Digital Realty Trust, Inc. (DLR) Earnings Call Transcript & Summary

Good afternoon, everyone. I am Bill Stein, CEO of Digital Realty and Nareit's 2020 Chair. Welcome to REITworld 2020. I want to thank all of you for attending this year's virtual event and I also want to recognize our sponsors who help make this event possible, especially our platinum sponsors, Barclays and Stifel. This year's REITworld is taking place in the 60th anniversary year of the REIT industry. 60 years ago, President Dwight D. Eisenhower signed legislation that held the promise of making the benefits of real estate investment available to all investors, large and small. Today, that promise has been realized. Approximately 145 million Americans live in the roughly 43% of American households that own REIT stocks, directly or indirectly through mutual funds, ETFs or target-date funds. REITs have also taken hold globally and today, 40 countries have their own REIT programs and initiatives. The 60th year of our industry's history has been a challenging one not only for our industry but also for our entire country and the world. The COVID-19 pandemic has gripped nations around the globe, taking lives and hampering economies. Our hearts go out to all of those who have suffered the loss of family members and friends and to those who have lost their jobs and businesses. Throughout this challenging year, Nareit has worked to support our industry and those who depend on it. I want to thank Steve and the entire Nareit team for the outstanding job that they have done in leading this effort. Our policy and politics team stayed on the job. They reached out to members of Congress and their staffs, advocating for congressional solutions that would provide relief for our industry's tenants, helping them pay rent, retain employees and continue delivering paychecks. Our investor outreach program also continued on pace. Through video conferences, our investor outreach team maintained our dialogue with investors. In the first 3 quarters of this year, they conducted nearly 500 meetings with organizations representing more than $80 trillion of assets. 2020 has been a year that shined a light on racism in America and for many sparked a reevaluation of how we deal with issues of diversity, equity and inclusion in the institutions of our society. Once again, Nareit is addressing this issue head on. 4 years ago, Nareit established our dividends through diversity, equity and inclusion program to find ways to encourage diversity, equity and inclusion in our industry. Now I am very pleased to announce that we are taking another important step forward. We are forming Nareit's Dividends Through Diversity, Equity & Inclusion CEO Council. To begin, this body is made up of 29 REIT CEOs. Collectively, they represent every segment of our industry. Our mission is to address at the highest levels the key issues and opportunities related to diversity, equity and inclusion in the REIT industry. It will provide Nareit's leadership with recommendations to help advance the associations and the industry's progress in this crucial area. I am honored to serve as one of the 3 Co-Chairs of this council, joined by Tom Baltimore of Park Hotels and Debbie Cafaro of Ventas. Tom and Debbie, I look forward to partnering with you and Nareit to help further mobilize our industry to lead positive change. You'll be hearing more about Nareit's effort to support diversity, equity and inclusion in the REIT industry going forward. It has been an honor to represent the REIT industry this year as Nareit's Chair. Now it's time for me to pass the torch to your 2021 Nareit Chair. Jim Risoleo and I have been friends for more than 30 years. In fact, I would not be standing on this virtual podium were it not for Jim, who offered me my first job in commercial real estate 31 years ago. It's going to be a pleasure to work with Jim as I hand this torch back to him -- or over to him. Please welcome Jim, President, CEO and Director of Host Hotels & Resorts. Jim, would you please join me?

Thank you, Bill. Is it really 30 years, 31 years? That's hard to believe, isn't it?

And on going.

And going up, we've been through a few challenges and downturns over the years starting 31 years ago whenever Bill and I fought the S&L crisis. So we have a new crisis that we're fighting today and we're going to talk about that a little later. But thanks very much, Bill. And I would also like to welcome everyone to REITworld 2020. We have the pleasure now of announcing the winners of 2 awards. The Nareit Industry Achievement Award and the Nareit Industry Leaders Award. For nearly 3 decades, Nareit has presented these awards to members of the REIT community who have made exceptional contributions to our industry and to the [indiscernible].

The E. Lawrence Miller Achievement Award is presented annually to professionals whose insight and integrity have helped build awareness and understanding for the value of REITs and publicly traded real estate. The award is given in memory of the past Nareit Chair, Lawrence Miller, who served as CEO of one of our industry's first REITs, Bradley Real Estate Trust. This year, we take great pleasure in presenting this award to Michael Bilerman, who, in my opinion, is truly an industry icon. Michael is a Managing Director at Citi and leads the firm's global real estate investment research practice. He also heads the U.S. real estate and lodging team, which covers more than 90 real estate lodging and equity real estate securities. Michael and the Citi team have consistently been ranked as the top research team in external client polls. This year, the Citi REIT and lodging team was ranked #1 in the REIT category of the Institutional Investor All-American Research Team survey for the fifth straight year and Michael was ranked the #1 REIT analyst. Michael is known not only for the quality of his research but also for his contributions to the betterment of our industry through his participation in real estate industry organizations. He is a cabinet member of Nareit's Real Estate Investment Advisory Council and he's also a member of the FTSE NAREIT Index Advisory Committee. And he has consistently been supportive in providing Nareit with perspective on the investment communities to support our investor outreach programs. For his leadership in building understanding for REITS and advocating for our industry, we are pleased to present the E. Lawrence Miller achievement award to Michael Bilerman.

Thank you, Bill, and thank you, Jim, for being here as well. I really appreciate those kind words. And I do hope everyone out there, your families, your friends, colleagues are all doing well amidst this COVID-19 pandemic. And I'm extremely honored and grateful to be this year's Industry Achievement Award recipient. Now I started in this industry in 1998, straight out of McGill University in Montreal, Canada, with no background in real estate. I was offered an investment banking job at Goldman Sachs and had the choice of health care, M&A or the real estate group. Now as a 22-year-old, this was my decision-making process, and I'm not sure I would suggest this to anybody, but I'm terrified in needles and hospitals so health care came off the table. I knew investment banking was going to be tough but I heard the M&A group was notoriously very difficult. And then there was this real estate group which had a great group of people and the firm had just completed the largest REIT IPO at the time. So my decision was made. Now while my career started as an investment banker, I became a sell-side research analyst in 2002. And I remember being in London with one my mentors, Todd Eagle, and the opportunity to move to research came up. And Todd thought I would be a great analyst because I asked a lot of questions, I actually enjoyed reading 10-Qs and 10-Ks and I wasn't shy about offering my opinions. And so Steve Wexler, I know you're out there somewhere, I'm thankful you appreciate all the time and insights that we've provided to Nareit and the industry over the years, whether those are solicited or usually sometimes unsolicited. And to all the companies out there, I want to thank you, too, for your support and time, especially when we may provide our views and opinion even if you're not asking for it. When I moved to the sell-side in 2002, I had the pleasure to learn from David Kostin at Goldman Sachs and then Jon Litt, who hired me at Citi in 2004. And both of them fostered a team-based culture, collaborating together to drive success. And there's little doubt in my mind that my personal success has been driven by my colleagues and my teammates. I'm a firm believer that we thrive as a team, and I couldn't be more proud to share this moment with each of them, those that are on our team today and those that have moved on and pursued some really amazing opportunities. When I look through all the list of CEOs and industry leaders who have received this award in the past, it's really a quite humbling experience. Each person on these lists have helped shape and grow our industry. Many people are those that I've looked up to my whole career and have provided me with the opportunities to advance. And to be recognized alongside of them is really a wonderful honor and I'm really thankful to be included. And I absolutely love being part of this industry, working with our dedicated, collaborative and hard-working team to drive an increased understanding and awareness of the REIT sector, the companies, the investors, the opportunities and the risks. And looking back at my last 23 years, I feel extraordinarily fortunate to have chosen the real estate and REIT industry for my career. We've now been through 3 major cycles since the dawn of the modern REIT era, including the tech wreck in the late '90s, early 2000s, the GFC and now the COVID-19 pandemic. And listed real estate and the REITs have performed well against those difficult times. We've also had the pleasure to watch REIT being added the S&P 500 in the early 2000s, waves of M&A and transaction activity, REITs being broken out as their own GICS sector in 2016, improved diversity and governance within our sector and a sea change in the property sector composition of the REIT index. I'm so thankful to all of the institutional investors who have provided us the feedback, who have challenged us and who have attended all of our events. And I know we're all really eager again to be in person, and I can't wait to celebrate with all of you at Citi's next Global Property CEO Conference. Lastly, I know my family is out there somewhere in virtual land. Sorry that you can't be -- we can't be doing this in person. My parents, my in-laws, my kids and my wife [ Carin ], who I've been with since 1996, so she too has actually grown up in this industry and likely would win any REIT jeopardy game, granted she's still pretty upset at me that we went on a property tour during our honeymoon in 2004. And I couldn't end this without a musical reference. So in the vein of Canada's Bachman-Turner Overdrive, you ain't seen nothing yet. I feel like we've only begun. So thank you again to Bill, to Jim, to Steve, Board of Governors, my colleagues, everyone who I've had the pleasure too of working with. Thank you.

Michael, congratulations. Well -- very well-deserved. I wish we could be doing this in person. And hopefully, the next time we meet, hopefully it's next June, in person, we can raise the glass to your success. So thanks for everything you do for Nareit and our industry. I have the honor of now presenting the Edward H. Linde Leadership Award. This award is named in recognition of the leadership that Ed Linde, the late CEO of Boston Properties, provided to our industry. The award is presented to a REIT executive who has made significant and lasting contributions to the growth and betterment of the REIT marketplace. This year, we are delighted to present it to Connie Moore, former President and CEO of BRE Properties and Nareit's 2009 Chair. Connie has spent more than 40 years in the real estate industry and she was one of the first women in the industry to hold top-level executive positions. In her career, she has been a true trailblazer. From 1993 to 2002, she was Managing Director of Security Capital Group and affiliates. During those years, when the publicly listed equity REIT industry was being established, Security Capital played a key role as an incubator company that prepared real estate investment firms to go public as REITs. Some of those fledgling REITs became leading names in today's industry. Names like Prologis and Regency Centers. Connie then served as President and CEO of BRE Properties from 2005 until its merger with Essex Property Trust in 2014, building it into one of the industry's leading multifamily REITs. [Audio Gap] programs like dividends through diversity, equity and inclusion. For her steadfast support and numerous contributions to our industry, we are pleased to present this year's Edward H. Linde Leadership Award to Connie Moore.

Jim and Bill, thank you so much for that very kind introduction. I think we're breaking up a little bit, so I'll try to keep this a little bit short. But it's interesting listening and first of all, congratulations to Michael as well. I remember when Michael started in the industry. My story is a little bit longer than his. I started with BRE actually the first time in 1977. So I've been around -- not quite the 60 years that REIT's been around - that Nareit's been around, but close, close. And it's been a terrific industry for me as I look back at the leaders who have received this award, many of whom I worked for, most of whom I knew, and they have provided me both the sponsorship and the mentorship for my own leadership journey. And so I'm so appreciative of that. And I'm really appreciative of Nareit's leadership during times of crisis. When you think about my -- when I served as Nareit Chair in 2009, we were -- we had another crisis. And Nareit has always been there to lead all of us, all of its members through these crises and we're certainly doing that today. But for me, it's been, I think, as Bill said, the promise of Nareit has really come -- and REITs in general -- have really come full circle, I think. I'm not sure it's that little 21-year old in 1977. I couldn't have imagined where REITs would be today. We were small. We were managed very differently in those days. And we've really grown up and we are now really -- we're a force to be reckoned with, I think. And so it's really to the leadership of the people that were before me and the many that will continue to follow me in this terrific organization and business. I'm a little like Michael, I too love REITs. It's really all I've ever done. And I think we serve a purpose and we serve a purpose for not only our shareholders but our associates and the communities that we work in. And so I am so proud to be honored in this way. I'm very humbled because, like I said, I've -- certainly I know a lot of the people since 1992 who have received this award and so I'm very honored that you've selected me this year. And I hope that you have a great Nareit 2020. I'm missing all of you. I can't say I missed the -- at the analyst calls, Michael, but I do miss seeing all of you and enjoy serving on One REIT, today's the Columbia Property Trust. So I'm thrilled to be continuing to be a part of Nareit. And again, I just want to thank you all so much. I am very humbled for this support.

Great. Connie, congratulations and again, hope to see you in person sometime soon. One more award to present today and it goes to Mr. Stein. Bill, Nareit would like to present this final Service Award to you in recognition of your exceptional and tireless work is our 2020 Chair. Your dedication to our industry is greatly appreciated and we can't thank you now for your service this past year.

Thank you very much, Jim and Steve. And congratulations once again, Michael and Connie. This is a great honor. It's been an interesting year, to say the least. Jim, I wish you all the best in 2021. It's been a pleasure serving with you on the Host Board and through our shared experiences over the past 31 years and working with you at Host. There's no doubt that you have a unique combination of grit and wisdom that will benefit Nareit over the coming year just as it has benefited Host since you began working there. Thank you again for this honor.

Bill, thank you very much for those kind words. We have had a challenging year and as we move forward, we will hear from a terrific group of folks who are on our panel to talk about the way forward. So I am truly honored to have the opportunity to serve all of you in our industry as Nareit's 2021 Chair. As I begin my term, I just want to once again reiterate that Bill put in an extraordinary year and I want to thank him one more time for his leadership and dedication. Bill you've left some very large shoes to fill. And it's clear that the year ahead will present ongoing challenges for us. COVID-19 will continue to cast a long shadow over the economy and our industry. We got some good news this week in the last 1.5 weeks or so with the Moderna clinical trial and the Pfizer trial, and we are looking forward to both of those vaccines being approved, assuming that they're safe, and getting them rolled out to the public just as soon as we can because that clearly is going to help control the pandemic and allow some semblance of normalcy to return to the country, notwithstanding that COVID-19 has already had a massive impact on our society. It's changed the way we work, the way we shop and even where we choose to live. This meeting says it all. I mean I would much rather be seeing all of you in person. And as you might know, we we're about 15 minutes late getting started due to technology, so I don't think the world is switching to virtual anytime soon. I think in-person meetings and conversations are very important. That said, the changes that we're experiencing today will be with us for some time to come and Nareit will work to find ways to ease the economic stress they have placed on tenants and landlords. We will be reaching out to members of Congress, including new members who will be taking office in the year ahead, to seek their support for legislative solutions. We will be explaining to them the importance of REITs to investors, to communities and to our national economy while we're building understanding among policymakers of the contributions of our industry, which supports 2.4 million full-time jobs and $148.2 billion of labor income. The massive economic damage of the COVID-19 pandemic also has made the entire business community more aware of the need for a federally backed business continuity insurance program that would reduce the economic impact of a future pandemic. Nareit has joined with other business organizations across a range of industries to form The Business Continuity Coalition to advocate with policymakers for a public-private partnership that would make business continuity insurance available and affordable. In the year ahead, I will also be supporting Nareit's efforts to promote diversity, equity and in conclusion throughout our industry, including as a member of Nareit's new Dividends Through Diversity, Equity & Inclusion CEO Council. And I look forward to supporting a continued aggressive investor outreach program. We have a strong story to tell to the investment community. REITs remain a highly efficient way to invest in the real estate asset class, providing income diversification and strong long-term total returns. I want to turn now to our panel discussion. Through the COVID-19 economy and beyond, I'm pleased to introduce the 4 distinguished REITs CEOs who make up our panel. They are Victor Coleman of Hudson Pacific Properties, whose office portfolio is located in West Coast markets; Susan Givens of New Senior Investment Group, whose portfolio of senior living properties extends throughout the U.S.; Brian Kingston of Brookfield Property Partners, which owns and manages a diverse portfolio of office, retail and other properties; and Mark Parrell of Equity Residential, one of the largest multi-family landlords. Welcome, everyone, and thank you all for joining us.

So let's begin with a question at the top of everyone's mind today. What is the outlook for economic growth and recovery from the damage caused by the pandemic? I'll pass the question in this way, what do you anticipate for U.S. economic growth in this quarter and next year? And why don't we start with Victor?

Well, first of all, thank you and hello to all my fellow panelists. It's a pleasure to be here under these unique circumstances, but at least we can spend some time together. Listen, your question is fully loaded and I know each of us have different thoughts and processes as to what's going on. I would take sort of a second and then just chat a little bit about where I see the desire before I see the growth. I think the desire is on everybody's lips. It's exactly the same. There's a lot of naysayers around our industry about work from home and the world is going to change and it's going to change forever. Forever is a long time. And I think we all know that this recovery and the growth prospects going forward for next year is going to be predicated on one thing and one thing only, which is going to be this vaccination and the security blanket whether people take it or not or whether a vaccination is going to come in play. And this is a young person's recovery, young people who want to be interactive, young people who want to work together. They want to be onboarded properly, they want to be recognized. And as a result, we who've been in this industry a long time are going to follow the footsteps of them and help support that process and get people back to some level of normality, which is exactly what you're referring to. I think, listen, the markets are ahead of where the growth prospects are. The markets are clearly giving us indications that growth is around the corner in '21 but absolutely in '22. The VC capital raised in the last 2 quarters, it was the second-highest of all time. And as a result, you're going to see that capital being deployed in '21 and '22 on not just start-ups but second- and third-iteration companies with growth prospects which is going to fuel employment. We've got a lot of people who need jobs and a lot of people who want jobs. We've got a lot of markets that need to see growth prospects around that. And I, for one, am very optimistic that you're going to see economic growth on the positive level throughout the United States but specifically in the markets that are going to be dictated around tech, around media, around biotech, around other aspects of growth businesses that we've seen have always been the leaders to marketplaces going forward. So I think the return of this going forward is going to be something that's going to be sketchy at the early levels. And yes, we're all going to jump on the fact that positive news is going to be good news, and I'm optimistic that, that growth prospect is going to be good going forward.

Great. When do you -- Victor, we'll just stay with this for a second. When do you think we see a return to the pre-pandemic growth rate, rate of growth? And I think we know what the big milestones are to getting there but from your perspective, what are they?

Listen, I'm hopeful that we see positive growth second half of '21. I know a lot of people sort of -- it's an interesting conversation, right? Because everybody wants to be as far out as possible to make themselves look relatively good without going over their skis to say, okay, I'm too optimistic. I do think that -- I'd like to say second half of '21, most people are saying '22, I'm going to stick with second half of '21 because I think people are going to start getting back to work fairly quickly and not waiting until the end of '21 where people were talking about -- at the beginning, they're thinking, okay, we're going to see this January '22 now. I still think it's a month-to-month process of getting some good information and some candidly good luck in the process for us to see some positive movements in deployment of capital. There's a lot of capital on the sidelines and I think that capital is going to get deployed faster than people think. And so I'm thinking second half of '21.

Great. Brian, you play across all -- a lot of sectors in the world of real estate today. How are you viewing U.S. economic growth coming back in this quarter? And when do we get back to the pre-pandemic rate of growth? What are some of the hurdles you see that we've got to overcome as a country?

Yes. I -- like Victor, I'll make it far enough in the future that I'll probably be right ultimately or you'll at least forget what I said by the time it happens. So I do think it probably is not immediately around the corner in the next quarter or 2, but hopefully it is the second half of next year. And as you mentioned in your opening remarks, the introduction of a vaccine and even just the prospect of a vaccine is so important to getting back to that growth. And we've seen this in other parts of the world where we have investments. Korea and China and other places like that, they are largely back to normal. So what really turned the page wasn't necessarily that the infection rates were down or anything, although all those things happen, it's confidence. Because as soon as people saw -- could see the other side of it, felt like there was a light at the end of the tunnel, then they get back to work, they get back to spending, they get back to hiring, businesses start up their manufacturing capability. And so I think the prospect and the promise that comes with these vaccines is really important and that's what the market is anticipating, is getting back to that. But we've been shut down for a long time and it takes time to get those wheels grinding again, getting people back to work, getting factories back up and running and that. And so that's why I think we shouldn't expect that the real economy is going to react as quickly as the financial economy does. But I think we're heading in the same direction.

Yes. What do you think the most important challenges in getting people back to work? You mentioned -- you've touched on that. I think that's really critical. And maybe some of the panelists as we move around can touch on it as well because we have to have - to have a healthy economy, we have to have a strong employment picture. And we've seen the numbers for unemployment climb from scratch, [ it may be ] declining but it's going to be a slow burn-back. How do we make that happen?

Yes. I think a lot of it is learning to live with it in some ways or learning to live with the new normal. So again, we're not we're not expecting that we're just going to snap back and things are going be exactly the way they were in 2019. Much like after we saw following 9/11, there's going to be changes. The airport is going to look different. Your hotels are going to look different, the check-in process, the types of things that are happening. But I think getting those building blocks in place, getting people actually moving again, you get your hotels open, you get people in them; it's good for the restaurants that surround those areas; it's good for employment in supporting industries, et cetera, and it really sort of builds on that. And so I think it's incumbent on us as an industry to put in place those things that are going to make people feel confident about coming back to our office buildings or shopping in our malls or staying in our hotels. There's going to be a significant investment in both time and operational changes. And that is at least as important as the vaccine, which is giving people that confidence that if they do come back or if you're an employer and you're calling your workers back into the office, that they're going to be safe when they're there and they're going to come back tomorrow.

Excellent points. How are you viewing the world today? When do you think we're going to start returning to a sense of normalcy? And how about GDP growth? I don't even think it's fair to ask about this quarter, but how about the second half of next year?

And I'm sorry, you broke up in the middle a little bit in that. Was that directed to me?

It was, Mark, yes.

Yes. Thank you. I'm a buyer on the middle of the next year. We're hopeful that with the vaccine, I think we all are, that people will gain that confidence and return. I think one of the things to build on some of the answers that I think were very well thought out by Victor and Brian is schools' opening. I think having that ability for working parents to have their children safe in a school environment, be able to work in the office at least part-time, is really important. We see that in our office. It's just a significant impediment to normalcy returning. I also see there is a little bit of a flywheel effect here that has to get going again. I mean the restaurants have to open and entertainment venues so people are interested in being in the city, and so they're back in their apartments which would be of course great for us, and back in their offices. And that -- for that to happen, the restaurants have to be there. I mean it's just a sort of circle -- virtuous circle that needs to occur where the schools open, some of these, again, restaurants and other things that make going to work easier and more convenient, all that has to work. Transit here in Chicago is more limited, public transit, that has to open. So I think it's going to take a little bit, but I'm an optimist that the middle of next year, we'll see significant improvement in the tempo of office occupancy and the interest in people living in the cities, again, places like New York and San Francisco that got hit pretty hard. It feels to me like folks want to return. I'd also point out that the recovery will be helped if there's a record-level of bank balances, just cash and bank accounts. I think the government did a good job, especially initially in cushioning the blow from the pandemic, at least the financial part of it. I think there's a lot of people with money to spend and a desire to get out and do things and travel and live their lives again. And so I think we'll see a little bit of that pent-up demand try and exercise itself in the middle of next year.

Do you think the -- has the government done enough work in your opinion? Or do we need to do more?

Well I think right now there's a need to do more. I mean, clearly, this fourth quarter is at going to be a real challenge. I mean it's winter. We seem to be walking into a real difficult period for the country. And if we can all just sort of buckle down for 6 months, it seems like the things should, because of the vaccines and the therapeutics, be a lot better. And maybe that does mean some of these limited lockdowns or -- not a big fan of a full-scale lockdown but at least more people are staying at home. And I think if that happens, a lot of service folks -- a lot of these restaurants barely made it, a few, they did through the last shutdown. I can't imagine another extended shutdown and the same for the hotels. So I think it may be in the best interest of the country, as the public health matter, to put a little bit more money in the system both for businesses as well as for individuals to just get us to the middle of next year.

Thanks. Great. Susan, how are you viewing the world today?

Yes. I wish I could have a different perspective just to create a little bit of a -- have a different view on it, but I agree with everyone. I think that -- I think there's just an increasing dichotomy between near-term and the kind of medium-term trend. So we are looking at 1 million new cases last week. And as Mark alluded to, there may be some lockdowns that we're looking at, hopefully not quite as severe but I think that that's something we might face. And so I think there's going to be quite a bit of kind of continued pressure as we move through the next couple of months through the balance of the year. Now on the other hand, it seems like very, very good signs on the vaccine front, probably even earlier than maybe some people thought. And so I think we have sort of this balance between what we're going to see over the next several months and certainly what we see in our business and on the health care and senior housing side, and then we're looking forward to next year. And so I agree, I think it's kind of the second half of 2021. I think also some interesting things that are starting to emerge that I think consumer behaviors are even a little bit different as we're going through this next wave versus some of the earlier waves. And so I think that also tells you exactly what people have already mentioned, that people are tired and people are ready to get back to normal -- some form of normalcy and get back to work and get back to resuming their activities. And so I think it's -- we got to get through the near term. But I agree, I think the second half of the year is where we start to feel it. And I also think that, the question about have we done enough, obviously, I think the -- a lot of the actions taken really did prove to be pretty successful. But I think as we sit here, we probably need to see a little bit more in order to make sure that we can get through in kind of the next several months.

Thanks for that. I'd be remiss if I didn't at least float the question, we'll see who wants to take it, on the effect that the recent elections might have on the economic picture going forward. With the realization that we have January 5 in the state of Georgia that is going to be, in many ways, very much a determinative factor. But what do we think about the new administration? How is the economy? How are the -- how is Wall Street going to respond? How are businesses going to respond with, let's assume for a moment that we have split government, that we have a Democratic house, a Republican Senate and President-elect Biden in the White House? So I'll start with Brian.

Sure. Give it to the Canadian. I will...

It's easy. It gets asked a lot.

Well, I -- I'll start with your set of assumptions which is a split government. And even if it doesn't end up being a split government, I think it's pretty obvious that the Senate is going to be very -- a tenuous hold for either parties. So look, I think in general, that should mean that any change that comes won't be radical. It will have to have some bipartisan support to it. And that's a positive. So I think for the markets and what does Wall Street generally look for, it's predictability and stability and general movement in the right direction, not necessarily radical change which could be good or could be quite negative. So I think in the scenario you outlined there, it's unlikely that we're going to see dramatic wholesale economic changes, whether it's tax reform or massive new spending necessarily on a very broad scale, but probably more targeted and balanced, which overall I think is a very positive outlook for both the stock market but also our industries, generally.

Great. Mark, how are you thinking about it?

Yes. I mean the big thing for the apartment industry was actually the local election. So I'm going to dodge this bullet a bit on the national level. I mean the big win in California on Prop 21, which was a rent control measure that we run, the industry did a great job being very organized on and making, I think, really powerful arguments about how little or really nothing this measure would do to alleviate homelessness or create more affordable housing, that resonated with the populous, with the citizenry in California, and we won by just about the same margin as we did in 2018, by about 19 percentage points and took every county except the county of San Francisco. So I thought that was great news. I also think that we were a little less active. Prop 15 being defeated was terrific news as well. California doesn't need more taxes. I think that's an impediment to growth. So I think -- and we won a couple of others subordinate. It was being Burbank and Sacramento rent control measures. So I think there was a message sent about how to govern, and I don't think the message was we need significant additional regulation or at least you have to be thoughtful about that measure of additional regulation. And so we felt like from the industry's point of view, the apartment industry is good and the real estate industry. It's actually a pretty good election at the state and local level, for sure.

Great. Victor, how about your business being centered in the West Coast with Hudson? Great news for all of us what happened in California with the defeat of Prop 15, but the actions at the national level and at the local level?

Yes. Well I'll jump in on Mark's coattails there. Yes. I mean listen, I think California messaging was absolutely made of massive statement with 15 and 21. I think, listen, 15, everybody wrote us off and we worked hard. I think there's going to be a lot of explaining to do with the capital being raised around 15 -- on the yes on 15 that the unions spent a lot of the teachers' money and they have nothing to show for it $80 million later. And so I do think that, that does bode very well for a statement going forward. I think now I'm getting calls, what about '22? I'm like there's no chance that '22 will be this. It won't be even remotely able to garner up some sort of support around this. So I think we've put this behind us. And hopefully the next 2 years will show a lot of great sound business moves even though despite California's inherent timing that they consistently go against the grain of making business work. We seem to be somewhat successful on a regular basis so I'm optimistic there. I will say with Brian as also a fellow Canadian, I completely concur with what he said. I do think right now, as we sit, regardless what happens in Georgia, it's going to be centric's process and I do think it's going to be hard to get anything through. I think the markets are finally in a position where -- Brian is exactly right, they need some level of confidence and less volatility and quite frankly, less noise. And that's what we're hearing right now by just the way the markets are reacting to any amount of positive news is actually positive which is a boomerang effect, which was for the last 4 years or 3.5 years, positive. And then as soon as somebody opened their mouth or something happened, occurred, it would rebound the other way and reverberate back and forth. And so stability is what markets want. I think stability is what we're going to have for the next 4 years at some level. It's going to cost us a lot of things. It's going to be, I think, spread out a little bit unfairly between a higher echelon versus the lower echelon, but you know what? I do think everybody is prepared for some level of stability. And I'm confident that it's going to set us in the right direction. Capital markets are sitting on a lot of capital and that capital today needs to be deployed. It cannot sit on the sidelines for a long period of time. I think people waited for a lot of places to deploy capital in uncertain times. When times are more certain and times have leveled out the playing field where we see debt levels are today, those are all positive factors for growth. And I think -- as we mentioned earlier, I think that political scenario that we're in right now is going to lead us to growth quicker than what people think.

It's great. Can we spend a minute, Victor, and talk about your portfolio? I'm just curious, I'm sure the audience is curious, too, you have a concentration of tenants in the motion picture industry and in tech. What portion of your tenants have remained in the space they're leasing or have returned to it, that they might have gone to work-from-home but now they're back in the office?

So, listen, it's an interesting question. We've been very fortunate our portfolio has been 95% paid since day 1. So we've not changed. Our percentages have not changed at all. I think we were maybe in the mid-94s at April or May, but subsequently since then we're 95%. And that's a true 95%, it's not manipulating numbers. We have about 3% of our portfolio is retail and those run around 50%. And the remainder, our entire studio media portfolio, is 100% paid and the majority of our West Coast tenants were tech-related or media- and entertainment-related. And they're all paying rent. Now in terms of occupancy, the essential workers are not allowing a lot of these companies to go back. And so we have chartered every single one of our properties and we're roughly around 15% to 20% physical occupancy in assets. And so clearly, California being -- our biggest portfolio of our assets are in California, we're losing revenue on parking. That being said, with the voracious appetite in the change of content and the content players, one of our largest tenants is Amazon and Netflix after Google. And with their obviously voracious appetite and capital dollars in the billions paying on content annually, that has just sort of had this pipeline effect of no production until really late August. And subsequently, middle of September, production started in earnest, and we're 100% full on the production side in our entire portfolio of production space. And so you're going to see that, which usually has some level of seasonality over December -- from Thanksgiving through December because of the holidays. They're filming all the way through, and we see a constant amount of product coming on the small screen given where people are now watching, since they're not going to theaters, they're watching -- binge-watching the likes of that. So the new players, whether it's the Apples and Amazons and Hulus, Netflix or the middle line guards, the HBOs, the Showtimes, the Cinemaxes and the original Warner Bros, Fox, Disney, Sony, they're all ready to go and firing in all cylinders and we're seeing production at an all-time high. And that's going to bode very well for -- specifically for Los Angeles and the surrounding areas of Los Angeles, but all production markets like New York, like London, like Vancouver that are doing very well, Toronto as well, they're doing very well. And you're going to see that continue. So it's a positive sign.

Positive sign. Positive sign for rents next year when you're renegotiating leases as well?