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Douglas Emmett Inc
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Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After management's prepared remarks, you will receive instructions for participating in the question-and-answer session.
I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.
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, that assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website.
When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow up.
I will now turn the call over to Jordan.
Good morning, everyone. Thank you for joining us. A successful fourth quarter capped off a very strong year and a great decade for Douglas Emmett. During 2019, we grew our FFO by 6.3%, our AFFO by 18%, our same property cash NOI by 7.5%, and raised our dividend by 8%. The straight line value of our office leases signed during the year was 28% greater than the prior leases for the same space.
We significantly strengthened our balance sheet during the year, refinancing approximately $2 billion of debt, which added almost five years to that debt's average term. At year end, we had no floating rate debt and no maturities before 2023. Our weighted average interest rate is only 3%, and our pool of unencumbered assets has increased to 41% of our office portfolio. We purchased a fantastic multifamily asset in Westwood, and completed a very successful lease-up of our first multifamily development in Honolulu.
Taking a moment to reflect back on the entire decade, we grew our office portfolio by 38% from 13.3 million square feet to 18.3 million square feet. We grew our multifamily portfolio by 45% to over 4,000 units. We grow our FFO per share by 65%, and our AFFO per share by 95%. As a result, our total shareholder return for the decade was 304%, 45% higher than the RMS index, and more than double the SNL U.S. office REIT index.
Sustainability remains a key commitment for us. In 2019, we reduced our electrical usage per square foot by another 2%. This is our twelfth consecutive year of reductions, bringing our total savings to more than 22%. As most of you know, there was a fire last month at our Barrington Plaza apartment property. We currently expect that our insurance will cover our damages.
Looking ahead, Douglas Emmett has never been better positioned. our balance sheet is stronger than ever, our supply constrained markets continue to have robust tenant demand from a diverse set of industries, and our unique operating platform, dominant market share, and development opportunities have us very excited about growth in 2020 and the decade ahead.
Now, I'll turn the call over to Kevin.
Thanks, Jordan and good morning, everyone. In November, we acquired 16% of the equity in one of our unconsolidated funds, which owns six Class A office properties, totaling 1.5 million square feet in our submarkets. The net purchase price was approximately $91 million, which we paid through a combination of cash and operating partnership units. We now own 89% of the equity in what will be treated as a consolidated JV.
As Jordan mentioned, we completed a successful lease-up of our 500-unit Moanalua development this year. Our two multifamily development projects in construction are also progressing well. In Brentwood, we remain on track with the construction of our 376-unit high-rise apartment tower, which when completed, will be one of the most exceptional residential developments in Los Angeles. In Honolulu, we are developing 500 apartment units at our office conversion project. We are currently building out four floors, and expect to deliver those units in 2020. In addition to the growth from our development efforts, we expect more acquisition opportunities in our submarkets in 2020.
With that, I will now turn the call over to Stuart.
Thanks, Kevin. Good morning, everyone. In Q4, we signed 178 office leases covering 791,000 square feet, including 326,000 square feet of new leases. Leasing spreads for the fourth quarter were 28.6% for straight line rent roll up, and 8.6% for cash roll up, increased the lease rate for our total office portfolio to 93.3%, and our occupancy to 91.4%. We were pleased to see that lease rate in Warner Center moved up 220 basis points from a year ago, and our Hawaii portfolio occupancy finished the year at 94.3%. For all of 2019, we achieved straight line rent roll up of 28% and cash rent roll up of 10%. On the multifamily side, our portfolio remain fully leased at quarter end. Over the past year, we have increased our multifamily portfolio by 16% or 566 units while increasing our monthly rent per unit by 6.3%.
Before I turn the call over to Peter, we'd like to address the split roll initiative expected to be on the November ballot. For those of you who are not focused on California, split roll is the term used to described a ballot initiative to have commercial but not residential property reassessed every three years for property tax purposes. Under current law, property taxes for all property types are increased upon sale, and increases are limited to 2% thereafter. Proposition 13 is very popular. All prior attempts to weaken Prop 13 have failed, and we feel that this initiative will also be rejected. Indeed, even before the substantial voter education program has started, nonpartisan polls show only 46% support for split roll.
Despite the low likelihood of passage, some of you have asked about the potential financial impact to Douglas Emmett. There are just too many variables and unknowns to quantify an impact at this time. In addition, it is a highly political issue, and speculation is not productive. Having said that, we can provide some observations. All properties in California already get reassessed on a sale. So split roll is not expected to impact asset pricing, NAV, or sales transactions. The county assessors who are responsible for valuations have said that they would not have sufficient resources, and it would not be practical to implement split roll. Although the rules involved are not clear, buildings with small tenants, which we think should include most of our buildings, would not even be subject to reassessments until mid-2025. Virtually all of our L.A. office leases require tenants to reimburse us for expense increases. Moreover, some analysts expect that split roll will trigger rent increases to transfer some or all of the burden to tenants.
I'll now turn the call over to Peter to discuss our results.
Thanks, Stuart. Good morning, everyone. We are pleased with our Q4 results. Compared to a year ago, in the fourth quarter of 2019, we increase revenues by 7.8%. We increased FFO 7% to $110 million dollars or $0.54 per share. We increase AFFO 12.8% to $91 million. We increased our same property cash NOI by 7.3%. For all of 2019, we increased revenues by 6.3%. We increased FFO 6.3% to $425 million, or $2.10 per share. We increased AFFO 18% to $365 million. We increased our same property cash NOI by 7.5%. At only 4% of revenues, our G&A for the fourth quarter remains well below that of our benchmark group. As Kevin mentioned, we increased our stake in one of our previously unconsolidated funds to 89%, and it is presented on a consolidated basis as of November 21. The effect of this transaction included recording a gain on our investment of about $308 million, which affects net income, but not FFO.
Finally, turning to guidance, we are assuming same property cash NOI growth will be between 4.5% and 5.5%, and the average office occupancy will be between 90% and 91%. Overall, we expect 2020 FFO of between $2.23 and $2.29 per share. As usual, our guidance does not assume the impact of future acquisitions, dispositions, or financings. For more information on the assumptions underlying our guidance, please refer to the schedule in the earnings package.
I will now turn the call over to the operator so we can take your questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Jason Green of Evercore. Please go ahead.
Good morning. Just curious what you're seeing on the rent growth side from Hawaii office. We're hearing that year over year, rent growth could be in the 20% to 30% range, and just curious if that lines up with what you're seeing.
Hey, Jason. Yes, look, there's a lot of things going on downtown that have been very good for that market, not just what we're doing with our conversion project there. We had -- Hawaiian Electric just signed a large lease down there for almost 200,000 square feet to consolidate their space. Hawaii Pacific University also took almost 100,000 feet downtown recently. So a lot of things putting pressure on that market, and rents are definitely moving up.
Got it. And then just on the multifamily cash NOI going negative in the quarter, I guess what should we read into there? Is that purely a function of same store occupancy dipping? Or is there another component that we should be thinking about?
Hi, it's Peter. Look, we always have some noise quarter to quarter. We had a reasonable first three quarters. We're disappointed with this quarter. Missions are concentrated at a couple properties, and we're focused on improving those results.
Got it. Thank you very much.
Thanks.
And our next question today comes from Alexander Goldfarb of Piper Sandler. Please go ahead.
Hey, good morning out there. So I definitely appreciate you guys being up front on the Prop 13. But just sort of curious, as you're seeing the opposition to the split roll build, are you seeing it more come from the business community, given it would seem like they would obviously shoulder huge burden of this? Or are you seeing most of the opposition being driven by the real estate industry?
It's really broad based opposition. And to explain that out, yes, the business community I think it's going to come out in a big way against this. You have a lot of large landowners in the state that have owned land here for a long time. So it's not the real estate companies that have to be on the front lines of this, thankfully. We'll have broad opposition to this.
I'd like to add, I think you're actually already even seeing homeowners say forget about it. I don't want to hear any trickery about modifying Prop 13. So, I've actually heard a lot of homeowners say, oh, I already know I'm against that -- what you wouldn't classify as business owner, real estate owner, or whatever.
Okay. And then on the acquisition front, just as you guys are looking at what's brewing for this year, do you think that you will -- there's a potential to add to your multifamily in Hawaii, or do you think most of your acquisition activity will be in L.A.?
Well, I think in the multifamily side, the challenge in Hawaii is there just aren't that many large projects that are institutional. So that -- we're adding to the portfolio there through the 1132 conversions. And the acquisition pipeline in L.A. is -- it's looking pretty good. I think I mentioned last call that we were looking at a couple of OP unit deals, and those tend to take a little longer. They're harder to make. You're dealing with long-standing partnerships, sometimes multi-headed decision making. But I feel pretty good about the pipeline.
Thank you.
And our next question today comes from Craig Roman at KeyBanc Capital Markets. Please go ahead.
Just curious -- I appreciate the comments in the Barrington and the insurance coverage, but if the city council were to kind of get rid of the exemption on some of these older vintage buildings not having sprinklers, I mean, how much could that cost you guys in CapEx and kind downtown, some of these buildings?
Well, let's start out with we would appreciate that. So we want to sprinkler the buildings. We've wanted to sprinkler the buildings for a long time. And we've been sort of trapped between conflicting rolls coming out in the city in terms of to actually sprinkler the buildings, what you have to do, and then some of the housing ordinances. So they -- to figure out what the cost would be, we would need to know what did they put in place that allowed us to do it, because that could cause things to bear a lot. They put something in place that makes it cost effective, and I suspect in the end, they will, I hope they will, then it would be probably all around a good thing to do. If they just put something together that's so expensive and still doesn't make any sense and that there's no way to really get there in any kind of reasonable way, then they'll still have problems getting people to do it.
Then, just second on the acquisitions; just curious everything that you guys are looking at kind of new properties to the portfolio? Or could there be more kind of increased ownership of some of the JVs?
Both could happen. That's a great question, but both could happen.
All right. Thanks.
Our next question today comes from John Guinee of Stifel. Please go ahead.
Great. A couple questions. First, the $308 million gain on the consolidation of the JV portfolio, does that trigger the need to do a 1031 exchange or a special dividend? That's one question. Second question, deal traded in Warner Center, 513,000-square-foot campus at Warner Center. Any thoughts on that trade? And then the third question is can you -- there's just a -- for the first time in a while, a lot of product under construction in West L.A., including, say, the West Edge at Olympic and Bundy. Can you talk a little bit about the new product under construction in your backyard?
Okay. So the answer to the first question is, that's just a GAAP accounting gain that you're required to do when you consolidate. No tax impact, and it's stripped out also for a AFFO, FFO, and all of that. So that's -- I don't -- I almost want to say unfortunate that it has to run through our income statement, but it does. And that's just the impact of consolidating. Second one on Warner Center, that hasn't closed yet. So we'll let that one play out. We don't want to comment on the peoples' deals. And the third one --
Regarding the new construction, John, most of the new supply has been in markets that are adjacent to ours. So you've got some things going on in Hollywood and in Culver City. You've got Google's campus, which is in the Westside Pavilion, which is now called One Westside which is 100% leased. I think the project that you're referring to is the Martin Cadillac site, and that's a mixed-use project that's primarily multifamily, with a small office component and a retail component to it. It's got supermarkets mostly multifamily, and very small amount of office. It wouldn't click in my mind as something that we would say was a big off competitor, and the whole West Side needs more multifamily. More multifamily, whether we're doing it or someone else is doing it is good.
Great. Thank you.
Thanks.
And our next question today comes from Nick Yulico of Scotiabank. Please go ahead.
Thanks. Just looking at the lease expiration schedule the next four quarters, you have higher than normal in the West Side in the fourth quarter of this year, over 500,000 square feet. Can you just describe whether that includes some sizable tenants, and kind of how the conversations are going on that space?
Yes, Nick. No, it's not one or two very large leases. It's spread across the portfolio with a number of leases, so pretty normal for us. Nothing unusual, and we're actively working on those renewal discussions, and feel good about how those are going.
Okay. And then just another question on Honolulu. Can you give us a feel for how this is working from an accounting standpoint for going from an office to the multifamily building? I mean, is the entire building being capitalized right now? And is it possible to get a feel for the NOI of that building as an office building, so if we were to just evaluate it separately as a multifamily building, we could do that?
Well, just, I mean, from an accounting standpoint, we're doing this in phases, right? So, it's going to -- we're maintaining office tenants on many of the floors throughout this project. And then as we complete the residential units, those will come online and begin to roll through the multifamily side of our P&L. We do again, accelerated depreciation on the four floors that we plan to demo. So those will start running through or have started to run through depreciation.
Yes, I think -- so if you're saying there's -- is the income and expense of the office building still running through our income statement, the answer's yes. And I think where the impact is, which is was Peter just mentioned, has more to do with when you make a conversion like this. But this all runs through depreciations, so I don't think you're seeing it in any of our FFO, AFFO numbers. But you write off chunks of the building that now are being converted over, and you capitalize what you're spending to turn it to an apartment. But the operations of it as an office building, and by the way, when we start renting the units as apartment buildings, we'll flow it through our income statement.
Right, and then is it is it possible to -- just to get a feel for the ballpark what the NOI of the building is from an office standpoint, so if we wanted to take it out from an NAV standpoint and just evaluate it as a future apartment building, we can do that?
Not easily, no. I mean, it's not something -- we don't typically take single buildings and say here's what's going on in the building, other than when we buy it. We have tried to get some numbers and thoughts about what kind of returns we think we'll get out of that process, and we've said in the past if you're -- what we've said in the past is we think, in general, we'll be developing the building, including whatever value you need, and everyone can subscribe different values, but what everybody wants to subscribe to the building as it is now, and then what we have to spend to convert it to an apartment building, we think we'll be developing it as an apartment building at an acceptable, not a knock out of the park, but an acceptable developer cap rate for an apartment building.
Okay, and I guess the $80 to $100 million that you have on construction costs. I mean, what is the -- I guess what is the return we should think about on that as we're getting to a multifamily type of NOI for that building?
Well, okay, so I don't want to get into valuing individual buildings. But I will say the return on that simple number would be extraordinary. But that's not probably the way it should be calculated. The way it should be calculated is what's the value of the office building today? Then when we add this money, then what all in do we have in it? And then with everything in now, I'm saying you, I think will be to the acceptable level of an apartment development, which is not but you know, it's a cap rate around a six. But I mean, now would beyond $80 million to $100 million. That's also saying, an office building that has value today, it's that plus the money that you have to do the cap rate on.
And of course, the whole reason we started this was to improve the office market down there, and we kind of already told you about what's going on with rents and office. So that's going exactly how we hoped or even better, frankly.
Alright, thanks, everyone. Already,
And our question today comes from Manny Korchman with Citi. Please go ahead.
Hey, Stuart, Peter, the average office occupancy dip in guidance versus where you ended the year? Is there anything specific driving that any large tenants moving on or anything like that?
Well, as you said, it is an assumption for the average for the year. We generally have more explorations in packing Q1 in any given year, versus the remaining quarters of the year. So we do expect an early debt this year and then we should be making good progress over the over the rest of the year to build back up.
Thanks. And Stuart, in your opening remarks I think you commented on Prop 13. You don't anticipate any changes in the transaction market as sold properties gain mark to market anyway. Is there the potential that properties will come to market ahead of the proposition being voted on just as people worry about their maybe it's not even cash, but their conversations with their tenants going into this. So private owners may want to get out and sell to a more institutional owner like yourselves.
Manny, this is Jordan. That would be such a great day, I can't tell you, but we're not seeing it. I mean, we would love that. We're not seeing any uptick in transactions around that proposition which would be a great day. There was but there isn't. And Michael has one, go ahead.
Jordan, just in terms of and I know you can't expect, actually have much this could impact but I guess what percentage of your portfolio is already at market based on all the deals that you've done new tenants, buildings you bought. I would assume it could that…
That's a hard question to answer three reasons one of which is I've said this before. Everyone in the outside world thinks that market has nothing to do with market and when it comes to Prop 13. Prop 13 has its own definition. If you are ready you'd be as cross eyes as you are when we're looking at the way we do cap rates versus where the public market does cap rates. So for starters, the number you will come out with is probably a very different number than you guys would think of. And then you have and as I said, you have, I mean, we've continued over the past few years, you've been doing Prop A. And I can't it's very hard to know, because I don't think that proposition functionally works. It's very hard to know how or what would happen if you ever wanted to postulate that number one to that path, and then someone actually tried to do it.
So it's just no way to figure out are a real number, you know better as well as anybody. What's the general growth of that company has been, and all the buildings we bought recently, and I just gave you a quote about, you know, how much we've grown the portfolio. And you know that we had a chunk in the IPO. We've added another whatever it was 45% or whatever I said since. So you have all that you but you still don't even have the other side, which is where would they come out on those and on all those properties I just mentioned, including IPL properties, we've won Prop A. Meaning we've won contemporaneously arguments where that we've said your volume was too high. So it's just too hard to figure out where that will come out.
Right. And I think you framed it right because it's even in the instrumentation, it takes a long time. This can't-- don't have the staff yet to do it. And you'll be able to recover a lot under your leases from the tenant. So from a financial impact I think the market may be overreacting that there's this massive FFO disruption. But I think you live in California, and I know, it's beautiful. And I know you're looking at the water and its 80 degrees. Do think I get the [indiscernible] of where you live and where your assets are. And I'm jealous in the freezing cold, but do you think it leads to if it does pass because there's falling at 46 that pulling could go up to? I mean, there's some potential even though it's failed every other time, that this is the one that you know, increases out migration from the state, and therefore growth in tenants is reduced, right. That to me is the bigger risk than the FFO impact, a couple of pennies here and there.
Well, I mean, I don't want to get too political on this call. But, I mean, you're on the tip of the iceberg. This stuff the state of California is dealing that creates issues. Now, you know, I give you another list of the stuff they're doing that turned us into an incubator state and draws population in. But I mean, prop 13, the income, your actual personal income tax rate, what's going on with the person, you know, the employment laws, how tough they make it to employ large amounts of people, how hard they are on mature companies that are actually employing a huge amount of middle income people which essentially almost getting, you know, ejected out of the out of the state. I mean, the list goes on, if you're saying is this Prop 13 thing on the long side of it passing. I mean, I assume they're somewhere where the camel, you break the camel's back, but I thought that when they went to 13% income tax rates, I thought that on the last set of rules that came in to play for the employment thing.
But then net, it doesn't seem to be happening. I know. And I read the same stuff you do the very loudness of wealthy people going enough's enough. And they go, I'm making my permanent residents out of state somewhere, wherever they're going. But you know, these are, you know, you read about, like five different people, you know, they're all leaving the state of 40 million people and growing. So if you say here on the ground, if you want to know you're on the ground, here's what we're seeing. We're seeing a light rail that doesn't even seem to have had any impact, the light rails path, and there's still too many people downtown Santa Monica and all around the west side. We're seeing the population continue to densify. We're seeing a shortage of housing at all level, even expensive housing medium expensive. So yes, the stuff they're doing should be impacting people saying, enough is enough. But they're not saying enough is enough. There's more people coming in. I'm saying enough's enough. But if you're saying for the whole state, we're not saying that with this, do it on these kind of paths. And I don't know what the straw that can breaks the camel's back.
Helpful color. Thanks for taking time.
And our next question today comes from John Kim of BMO. Please go ahead.
Thank you. Good morning. Your 2020 earnings guidance includes the impact of the fire at Barrington. But I'm wondering if you could quantify what the impact would have been had you had kept that asset in your same store pool to your same store guidance?
Well, it's we took it our same store guidance because we think our loss is going to be insured but what happens is in the insurance, the way the insurance pays and the rules around collecting insurance and accounting around collecting insurance would make the number fluctuate a lot. Like it comes in a completely different way than what you would normally say of apartment and doing same store. So we took it out to let it settle out because not have the insurance proceeds worth the same store numbers. Which by the way, normally I would say they literally can work on to the plus and a minus I mean, it's not biased in one direction or another.
But the Delta could have been even fallen below the bottom of the range of your guidance to 4.5% to 5.5%?
I'll say again, insurance proceeds can have both a positive and negative impact. There's no way to put up a range on a same store number when insurance company comes in and doesn't come in. It completes can change the number and then you can equally ask the question. Would it impact that your range was too low? I mean, that's the results you get out of that stuff.
I agree. Okay. And then Jordan, you gave your views on Prop 13 and Prop 8, and we'll go to Proposition 10. Do you have the same level of confidence that?
You want me to give you my whole slate of voting [indiscernible].
Could you?
Well, you're talking about the rent control one. I think that's there's so little energy behind it. It's kind of a one man one mission thing this guy out in Hollywood, but it was sadly defeated last time. And since then, literally, the state legislature and the governor all got behind the statewide rent control ordinance, which has been put in place I mean, even politicians are saying, hey, come on, you haven't even given our thing, a chance to work. And if the other one came on the scene with low support, this one's coming on the same with even lower support with a very little backing and very little energy.
So you're not feeling the burn?
Now, well, I'm reading about the burn and seeing his election results, but I'm not feeling it when it comes to residential rent control.
Our next question today comes from David Rodgers of Baird. Please go ahead.
Hey, guys wanted to go back to the office occupancy that was asked about earlier understanding that there's a dip in the first quarter but you know, you ended the year I think over 93% lease. So can we dive a little bit more into maybe do you expect to do some more redevelopments which could pressure that number this year? Is it more? Is it fewer retentions? Or is it just kind of slower lease up? What's embedded because you guys have made some pretty good progress in recent quarters in terms of the lease up?
It's Peter. So when you have the kind of lease up that we had a number of new leases that we wrote sort of automatically implies that you have existing tenants where you'll see some of those move outs. And that's what typically happens in the first quarter. The assumption is not affected by estimates of the impact of redevelopment. This was just a straight, we had very strong leasing year and we normally see bit of a dip in the first quarter, and then we build back up over the course of the year.
Okay, thanks for that. And then let me ask maybe straight about the redevelopment side, Jordan, you've updated as in the past, quick update on kind of where you're at. And do you plan to add more assets to that in 2020, from the office on the west side?
Well, it's definitely kind of were [indiscernible] about in the last year, so it's mostly done and we're now on two additional assets. And of course, we've moved the variance applause up on the list and we know that that's certainly a 2020, 2021 projects. But that that's a program that has legs for, we didn't roll off those last seven and just say good, we're done. And through that that hand swipe and walk off the table. I mean, we just keep we're going to be rolling with that for years and years and years. I mean, it's until the market really changes words, those which I wish it was more capital, but those may immensely high returns, those repositions that we're doing. So we're not letting loose of that.
And the volume of activity kind of in 2020 versus 2019. Is that pretty similar? Will that be a steady state.
Dollar volume, yes, number of buildings, I think it's probably fewer buildings and but dollar we're kind of I think we are keeping pretty consistent.
Okay, thank you.
And the next question today comes from Richard Anderson from SMBC. Please go ahead.
Good morning. So on the brunt wood high rise development that is that an early 2021 delivery or something like that? And if regardless how much have you spent so far on the call, $200 million
total cost?
Rich our construction is going to go all the way through to the end of 2021. And I don't have the number of what we spent so far, but we can get that to you.
One more on that is there an ability to can you do some lecithins type of leasing or how do you foresee that asset coming to market will there be zero occupancy out of the gate or it will be something much more substantial than that?
Well, you know, our NHA or recent NHA development, we did have some pre-leasing that happened before the thing even opened, there was a lot of interest in that. I suspect this will be the same, this is going to be kind of an iconic high rise, new high rise on the west side we haven't seen in a long time. I suspect they'll be strong interest and we'll hopefully have a waiting list or do be able to do some preleasing before it opens.
Okay. And then looking back at your guidance for same store was 5% to 6%. You ended up 7.5% this year, so good beaten, raised type of year. This year 4.5% to 5.5%, is there anything about how 2020 looks versus 2019 that would preclude a similar type of event or is there something that maybe would get in the way of your ability to sort of see your internal growth profile improve over the course of the year.
I mean, I don't want to limit our upside. We're trying to get you a reasonable range going into the year. I mean, every year we work to beat all our numbers. And I think that, you know, certainly we have to beat these numbers too. But I also think the range we gave us a reasonable range for what we see going into the year.
Okay, good. That's all I got. Thanks.
Our next question today comes from Glenn Heck from Wells Fargo. Please go ahead.
Hey, thanks. Just following up on that last question. So you guys had a great quarter from a cash same store NOI perspective, mostly driven by a 6.5% increase in cash revenues. Can you just talk about the drivers of that growth so I know you've got some occupancy growth in there and rent growth has been strong, but it seems like the burn off of free rent must have been a big driver. I guess is that right? And if so, should we expect cash and gap same store NOI to sort of converge in the next few quarters? Or does that cash benefit from you know that free rent burn off stick around for a while?
I don't think we, I haven't heard and to be fair, we haven't gone in and analyze exactly that point. But I haven't heard any discussion that same store growth came from free ram burn off. I think it comes from just very strong fundamentals, fundamentals and racing as converted occupancy and fundamentals and in rental rate growth and getting higher bumps and leases and all the stuff that, you know, hopefully drives that I mean, there's always another half of the equation which is what are you comparing to. You know, the fourth quarter last year whatever, I think, you know, when you go not noisy past to not noisy current is when you get your best and fairest comparison. Sometimes we've had wildly swinging numbers because we've had prior years that were noisy so the comparison that's girly. I think it was not noisy that not noisy. So it was just a comparison of fundamentals.
Okay. Just seems like the I guess the 5.5% difference between GAAP same-store NOI and what you did on cash same store NOI is a little elevated from what you usually do, but I guess we can go through the details offline.
Okay.
Our next question comes from Jamie Feldman of Bank of America. Please go ahead.
Great, thank you. Can you guys talk more about the transaction to buy out your JV partner? What was the yield on a deal? And then just why is your partner selling? And you think we'll see more of this, it sounds like we will see more of the space in your answer to a question earlier, but maybe why are fun partners looking to cash out?
So we're come to the, you very close to the end of that fund. That was a place where we thought there probably were also some refinancing opportunities. But frankly, people came to us and said, you know, we're ready to get out. We've made pretty good money; they got a pretty good yield. I don't think we said with their yield as we should say, we're not saying it. All right, so they got a pretty good yield. And we've been buying interest all for the last decade. And then when we were buying the rest of people out, we just went out to them because we were already up to 70%. So we went to the last few and said if you want to sell, we'll buy renters now, and pretty much, they said yes. I mean they -- we bought them out at exactly the -- they think it's market valued every year at the end of the year with appraisals, and we bought them right on the dot of that number of their equity count. And one guy said I want to find any way to -- so it was multiple partners, not just one. But one guy said I want to find any way to stay in the market; would you mind keeping the thing open? And we switched it to our new JV structure, which is our other large JVs, from the fund structure which we had had because that one was 10 years old. And he said go switch the structure, I'm good with that, and do a new 30-year deal, I want to be in it. And so we said okay, you stay in, and others went out, and we all bought our interest to what we could get. So it ended up like $89.11, and it's a good vehicle. Hopefully we'll now use it going to forward to do some other stuff because that I think our partner wants to continue doing stuff and grow in their position.
So, sorry, this is a new structure, it's 30-year, and --
It's just we're just like the other JVs, the last two big JVs that we did. So it's all on the modern terms that we put in place, and it's ready to go. And then we can use it to buy stuff. We don't have any proclivity towards that or any of the others. They're all structured the same.
Okay, and then how large is the investment pipeline you're looking at today in terms of both acquisitions and buying out more JVs? And how would you finance it?
Well, I think -- I don't -- OP unit deals are tough. I think it's over weighted by OP in the deals, in terms of the acquisition pipeline. So those are -- obviously those have trouble going into the JVs, and it caused obviously -- you know how little I like -- we like issuing stock. I mean, how much we just like solution. So those are tougher. I don't feel like I -- and from an earlier question, when it was asked whether this -- here in California, whether there was going to -- people were trading ahead of the potential split roll, I thought, I mean, that would be a godsend. I mean, but it hasn't created additional straight up sale deals.
Okay. And then last for me, just what are you guys thinking on rent growth in your markets? How do you think this year is going to compare to last year across the submarkets?
It depends on the markets, which is -- correctly you asked the question. I mean, as you know, Hawaii, very strong. Hawaii is [ph] West Side very strong, part of the valley still really very strong, and Warner Center, actually finally showing some good positive movement. But probably the strongest is Hawaii at the moment. But certainly, the West Side is very strong.
Do you think West Side and valuably similar this year, or better or worse?
I think parts of the valley have been mimicking the West Side for a while, but as you get farther out from Encino, Sherman Oaks, I think it's been slower than the West Side. But by comparison to its past, it's running like the Road Runner. I mean, the whole thing's picked up quite well. And I saw a lot of people's notes saying wow, they're finally getting ready to cross at 90% mark. I think we're up at 89% there. So that what matters. Occupancy matters. Occupancy matters across the market, occupancy matters in your portfolio, and that's what changes what rent rates are doing. If you look at these other markets, you're deep in the 90s. Of course rents are moving.
Okay. All right. Thank you.
And our next question comes from Bill Crow, Raymond James. Please go ahead.
Good morning, guys. Speaking of joint ventures, I think it was probably six or eight quarters ago, we were talking about the potential JV of Hawaii assets. And I'm just wondering whether that's off the table, whether you still think about that, and kind of bringing the cash back to Los Angeles.
Well, I mean, it has always been the case when I've been asked about Hawaii -- I mean, Hawaii's obviously very strong now, but we've always said Hawaii is a place where we feel like this is where we want to characterize and get our growth going forward, primarily out of a market which I feel is a 30-year market, which is just West Side market, where we have -- in L.A. where we have a huge amount of our assets. Hawaii has created -- and what's going on there is created a lot of investment opportunity, a lot of capital investment opportunity. And we've always said that that is an opportunity to do a JV or do some other structure like that because we want -- obviously that's a great place to stay involved. And it was never -- as before, it's still a good opportunity to do that. The timing has to be right. The structure has to be right. We have to be able to demonstrate quite clearly to our partners or whoever we would bring in on that that this is why we like this, this is why it works. We don't want to do anything that looks like a fire sale or just done sale, but we also want to make a deal where it works out good for everybody, for the JV partners and for us. So that's tricky, but that's definitely a market where we think we could pull that off one day. I'm not saying on this day, but one day.
One more from me. Barrington Plaza. That was a site of another major fire not that long ago, and in the lawsuit everything else. Is there any risk, reputational risk, or longer term impairment because of the sequence of the two fires all the publicity and press they got?
Well, I guess the answer has to be yes, although I don't know that we're seeing it. I have to say, look, we were advocating sprinklering the building at the last fire. We're advocating sprinklering the building today. This is adding pressure to the city council to create a path for these buildings to be sprinklered because you're sort of trapped between the rent stabilization ordinance and the permitting process for sprinklering your entire building. And we hope that that is also our path. I don't think -- and maybe it's a matter of the news cycle or whatever else, I don't think -- I actually don't think there's long-term reputational risk vis-à-vis these buildings, but I guess you got to play that out and see what happens over the next year.
Thanks for the time. Appreciate it.
And our next question comes from Daniel Ishmael of Advisors [ph]. Please go ahead.
Great, thank you. Just a few quick ones for me. Can you provide an update on where in-place office rents sit relative to market these days?
Yes, Danny. It's about what it's been. We're a little over 10% on the mark to market.
And then you were fairly busy this year refinancing debt and doing other things from the balance sheet. Do you see 2020 ending in the same spot where you guys ended '19 on the debt to EBITDA basis?
Debt-to-EBITDA; okay, that's 9 or 8 or something like that. I think we have chance that we -- we have a chance of improving that. I think our earnings are going to go up. I don't see dramatic increase in the amount of debt that we have, so we have a chance of improving that number.
Okay. And then, just last one actually for me. Given the expirations this year, can you discuss the type of leasing economics you guys are expecting in '20? Specifically, do you expect a tougher or a stable year for leasing concessions?
I don't think the expirations are that abnormal for us, Danny. I know that there's a little bit of chunkiness in Q4. But it looks like a pretty typical year for us. We've done a very good job, I think, of keeping our leasing costs stable at levels that are well below our peer set, which is really a function of our tenant size. I don't see any of that changing. The trends look very good. We're still getting robust demand. I wouldn't see that we'd see a major change in concessions.
Okay, great. Thanks, everyone.
And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.
Thank you all for joining us, and we look forward to speaking with you again next quarter.
Thank you, sir. Today's conference has now concluded we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.