EX-99.1 2 a2017q2epexhibit991.htm EXHIBIT 99.1 Exhibit
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Executive Summary
We own and operate 18.1 million square feet of Class A office, 3,320 apartment units and a residential development pipeline of approximately 850 units in the premier coastal submarkets of Los Angeles and Honolulu.
•
Debt Pay Down and Consolidation: During the second quarter, we consolidated and paid down our debt by completing the sale of the remaining common stock under our "At the Market" program. We sold 9.1 million shares at an average price of $38.39 per share for $349.7 million to replenish the $350 million of equity we invested in the nine properties we acquired during the last 18 months.  We paid off a $347 million loan with interest at 4.14% that was scheduled to mature in August 2018. Finally, we refinanced and extended two other loans: 
◦
In May, we refinanced four of our LA multifamily assets with a secured, non-recourse $550 million interest-only loan that matures in June 2027. The loan bears interest at LIBOR + 1.37%, which we have effectively fixed at 3.16% for five years through an interest rate swap.
◦
In June, we refinanced six office properties owned by one of our unconsolidated Funds with a secured, non-recourse $400 million interest-only loan maturing in July 2024. The loan bears interest at LIBOR + 1.65%, which we have effectively fixed at 3.44% for five years through an interest rate swap.
Overall, we lowered our pro forma net debt to enterprise value to 35%, extended our average debt maturity by almost a year, reduced our average fixed interest rate to only 3.2%, gained eight more unencumbered properties and restocked our dry powder for future acquisitions and development.
•
Financial Results: For the three months ended June 30, 2017 compared to three months ended June 30, 2016:
◦
Net income attributable to common stockholders increased by 9.5% to $20.2 million,
◦
Funds From Operations (FFO) increased by 3.8% to $84.9 million, or $0.47 per share - fully diluted,
◦
FFO per share for the second quarter was impacted by a penny as a result of $1.4 million in one-time debt consolidation fees and the dilution from our recent stock sales, which were not reflected in our prior guidance,
◦
Adjusted Funds From Operations (AFFO) increased by 2.1% to $67.8 million, and
◦
Same Property Cash NOI increased to $106.1 million, growing 4.7% after adjusting for a one time prior period excise tax refund included in 2016.
•
Acquisitions: We acquired three properties through a consolidated joint venture that we manage and in which we own a 20% interest:
◦
In April, we acquired two Class A office properties in downtown Santa Monica totaling approximately 293,000 square feet for $352.8 million, including $142 million borrowed under the joint venture's secured, non–recourse, interest only loan that matures in July 2019 and bears interest at LIBOR + 1.55%.
◦
In July, we acquired a 171,000 square foot Class A office property in Beverly Hills for $177 million, of which $77.5 million was borrowed with the joint venture's loan facility described above.
•
Fundamentals: During the second quarter, we signed a record 1.2 million square feet of office leases.  By continuing to unlock embedded rent growth through the early recapture of below market space, we increased the average in-place cash rents across our entire portfolio by 6.2% in the last 12 months, and the total value of the leases we signed during the quarter was 27% higher than the value of the leases they replaced. 
The leased rate for our total portfolio decreased 30 basis points to 91.4%. Virtually all of this decline comes from the volatility expected from new acquisitions rather than our same property portfolio. Our ending same-property occupancy increased 10 basis points from last quarter to 90.3%, and our multifamily portfolio remained fully leased.
•
Dividends: On July 14, 2017, we paid a quarterly cash dividend of $0.23 per common share, or $0.92 per common share on an annualized basis, to our shareholders of record on June 30, 2017.
•
Guidance: We are adjusting our 2017 full year guidance to $0.52 to $0.58 for Net Income Per Common Share and $1.89 to $1.93 for FFO. The one cent decline in the FFO midpoint reflects the second quarter impact of $1.4 million in loan costs and dilution from our equity issuance. Our FFO assumptions for the remainder of the year are unchanged, as we expect the additional NOI from recent acquisitions, lower interest expense, and improved operating results will offset the dilution from our recent stock sales. See page 23 for more information regarding our guidance.
NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Table of Contents
COMPANY OVERVIEW
 
 
 
 
FINANCIAL RESULTS
 
 
 
 
PORTFOLIO DATA
 
 
 
 
               GUIDANCE
 
 
 
 
               DEFINITIONS

Forward Looking Statements
This Second Quarter 2017 Earnings Results and Operating Information, which we refer to as our Earnings Package, supplements the information provided in our reports filed with the Securities and Exchange Commission.  It contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements presented in this Earnings Package, and those that we may make orally or in writing from time to time, are based on our beliefs and assumptions.  Our actual results will be affected by known and unknown risks, trends, uncertainties and factors, some of which are beyond our control or ability to predict, including, but not limited to: adverse economic and real estate developments in Southern California and Honolulu; a general downturn in the economy; decreased rental rates or increased tenant incentives and vacancy rates; defaults on, and early terminations and non-renewal of, leases by tenants; increased interest rates and operating costs; failure to generate sufficient cash flows to service our outstanding indebtedness; difficulties in acquiring properties; failure to successfully operate properties; failure to maintain our status as a REIT; possible adverse changes in rent control laws and regulations; environmental uncertainties; risks related to natural disasters; lack of or insufficient insurance; inability to successfully expand into new markets or submarkets; risks associated with property development; conflicts of interest with our officers; changes in real estate and zoning laws and increases in real property tax rates; possible future terrorist attacks; and other risks and uncertainties detailed in our Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect.  As a result, our actual future results can be expected to differ from our expectations, and those differences may be material.  Accordingly, please use caution in relying on previously reported forward-looking statements to anticipate future results or trends. This Earnings Package and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements.

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Company Overview


Corporate Data
as of June 30, 2017

 
Office Portfolio
 
 
 
 
 
 
 
 
 
Consolidated
 
Total
 
 
Properties
61

 
69

 
 
Rentable Square Feet (in thousands)
16,222

 
18,052

 
 
Leased rate
91.5
%
 
91.4
%
 
 
Occupancy rate
89.0
%
 
88.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily Portfolio
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
Properties
 
 
10

 
 
Units
 
 
3,320

 
 
Leased rate
 
 
99.5
%
 
 
 
 
 
 
 
 
Market Capitalization (in thousands, except price per share)
 
 
 
 
 
 
 
Fully Diluted Shares outstanding
 
186,525

 
 
Common stock closing price per share (NYSE:DEI)
 
$
38.21

 
 
Equity Capitalization
 
$
7,127,112

 
 
 
 
 
 
 
Leverage Ratio (in thousands, except percentages)
 
 
 
 
 
 
 
Consolidated Net Debt(1)(2)
 
$
4,181,863

 
 
Pro Forma Net Debt(1)(3)
 
$
3,899,812

 
 
Pro forma enterprise value
 
$
11,026,924

 
 
Pro forma net debt to enterprise value
 
35
%
 
 
 
 
 
 
 
AFFO Payout Ratio
 
 
 
 
 
 
 
Three months ended June 30, 2017
 
60.9
%
 
 
 
 
 
 
__________________________________________________
(1)
See page 12 for more information concerning our outstanding loans.
(2)
Net of cash and cash equivalents of $173.2 million, without deducting unamortized deferred loan costs of $40.9 million. Does not include $69.0 million of net proceeds from the settlement of sales of 1.8 million shares of common stock which were sold during the second quarter, but settled shortly after quarter end.
(3)
Net of cash and cash equivalents of $121.9 million, without deducting unamortized deferred loan costs of $34.6 million. Does not include $69.0 million of net proceeds from the settlement of sales of 1.8 million shares of common stock which were sold during the second quarter, but settled shortly after quarter end.






NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Company Overview


Property Map
as of June 30, 2017
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Company Overview


Board of Directors and Executive Officers
as of June 30, 2017


BOARD OF DIRECTORS
___________________________________________________________________________________________________________________________________
Dan A. Emmett
Our Executive Chairman of the Board
Jordan L. Kaplan
Our Chief Executive Officer and President
Kenneth M. Panzer
Our Chief Operating Officer
Christopher H. Anderson
Retired Real Estate Executive and Investor
Leslie E. Bider
Vice Chairman, PinnacleCare
Dr. David T. Feinberg
President and Chief Executive Officer, Geisinger Health System
Virginia A. McFerran
President and Chief Executive Officer, Optum Analytics
Thomas E. O’Hern
Senior Executive Vice President, Chief Financial Officer & Treasurer, Macerich Company
William E. Simon, Jr.
Partner, Massey Quick Simon & Co., LLC

EXECUTIVE OFFICERS
___________________________________________________________________________________________________________________________________
Dan A. Emmett
Chairman of the Board
Jordan L. Kaplan
Chief Executive Officer and President
Kenneth M. Panzer
Chief Operating Officer
Mona M. Gisler
Chief Financial Officer
Kevin A. Crummy
Chief Investment Officer


CORPORATE OFFICES
808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401
Phone: (310) 255-7700

For more information, please visit our website at www.douglasemmett.com or contact:
Stuart McElhinney, Vice President, Investor Relations
(310) 255-7751
smcelhinney@douglasemmett.com

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Financial Results


Consolidated Balance Sheets
(in thousands)

 
June 30, 2017
 
December 31, 2016
 
Unaudited
 
Audited
Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
1,050,037

 
$
1,022,340

Buildings and improvements
7,555,950

 
7,221,124

Tenant improvements and lease intangibles
726,118

 
696,197

Property under development
85,269

 
58,459

Investment in real estate, gross
9,417,374

 
8,998,120

Less: accumulated depreciation and amortization
(1,903,764
)
 
(1,789,678
)
Investment in real estate, net
7,513,610

 
7,208,442

Cash and cash equivalents
173,151

 
112,927

Tenant receivables, net
2,529

 
2,165

Deferred rent receivables, net
99,195

 
93,165

Acquired lease intangible assets, net
4,673

 
5,147

Interest rate contract assets
37,092

 
35,656

Investment in unconsolidated real estate funds
107,140

 
144,289

Other assets
18,003

 
11,914

Total assets
$
7,955,393

 
$
7,613,705

 
 
 
 
Liabilities
 
 
 

Secured notes payable and revolving credit facility, net
$
4,314,137

 
$
4,369,537

Interest payable, accounts payable and deferred revenue
92,364

 
75,229

Security deposits
48,382

 
45,990

Acquired lease intangible liabilities, net
69,646

 
67,191

Interest rate contract liabilities
3,353

 
6,830

Dividends payable
36,976

 
34,857

Total liabilities
4,564,858

 
4,599,634

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,607

 
1,515

Additional paid-in capital
2,958,178

 
2,725,157

Accumulated other comprehensive income
20,871

 
15,156

Accumulated deficit
(853,586
)
 
(820,685
)
Total Douglas Emmett, Inc. stockholders' equity
2,127,070

 
1,921,143

Noncontrolling interests
1,263,465

 
1,092,928

Total equity
3,390,535

 
3,014,071

Total liabilities and equity
$
7,955,393

 
$
7,613,705





NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Financial Results


Consolidated Operating Results
(Unaudited; in thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Office rental
 

 
 

 
 

 
 

Rental revenues
$
135,665

 
$
126,650

 
$
268,681

 
$
237,656

Tenant recoveries
12,801

 
10,986

 
23,851

 
21,197

Parking and other income
27,076

 
25,460

 
53,358

 
48,622

Total office revenues
175,542

 
163,096

 
345,890

 
307,475

 
 
 
 
 
 
 
 
Multifamily rental
 
 
 
 
 
 
 
Rental revenues
22,237

 
22,406

 
44,478

 
44,833

Parking and other income
1,853

 
1,713

 
3,745

 
3,479

Total multifamily revenues
24,090

 
24,119

 
48,223

 
48,312

 
 
 
 
 
 
 
 
Total revenues
199,632

 
187,215

 
394,113

 
355,787

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Office expenses
57,887

 
53,381

 
112,772

 
101,264

Multifamily expenses
5,878

 
5,341

 
11,825

 
11,372

General and administrative
8,592

 
9,403

 
18,748

 
17,474

Depreciation and amortization
68,793

 
62,568

 
136,167

 
118,120

Total operating expenses
141,150

 
130,693

 
279,512

 
248,230

 
 
 
 
 
 
 
 
Operating income
58,482

 
56,522

 
114,601

 
107,557

 
 
 
 
 
 
 
 
Other income
2,331

 
2,143

 
4,493

 
4,232

Other expenses
(1,773
)
 
(1,908
)
 
(3,497
)
 
(4,912
)
Income, including depreciation, from unconsolidated funds
1,113

 
1,644

 
3,290

 
3,230

Interest expense
(38,000
)
 
(37,703
)
 
(74,954
)
 
(73,363
)
Income before gains
22,153

 
20,698

 
43,933

 
36,744

Gains on sales of investments in real estate
—

 
1,082

 
—

 
1,082

Net income
22,153

 
21,780

 
43,933

 
37,826

Less:  Net income attributable to noncontrolling interests
(1,909
)
 
(3,298
)
 
(4,640
)
 
(3,978
)
Net income attributable to common stockholders
$
20,244

 
$
18,482

 
$
39,293

 
$
33,848

 
 
 
 
 
 
 
 
Net income per common share - basic
$
0.129

 
$
0.124

 
$
0.254

 
$
0.228

Net income per common share - diluted
$
0.129

 
$
0.120

 
$
0.253

 
$
0.221

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
155,898

 
147,722

 
154,203

 
147,479

Weighted average shares of common stock outstanding - diluted
155,952

 
152,805

 
154,810

 
152,166




NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Financial Results


Funds From Operations & Adjusted Funds From Operations(1) 
(Unaudited; in thousands, except per share data)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
20,244

 
$
18,482

 
$
39,293

 
$
33,848

Depreciation and amortization of real estate assets
68,793

 
62,568

 
136,167

 
118,120

Net income attributable to noncontrolling interests
1,909

 
3,298

 
4,640

 
3,978

Adjustments attributable to unconsolidated funds(2)
4,020

 
3,965

 
8,056

 
7,898

 Adjustments attributable to consolidated joint ventures(2)
(10,044
)
 
(5,401
)
 
(19,565
)
 
(4,816
)
Gains on sales of investments in real estate
—

 
(1,082
)
 
—

 
(1,082
)
FFO
$
84,922

 
$
81,830

 
$
168,591

 
$
157,946

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO
$
84,922

 
$
81,830

 
$
168,591

 
$
157,946

Straight-line rent
(2,442
)
 
(4,717
)
 
(6,030
)
 
(7,636
)
Net accretion of acquired above- and below-market leases
(4,284
)
 
(5,010
)
 
(8,476
)
 
(8,314
)
Loan costs
2,812

 
2,723

 
4,923

 
4,061

Recurring capital expenditures, tenant improvements and leasing commissions
(19,732
)
 
(13,905
)
 
(34,196
)
 
(26,201
)
Non-cash compensation expense
4,454

 
4,078

 
9,013

 
8,175

Adjustments attributable to unconsolidated funds(2)
(1,181
)
 
(1,318
)
 
(2,512
)
 
(2,679
)
Adjustments attributable to consolidated joint ventures(2)
3,249

 
2,724

 
6,232

 
3,572

AFFO
$
67,798

 
$
66,405

 
$
137,545

 
$
128,924

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - diluted
155,952

 
152,805

 
154,810

 
152,166

Weighted average units in our operating partnership outstanding
25,782

 
26,600

 
25,904

 
26,755

Weighted average fully diluted shares outstanding
181,734

 
179,405

 
180,714

 
178,921

 
 
 
 
 
 
 
 
Net income per common share - diluted
$
0.13

 
$
0.12

 
$
0.25

 
$
0.22

FFO per share - fully diluted
$
0.47

 
$
0.46

 
$
0.93

 
$
0.88

Dividends declared per share
$
0.23

 
$
0.22

 
$
0.46

 
$
0.44

______________________________________________
(1)
Reflects the FFO and AFFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership, including our share of our consolidated joint ventures and our unconsolidated Funds.
(2)
Adjusts for the portion of each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated joint ventures and the effect of each other listed adjustment item on our share of the results of our unconsolidated Funds.



NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Financial Results

Same Property Statistics & Net Operating Income (NOI)
(Unaudited; in thousands, except statistics)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30,
 
 
 
As of June 30,
 
 
Office
 
2017
 
2016
 
Multifamily
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties
 
51

 
51

 
Number of properties
 
9

 
9

 
 
Rentable Square Feet (in thousands)
 
12,997

 
12,839

 
Number of units
 
2,640

 
2,640

 
 
Ending % leased
 
92.2
%
 
92.5
%
 
Ending % leased
 
99.4
%
 
98.7
%
 
 
Ending % occupied
 
90.3
%
 
91.1
%
 
 
 
 
 
 
 
 
Quarterly average % occupied
 
90.3
%
 
91.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOI
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
% Favorable
 
 
 
2017
 
2016
 
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
Office revenues
$
136,232

 
$
132,336

 
2.9
 %
 
 
Office expenses
(44,114
)
 
(42,777
)
 
(3.1
)%
 
 
Office NOI
92,118

 
89,559

 
2.9
 %
 
 
 
 
 
 
 
 
 
 
Multifamily revenues(1)
20,451

 
20,489

 
(0.2
)%
 
 
Multifamily expenses
(4,823
)
 
(4,300
)
 
(12.2
)%
 
 
Multifamily NOI
15,628

 
16,189

 
(3.5
)%
 
 
 
 
 
 
 
 
 
 
Total NOI
$
107,746

 
$
105,748

 
1.9
 %
 
 
 
 
 
 
 
 
 
(1) The 2016 period includes $840,000 in non cash revenue from the amortization of intangibles from our IPO. The completion of that amortization in 2016 reduced 2017 period multifamily revenues by 4.3%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash NOI
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
% Favorable
 
 
 
 
2017
 
2016
 
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
 
Without Eliminating 2016 Excise Tax Refund (1)
 
 
 
Office cash revenues
$
134,655

 
$
129,329

 
4.1
 %
 
 
 
Office cash expenses
(44,127
)
 
(42,790
)
 
(3.1
)%
 
 
 
Office Cash NOI
90,528

 
86,539

 
4.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
20,442

 
19,646

 
4.1
 %
 
 
 
Multifamily expenses (1)
(4,823
)
 
(4,300
)
 
(12.2
)%
 
 
 
Multifamily Cash NOI
15,619

 
15,346

 
1.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
106,147

 
$
101,885

 
4.2
 %
 
 
 
 
 
 
 
 
 
 
 
Eliminating 2016 Excise Tax Refund (1)
 
 
 
Office cash revenues
$
134,655

 
$
129,329

 
4.1
 %
 
 
 
Office cash expenses
(44,127
)
 
(42,790
)
 
(3.1
)%
 
 
 
Office Cash NOI
90,528

 
86,539

 
4.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
20,442

 
19,646

 
4.1
 %
 
 
 
Multifamily expenses (1)
(4,823
)
 
(4,822
)
 
0.0
 %
 
 
 
Multifamily Cash NOI
15,619

 
14,824

 
5.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
106,147

 
$
101,363

 
4.7
 %
 
 
 
 
 
 
 
 
 
 
(1) During 2016, we completed the process to obtain an excise tax exemption and received a one-time $522,000 refund for amounts paid in 2015. The refund reduced 2016 Q2 multifamily expenses by 12.2%.
 
 
 
 
 
 
 
 
 
NOTE:  Please see page 10 for a reconciliation to Net Income and the "Definitions" section at the end of this Earnings Package for certain definitions.

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Financial Results

 
Reconciliation of Same Property NOI to Net Income
(Unaudited and in thousands)

 
Three Months Ended June 30,
 
2017
 
2016
 
 
 
 
Same property office cash revenues
$
134,655

 
$
129,329

Non cash adjustments per definition of NOI
1,577

 
3,007

Same property office revenues
136,232

 
132,336

 
 
 
 
Same property office cash expenses
(44,127
)
 
(42,790
)
Non cash adjustments per definition of NOI
13

 
13

Same property office expenses
(44,114
)
 
(42,777
)
 
 
 
 
Office NOI
92,118

 
89,559

 
 
 
 
Same property multifamily cash revenues
20,442

 
19,646

Non cash adjustments per definition of NOI
9

 
843

Same property multifamily revenues
20,451

 
20,489

 
 
 
 
Same property multifamily expenses
(4,823
)
 
(4,300
)
 
 
 
 
Multifamily NOI
15,628

 
16,189

 
 
 
 
Same Property NOI
107,746

 
105,748

Non-comparable office revenues
39,310

 
30,760

Non-comparable office expenses
(13,773
)
 
(10,604
)
Non-comparable multifamily revenues
3,639

 
3,630

Non-comparable multifamily expenses
(1,055
)
 
(1,041
)
NOI
135,867

 
128,493

General and administrative
(8,592
)
 
(9,403
)
Depreciation and amortization
(68,793
)
 
(62,568
)
Operating income
58,482

 
56,522

Other income
2,331

 
2,143

Other expenses
(1,773
)
 
(1,908
)
Income, including depreciation, from unconsolidated real estate funds
1,113

 
1,644

Interest expense
(38,000
)
 
(37,703
)
Income before gains
22,153

 
20,698

Gains on sales of investments in real estate
—

 
1,082

Net income
22,153

 
21,780

Less: Net income attributable to noncontrolling interests
(1,909
)
 
(3,298
)
Net income attributable to common stockholders
$
20,244

 
$
18,482





NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Financial Results


Supplemental Financial Data for Joint Ventures and Funds
(Unaudited, in thousands)

The tables below present certain financial data for our wholly owned properties, consolidated joint ventures and unconsolidated funds:
 
Three months ended June 30, 2017
 
 
 
 
 
 
 
Wholly Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
165,018

 
$
34,614

 
$
18,445

Operating expenses
$
52,281

 
$
11,483

 
$
6,370

Straight-line rent
$
663

 
$
1,779

 
$
196

Above/below-market lease revenue
$
916

 
$
3,368

 
$
8

Cash NOI attributable to outside interests(3)
$
—

 
$
11,873

 
$
4,383

Our share of Cash NOI(4)
$
111,158

 
$
6,111

 
$
7,488

 
 
 
 
 
 
 
Six months ended June 30, 2017
 
 
 
 
 
 
 
Wholly Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
328,938

 
$
65,175

 
$
37,071

Operating expenses
$
103,015

 
$
21,582

 
$
12,764

Straight-line rent
$
2,544

 
$
3,486

 
$
359

Above/below-market lease revenue
$
2,003

 
$
6,473

 
$
32

Cash NOI attributable to outside interests(3)
$
—

 
$
22,065

 
$
8,795

Our share of Cash NOI(4)
$
221,376

 
$
11,569

 
$
15,121

______________________________________________________
(1)
Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three consolidated joint ventures ("JVs") which we manage and partially own and which own a combined nine Class A office properties totaling 2.6 million square feet in our submarkets. We are entitled to (i) distributions based on invested capital, (ii) fees for property management and other services, (iii) reimbursement of certain acquisition-related expenses and certain other costs and (iv) in most cases, additional distributions based on Cash NOI.
(2)
Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for two unconsolidated Funds which we manage and partially own and which own a combined eight Class A office properties totaling 1.8 million square feet in our submarkets. We are entitled to (i) priority distributions, (ii) distributions based on invested capital, (iii) a carried interest if the investors’ distributions exceed a hurdle rate, (iv) fees for property management and other services and (v) reimbursement of certain costs.  
(3)
Represents the share of Cash NOI attributable to interests other than our fully diluted shares under the applicable agreements.
(4)
Represents the share of Cash NOI attributable to our fully diluted shares.













NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Financial Results

 
 
 
 
 
 
 
 
 
 
 
 
Outstanding Loans
(As of June 30, 2017, unaudited and in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity Date(1)
 
Principal Balance
 
Our Share(2)
 
Effective Rate(3)
 
Swap Maturity Date
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Loans - Wholly Owned Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
2/1/2019
(4) 
$
148,457

 
$
148,457

 
4.00%
 
—
 
 
6/5/2019
(4) 
283,305

 
283,305

 
3.85%
 
—
 
 
10/1/2019
 
145,000

 
145,000

 
LIBOR + 1.25%
 
—
 
 
3/1/2020
(4)(5) 
342,852

 
342,852

 
4.46%
 
—
 
 
4/15/2022
 
340,000

 
340,000

 
2.77%
 
4/1/2020
 
 
7/27/2022
 
180,000

 
180,000

 
3.06%
 
7/1/2020
 
 
11/1/2022
 
400,000

 
400,000

 
2.64%
 
11/1/2020
 
 
6/23/2023
 
360,000

 
360,000

 
2.57%
 
7/1/2021
 
 
12/23/2023
 
220,000

 
220,000

 
3.62%
 
12/23/2021
 
 
1/1/2024
 
300,000

 
300,000

 
3.46%
 
1/1/2022
 
 
4/1/2025
 
102,400

 
102,400

 
2.84%
 
3/1/2020
 
 
12/1/2025
 
115,000

 
115,000

 
2.76%
 
12/1/2020
 
 
6/1/2027
(6) 
550,000

 
550,000

 
3.51%
 
6/1/2022
 
 
8/21/2020
(7) 
—

 
—

 
LIBOR + 1.40%
 
—
 
 
Subtotal
 
3,487,014

 
3,487,014

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Loans - Joint Ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
7/21/2019
 
288,000

 
57,600

 
LIBOR + 1.55%
 
—
 
 
2/28/2023
 
580,000

 
174,000

 
2.37%
 
3/1/2021
 
 
Total Consolidated Loans
(8) 
$
4,355,014

 
$
3,718,614

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Loans - Our Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
3/1/2023
 
110,000

 
26,729

 
2.30%
 
3/1/2021
 
 
7/1/2024
 
400,000

 
276,390

 
3.44%
 
7/1/2022
 
 
Total Unconsolidated Loans
 
$
510,000

 
$
303,119

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
 
 
 
$
4,021,733

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
___________________________________________________
Except as otherwise noted below, each loan (including our revolving credit facility) is non-recourse and secured by one or more separate collateral pools consisting of one or more properties, and requires monthly payments of interest only with the outstanding principal due upon maturity.
(1)
Maturity dates include the effect of extension options.
(2)
"Our Share" is determined by multiplying the principal balance by our share of the equity of the borrowing entity.
(3)
Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs.
(4)
Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule.
(5)
Interest rate is fixed until March 1, 2018.
(6)
Effective rate decreases to 3.16% on November 1, 2017.
(7)
$400 million revolving credit facility. Unused commitment fees range from 0.15% to 0.20%.
(8)
At June 30, 2017, the weighted average remaining life, including extension options, of our total consolidated term loans (not including our revolving credit facility and our unconsolidated Funds debt) was 5.4 years. For the $3.92 billion of term loans on which the interest rate was fixed under the terms of the loan or a swap, the weighted average (i) remaining life was 5.7 years, (ii) remaining period during which the interest rate was fixed was 3.3 years, (iii) annual interest rate was 3.20% and (iv) effective interest rate was 3.36% (including the non-cash amortization of prepaid loan costs).



NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data


Office Portfolio Summary
Total Office Portfolio as of June 30, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Submarket
 
Number of Properties
 
Rentable Square
Feet
 
Percent of Square Feet of Our Total Portfolio
 
Submarket Rentable Square Feet(1)
 
Our Market Share in Submarket(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills(3)
 
9

 
1,876,683

 
10.4
%
 
7,275,566
 
22.8
%
 
 
Brentwood
 
15

 
2,059,392

 
11.4

 
3,446,845
 
59.7

 
 
Burbank
 
1

 
420,949

 
2.3

 
6,919,450
 
6.1

 
 
Century City
 
3

 
948,362

 
5.2

 
10,064,599
 
9.4

 
 
Honolulu
 
4

 
1,752,753

 
9.7

 
5,088,599
 
34.4

 
 
Olympic Corridor
 
5

 
1,139,058

 
6.3

 
3,408,039
 
33.4

 
 
Santa Monica
 
11

 
1,422,086

 
7.9

 
9,619,872
 
14.8

 
 
Sherman Oaks/Encino
 
12

 
3,476,386

 
19.3

 
6,179,129
 
56.3

 
 
Warner Center/Woodland Hills
 
3

 
2,829,802

 
15.7

 
7,227,247
 
39.2

 
 
Westwood
 
6

 
2,126,676

 
11.8

 
4,721,523
 
45.0

 
 
Total
 
69

 
18,052,147

 
100.0
%
 
63,950,869
 
27.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
The submarket Rentable Square Feet is sourced from the 2017 second quarter CBRE Marketview report.
(2)
Our market share in the submarket is calculated by dividing Rentable Square Feet by the submarket Rentable Square Feet.
(3)
In our Beverly Hills submarket data we include one property consisting of approximately 216,000 square feet located just outside the Beverly Hills city limits. In calculating our percentage of the submarket, we have eliminated this property from both the numerator and the denominator for consistency with third party data.































NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data

 
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of June 30, 2017
Annualized Rent by Submarket
 
a2017q2ex99_chart-37621a07.jpg
 
 
 
 
 
 
 
 
 
 
 
Submarket
Percentage Leased(1)
 
Annualized Rent
 
Annualized Rent Per Leased Square Foot(2)
 
Monthly Rent Per Leased Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills
94.9
%
 
$
77,912,824

 
$
45.27

 
$
3.77

 
 
Brentwood
93.5

 
74,809,148

 
41.12

 
3.43

 
 
Burbank
100.0

 
16,773,977

 
39.85

 
3.32

 
 
Century City
90.7

 
34,873,655

 
44.03

 
3.67

 
 
Honolulu
88.5

 
49,264,814

 
33.52

 
2.79

 
 
Olympic Corridor
95.0

 
35,251,872

 
34.86

 
2.90

 
 
Santa Monica
96.8

 
80,730,835

 
63.42

 
5.28

 
 
Sherman Oaks/Encino
90.0

 
104,443,950

 
35.01

 
2.92

 
 
Warner Center/Woodland Hills
87.5

 
68,879,841

 
28.73

 
2.39

 
 
Westwood
89.0

 
80,876,785

 
46.11

 
3.84

 
 
Total / Weighted Average
91.4
%
 
$
623,817,701

 
39.88

 
3.32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recurring Office Capital Expenditures per Rentable Square Foot
 
 
 
 
 
 
For the three months ended June 30, 2017
 
$
0.09

 
 
For the six months ended June 30, 2017
 
$
0.14

 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________
(1)
Includes 454,579 square feet with respect to signed leases not yet commenced at June 30, 2017.
(2)
Represents annualized rent divided by leased square feet (excluding signed leases not commenced at June 30, 2017).

NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data


Office Lease Diversification
Total Office Portfolio as of June 30, 2017
q217officeleasediversity.jpg
 
 
 
 
 
 
 
Portfolio Median and Average Tenant Size
 
 
 
 
 
 
 
 
 
Median Tenant Size
 
Average Tenant Size
 
 
 
 
 
 
 
 
Square Feet
2,600
 
5,500
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Leases
 
Rentable Square Feet
 
Annualized Rent
 
 
Square Feet Under Lease
 
Number
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,500 or less
 
1,416

 
49.4
%
 
1,952,812

 
12.5
%
 
$
77,264,115

 
12.4
%
 
 
2,501-10,000
 
1,090

 
38.0

 
5,345,201

 
34.2

 
210,452,830

 
33.7

 
 
10,001-20,000
 
234

 
8.1

 
3,216,512

 
20.6

 
127,108,539

 
20.4

 
 
20,001-40,000
 
96

 
3.3

 
2,608,315

 
16.7

 
105,036,671

 
16.8

 
 
40,001-100,000
 
28

 
1.0

 
1,558,698

 
9.9

 
66,878,110

 
10.7

 
 
Greater than 100,000
 
5

 
0.2

 
961,415

 
6.1

 
37,077,436

 
6.0

 
 
Total
 
2,869

 
100.0
%
 
15,642,953

 
100.0
%
 
$
623,817,701

 
100.0
%
 
 
 
 
 
 
 







NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data


Largest Office Tenants
Total Office Portfolio as of June 30, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenants paying 1% or more of our aggregate Annualized Rent:
 
 
 
 
 
Tenant
 
Number of Leases
 
Number of Properties
 
Lease Expiration(1)
 
Total Leased Square Feet
 
Percent of Rentable Square Feet
 
Annualized Rent
 
Percent of Annualized Rent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time Warner(2)
 
3

 
3

 
2019-2021
 
433,252

 
2.4
%
 
$
17,198,129

 
2.8
%
 
 
UCLA(3)
 
22

 
10

 
2017-2027
 
215,546

 
1.2

 
9,940,589

 
1.6

 
 
William Morris Endeavor(4)
 
1

 
1

 
2027
 
185,296

 
1.0

 
9,839,205

 
1.6

 
 
Equinox Fitness(5)
 
5

 
5

 
2019-2033
 
180,087

 
1.0

 
7,027,124

 
1.1

 
 
Total
 
31

 
19

 
 
 
1,014,181

 
5.6
%
 
$
44,005,047

 
7.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Expiration dates are per lease.  Ranges reflect leases other than storage and similar leases.
 
 
(2) The square footage under these leases expire as follows: 421,000 square feet in 2019, 2,000 square feet in 2020, and 10,000 square feet in 2021.
 
 
(3) The square footage under these leases expire as follows: 4,000 square feet in 2017, 49,000 square feet in 2018, 13,000 square feet in 2019, 40,000 square feet in 2020, 41,000 square feet in 2021, 54,000 square feet in 2022, and 15,000 square feet in 2027 (tenant has an option to terminate 31,000 square feet in 2020 and 15,000 square feet in 2023).
 
 
(4) Tenant has options to terminate 2,000 square feet in 2020 and 183,000 square feet in 2022.

 
 
(5) The square footage under these leases expire as follows: 33,000 square feet in 2019, 42,000 square feet in 2020, 31,000 square feet in 2027, 44,000 square feet in 2028, and 30,000 square feet in 2033.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
















NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data


Office Industry Diversification
Total Office Portfolio as of June 30, 2017

Percentage of Annualized Rent by Tenant Industry
a2017q2ex99_chart-37881a07.jpg
 
 
 
 
 
 
 
 
Industry
 
Number of Leases
 
Annualized Rent as a Percent of Total
 
 
 
 
 
 
 
 
 
Legal
 
562

 
18.4
%
 
 
Financial Services
 
378

 
14.4

 
 
Entertainment
 
203

 
12.4

 
 
Accounting & Consulting
 
364

 
10.5

 
 
Real Estate
 
267

 
10.5

 
 
Health Services
 
368

 
8.4

 
 
Retail
 
204

 
6.2

 
 
Technology
 
123

 
5.1

 
 
Insurance
 
104

 
4.5

 
 
Educational Services
 
46

 
3.0

 
 
Public Administration
 
93

 
2.5

 
 
Advertising
 
66

 
2.0

 
 
Manufacturing & Distribution
 
47

 
1.1

 
 
Other
 
44

 
1.0

 
 
Total
 
2,869

 
100.0
%
 
 
 
 
 
 
 
 
NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data

Office Lease Expirations
Total Office Portfolio as of June 30, 2017
a2017q2ex99_chart-37968a07.jpg
(1) Average of the percentage of leases expiring at June 30, 2014, 2015, and 2016 with the same remaining duration as the leases for the labeled year had at June 30, 2017. Acquisitions are included in the comparable average commencing in the quarter after the acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year of Lease Expiration
 
Number of Leases
 
Rentable Square Feet
 
Expiring Square Feet as a Percent of Total
 
Annualized Rent at June 30, 2017
 
Annualized Rent as a Percent of Total
 
Annualized Rent Per Leased Square Foot(1)
 
Annualized Rent Per Leased Square Foot at Expiration(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short Term Leases
 
66

 
199,025

 
1.1
%
 
$
6,706,672

 
1.1
%
 
$
33.70

 
$
33.70

 
 
2017
 
229

 
937,048

 
5.2

 
33,168,364

 
5.3

 
35.40

 
35.52

 
 
2018
 
604

 
2,151,581

 
11.9

 
84,781,766

 
13.6

 
39.40

 
40.54

 
 
2019
 
489

 
2,294,997

 
12.7

 
88,904,988

 
14.3

 
38.74

 
40.67

 
 
2020
 
509

 
2,485,154

 
13.8

 
98,435,612

 
15.8

 
39.61

 
43.21

 
 
2021
 
348

 
2,056,143

 
11.4

 
82,371,699

 
13.2

 
40.06

 
44.77

 
 
2022
 
264

 
1,584,768

 
8.8

 
62,035,504

 
9.9

 
39.14

 
46.12

 
 
2023
 
142

 
1,429,054

 
7.9

 
58,422,189

 
9.4

 
40.88

 
50.05

 
 
2024
 
81

 
652,141

 
3.6

 
26,195,617

 
4.2

 
40.17

 
49.83

 
 
2025
 
45

 
538,718

 
3.0

 
25,011,528

 
4.0

 
46.43

 
59.49

 
 
2026
 
32

 
431,755

 
2.4

 
19,649,950

 
3.1

 
45.51

 
60.09

 
 
Thereafter
 
60

 
882,569

 
4.9

 
38,133,812

 
6.1

 
43.21

 
57.31

 
 
Subtotal/Weighted Average
 
2,869

 
15,642,953

 
86.7
%
 
623,817,701

 
100.0
%
 
39.88

 
45.11

 
 
Signed leases not commenced
 
454,579

 
2.5

 
 
 
 
 
 
 
 
 
 
Available
 
1,556,812

 
8.6

 
 
 
 
 
 
 
 
 
 
Building Management Use
 
126,964

 
0.7

 
 
 
 
 
 
 
 
 
 
BOMA Adjustment(3)
 
 
 
270,839

 
1.5

 
 
 
 
 
 
 
 
 
 
Total/Weighted Average
 
2,869

 
18,052,147

 
100.0
%
 
$
623,817,701

 
100.0
%
 
39.88

 
45.11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
___________________________________________________
(1)
Represents annualized rent at June 30, 2017 divided by leased square feet.
(2)
Represents annualized rent at expiration divided by leased square feet.
(3)
Represents the square footage adjustments for leases that do not reflect BOMA remeasurement.
NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data


Office Quarterly Lease Expirations - Next Four Quarters
Total Office Portfolio as of June 30, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Expiring Square Feet(1)
 
364,860
 
572,188
 
501,296
 
528,837
 
 
Percentage of Portfolio
 
2.0
%
 
3.2
%
 
2.8
%
 
2.9
%
 
 
Expiring Rent per Square Foot(2)
 
$35.39
 
$35.61
 
$37.61
 
$39.09
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Submarket Data
 
 
 
 
 
Due to the small square footage of leases in each quarter in each submarket, and the varying terms and square footage of the individual leases and the individual buildings involved, the data in this table should only be extrapolated with caution.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills
Expiring SF(1)
 
23,258

 
26,871

 
62,705

 
56,277

 
 
Expiring Rent per SF(2)
 
$51.04
 
$40.74
 
$45.42
 
$44.06
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brentwood
Expiring SF(1)
 
63,676

 
40,858

 
72,799

 
52,779

 
 
Expiring Rent per SF(2)
 
$33.79
 
$40.57
 
$38.48
 
$44.69
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Century City
Expiring SF(1)
 
3,875

 
53,801

 
10,229

 
58,604

 
 
Expiring Rent per SF(2)
 
$38.23
 
$37.54
 
$42.35
 
$40.41
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Honolulu
Expiring SF(1)
 
38,347

 
51,753

 
59,239

 
54,997

 
 
Expiring Rent per SF(2)
 
$34.05
 
$32.99
 
$33.92
 
$35.20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Olympic Corridor
Expiring SF(1)
 
50,147

 
46,879

 
29,794

 
22,441

 
 
Expiring Rent per SF(2)
 
$33.00
 
$36.03
 
$33.50
 
$32.67
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Santa Monica
Expiring SF(1)
 
4,798

 
19,285

 
42,595

 
26,357

 
 
Expiring Rent per SF(2)
 
$60.74
 
$59.35
 
$49.19
 
$45.07
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sherman Oaks/Encino
Expiring SF(1)
 
105,985

 
117,737

 
97,270

 
136,502

 
 
Expiring Rent per SF(2)
 
$33.49
 
$35.63
 
$33.80
 
$35.27
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warner Center/Woodland Hills
Expiring SF(1)
 
52,685

 
187,751

 
80,848

 
42,378

 
 
Expiring Rent per SF(2)
 
$29.74
 
$31.16
 
$29.67
 
$28.89
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Westwood
Expiring SF(1)
 
22,089

 
27,253

 
45,817

 
78,502

 
 
Expiring Rent per SF(2)
 
$47.90
 
$37.23
 
$43.22
 
$45.50
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________________________________________________
(1)
Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of June 30, 2017, other than 199,025 square feet of short-term leases.
(2)
Includes the impact of rent escalations over the entire term of the expiring lease, and is therefore not directly comparable to starting rents. Fluctuations in this number from quarter to quarter primarily reflects the mix of buildings/submarkets involved, and is also impacted by the varying terms and square footage of the individual leases expiring.
NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Portfolio Data

Office Leasing Activity
Total Office Portfolio during the three months ended June 30, 2017

 
 
 
 
 
Net Absorption During Quarter(1)
(0.38)%
 
 
 
 
 

 
 
 
 
 
 
 
 
 
Office Leases Signed During Quarter
Number of leases
 
Rentable Square Feet
 
Weighted Average Lease Term (months)
 
 
 
 
 
 
 
 
 
 
New leases
94
 
328,802
 
57
 
 
Renewal leases
144
 
821,940
 
54
 
 
All leases
238
 
1,150,742
 
54
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
Change in Annual Rental Rates (Per Square Foot) for Office Leases Executed during the Quarter(2)
 
 
 
 
 
 
 
 
 
 
 
Starting Cash Rent
 
Straight-line Rent
 
Expiring Cash Rent
 
 
 
 
 
 
 
 
 
 
Leases signed during the quarter
$41.57
 
$42.78
 
N/A
 
 
Prior leases for the same space
$33.46
 
$33.78
 
$37.89
 
 
Percentage change
24.2%
 
26.6%
 
9.7%
(3) 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Average Office Lease Transaction Costs (Per Square Foot)(4)
 
 
 
 
 
 
 
 
 
Lease Transaction Costs
 
Lease Transaction Costs per Annum
 
 
 
 
 
 
 
 
New leases signed during the quarter
$33.41
 
$7.09
 
 
Renewal leases signed during the quarter
$20.43
 
$4.57
 
 
All leases signed during the quarter
$24.13
 
$5.32
 
 
 
 
 
 
 
________________________________________________________________
(1)
Net absorption represents the change in percentage leased between the last day of the current and prior quarters, excluding properties acquired or sold during the current quarter.  Net absorption can be translated into square feet by multiplying the net absorption percentage by the ending portfolio rentable square feet (excluding properties acquired during the current quarter). For the second quarter, this was approximately negative 68,000 square feet.
(2)
Represents the average initial stabilized cash and straight-line rents on new and renewal leases signed during the quarter compared to the prior lease on the same space, excluding Short Term Leases and leases where the prior lease was terminated more than a year before signing of the new lease.
(3)
The percentage change for expiring cash rent represents the comparison between the starting cash rent on leases executed during the quarter and the expiring cash rent on the prior leases for the same space.
(4)
Represents the weighted average of tenant improvements and leasing commissions.







NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.


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Portfolio Data

Multifamily Portfolio Summary
as of June 30, 2017

Annualized Rent by Submarket
a2017q2ex99_chart-37610a07.jpg
 
 
 
 
 
 
 
 
 
 
Submarket
 
Number of Properties
 
Number of Units
 
Units as a Percent of Total
 
 
 
 
 
 
 
 
 
 
 
Brentwood
 
5
 
950

 
28
%
 
 
Honolulu
 
3
 
1,550

 
47

 
 
Santa Monica
 
2
 
820

 
25

 
 
Total
 
10
 
3,320

 
100
%
 
 
 
 
 
 
 
 
 
 
 
Submarket
 
Percent Leased
 
Annualized Rent
 
Monthly Rent Per Leased Unit
 
 
 
 
 
 
 
 
 
 
 
Brentwood
 
99.8
%
 
$
29,906,412

 
$
2,629

 
 
Honolulu
 
99.0

 
33,279,420

 
1,811

 
 
Santa Monica(1)
 
99.9

 
28,421,472

 
2,892

 
 
Total / Weighted Average
 
99.5
%
 
$
91,607,304

 
2,315

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recurring Multifamily Capital Expenditures per Unit
 
 
 
 
 
 
 
For the three months ended June 30, 2017
$
125

 
 
For the six months ended June 30, 2017
$
222

 
 
 
 
 
________________________________________________________________
(1)    Excludes 10,495 square feet of ancillary retail space generating annualized rent of $375,085.

NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Developments

Multifamily Development Projects(1) 
landmarkiia03.jpg
Rendering of our proposed new residential tower in Brentwood (center), with a new park in the foreground, and our existing residential and office buildings (left and right, respectively).
 
We are currently working on two multifamily development projects located on sites that we already own:
Moanalua Hillside Apartments, Honolulu, Hawaii
Projected Units (net)
Estimated Cost
Anticipated Delivery
475
$120 million
Phase 1 (238 Units) - Late 2017
Phase 2 (237 Units) - Late 2018
We are adding 475 units (net of existing units removed) to our Moanalua Hillside apartment community located on 28 acres near downtown Honolulu and key military bases. The $120 million estimated cost of the new units does not include the cost of the land which we owned before beginning the project. We are also investing additional capital to upgrade the existing units, improve the parking and landscaping, build a new leasing and management office, and construct a new recreation and fitness facility with a new pool.

The Landmark, Brentwood, California
Projected Units
Estimated Cost
Anticipated Start of Construction
Anticipated Construction Period
376
$120 - $140 million
Late 2017
18-24 months
The Landmark will be the first new residential high-rise development west of the 405 freeway in almost 40 years, offering stunning ocean views and luxury amenities. The 34 story, 376 unit tower will be located on a site that is directly adjacent to an existing office building and a 712 unit residential property that we own. As part of the project, we investing additional capital to build a one acre park on Wilshire Boulevard that will be available to the public and provide a valuable amenity to our surrounding properties and community. The $120 - $140 million estimated cost does not include the cost of the land or the existing underground parking garage, both of which we owned before beginning the project.

(1)
All figures are estimates, as development in our markets is long and complex and subject to inherent uncertainties.
NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Guidance

 
2017 OUTLOOK(1) 
Metric
2017 Guidance
(per share)
Net Income Per Common Share - Diluted
$0.52 to $0.58
Funds From Operations (FFO) - Fully Diluted
$1.89 to $1.93

Below are some of the assumptions we used in providing this guidance:
Metric
Commentary
Assumption Range
Compared to Prior Guidance
Average Office Occupancy
 
89.5% to 90.5%
Unchanged
Residential Leased Rate
We manage our apartment portfolio to be fully leased due to rent control in our markets. Our guidance does not include the impact of the lease up of newly developed units placed in service during the year.
Essentially Fully Leased
Unchanged
Same Property Cash NOI
Includes revenue from early lease terminations and prior year CAM reconciliations.
Annual Increase of 5.0% to 6.0%
Unchanged
Core Same Property Cash NOI
Excludes revenue from early lease terminations and prior year CAM reconciliations.
Annual Increase of 5.5% to 6.5%
Unchanged
Net Revenue from Above/Below Market Leases
Includes the impact of the consolidated acquisition in July 2017.
$15.5 to $17.5 million
Unchanged
Straight-Line Revenue
Includes the write off of straight line balances on early termination of leases and the impact of a new consolidated acquisition.
$10 to $12 million
Unchanged
G&A
 
$35 to $39 million
Unchanged
Interest Expense
Includes the impact of one time cash and non cash costs incurred to consolidate and pay down debt. Includes 100%, not our pro rata share, of interest paid by our consolidated JVs.
$147 to $149 million
Revised
Weighted Average Fully Diluted Shares Outstanding
Reflects the sale of 9.1 million shares for approximately $350 million under our ATM program during the second quarter.
184 to 185 million
Revised
____________________________________________
(1)
Except as disclosed, our guidance does not include the impact of possible future property acquisitions or dispositions, financings, other possible capital markets activities or impairment charges. The guidance and representative assumptions on this page are forward looking statements, subject to the safe harbor contained at the beginning of this Earnings Package, and reflect our views of current and future market conditions. Ranges represent a set of likely assumptions, but actual results could fall outside the range presented. Only a few of our assumptions underlying our guidance are disclosed above, and our actual results will be affected by known and unknown risks, trends, uncertainties and other factors, some of which are beyond our control or ability to predict. Although we believe that the assumptions underlying our guidance are reasonable, they are not guarantees of future performance and some of them will inevitably prove to be incorrect.  As a result, our actual future results can be expected to differ from our expectations, and those differences could be material.





NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Guidance


Reconciliation of Non-GAAP Guidance
(Unaudited; in millions, except per share amounts)

Below is a reconciliation of our guided Net Income Per Common Share - Diluted to FFO per share - Fully Diluted for 2017:
Reconciliation of net income attributable to common stockholders to FFO
Low
 
High
 
Net income attributable to common stockholders
$
83

 
$
92

Adjustments for depreciation and amortization of real estate assets
282

 
276

Adjustments for noncontrolling interests, consolidated JVs and unconsolidated funds
(16
)
 
(13
)
FFO
$
349

 
$
355

 
Reconciliation of shares outstanding
High
 
Low
 
 
Weighted average shares of common stock outstanding - diluted
160

 
159
Weighted average units in our operating partnership outstanding
25

 
25
Weighted average fully diluted shares outstanding
185

 
184
 
Per share
Low
 
High
 
Net Income Per Common Share - Diluted
$
0.52

 
$
0.58

FFO per share - Fully Diluted
$
1.89

 
$
1.93

_____________________________________________
This reconciliation should be used as an example only, with the numbers presented only as representative assumptions. Ranges represent a set of likely assumptions, but actual results could fall outside the range presented. All assumptions are forward looking statements, subject to the safe harbor contained at the beginning of this Earnings Package, and reflect our views of current and future market conditions. Our actual results will be affected by known and unknown risks, trends, uncertainties and other factors, some of which are beyond our control or ability to predict. Although we believe that the assumptions underlying the guidance are reasonable, they are not guarantees of future performance and some of them will inevitably prove to be incorrect.  As a result, our actual future results can be expected to differ from our expectations, and those differences could be material.






















NOTE:  Please see the "Definitions" section at the end of this Earnings Package for certain definitions.

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Definitions

Adjusted Funds From Operations (AFFO):  We calculate AFFO from FFO by (i) eliminating the impact on FFO of straight-line rent; amortization/accretion of acquired above/below market leases; amortization/accretion of loan premiums/discounts; amortization and hedge ineffectiveness of interest rate contracts; amortization/expense of loan costs; non-cash compensation expense, and (ii) subtracting recurring capital expenditures, tenant improvements and leasing commissions (including adjusting for the effect of such items attributable to consolidated joint ventures and unconsolidated real estate funds, but not for noncontrolling interests included in our calculation of fully diluted equity). Recurring capital expenditures, tenant improvements and leasing commissions are those required to maintain current revenues once a property has been stabilized, generally excluding those for acquired buildings being stabilized, newly developed space and upgrades to improve revenues or operating expenses, as well as those resulting from casualty damage or bringing the property into compliance with governmental requirements. We report AFFO because it is a widely reported measure of the performance of equity Real Estate Investments Trusts (REITs), and is also used by some investors to compare our performance with other REITs.  However, the National Association of Real Estate Investment Trusts (NAREIT) has not defined AFFO, and other REITs may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to the AFFO of other REITs. AFFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. AFFO should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our liquidity or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.

AFFO Payout Ratio: Represents dividends paid within each period divided by the AFFO for that period.
 
Annualized Rent:  Represents annualized cash base rent (i.e. excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the reporting date and expiring after the reporting date (does not include 454,579 square feet with respect to signed leases not yet commenced at June 30, 2017).  For our triple net office properties (in Honolulu and two single tenant buildings in Los Angeles), annualized rent is calculated by adding expense reimbursements to base rent. Annualized Rent does not include lost rent recovered from insurance and rent for building management use. Annualized Rent does include rent for a health club that we own and operate in Honolulu and our corporate headquarters in Santa Monica.
  
Average Office Occupancy: Calculated by averaging the Occupancy Rates on the last day of the current and prior quarter and, for reporting periods longer than a quarter, by averaging the Occupancy Rates for all the quarters in the respective reported period.

Beverly Hills: We include in our Beverly Hills submarket data one property consisting of approximately 216,000 square feet located just outside the Beverly Hills city limits. In calculating our percentage of the submarket, we have eliminated this property from both the numerator and the denominator for consistency with third party data.

Consolidated Portfolio: Includes all of the properties included in our consolidated results, including our consolidated joint ventures. We own 100% of our consolidated portfolio except for nine office properties totaling 2.6 million square feet which we own through three consolidated joint ventures and in which we own a weighted average of approximately 28% based on square footage.

Consolidated Net Debt: Represents our consolidated debt, net of cash and cash equivalents and before deducting unamortized deferred loan costs.

Equity Capitalization: Represents our Fully Diluted Shares multiplied by the closing price of our common stock on June 30, 2017.

Fully Diluted Shares:  Represents the sum of our diluted shares outstanding plus the outstanding units in our operating partnership.


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Definitions

Funds From Operations (FFO):   We calculate FFO in accordance with the standards established by NAREIT by excluding gains (or losses) on sales of investments in real estate, real estate depreciation and amortization (other than amortization of deferred loan costs) from our net income (including adjusting for the effect of such items attributable to consolidated joint ventures and unconsolidated real estate funds, but not for noncontrolling interests included in our calculation of fully diluted equity). We report FFO because it is a widely reported measure of the performance of equity REITs, and is also used by some investors to identify trends in occupancy rates, rental rates and operating costs from year to year, and to compare our performance with other REITs. FFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. FFO has limitations as a measure of our performance because it excludes depreciation and amortization of real estate, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. FFO should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our liquidity or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to the FFO of other REITs.
   
GAAP: Refers to accounting principles generally accepted in the United States.

Net Income Per Common Share - Diluted: We calculate Net Income Per Common Share - Diluted by dividing the net income attributable to common stockholders for the period by the weighted average number of common shares and dilutive instruments outstanding during the period using the treasury stock method. We account for unvested LTIP awards that contain nonforfeitable rights to dividends as participating securities and include these securities in the computation using the two-class method.

Net Operating Income (NOI):  We calculate NOI as revenue less operating expenses attributable to the properties that we own and operate. We present two forms of NOI:
•
NOI: is calculated by excluding the following from our net income: general and administrative expense, depreciation and amortization expense, other income, other expense, income, including depreciation, from unconsolidated real estate funds, interest expense, acquisition related expenses, gains (or losses) on sales of investments in real estate and net income attributable to noncontrolling interests.
•
Cash NOI: is calculated by excluding from NOI our straight-line rent and the amortization/accretion of acquired above/below market leases.
We report NOI because it is a widely recognized measure of the performance of equity REITs, and is used by some investors to identify trends in occupancy rates, rental rates and operating costs and to compare our operating performance with that of other REITs. NOI is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure.  NOI has limitations as a measure of our performance because it excludes depreciation and amortization expense, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. NOI should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our liquidity or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends. Other REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to the NOI of other REITs.
Occupancy Rate:  The percentage leased, excluding signed leases not yet commenced, as of June 30, 2017.

Pro Forma Net Debt: Represents our share of Consolidated Net Debt and our share of our unconsolidated real estate funds' debt, net of cash and cash equivalents and before deducting unamortized deferred loan costs.

Rentable Square Feet:  Based on the BOMA measurement.  At June 30, 2017, total consists of 16,097,532 leased square feet (including 454,579 square feet with respect to signed leases not commenced), 1,556,812 available square feet, 126,964 building management use square feet and 270,839 square feet of BOMA adjustment on leased space.


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Definitions

Same Property NOI:  To facilitate a comparison of NOI between reported periods, we report NOI for a subset of our consolidated properties referred to as our “same properties”, which are properties that have been owned and operated by us in a consistent manner, and reported in our consolidated results, during the entire span of both periods being compared. Our same property results do not include the results of our unconsolidated Funds.  We excluded from our same property subset for 2017 any properties (i) acquired on or after January 1, 2016; (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements on or after January 1, 2016; or (iii) that underwent a major repositioning project that we believed significantly affected its results at any point during the period commencing on or after January 1, 2016.

Our same properties for 2017 include all of our consolidated properties other than (i) eight office properties totaling 2.5 million square feet which we acquired during 2016 and 2017 through two consolidated joint ventures which we manage and in which we hold a weighted average interest of approximately 27% based on square footage, (ii) a multifamily property in Honolulu where we expect to add a net additional 475 units, (iii) a 668,000 square foot office property in Los Angeles which included a 35,000 square foot gym which is undergoing a repositioning, (iv) a 80,000 square foot office property in Honolulu (a joint venture in which we own a two-thirds interest) undergoing a repositioning and (v) a 168,000 square foot office property which we sold during the third quarter of 2016.

Short Term Leases:  Represents leases that expired on or before the reporting date or had a term of less than one year, including hold over tenancies, month to month leases and other short term occupancies.

Total Portfolio: Includes our Consolidated Portfolio plus eight properties totaling 1.8 million square feet owned by our two unconsolidated real estate Funds, in which we own a weighted average of approximately 60% based on square footage.


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