Q2 2023 Douglas Emmett Inc Earnings Call
Participants
Jordan L. Kaplan; President, CEO & Director; Douglas Emmett, Inc.
Kevin Andrew Crummy; CIO; Douglas Emmett, Inc.
Peter D. Seymour; CFO; Douglas Emmett, Inc.
Stuart McElhinney; VP of IR; Douglas Emmett, Inc.
Alexander David Goldfarb; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
Blaine Matthew Heck; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division
Dylan Robert Burzinski; Analyst; Green Street Advisors, LLC, Research Division
Jing Xian Tan Bonnel; REIT Analyst; BofA Securities, Research Division
John P. Kim; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Michael Anderson Griffin; Senior Associate; Citigroup Inc., Research Division
Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division
William Andrew Crow; Analyst; Raymond James & Associates, Inc., Research Division
Presentation
Operator
Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded. (Operator Instructions) I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.
Stuart McElhinney
Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.
During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove incorrect.
Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. (Operator Instructions) I will now turn the call over to Jordan.
Jordan L. Kaplan
Good morning, and thank you for joining us. Since we last spoke, we took 2 very positive strategic steps toward enhancing the long-term health of the company and ensuring meaningful growth.
First, we have formally begun the process of reconstructing our Barrington Plaza apartment community to install modern fire life safety systems and otherwise bring the asset up to date. Tenants have been notified that they are required to vacate the property and approximately half have already done so. This is having a current impact on our earnings, but we have waited 3 years to begin this process, and I am very happy that it has started. Second, July, we closed a new 10-year $350 million nonrecourse interest-only loan secured by 2 recently completed residential projects.
The loan is floating at $137 million over SOFR, which we feel is a very good rate. Both properties were built using our free cash flow, so they were completely unencumbered. In a difficult loan environment, we are pleased to have this additional source of cash to take advantage of future opportunities. While new leasing from larger tenants has been slow, tenants over 10,000 square feet did account for nearly half of our renewals in the second quarter. Overall, we signed 210 office leases covering nearly 1 million square feet. We are seeing tenants renew further ahead of their expirations and for longer lease terms.
This returns us to a more typical lease expiration pattern, reversing the short-term mentality we saw during the pandemic. I am also pleased that we have been successfully maintaining rental rates and controlling leasing costs. The overall value of leases we signed during the second quarter was higher than the prior lease value for the same space. At the same time, our focus on smaller tenants and simplifying the office leasing process has kept our leasing costs below our long-term pre-pandemic average and well below other office REITs.
While Barrington Plaza recondition and the new loan are very positive for the long term, we are reducing our 2023 guidance to reflect their short-term impacts. We have significant cash on hand, strong cash flow after dividends, no corporate level debt and almost half our office properties remain unencumbered. I am very happy to report that over the past 2 quarters, we repurchased 9.1 million shares at an average price of just over $12 per share.
I am confident that our buildings and markets will perform extremely well over the long term, which is supported by our substantial leasing activity during this downturn and the long-term supply-demand metrics of our markets. With that, I will turn the call over to Kevin.
Kevin Andrew Crummy
Thanks, Jordan, and good morning, everyone. Leasing remains strong in our 2 new multifamily development projects. At the Landmark L.A. and Brentwood, we have now leased almost 85% of our 376 new units. At Bishop Place in Honolulu, our office to residential conversion project, units continue to lease as quickly as we can deliver them. In July, we closed a new $350 million nonrecourse interest-only loan secured by these properties. Both properties are built using our free cash flow and were formally unencumbered.
The new loan bears interest at SOFR plus 1.37% and matures in August 2033. The new loan proceeds add to our liquidity so that moving forward, we can take advantage of new investment opportunities. As Jordan mentioned, we have begun to vacate Barrington Plaza because of a requirement to install new fire life safety systems. Barrington Plaza is a 712-unit apartment complex spread across 3 high-rise towers in Brentwood. About half of the units have already been vacated. Most of the remaining units are scheduled to be vacated this fall with some tenants having the right to remain until next May. With that, I will turn the call over to Stuart.
Stuart McElhinney
Thanks, Kevin. Good morning, everyone. During the second quarter, we signed 210 office leases, covering 957,000 square feet, consisting of 188,000 square feet of new leases and 769,000 square feet of renewal leases. While we were pleased to see an overall increase in the leasing activity, our leasing did not include many new tenants over 10,000 square feet and remains below levels needed to create positive absorption.
As Jordan mentioned, our leasing activity was characterized by tenants renewing further ahead of their expirations and for longer lease terms. Nearly half of our renewals came from tenants over 10,000 square feet. Our office leasing spreads during the second quarter were positive 4.1% for straight line and negative 6.6% for cash, reflecting the strong annual rent growth built into our office leases. At only $5.23 per square foot per year, our leasing costs during the second quarter remained well below the average for other office REITs in our benchmark group.
Turning to multifamily. Our portfolio was 99.2% leased at quarter end, and rent roll-up remained healthy across our portfolio. With that, I'll turn the call over to Peter to discuss our results.
Peter D. Seymour
Thanks, Stuart. Good morning, everyone. Reviewing our results compared to the second quarter of 2022, revenue increased by 2.6%, primarily as a result of our multifamily portfolio, which now represents approximately 20% of our annual revenue. FFO decreased by 8.4% to $0.48 per share, primarily as a result of higher interest expense on our floating rate debt.
AFFO decreased 16.5% to $74.9 million. The construction costs impacting AFFO this quarter related to our significant leasing last year. And same property cash NOI decreased by 0.9% with higher rental revenue and parking revenue, offset by higher insurance, janitorial and parking expenses. Our G&A remains very low relative to our benchmark group at only 4.3% of revenue.
Over the last 2 quarters, we have repurchased 9.1 million shares at an average price of $12.03 per share. These repurchases were accretive for both our FFO and our cash flow. Turning to guidance. We are adjusting our FFO guidance to reflect our Barrington Plaza move-outs and our new loan, offset by a number of positive developments, including the impact of the share buyback. Collectively, we expect those items to reduce FFO by about $0.07 per share.
As a result, we now expect FFO per share to be between $1.81 and $1.85 per share. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future acquisitions, dispositions or financings. I will now turn the call over to the operator so we can take your questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question today is from Steve Sakwa of Evercore.
Stephen Thomas Sakwa
Jordan, I just wanted to start on leasing. And it's nice to see, I guess, the renewal activity pick up. But as you mentioned, you really need more new activity in order to drive net absorption and ultimately, occupancy. I'm just curious sort of if the pipeline is changing or what you think ultimately gets folks off the sidelines to sign new deals? And do you feel like the writer strike and actor strike is keeping any lid on that new activity?
Jordan L. Kaplan
I mean I can answer some of that. I'm going to let Stuart generally answer it.
Stuart McElhinney
Yes. I think very encouraged to see larger tenants on they're very active on the renewal side. So I think that's a really good sign. Hopefully, that translates over to kind of newbies soon, and we see more new tenants coming through of a larger size. I can't say yet that we've seen that in the pipeline.
So no real trend there to speak of yet. But we're encouraged by the renewal activity that we saw. I think as far as the rider strike and the active strike, I think that maybe on the margin, a tiny bit, I don't think it's going to be something that's real material for our business. We do a little bit of that type of leasing, but it's not a huge part of the business.
Stephen Thomas Sakwa
Okay. And then -- go ahead.
Stuart McElhinney
I was just going to mention, when we're talking about leasing, I was just going to mention that if you look at expirations for next quarter, Q3 expirations, they're elevated. We've got one very large tenant that is expiring next quarter. We're expecting that tenant to renew but give back a large amount of space. So I just wanted to kind of give you guys the heads up that that's coming next quarter. Expirations look more normal in Q4.
Stephen Thomas Sakwa
Okay. And then, Jordan, as it relates to Barrington, I know that there's been a lot of discussion with the insurance proceeds and what might be covered and not covered. Do you have any kind of update on the timeline as to kind of when you might have an idea of what percentage of the costs are covered by insurance and what is out of pocket from Douglas Emmett?
Jordan L. Kaplan
I mean, I wish I did. I don't. It's been very difficult with the insurance company, and we're going through it with them. We've obviously just started the work and said, well, we're starting it. We -- I mean I'm going to say, I mean, we feel it's covered, and we've had a -- it's been very complicated to work with them. And so I wish I had a better answer for you than that, but I don't. In terms of the -- something I wanted to mention, if I was asked about Barrington that I wanted to also get out was the impact of Barrington coming out of our earnings.
And while we don't want to give kind of some future guidance about it, I want to kind of give you some guardrails to make those estimates, so I can maybe do that now with you. And 2019 before the fire and the pandemic, Barrington was contributing about $0.09 to our FFO. And in 2022, following the fire and the pandemic, you've got to remember, we had some units burned out, a lot of issues. It dropped down and it was contributing about $0.07.
And this year, 2023, and this expectation now that we have the move-outs moving, we only expect the property to contribute about $0.04 to FFO. And I know that's been like a question we've been asked in the past, and we haven't really felt like it was time to answer it, but I wanted to give you guys this info because I think it's something you want to know.
I Know that wasn't the direct answer to what you asked.
Stephen Thomas Sakwa
What? I appreciate the color there. It sounds like we'll have to wait a few more quarters perhaps to get, I guess, to get a finalization on that. But yes, I'm good for now.
Operator
Our next question today will come from Alexander Goldfarb of Piper Sandler.
Alexander David Goldfarb
Jordan, maybe sticking with the Barrington, the other item has been the news articles about the tenant litigation and I'm guessing they're not suing being upset that you're trying to make the building safer and less fire prone. So I'm guessing this is more just trying for them to extract financial settlement. But maybe you could just provide an update of what you can discuss and if this is just a standard sort of shakedown or if this is something that the Citi could decide to hold -- pull your permits or your approvals to do this and if it could complicate your plans to make the building safer?
Jordan L. Kaplan
So this is not the -- this litigation is not really have anything to do with the Citi. This is a couple of tenants, and we're having trouble figuring out exactly who or how many that are -- I've engaged in this litigation. I can't speculate to what their purpose is. I know that -- I mean at least we believe that a few of them have already left the building.
But we don't have -- we don't really have a lot of answers. With that said, our position -- we're very confident in our position. It's very strong. And so litigation is always disruptive, but we're confident in our position, and that's kind of where I have to leave until this thing finishes playing out.
Alexander David Goldfarb
Okay. So your view is, though, as far as the Citi goes and this litigation from the tenants, I understand separate related but you don't think that they would be able to win over any of the Citi people who would to suspend your ability to undertake the work.
Jordan L. Kaplan
I don't want to -- I mean, I guess, in litigation, anything can happen. But as I said, I don't want to speculate too much about what can't and can happen in litigation. But as I said, I think our position is inordinately strong in terms of what we're doing and the processes that we're following and we're following the law perfectly.
Alexander David Goldfarb
Okay. The second question is on the mortgaging of landmark in Bishop Place, you guys have had a strong capital position. You said you built both of those with free cash flow. I don't recall you guys using a corporate line of credit that often. So just sort of curious, the use of the proceeds, the decision to encumber the assets and then I'm assuming this isn't just to buy back stock. So I'm guessing that maybe this is either to help fund the rehab of Barrington until you get the insurance proceeds or maybe start another apartment or residential conversion. So just sort of the thoughts behind the mortgaging of those 2 assets and then the use of the proceeds.
Jordan L. Kaplan
So to take the beginning of the question, which is that we felt like the kind of best least expensive debt we could get were on those 2 assets. And we think we did get the lease expenses that we get. I think $137 million over is very good debt, right? 10-year $137 million over. Now rates are high, and I understand that it's still punishing to pay the interest on that loan. But without making specific allocations, I could tell you, the reason we did it was because I thought it was really important to have a lot of liquidity.
I think that this recession is not substantially dissimilar from the one in the early '90s. And like everybody sitting around in 2000 or the dot-com bus thinking they're going to be grave dancing, taking advantage or the one in 2008 and '09. And really, no real product came out and the opportunities were more around buying debt, which isn't even a core business for us.
I think in this one, there might be some stuff that we'll want to buy. And obviously, I felt like the stock presented a good opportunity and we did buy stock. And so I just thought it was worth it to take the pain right now of paying the interest on that loan to have that in terms of our current earnings because I think there's going to be some good opportunities coming up. And I don't want to miss on. I want to take advantage of them.
Operator
Our next question will come from Blaine Heck of Wells Fargo.
Blaine Matthew Heck
Jordan, can you talk about the zoning changes that were made at the state level late last year that gave multifamily zoning to certain parcels on major thorough fares. I think you were expecting to get guidance on that in July. So any update there? And do you think it could result in more development opportunities for you guys in the next year or 2?
Jordan L. Kaplan
To answer the last part of your question first is I'm sure it will result in that. I mean we have sites that those state level changes, we know directly impact. I mean an impact in a way where I thought, "Oh, this is going to be a long process," and they completely shortcut it, okay? So I think we have many sites that will benefit from that. Now going to the beginning of your question, this thing is super complicated.
The Citi is not famous for moving fast, and we still have not gotten guidance. And here we sit. But you're right, I'm anxious to see the guidance. I'm anxious to make sure the guidance complies with what the state is requiring. And I do think -- I mean, we have the set of opportunities we always had that I felt we had, but to talk like in terms of zoning and what type of changes do you need to make to achieve what we want to see on the site.
I mean, with the things that the state passed are just very beneficial to us. But we need everybody to be rolling in the same direction, including the people that really sign off on our approvals to do the construction. That happens to the building and safety and in the Citi. And then those people need guidance, and the Citi hasn't developed and issued that.
Blaine Matthew Heck
All right. That's helpful. And then just switching gears, can you guys talk about the increase you're seeing in property insurance that affected your same-store projection this year. Just give some color on that situation? And maybe how long you expect that to be a headwind? And then if you could also touch on what you're seeing on the property tax side and whether you might be in for some breaks there in the future?
Jordan L. Kaplan
Okay. So in terms of the insurance in -- whatever it is, the 30 plus plus plus years, Ken and I have run this place. But we've seen insurance go up and down. It's one of those odd expenses that actually doesn't just trajectory up. I mean when the market is tight, it can spike way up and then maybe those insurance companies fall away, new ones come, they're aggressive, and you can see your rates cut, cut and cut for a number of years.
And we've seen both of those happen. Right now, what we're seeing, and I'm not sure it's totally peculiar to us, maybe some of it is, but I don't think it all is, is not at the lower level not at the level of like first loss positions. But at the very high levels, the reinsurers that reinsure up stratus for numbers that never expect to pay anything. I think not necessarily here in our portfolio, but across the country, they've been getting claims that they didn't expect, whether it be flood, fire and hurricane or whatever it is.
But they're getting claims whether at Florida all around that are penetrating into levels that they didn't expect to pay on. And so they've gone now a few years with that very high disaster insurance actually not being sort of a free being collecting a premium. As a result of that, what's impacting it because we have to buy a lot of insurance and what's -- and we have to be insured, like all the way up the line. And so that -- those higher levels of insurance have just become much more expensive. And that's what's impacting us.
Now the forms change, and things change and guys that have losses deal with them and then they shift back to focus on being profitable. So I'm not sure it will stay that way. But we've seen in the last 2 or 3 years, we've seen just monumental increases. And really, aside from that Barrington fire with virtually no claims, at least on our part. So I'm sure it'll eventually correct itself, but the increases are really stunning, okay?
So that's on the insurance. In terms of property taxes, there is an opportunity, especially with what's going on in the Citi right now to appeal, what's called proppant appeal on your property taxes if you feel that there's a period of time when the value of your property has dropped below where it's being taxed at that moment. It's still has a maximum tax equivalent to your Prop 13 number that grows by 2% a year, but you can appeal to have it reduced and then it'll be reduced, then when it goes back up, it goes back up.
And people do that appeal. That appeal is not necessarily perfectly connected to the third-party market value. It's a complicated formula they use where they lease up the entire building at the current rates and they have a different set of cap rates they use that eliminate the property taxes.
But with all of that said, there are opportunities there, and we're focused on them. I don't know that much will come out of it, but there are opportunities there, and we are focused on them.
Operator
And our next question is from Michael Griffin of Citi.
Michael Anderson Griffin
Maybe going back to the leasing pipeline, I'm curious what you're seeing is the cause of driving these longer lease terms that you mentioned in the release. Is there more certainty about space requirement needs, maybe a shifting of people's kind of view of the macro, anything else you could add on this would be helpful.
Stuart McElhinney
Yes, Michael, I think that kind of during the pandemic, we saw tenants have a shorter-term mentality, which is understandable. There was a lot more uncertainty in the market then and so terms shortened up.
And so I think now we're certainly pleased to see that the average lease terms have gone back to 5 years, which is our historical average, kind of pre-pandemic average and what we did this quarter. So I think that tells you that tenants are starting to feel more confident and more willing to go to a term rather than just kicked out the can down the road for a year or 2. So that should help kind of normalize this lease expiration schedule we've had that's been a little chunkier earlier in the process than we're used to. So that's a good sign.
Jordan L. Kaplan
I have to -- as I mentioned, I mean, that 1 million square feet that were done last quarter, I am beyond about that. And of course, I wish it was more new in that. But once again, we're getting a ton of evidence of the strength of this market and the strength of the activity that's out there. And while our existing larger tenants are renewing and renewing for longer, which is a great sign, certainly the next step for us is to get bigger tenants to come into some of this space, but the activity is fantastic.
I mean, if you look at doing 1 million feet and you look at our history, that's a great quarter and holding rate and holding lease cost. So I really had the thought that -- and I know many people did mention their notes, but I would put it in like double bold capitals in the top of my notes. But I just thought that was a really big point.
Michael Anderson Griffin
Great. That's helpful. And just on the transaction market and opportunity you're seeing out there. Are there opportunities for office, small (inaudible). I mean I know you've got ample dry powder. You've kind of talked about it. But where, if anything, are you seeing transaction activity across both of your property types?
Jordan L. Kaplan
I'm not seeing a lot of transactions in general. And I will tell you, it's not for lack of looking. We actually have called all -- we always call our vendors during time like this to tell them that we're the best debt in their portfolio and don't worry.
But we have been asking all of them. Do you have anything we can focus on that's in any of our markets that is wobbly, it's on your watch list, I mean, it doesn't even have to be all the way down the line in terms of being in trouble. And so far, I am -- I haven't heard anything. So that's on that side.
Now I do think the pandemic combined with whatever is happening now, which is certainly targeting real estate in terms of -- if you want to talk about maybe the country is not in a recession, but real estate is. I think that is going to maybe not generate opportunities that are related to someone necessarily debt, but I think people are going to finally do some things.
If I was to guess where the best opportunities will be, it's going to be an office. I think resi is still relatively strong. You saw our numbers are very strong in these markets. But I think some office guys are hopefully just running out of breath. And that's where I am most hopeful.
Operator
Our next question today is from John Kim of BMO.
John P. Kim
There's been seemingly some strong interest from global investors in multifamily and prime office. I'm wondering if you can comment on that as it pertains to your portfolio, both for West L.A. office. And if you had considered going that route, the JV routes on multifamily?
Jordan L. Kaplan
Yes. And we did on our last purchase. And yes, we do. Yes. So I like the JV structure. Even when we have a lot of cash, I think it's smart to do the JV structure because they're great partners. And you want to -- if you don't keep coming up with good product that we're willing to do that is their primary criteria, frankly, then you're going to lose your attention. And so I think the platform itself has value and the fact that they've been coming into our deals, my intention would be to continue to do high-quality institutional deals that are appealing to them and to us.
John P. Kim
Are you seeing that same level of interest in West L.A. office, we see it in New York in a couple of occasions, but just wanted to know about your region.
Jordan L. Kaplan
We have not had an opportunity to present any -- I mean, we did 1 large deal, which you saw us do last year, yes, last year. That was a little over $300 million, and there was a lot of interest in that. We did that liquidity split with a partner. And -- but that was residential, I haven't had an opportunity to offer an office deal, though I think that if we found a great office deal, we'd have their attention, but I don't know that answer. I haven't had an opportunity to offer it.
John P. Kim
Okay. My second question is on bad debt or uncollectible revenue, lease revenue. Can you comment on what that was in your multifamily and office portfolio this quarter and how that's trended from last quarter?
Peter D. Seymour
Yes, this is Peter. So our total past due balance just continues to decline. And we've been working on this now for some time and it keeps going down. It's somewhere under $17 million all told. And we're continuing our collection efforts. We're continuing to pursue tenants who owe us money. And we have a pretty high confidence we're going to get it back.
Operator
Our next question today will come from Camille Bonnel of Bank of America.
Jing Xian Tan Bonnel
To ask an earlier question in another way, as the recurring theme these past few months have been around preserving liquidity, which has been reflected in your actions to rightsize your dividend is when you're evaluating the best sources of capital, how do you balance deleveraging versus buybacks? Because I think everyone recognizes earnings will be under pressure given the current environment. So instead of taking out that loan, could you have used the additional liquidity to address your needs?
Jordan L. Kaplan
Well, for a number of reasons, I'm happy to say right now, I don't feel we have any need to reduce our debt level. Our debt level is pretty low right now. So just as a reminder, we have a -- beyond everything, beyond the dividend, beyond our debt service, beyond our operating cost of the company, which we keep very low anyway. We have a tremendous amount of cash flow. So that's in terms of just the question about covering payments and covering the fact that interest rates have gone up and all the rest of it. Then in terms of repayment, almost half of our office portfolio doesn't even have a loan on it.
We have no corporate level debt. We have a ton of extremely high-class buildings with no debt on them at all. You just happen to see 2 residential deals that didn't have any debt. We have a lot -- so we have an enormous amount of capacity to delever by adding real estate to cover. We have a lot of cash and also to cover to pay down. We have -- I mean we have every tool in the shed in terms of debt, and we don't even have any meaningful debt coming up until the end of next year, and we really don't have any meaningful debt coming up until 2025.
So while we've always taken a posture in regard of the company, and I know that this is -- can say my fourth -- I want to call it our fourth recession. So we've learned many lessons through that. And of course, we entered this recession, and we entered even the pandemic in extremely strong shape, and that's played out. So I don't feel we have any issues there, but the other lessons I learned is don't waste these opportunities to grow the company because that growth is super meaningful, and I'm not going to waste it and that's why I wanted to have to take advantage of things, and we have it, and it's my intention to do that.
Jing Xian Tan Bonnel
And as my follow-up -- I appreciate your comments there. Jordan. I was just running some with math and the updated interest expense guidance seems to be $5 million to $10 million higher than what's implied in the SOFR curve and the new residential loan. So just wondering if you could help us bridge the gap here.
Jordan L. Kaplan
I can't do the math you're doing. I think it is the cause of that -- those 2 things. I'm almost 100% sure it's a cause of those 2 things. But you can give Peter a call and try...
Peter D. Seymour
Yes. We can walk through that.
Jordan L. Kaplan
You could try and understand what you're doing and compare it to whatever is there.
Operator
Our next question will come from Dylan Burzinski of Green Street.
Dylan Robert Burzinski
I guess sort of going back to the capital allocation question that was just asked, asking it a little bit differently in terms of -- I guess, how do you guys weigh share buybacks versus being opportunistic on the acquisitions front? Is it simply just some spread to your implied cap rate? Or just what does that internal process look like?
Jordan L. Kaplan
It's not that. We're -- in general, if you said what's our inclination. Our inclination is to buy great buildings. I mean, they sustain us for the long term. I am very confident that their earnings growth. We've experienced earnings growth for the last 35 years. And in a way this market's matured. And I love owning high-quality buildings and the concentration here in these markets.
But sometimes, it just becomes impossible to ignore the opportunity in the stock, but I don't want to just buy back stock and miss the opportunity to buy buildings. So we're just always balancing those 2 things.
Dylan Robert Burzinski
That's helpful. And I guess just one other one going back to Barrington Plaza. Are you guys able to share any yield on cost expectations at this point in time?
Jordan L. Kaplan
Not really. I mean, that's a long way out. What we're focused on right now is just getting this building to the standard that we have in all our other buildings of safety of having these fire sprinklers in and getting all the firelight safety stuff done. I mean 2 fires in this building is just way more than we can stomach. And that is something that just career wise, we had to just get resolved, and we are now resolving it. And that's why I mentioned in my prepared remarks, I'm so happy that we're finally kind of firmly on this road to getting this done.
Operator
(Operator Instructions) Our next question will come from Bill Crow of Raymond James.
William Andrew Crow
Jordan, is it fair -- and I'm sorry to ask another capital allocation question. But is it fair to assume that your decisions, including taking on more debt and maybe share repurchases in perspective, new investments, et cetera, are done against a backdrop that you assume that Warner Brothers discovery does not renew in the next year?
Jordan L. Kaplan
Yes. We assume they're not renewing. That's correct.
William Andrew Crow
Yes. Okay. So you do that test against that. Okay. And then just a couple of real quick ones. Barrington Plaza, do you have business interruption insurance in addition to the actual physical cost of repairing the building?
Jordan L. Kaplan
Yes.
William Andrew Crow
Okay. So the $0.04 this year might be recouped. And then finally, any comments on the way to statewide rent control ballot and any initial reactions to the end of the debt or the moratorium related to COVID?
Jordan L. Kaplan
Okay. So obviously, the ballot is unfortunate, it's driven by one guy and the (inaudible) and it's just one more thing that we have to fight and our group will fight it. It is proposed times in the past, it's unpopular and it's been fondly basin, but you never know every time nobody likes to be attacked. In terms of the moratorium ending for the sort of the first half of the rent relief on apartments. I'm not sure that's super impactful on us. We don't have a lot of -- we don't have a lot of -- we don't have a lot to do from apartment. We have some, not a ton. So what they do with that, I'm not sure you guys are going to see a meaningful impact to us.
Operator
Our next question is a follow-up from Blaine Heck of Wells Fargo.
Blaine Matthew Heck
Great. Just wanted to circle back. Stuart, you mentioned a large tenant getting back some space in the third quarter. Can you give any more detail there around where it is, how much is giving back and the reason they might be moving?
Stuart McElhinney
Yes. We don't like to talk about individual tenants too specifically. As you know, we're kind of a flow business, but this was noteworthy because it's large and you guys are likely to see the impact in the numbers next quarter. So it's a tenant in Woodland Hills. They are renewing, but downsizing, which we're happy to have them stay in a portion of the space, but they wanted to give back to them what they had.
So not much to say beyond that, not an atypical situation. But I wanted to mention it because it's likely to be noticeable.
Operator
At this time, we will conclude our question-and-answer session. I'd like to turn the conference back over to Jordan Kaplan for any closing remarks.
Jordan L. Kaplan
Thank you all for joining us, and we will speak to you again next quarter.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
