 246 office leases, covering almost 900,000 square feet, including 571,000 square feet of renewal leases and 326,000 square feet of new leases.

As Jordan mentioned, we achieved our third consecutive quarter of positive absorption, with our office lease rate increasing to 87.7%. Our leased occupied spread increased to 3.1%, an all-time high. I'm happy to report that our leasing spreads this quarter improved to positive 9.4% for straight line and negative 3.7% for cash. We remain focused on recovering occupancy at this point in the cycle and expect rent spreads to remain choppy.

Our multifamily portfolio remains full at 99.7% leased, and rents continue to rise at a strong clip. 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 first quarter of 2021, revenues increased by 10.4%.

Same property cash NOI increased by 10.7%. FFO increased by 15.4% to $0.50 per share, mostly driven by both office and residential revenue increases, partly offset by higher expenses, and AFFO increased 20.2% to $94.1 million. Our G&A, at only 4.7% of revenues, remains very low relative to our benchmark group. Turning to guidance.

We are raising our FFO guidance for 2022 by $0.01 to be between $2.02 and $2.08 per share, which reflects an increase from our recent acquisition, partially offset by higher interest rate assumptions. 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 today comes from Jamie Feldman from Bank of America. Your line is open.

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

Great. Thanks. Thanks for taking my question. I guess I just want to go back to your first comment.

You said strong demand from affluent small tenant base and increasing interest from larger tenants. Can you talk more about the leases you did sign in the quarter? And how the pipeline looks today? Do you think you can maintain this 800-plus thousand leasing volume, especially given your expirations start to moderate going into the back half of the year?

Stuart McElhinney -- Vice President of Investor Relations

Hey, Jamie. Yeah, I mean it was, like I said, a strong quarter for leasing. We signed 246 office leases, which is a real good number from us. And like we're seeing good demand from small tenants, medium-sized tenants, larger tenants for us, which I think are small for most people but larger for us.

So a really good quarter, and the pipeline still remains healthy. So we're happy about that.

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

I mean, would you say, is there anything you can tell us about who is actually signing leases now? Are there different sectors? Are there tenants that have been on the sidelines for a while, especially on the larger side? And then also, what does the pipeline look like today than maybe this time last quarter?

Stuart McElhinney -- Vice President of Investor Relations

Yeah, I think one of the strengths of our portfolio is kind of diverse our tenant base is and the demand drivers we have here, and that continues to be true. We put that nice pie chart in the supplemental for you guys that shows kind of all the industries that we have. And we haven't seen any real material changes to those groups. We're still getting demand, kind of, across the board from all those industries that we've typically had.

So no notable shift there that I would point to. We're in kind of a slow business here, and we don't call out individual leases. We're doing a lot of transactions, several a day really. Every business day, we signed three or four office leases.

So that continues to be the case and we're seeing good broad-based demand.

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

And you say the pipeline is still -- the pipeline today is as good as it was three months ago, like you could easily put up similar numbers next quarter?

Stuart McElhinney -- Vice President of Investor Relations

Yeah. I mean, I'm not going to make a prediction for Q2 or early in the quarter, but the pipeline remains healthy, yes.

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

OK. All right. Thank you.

Operator

Our next question comes from John Kim from BMO Capital Markets. Please go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thanks. Good morning. I was wondering if you could share any characteristics on your new joint venture on multifamily? Any characteristics about the partner that you're with? How big can this fund be? Is it a one-off acquisition or are you pursuing other apartment acquisitions?

Kevin Crummy -- Chief Investment Officer

It's -- hey, John, it's Kevin. The partners and existing sovereign partner that we have in some of our other joint ventures. And we haven't set up anything formal, where we've got a plan to go out and buy a certain amount of multifamily, but it's certainly an asset class that when we can get larger properties that have the rightsizing units, we're all over it and very aggressive for it.

Jordan Kaplan -- Chief Executive Officer

I don't think your question -- it's Jordan. It's not a problem of having the money available. If we set up a fund to do additional deals, then we have an obligation to feed it with deals. It's more a problem of finding the deals.

I don't think there's any problem having access to the equity to do the deals. So when we -- when they come up, it's easy to make calls and then we have a partner.

John Kim -- BMO Capital Markets -- Analyst

So I was just wondering, this is a more luxury higher price point asset than typical in your portfolio. So I was just wondering if you were targeting the higher-end rental market.

Jordan Kaplan -- Chief Executive Officer

We definitely are. We definitely are. So all the way across our portfolio, both in office and residential, we are trying -- we're targeting the high end, and this was a fantastic fit for us. We just built something that at the top end, we own other stuff here along the coast that we're doing work on, that is at the top end.

All the moves we've made have been to have the highest and the most premium residential and office portfolio.

John Kim -- BMO Capital Markets -- Analyst

You mentioned doing renovations on the assets, can you describe the timeline of that? Will that be as the units vacate? Because I would imagine the turnover on that asset is pretty low.

Jordan Kaplan -- Chief Executive Officer

The turnover is a little lower in this asset, but we're just continuing a program that the previous owners started, where when we get back a unit that's unrenovated that we spend the money to upgrade it and then release it.

John Kim -- BMO Capital Markets -- Analyst

OK, great. Thank you.

Operator

Our next question comes from Manny Korchman from Citi. Your line is open.

Manny Korchman -- Citi -- Analyst

Hey. Jordan, just following on the line of question about the renovation program. How much money do you intend to put into the asset by the time that program is done? And how should we think about certainly yield on that incremental capital?

Jordan Kaplan -- Chief Executive Officer

Most of -- as I told -- as I said in the past, most of these deals are yielding over 20% on putting the capital in to reduce the buildings. And I've -- this one isn't any different. I suspect we'll put something less than $20 million in the project. That's -- it will be within that range.

There's also work we're doing it a -- if you're taking the new deal we just bought to the lobby and to the arrival experience that I think will be small dollars to make a big difference.

Manny Korchman -- Citi -- Analyst

And then I appreciate the point on moving to sort of the higher end of the market on the resi stuff. I mean, if that's the goal, why not take this one on wholly owned and JVs, some of your sort of more run rate properties you've owned for a while and have the public investors exposure to the high end be higher and the JV exposure to sort of more be a commodity market.

Jordan Kaplan -- Chief Executive Officer

We don't have a lot that is commodity, but I will tell you that you're right lined up with our investors, you'd also like to have us put those projects and JV does along with the new stuff we're buying. So you need an agreement with them. It's much harder to put a joint venture together, where I'm selling something. It's much easier when we're buying something, we're all going in at the same price.

That's a really easy phone call. We have documents done to say to people that, OK, here's what we're going to do, I'm going to buy this, which obviously we want a part of that. But I'm also going to put these other things in which then they have to value those. And they're not trusting me to do the valuing because they have to have outside value so it coming back to the seller.

It's just a harder deal to put together.

Manny Korchman -- Citi -- Analyst

And I might have missed this, but have you spoken about the cap rate valuation on this purchase?

Jordan Kaplan -- Chief Executive Officer

I mean, you know from the past, I'm not in love with cap rates. But I think that this thing will stabilize somewhere in the mid-4s, but we're going in, in the low 3s.

Manny Korchman -- Citi -- Analyst

OK. And then one quick question for -- excuse me, for Stuart. Stuart, just the spread between occupied space and leased space has widened a little bit. I know, in the past, you talked about that being attributed to sort of lighter traffic, just on the tour side.

Is there anything to note on that or when does the inflection point come where that flips?

Stuart McElhinney -- Vice President of Investor Relations

Are you talking about the lease to occupied spread, Manny?

Manny Korchman -- Citi -- Analyst

Right. Yeah.

Stuart McElhinney -- Vice President of Investor Relations

Yeah. So yeah, we have seen that gap out. It's kind of -- it's all semi, which I mentioned. So honestly, I hope that we continue doing a ton of leasing over these future quarters and that stays elevated.

But we're probably likely to see it moderate. Really, what we've seen is that during the pandemic slowdown, it stretched out our build times a little bit. So it's taken us a little longer to get folks moved in. So that's caused that gap to stay a little wider than we're used to.

Manny Korchman -- Citi -- Analyst

Thanks very much.

Operator

Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Good morning. Jordan, I guess, I just wanted to understand a little bit more kind of the absorption trend. And I guess I was a little surprised that given the strength in the leasing, you had over 300,000 square feet of new deals, and you had very good renewal activity.

And if I look back to your fourth quarter supplement, it only showed about 475,000 square feet expiring in the first quarter. So you did almost double the amount of activity, and you add absorption. And the lease trade only went up 10 basis points. So I'm just trying to figure out what am I missing in the math here.

And if you continue at this pace or what pace do you need to actually see more absorption than kind of 10 basis points a quarter?

Jordan Kaplan -- Chief Executive Officer

Well, what I'll tell you is this, we know that the first half of the year is very tough. I don't know exactly where -- I don't want to give too much in the numbers because I don't know what number you're pulling. But we knew we had a huge role first quarter, and we have a pretty good role second quarter, and then we have a more mild second half of the year. So if you would have told me that we were going to get it all positive during the first quarter with leasing, I was definitely happier than you are about it.

I mean, I was thinking we're going to need to do a lot of leasing to get this to be a positive quarter. And as Stuart said to you, we're still seeing a pipeline that looks that way, which is fantastic news. So I consider the leasing that was done during the quarter and the fact that we actually have that amount of role -- look, we did 900,000 feet, a positive 10 basis points. I mean that as -- there was a lot that's going on there.

right? If it was a matter of pulling leases from other places, then you would have been a lot more positive. We had a tough quarter. So that was not only a fantastic quarter, great job done by the crew that did it, but also a good sign that it's a very lively market right now. And that's the main thing I've been looking for.

It's like, are the people out there to backfill and fill this thing up? And we saw all that, and we've now seen that for three quarters in a row, really probably four quarters in a row. But for sure, three because now take this quarter. So I think as long as the rest of the economy and everything holds and the recovery keeps going, I'm feeling very good about, directionally, where we're headed in terms of doing job 1, which is refilling up the portfolio on the losses that we took during the pandemic.

Steve Sakwa -- Evercore ISI -- Analyst

OK. Well, we can certainly follow up offline and go through Page 19 of the supplemental in more detail. I guess, as it relates to the Landmark, when we toured the asset, I guess, in the late March, you were having some very early success on the rents you were achieving against your pro formas. Is there anything you can just sort of share with us on the volume and kind of the pricing since that time?

Jordan Kaplan -- Chief Executive Officer

Yeah. Well, yeah, we're still having that success. I mean, people are moving in, and we're really pleased with the leasing that's going on there. I mean, we didn't really -- I'm not changing it from saying it's going to take two years to lease up the project, but all signs are that we'll make it in two years, and maybe we'll do a little better.

I'm sure we'll make it within two years, for sure now. And we're getting rates that are just substantially above when we start construction that to what we expected.

Steve Sakwa -- Evercore ISI -- Analyst

OK, thanks. That's it for me.

Operator

Our next question comes from Connor Mitchell from Piper Sandler. Your line is open.

Connor Mitchell -- Piper Sandler -- Analyst

Hi. Thanks for taking my question. So given the success and outperformance of Brentwood and Bishop, does it make you want to accelerate the next round of projects?

Jordan Kaplan -- Chief Executive Officer

Well, probably always want to accelerate the next round of projects. Unfortunately, for the last periods of COVID and all the rest of it, the city's been into a deceleration phase. And we're just seeing -- I'm not even sure municipalities are totally back in the office yet, even to respond to things. We just started meaningfully having meetings again in their offices with council members and various people at -- both in Honolulu and here in L.A.

So we're not island. We can't steer on our own. All of these things take agreements with cities, and it's just -- they're just back now. But of course, I think we have -- even though I think with inflation and construction costs, prices have gone up, we have a tremendously good pipeline of very low-hanging fruit for particularly residential construction on property that we already own.

By getting it through the system and getting permits and getting all that done just takes some time as we've been saying all along, but you're right. Of course, this has been super successful, and we'd love to do more quicker.

Connor Mitchell -- Piper Sandler -- Analyst

OK, great. Thank you.

Operator

Our next question comes from Blaine Heck from Wells Fargo. Please go ahead.

Blaine Heck -- Wells Fargo Securities -- Analyst

Great. Thanks. Good morning. Jordan, just to be clear on the initial cap rate, you quoted on 12 21 in the low 3s, does that cap rate include management fees that you guys will be paid by your partner or is that just on the NOI?

Jordan Kaplan -- Chief Executive Officer

Well, it's a cap rate like -- of course, it includes property management fees, if that's your question. I mean, cap rate is the NOI divided by the purchase price. So you take the going-in NOI of whatever expenses are allocated to billing, I mean, and divide it. That's what it is.

Maybe I don't understand your question.

Stuart McElhinney -- Vice President of Investor Relations

He thinks management fee for diventure.

Blaine Heck -- Wells Fargo Securities -- Analyst

Yeah. I'm just asking whether it's...

Jordan Kaplan -- Chief Executive Officer

You mean like a promoter or an asset management fee or something like that? No, it doesn't include that.

Blaine Heck -- Wells Fargo Securities -- Analyst

OK. OK. That's helpful. And then second question, can you just talk about any interesting trends you're seeing in your Valley markets? Are you seeing any incremental demand from companies that may want to have a location in less of an urban environment or less density? Is utilization any different in the Valley? And I guess, how do you just -- how do you see those markets faring during the return to office relative to the west side?

Jordan Kaplan -- Chief Executive Officer

Well, sort of that Encino, Sherman Oaks strip is doing well and it's always kind of follow pattern of the west side. It stands. It's hard to build there. It's got really high in housing nearby.

It's got a lot of amenities on Ventura Boulevard. The area's that's a kind of finally, and -- I've said that -- I don't know if I said it on call. You guys know that I spent like 15 years making excuses for Warner Center at Hawaii. And then a few years ago, we stopped having to make excuses for Hawaii because it came back strong and basically, Hawaii was probably one of our strongest markets all the way through the pandemic.

And now finally, finally, there's great stuff happening at Warner Center. We kept getting hit with new supply of office, and that's -- now we're seeing more than one deal, like multiple deals of shifts of companies out there, whether it be for studio space or taking big plus -- I mean, I don't think it's a secret that the ramps are put to in a practice field right -- literally right next to Warner Center. We will be looking down at the practice field that they're building. And so that takes all that and cleans that up.

There's another project that was office that I think is probably going to convert to residential. So that will clean that up. So there's a lot of -- and then there's -- as I said, there's Amazon and some others that are moving their commitments to that area for very robust stuff, like studios hire a lot of people, use a lot of people right around them. So it's just been one good piece of news after another in that area.

So I'm very optimistic. And by the way, we've been saying for a while that the residential development in that area has been stunning. And it's still going. If you go there, you will see residential being built everywhere.

But now you're seeing all the other amenities, like a lot of retail, additional retail -- little retail centers are being built. And then you're seeing the fact that some larger users, like I just described, going out there saying, this is where our events, where our players are, this is where our coaches or this is where the studio people are now building their facilities out there to be next to their people. So that's all going to make a huge difference for us.

Blaine Heck -- Wells Fargo Securities -- Analyst

That's great color. Thank you.

Operator

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

Rich Anderson -- SMBC Nikko Securities -- Analyst

Thanks. Good morning. So can you give some color on the latest sort of cadence of tenant behaviors in L.A. area as it relates to rent relief applications and all that noise? And whether or not this may be closing in on the last time we have to have this conversation, but just curious what the latest observations are.

Jordan Kaplan -- Chief Executive Officer

Well, we said to you quite a while ago that our defaults to be less than 2%. I think at this point, we probably are already less than 2%. And still, we'll collect even more. So I'm feeling pretty good.

We're going to collect a super majority of the money that's owed to us. And the money that's owed to us is down to a much smaller number than it used to be. So as I said -- as I have said and I'll say right now, I don't think the rest of the collections are going to show up in any meaningful way in the numbers that we're showing you guys. I mean it's coming in at a -- it's coming in or it's been put into new deals or whatever the case has been, but it's been vanishing fast.

So I don't think -- I think two big things. Number one, -- well, there are three things. When we went into this recession and -- into this pandemic, recession, there were three big impacts on Douglas Emmett. One was obviously the loss of occupancy, the loss of lease rate, which we've been talking a lot about on this call, which we -- I mean, we for sure turned that corner and we're doing a lot of leasing, and we need to just retain that -- those tenants.

The second was the hit we took in parking, which has been coming back. We had a very strong comeback for a while. Now a lot of people are back, but they had a lot of must-take on their parking spaces. They're using them now.

We're seeing our parking lots full. And I think we'll capture the rest of that money as long as the economy keeps going the way it's going, in a reasonable good -- reasonable timeframe. And the last thing was the fact that you would have never imagined this, but the government told people not to pay their rent. That was kind of craziness.

But -- and some most did, some didn't. And even the ones that didn't, are now paying and paying back rent on some kind of programs or we're making deals and we're down to a very -- we're not down to big numbers left of where we have to make deals with people or do something about with what they owe us. So all three of those metrics were sort of the hits we took, are all back, heading in the right traction.

Rich Anderson -- SMBC Nikko Securities -- Analyst

I recall the owed rent was -- I don't -- I might have this completely wrong, $50 million or $60 million. What's that number now?

Jordan Kaplan -- Chief Executive Officer

We're like closer to half that. I think $30 million or some...

Peter Seymour -- Chief Financial Officer

It's in the 30s.

Rich Anderson -- SMBC Nikko Securities -- Analyst

OK. Second question, you mentioned we're prepared for the opportunities that inflation brings. I wonder what that means in terms of the opportunities? And specifically, is 12 21 such opportunity, meaning perhaps the pool of people interested in buying it? It got smaller, you could do it, you had the money to do it. Are those -- is that what you mean by opportunities that you stand out relative to the competition to buy stuff or maybe you could just kind of clarify what types of opportunities come from an inflationary environment for you?

Jordan Kaplan -- Chief Executive Officer

Two things coming from inflation for real estate. The classic one is that it's like a perfect hedge against inflation, right? So real estate tends -- because it's a leveraged asset, real estate tends to early get hit with higher interest rates. But then as things calm down again, you end up with like substantial growth in value, which comes from the fact that rents are up and all the rest of it is up. And so that's one opportunity that just happens, inflationary environments tend to on the mid- to longer term be a very good real estate.

The second opportunity is properties becoming available. People there have kind of scooted along with very low leverage debt. Maybe they have been running the buildings to get the maximum cash out of it. And now all of a sudden, the cost of the leverage, not putting them in jeopardy of losing their buildings, but the cost of their leverage is going up and they're saying to themselves, wow, I need to run my building better to deal with the fact that my debt is costing me a little more.

Maybe I'm just tired of this. And it just highlights once again that maybe there's an opportunity to get out of the building. still has a lot of value there and might bring some more stuff for sale. That's what we're hoping for.

Rich Anderson -- SMBC Nikko Securities -- Analyst

So was 12 21 tethered to the environment or is that why it came free or maybe not?

Jordan Kaplan -- Chief Executive Officer

I think 12 -- well 12 21 was basically -- no, that wasn't the cause for 12 21. I think 12 21, it wasn't -- the seller didn't feel it was the right fit. It was a very good fit for us, and we were able to negotiate a deal that made everybody happy.

Rich Anderson -- SMBC Nikko Securities -- Analyst

OK. Good enough. Thanks very much.

Operator

Our next question comes from Dave Rodgers from Baird. Your line is open.

Dave Rodgers -- Robert W. Baird and Company -- Analyst

Yeah. Good morning out there. I think last quarter, you said something with the effect of expect most of the deferrals to come back in the way of blend-and-extend transactions or at least kind of model it out that way as you go forward. Can you talk about maybe the impact of those transactions on the leasing economics that you quoted? And I guess the second part of that question is just trying to kind of reconcile same-store cash revenues between last year and this year.

There seems like a bigger delta maybe in where you're collecting a little bit more on the cash side? So those two questions, please.

Jordan Kaplan -- Chief Executive Officer

Well, I think the main reason we're collecting more on the cash side is even if people owe us money, almost everybody has come current. So like some people that weren't paying us, are paying us now. And what we're dealing with is the part that they own us. So that's going to make a big difference.

Is that what you're asking?

Peter Seymour -- Chief Financial Officer

Meaning that they're paying this month's rent and continuing to pay on a regular basis. So then they have some amount that they owe us from the past -- this is Peter. And so we're working through with them the past amounts. When you were talking blend-and-extend, I mean, typically, what we do is we recognize the outstanding balance and come up with a payment program.

And then the new lease is a new lease that stands on its own at market rates.

Dave Rodgers -- Robert W. Baird and Company -- Analyst

And I guess to that last point, Peter, that's what you're really kind of quoting from a cash spread. It's not really reflecting kind of the higher rent and past due collections in those numbers.

Peter Seymour -- Chief Financial Officer

That's correct. We're quoting just the lease, not the payment program in our spreads.

Dave Rodgers -- Robert W. Baird and Company -- Analyst

Yeah, I think that answered both questions. So thank you.

Operator

We have a follow-up from Jamie Feldman from Bank of America. Please go ahead.

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

Thanks. You may have just answered but maybe I didn't hear it right or misunderstood the answer. So your leasing spread spiked up to kind of minus 3% this quarter on a cash basis, they were as low as minus 9% last quarter, and they've been kind of on this sequential quarterly decline. I mean, how would you explain that move?

Peter Seymour -- Chief Financial Officer

Leasing spreads are on the sequential quarterly increas. They're not on a decline.

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

No, I'm saying, last quarter, I think it was minus 9% cash. This quarter, it was minus 3% cash.

Peter Seymour -- Chief Financial Officer

Yeah.

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

I think in the past you said...

Peter Seymour -- Chief Financial Officer

Yes. So they're improving. Yes, they're improving. Of course, that number is -- that number tells you something, but I wouldn't grab it too tight because depending on what rolls in any particular quarter, that number can really jump around.

But generally, as things recover, that number hopefully turns positive again. I think, more of what's reflected even in the minus 9% on cash, but -- and the fact that the straight line is now up is, during the pandemic, you'll remember, Jamie, people kept asking, what's happening with rents, what has happened with rents? And we said, rents aren't as far off as you might think. And in fact, I'm not sure rents fell off such a huge amount. They fell off, and we gave you the best of what we could guess to those numbers, and that's what this is a proxy for when you do roll up, roll down and all the rest of it.

But they haven't fallen. So all of these numbers because you're doing -- remember, our leases have very big bumps in them. So when you say ending cash to starting cash, 3% difference, that's one year of growth. Beyond that, you're saying you still got your four years of growth that you got from when that lease was signed.

So that's a good thing to tell you, hey, people are coming back and rents are not. I mean, it doesn't -- rents are not going that meaningfully different. And we're seeing that. You're seeing it.

Kevin Crummy -- Chief Investment Officer

I think the straight-line comparison gives you the total value of the lease, compared to the prior lease. And you see those positive spreads. We don't have a lot of free rent anyway. So it's really giving you a pretty good measure of the change in value of the lease.

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

OK. Yes, just I'm thinking about your messaging over the last year or so, and you kept talking about, well, if we can get to x occupancy in the portfolio, we can really start pushing rents. Has that changed?

Jordan Kaplan -- Chief Executive Officer

Yes. No, no. I think that it's one thing to push rent, it's another thing to not lose ground on rents. And I just don't think we've lost as much ground as you might have thought through that tough period over the last two years, and now we just need to lease the portfolio.

But I will also say, while I'm happy that we aren't losing as much in rental rate. The thing that we want to is lease up the portfolio. That's the job.

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

OK. So it sounds like the takeaway is it -- it was definitely a better quarter. Maybe it's not the trend to think is -- written stone for the -- going forward, but things do feel better.

Stuart McElhinney -- Vice President of Investor Relations

Yes. I don't -- this one quarter, that's the curve, Jamie. Like I said in my opening, it's -- they're going to be choppy quarter to quarter. We'll have -- this number moves around.

A lot depends on -- we have such a mix of leases that get signed in the quarter. So don't -- yes, don't use this as the curve, going forward. We're happy to improve, but it's not a smooth sailing. There's just a very good leasing quarter.

Now, I hope every quarter or the next quarters is this good. But just every recovery -- no recovery happens in a straight line.

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

OK. And then, do you have any updates on some of your larger expirations this year or next year, just in terms of known move-outs that we didn't know about three months ago?

Peter Seymour -- Chief Financial Officer

No, nothing noteworthy. I mean, we have a pretty steady role. We always have some of our larger guys rolling out. So nothing that's still worthy.

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

OK, great. Thank you.

Operator

Our next question comes from Bill Crow from Raymond James. Your line is open.

Bill Crow -- Raymond James -- Analyst

Heah. Good morning out there guys, and thanks for the time. That last discussion actually led me into my two questions that I had. And the first one is, Jordan, you talked about rents not really going down, but do you see more tenants leaving because of asking rents or lack of TIs? Or I guess, is there any reason why -- any commonality of the reason why tenants don't renew?

Jordan Kaplan -- Chief Executive Officer

Our renewal rate has been pretty steady and it's been pretty good. As a matter of fact, already last year, it was higher than normal. The reason for the lost lease rate has totally to do with the fact that the new tenants weren't moving around as much. So they were moving less.

Now they're moving more. Now we're getting more new tenants. That's why we -- you guys have gotten focused on that number. I mean, the reason I said it was such a spectacle quarter.

It's 300 -- what's is it? 330,000? That's like a fantastic quarter. 330,000 is new. So if that new number is the key number to grow us back up, we've held steady, very good on our renewal. And the new number is also a good sign if you say what's going on in the economy, what's going on with people going back to work, OK, you're going to see all that in the new number, the new leasing.

Peter Seymour -- Chief Financial Officer

Bill, when we survey our tenants moving out, there's -- obviously, if you guess, there's a million reasons why tenants move out. They're shrinking or they're growing or they're going out of business or they're moving market, something like that. And we're just getting the same list of reasons why guys are moving out. There's no major shift in that.

It's still a big spread of different reasons.

Bill Crow -- Raymond James -- Analyst

Right. No, that's helpful. And then, Jordan, you just mentioned, you look at the new leasing and the side of the local economy. So where are we relative to 2019, whether it's based on new leasing or back-to-office rates or parking revenue, are we 50% back, 75% back of what we've lost? Where are you in the momentum scale?

Jordan Kaplan -- Chief Executive Officer

Well, in income, because a lot of the stuff we've done, we're almost catching up to 2019, but we've done a lot of new business. So when the whole company is up to full tilt, we're going to be looking at some pretty spectacular numbers. But we got to -- look, you can't ignore the fact that we're still down almost 600 basis points, and that's a lot of money. And as that recovers, it's going to make a giant difference.

I mean, part -- the rest of these -- all other numbers will pale next to that number. I mean -- and what we keep -- when I keep pointing out, but it is all around the fringes is -- the good news is huge new tenant activity. Rents are still there and going strong. And every sign is that -- and I keep saying as long as the economy holds.

But every sign is that with this economy, we're on a really good trajectory.

Bill Crow -- Raymond James -- Analyst

And you're not getting into political pushback or you feel better about the overall environment, I guess, today?

Jordan Kaplan -- Chief Executive Officer

Well, certainly, the environments improve politically, in terms of removing rent moratoriums and stuff like that. I'm not -- I mean I'm not loving the politics, but that's not my No. 1 problem at the moment.

Bill Crow -- Raymond James -- Analyst

All right. Listen, thanks for the time. Appreciate it.

Operator

Our final question comes from Daniel Ismail from Green Street. Your line is open.

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thank you. Maybe just going back to the acquisition in Santa Monica. I'm just curious, is that a rent controlled building? And if so, how many units are currently well below market, if you're able to share that figure?

Jordan Kaplan -- Chief Executive Officer

A good number of them. But it is a rent-controlled building, but I'm not sure that rent control play as big a role in that building as it has in other buildings. I mean some of what's happened in that building is that rents have just moved up very quickly. So even maybe deals that were done during the pandemic or earlier are pretty far off the market of where current rents are.

So as those roll, we'll pick that up. That's why there's such a meaningful spread between the going-in cap and what I would call the stabilized cap.

Daniel Ismail -- Green Street Advisors -- Analyst

Got it. And then, Jordan, appreciate the comments on inflation and interest rates. I'm just curious, have you guys noticed any tangible price movements, either on the office or residential side, in terms of cap rate movements due to rising rates?

Jordan Kaplan -- Chief Executive Officer

I don't think there's been enough in the way of transaction. I mean, this is a phenomenon that, at best, is few months old. So I'm not sure there's enough transactions to show that. The place where there's a lot of transactions, where I think you're going to -- you're seeing the world already slow down as the cash homes, single-family homes.

I think that move in interest rates is effectively -- has very quickly slowed down the trajectory of pricing and transactions around the single-family home market.

Daniel Ismail -- Green Street Advisors -- Analyst

Got it. Thanks for the color.

Jordan Kaplan -- Chief Executive Officer

All right.

Operator

We have a follow-up question from Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa -- Evercore ISI -- Analyst

Yeah. Thanks. Just a quick one. Jordan, I guess there was a story or an article about a potential mansion tax in L.A.

that would really go to fund homeless issues. And I mean, the article reads is if it's just on housing that's over like $10 million. I just wanted to be certain that was truly on housing and nothing on commercial.

Jordan Kaplan -- Chief Executive Officer

Yeah, I think that's a transfer tax. So calling it a mansion tax is a little bit of a strange name for it. I think it's -- just like in many of the cities, it's a transfer tax that was proposed. And it will have to make it due to -- people are kind of negative on taxes right now, and that might be one more thing.

And we don't look at all this stuff and see how to fight these various things. It's just a transfer tax.

Steve Sakwa -- Evercore ISI -- Analyst

OK. But just on single-family, not on either your type of residential and certainly not on commercial. Is that correct?

Jordan Kaplan -- Chief Executive Officer

To my knowledge, and I saw what you send me, which was so -- which I suspect is just extremely misleading, that article. To my knowledge, it's just a transfer tax. It just -- it doesn't matter if the house is industrial or anything else. It's just a transfer tax, right? The way they described it in the article you sent me, was so odd that -- I haven't heard of it there being something just on mansions, even though that's the way that newspaper happened to describe that.

Operator

We have no further questions. I will now hand back to Jordan Kaplan for closing remarks.

Jordan Kaplan -- Chief Executive Officer

OK. Well, thank you all for joining us, and we will speak to you again in a quarter.

Operator

[Operator signoff]

Duration: 47 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

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

John Kim -- BMO Capital Markets -- Analyst

Manny Korchman -- Citi -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Connor Mitchell -- Piper Sandler -- Analyst

Blaine Heck -- Wells Fargo Securities -- Analyst

Rich Anderson -- SMBC Nikko Securities -- Analyst

Dave Rodgers -- Robert W. Baird and Company -- Analyst

Bill Crow -- Raymond James -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

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