Maryland | 1-33106 | 20-3073047 |
(State or other jurisdiction of incorporation) | Commission file number | (I.R.S. Employer identification No.) |
DOUGLAS EMMETT, INC. | |||
Dated: | November 7, 2017 | By: | /s/ MONA M. GISLER |
Mona M. Gisler | |||
Chief Financial Officer |
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• | Debt Pay Down: During the third quarter, we sold an additional 6.6 million shares under our ATM for $250 million and completed our debt reduction program by paying off a $342 million loan with an interest rate of 4.46%. Overall, we reduced our share of net debt to enterprise value to 32% and lowered our weighted average annual fixed interest rate to 3.08%. Over one-third of our total office portfolio is now debt free, and we have no debt maturities until 2019. |
• | Financial Results: For the three months ended September 30, 2017 compared to three months ended September 30, 2016: |
◦ | Net income attributable to common stockholders decreased by 19.6% to $25.6 million due to $13.2 million of gains from investment sales recorded in 2016. Excluding the prior year gains, net income attributable to common stockholders increased by 24.8% or $5.1 million, |
◦ | Funds From Operations (FFO) increased by 8.2% to $90.8 million, or $0.48 per fully diluted share, |
◦ | Adjusted Funds From Operations (AFFO) increased by 8.9% to $74.8 million, and |
◦ | Same Property Cash NOI increased by 4.9% to $107.3 million, including the impacts of overall higher utility rates and vacancy at our Honolulu residential properties described below under Multifamily Fundamentals. |
• | Acquisitions: On July 20, 2017, a consolidated joint venture that we manage, and in which we own a 20% interest, acquired a 171,000 square foot Class A office property for $177 million, of which $77.5 million was borrowed under the joint venture's secured, non–recourse, interest only loan facility that matures in July 2019 and bears interest at LIBOR + 1.55%. Located in the heart of the Beverly Hills golden triangle, this acquisition increases our share of the Beverly Hills Class A office market to over 25%. The property was 85.8% leased at acquisition. |
• | Development: Our first tenants took occupancy at our Moanalua multifamily development on November 1. Even with major construction continuing, we pre-leased 30 units at above pro forma rents. The existing units at Moanalua are subject to a regulatory agreement which requires half of the 696 units to be income restricted in exchange for certain tax exemptions. That agreement expires at year end, and we are in the process of repositioning the existing Moanalua buildings. We expect the shift to market rent will ultimately increase annual multifamily revenue by over $1.2 million and operating expenses by about $800,000. The expenses will impact us at the beginning of 2018, but it may take some time to transition the income restricted units to market rent. At our Brentwood development, we have completed the entitlements and plan to start construction of our 376 unit tower in the next few months. This is the first high rise west of the 405 freeway in over 40 years, so we have decided to upgrade the amenities to match its uniqueness. This decision, along with escalations in construction costs, has increased our budget to between $180 million and $200 million. See page 22 for more information. |
• | Office Fundamentals: We signed 710,000 square feet of office leases during the third quarter. Comparing office leases we signed during the third quarter to the expiring leases covering the same space, straight-line rents increased 23.2% and starting cash rents increased 8.0% compared to expiring cash rents. These numbers would have been even higher but for a disproportionate amount of leasing in Honolulu (where there has been less rent growth), and rent roll down from a number of expiring long-term leases executed during the prior peak with rent that had grown by an average of 42%. |
• | Multifamily Fundamentals: Rents for leases to new multifamily tenants this quarter were up 4.3% over the expiring rent for the same unit. While our Los Angeles multifamily properties remained over 99% leased, the average leased rate for our entire multifamily portfolio declined to 98.5% as a result of higher vacancy at Moanalua and one other Honolulu property due to construction disruption, recapture of income restricted units, and lower enrollment at a nearby university. |
• | Dividends: On October 13, 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 September 30, 2017. |
• | Guidance: We are narrowing our full year guidance for FFO to be between $1.89 per share and $1.91 per share. The one cent decline in the midpoint and lower cash NOI reflect higher overall utility rates and residential vacancy in Honolulu. In addition, our prior guidance did not include the impact from completing our debt reduction program. See page 23 for more information. |
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COMPANY OVERVIEW | |
FINANCIAL RESULTS | |
PORTFOLIO DATA | |
![]() | Company Overview |
Office Portfolio | |||||||
Consolidated | Total | ||||||
Properties | 62 | 70 | |||||
Rentable square feet (in thousands) | 16,390 | 18,220 | |||||
Leased rate | 91.1 | % | 91.1 | % | |||
Occupancy rate | 88.9 | % | 88.9 | % | |||
Multifamily Portfolio | |||||||
Consolidated | |||||||
Properties | 10 | ||||||
Units | 3,320 | ||||||
Leased rate | 98.5 | % | |||||
Market Capitalization (in thousands, except price per share) | ||||||
Fully diluted shares outstanding as of September 30, 2017 | 195,013 | |||||
Common stock closing price per share (NYSE:DEI) | $ | 39.42 | ||||
Equity capitalization | $ | 7,687,401 | ||||
Net Debt (in thousands) | |||||||||
Consolidated | Our Share | ||||||||
$ | 4,087,638 | $ | 3,692,357 | ||||||
Less: cash and cash equivalents | (167,742 | ) | (95,696 | ) | |||||
Net debt | $ | 3,919,896 | $ | 3,596,661 | |||||
Leverage Ratio (in thousands, except percentages) | ||||||
Pro forma enterprise value | $ | 11,284,062 | ||||
Our share of net debt to pro forma enterprise value | 32 | % | ||||
AFFO Payout Ratio | |||||
Three months ended September 30, 2017 | 57.4 | % | |||
![]() | Company Overview |
![]() | Company Overview |
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 |
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 |
![]() | Financial Results |
September 30, 2017 | December 31, 2016 | ||||||
Unaudited | Audited | ||||||
Assets | |||||||
Investment in real estate: | |||||||
Land | $ | 1,055,604 | $ | 1,022,340 | |||
Buildings and improvements | 7,735,718 | 7,221,124 | |||||
Tenant improvements and lease intangibles | 737,606 | 696,197 | |||||
Property under development | 106,891 | 58,459 | |||||
Investment in real estate, gross | 9,635,819 | 8,998,120 | |||||
Less: accumulated depreciation and amortization | (1,959,448 | ) | (1,789,678 | ) | |||
Investment in real estate, net | 7,676,371 | 7,208,442 | |||||
Cash and cash equivalents | 167,742 | 112,927 | |||||
Tenant receivables, net | 2,856 | 2,165 | |||||
Deferred rent receivables, net | 102,178 | 93,165 | |||||
Acquired lease intangible assets, net | 4,616 | 5,147 | |||||
Interest rate contract assets | 37,115 | 35,656 | |||||
Investment in unconsolidated real estate funds | 105,016 | 144,289 | |||||
Other assets | 17,278 | 11,914 | |||||
Total assets | $ | 8,113,172 | $ | 7,613,705 | |||
Liabilities | |||||||
Secured notes payable and revolving credit facility, net | $ | 4,048,828 | $ | 4,369,537 | |||
Interest payable, accounts payable and deferred revenue | 118,363 | 75,229 | |||||
Security deposits | 48,799 | 45,990 | |||||
Acquired lease intangible liabilities, net | 69,114 | 67,191 | |||||
Interest rate contract liabilities | 2,002 | 6,830 | |||||
Dividends payable | 38,989 | 34,857 | |||||
Total liabilities | 4,326,095 | 4,599,634 | |||||
Equity | |||||||
Douglas Emmett, Inc. stockholders' equity: | |||||||
Common stock | 1,695 | 1,515 | |||||
Additional paid-in capital | 3,278,642 | 2,725,157 | |||||
Accumulated other comprehensive income | 22,539 | 15,156 | |||||
Accumulated deficit | (866,954 | ) | (820,685 | ) | |||
Total Douglas Emmett, Inc. stockholders' equity | 2,435,922 | 1,921,143 | |||||
Noncontrolling interests | 1,351,155 | 1,092,928 | |||||
Total equity | 3,787,077 | 3,014,071 | |||||
Total liabilities and equity | $ | 8,113,172 | $ | 7,613,705 |
![]() | Financial Results |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | |||||||||||||||
Office rental | |||||||||||||||
Rental revenues | $ | 140,993 | $ | 128,744 | $ | 409,674 | $ | 366,400 | |||||||
Tenant recoveries | 15,854 | 12,914 | 39,705 | 34,111 | |||||||||||
Parking and other income | 27,771 | 25,950 | 81,129 | 74,572 | |||||||||||
Total office revenues | 184,618 | 167,608 | 530,508 | 475,083 | |||||||||||
Multifamily rental | |||||||||||||||
Rental revenues | 22,282 | 22,801 | 66,760 | 67,634 | |||||||||||
Parking and other income | 1,849 | 1,712 | 5,594 | 5,191 | |||||||||||
Total multifamily revenues | 24,131 | 24,513 | 72,354 | 72,825 | |||||||||||
Total revenues | 208,749 | 192,121 | 602,862 | 547,908 | |||||||||||
Operating Expenses | |||||||||||||||
Office expenses | 62,468 | 56,926 | 175,240 | 158,190 | |||||||||||
Multifamily expenses | 6,041 | 5,950 | 17,866 | 17,322 | |||||||||||
General and administrative | 8,441 | 8,099 | 27,189 | 25,573 | |||||||||||
Depreciation and amortization | 69,974 | 63,827 | 206,141 | 181,947 | |||||||||||
Total operating expenses | 146,924 | 134,802 | 426,436 | 383,032 | |||||||||||
Operating income | 61,825 | 57,319 | 176,426 | 164,876 | |||||||||||
Other income | 2,659 | 2,295 | 7,152 | 6,527 | |||||||||||
Other expenses | (1,659 | ) | (2,916 | ) | (5,156 | ) | (7,828 | ) | |||||||
Income, including depreciation, from unconsolidated funds | 1,137 | 2,334 | 4,427 | 5,564 | |||||||||||
Interest expense | (35,454 | ) | (36,479 | ) | (110,408 | ) | (109,842 | ) | |||||||
Income before gains | 28,508 | 22,553 | 72,441 | 59,297 | |||||||||||
Gains on sales of investments in real estate | — | 13,245 | — | 14,327 | |||||||||||
Net income | 28,508 | 35,798 | 72,441 | 73,624 | |||||||||||
Less: Net income attributable to noncontrolling interests | (2,894 | ) | (3,950 | ) | (7,534 | ) | (7,928 | ) | |||||||
Net income attributable to common stockholders | $ | 25,614 | $ | 31,848 | $ | 64,907 | $ | 65,696 | |||||||
Net income per common share - basic | $ | 0.154 | $ | 0.210 | $ | 0.409 | $ | 0.440 | |||||||
Net income per common share - diluted | $ | 0.154 | $ | 0.206 | $ | 0.408 | $ | 0.428 | |||||||
Weighted average shares of common stock outstanding - basic | 165,471 | 150,753 | 158,000 | 148,578 | |||||||||||
Weighted average shares of common stock outstanding - diluted | 165,520 | 153,419 | 158,419 | 152,819 |
![]() | Financial Results |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Funds From Operations (FFO) | |||||||||||||||
Net income attributable to common stockholders | $ | 25,614 | $ | 31,848 | $ | 64,907 | $ | 65,696 | |||||||
Depreciation and amortization of real estate assets | 69,974 | 63,827 | 206,141 | 181,947 | |||||||||||
Net income attributable to noncontrolling interests | 2,894 | 3,950 | 7,534 | 7,928 | |||||||||||
Adjustments attributable to unconsolidated funds(2) | 4,084 | 4,037 | 12,140 | 11,935 | |||||||||||
Adjustments attributable to consolidated joint ventures(2) | (11,798 | ) | (6,510 | ) | (31,363 | ) | (11,326 | ) | |||||||
Gains on sales of investments in real estate | — | (13,245 | ) | — | (14,327 | ) | |||||||||
FFO | $ | 90,768 | $ | 83,907 | $ | 259,359 | $ | 241,853 | |||||||
Adjusted Funds From Operations (AFFO) | |||||||||||||||
FFO | $ | 90,768 | $ | 83,907 | $ | 259,359 | $ | 241,853 | |||||||
Straight-line rent | (2,982 | ) | (3,279 | ) | (9,012 | ) | (10,915 | ) | |||||||
Net accretion of acquired above- and below-market leases | (4,814 | ) | (5,101 | ) | (13,290 | ) | (13,415 | ) | |||||||
Loan costs | 2,520 | 2,227 | 7,443 | 6,288 | |||||||||||
Recurring capital expenditures, tenant improvements and leasing commissions | (18,023 | ) | (14,170 | ) | (52,219 | ) | (40,371 | ) | |||||||
Non-cash compensation expense | 4,450 | 4,056 | 13,463 | 12,231 | |||||||||||
Adjustments attributable to unconsolidated funds(2) | (1,033 | ) | (2,241 | ) | (3,545 | ) | (4,920 | ) | |||||||
Adjustments attributable to consolidated joint ventures(2) | 3,906 | 3,299 | 10,138 | 6,871 | |||||||||||
AFFO | $ | 74,792 | $ | 68,698 | $ | 212,337 | $ | 197,622 | |||||||
Weighted average shares of common stock outstanding - diluted | 165,520 | 153,419 | 158,419 | 152,819 | |||||||||||
Weighted average units in our operating partnership outstanding | 25,534 | 26,246 | 25,780 | 26,593 | |||||||||||
Weighted average fully diluted shares outstanding | 191,054 | 179,665 | 184,199 | 179,412 | |||||||||||
Net income per common share - diluted | $ | 0.15 | $ | 0.21 | $ | 0.41 | $ | 0.43 | |||||||
FFO per share - fully diluted | $ | 0.48 | $ | 0.47 | $ | 1.41 | $ | 1.35 | |||||||
Dividends declared per share | $ | 0.23 | $ | 0.22 | $ | 0.69 | $ | 0.66 |
(1) | Presents 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. |
![]() | Financial Results |
As of September 30, | |||||||
2017 | 2016 | ||||||
Office Statistics | |||||||
Number of properties | 51 | 51 | |||||
Rentable square feet (in thousands) | 12,997 | 12,881 | |||||
Ending % leased | 92.0 | % | 92.6 | % | |||
Ending % occupied | 90.1 | % | 90.5 | % | |||
Quarterly average % occupied | 90.2 | % | 90.8 | % | |||
Multifamily Statistics | |||||||
Number of properties | 9 | 9 | |||||
Number of units | 2,640 | 2,640 | |||||
Ending % leased | 98.4 | % | 99.6 | % | |||
Three Months Ended September 30, | % Favorable | |||||||||||
2017 | 2016 | (Unfavorable) | ||||||||||
Net Operating Income (NOI)(1) | ||||||||||||
Office revenues | $ | 140,605 | $ | 134,499 | 4.5 | % | ||||||
Office expenses | (46,833 | ) | (44,954 | ) | (4.2 | )% | ||||||
Office NOI | 93,772 | 89,545 | 4.7 | % | ||||||||
Multifamily revenues (2) | 20,463 | 20,823 | (1.7 | )% | ||||||||
Multifamily expenses | (4,972 | ) | (4,847 | ) | (2.6 | )% | ||||||
Multifamily NOI | 15,491 | 15,976 | (3.0 | )% | ||||||||
Total NOI | $ | 109,263 | $ | 105,521 | 3.5 | % | ||||||
Cash Net Operating Income (NOI)(1) | ||||||||||||
Office cash revenues | $ | 138,692 | $ | 132,181 | 4.9 | % | ||||||
Office cash expenses | (46,846 | ) | (44,967 | ) | (4.2 | )% | ||||||
Office cash NOI | 91,846 | 87,214 | 5.3 | % | ||||||||
Multifamily cash revenues | 20,455 | 19,978 | 2.4 | % | ||||||||
Multifamily cash expenses | (4,972 | ) | (4,847 | ) | (2.6 | )% | ||||||
Multifamily cash NOI | 15,483 | 15,131 | 2.3 | % | ||||||||
Total Cash NOI | $ | 107,329 | $ | 102,345 | 4.9 | % | ||||||
(1) | See page 10 for a reconciliation to net income attributable to common stockholders. |
(2) | The 2016 period includes $840,000 in non-cash revenue from the amortization of below-market lease intangibles from our IPO related to our pre-1999 residential units. The completion of that amortization in the fourth quarter of 2016 reduced 2017 period multifamily revenue by 4.1%. |
![]() | Financial Results |
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Same property office cash revenues | $ | 138,692 | $ | 132,181 | |||
Non cash adjustments per definition of NOI | 1,913 | 2,318 | |||||
Same property office revenues | 140,605 | 134,499 | |||||
Same property office cash expenses | (46,846 | ) | (44,967 | ) | |||
Non cash adjustments per definition of NOI | 13 | 13 | |||||
Same property office expenses | (46,833 | ) | (44,954 | ) | |||
Office NOI | 93,772 | 89,545 | |||||
Same property multifamily cash revenues | 20,455 | 19,978 | |||||
Non cash adjustments per definition of NOI | 8 | 845 | |||||
Same property multifamily revenues | 20,463 | 20,823 | |||||
Same property multifamily expenses | (4,972 | ) | (4,847 | ) | |||
Multifamily NOI | 15,491 | 15,976 | |||||
Same Property NOI | 109,263 | 105,521 | |||||
Non-comparable office revenues | 44,013 | 33,109 | |||||
Non-comparable office expenses | (15,635 | ) | (11,972 | ) | |||
Non-comparable multifamily revenues | 3,668 | 3,690 | |||||
Non-comparable multifamily expenses | (1,069 | ) | (1,103 | ) | |||
NOI | 140,240 | 129,245 | |||||
General and administrative | (8,441 | ) | (8,099 | ) | |||
Depreciation and amortization | (69,974 | ) | (63,827 | ) | |||
Operating income | 61,825 | 57,319 | |||||
Other income | 2,659 | 2,295 | |||||
Other expenses | (1,659 | ) | (2,916 | ) | |||
Income, including depreciation, from unconsolidated real estate funds | 1,137 | 2,334 | |||||
Interest expense | (35,454 | ) | (36,479 | ) | |||
Income before gains | 28,508 | 22,553 | |||||
Gains on sales of investments in real estate | — | 13,245 | |||||
Net income | 28,508 | 35,798 | |||||
Less: Net income attributable to noncontrolling interests | (2,894 | ) | (3,950 | ) | |||
Net income attributable to common stockholders | $ | 25,614 | $ | 31,848 |
![]() | Financial Results |
Three months ended September 30, 2017 | |||||||||||
Wholly Owned Properties | Consolidated Joint Ventures(1) | Unconsolidated Funds(2) | |||||||||
Revenues | $ | 169,502 | $ | 39,247 | $ | 19,479 | |||||
Operating expenses | $ | 55,202 | $ | 13,307 | $ | 6,974 | |||||
Straight-line rent | $ | 931 | $ | 2,051 | $ | 174 | |||||
Above/below-market lease revenue | $ | 897 | $ | 3,917 | $ | 9 | |||||
Cash NOI attributable to outside interests(3) | $ | — | $ | 13,322 | $ | 4,489 | |||||
Our share of cash NOI(4) | $ | 112,472 | $ | 6,650 | $ | 7,833 | |||||
Nine months ended September 30, 2017 | |||||||||||
Wholly Owned Properties | Consolidated Joint Ventures(1) | Unconsolidated Funds(2) | |||||||||
Revenues | $ | 498,440 | $ | 104,422 | $ | 56,550 | |||||
Operating expenses | $ | 158,217 | $ | 34,889 | $ | 19,738 | |||||
Straight-line rent | $ | 3,475 | $ | 5,537 | $ | 533 | |||||
Above/below-market lease revenue | $ | 2,900 | $ | 10,390 | $ | 41 | |||||
Cash NOI attributable to outside interests(3) | $ | — | $ | 35,387 | $ | 13,284 | |||||
Our share of cash NOI(4) | $ | 333,848 | $ | 18,219 | $ | 22,954 |
(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 ten Class A office properties totaling 2.8 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. |
![]() | Financial Results |
Outstanding Loans (As of September 30, 2017, unaudited and in thousands) | ||||||||||||||
Maturity Date(1) | Principal Balance | Our Share(2) | Effective Rate(3) | Swap Maturity Date | ||||||||||
Consolidated Wholly Owned Subsidiaries | ||||||||||||||
2/1/2019 | (4) | $ | 147,719 | $ | 147,719 | 4.00% | — | |||||||
6/5/2019 | (4) | 282,019 | 282,019 | 3.85% | — | |||||||||
10/1/2019 | 145,000 | 145,000 | LIBOR + 1.25% | — | ||||||||||
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 | (5) | 550,000 | 550,000 | 3.51% | 6/1/2022 | |||||||||
8/21/2020 | (6) | — | — | LIBOR + 1.40% | — | |||||||||
Subtotal | 3,142,138 | 3,142,138 | ||||||||||||
Consolidated Joint Ventures | ||||||||||||||
7/21/2019 | 365,500 | 73,100 | LIBOR + 1.55% | — | ||||||||||
2/28/2023 | 580,000 | 174,000 | 2.37% | 3/1/2021 | ||||||||||
Total Consolidated Loans | (7) | $ | 4,087,638 | $ | 3,389,238 | |||||||||
Unconsolidated 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 | $ | 3,692,357 | ||||||||||||
(1) | Maturity dates include the effect of extension options. |
(2) | "Our Share" is calculated by multiplying the principal balance by our share of the borrowing entity's equity. |
(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) | Effective rate decreases to 3.16% on November 1, 2017. |
(6) | $400 million revolving credit facility. Unused commitment fees range from 0.15% to 0.20%. |
(7) | Consolidated debt on the balance sheet of $4.05 billion is calculated by deducting $38.8 million of unamortized deferred loan costs from the total consolidated loans of $4.09 billion. |
Debt Statistics | |||
Consolidated Fixed Rate Loans (fixed under the terms of the loan or a swap) | |||
Principal balance (in billions) | $3.58 | ||
Weighted average remaining life (including extension options) | 5.8 years | ||
Weighted average remaining fixed interest period | 3.3 years | ||
Weighted average annual interest rate | 3.08% | ||
![]() | Portfolio Data |
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) | 10 | 2,044,141 | 11.2 | % | 7,281,498 | 25.1 | % | |||||||||
Brentwood | 15 | 2,059,393 | 11.3 | 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 | 9.6 | 5,088,599 | 34.4 | |||||||||||
Olympic Corridor | 5 | 1,139,058 | 6.3 | 3,408,039 | 33.4 | |||||||||||
Santa Monica | 11 | 1,422,086 | 7.8 | 9,985,872 | 14.2 | |||||||||||
Sherman Oaks/Encino | 12 | 3,476,387 | 19.1 | 6,179,129 | 56.3 | |||||||||||
Warner Center/Woodland Hills | 3 | 2,829,802 | 15.5 | 7,227,247 | 39.2 | |||||||||||
Westwood | 6 | 2,126,962 | 11.7 | 4,721,523 | 45.0 | |||||||||||
Total | 70 | 18,219,893 | 100.0 | % | 64,322,801 | 28.0 | % | |||||||||
(1) | Source is the 2017 third quarter CBRE Marketview report. |
(2) | Calculated by dividing Rentable Square Feet by the Submarket Rentable Square Feet. |
(3) | Includes 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. |
![]() | Portfolio Data |
Submarket | Percentage Leased(1) | Annualized Rent(2) | Annualized Rent Per Leased Square Foot(2) | Monthly Rent Per Leased Square Foot(2) | ||||||||||||
Beverly Hills | 94.4 | % | $ | 88,689,174 | $ | 47.25 | $ | 3.94 | ||||||||
Brentwood | 92.1 | 76,093,890 | 41.79 | 3.48 | ||||||||||||
Burbank | 100.0 | 16,773,976 | 39.85 | 3.32 | ||||||||||||
Century City | 94.4 | 36,242,354 | 44.54 | 3.71 | ||||||||||||
Honolulu | 87.9 | 49,161,268 | 33.56 | 2.80 | ||||||||||||
Olympic Corridor | 94.4 | 35,577,791 | 35.46 | 2.96 | ||||||||||||
Santa Monica | 97.6 | 82,325,526 | 64.15 | 5.35 | ||||||||||||
Sherman Oaks/Encino | 88.7 | 104,073,243 | 35.40 | 2.95 | ||||||||||||
Warner Center/Woodland Hills | 87.5 | 69,144,663 | 28.85 | 2.40 | ||||||||||||
Westwood | 89.1 | 82,916,476 | 46.58 | 3.88 | ||||||||||||
Total / Weighted Average | 91.1 | % | $ | 640,998,361 | 40.57 | 3.38 | ||||||||||
Recurring Office Capital Expenditures per Rentable Square Foot | ||||||||||||||||
For the three months ended September 30, 2017 | $ | 0.07 | ||||||||||||||
For the nine months ended September 30, 2017 | $ | 0.20 | ||||||||||||||
(1) | Includes 405,366 square feet with respect to signed leases not yet commenced at September 30, 2017. |
(2) | Excludes signed leases not commenced at September 30, 2017. |
![]() | Portfolio Data |
Portfolio Tenant Size | |||||
Median | Average | ||||
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 | 1,418 | 49.1 | % | 1,953,937 | 12.4 | % | $ | 78,443,100 | 12.3 | % | |||||||||||
2,501-10,000 | 1,103 | 38.2 | 5,419,704 | 34.3 | 215,555,258 | 33.6 | |||||||||||||||
10,001-20,000 | 232 | 8.0 | 3,181,273 | 20.1 | 129,455,634 | 20.2 | |||||||||||||||
20,001-40,000 | 101 | 3.5 | 2,758,481 | 17.5 | 111,519,254 | 17.4 | |||||||||||||||
40,001-100,000 | 29 | 1.0 | 1,631,301 | 10.3 | 71,255,142 | 11.1 | |||||||||||||||
Greater than 100,000 | 4 | 0.2 | 855,762 | 5.4 | 34,769,973 | 5.4 | |||||||||||||||
Total | 2,887 | 100.0 | % | 15,800,458 | 100.0 | % | $ | 640,998,361 | 100.0 | % | |||||||||||
![]() | Portfolio Data |
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 | 2.7 | % | |||||||||||||
William Morris Endeavor(3) | 1 | 1 | 2027 | 195,131 | 1.1 | 10,735,760 | 1.6 | ||||||||||||||||
UCLA(4) | 24 | 11 | 2017-2027 | 217,843 | 1.2 | 10,114,654 | 1.6 | ||||||||||||||||
Morgan Stanley(5) | 4 | 4 | 2022-2027 | 132,580 | 0.7 | 7,067,657 | 1.1 | ||||||||||||||||
Equinox Fitness(6) | 5 | 5 | 2019-2033 | 180,087 | 1.0 | 7,027,124 | 1.1 | ||||||||||||||||
Total | 37 | 24 | 1,158,893 | 6.4 | % | $ | 52,143,324 | 8.1 | % | ||||||||||||||
(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) Tenant has options to terminate 2,000 square feet in 2020 and 193,000 square feet in 2022. | |||||||||||||||||||||||
(4) The square footage under these leases expire as follows: 4,000 square feet in 2017, 41,000 square feet in 2018, 13,000 square feet in 2019, 41,000 square feet in 2020, 41,000 square feet in 2021, 55,000 square feet in 2022, 8,000 square feet in 2023, 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). | |||||||||||||||||||||||
(5) The square footage under these leases expire as follows: 16,000 square feet in 2022, 30,000 square feet in 2023, 26,000 square feet in 2025, and 61,000 square feet in 2027 (tenant has an option to terminate 30,000 square feet in 2020, 26,000 square feet in 2022, and 16,000 square feet in 2024). | |||||||||||||||||||||||
(6) 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. |
![]() | Portfolio Data |
Industry | Number of Leases | Annualized Rent as a Percent of Total | ||||||
Legal | 566 | 18.2 | % | |||||
Financial Services | 381 | 14.8 | ||||||
Entertainment | 203 | 12.3 | ||||||
Real Estate | 273 | 10.9 | ||||||
Accounting & Consulting | 368 | 10.5 | ||||||
Health Services | 370 | 8.2 | ||||||
Retail | 200 | 6.0 | ||||||
Technology | 128 | 5.2 | ||||||
Insurance | 104 | 4.4 | ||||||
Educational Services | 47 | 2.9 | ||||||
Public Administration | 94 | 2.5 | ||||||
Advertising | 66 | 2.0 | ||||||
Manufacturing & Distribution | 48 | 1.2 | ||||||
Other | 39 | 0.9 | ||||||
Total | 2,887 | 100.0 | % | |||||
![]() | Portfolio Data |
Year of Lease Expiration | Number of Leases | Rentable Square Feet | Expiring Square Feet as a Percent of Total | Annualized Rent at September 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 | 64 | 221,833 | 1.2 | % | $ | 7,840,229 | 1.2 | % | $ | 35.34 | $ | 35.34 | ||||||||||||||
2017 | 108 | 432,345 | 2.4 | 15,239,917 | 2.4 | 35.25 | 35.39 | |||||||||||||||||||
2018 | 596 | 2,053,712 | 11.3 | 83,266,671 | 13.0 | 40.54 | 41.38 | |||||||||||||||||||
2019 | 510 | 2,414,434 | 13.2 | 95,263,430 | 14.9 | 39.46 | 41.15 | |||||||||||||||||||
2020 | 537 | 2,524,567 | 13.9 | 99,913,438 | 15.6 | 39.58 | 42.98 | |||||||||||||||||||
2021 | 368 | 2,130,348 | 11.7 | 85,787,772 | 13.4 | 40.27 | 44.74 | |||||||||||||||||||
2022 | 299 | 1,697,294 | 9.3 | 67,203,457 | 10.5 | 39.59 | 46.13 | |||||||||||||||||||
2023 | 165 | 1,588,868 | 8.7 | 65,113,271 | 10.1 | 40.98 | 49.95 | |||||||||||||||||||
2024 | 91 | 732,540 | 4.0 | 30,130,904 | 4.7 | 41.13 | 51.58 | |||||||||||||||||||
2025 | 48 | 559,696 | 3.1 | 25,633,649 | 4.0 | 45.80 | 58.86 | |||||||||||||||||||
2026 | 33 | 437,477 | 2.4 | 20,053,131 | 3.1 | 45.84 | 59.94 | |||||||||||||||||||
Thereafter | 68 | 1,007,344 | 5.5 | 45,552,492 | 7.1 | 45.22 | 60.40 | |||||||||||||||||||
Subtotal/weighted average | 2,887 | 15,800,458 | 86.7 | % | 640,998,361 | 100.0 | % | 40.57 | 46.00 | |||||||||||||||||
Signed leases not commenced | 405,366 | 2.2 | ||||||||||||||||||||||||
Available | 1,620,226 | 8.9 | ||||||||||||||||||||||||
Building management use | 130,619 | 0.7 | ||||||||||||||||||||||||
BOMA adjustment(3) | 263,224 | 1.5 | ||||||||||||||||||||||||
Total/weighted average | 2,887 | 18,219,893 | 100.0 | % | $ | 640,998,361 | 100.0 | % | 40.57 | 46.00 | ||||||||||||||||
(1) | Represents annualized rent at September 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. |
![]() | Portfolio Data |
Q4 2017 | Q1 2018 | Q2 2018 | Q3 2018 | |||||||||||
Expiring Square Feet(1) | 432,345 | 379,951 | 526,032 | 575,054 | ||||||||||
Percentage of Portfolio | 2.4 | % | 2.1 | % | 2.9 | % | 3.2 | % | ||||||
Expiring Rent per Square Foot(2) | $35.39 | $38.42 | $40.24 | $46.44 | ||||||||||
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. | |||||||||||||||
Q4 2017 | Q1 2018 | Q2 2018 | Q3 2018 | ||||||||||||
Beverly Hills | Expiring SF(1) | 21,738 | 46,125 | 34,291 | 28,999 | ||||||||||
Expiring rent per SF(2) | $41.16 | $49.06 | $45.89 | $48.24 | |||||||||||
Brentwood | Expiring SF(1) | 32,055 | 57,753 | 45,544 | 84,882 | ||||||||||
Expiring rent per SF(2) | $40.15 | $39.82 | $44.38 | $43.91 | |||||||||||
Century City | Expiring SF(1) | 46,654 | 6,242 | 53,481 | 42,834 | ||||||||||
Expiring rent per SF(2) | $37.24 | $44.82 | $40.29 | $42.13 | |||||||||||
Honolulu | Expiring SF(1) | 26,544 | 34,787 | 57,808 | 66,360 | ||||||||||
Expiring rent per SF(2) | $33.73 | $34.05 | $35.09 | $30.02 | |||||||||||
Olympic Corridor | Expiring SF(1) | 47,824 | 26,159 | 20,707 | 80,376 | ||||||||||
Expiring rent per SF(2) | $35.79 | $33.52 | $32.46 | $37.90 | |||||||||||
Santa Monica | Expiring SF(1) | 14,562 | 40,064 | 64,761 | 108,004 | ||||||||||
Expiring rent per SF(2) | $56.83 | $50.60 | $54.13 | $77.37 | |||||||||||
Sherman Oaks/Encino | Expiring SF(1) | 60,217 | 82,828 | 137,056 | 59,235 | ||||||||||
Expiring rent per SF(2) | $35.31 | $33.11 | $35.05 | $35.33 | |||||||||||
Warner Center/Woodland Hills | Expiring SF(1) | 164,513 | 61,516 | 42,378 | 52,354 | ||||||||||
Expiring rent per SF(2) | $31.28 | $29.86 | $28.89 | $29.63 | |||||||||||
Westwood | Expiring SF(1) | 18,238 | 24,477 | 70,006 | 52,010 | ||||||||||
Expiring rent per SF(2) | $36.92 | $44.47 | $45.47 | $52.62 | |||||||||||
(1) | Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of September 30, 2017, other than 221,833 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. |
![]() | Portfolio Data |
Net Absorption During Quarter(1) | (0.22)% | ||
Office Leases Signed During Quarter | Number of leases | Rentable Square Feet | Weighted Average Lease Term (months) | ||||
New leases | 79 | 248,085 | 63 | ||||
Renewal leases | 120 | 461,848 | 47 | ||||
All leases | 199 | 709,933 | 53 | ||||
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 | $40.84 | $42.40 | N/A | ||||
Prior leases for the same space | $33.55 | $34.40 | $37.82 | ||||
Percentage change | 21.7% | 23.2% | 8.0% | (3) | |||
Average Office Lease Transaction Costs (Per Square Foot) | |||||
Lease Transaction Costs | Lease Transaction Costs per Annum | ||||
New leases signed during the quarter | $40.47 | $7.75 | |||
Renewal leases signed during the quarter | $16.86 | $4.37 | |||
All leases signed during the quarter | $25.30 | $5.82 | |||
(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 third quarter, this was approximately negative 40,000 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. |
![]() | Portfolio Data |
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 | % | $ | 30,293,076 | $ | 2,663 | |||||||
Honolulu | 97.4 | % | 32,984,508 | 1,825 | |||||||||
Santa Monica(1) | 98.9 | % | 28,531,428 | 2,932 | |||||||||
Total / weighted average | 98.5 | % | $ | 91,809,012 | 2,343 | ||||||||
Recurring Multifamily Capital Expenditures per Unit(2) | |||||
For the three months ended September 30, 2017 | $ | 98 | |||
For the nine months ended September 30, 2017 | $ | 320 | |||
![]() | Developments |
Honolulu, Hawaii | |||
![]() | Rendering of one of our new buildings at Moanalua Hillside Apartments | ||
We are adding 475 units (net of existing units removed) to our 696 unit Moanalua Hillside apartment community located on 28 acres near downtown Honolulu and key military bases. The new units are expected to cost about $120 million, not including the cost of the land which we have owned since 2005. 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 first tenants took occupancy of our new units on November 1, 2017. Even with major construction continuing, we pre-leased 30 units above pro forma rents. We expect to deliver the remainder of phase 1 (for a total of 238 units) by early 2018, and phase 2, which includes 237 additional units, a new fitness center, and a pool, in late 2018. |
Brentwood, California | |||
Rendering of our planned new residential tower in Brentwood (center), with a new park in the foreground, and our existing residential and office buildings (left and right, respectively). | ![]() | ||
Our new Brentwood development will be the first new residential high-rise development west of the 405 freeway in more than 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 are 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 estimated budget is between $180 million and $200 million, not including the cost of the land which we owned before beginning the project. We expect to start construction in early 2018, and we expect the expanded scope of construction to take about 3 years. |
(1) | All figures are estimates, as development in our markets is long and complex and subject to inherent uncertainties. |
![]() | Guidance |
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 $1.91 |
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 leasing up the 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. Reflects overall higher utility rates and vacancy at our Hawaii residential properties. | Annual increase of 4.5% to 5.5% | Revised |
Core same property cash NOI | Excludes revenue from early lease terminations and prior year CAM reconciliations. Reflects overall higher utility rates and vacancy at our Hawaii residential properties. | Annual increase of 5.0% to 6.0% | Revised |
Net revenue from above/below market leases | Includes the impact of a 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 100%, not our pro rata share, of interest paid by our consolidated JVs. Reflects the completion of our debt reduction program. | $143 to $145 million | Revised |
Weighted average fully diluted shares outstanding | Reflects the sale of an additional 6.6 million shares of common stock for approximately $250 million in proceeds under our ATM program. | 186.5 to 187.5 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. See page 24 for a reconciliation of our Non-GAAP guidance. |
![]() | Guidance |
Reconciliation of net income attributable to common stockholders to FFO | Low | High | |||||
Net income attributable to common stockholders | $ | 84.2 | $ | 93.4 | |||
Adjustments for depreciation and amortization of real estate assets | 283.0 | 276.0 | |||||
Adjustments for noncontrolling interests, consolidated JVs and unconsolidated funds | (12.9 | ) | (13.2 | ) | |||
FFO | $ | 354.3 | $ | 356.2 | |||
Reconciliation of shares outstanding | High | Low | |||||
Weighted average shares of common stock outstanding - diluted | 162.0 | 161.0 | |||||
Weighted average units in our operating partnership outstanding | 25.5 | 25.5 | |||||
Weighted average fully diluted shares outstanding | 187.5 | 186.5 | |||||
Per share | Low | High | |||||
Net income per common share - diluted | $ | 0.52 | $ | 0.58 | |||
FFO per share - fully diluted | $ | 1.89 | $ | 1.91 |
![]() | Definitions |
![]() | Definitions |
• | 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, 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. |
![]() | Definitions |
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