EX-99.1 2 a2018q3epexhibit991.htm EXHIBIT 99.1 Exhibit
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Executive Summary


We own and operate 18.4 million square feet of Class A office properties and 3,563 apartment units (excluding our residential development pipeline) in the premier coastal submarkets of Los Angeles and Honolulu.
•
Financial Results: For the three months ended September 30, 2018 compared to three months ended September 30, 2017:
◦
Revenues increased by 7.0% to $223.3 million. Our non-cash revenue declined by about $2 million compared to the second quarter of 2018 and will continue to decline at an accelerated pace (excluding the impact from any future acquisitions).
◦
Net income attributable to common stockholders increased by 19.3% to $30.6 million.
◦
FFO increased by 10.3% to $100.1 million, or $0.51 per fully diluted share.
◦
AFFO increased by 10.3% to $82.5 million.
◦
Same property Cash NOI increased by 4.2% to $98.4 million.
•
Office: We signed 740,000 square feet of office leases during the third quarter. Our total office portfolio leased rate remained relatively flat at 91.4% and our occupancy rate increased by 60 basis points to 89.5%, reflecting our leasing success in the first half of the year. Comparing office leases we signed during the third quarter to the expiring leases covering the same space, straight-line rents increased by 23.6% and starting cash rents increased by 11.1%.
•
Multifamily: Our multifamily portfolio remains fully leased at 98.8%. With the second building at our Moanalua development fully on-line in Q3, we now have almost 1,800 units in service in Honolulu. Multifamily same property Cash NOI increased by 3.0% to $16.0 million. Residential expenses rose 6.9% compared to last year, reflecting higher payroll and utility costs as well as some timing issues. We expect comparative payroll increases to be much lower in future quarters when the comparison quarter includes the significant payroll adjustment we made late last year in response to minimum wage increases mandated by Los Angeles.
•
Development and Repositioning Projects: Our two multifamily development projects remain on schedule and on budget. At our Moanalua apartment development in Honolulu, we are more than half way through the delivery of 475 net new residential units and we ended the quarter with a total of 221 new units leased. We expect to complete that project, along with a new fitness center and the upgrade of our existing units, around the end of this year. We are continuing with construction at our 376 unit apartment tower in Brentwood. See page 22 for more information on development. On the repositioning front, we are making investments in a number of our existing properties where we believe that targeted capital will yield significant future returns. We expect to complete several of these repositioning projects in the next few months.
•
Debt: With the exception of a loan on our development project at Moanalua, our next term loan maturity is approximately three and a half years away in 2022. We also have a large number of unencumbered properties that provide flexibility for future financings.
•
Dividends: On October 16, 2018, we paid a quarterly cash dividend of $0.25 per common share, or $1.00 per common share on an annualized basis, to our shareholders of record on September 28, 2018.
•
Guidance: We are increasing and narrowing our 2018 full year guidance for Net Income Per Common Share - Diluted to $0.69 to $0.71 and for FFO to $2.01 to $2.03 per fully diluted share. See page 23 for more information.


NOTE:  See the non-GAAP reconciliations for FFO & AFFO on page 8 and same property NOI on page 10.
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Table of Contents
COMPANY OVERVIEW
 
 
 
 
FINANCIAL RESULTS
 
 
 
 
PORTFOLIO DATA
 
 
 
 
               GUIDANCE
 
 
 
 
               DEFINITIONS

Forward Looking Statements
This Third Quarter 2018 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 September 30, 2018

 
Office Portfolio
 
 
 
 
 
 
 
 
 
Consolidated
 
Total
 
 
Properties
63

 
71

 
 
Rentable square feet (in thousands)
16,599

 
18,434

 
 
Leased rate
91.5
%
 
91.4
%
 
 
Occupancy rate
89.6
%
 
89.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily Portfolio
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
Properties
 
 
10

 
 
Units
 
 
3,563

 
 
Leased rate
 
 
98.8
%
 
 
 
 
 
 
 

 
Market Capitalization (in thousands, except price per share)
 
 
 
 
 
 
 
Fully diluted shares outstanding as of September 30, 2018
 
198,110

 
 
Common stock closing price per share (NYSE:DEI)
 
$
37.72

 
 
Equity capitalization
 
$
7,472,724

 
 
 
 
 
 

 
Net Debt (in thousands)(1)
 
 
 
 
 
 
 
 
 
Consolidated
 
Our Share
 
 
 
 
 
 
 
 
$
4,154,157

 
$
3,740,405

 
 
Less: cash and cash equivalents
(172,362
)
 
(84,964
)
 
 
Net debt
$
3,981,795

 
$
3,655,441

 
 
 
 
 
 
 

 
Leverage Ratio (in thousands, except percentage)
 
 
 
 
 
 
 
Pro forma enterprise value
 
$
11,128,164

 
 
Our share of net debt to pro forma enterprise value
 
33
%
 
 
 
 
 
 

 
AFFO Payout Ratio
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
60.1
%
 
 
 
 
 
 
_______________________________________
(1)
See page 12 for details and a reconciliation to the consolidated debt on our balance sheet.



NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Company Overview


Property Map
as of September 30, 2018
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Company Overview


Board of Directors and Executive Officers
as of September 30, 2018


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
Partner, Optum Ventures
Thomas E. O’Hern
Senior Executive Vice President, CFO & 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
1299 Ocean Avenue, Suite 1000, 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)

 
September 30, 2018
 
December 31, 2017
 
 
 
 
 
Unaudited
 
 
Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
1,065,099

 
$
1,062,345

Buildings and improvements
7,995,377

 
7,886,201

Tenant improvements and lease intangibles
821,483

 
756,190

Property under development
105,567

 
124,472

Investment in real estate, gross
9,987,526

 
9,829,208

Less: accumulated depreciation and amortization
(2,200,403
)
 
(2,012,752
)
Investment in real estate, net
7,787,123

 
7,816,456

Cash and cash equivalents
172,362

 
176,645

Tenant receivables, net
5,040

 
2,980

Deferred rent receivables, net
118,736

 
106,021

Acquired lease intangible assets, net
3,492

 
4,293

Interest rate contract assets
124,751

 
60,069

Investment in unconsolidated real estate funds
118,252

 
107,735

Other assets
18,023

 
18,442

Total assets
$
8,347,779

 
$
8,292,641

 
 
 
 
Liabilities
 
 
 

Secured notes payable and revolving credit facility, net
$
4,122,277

 
$
4,117,390

Interest payable, accounts payable and deferred revenue
151,106

 
103,947

Security deposits
50,773

 
50,414

Acquired lease intangible liabilities, net
57,591

 
75,635

Interest rate contract liabilities
—

 
807

Dividends payable
42,491

 
42,399

Total liabilities
4,424,238

 
4,390,592

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,699

 
1,696

Additional paid-in capital
3,277,746

 
3,272,539

Accumulated other comprehensive income
94,643

 
43,099

Accumulated deficit
(917,009
)
 
(879,810
)
Total Douglas Emmett, Inc. stockholders' equity
2,457,079

 
2,437,524

Noncontrolling interests
1,466,462

 
1,464,525

Total equity
3,923,541

 
3,902,049

Total liabilities and equity
$
8,347,779

 
$
8,292,641






NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Financial Results


Consolidated Operating Results
(Unaudited; in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Office rental
 

 
 

 
 

 
 

Rental revenues
$
150,316

 
$
140,993

 
$
448,248

 
$
409,674

Tenant recoveries
16,364

 
15,854

 
42,071

 
39,705

Parking and other income
30,374

 
27,771

 
87,829

 
81,129

Total office revenues
197,054

 
184,618

 
578,148

 
530,508

 
 
 
 
 
 
 
 
Multifamily rental
 
 
 
 
 
 
 
Rental revenues
24,241

 
22,282

 
70,957

 
66,760

Parking and other income
2,013

 
1,849

 
5,919

 
5,594

Total multifamily revenues
26,254

 
24,131

 
76,876

 
72,354

 
 
 
 
 
 
 
 
Total revenues
223,308

 
208,749

 
655,024

 
602,862

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Office expenses
66,288

 
62,468

 
188,462

 
175,240

Multifamily expenses
7,114

 
6,041

 
20,720

 
17,866

General and administrative
9,440

 
8,441

 
28,444

 
27,189

Depreciation and amortization
74,067

 
69,974

 
219,944

 
206,141

Total operating expenses
156,909

 
146,924

 
457,570

 
426,436

 
 
 
 
 
 
 
 
Operating income
66,399

 
61,825

 
197,454

 
176,426

 
 
 
 
 
 
 
 
Other income
2,951

 
2,659

 
8,373

 
7,152

Other expenses
(1,561
)
 
(1,659
)
 
(5,380
)
 
(5,156
)
Income, including depreciation, from unconsolidated funds
1,348

 
1,137

 
4,522

 
4,427

Interest expense
(33,721
)
 
(35,454
)
 
(99,889
)
 
(110,408
)
Net income
35,416

 
28,508

 
105,080

 
72,441

Less:  Net income attributable to noncontrolling interests
(4,855
)
 
(2,894
)
 
(14,629
)
 
(7,534
)
Net income attributable to common stockholders
$
30,561

 
$
25,614

 
$
90,451

 
$
64,907

 
 
 
 
 
 
 
 
Net income per common share - basic
$
0.18

 
$
0.15

 
$
0.53

 
$
0.41

Net income per common share - diluted
$
0.18

 
$
0.15

 
$
0.53

 
$
0.41

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
169,926

 
165,471

 
169,815

 
158,000

Weighted average shares of common stock outstanding - diluted
169,931

 
165,520

 
169,828

 
158,419





NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Financial Results


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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
30,561

 
$
25,614

 
$
90,451

 
$
64,907

Depreciation and amortization of real estate assets
74,067

 
69,974

 
219,944

 
206,141

Net income attributable to noncontrolling interests
4,855

 
2,894

 
14,629

 
7,534

Adjustments attributable to unconsolidated funds(2)
4,233

 
4,084

 
12,382

 
12,140

 Adjustments attributable to consolidated joint ventures(2)
(13,572
)
 
(11,798
)
 
(40,484
)
 
(31,363
)
FFO
$
100,144

 
$
90,768

 
$
296,922

 
$
259,359

 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO
$
100,144

 
$
90,768

 
$
296,922

 
$
259,359

Straight-line rent
(3,524
)
 
(2,982
)
 
(12,715
)
 
(9,012
)
Net accretion of acquired above- and below-market leases
(4,948
)
 
(4,814
)
 
(17,243
)
 
(13,290
)
Loan costs
1,954

 
2,520

 
6,131

 
7,443

Recurring capital expenditures, tenant improvements and leasing expenses
(18,128
)
 
(18,023
)
 
(65,543
)
 
(52,219
)
Non-cash compensation expense
4,924

 
4,450

 
14,906

 
13,463

Adjustments attributable to unconsolidated funds(2)
(1,454
)
 
(1,033
)
 
(5,721
)
 
(3,545
)
Adjustments attributable to consolidated joint ventures(2)
3,530

 
3,906

 
12,706

 
10,138

AFFO
$
82,498

 
$
74,792

 
$
229,443

 
$
212,337

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - diluted
169,931

 
165,520

 
169,828

 
158,419

Weighted average units in our operating partnership outstanding
28,145

 
25,534

 
28,157

 
25,780

Weighted average fully diluted shares outstanding
198,076

 
191,054

 
197,985

 
184,199

 
 
 
 
 
 
 
 
Net income per common share - diluted
$
0.18

 
$
0.15

 
$
0.53

 
$
0.41

FFO per share - fully diluted
$
0.51

 
$
0.48

 
$
1.50

 
$
1.41

Dividends declared per share
$
0.25

 
$
0.23

 
$
0.75

 
$
0.69

______________________________________________
(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 on our share of the results of our unconsolidated Funds and for each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated joint ventures.




NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Financial Results


Same Property Statistics & Net Operating Income (NOI)
(Unaudited; in thousands, except statistics)

 
 
 
 
 
 
 
 
As of September 30,
 
 
 
2018
 
2017
 
 
Office Statistics
 
 
 
 
 
Number of properties
47

 
47

 
 
Rentable square feet (in thousands)
11,797

 
11,738

 
 
Ending % leased
91.0
%
 
91.6
%
 
 
Ending % occupied
89.6
%
 
89.7
%
 
 
Quarterly average % occupied
89.4
%
 
89.9
%
 
 
 
 
 
 
 
 
Multifamily Statistics
 
 
 
 
 
Number of properties
9

 
9

 
 
Number of units
2,640

 
2,640

 
 
Ending % leased
99.7
%
 
98.5
%
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
% Favorable
 
 
 
2018
 
2017
 
(Unfavorable)
 
 
Net Operating Income (NOI)(1)
 
 
 
 
 
 
 
Office revenues
$
127,809

 
$
122,401

 
4.4
 %
 
 
Office expenses
(43,681
)
 
(41,775
)
 
(4.6
)%
 
 
Office NOI
84,128

 
80,626

 
4.3
 %
 
 
 
 
 
 
 
 
 
 
Multifamily revenues 
21,274

 
20,463

 
4.0
 %
 
 
Multifamily expenses
(5,316
)
 
(4,972
)
 
(6.9
)%
 
 
Multifamily NOI
15,958

 
15,491

 
3.0
 %
 
 
 
 
 
 
 
 
 
 
Total NOI
$
100,086

 
$
96,117

 
4.1
 %
 
 
 
 
 
 
 
 
 
 
Cash Net Operating Income (NOI)(1)
 
 
 
 
 
 
 
Office cash revenues
$
126,170

 
$
120,723

 
4.5
 %
 
 
Office cash expenses
(43,694
)
 
(41,788
)
 
(4.6
)%
 
 
Office cash NOI
82,476

 
78,935

 
4.5
 %
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
21,269

 
20,455

 
4.0
 %
 
 
Multifamily cash expenses
(5,316
)
 
(4,972
)
 
(6.9
)%
 
 
Multifamily cash NOI
15,953

 
15,483

 
3.0
 %
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
98,429

 
$
94,418

 
4.2
 %
 
 
 
 
 
 
 
 
 
_________________________________________________
(1)
See page 10 for a reconciliation to net income attributable to common stockholders.

NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Financial Results

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


 
Three Months Ended September 30,
 
2018
 
2017
 
 
 
 
Same property office cash revenues
$
126,170

 
$
120,723

Non cash adjustments per definition of NOI
1,639

 
1,678

Same property office revenues
127,809

 
122,401

 
 
 
 
Same property office cash expenses
(43,694
)
 
(41,788
)
Non cash adjustments per definition of NOI
13

 
13

Same property office expenses
(43,681
)
 
(41,775
)
 
 
 
 
Office NOI
84,128

 
80,626

 
 
 
 
Same property multifamily cash revenues
21,269

 
20,455

Non cash adjustments per definition of NOI
5

 
8

Same property multifamily revenues
21,274

 
20,463

 
 
 
 
Same property multifamily expenses
(5,316
)
 
(4,972
)
 
 
 
 
Multifamily NOI
15,958

 
15,491

 
 
 
 
Same Property NOI
100,086

 
96,117

Non-comparable office revenues
69,245

 
62,217

Non-comparable office expenses
(22,607
)
 
(20,693
)
Non-comparable multifamily revenues
4,980

 
3,668

Non-comparable multifamily expenses
(1,798
)
 
(1,069
)
NOI
149,906

 
140,240

General and administrative
(9,440
)
 
(8,441
)
Depreciation and amortization
(74,067
)
 
(69,974
)
Operating income
66,399

 
61,825

Other income
2,951

 
2,659

Other expenses
(1,561
)
 
(1,659
)
Income, including depreciation, from unconsolidated real estate funds
1,348

 
1,137

Interest expense
(33,721
)
 
(35,454
)
Net income
35,416

 
28,508

Less: Net income attributable to noncontrolling interests
(4,855
)
 
(2,894
)
Net income attributable to common stockholders
$
30,561

 
$
25,614








NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Financial Results


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

 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
181,050

 
$
42,258

 
$
19,970

Office and multifamily operating expenses
$
59,361

 
$
14,041

 
$
7,181

Straight-line rent
$
1,812

 
$
1,712

 
$
208

Above/below-market lease revenue
$
1,375

 
$
3,573

 
$
(3
)
Cash NOI attributable to outside interests(3)
$
—

 
$
15,289

 
$
4,451

Our share of cash NOI(4)
$
118,502

 
$
7,643

 
$
8,133

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
529,902

 
$
125,122

 
$
58,933

Office and multifamily operating expenses
$
169,310

 
$
39,872

 
$
20,068

Straight-line rent
$
6,951

 
$
5,764

 
$
1,066

Above/below-market lease revenue
$
4,714

 
$
12,529

 
$
(3
)
Cash NOI attributable to outside interests(3)
$
—

 
$
44,622

 
$
13,667

Our share of cash NOI(4)
$
348,927

 
$
22,335

 
$
24,135

______________________________________________________
(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 in which we own a weighted average interest of approximately 28% based on square footage. The JVs 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 three unconsolidated Funds which we manage and in which we own a weighted average interest of approximately 62% based on square footage. The Funds 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 allocable under the applicable agreements to interests other than our fully diluted shares.
(4)
Represents the share of Cash NOI allocable to our fully diluted shares.













NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Financial Results

 
Loans
(As of September 30, 2018, unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity Date(1)
 
Principal Balance
(In Thousands)
 
Our Share(2)
(In Thousands)
 
Effective Rate(3)
 
Swap Maturity Date
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Wholly-Owned Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
10/1/2019
 
$
145,000

 
$
145,000

 
LIBOR + 1.25%
 
N/A
 
 
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
 
 
3/3/2025
 
335,000

 
335,000

 
3.84%
 
3/1/2023
 
 
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
 
550,000

 
550,000

 
3.16%
 
6/1/2022
 
 
6/1/2038
(4) 
31,757

 
31,757

 
4.55%
 
N/A
 
 
8/21/2020
(5) 
95,000

 
95,000

 
LIBOR + 1.40%
 
N/A
 
 
Subtotal
 
3,174,157

 
3,174,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Joint Ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
2/28/2023
 
580,000

 
174,000

 
2.37%
 
3/1/2021
 
 
12/19/2024
 
400,000

 
80,000

 
3.47%
 
1/1/2023
 
 
Total Consolidated Loans
(6) 
$
4,154,157

 
$
3,428,157

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
3/1/2023
 
$
110,000

 
$
26,954

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

 
285,294

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

 
$
312,248

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
 
 
 
$
3,740,405

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________________________________________________________
Except as 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 interest-only monthly payments with the outstanding principal due upon maturity.
(1)
Maturity dates include the effect of extension options.
(2)
"Our Share" is a non GAAP measure 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)
$400 million revolving credit facility. Unused commitment fees range from 0.15% to 0.20%.
(6)
Our consolidated debt on the balance sheet of $4.12 billion is calculated by adding $4.0 million of unamortized loan premium and deducting $35.9 million of unamortized deferred loan costs from our total consolidated loans of $4.15 billion.

 
 
 
 
 
Statistics for Consolidated Loans with interest fixed under the terms of the loan or a swap
 
 
 
 
 
 
Principal balance (in billions)
$3.91
 
 
Weighted average remaining life (including extension options)
5.6 years
 
 
Weighted average remaining fixed interest period
2.9 years
 
 
Weighted average annual interest rate
3.07%
 
 
 
 
 
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Office Portfolio Summary
Total Office Portfolio as of September 30, 2018


 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
11

 
2,193,326

 
11.9
%
 
7,089,250
 
27.9
%
 
 
Brentwood
 
15

 
2,063,913

 
11.2

 
3,328,103
 
62.0

 
 
Burbank
 
1

 
456,205

 
2.5

 
7,060,975
 
6.5

 
 
Century City
 
3

 
951,534

 
5.2

 
10,195,143
 
9.3

 
 
Honolulu
 
4

 
1,763,845

 
9.5

 
5,088,599
 
34.7

 
 
Olympic Corridor
 
5

 
1,141,560

 
6.2

 
3,458,794
 
33.0

 
 
Santa Monica
 
11

 
1,426,080

 
7.7

 
9,861,775
 
14.5

 
 
Sherman Oaks/Encino
 
12

 
3,479,316

 
18.9

 
6,528,253
 
53.3

 
 
Warner Center/Woodland Hills
 
3

 
2,830,996

 
15.4

 
7,667,855
 
36.9

 
 
Westwood
 
6

 
2,126,962

 
11.5

 
4,211,981
 
50.5

 
 
Total / Weighted Average
 
71

 
18,433,737

 
100.0
%
 
64,490,728
 
28.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________
(1)
Source is the 2018 third quarter CBRE Marketview report. Changes from last quarter are due to adjustments made by CBRE with respect to existing buildings, not new construction, with the exception of a small addition in Santa Monica.
(2)
Calculated by dividing Rentable Square Feet by the applicable Submarket Rentable Square Feet.
(3)
Includes a 216,000 square foot property located just outside the Beverly Hills city limits. To calculate our percentage of the submarket, the property is not included in the numerator or the denominator for consistency with third party data.

































NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data

 
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of September 30, 2018
Annualized Rent by Submarket
 
chart-1d0fc5c1fdf257a4bd6.jpg
 
 
 
 
 
 
 
 
 
 
 
Submarket
Percent
Leased(1)
 
Annualized Rent(2)
 
Annualized Rent Per Leased Square Foot(2)
 
Monthly Rent Per Leased Square Foot(2)
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills
96.3
%
 
$
100,129,708

 
$
50.30

 
$
4.19

 
 
Brentwood
90.6

 
79,362,156

 
43.87

 
3.66

 
 
Burbank
100.0

 
21,819,057

 
47.83

 
3.99

 
 
Century City
92.8

 
39,389,255

 
47.33

 
3.94

 
 
Honolulu
86.4

 
49,523,873

 
33.97

 
2.83

 
 
Olympic Corridor
93.0

 
37,980,360

 
38.13

 
3.18

 
 
Santa Monica
93.9

 
91,240,541

 
70.75

 
5.90

 
 
Sherman Oaks/Encino
91.4

 
110,905,899

 
36.30

 
3.03

 
 
Warner Center/Woodland Hills
86.3

 
68,553,751

 
29.17

 
2.43

 
 
Westwood
93.0

 
90,494,001

 
48.57

 
4.05

 
 
Total / Weighted Average
91.4
%
 
$
689,398,602

 
42.82

 
3.57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recurring Office Capital Expenditures per Rentable Square Foot
 
 
 
 
Three months ended September 30, 2018
 
$
0.04

 
 
Nine months ended September 30, 2018
 
$
0.14

 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________
(1)
Includes 346,766 square feet with respect to signed leases not yet commenced at September 30, 2018.
(2)
Excludes signed leases not yet commenced at September 30, 2018.


NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Office Lease Diversification
Total Office Portfolio as of September 30, 2018

q3officeleasediversification.jpg
 
 
 
 
 
 
 
Portfolio Tenant Size
 
 
 
Median
 
Average
 
 
 
 
 
 
 
 
Square feet
2,500
 
5,500
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Leases
 
Rentable Square Feet
 
Annualized Rent
 
 
Square Feet Under Lease
 
Number
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,500 or less
 
1,445

 
49.5
%
 
1,984,038

 
12.3
%
 
$
83,208,056

 
12.1
%
 
 
2,501-10,000
 
1,104

 
37.8

 
5,439,687

 
33.8

 
229,917,029

 
33.4

 
 
10,001-20,000
 
235

 
8.0

 
3,247,091

 
20.2

 
135,938,363

 
19.7

 
 
20,001-40,000
 
102

 
3.5

 
2,777,620

 
17.3

 
115,350,841

 
16.7

 
 
40,001-100,000
 
32

 
1.1

 
1,759,465

 
10.9

 
84,707,546

 
12.3

 
 
Greater than 100,000
 
4

 
0.1

 
892,091

 
5.5

 
40,276,767

 
5.8

 
 
Total for all leases
 
2,922

 
100.0
%
 
16,099,992

 
100.0
%
 
$
689,398,602

 
100.0
%
 
 
 
 
 
 
 







NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Largest Office Tenants
Total Office Portfolio as of September 30, 2018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
2020-2024
 
468,775

 
2.5
%
 
$
22,257,305

 
3.2
%
 
 
UCLA(3)
 
26

 
11

 
2018-2027
 
287,327

 
1.6

 
14,010,598

 
2.0

 
 
William Morris Endeavor(4)
 
1

 
1

 
2027
 
196,204

 
1.1

 
10,997,983

 
1.6

 
 
Morgan Stanley(5)
 
5

 
5

 
2022-2027
 
145,488

 
0.8

 
8,960,139

 
1.3

 
 
Equinox Fitness(6)
 
5

 
5

 
2019-2033
 
180,087

 
1.0

 
7,426,266

 
1.1

 
 
Total
 
40

 
25

 
 
 
1,277,881

 
7.0
%
 
$
63,652,291

 
9.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
(1)
Expiration dates are per lease (expiration dates do not reflect storage and similar leases).
(2)
Square footage expires as follows: 2,000 square feet in 2020, 11,000 square feet in 2021, and 456,000 square feet in 2024.
(3)
Square footage expires as follows: 13,000 square feet in 2018, 13,000 square feet in 2019, 43,000 square feet in 2020, 56,000 square feet in 2021, 55,000 square feet in 2022, 40,000 square feet in 2023, and 67,000 square feet in 2027. Tenant has options to terminate 31,000 square feet in 2020, 15,000 square feet in 2023, and 51,000 square feet in 2025.
(4)
Tenant has an option to terminate 2,000 square feet in 2020 and 193,000 square feet in 2022.
(5)
Square footage expires as follows: 15,000 square feet in 2022, 30,000 square feet in 2023, 26,000 square feet in 2025, and 74,000 square feet in 2027. Tenant has options to terminate 30,000 square feet in 2021, 26,000 square feet in 2022, and 16,000 square feet in 2024.
(6)
Square footage expires 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:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data

 
Office Industry Diversification
Total Office Portfolio as of September 30, 2018

Percentage of Annualized Rent by Tenant Industry
chart-b0cbb6c7c9815641b33.jpg
 
 
 
 
 
 
 
 
Industry
 
Number of Leases
 
Annualized Rent as a Percent of Total
 
 
 
 
 
 
 
 
 
Legal
 
569

 
18.2
%
 
 
Financial Services
 
387

 
14.9

 
 
Entertainment
 
205

 
12.9

 
 
Real Estate
 
289

 
11.2

 
 
Accounting & Consulting
 
361

 
10.1

 
 
Health Services
 
377

 
7.6

 
 
Retail
 
192

 
5.9

 
 
Technology
 
133

 
5.4

 
 
Insurance
 
104

 
4.1

 
 
Educational Services
 
55

 
3.4

 
 
Public Administration
 
92

 
2.4

 
 
Advertising
 
59

 
1.7

 
 
Manufacturing & Distribution
 
54

 
1.2

 
 
Other
 
45

 
1.0

 
 
Total
 
2,922

 
100.0
%
 
 
 
 
 
 
 
 
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data

Office Lease Expirations
Total Office Portfolio as of September 30, 2018
chart-a1ae8fde1f575d97824.jpg
(1) Average of the percentage of leases expiring at September 30, 2015, 2016, and 2017 with the same remaining duration as the leases for the labeled year had at September 30, 2018. 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 September 30, 2018
 
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
 
54

 
145,699

 
0.8
%
 
$
5,200,025

 
0.8
%
 
$
35.69

 
$
35.74

 
 
2018
 
129

 
438,875

 
2.4

 
17,969,201

 
2.6

 
40.94

 
41.08

 
 
2019
 
551

 
1,920,221

 
10.4

 
76,338,527

 
11.1

 
39.76

 
40.62

 
 
2020
 
617

 
2,706,387

 
14.7

 
110,946,903

 
16.1

 
40.99

 
43.02

 
 
2021
 
523

 
2,580,615

 
14.0

 
108,059,154

 
15.7

 
41.87

 
45.28

 
 
2022
 
365

 
1,936,986

 
10.4

 
79,877,187

 
11.6

 
41.24

 
46.39

 
 
2023
 
294

 
2,060,597

 
11.2

 
92,862,628

 
13.5

 
45.07

 
52.35

 
 
2024
 
154

 
1,672,016

 
9.1

 
72,732,550

 
10.5

 
43.50

 
52.54

 
 
2025
 
94

 
803,346

 
4.3

 
36,497,311

 
5.3

 
45.43

 
56.51

 
 
2026
 
42

 
492,162

 
2.7

 
23,335,448

 
3.4

 
47.41

 
60.26

 
 
2027
 
56

 
872,134

 
4.7

 
41,521,076

 
6.0

 
47.61

 
61.50

 
 
Thereafter
 
43

 
470,954

 
2.6

 
24,058,592

 
3.4

 
51.08

 
70.36

 
 
Subtotal/weighted average
 
2,922

 
16,099,992

 
87.3
%
 
$
689,398,602

 
100.0
%
 
42.82

 
48.57

 
 
Signed leases not commenced
 
346,766

 
1.9

 
 
 
 
 
 
 
 
 
 
Available
 
1,584,752

 
8.6

 
 
 
 
 
 
 
 
 
 
Building management use
 
131,299

 
0.7

 
 
 
 
 
 
 
 
 
 
BOMA adjustment(3)
 
 
 
270,928

 
1.5

 
 
 
 
 
 
 
 
 
 
Total/weighted average
 
2,922

 
18,433,737

 
100.0
%
 
$
689,398,602

 
100.0
%
 
$
42.82

 
$
48.57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
___________________________________________________
(1)
Represents annualized rent at September 30, 2018 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:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Office Lease Expirations - Next Four Quarters
Total Office Portfolio as of September 30, 2018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q4 2018
 
Q1 2019
 
Q2 2019
 
Q3 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Expiring Square Feet(1)
 
351,897
 
326,507
 
547,983
 
512,453
 
 
Percentage of Portfolio
 
1.9
%
 
1.8
%
 
3.0
%
 
2.8
%
 
 
Expiring Rent per Square Foot(2)
 
$40.03
 
$38.98
 
$39.00
 
$42.23
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
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 2018
 
Q1 2019
 
Q2 2019
 
Q3 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills
Expiring SF(1)
 
40,891

 
42,696

 
74,185

 
104,243

 
 
Expiring rent per SF(2)
 
$46.96
 
$43.90
 
$45.28
 
$49.57
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brentwood
Expiring SF(1)
 
56,764

 
36,880

 
57,237

 
68,915

 
 
Expiring rent per SF(2)
 
$44.02
 
$41.77
 
$44.56
 
$45.87
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Century City
Expiring SF(1)
 
9,295

 
13,725

 
22,258

 
16,230

 
 
Expiring rent per SF(2)
 
$45.80
 
$46.53
 
$33.20
 
$50.44
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Honolulu
Expiring SF(1)
 
34,279

 
49,063

 
70,841

 
34,423

 
 
Expiring rent per SF(2)
 
$38.80
 
$33.54
 
$34.05
 
$34.12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Olympic Corridor
Expiring SF(1)
 
18,360

 
19,041

 
47,348

 
43,303

 
 
Expiring rent per SF(2)
 
$35.50
 
$35.37
 
$38.16
 
$43.54
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Santa Monica
Expiring SF(1)
 
1,215

 
12,195

 
14,471

 
48,771

 
 
Expiring rent per SF(2)
 
$49.32
 
$70.27
 
$67.59
 
$46.56
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sherman Oaks/Encino
Expiring SF(1)
 
62,647

 
70,631

 
130,765

 
61,773

 
 
Expiring rent per SF(2)
 
$37.12
 
$35.70
 
$36.85
 
$33.90
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Warner Center/Woodland Hills
Expiring SF(1)
 
50,897

 
50,513

 
90,861

 
82,606

 
 
Expiring rent per SF(2)
 
$29.98
 
$29.78
 
$30.23
 
$30.82
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Westwood
Expiring SF(1)
 
77,549

 
31,763

 
40,017

 
52,189

 
 
Expiring rent per SF(2)
 
$43.19
 
$46.40
 
$49.04
 
$48.35
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________________________________________________
(1)
Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of September 30, 2018, other than 145,699 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, as well as the varying terms and square footage of the individual leases expiring.
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Office Leasing Activity
Total Office Portfolio during the Three Months ended September 30, 2018

 
 
 
 
 
Net Absorption During Quarter(1)
(0.30)%
 
 
 
 
 

 
 
 
 
 
 
 
 
 
Office Leases Signed During Quarter
Number of leases
 
Rentable Square Feet
 
Weighted Average Lease Term (months)
 
 
 
 
 
 
 
 
 
 
New leases
83
 
294,000
 
50
 
 
Renewal leases
113
 
445,946
 
43
 
 
All leases
196
 
739,946
 
46
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
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
$42.28
 
$43.70
 
N/A
 
 
Prior leases for the same space
$33.89
 
$35.36
 
$38.04
 
 
Percentage change
24.8%
 
23.6%
 
11.1%
(3) 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Average Office Lease Transaction Costs (Per Square Foot)
 
 
 
 
 
 
 
 
 
Lease Transaction Costs
 
Lease Transaction Costs per Annum
 
 
 
 
 
 
 
 
New leases signed during the quarter
$30.92
 
$7.41
 
 
Renewal leases signed during the quarter
$17.16
 
$4.75
 
 
All leases signed during the quarter
$22.63
 
$5.90
 
 
 
 
 
 
 
________________________________________________________________
(1)
Net absorption represents the change in percentage leased between the last day of the current and prior quarter, excluding properties acquired or sold during the current quarter.
(2)
Represents the average initial stabilized cash and straight-line rents on new and renewed leases signed during the quarter compared to the prior leases for the same space, excluding Short Term Leases, leases where the prior lease was terminated more than a year before signing of the new lease, and leases in acquired buildings where we believe the information about the prior agreement is incomplete or where we believe base rent reflects other off-market inducements to the tenant that are not reflected in the prior lease document.
(3)
The percentage change for expiring cash rent represents the comparison between the starting cash rent on leases signed during the quarter and the expiring cash rent for the prior leases for the same space.








NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Multifamily Portfolio Summary
as of September 30, 2018

Annualized Rent by Submarket
chart-c293845d743c513f9b3.jpg
 
 
 
 
 
 
 
 
 
 
Submarket
 
Number of Properties
 
Number of Units
 
Units as a Percent of Total
 
 
 
 
 
 
 
 
 
 
 
Brentwood
 
5
 
950

 
27
%
 
 
Honolulu(1)
 
3
 
1,793

 
50

 
 
Santa Monica
 
2
 
820

 
23

 
 
Total
 
10
 
3,563

 
100
%
 
 
 
 
 
 
 
 
 
 
 
Submarket
 
Percent Leased
 
Annualized Rent(2)
 
Monthly Rent Per Leased Unit
 
 
 
 
 
 
 
 
 
 
 
Brentwood
 
99.8
%
 
$
31,432,068

 
$
2,763

 
 
Honolulu(1)
 
98.0

 
38,857,020

 
1,850

 
 
Santa Monica
 
99.5

 
29,457,144

 
3,012

 
 
Total / Weighted Average
 
98.8
%
 
$
99,746,232

 
$
2,366

 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
Recurring Multifamily Capital Expenditures per Unit(3)
 
 
 
 
 
 
 
Three months ended September 30, 2018
$
172

 
 
Nine months ended September 30, 2018
$
562

 
 
 
 
 
________________________________________________________________
(1)
Includes newly developed units just made available for rent.
(2)
The multifamily portfolio also includes 10,495 square feet of ancillary retail space generating annualized rent of $391,400, which is not included in multifamily annualized rent.
(3)
Excludes new development units.


NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Developments


Multifamily Development Projects(1) 

Honolulu, Hawaii
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Photo of new apartment buildings at our Moanalua Hillside Apartments community
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. Construction continues and as of September 30, 2018 we had leased 221 of our new units.

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).
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Our new Brentwood development is 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 is being built on a site that is directly adjacent to our existing office building and a 712 unit residential property that we own. The estimated budget is between $180 million and $200 million, not including the cost of the land which we have owned since 1997. 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. Site work is underway, and we expect 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.

 

NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Guidance

 
2018 Guidance

Metric
Per Share
Net income per common share - diluted
$0.69 to $0.71
FFO per share - fully diluted
$2.01 to $2.03


Assumptions
Metric
Commentary
Assumption Range
Compared to Prior Guidance
Average Office Occupancy
 
89% to 91%
Unchanged
Residential Leased Rate
We manage our apartment portfolio to be fully leased (due to rent control in our markets). Our assumption excludes the impact of leasing up newly developed units placed in service during the year.
Essentially fully leased
Unchanged
Same Property Cash NOI
 
Annual increase of 3% to 4%
Increased
Net Revenue from Above/Below Market Leases
 
$20 to $22 million
Unchanged
Straight-line Revenue
 
$17 to $19 million
Unchanged
G&A
 
$37 to $40 million
Unchanged
Interest Expense
Includes 100% of our consolidated JVs interest expense (not our pro rata share).
$132.5 to $135.5 million
Unchanged
___________________________________________
Except as disclosed, our guidance does not include the impact of 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 ranges 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.






 

NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Guidance


Reconciliation of our 2018 Non-GAAP Guidance(1) 
(Unaudited; in millions, except per share amounts)


Reconciliation of our guided Net income per common share - diluted to FFO per share - fully diluted:
Reconciliation of net income attributable to common stockholders to FFO
Low
 
High
 
Net income attributable to common stockholders
$
117.3

 
$
120.7

Adjustments for depreciation and amortization of real estate assets
300.0

 
295.0

Adjustments for noncontrolling interests, consolidated JVs and unconsolidated funds
(19.3
)
 
(13.8
)
FFO
$
398.0

 
$
401.9

 
Reconciliation of shares outstanding
High
 
Low
 
 
Weighted average shares of common stock outstanding - diluted
170.0

 
170.0
Weighted average units in our operating partnership outstanding
28.0

 
28.0
Weighted average fully diluted shares outstanding
198.0

 
198.0

 
Per share
Low
 
High
 
Net income per common share - diluted
$
0.69

 
$
0.71

FFO per share - fully diluted
$
2.01

 
$
2.03

_____________________________________________
(1)    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 ranges 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:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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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; loan costs such as 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 expenses (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 expenses 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 346,766 square feet with respect to signed leases not yet commenced at September 30, 2018).  For our triple net office properties (in Honolulu and two single tenant buildings in Los Angeles), annualized rent is calculated by adding expense reimbursements and estimates of normal building expenses paid by tenants 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.

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 ten office properties totaling 2.8 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 adding unamortized loan premium and deducting unamortized deferred loan costs. Cash and cash equivalents are subtracted because they could be used to reduce the debt obligations and unamortized loan premium and deferred loan costs are not adjusted for because they do not require cash settlement. Consolidated Net Debt is a non-GAAP financial measure for which we believe that consolidated debt is the most directly comparable GAAP financial measure. We report Consolidated Net Debt because some investors use it to evaluate and compare our leverage and financial position with that of other REITs. A limitation associated with using Consolidated Net Debt is that it subtracts cash and cash equivalents and may therefore imply that there is less debt than the most comparable GAAP financial measure indicates.

Equity Capitalization: Represents our Fully Diluted Shares multiplied by the closing price of our common stock on September 28, 2018.

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

Funds: Fund X Opportunity Fund, LLC, Douglas Emmett Fund X, LLC and Douglas Emmett Partnership X, LP.



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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 expenses 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.

Lease Transaction Costs: Represents the weighted average of tenant improvements and leasing expenses for leases signed by us during the quarter, excluding leases substantially negotiated by the seller in the case of acquired properties and excluding leases for tenants relocated due to repositioning projects.

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, 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 expenses 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 September 30, 2018. Management space is considered leased and occupied, while space taken out of service during a repositioning is excluded from both the numerator and denominator for calculating percentage leased and occupied.

Operating Partnership: Douglas Emmett Properties, LP



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Definitions

Our Share of Net Debt: We calculate our share of net debt by multiplying the principal balance of our consolidated loans and our unconsolidated Funds loans by our equity interest in the relevant borrower, and subtracting the product of cash and cash equivalents multiplied by our equity interest in the entity that owns the cash or equivalent. We subtract cash and cash equivalents because they could be used to reduce the debt obligations, but do not add unamortized loan premium or subtract unamortized deferred loan costs because they do not require cash settlement. Our share of net debt is a non-GAAP financial measure for which we believe that consolidated debt is the most directly comparable GAAP financial measure. We report our share of net debt because some investors use it to evaluate and compare our leverage and financial position with that of other REITs.

Recurring Capital Expenditures:  Building improvements required to maintain revenues once a property has been stabilized, and excludes capital expenditures for (i) acquired buildings being stabilized, (ii) newly developed space, (iii) upgrades to improve revenues or operating expenses, (iv) casualty damage and (v) bringing the property into compliance with governmental requirements.

Rentable Square Feet:  Based on the BOMA measurement.  At September 30, 2018, total consists of 16,446,758 leased square feet (including 346,766 square feet with respect to signed leases not commenced), 1,584,752 available square feet, 131,299 building management use square feet and 270,928 square feet of BOMA adjustment on leased space.

Same Property NOI:  To facilitate a comparison of NOI between reported periods, we report NOI for a subset of our wholly-owned properties referred to as our “same properties”, which are wholly-owned properties that have been owned and operated by us in a consistent manner during the entire span of both periods being compared.  We excluded from our same property subset for 2018 properties (i) acquired on or after January 1, 2017; (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements on or after January 1, 2017; or (iii) that underwent a major repositioning project that we believed significantly affected its results during the period commencing on or after January 1, 2017. Our same properties for 2018 include all of our wholly-owned properties other than (1) a 146,300 square foot office property in Beverly Hills that we acquired during 2017; (2) a multifamily property in Honolulu where we are adding 475 units (net of existing units removed), (3) a 378,000 square foot office property in Los Angeles on which we expect to commence construction of a residential tower, and (4) four office properties in Los Angeles totaling 1.5 million square feet which are undergoing repositionings or redevelopment.

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 three unconsolidated real estate Funds, in which we own a weighted average of approximately 62% based on square footage.

"We" and "our" refers to Douglas Emmett, Inc., our Operating Partnership and its subsidiaries, as well as our consolidated JVs and our unconsolidated Funds.

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