Q1 2024 Douglas Emmett Inc Earnings Call

Participants

Stuart McElhinney; Investor Relations Officer; Douglas Emmett Inc

Jordan Kaplan; President, Chief Executive Officer, Director; Douglas Emmett Inc

Kevin Crummy; Chief Investment Officer; Douglas Emmett Inc

Peter Seymour; Chief Financial Officer; Douglas Emmett Inc

Steve Sakwa; Analyst; Evercore

Anthony Paolone; Analyst; JP Morgan

Alexander Goldfarb; Analyst; Piper Sandler

Michael Griffin; Analyst; Citi

Richard Anderson; Analyst; Wedbush

Peter Abramowitz; Analyst; Jefferies

Dylan Burzinski; Analyst; Green Street

Upal Rana; Analyst; KeyBanc Capital Markets

Presentation

Operator

Thank you for standing by, and 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 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.

Jordan Kaplan

Good morning and thank you for joining us. During the first quarter, we leased 1.2 million square feet of office space, which includes renewing a 250,000 square foot lease with WME through 2037.
Even excluding that lease, we still did 950,000 square feet of leasing. New leasing was just over 200,000 square feet, still not quite enough to drive positive absorption. As we said in February, we are not assuming a significant increase in new leasing demand this year. However, our strong renewal rate tells us that our existing tenants, especially the smaller tenants on which we have built our portfolio, are not reducing their space needs.
Despite challenges and new large tenant demand, our office leasing economics continue to perform well and leasing concessions remain low. We are still signing leases that are more valuable than the prior lease for the same space, with straight-line roll-up this quarter over 23%. While that number benefited from the WME lease, even excluding that lease, we achieved straight-line roll-up of over 11%.
As we mentioned before our average leasing costs, since the pandemic, have actually been lower than our prior long-term average and remain below that of other office suites. We are well positioned to navigate this downturn and emerge stronger in the next growth cycle. I am confident in the long-term performance of our portfolio as our markets have excellent supply constraints and diversified demand from high-growth industries.
With that, I'll turn the call over to Kevin.

Kevin Crummy

Thanks, Jordan, and good morning, everyone. Now that we have stabilized our landmark LA residential development and are waiting for the expiration of office leases to finish the final two floors at our office to residential conversion in Honolulu, we have shifted our focus to the fire life safety upgrades at Barrington Plaza office sale transactions remained slow in our markets. However, we are starting to see some sales in surrounding markets and hope that similar opportunities will soon come available in our markets. We remain ready to pursue acquisitions that fit into our strategy.
With that, I will turn the call over to Stuart.

Stuart McElhinney

Thanks, Kevin.
Good morning, everyone. During the first quarter, we signed 214 office leases covering 1.2 million square feet, including 202,000 square feet of new leases and 987,000 square feet of renewal leases. This was the second highest quarter of renewal activity in our history. As Jordan mentioned, office rental rates remained strong despite the challenges in new large tenant demand. This quarter, we achieved a 23.8% increase in the value of signed leases. Our in-place office rent per square foot is now the highest in our history. Our high fixed annual rent increases mathematically lower our cash leasing spreads. Though the WAVE lease signed this quarter lifted our average cash spread to a positive 1.9%, even excluding the impact of the WME lease straight-line spreads this quarter were positive 11.6%. Our total leasing cost during the first quarter averaged $6.11 per square foot per year, slightly above our recent average due to some larger renewals. Leasing costs on new leases were only $5.64 per square foot per year below even our recent trend and well below the average of other office rates. Our residential portfolio remains essentially fully leased at 98.9% and is generating healthy rent roll-ups.
With that, I'll turn the call over to Peter to discuss our results.

Peter Seymour

Thanks, Stuart. Good morning, everyone. Reviewing our results compare to the first quarter of 2023, revenue decreased by 2.9% as increased revenue from new residential units. Higher in-place office rents and increased parking revenue were more than offset by lower office occupancy, lower tenant recoveries and the removal of Barrington Plaza apartments from the rental market, FFO decreased by 8.7% to $0.45 per share, primarily as a result of higher interest expense and lower revenues, partially offset by lower operating expenses. Affo decreased 8.2% to $74.7 million and same-property cash NOI increased by 0.7%, reflecting lower expenses, including some property tax refunds our G&A remains very low relative to our benchmark group at only 4.7% of revenue.
Turning to guidance, first quarter FFO per share was above expectations due to lower operating expenses, and we expect straight-line revenue to be higher during the balance of the year. Nevertheless, we have left FFO guidance for the year, unchanged because we expect the operating expense savings and higher straight-line revenue to be offset by higher interest expense. As a result, guidance for full year FFO remains between $1.64 and $1.70 per share for information on assumptions underlying our guidance, please refer to the schedule and 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

We will now begin the question-and-answer session. (Operator Instructions)
Steve Sakwa, Evercore.

Steve Sakwa

Yes, thanks. I guess good morning out there still Jordan. I know given the small nature of the tenancy, it's hard to really discuss much of a pipeline because it's a little bit more like apartment leasing. It happens pretty quickly but can you maybe just talk about kind of what you're seeing in the marketplace and what are some of the upcoming plans and tours looking like for re-tenanting, the Warner Brothers had known vacancy up in the third quarter.

Jordan Kaplan

Thanks.
Okay. So sorry about the delay. We had trouble getting on the website, but on that.
Yes. So in turn, I'll take them in reverse in terms of Studio Plaza, you know, they move out in two quarters and we're going to probably do some work to the building and we are having showings and we're working on releasing it. And my hope is that we re-lease it to a multitude of tenants, not a single tenant so that it's no longer kind of hanging over us away. But no, it's a great building and I'm confident we will be set up.
In terms of the leasing pipeline. I don't know whether that's a that's a tough one because the small tenant leasing pipeline is better than strong. I mean, it's great that we did nine to just leave out the large lease that we did, 950,000 square feet. It's just a fantastic amount of leasing, but it's really being driven by our small guys who are doing a lot of and renewing and even new deals. But because of some larger ones. We're just not getting the third of new because when a large one moves out, we're not getting the one-third of new that we need to make gains and that's what's happening. And, you know, in terms of taking temperatures, I can tell you large tenants are very cautious regardless of whether you believe we're in a recession going into recession or it's simply because the cost of capital and new investment has become so high that they're just some improving earnings by shrinking their expenses as opposed to driving for new business or creating new revenue.

Steve Sakwa

Okay. Thanks. And then maybe the follow-up question. I don't know, Stuart or Peter, if you think about kind of where guidance is and you look at what you did in the first quarter, it kind of implies something like a $0.41 plus or minus quarterly run rate moving forward. I realize there's a little bit of seasonality in expenses. But as you think about the cadence of FFO over the next couple of quarters and really the exit rate, kind of how do you think about sort of where we'll be at the fourth quarter moving into 25?

Peter Seymour

Yes. I mean it's Peter, Steve. So look, I mean, you're asking for quarterly guidance. We don't really give quarterly guidance. But you know that there are a number of factors that affect us in the tail end of the year. The studio Plaza we mentioned, so they move out, right? So that's and that's a negative in the last quarter. And then of course, Barrington Plaza is the other factor. So you see a couple of those. We also see we as you saw we raised our interest expense guidance and that reflects expectations that interest is going to be higher over the remainder of the year. So I think that can give you a sense of where we're ended.

Steve Sakwa

Great, thanks.

Operator

Anthony Paolone, JPMorgan.

Anthony Paolone

Please go ahead. Yes, thanks. And I know this maybe sounds like quarterly guidance, but just thinking about your occupancy because you kept the range the same for the year, but you also talked about just the retention coming in stronger. So any thoughts on like when that drops or if there's a part of that range that you feel a bit more comfortable with at this point? Or has anything changed there?

Jordan Kaplan

Well, I think we're pretty comfortable at the middle of the range. But you know, that's why we gave a range. The I'll tell you I don't want to say this because we're in the middle of the year, but I'd always thought this was the year to hit the trough, but I'm still now maybe probably because I'm still a little surprised that inflation backed up. But then I was surprised that we had lower than expected, you know, new hiring that just came out. So I you know, I don't think we have you probably even a better information than we have because I really do feel like we're floating on the larger national economic trends. I mean everything that's impacting us. And I said four point, which is that we're not really impacted by we're not getting hit with work-from-home. We're not getting hit with, you know, over supply of buildings. And therefore, we're just said you're going to take a long time to absorb that but that that new space and old space and all the rest of it, we just have one simple thing happening, which is in this economy, large tenants or might be scaling back and they're not saying they're not taking lease. I can't believe they could. They can't stay that way. I mean, I know they have to be in business and make money shut. So we're just waiting for people to have confidence in the economy and the cost of putting out new capital be good. And then you'll go then I think you'll say all right. We've hit a bottom the bottom we're climbing out because everything else about the come. We're working like crazy to control expenses. We're actually doing a lot of leasing there's activity in our market. There's nothing about our market that's fat. Actually, most of our market is good and people are in the office in terms of utilization. It's basically like fall. I mean, maybe Fridays a little late, but a little light, but that's yet. So I can't see anything else. So I think it all gets down to all of ours prediction about the national economy climb, encouraging large new investment again, which is the opposite of what the Fed is trying to encourage.

Anthony Paolone

Okay, thanks. And then just my other question is can you comment on just any sort of capital markets activity you're seeing or investment sales in your market and maybe where values may be? And also just your own desire to put any capital out right now?

Kevin Crummy

Hey, Anthony, it's Kevin. Look, downtown is absorbing all the headlines right now. And so there is activity, as I mentioned in my remarks, in the surrounding markets. We haven't really seen that much activity in our markets with properties that fit our investment objectives, but we definitely are interested in them putting some capital in this market because we think that there are going to be some really incredible buying opportunities as most people are shutting office. And we're very, very confident that the office market here as based on the fundamental supply and demand. We're very confident in the long term that we're going to do well. And we want to buy as many office buildings as we can at good pricing.

Anthony Paolone

Okay, thanks.

Operator

Alexander Goldfarb, Piper Sandler.

Alexander Goldfarb

Hey, good morning out there. Jordan, just going back to Steve Sock was a question on the on the tenants and the larger tenants. And given that you've described LA and certainly the west side is not oversupplied or work-from-home issues. Is this a matter where the larger tenants are choosing to grow elsewhere, meaning that as these companies are restaffing and, you know, contending whatever they're emphasizing other office markets versus their LA outpost, just trying to understand because to your point, it's not like you know, your tenants are huge, 500,000 square foot square footers that where you're talking tens, 20s, 30s, millions of dollars of investment. The tenant, the investment is still small. So just trying to get better color into the mindset of these larger tenants of yours could certainly they're smaller compared to your bigger CBD brethren and I that's a good question.

Jordan Kaplan

Actually an asset I I do not think our problem is one of tenants choosing to relocate not only out of out of West LA or out of L.A., but out of state, which I guess is kind of the gist of what you're saying. And I'll admit I'm not happy a happy about the some of the population statistics for California and movement that's happened. But I don't think that's actually happening in our markets. And we are not seeing tenants say great, knowing you now we're leaving, we're just say, seeing them say we're doing layoffs and we don't need this space now. And I don't think they're going to never hire people again or or never need the space again, I just don't think they need it right now. And a lot of that you see that coming from tech companies, which you're hearing, I mean, the people that drives a lot of that large tenants face even larger than what where we use our tech companies. Entertainment companies like the research guys are still taking large amounts of space. And I don't think they're saying we're abandoning California rebranding, L.A. I think they're just literally laying people off and saying we're taking less space and cutting our costs.

Alexander Goldfarb

Okay. So And second question is as you look at your peers, your landlord peers, are you seeing tangible signs where you I mean, I have to believe that given your balance sheet capital position that there's some financially stressed landlords or maybe institutional landlord to one out of the business where you guys would be able to win because you're willing to invest in the asset, you know, fund the commission T, I would have you are you seeing tangible signs that that's the case or not, really, I would just think that that would play to your advantage, but maybe it is and maybe that's why you know, 70 bps down is the negative absorption not more. I'm just trying to get a sense for how your capital position up.

Jordan Kaplan

Yes. I will say Harley's saying, I definitely think I think that there are landlords that have vacancy that where the decision about where they retain the building is not just a decision around you know, I have a loan coming up or maybe I'm over-leveraged or maybe they're not even over-leverage, but it's also a decision about the work and maybe even suffering and capital expense that they're going to have to go through to lease up a building. And they might be saying, boy, we don't even have the people there to do this anymore. And that's a battle. We just don't want to own right now in terms of like dedication of expertise and all the risks that and that that probably will create most of the opportunities that we'll see. I don't I think there might be a tiny amount of over-leveraged opportunities. I think most of the rest of them will revolve around people just being burnt out and not wanting to carry the load, the operating load of leasing up a building where they've let the occupancy slide a lot through in attention or have just distraction.

Alexander Goldfarb

Okay. Thank you.

Operator

Michael Griffin, Citi.

Michael Griffin

And I wanted to go back to the commentary on the large space takers. Have been hesitant to kind of commit to leases. Should we interpret that as meaning there's going to be continued negative net absorption later this year? And is it possible that you would look to cut up that space for some of your smaller guys?

Jordan Kaplan

Or would you rather wait for large tenants to come back? So maybe you could charge higher rents while the absorption or whatever it is in our guidance of what we think this year. But in terms of cutting up space, we're super fast to cut up space because we leased to small tenants very fast now being fast to cut up space is like talking to a guy that wants to run a 10 K go. I'm going to run a marathon fast I mean, it's just a much longer process. So when we but we don't hang out if you get a floor back, you don't think there's a good tenant for that floor.
Or we cut it up and we lease it out and it probably won't because we have such a and that takes a very large and focused and just take a great amount of expertise to be able to do that. And so that's been one of our kind of superpowers is that we can quickly cut up space and we have them who both have a construction company and the expertise to breakup space put in spaces that are very appealing to the market to take that as is and we're able to then lease it like that very quickly. And that is to a great extent. I know it doesn't feel like it made a giant difference for us because where we've lost one and two four tenants we have gotten in and dealt with it and we've leased them up. That's why we're just getting like little loss around the edges. We're not getting colossal losses. So that's probably that it has been a very big deal. And it kind of relates back to the last question, which is why I think there's people that have had some large tenants move out of their buildings and they're saying that which might be good buildings for small tenants, but they're saying themselves.
Oh, my God, I mean, step one for me is I got to have higher architect. I got to hire space planners have got a higher contractor. I got to go through the city with plans, and I got to turn this into a multi-tenant fund like this, like I don't want to deal with it, and that's before even of a lease. So that might create opportunities for us.

Michael Griffin

And it is something that I'm positive or the best in this market at Jordan, how many of those large leases do you need to do in a quarter to really move the needle? And then how many are you doing?

Jordan Kaplan

Actually on a quarterly basis, we need to do three or four and we're doing one and by the way, largest like over 10,000 feet, it doesn't have to be a big 10 to 30,000 foot leases that we should do like for a week or so. We just need to get a couple of more back Got you.

Michael Griffin

And then I was curious if you could give a little more color on the WME lease on anything on concessions, why offer the early termination?
Right. And then Stuart, I think you gave the GAAP rent spreads ex the William Morris lease, but can you give us the cash rent spreads Textilease?

Jordan Kaplan

You want to finance our questions to your? Yes, I think that too. So taking an order, the congestions in the lease very reasonable service, essentially especially considering a tenant of this size and there they were larger than our average small tenant concession, as you expect, but very reasonable TI.'s on that deal. Very importantly, they renewed all of their space. We've made that point that and give us back any they took the full amount of space that they had, they extended it out 10 years out to 2037 of the straight-line roll-up without them in was 11.6 I gave that I don't have the cash roll-up number in front of me. Excluding March, it was it was slightly negative and it was better than the prior quarter. I remember that, but I don't have the exact figure in front of me, so sounds good.

Michael Griffin

That's it for me. Thanks for the time.

Operator

Rich Anderson, Wedbush.

Richard Anderson

Please go ahead. Thanks, everyone. So back to Warner Brothers JORDAN, you said, gee, I hope it's not a single tenant again, but why even let that into the process? Why not sort of driving this is break up the building that you just described. You're good at and take out that bulky situation out of out of the future for yourselves. So what why why are you even entertaining a full building release there or maybe you're not. I just didn't understand that.

Jordan Kaplan

You know, I know that you should know better that we're in the real estate business, you know it. That makes us right. So that's right. I've felt that it comes.
Do you have that kind of risk resistance? I don't know that we have that in U.S. That's why I say I hope instead of I insist, I never doubt probably then built into our nature that when we have a deal we know we can make it and that's going to get done. We're probably going to do that deal and get that dealt with. But, you know, we might eke, but I will say in reverse which is that we are much faster than I think anyone else with a building like this, we'd say I need to get another big tenant for it and we don't do that we will start doing deals a couple of floors here and there and we'll just start leasing it up. So that's that I think in the end, that is the best way to run it as an outstanding building. It's the best way to run the building. One building a spectacularly located we have amazing sign is we can offer it as a huge amenity space, exactly what people are looking for. So I'm very confident in the success of the building. And and that's that's probably the reason why there's a a chance that one tenant would come and trying to take it. But as I said, you know, my hope is that we don't have to face that. And what happens is we get a six, seven eight tenants, and that's where we lease it up, and then we no longer have a this kind of event risk.

Richard Anderson

Okay. Second question, just looking at the same-store stats on slide 9 and multi-family revenues were exactly the same in both periods through 35,000,006 72. First of all, make sure that that type of second, what flattened out revenue was at Barrington Impax. Was there something else? Just curious if there's anything one-time-ish in the multifamily performance?

Jordan Kaplan

Yes. I mean, they're there they're looking at it. I mean, I think multifamily revenues going up and Barrington is going down. And all you're saying is that's kind of been saying that those are the exact same weather variances.
So here in Burlington is not in there. That's okay.
Yes.

Peter Seymour

Look, we're always going to have some variability quarter to quarter on revenues and not in this case, there's nothing.

Jordan Kaplan

Yes, no, I know there's nothing, nothing variability because it's the same number.

Stuart McElhinney

I guess there's a lot of opinions.

Jordan Kaplan

Yes.
Okay. Let's triple quadruple check that that's not the type of. But I don't think you should get a lot of accounts to look at this thing before it goes out right now.

Peter Seymour

We've looked at it several times multiple targets.

Stuart McElhinney

Now I that enough and then what explains the flatness. And if we assume it's the right number, I mean it's that many quarters.

Jordan Kaplan

Yes.

Peter Seymour

I mean, like you have your rent increases and you have some changes in occupancy in different different different buildings. And that's I don't think there's anything going on.

Jordan Kaplan

I don't think I think it's pretty hard if there's a meaningful increase or decrease, you can look at some costs forward if there's a lot of ups and downs and they have landed the same number that's harder to explain. I know we don't have an explanation here for it.

Stuart McElhinney

I just think in your multifamily product as well with different a little bit more predictable and so on. So it just occurred to me, but I'll leave it at that.

Richard Anderson

Thank you very much.

Operator

Peter Abramowitz, Jefferies.

Peter Abramowitz

But you I'm just wondering if you could kind of comment on on the pockets of demand you're seeing within the different submarkets?
I think Boston Properties I mentioned on their call, Century City looking a lot stronger than Santa Monica and other parts of West L.A. So just that just curious if you could provide some context in your own thoughts on that.

Stuart McElhinney

Yes. I think that lines up with what we saw in the quarter as well. We made some gains in Century City. Century City has definitely, as we've discussed before, been the beneficiary of some tenants that have less downtown L.A. These are generally very large tenants. So the large tenant demand in Century City has served that market well and our buildings are doing quite well there as well. Other than that, I'd say we're seeing we're continuing to see, as Jordan said, not quite enough new leasing, so go positive in the rest of our markets.

Peter Abramowitz

Got it. That's helpful. And then I guess just to follow up on that if there's any kind of spillover from Century City and I think you guys have done a pretty pretty filled up there.

Stuart McElhinney

Where's it going I guess where are those tenants prioritizing, they can't find what they need and centricity.

Peter Abramowitz

The natural alternatives are Beverly Hills and that Wilshire Westwood corridor is where I would expect they go. But I can't give you an exact answer.
Got it. That's all from me.
Thanks.

Operator

Dylan Burzinski, Green Street.

Dylan Burzinski

Yes, thanks for taking the question. Just going back to the property taxes. I mean, is there is it your sense that you can continue to see relief on this front as you get through the remainder of the year and into 2025? And then I know several quarters ago, you guys flagged higher insurance costs as being a potential headwind. Just curious sort of if you guys have worked your way through that or if you guys sort of envision that potentially coming up and being a risk to expense growth in the near future?

Jordan Kaplan

Well, in terms of property taxes. The simple answer to your question is I fake that it's likely that we will be able to file appeals and get adjustments. Now the impact is years away. I mean, when you do that, it takes them years to even if they accepted, even if they're not going to be a meaningful way challenge that it can be years before you get the refund because you have to keep paying on the old number. So there so that when we get refunds that are complete, they're very disjointed from when the original appeal went in. But of course, it seems like the assessor roles right now are overstating the value of many buildings, although they're probably opening as much trouble figuring out the value of the buildings as well as anybody has them that was your friend. What was your what was the second, what was your second question?
Just to add, I don't think you get a lag indicator?
Yes, yes. So we had some dramatic increases in churn in insurance. I still think there are increases in insurance. They're probably not as bad as they were for the last couple of years, but the insurance industry is going through a lot right now on many fronts, not just on in terms of insurance, property claims, but liability claims and all the rest of it, and it's causing us to do have to really have to work hard to keep those costs in line, although I'd say in general, we think we're able to do it, including making adjustments, policies, taking some of the early risk and stuff like that because we're pretty good at controlling controlling our costs and clients are very good at it actually. But because of things that are happening all around the world, we're caught up in just increases. And so no, I don't think it's as bad as it was the last couple of years.
That's helpful.

Dylan Burzinski

And then maybe just a quick one on parking. You guys are still below pre-COVID levels. Is this sort of the run rate that we should expect until you guys are able to drive further occupancy and office? Or is there some other potential upside to parking income even absent additional occupancy gains?

Jordan Kaplan

Okay. So I actually think parking income is up relative to occupancy. And all that's left is to get high to get higher occupancy to increase parking. So even more accurately, I think that's all we have left as a way to get back to those and above because we've already probably exceeded for the level occupancy we're at now, we've added X or Y, you know, rates are up.

Dylan Burzinski

I'm sorry, I cut out that you thought you said rates are up on parking?

Jordan Kaplan

Yes. So so for the level of occupancy we're at now, rates are actually up set set. So probably all we have left is to lease more space. And then if you're just comparing this to the gross number to the gross number before, that's all that's left is to lease more space and that more people come into balance because there's not it not like I mean, we can continue to make great gains and overcome it that way. But the easiest way, just to finish you get a leasing backup.

Dylan Burzinski

Makes sense.
Thanks.

Operator

Upal Rana, KeyBanc Capital Markets.

Upal Rana

Great. Thanks for taking my question.
So you have about three swaps expiring this year with about billion dollars total. Is it still your expectation to let those loans float?
Or has that changed and I'd like sort of a follow up.
What were your bomb?
How many rate cuts that you had priced in the beginning of your initial guidance versus where you are today?
I-many rate cuts?

Peter Seymour

Yes, in terms of our assumptions changed from our first Internet TME. rate increases and the returns that we increased, what we expect the rate to be though, as you're looking at the forward curve, I mean, basically, when we do our interest guidance, I mean, like it's obviously people have different points of view on what's going to happen over the rest of the year. We just use the so for curve at the forward curve at the time that we're putting our guidance together. And that's that's essentially what we used. So yes, obviously, the curve is expecting and rates to stay higher for longer.

Upal Rana

Thanks.
Right.
Yes.

Operator

Alexander Goldfarb, Piper Sandler.

Alexander Goldfarb

Hey, I am still Alex Goldfarb, but Alex Gore for us is wants to ask a follow-up question on Stuart, maybe you said this in the in scattered about the responses you guys spoke about insurance. You spoke about real estate taxes, but what were the items that were below your expectations in OpEx in the first quarter? Were those the two items or those were just referencing other trends. Just trying to break out and then why you think that the savings in the first quarter won't won't continue on.
Yes.

Peter Seymour

I mean it's Peter, Alex, Hey, Peter, I am my name hasn't changed.
Yes.
So I mean, we talked about the tax refunds that was a portion of the of the up in this quarter on the other savings. I mean, there were a bunch of different categories and some of it was really timing and may come back later in the year. Some are hard to say and we're controlling expenses pretty closely. But I if you factor in that there are some things that it's just a timing difference and that's that's in our in our guidance for the year.

Alexander Goldfarb

But Peter, on that front, your renewal leasing activity is pretty healthy. It's the new that's the issue. So it doesn't sound like the hesitancy to change guidance is based on the leasing because that market sort of is what it is. But it sounds like you guys have some potential operating savings that maybe you're hesitant to really commit to at this point it almost sounds that way. Is that is that a fair way? It sounds like there could be further cleanup.

Peter Seymour

I guess the biggest factor is the increase in interest expense rise that outweighs all the good things that we've talked about. And so yes, we have we increased our straight line guidance. And yes, we saw some expense savings, but we're also anticipating pretty steep increases in the interest expense as you see in the change in our assumptions.
Right.

Alexander Goldfarb

But let me ask you this, but let me ask you this, Peter.
Yes, I mean, we certainly know what interest rates are going to be, if you assume flat. So my question is if you achieved the same level of operating savings in the first quarter through the balance of the year. Would that put you through? Would that make you at the high end of guidance exceed the top end?
All else equal?

Peter Seymour

It depends on where the savings are. And so it's not all the expense savings. It's because we're consolidating a bunch of JVs.
Yes, it gets relatively complicated. But yes, obviously, if we if we were able to maintain savings through the rest of the year?
We would give different guidance range, probably well.

Jordan Kaplan

Okay. There's savings there. Syndication property taxes, which you mention there's some timing savings and there's some permanent savings, but the but the interest costs overwhelmed it here. And so or if all you're saying is if you just didn't have any interest costs than we'd have savings.
That's correct.

Steve Sakwa

No, I didn't mean that, Jordan. I just spent a lot of money on it.

Stuart McElhinney

Andrew Bosco.

Jordan Kaplan

Okay. Cool.

Steve Sakwa

Listen, thank you.

Jordan Kaplan

Thanks, Alan.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Jordan Cashland for any closing remarks.

Jordan Kaplan

Okay. Well, thank you for joining us and sorry about the delay at the beginning, and I'm sure we'll be speaking to most of you individually later, Vacon.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.