Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett’s Fourth Quarter 2014 Earnings Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. After management 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.

Thank you. Joining us on the call today are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Ted Guth, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You could also find our earnings package at the Investor Relations section of our website. 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. I will now turn the call over to Jordan, who will start with the review of 2014 and the fourth quarter. Kevin then will give a brief market overview, followed by Ted, who will discuss our results, our office and multifamily fundamentals and finish with guidance for 2015. When we reach the Q&A portion, in consideration of others, please limit yourself to one question and one follow-up. Jordan?

Thanks, Stuart. Good morning, everyone, and thank you for joining us. I would like to begin with an overview of our 2014 activity and our accomplishments in the fourth quarter. In 2014, we executed 733 leases for a total of 3.1 million squarer feet of gross leasing. At year end, our office assets were 92.5% leased, our highest since the recession. Occupancy at the properties we own throughout the fourth quarter increased 93 basis points to 90.6%. In addition, as a result of rising rents in our markets, our new leases were more valuable than our expiring leases, the straight line rents increasing 6.2%. Our multifamily portfolio keeps humming along with high occupancy and asking rents up 6.6%. Looking at our financial results, we increased FFO to $0.39 per share in the fourth quarter, bringing our total for the year to a $1.54. By keeping G&A and CapEx low, we again converted a very high percentage of our FFO to AFFO, achieving a $1.21 per share in 2014. I am very pleased that we kept same-store expense growth under 2% last year. This is attributed to our operating group and especially to our sustainability team. Since 2014 was the warmest year on record in Los Angeles County. Degree days a key measure of cooling requirements were up an incredible 141% at the measuring station in Santa Monica and up 69% at the measuring station at LAX. Despite this, we were able to keep electrical utilization in our portfolio essentially flat by continuing to implement the latest best practices and sustainability. Over 90% of our eligible office space is energy star, certified by the EPA is having energy efficiency in the top 25% of office buildings nationwide. While our utility cost still rose as a result of rate increases these programs…

Thank you, Jordan, and good morning, everybody. We continue to see growth in our Los Angeles markets with optimism over the Southern California economy and real estate markets driven by improving employment numbers and strong demand from our regions diverse industries. Unemployment in West Los Angeles has dropped from approximately 8% two years ago to approximately 6% today. In 2014, the Greater Los Angeles office market posted its highest level of net absorption since 2005, with West LA accounting for over 42% of the total. For the first time since the recession began, the average leased rate for all Class A office space in our core submarkets of West LA and Encino/Sherman Oaks exceed 90%. As we reported, our buildings in those markets are over 95% leased. We are seeing demand from many industries with healthcare, entertainment, real estate and technology been strong drivers this quarter. Most of you have seen the headlines about the impact of the convergence of the technology, media and advertising industries in Silicon Beach and about Los Angeles emerging as the world's leading producer of digital content. The expansion of those industries has been benefiting the Westside and our portfolio, both as a result of demand from tech and media firms themselves, as well as from their content and service providers. In response to strengthening fundamentals, we've been seeing some increase transaction volume in our markets. In the last few months we've announced three acquisitions. First, we bought Carthay Campus, a 216,000 square foot office building, adjacent to our properties in East Beverly Hills for $75.3 million. Just like our last three office acquisitions, we bought Carthay Campus with substantial vacancy and with the belief that the property would benefit from the high leasing velocity and increasing rental rates we are generating at our neighboring…

Thanks, Kevin. Good morning, everyone. I’ll begin with our results, address our office and multifamily fundamentals and finish with 2015 guidance. Compared to a year ago, in the fourth quarter of 2014, our total revenues increased by 2.3%, our FFO increased 6% to $68.1 million or $0.39 per share and our AFFO increased 4.1% to $53.6 million or $0.30 per share. During 2014 as a whole, our FFO increased 3.4% to a $1.54 per share and our AFFO increased 2.5% to a $1.21 per share. Comparing the cash basis results for our same properties in the fourth quarter of 2014 to the fourth quarter of 2013, revenues increased by 1.2%, expenses increased by only 1.6%, well within our expectations, despite both higher utility expense and a tough comp as a results of low multifamily expenses in the fourth quarter of 2013 and as a result, cash same-store NOI increased by over 0.9%. Our G&A for the fourth quarter was $7.2 million or 4.7% of total revenue, well below our benchmark group. For all of 2014, we again kept our G&A under 5% of total revenue. Some of the fourth quarter expense savings mentioned by Jordan were offset by $600,000 of acquisition expenses. Our other income in the fourth quarter included $2.2 million of FAS 141 income that was accelerated as a result of the expected acquisition of the Harbor Court fee in 2015, because we now expect that acquisition to close this month, our other income in the first quarter should include the final $6.6 million of FAS 141 income related to that ground lease. Now turning to office fundamentals for the quarter, we signed 151 office leases covering 595,000 square feet, including 218,000 square feet of new office leases. Our fourth quarter renewal volume tends to be less than…

[Operator Instructions] And your first question comes from the line of Emmanuel Korchman from Citi.

Hey, guys. Thanks for taking the question. If you could help me walk through this, you had good renewal and new leasing. You had some of the backlog coming back into the pools that help drive occupancy upwards and zero absorption, but it doesn't seem like occupancy ramp enough for all those things coming together? So can you help us figure out what sort of piece we are missing to get to where you ended the year?

I don’t know if I understand the question. What number to what number are you trying to put together?

So you had an occupancy ramp in 4Q, part of that was your backlog of leasing came down, so you used up some of your backlog. You had good new leasing…

So you’re talking about part of the increase in occupancy was that lease to occupied rate shrink a little bit.

Yes.

Okay.

And you had new leasing of 218,000 square feet?

Okay.

You had essentially zero net absorption in the quarter. So where are -- why is your vacancy picking up enough to sort of take over those two things combined, because I think combined those would lead to bigger occupancy increase than what you witnessed.

So the first point, which is a point about the spread between lease and occupied shrinking doesn't affect the lease rate. It only affects the occupied rate. And as you saw the occupied rate actually had a really nice quarter going up by 93 basis points. So what might make sense frankly is, I’d be happy to walk you through, Stuart and I walk you through the reconciliation of that. But I think part of the issue maybe that the shrinking spread affects occupancy but not lease rate.

Okay. We can take it offline. And then just as we talk about transactions, you guys obviously want to grow the portfolio, but do you have any appetite for dispositions either to short-term holdings or to take advantage of the recent cap rate environment?

Well, I wouldn’t say, we have a larger appetite for dispositions. I mean, there is sometimes that we can look at some things, but there's nothing that I would say is, would be significant that would be on our kind of list at the moment.

Okay. Thanks.

And your next question comes from the line of Jamie Feldman from Bank of America.

Great. Thank you. Just speaking with the…

Hi, Jamie.

Hi there. I guess, just speaking with the guidance, the same-store outlook, can you just talk about what the moving pieces are in terms of how much is -- of the cash number, how much is from contractual rent bumps? What kind of leasing spreads you think you’ll get on a cash basis? And then, I guess, also in terms of occupancy. Your average occupancy that you guided to was actually below your percent lease, so how should we be thinking about that?

Well, lets take the last question and then there’s a lot of questions inherit, so I’m not sure I’ll answer all, but we’ll take the last question first, because I can remember it first and that is that there is always a spread between leased and occupied, even at the lowest point and the thing, so that the fact that its below the lease, we would actually expect that to be true, if that make sense.

So, I guess, to ask it another way. Do you think -- so your average occupancy, I guess, at the midpoint would be up 100 basis points year-over-year? Does that mean that your percent leased at year end ‘15 would be like 93%?

No. Not, I mean, they’re going to one of proms we have last year. We had been rolling along with a pretty -- with a slightly stable spread between leased and occupied. And last year that number widened dramatically over 100 basis points and threw off our end of year occupancy by a lot, threw off our average occupancy, threw off everything by a lot. So that's why we witnessed here to the average, average for the year. I mean, Ted said in his script, less volatile and hope its more useful, but we also, frankly, are hoping is more predictable. So it's still going to be at any point in time that spread and we’re finding right now in particular is pretty volatile.

Okay. So it sounds like there is a good chance you just don't catch up with the period.

Well, what happens is, even in the tightest market, I don’t know, maybe you remember, Ted, I don’t think we ever got tighter than 120 basis points or something.

I think the lowest was actually about 70, but that was, that’s again, we have -- it’s a volatile number…

Think how tight that is, because that means guys are like signing their lease and basically walking in and moving in their space almost immediately. And that the rest of portfolio is just super tight. So you got to be -- for your leased percent to being closer, on top of your occupied percent. You’ve left no room for between the time the guys sign the lease and he moves in.

Okay. That's helpful. And then, I guess, back to the first part of my question. What do you guys assuming for cash rent bumps and leasing spreads?

Well, I think for cash rent bumps, we are -- we've given you the information. So Honolulu is in the high 2s and the rest and Warner Center is at 3 and the rest of portfolio is averaging somewhat above 3. So if you roll it all together you're probably looking at something in the neighborhood of 3.

So why wouldn’t you have better growth. It sounds like you have that just the high end of your normalized range just from rent bumps or just -- just rent bumps?

Yeah. So…

Are you talking about embedded rent bumps and new leases that have been negotiated...

In the corporate.

… or all rent bumps that exist today in all signed leases right now.

The latter…

Well, you still have a ton of all leases that were done at 3%. So it’s going to be hard average off of 3% even if we were doing all fours right now.

Okay.

Okay. I mean, we don’t rollout that much of the portfolio every year to change it. You’ve got to go through few years of the higher -- of getting the higher and better rent bumps.

And then what are you assuming for leasing spreads?

I think what -- I don’t think we’re talking about what we’re assuming given that guidance. But what I would say is that the question of how you -- that is the spread of 2% to 3%. At 3%, you would assume that would imply that leasing spreads were pretty constant during -- we’re pretty zero during this year. And if the lower rate would see just how long it takes us to get from the current spread being slightly negative to a positive spread. That makes sense.

Okay. Are you telling me that the end of the spread from the rent at the end of lease to the beginning of the new lease?

So you’re asking the spread between the end of the lease to the beginning of the new lease. What’s the difference between those two cash numbers?

Yeah. Assuming that’s driver of cash NOI, like the guidance you gave.

Yes.

One of the factors. Okay. All right. I appreciate it. Thank you.

Okay.

And you next question comes from the line of Jordan Sadler from KeyBanc Capital Markets.

Thank you. Just clarifying, not to beat a dead horse on the average occupancy. Are you so implicit in earnings guidance at 90.5 at the midpoint. Are you assuming that average occupancy in 2014 was 50 basis points or 100 basis points lower?

We’re not assuming because we actually have the numbers.

Right. What was the actual number story?

The actual number was about 90%.

90%. Okay. That’s why those coming up. Okay. So 50 basis points increase in occupancy embedded at the midpoint of guidance?

At the midpoint of guidance.

Average occupancy. Got it. Which assumes some level of net absorption based on either closing the gap leased versus occupied and were just net absorption naturally?

At the midpoint, that's correct.

Okay. Can you maybe talk a little bit about the acquisition pipeline? I know this time three months ago, you guys talked about it being very full and then you’ve closed on a few and you got another one teed up here. Just maybe show light on what’s happened to the pipeline since?

Kevin, you take that.

Well, my first question.

Congratulations.

That’s correct.

I’ll remember this moment forever. So I would say that look 2014 was better than 2013. And there were some transactions that had some pretty eye-popping dollars per square foot. And that always brings up more sellers who want to take advantage of that market. And so I would say that our pipeline, I’m pretty optimistic of things in the pipeline that we’re looking at and at things that will be coming out later this year.

Okay. In the near term, it’s looking a little bit lighter, obviously?

No. My team is actually pretty busy looking at -- underwriting a number of process as we speak.

Okay. I think it’s fair to say that Kevin came in close to four deals, almost nearly three, four deals. Three deals sounds me to nearly so. He has probably larger than a deal a month.

Let him run with Jordan. He was setting the bar high for himself.

Pretty high bar. I don’t want you guys to bump.

I said we’re underwriting. We don’t put an offer. We don’t put an offer on everything that we underwrite.

And then final question is just on liquidity and the availability that sort of execute on some of those deals. I know the leverage is low but -- and it seem better than the guidance here. It is some refinancing activity. What’s embedded in terms of incremental liquidity being raised?

Just on guidance page, it says that we don’t assume that we raised any -- you mean, issuing equity and it’s not as a source as we don’t.

I just mean -- I see refinancing and permanent financing. So a refinancing and refinancing is no -- I assume limited incremental liquidity. And then on the obtaining permanent financing, let’s say you raised 100 financing of our recent announced acquisitions. How much is that?

What we said to you is that we intend to pay off our credit line out of those proceeds which would give us enough -- which would give us back the $300 million of liquidity there. And in addition, while we don’t assume additional proceeds from the refinancing activity, I wouldn’t at same time say that there wouldn’t be additional proceeds. When we tried to do financings, we try to maximize the amount of liquidity we can get for the assets we are pledging there because once they are pledged they go off the line for whatever period of time they are financed for.

I think more the issue is do we want to let our overall leverage level floored up because we don’t have problem with liquidity in terms of we can get equity by buildings by refinancing what we have. It’s not really highly financed. But there might be some point when we would say, well we don’t want to keep pushing our leverage level up. And we’ll watch the pipeline on what’s happening and make that decision. We don’t have to face that right now.

Okay. Thank you.

And your next question comes from the line of Nick Yulico from UBS.

Well, thanks. Ted, I think earlier you said that the mark-to-market opportunity on your portfolio was 5.6%. Did I get that right?

You’re correct.

Okay. And that’s measuring just in place leases versus where you think market leases are today?

Asking rent at that particular building or that particular space versus in place.

Okay. And then as you look at your expirations over the next two years, let’s say, I mean, is that, did you expect to achieve that gap or are you dealing with higher rent expirations and maybe markdowns in the next two years overall?

Rent expirations kind of don’t matter, right, because it’s rent in place versus what the market is. But I would expect that gap to widen because I think rents are going up and the leases we signed are in place and so -- then always the bulk of our leases are in place, right. So if rents are going up at a good cliff then usually you are in place to asking will widen.

Okay. So how should we think, I mean, if we look at the expirations that you have this year. Are you generally looking to have increases in rents, flat rents or are you doing with roll downs. Can you give some color on your different markets in that regard?

Well the problem is that and we’ve said this to you guys lots of time but I’ll say it again that every business metric at every given quarter is very different. And so predicting a quarter-to-quarter even for us is very hard. When we look at that cash rent roll-down number for example, one of things happening now is we have 10-year leases now starting to come off the peak times. And given that those peak rents often had 4% bump, you see that the cash rent roll-down can be substantial at any quarter when one of those leases hit. Now, they are not many of them but they still hit. That’s going to make it a little more volatile. We still think the trend line is that, that cash spreads will continue on a trended basis to come down but individual quarters could be…

It has trended down but it’s really bounced around. Last quarter was basically flat and this quarter was negative 5. And then if you went a couple of quarters before that, it was negative 7. And it’s coming down to numbers like negative 11 and 12. So it’s working into the right direction but it definitely bounces around to get there.

Okay. And then just lastly on Warner Center/Woodland Hills Market, I mean, you have decent amount of lease expirations there. This year you have floor occupancy. I mean, is there any realistic scenario where you could actually be increasing occupancy in that market. Could you talk a little bit about how you are thinking about those expirations today?

Nick, that is such a negative way to ask that question. I can’t believe it. I mean, is there any way to survive Warner Center. Is that the gist of what you are asking me?

No, look, there’s a fair amount of expirations and it’s where you have the most occupancy upside.

I agree. That is our largest center.

So I mean, how should we think about that?

[Indiscernible] Warner Center, okay. So last year, we had a tremendously high level of roll. We rolled 600 -- we had 600,000 feet of roll and a 2.8 million of market for us, right. So that means almost 25% of all leases there roll. With that happening, okay, and plus we knew we had AIG giving back in that year which is even in our roll another 40,000 feet that was the part of the leasing done at previous year. We held the lease percentage in there to only losing about 25,000 feet, okay. That was -- so each quarter people say what’s going on, we have a very full pipeline. And we are signing a ton of deals out there. And you guys saw that we signed a ton of deals out there last year because I kept saying hey we’re doing overwhelming amount of stuff in Warner Center and Warner Center is impacting our estimate to spread of leased occupied. It estimates about time for people move in et cetera et cetera. Okay. So now we sit here kind of looking at it saying last year, we kind of started at a lease rate, essentially almost ended at that same lease rate, okay. This year, roll, we only have 270,000 feet, not 600,000, only 270,000 feet, still with an extremely active pipeline. So I feel -- feel, hope, I don’t know, whether or which word goes in that spot that we have a really good opportunity to move up our both occupancy and lease numbers in Warner Center this year. And we are optimistic about it.

Okay. You guys sound pretty positive. Thanks.

All right.

Your next question comes from the line of Gabriel Hilmoe from Evercore ISI.

Ted, just going back to the occupancy guidance for a second, I don’t know if you mentioned this but can you just talk about the progression through the year, just given where you ended last year on lease basis. I know you said the spread will remain there but is there a downtick early and things get back sealed as we go or is it kind of flat quarter-to-quarter?

Well, we would typically expect -- again, we’re not going to give sub guidance because then it’s just really volatile. But you typically expect that the first quarter would be a little slower because people don’t focus on their leases in December. And then it takes them a while when they get back to January to do it. And there are typically a fair number of expirations at the end of the year just because people line that up. So we would expect first quarter to be slower than the rest of the quarters but again we’re not going to give quarterly guidance. We don’t need to do that.

Okay. Fair enough. And then just on the same-store guidance, do you have a breakout of what the expectation is for office versus the multifamily for this year?

No. Although I think it will be largely consistent with what it’s been in prior years. So we would expect the multi-family to continue to do well and frankly better than the fourth quarter because that 7% increase in expense was a little bit of an anomaly. And we would expect the office to do, to be less than that.

Okay. Thank you.

And your next question comes from the line of Alex Goldfarb from Sandler O’Neill.

Good morning out there.

Hey Alex.

Hey, how are you? All right. Ted, will go to you first. On the debt side, as you are looking at these refinancings, are you looking to do -- again, are you looking to do like the variable with a swap or is it going to be straight fixed debt and then what length of the term are you looking at? Should we think about a 5-year or 10-year and are there apart from the accelerated finance piece that you mentioned, are there any other prepays, or is there any timing adjustment we should be aware of with that swap that burns off in July?

Starting with the last question because I remember, I would not expect anything that you would need to model on the swap expiration in July. In terms of the loans, when we do or put together a loan package, we actually look at both “fixed” and then bank loans that we then swap to fixed. From our point of view, it's not really a big difference which one we do. It depends on availability rate and all of those factors on individual loans. Similarly, the lease term varies a little bit from what we do from loan-to-loan, depending on what we think about the assets and what's available in the yield curve. But I think that you can expect that we are going to hope to push out things a little longer than our typical -- than we've been doing it so. If you want to model seven years that's probably not a bad modeling point but it will vary from loan-to-loan.

Okay. And just confirming, so with the swap in your guidance, you are not assuming that that goes to a floating to boost guidance, we should just assume that remains sort of that fixed rate.

I would do that. I don’t know exactly what the timing of that refinancing would be. But I would not assume that there is a long period of floating rate for present purposes.

Okay. And to Kevin, I think it was you talking about Hawaii and the opportunity there for workforce housing, apartments, et cetera. Often areas where there's a huge demand for housing, the local authorities make it so difficult to build that it never happens. So, one, do you see increased opportunity to actually build and then two, presumably if you see that others see it, so what’s the competition out there?

Well, the big problem in Hawaii is, it’s so land constrained and the ownership. But a lot of times it just doesn’t penciled to take the market value of land and try to develop. And so they're looking for ways to incentivize folks to build. The majority of that building if it takes place is going to be out in West Oahu out by Kapolei, where the majority of the land is. So, I don't really see that new supply has impacting our existing inventory and it’s this double-edged sword of, they really need to increase their labor pool, so that they can grow their economies. So they do need housing to be able to grow and so, I don't think that an increase in housing is really going to be bad for us because it’s going to grow the overall economy in Hawaii, as they get more people in the workforce.

I could add to that. One thing what you are saying, Alex is right, understanding the west side around here. They make it so hard to build no matter whether the community needs it or not. But in Hawaii, they recognized that they need workforce housing and they wish they were making it easier to build. The real problem there is just the cost to build. I mean everything in Hawaii just costs a lot more to build. And then to double down on that problem, the prime loss the better land that’s in close to downtown and near where all jobs are. When they do -- when it does trade, the more economically, profitable thing to build is condos that you sell to off-islanders. So workforce housing is expensive to build and it’s not the most probable thing to build for a guys that owns a piece of land. And that has actually caused that number to go backwards, not forward to grow a little. It shrunk because it’s been replaced by maybe someone tearing down or growing condos or building new condos on location. So you can’t almost go to Hawaii and read the local paper and not hear about their need for workforce housing or about the legislature or the city or the county, trying to put programs for workforce housing. Now, you know what, they are not super wealthy and therefore, their programs need to get funded for them to be effective and a lot of times they have problem funding the programs. But they want it to happen.

Okay. Thanks. Thank you.

Your next question comes from the line of Jed Reagan from Green Street Advisors.

Hey. Good morning, guys. Just a question on guidance. Maybe I will start in a slightly different way. So, as we look at the average occupancy guidance for the year adjusted, you are basically going to hold sort of flattish versus where you ended 2014. I’m just wondering if that’s sort of a fair way to think about it and then maybe ask another way. You think you have a chance to make any meaningful improvements in your percent of leased rates in 2015?

So going back to what Jordan said, a little while ago. I don't think we're focusing on percentage leased because that would get us back in the business of predicting spreads, which we told you guys we've gotten out of that business. But on the occupancy side, I think that it is fair to say that we are -- the midpoint of the guidance does take you to sort of holding serve with year-end and as we talked about earlier that could vary during the year. I think one of the things that's also true is this is probably a year when we think it's time to focus on -- in that balance that you're always making between occupancy and rent growth. I think we are probably going to focus little more on rent growth this year. Again, there is no single way but that's probably in the balance.

Okay. Thanks. And I think you have talked previously about kind of being able to push rents in a lot of your markets, 5% to 10%. I didn’t hear you quote that at this time. Is that similar or is that changing at all?

Well, that’s certainly outside of Warner Center. It’s probably closer to the 10% and we would hope that that will transition as all those markets have moved up now about 90 and as we become stronger. But that’s the future we will see.

Okay. Thanks. And then looks like fourth quarter leasing volume slowed a bit from where you had been earlier in the year. I’m just curios if that’s sort of a timing issue or if there is just a general slowdown in activity that you are saying, maybe you can just talk little bit generally about how the leasing pipeline looks as you sit here today and maybe any large move outs since ’15 you are looking at?

So, fourth quarter in recent years is intended to be well below that sort of average anyway. So the fourth quarter, if you look at the renewal leasing which is really the area that was, sort of slowed down a little bit in the fourth quarter. It actually was and as I said like in the script, it was our best fourth quarter in terms of leasing volume since 2011. So I think we are -- I think while it slowed, it sort of expected slowing. And I think that we continue to feel very good about leasing pipeline out there.

Any move outs that are on the radar screen for this year, kind of lumpier ones?

Nothing of large size and as Jordan said, I think what we are really happy about is that the move outs at Warner Center is….

It’s just the overall rolls and therefore, we are not kind of fighting against that wave, if we can -- we are back to being in a position to make gains.

Good. Thank you.

Your next question comes from the line of Brendan Maiorana from Wells Fargo.

Thanks. Good morning.

Hey Brendan.

Hey, guys. Good morning. It’s just the way it goes. Anyway. So, Ted, you said kind of best renewal percentage since ’07. I know fourth quarter as you highlighted tends to be a little lower from a leasing volume standpoint. But you didn't have too much in terms of expirations that came up and your new leasing volume was reasonable even though it was down relative to where it was passed quarters. And you had short-term leases that increased by about 35,000 or 40,000 square feet. So, taking all that together, I was surprised that the net absorption was flat in the quarter, was there something that caused net absorption not to be positive when -- it seem like the elements were there when it what would have turn -- would've been positive.

Let’s go through the math because the answer is it didn't and the answer is there is no.

What you said was accurate. So we could go to the math.

And there is no great hidden thing that happens I can think of. But we can go through the math and actually check it but nothing to report.

Okay. All right. Fair enough. We can go. Second question is from a CapEx perspective you guys have been the most efficient from capital as a percent of lease percent of overall NOI. However, you kind of want to look at it, but it has moved up a little bit over the past couple of years and it looks like, if I'm doing the math right on your FFO to AFFO guidance CapEx, TI leasing commissions based building, it’s probably going to be around that $50 million to $55 million again in 2015, which is where it was in ‘14 although it was and that was intended to be higher than it had been in prior years. Is there anything that's keeping the CapEx a little bit higher than where it has been in the past, albeit still low relative to your peers?

Yeah. I think we’ve told you there is probably are a couple of things in it. The first one is that we have -- as lease rates move up then sort of the leasing commissions also sort of as a natural impact to that move up. Secondly, we’ve told you that as we -- right now a lot of the new leasing we are doing is coming in Warner Center and it's also coming in spaces in our -- the rest of our portfolio that maybe haven’t been lease for a while because you obviously tend to lease the best spaces. In a tight environment, you are more likely to lease them. So, we do think that there will be -- the TIs will continue -- TIs leasing commissions will continue to be perhaps a little higher than they've been at another point in the cycle and that will come down than as we sort of get these spaces leased up.

Okay. All right. Thanks guys.

Thanks.

And our next question from the line of John Guinee.

Okay. We’ll talk about something different here.

Okay.

Oh! My god. Okay. At what kind of pricing, what kind of underwriting, what kind of cap rates are you paying these days specifically on the three acquisitions you just made?

We are going to keep going. Kevin, you know those numbers. You have a feel for that.

I don’t have the Carthay number in front of me, but was in the low 5s at 82% lease. Waena was also somewhere in the low 5s and First Financial was in mid 5s.

Second question is, looks to me like your net debt to EBITDA just crossed the nine threshold nine times because basically you are acquiring $310 million worth of assets without issuing any equity. So how are you thinking about getting your leverage a little bit more in line even though that might tank FFO a bit?

I’m not sure that the assumption is correct. But I will let Jordan answer.

I mean, I don’t feel stressed about our debt level and I don’t feel stressed about our coverage level or cash flow frankly. I think when I really look at kind of the company's cash flow and even if you compare to other companies, our coverage and even our coverage of our dividend is excellent. So, I'm not -- when you say, how do I think about getting in line, I can’t say. It takes a lot of time about thinking of that getting it in any another line that it’s in other than the 110 now.

Perfectly acceptable answer. Thank you.

All right. Thanks.

And your next question comes from the line of Rich Anderson.

Thank you. I kind of missed year end target occupancy all of a sudden.

Okay. It did make for more exciting calls but I was drinking a lot more last year. This year might be a little easier.

Jeff, I guess, thinking back to 2014 and the kind of issues you had with having to kind of downdraft in occupancy communication. Do you think -- at least looking at this occupancy average not much over 2014, do you think you’re dialing in some amount of incremental conservatism based on the experience you had last year?

So, once you adjust for a decision we made to move the Harbor Court fee acquisition into 2015, we actually did pretty well on our AFFO and FFO guidance things. And we know that the occupancy particular, year-end occupancy was sort of a problem. But, again, we don’t really manage to that. We did review about what we gave you at guidance and how we give it fairly carefully. We think it’s fundamentally signed -- sound rather. And the one thing I will say that was really true is that we’d like to react a little quicker to new trends during the year but other than that we actually felt pretty good about the approach.

Okay. And then when you mentioned -- Ted, I think you said market rent growth approaching 10% except for Warner Center. What are you guys thinking in Warner Center?

Well, Warner Center is up off the bottom, so it’s come up off the bottom. It’s -- I think going to show some growth this year. But it’s a little harder to say because there we are more balancing and I said, we were balancing towards rate in the rest of the portfolio and that area is one where we have to be a little more balanced.

Okay. So if your total portfolio is 5.6 mark-to-market, do you have a guess that where you are at Warner Center, maybe I should know that?

It’s probably trivially negative.

Trivially negative.

Yes.

Okay. Okay. And then last question. You mentioned the bumps kind of in the range of 3% when you kind of add it all up. What are new leases being signed up and did you mentioned that and if you did I apologize?

Well, new leases in Hawaii are 2.5 going to 3, so not fully but we’re pushing 3 now. Warner Center is probably still 3-ish. And in West L.A. and Sherman Oaks, Encino, it’s 3 going to 4. And so it depends on the individual lease negotiation, whether we trade that away or some other thing that we want to get like higher rents. But across the board in West L.A. and Sherman Oaks, all new proposals go out with 4s in them.

With 4s in them, so it’s still a trickle up to the bumps relative to where they are today?

Yeah. That’s right.

Okay. Great. Thank you.

Thanks.

Your next question comes from the line of Mitch Germain.

Hey, good afternoon. Jordan, a quick question, would you revisit a co-investment vehicle now that deal flows picking up?

Well, if you’re saying -- if there was a very large deal and I needed equity, what I go look at doing it as a joint venture, the answer is yes.

But not a co-mingled fund for acquisitions?

No. I mean that was -- great to have the money during the recession and we bought a huge amount of square footage during the recession but we don’t need to do it. It’s expensive for us to do it. It creates commitments for us that now we have to spend that money first. It’s much better only when you have a big deal than to be able to get the partners together and do it then. And we do a lot of work to create that group of partners, so I’m feeling pretty good about it.

Thank you.

Your next question comes from the line of Jordan Sadler.

I guess as a follow-up to that last question. I was going to ask something along the same line. To the extent that a large portfolio were available, would you rather in terms of raising or availing yourself of capital, new joint venture or would you rather look at maybe some type of transaction similar to what your neighbors had some specific that with the recent EOP transaction?

Well, the thing that venture did, I mean it has to be offered to you. Let's start out with that. So that’s not -- we are not really saying that’s a distant…

Well, I guess, would you issue equity?

Okay. So my preference would be to do the joint venture. I mean, I feel like -- if you look at our buildings and where the stock is trading and where you can kind of filter through and value the buildings, why would I want to sell building for less than I’m buying buildings for. And that’s essentially what if you do a significant stock offering what you're doing.

Okay. That’s fair. Okay. Thank you.

All right.

And your next question comes from the line of Steve Sakwa from Evercore ISI.

Yeah. Just two questions. Jordan, I was wondering if you could just speak a little bit about the pipeline and the demand that you're seeing up at Warner center. What types of tenants, are those tenants typically expanding? Are they coming into the market or are they already in the market? Could you just maybe tell us what kind of industries? Just a little more flavor would be great.

I don’t know if I’m the best person to answer that. I can tell you that I think it’s a variety of industries. There are tenants coming into the market. So it's not just trading actually market and overall the market lease rates in Warner center are going up. And if you really -- I mean I hate to even say this, but if you look at the market overall, it’s better leased than our particular portfolio and it’s the only market where our portfolio is underperforming the overall market lease rate. Now the reason for that is a number of the larger buildings in that market are single like 400,000, 500,000 foot, single tenant leases that go on for very long time. So when you put that into the mix and you look at where the buildings that have multi-tenant nature, so they're rolling something every year, the multi-tenant guys are always going to be at a little bit of a disadvantage to the overall market, which has a number of buildings that are 100% leased. But even if you just look at the multi-tenant guys, obviously the overall number is moving up. So it’s not going to move up by guys trading. Matter of fact interestingly, that’s the one market where our larger tenants when they renew because of wanting them maybe make this space work better or feeling like they can become more efficient tenants, they might renew a little smaller but still the overall lease rate going up because more guys are coming in.

And I don’t know if you can speak to this, but just the tech demand that you’re seeing down in LA. I know probably this has been a market that has captured a lot of market share. Do you see any of those kind of tenants heading north at all? Or is just the distance from kind of where they live just make that market not acceptable for them?

I can’t say that kind of tech that we've seen in any meaningful way out there. It's more of sort of established entertainment back-office. I mean, you’ve heard us talk about the music side. Guys have to refocus themselves on their overall cost and because of their work force age are saying well. It’s meaningful to us to have housing and schools that are good that you don’t have to go to private school, all that. That’s where you see kind of those groups moving out there. Tech seems to be pretty young, I mean it’s own ton of people with kids and stuff.

That being said, there is a lot of the small apartments that sprung up all around Santa Monica and a lot of the smaller tech firms we are seeing some from that. It’s just that there aren't the huge for place for people like Google. They have space here in Santa Monica for example, but they don't -- they can’t get like the 900,000 square foot campus. You just couldn't get that done on the west side.

Okay. Thanks.

All right.

Your next question comes from the line of Emmanuel Korchman from Citi.

Yeah. It’s Michael Bilerman. Just a couple of quick follow-ups. In terms of the same property cash NOI you have in the sub, core same property cash NOI in terms of the guidance, one excluding lease term fees and prior year CAM conciliations. So there is about 100 basis point difference between the two. Is that effectively saying that there was call it $3 million of positive CAM reconciliations and lease term fees in '14 that you do not expect to reoccur in '15, but if they did that would be an additional $0.02?

No, yes and no. So it does say that right now we had -- there is about call $3 million is in the right zip code. But there is a difference because what we don’t do in looking at '15 is we don’t sort of look forward and say let’s assume we have a bunch of CAM reconciliations going one way or the other. So we just don’t project that, because it’s too difficult. Similarly for example, remember, in 2014, we told a story about a full floor tenant in the second quarter that came to us and within two weeks, we had made a deal with them where they paid us a substantial termination fee. When we do guidance for '15, we don’t project that any of that’s going to happen. If it happens, that’s great. If it doesn’t, it doesn’t. So what that means is yes, there is about a $3 million differential between the two years, but what will actually happen in '15 is largely unpredictable, which is why we broke it out, so people aren’t confused.

Right. And so you have just the amount for -- we have the historical lease term fees from the K from '13, '12 and '11, you just break out for '14 what that total lease term fee was and how much was the CAM reconciliation that you are effectively not projecting. I know in totality, it’s 3, but just understanding the split between the two would be helpful.

Yeah. I don’t have the exact numbers Michael, but assume it’s half-and-half and that you would be very close to being right.

Okay. And then in terms of the occupancy, you ended 12/31 at 90.5, do you know where that was on January 31st? I mean, was there a drop off at all in the first month of the year?

Well, as I said, the answer is I don’t offhand know that, because it’s a different reconciliation process on a month versus the quarter end where we are very tight on sort of checking it out. But I will say that, what I said earlier, which is that you could expect that January will have more than the usual number of move-outs because of December 31 year end. And it will have a little less leasing volume than the average month, because people sort of don’t get back to work and to the point where they signed the leases in that quarter. So for those reasons, you would generally expect it to go down a little.

Okay. And then the last one is just on unit deals. And I take your answer Jordan about doing a large sort of very large stock offering effectively like Hudson Pacific did with Blackstone to do joint venture transaction. But I am curious in the three sort of single asset deals, you always talked about units being sort of a weapon in your arsenal. And certainly when you got the fund, the deals you do on balance sheet generally would have had a unit type deal or they would have gone into the fund. So did units come into the discussion for any of those three deals that you actually executed? And is that any bit of a discussion than any of the deals that you’re working on today?

Well, yeah, I recently did work on unit deal, but it didn’t get made and frankly from my own interest in it waned where I was pushing towards a cash deal because I don’t like the spread between what we’re buying buildings at and what the buildings in our portfolio are being valued at. And so I just said, you got to be -- it’s just too hard to make that deal to give even when a guy -- unless a guy is willing to adjust the price of the building in order to actually protect their taxes to tie out to the way maybe another building I own right next stores being prices kind of effectively to the stock price and say to himself well this will kind of adjust together. It isn’t worth it to me.

Well, I guess when you take it one step further and sell interest in assets and buy back your stock, I mean it doesn’t sound like you want to go to buy back stock and raise leverage even if you’re comfortable leverage where it is, but there is a double whammy in terms of using cash to buy back stock. But if you are not happy with where the market is price relative to where your stock is and you think buildings are worth a lot, why not sell 25% or 50% interest in a handful of buildings and do stock buyback and narrow that gap?

Well, I don’t know that -- I mean let me say, I will say this vis-à-vis the stock. I am not sure trading in the stock versus trading in the buildings is two different things. And we are a lot more confident in the underlying value of the buildings than to say the stock is going up, down, or all around and becoming a trader in our stock. I will say this to give you an opportunity to do it, during the recession we were one of only four REITs that bought back our stock, okay. So we are not unwilling to do it. But I also want to buy buildings. Buying back our stock takes away -- uses cash and takes away the opportunity to buy buildings. But to also be fair to your point, one of Kevin’s ideas for ways to get equity on some deals, we’re working on was to throw in some of our buildings in that same market and say we will put our position in this on the same basis as your buildings in that same market. So it’s very easy to compare building to building let’s say it’s a next door. And say now we are going to have this bigger pool and then we weren’t in a position of raising our leverage level and we still control more buildings.

Right. Okay. Helpful color. Thank you.

Your next question comes from the line of Jed Reagan from Green Street Advisors.

Hey, guys. I know Time Warner has a termination options later in '16 for the big space in Burbank. Just wondering if you had any visibility on their plans at this point?

Now not a lot. I feel like they had one that just passed or something, I mean, didn’t one just passed January.

Yeah, I don’t think it’s '16, I thought it was '15.

Yeah, the notice date is in '15. The expiration or the effective date is in '16. And I think we will be surprised if that happens, but then they are going to make their decision.

So the mention in the disclosure, the option to terminate in September of '16 that window has already come and gone you are seeing?

I don’t believe it’s come and gone actually, but…

I don’t think it’s come and gone, but I feel like it was now.

Yeah, I think the two. I think it’s in the few months.

Okay. But they haven’t reached out to you for any discussions?

Well, there are big cameras. We are always talking about that. But then reach out and say, hey, we are terminating, that’s for us.

Okay. And just as a quick follow-up to the Steve’s question earlier, just with all the tech activity driving silicon beach and the just the market in generally, does it help you to get more aggressive to go after that type of demand either with more concessions or maybe even entering a new sub market like or Hollywood, is that something you think about?

It’s definitely something we think about and candidly we underwrote a property in Plaza that recently priced. We liked it because it was on 20 acres of land and had a big surface parking area that we thought later you could develop and add density. The issue on it was there was not rollover for seven years and the co-mingled chased after it and drove it to pricing level that we weren’t comfortable pursuing. And so we do look at opportunities in those markets. We just haven’t found anything that’s super-compelling that fits within our smaller tenant close drive by box that we would like to traditional invest in.

Okay. Thanks.

[Operator Instructions] Your next question comes from the line of Jamie Feldman from Bank of America.

Great. Thanks. Just quickly on the landmark, can you just remind us where you are in the approval process and give us some thoughts on the hurdles you need to get started?

Well, we have submitted everything that was as far on the environment impact report so -- and we’ve gotten a bunch of comments, what we need to get full set of comments back that we need to respond to those comments and then that report has to be issued and reviewed and commented on by the community and all good stuff. We’ve already had meetings with the community. I don’t expect any of this to be easy or go down smoothly. But I guess for where we are in the process and for feedback we’ve got so far, this is probably as good as it gets never, it’s never that good, but this is as it gets.

So what’s after this phase?

Well then you go through kind of the community comment and then they go to their countsmen area and they say we like, we don’t like, we like it with this, we like it with that, we would really love it if it was half as tall or half the -- whatever they -- that comes are and you go through and you try in craft something that work for everybody and then go to through planning and the city council to get you approval. And once you get that, then you can move forward with construction. Part of the thing that can stretch or shrink timing is there is a point where you think you are going to get it, but you still have a couple months to get to the city council approval and some other approvals and different people get you different things whether they want to start spending the big money, have the architectural fees, or like whey they get it. They could start building or where they want to make sure they have a [indiscernible] architecture fees which could add another three or four months to the time it takes to start construction. And we just have to look at the environment, as we approach that date to make that decision and kind of how much consternation or acceptance there is around the deal.

Okay. Great. And then just multifamily same-store expense increase, I think you mentioned before that there was higher utility cost, but is there anything else in that?

Yeah, probably the biggest thing that’s in there, you should look at '13 with just often terms of trend, no one particular thing, but it was low. That’s probably takes it down to about a 4% increase if you eliminate that, and then utilities expenses was the counter for almost half of the remaining or about half of the remaining increase. So the overall expense level, if you compare it to last quarter x utilities, you actually -- you could see it’s really not a big problem as it was . First look to when we first saw it.

So I guess when you think about next year, this is a good run rate or you actually now higher than normal.

Well, the one thing you have conclude in next year’s run rate would be Waena, because remember there is only in the fourth quarter there were two days of expense from Waena in the quarter. And going forward, we will have the full quarter of it. But I think that…

I am thinking more margins than dollar?

Yeah. I think that this quarter was -- I don’t think there is always unusual thing in every quarter but I think there is up there to use.

Okay. All right. Thank you.

All right. Well, I think, we are done with questions. So thank you everybody for joining us on this call. We look forward to speaking with you again next quarter.

This concludes today’s conference call. You may now disconnect.