(State or other jurisdiction of incorporation) | Commission file number | (I.R.S. Employer identification No.) |
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101.SCH | XBRL Taxonomy Extension Schema Document. | |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
DOUGLAS EMMETT, INC. | |||
Dated: | August 5, 2019 | By: | /s/ PETER D. SEYMOUR |
Peter D. Seymour | |||
Chief Financial Officer |
◦ | We grew our revenues by 5.0% to a record $230.5 million. |
◦ | We grew our net income attributable to common stockholders by 7.2% to $34.0 million. |
◦ | We grew our FFO by 7.0% to $107.8 million, or $0.54 per fully diluted share. |
◦ | We grew our AFFO by 25.8% to $95.5 million. |
◦ | We grew our same property Cash NOI by 7.7% to $141.0 million. |
◦ | Significantly Extend Our Debt Maturities. Eliminate all debt maturities prior to 2023 and add almost 5 years to the weighted average life of $1.5 to $2 billion of debt, pushing our average debt maturity for that debt to 2027. |
◦ | Lock in Low Interest Rates. Fix the interest rate of our outstanding floating rate debt while adding close to 5 years to the fixed interest period and lowering the interest rate on the debt we refinance. |
◦ | Increase Liquidity. Increase our future financing flexibility by expanding our pool of unencumbered properties to almost 40% of our portfolio. |
◦ | Reduce Overall Leverage. Reduce our share of outstanding net debt by nearly $200 million before the impact of new acquisitions this year. |
◦ | We paid off $630 million of debt with an average interest rate of 3.50%, including $220 million just after quarter end. |
◦ | We closed $540 million of ten-year, secured, non-recourse loans with interest effectively fixed at an average of 3.25% through 2027. This total includes the acquisition loan for The Glendon. |
◦ | We reduced our overall leverage by nearly $200 million by issuing common stock at $41 per share. |
◦ | We lowered and extended the fixed interest rate on a $102 million loan for 36 months. |
◦ | Increasing Guidance for Occupancy and Same Property Cash NOI. Based on the strength of our operating results, we are increasing our guidance for 2019 same property cash NOI growth to between 6% and 7%, and our guidance for average 2019 office occupancy to between 90.0% and 91.0%. |
◦ | Better FFO from Operations. We expect that stronger operating results and the acquisition of The Glendon will positively impact our 2019 FFO by approximately 3 cents per share. |
◦ | One-Time Costs of Strategic Balance Sheet Management. We expect that one-time cash and non-cash refinancing costs and dilution from the equity issuance will negatively impact our 2019 FFO by 4 to 6 cents per share. |
◦ | Impact on Net Income and FFO. The net impact of these items: |
▪ | Reduces our 2019 guidance for Net Income per Common Share - Diluted to between $0.67 and $0.71 per share. |
▪ | Reduces our 2019 guidance for FFO to between $2.08 and $2.12 per share. |
COMPANY OVERVIEW | |
FINANCIAL RESULTS | |
PORTFOLIO DATA | |
Company Overview |
Office Portfolio | |||||||
Consolidated | Total | ||||||
Properties | 64 | 72 | |||||
Rentable square feet (in thousands) | 16,581 | 18,421 | |||||
Leased rate | 92.3 | % | 92.2 | % | |||
Occupancy rate | 90.5 | % | 90.4 | % | |||
Multifamily Portfolio | |||||||
Total | |||||||
Properties | 11 | ||||||
Units | 4,069 | ||||||
Leased rate | 99.0 | % | |||||
Market Capitalization (in thousands, except price per share) | ||||||
Fully diluted shares outstanding as of June 30, 2019 | 203,918 | |||||
Common stock closing price per share (NYSE:DEI) | $ | 39.84 | ||||
Equity capitalization | $ | 8,124,090 | ||||
Net Debt (in thousands) | |||||||||
Consolidated | Our Share | ||||||||
Debt principal(1) | $ | 4,338,626 | $ | 3,802,443 | |||||
Less: cash and cash equivalents(2) | (303,962 | ) | (248,744 | ) | |||||
Net debt | $ | 4,034,664 | $ | 3,553,699 | |||||
Leverage Ratio (in thousands, except percentage) | ||||||
Pro forma enterprise value | $ | 11,677,789 | ||||
Our share of net debt to pro forma enterprise value | 30 | % | ||||
AFFO Payout Ratio | |||||
Three Months ended June 30, 2019 | 54.3 | % | |||
(1) | See page 13 for a reconciliation of consolidated debt principal and our share of debt principal to consolidated debt on the balance sheet. |
(2) | Our share of cash and cash equivalents is calculated starting with our consolidated cash and cash equivalents of $304.0 million, then deducting the other owners' share of our JVs' cash and cash equivalents of $82.4 million and then adding our share of our unconsolidated Funds' cash and cash equivalents of $27.2 million. |
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 | Vice President, Google Health |
Virginia A. McFerran | Vice President, Business Development, Google Health |
Thomas E. O’Hern | Chief Executive Officer, Macerich |
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 |
Peter D. Seymour | Chief Financial Officer |
Kevin A. Crummy | Chief Investment Officer |
Financial Results |
June 30, 2019 | December 31, 2018 | ||||||
Unaudited | |||||||
Assets | |||||||
Investment in real estate: | |||||||
Land | $ | 1,100,412 | $ | 1,065,099 | |||
Buildings and improvements | 8,436,246 | 7,995,203 | |||||
Tenant improvements and lease intangibles | 859,618 | 840,653 | |||||
Property under development | 70,834 | 129,753 | |||||
Investment in real estate, gross | 10,467,110 | 10,030,708 | |||||
Less: accumulated depreciation and amortization | (2,374,596 | ) | (2,246,887 | ) | |||
Investment in real estate, net | 8,092,514 | 7,783,821 | |||||
Ground lease right-of-use asset | 7,481 | — | |||||
Cash and cash equivalents | 303,962 | 146,227 | |||||
Tenant receivables, net | 5,199 | 4,371 | |||||
Deferred rent receivables, net | 131,518 | 124,834 | |||||
Acquired lease intangible assets, net | 2,993 | 3,251 | |||||
Interest rate contract assets | 16,788 | 73,414 | |||||
Investment in unconsolidated real estate funds | 106,017 | 111,032 | |||||
Other assets | 11,239 | 14,759 | |||||
Total assets | $ | 8,677,711 | $ | 8,261,709 | |||
Liabilities | |||||||
Secured notes payable and revolving credit facility, net | $ | 4,304,913 | $ | 4,134,030 | |||
Ground lease liability | 10,885 | — | |||||
Interest payable, accounts payable and deferred revenue | 117,672 | 130,154 | |||||
Security deposits | 52,141 | 50,733 | |||||
Acquired lease intangible liabilities, net | 42,503 | 52,569 | |||||
Interest rate contract liabilities | 51,672 | 1,530 | |||||
Dividends payable | 45,565 | 44,263 | |||||
Total liabilities | 4,625,351 | 4,413,279 | |||||
Equity | |||||||
Douglas Emmett, Inc. stockholders' equity: | |||||||
Common stock | 1,752 | 1,702 | |||||
Additional paid-in capital | 3,484,180 | 3,282,316 | |||||
Accumulated other comprehensive (loss) income | (25,853 | ) | 53,944 | ||||
Accumulated deficit | (964,927 | ) | (935,630 | ) | |||
Total Douglas Emmett, Inc. stockholders' equity | 2,495,152 | 2,402,332 | |||||
Noncontrolling interests | 1,557,208 | 1,446,098 | |||||
Total equity | 4,052,360 | 3,848,430 | |||||
Total liabilities and equity | $ | 8,677,711 | $ | 8,261,709 |
Financial Results |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenues | |||||||||||||||
Office rental | |||||||||||||||
Rental revenues and tenant recoveries(1) | $ | 171,674 | $ | 164,815 | $ | 338,909 | $ | 323,639 | |||||||
Parking and other income | 30,515 | 28,946 | 60,570 | 57,455 | |||||||||||
Total office revenues | 202,189 | 193,761 | 399,479 | 381,094 | |||||||||||
Multifamily rental | |||||||||||||||
Rental revenues | 26,308 | 23,655 | 51,201 | 46,716 | |||||||||||
Parking and other income | 2,037 | 2,053 | 4,040 | 3,906 | |||||||||||
Total multifamily revenues | 28,345 | 25,708 | 55,241 | 50,622 | |||||||||||
Total revenues | 230,534 | 219,469 | 454,720 | 431,716 | |||||||||||
Operating Expenses | |||||||||||||||
Office expenses | 64,308 | 61,818 | 127,757 | 122,174 | |||||||||||
Multifamily expenses | 7,712 | 6,908 | 15,267 | 13,606 | |||||||||||
General and administrative expenses | 9,159 | 9,437 | 18,991 | 19,004 | |||||||||||
Depreciation and amortization | 78,724 | 73,379 | 158,597 | 145,877 | |||||||||||
Total operating expenses | 159,903 | 151,542 | 320,612 | 300,661 | |||||||||||
Operating income | 70,631 | 67,927 | 134,108 | 131,055 | |||||||||||
Other income | 2,892 | 2,792 | 5,790 | 5,422 | |||||||||||
Other expenses | (1,807 | ) | (2,086 | ) | (3,652 | ) | (3,819 | ) | |||||||
Income, including depreciation, from unconsolidated funds | 2,207 | 1,668 | 3,758 | 3,174 | |||||||||||
Interest expense | (34,063 | ) | (33,268 | ) | (67,356 | ) | (66,168 | ) | |||||||
Net income | 39,860 | 37,033 | 72,648 | 69,664 | |||||||||||
Less: Net income attributable to noncontrolling interests | (5,894 | ) | (5,349 | ) | (9,981 | ) | (9,774 | ) | |||||||
Net income attributable to common stockholders | $ | 33,966 | $ | 31,684 | $ | 62,667 | $ | 59,890 | |||||||
Net income per common share - basic | $ | 0.20 | $ | 0.19 | $ | 0.36 | $ | 0.35 | |||||||
Net income per common share - diluted | $ | 0.20 | $ | 0.19 | $ | 0.36 | $ | 0.35 | |||||||
Dividends declared per common share | $ | 0.26 | $ | 0.25 | $ | 0.52 | $ | 0.50 | |||||||
Weighted average shares of common stock outstanding - basic | 172,498 | 169,916 | 171,366 | 169,759 | |||||||||||
Weighted average shares of common stock outstanding - diluted | 172,498 | 169,926 | 171,366 | 169,776 |
(1) | Rental revenues and tenant recoveries include tenant recoveries of $16.2 million and $14.7 million for the three months ended June 30, 2019 and 2018, and $29.9 million and $25.7 million for the six months ended June 30, 2019 and 2018, respectively. |
Financial Results |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Funds From Operations (FFO) | |||||||||||||||
Net income attributable to common stockholders | $ | 33,966 | $ | 31,684 | $ | 62,667 | $ | 59,890 | |||||||
Depreciation and amortization of real estate assets | 78,724 | 73,379 | 158,597 | 145,877 | |||||||||||
Net income attributable to noncontrolling interests | 5,894 | 5,349 | 9,981 | 9,774 | |||||||||||
Adjustments attributable to unconsolidated funds(2) | 4,336 | 4,052 | 8,850 | 8,149 | |||||||||||
Adjustments attributable to consolidated joint ventures(2) | (15,119 | ) | (13,670 | ) | (29,196 | ) | (26,912 | ) | |||||||
FFO | $ | 107,801 | $ | 100,794 | $ | 210,899 | $ | 196,778 | |||||||
Adjusted Funds From Operations (AFFO) | |||||||||||||||
FFO | $ | 107,801 | $ | 100,794 | $ | 210,899 | $ | 196,778 | |||||||
Straight-line rent | (2,315 | ) | (4,019 | ) | (6,684 | ) | (9,191 | ) | |||||||
Net accretion of acquired above- and below-market leases | (4,396 | ) | (6,143 | ) | (8,516 | ) | (12,295 | ) | |||||||
Loan costs | 2,404 | 1,868 | 4,271 | 4,177 | |||||||||||
Recurring capital expenditures, tenant improvements and capitalized leasing expenses(3) | (14,689 | ) | (24,148 | ) | (32,472 | ) | (47,415 | ) | |||||||
Non-cash compensation expense | 4,359 | 4,923 | 8,866 | 9,982 | |||||||||||
Adjustments attributable to unconsolidated funds(2) | (1,619 | ) | (1,881 | ) | (3,613 | ) | (4,267 | ) | |||||||
Adjustments attributable to consolidated joint ventures(2) | 3,965 | 4,558 | 7,886 | 9,176 | |||||||||||
AFFO | $ | 95,510 | $ | 75,952 | $ | 180,637 | $ | 146,945 | |||||||
Weighted average shares of common stock outstanding - diluted | 172,498 | 169,926 | 171,366 | 169,776 | |||||||||||
Weighted average units in our operating partnership outstanding | 28,687 | 28,053 | 28,670 | 28,158 | |||||||||||
Weighted average fully diluted shares outstanding | 201,185 | 197,979 | 200,036 | 197,934 | |||||||||||
Net income per common share - diluted | $ | 0.20 | $ | 0.19 | $ | 0.36 | $ | 0.35 | |||||||
FFO per share - fully diluted | $ | 0.54 | $ | 0.51 | $ | 1.05 | $ | 0.99 | |||||||
Dividends paid per share(4) | $ | 0.26 | $ | 0.25 | $ | 0.52 | $ | 0.50 |
(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. |
(3) | We adopted the new lease accounting rules in the first quarter of 2019. Under the new rules, we expense non-incremental leasing expenses (leasing expenses not directly related to the signing of a lease) and capitalize incremental leasing expenses. Since non-incremental leasing expenses are included in the calculation of net income attributable to common stockholders and FFO, the 2019 capitalized leasing expenses adjustment to AFFO only includes incremental leasing expenses. |
(4) | Reflects dividends paid within the respective quarters. |
Financial Results |
As of June 30, | |||||||
2019 | 2018 | ||||||
Office Statistics | |||||||
Number of properties | 60 | 60 | |||||
Rentable square feet (in thousands) | 15,500 | 15,435 | |||||
Ending % leased | 92.3 | % | 92.0 | % | |||
Ending % occupied | 90.4 | % | 89.1 | % | |||
Quarterly average % occupied | 90.4 | % | 89.1 | % | |||
Multifamily Statistics | |||||||
Number of properties | 9 | 9 | |||||
Number of units | 2,640 | 2,640 | |||||
Ending % leased | 99.4 | % | 99.8 | % | |||
Three Months Ended June 30, | % Favorable | |||||||||||
2019 | 2018 | (Unfavorable) | ||||||||||
Net Operating Income (NOI) | ||||||||||||
Office revenues | $ | 190,130 | $ | 180,643 | 5.3 | % | ||||||
Office expenses | (59,112 | ) | (56,760 | ) | (4.1 | )% | ||||||
Office NOI | 131,018 | 123,883 | 5.8 | % | ||||||||
Multifamily revenues | 21,410 | 21,170 | 1.1 | % | ||||||||
Multifamily expenses | (5,351 | ) | (5,341 | ) | (0.2 | )% | ||||||
Multifamily NOI | 16,059 | 15,829 | 1.5 | % | ||||||||
Total NOI | $ | 147,077 | $ | 139,712 | 5.3 | % | ||||||
Cash Net Operating Income (NOI) | ||||||||||||
Office cash revenues | $ | 184,073 | $ | 171,816 | 7.1 | % | ||||||
Office cash expenses | (59,112 | ) | (56,760 | ) | (4.1 | )% | ||||||
Office cash NOI | 124,961 | 115,056 | 8.6 | % | ||||||||
Multifamily cash revenues | 21,405 | 21,164 | 1.1 | % | ||||||||
Multifamily cash expenses | (5,351 | ) | (5,341 | ) | (0.2 | )% | ||||||
Multifamily cash NOI | 16,054 | 15,823 | 1.5 | % | ||||||||
Total Cash NOI | $ | 141,015 | $ | 130,879 | 7.7 | % | ||||||
Financial Results |
Three Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Same property office cash revenues | $ | 184,073 | $ | 171,816 | |||
Non cash adjustments per definition of NOI | 6,057 | 8,827 | |||||
Same property office revenues | 190,130 | 180,643 | |||||
Same property office expenses | (59,112 | ) | (56,760 | ) | |||
Office NOI | 131,018 | 123,883 | |||||
Same property multifamily cash revenues | 21,405 | 21,164 | |||||
Non cash adjustments per definition of NOI | 5 | 6 | |||||
Same property multifamily revenues | 21,410 | 21,170 | |||||
Same property multifamily expenses | (5,351 | ) | (5,341 | ) | |||
Multifamily NOI | 16,059 | 15,829 | |||||
Same Property NOI | 147,077 | 139,712 | |||||
Non-comparable office revenues | 12,059 | 13,118 | |||||
Non-comparable office expenses | (5,196 | ) | (5,058 | ) | |||
Non-comparable multifamily revenues | 6,935 | 4,538 | |||||
Non-comparable multifamily expenses | (2,361 | ) | (1,567 | ) | |||
NOI | 158,514 | 150,743 | |||||
General and administrative expenses | (9,159 | ) | (9,437 | ) | |||
Depreciation and amortization | (78,724 | ) | (73,379 | ) | |||
Operating income | 70,631 | 67,927 | |||||
Other income | 2,892 | 2,792 | |||||
Other expenses | (1,807 | ) | (2,086 | ) | |||
Income, including depreciation, from unconsolidated real estate funds | 2,207 | 1,668 | |||||
Interest expense | (34,063 | ) | (33,268 | ) | |||
Net income | 39,860 | 37,033 | |||||
Less: Net income attributable to noncontrolling interests | (5,894 | ) | (5,349 | ) | |||
Net income attributable to common stockholders | $ | 33,966 | $ | 31,684 |
Financial Results |
Three Months Ended June 30, | |||||||||||
Wholly-Owned Properties | Consolidated Joint Ventures(1) | Unconsolidated Funds(2) | |||||||||
Revenues | $ | 186,864 | $ | 43,670 | $ | 21,015 | |||||
Office and multifamily operating expenses | $ | 58,025 | $ | 13,995 | $ | 6,871 | |||||
Straight-line rent | $ | 782 | $ | 1,533 | $ | 300 | |||||
Above/below-market lease revenue | $ | 1,427 | $ | 2,969 | $ | (3 | ) | ||||
Cash NOI attributable to outside interests(3) | $ | — | $ | 16,740 | $ | 4,943 | |||||
Our share of cash NOI(4) | $ | 126,630 | $ | 8,433 | $ | 8,904 | |||||
Six Months Ended June 30, | |||||||||||
Wholly-Owned Properties | Consolidated Joint Ventures(1) | Unconsolidated Funds(2) | |||||||||
Revenues | $ | 369,571 | $ | 85,149 | $ | 41,173 | |||||
Office and multifamily operating expenses | $ | 115,277 | $ | 27,747 | $ | 13,698 | |||||
Straight-line rent | $ | 3,210 | $ | 3,474 | $ | 506 | |||||
Above/below-market lease revenue | $ | 2,805 | $ | 5,711 | $ | (6 | ) | ||||
Cash NOI attributable to outside interests(3) | $ | — | $ | 32,042 | $ | 9,601 | |||||
Our share of cash NOI(4) | $ | 248,279 | $ | 16,175 | $ | 17,374 |
(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 27% based on square footage. The JVs own a combined eleven Class A office properties totaling 2.8 million square feet and one residential property with 350 apartments 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 63% 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. |
Financial Results |
Loans (As of June 30, 2019, unaudited) | ||||||||||||||
Maturity Date(1) | Principal Balance (In Thousands) | Our Share(2) (In Thousands) | Effective Rate(3) | Swap Maturity Date | ||||||||||
Consolidated Wholly-Owned Subsidiaries | ||||||||||||||
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 | (4) | 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 | (5) | 102,400 | 102,400 | 2.84% | 3/1/2023 | |||||||||
6/1/2027 | 550,000 | 550,000 | 3.16% | 6/1/2022 | ||||||||||
6/1/2029 | 255,000 | 255,000 | 3.26% | 6/1/2027 | ||||||||||
6/1/2029 | (6) | 125,000 | 125,000 | 2.55% | 6/1/2027 | |||||||||
6/1/2038 | (7) | 31,227 | 31,227 | 4.55% | N/A | |||||||||
8/21/2023 | (8) | — | — | LIBOR + 1.15% | N/A | |||||||||
Subtotal | 3,198,627 | 3,198,627 | ||||||||||||
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 | ||||||||||
6/1/2029 | 160,000 | 32,000 | 3.25% | 7/1/2027 | ||||||||||
Total Consolidated Loans | (9) | $ | 4,338,627 | $ | 3,484,627 | |||||||||
Unconsolidated Funds | ||||||||||||||
3/1/2023 | $ | 110,000 | $ | 27,091 | 2.30% | 3/1/2021 | ||||||||
7/1/2024 | 400,000 | 290,725 | 3.44% | 7/1/2022 | ||||||||||
Total Unconsolidated Loans | $ | 510,000 | $ | 317,816 | ||||||||||
Total Loans | $ | 3,802,443 | ||||||||||||
(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) | We paid this loan off on July 1, 2019 and terminated the related swaps. |
(5) | Effective rate will decrease to 2.76% after March 2, 2020. |
(6) | Effective rate will increase to 3.25% after December 1, 2020. |
(7) | Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule. |
(8) | $400 million revolving credit facility. Unused commitment fees range from 0.10% to 0.15%. |
(9) | Our consolidated debt on the balance sheet of $4.30 billion is calculated by adding $3.9 million of unamortized loan premium and deducting $37.6 million of unamortized deferred loan costs from our total consolidated loans of $4.34 billion. |
Statistics for consolidated loans with interest fixed under the terms of the loan or a swap | |||
Principal balance (in billions) | $4.34 | ||
Weighted average remaining life (including extension options) | 5.5 years | ||
Weighted average remaining fixed interest period | 3.1 years | ||
Weighted average annual interest rate | 3.08% | ||
Portfolio Data |
Submarket | Number of Properties | Rentable Square Feet | Submarket Rentable Square Feet(1) | Our Market Share in Submarket(2) | |||||||||
Brentwood | 15 | 2,084,627 | 3,336,801 | 62.5 | % | ||||||||
Sherman Oaks/Encino | 12 | 3,487,488 | 6,528,253 | 53.4 | |||||||||
Westwood | 7 | 2,185,150 | 4,259,142 | 51.3 | |||||||||
Warner Center/Woodland Hills | 3 | 2,845,577 | 7,667,855 | 37.1 | |||||||||
Honolulu(3) | 4 | 1,638,418 | 4,949,122 | 33.1 | |||||||||
Olympic Corridor | 5 | 1,142,885 | 3,451,688 | 33.1 | |||||||||
Beverly Hills(4) | 11 | 2,196,067 | 6,911,291 | 28.6 | |||||||||
Santa Monica | 11 | 1,427,671 | 9,250,950 | 15.4 | |||||||||
Century City | 3 | 957,269 | 10,148,454 | 9.4 | |||||||||
Burbank | 1 | 456,205 | 7,060,975 | 6.5 | |||||||||
Total / Weighted Average(5) | 72 | 18,421,357 | 63,564,531 | 39.4 | % | ||||||||
(1) | Source is the 2019 second quarter CBRE Marketview report. |
(2) | Calculated by dividing Rentable Square Feet by the applicable Submarket Rentable Square Feet. |
(3) | We removed approximately 125,000 rentable square feet of vacant space at an office building we are converting to residential apartments. Third party submarket data was updated for consistency. See page 23. |
(4) | Includes a 218,000 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. |
(5) | The average of our market share in all submarkets is weighted based on the square feet of exposure in our total portfolio to each submarket. |
Portfolio Data |
Submarket | Percent Leased(1) | Annualized Rent(2) | Annualized Rent Per Leased Square Foot(2) | Monthly Rent Per Leased Square Foot(2) | ||||||||||||
Beverly Hills | 96.5 | % | $ | 105,485,768 | $ | 51.94 | $ | 4.33 | ||||||||
Brentwood | 90.4 | 81,705,710 | 45.17 | 3.76 | ||||||||||||
Burbank | 100.0 | 22,714,720 | 49.79 | 4.15 | ||||||||||||
Century City | 93.5 | 41,176,963 | 49.67 | 4.14 | ||||||||||||
Honolulu | 94.1 | 50,548,267 | 35.25 | 2.94 | ||||||||||||
Olympic Corridor | 93.9 | 40,112,941 | 39.60 | 3.30 | ||||||||||||
Santa Monica | 93.6 | 93,352,961 | 72.87 | 6.07 | ||||||||||||
Sherman Oaks/Encino | 92.0 | 114,357,721 | 37.10 | 3.09 | ||||||||||||
Warner Center/Woodland Hills | 86.9 | 70,675,101 | 29.60 | 2.47 | ||||||||||||
Westwood | 91.5 | 95,174,300 | 50.01 | 4.17 | ||||||||||||
Total / Weighted Average | 92.2 | % | $ | 715,304,452 | $ | 44.08 | $ | 3.67 | ||||||||
Recurring Office Capital Expenditures per Rentable Square Foot | ||||||||||||||||
Three months ended June 30, 2019 | $ | 0.05 | ||||||||||||||
Six months ended June 30, 2019 | $ | 0.13 | ||||||||||||||
(1) | Includes 330,019 square feet with respect to signed leases not yet commenced at June 30, 2019. |
(2) | Excludes signed leases not yet commenced at June 30, 2019. |
Portfolio Data |
Portfolio Tenant Size | |||||
Median | Average | ||||
Square feet | 2,600 | 5,600 | |||
Office Leases | Rentable Square Feet | Annualized Rent | |||||||||||||||||||
Square Feet Under Lease | Number | Percent | Amount | Percent | Amount | Percent | |||||||||||||||
2,500 or less | 1,402 | 48.3 | % | 1,952,705 | 12.0 | % | $ | 84,666,329 | 11.8 | % | |||||||||||
2,501-10,000 | 1,124 | 38.8 | 5,525,359 | 34.1 | 238,711,197 | 33.4 | |||||||||||||||
10,001-20,000 | 239 | 8.2 | 3,298,227 | 20.3 | 141,139,636 | 19.7 | |||||||||||||||
20,001-40,000 | 101 | 3.5 | 2,754,224 | 16.9 | 120,070,006 | 16.8 | |||||||||||||||
40,001-100,000 | 32 | 1.1 | 1,793,097 | 11.1 | 88,763,883 | 12.4 | |||||||||||||||
Greater than 100,000 | 4 | 0.1 | 902,669 | 5.6 | 41,953,401 | 5.9 | |||||||||||||||
Total for all leases | 2,902 | 100.0 | % | 16,226,281 | 100.0 | % | $ | 715,304,452 | 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 | 2020-2024 | 468,775 | 2.5 | % | $ | 23,164,538 | 3.2 | % | |||||||||||||
UCLA(3) | 26 | 10 | 2019-2027 | 321,106 | 1.7 | 16,015,025 | 2.2 | ||||||||||||||||
William Morris Endeavor(4) | 1 | 1 | 2027 | 206,782 | 1.1 | 11,667,814 | 1.6 | ||||||||||||||||
Morgan Stanley(5) | 5 | 5 | 2022-2027 | 145,488 | 0.8 | 9,262,989 | 1.3 | ||||||||||||||||
Equinox Fitness(6) | 5 | 5 | 2020 - 2033 | 180,087 | 1.0 | 7,595,231 | 1.1 | ||||||||||||||||
Total | 40 | 24 | 1,322,238 | 7.1 | % | $ | 67,705,597 | 9.4 | % | ||||||||||||||
(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, 10,000 square feet in 2023, and 456,000 square feet in 2024. |
(3) | Square footage expires as follows: 6,000 square feet in 2019, 41,000 square feet in 2020, 69,000 square feet in 2021, 55,000 square feet in 2022, 40,000 square feet in 2023, 11,000 square feet in 2024, 32,000 square feet in 2025, 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 205,000 square feet in 2022. |
(5) | Square footage expires as follows: 16,000 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, and 26,000 square feet in 2022. |
(6) | Square footage expires as follows: 42,000 square feet in 2020, 33,000 square feet in 2024, 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 | 18.1 | % | |||||
Financial Services | 391 | 15.0 | ||||||
Entertainment | 212 | 12.9 | ||||||
Real Estate | 293 | 11.3 | ||||||
Accounting & Consulting | 350 | 10.1 | ||||||
Health Services | 368 | 7.5 | ||||||
Retail | 190 | 5.9 | ||||||
Technology | 127 | 5.2 | ||||||
Insurance | 106 | 4.0 | ||||||
Educational Services | 58 | 3.6 | ||||||
Public Administration | 90 | 2.4 | ||||||
Advertising | 57 | 1.6 | ||||||
Manufacturing & Distribution | 50 | 1.3 | ||||||
Other | 44 | 1.1 | ||||||
Total | 2,902 | 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 June 30, 2019 | 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 | 79 | 326,206 | 1.8 | % | $ | 13,321,945 | 1.9 | % | $ | 40.84 | $ | 41.02 | ||||||||||||||
2019 | 222 | 793,035 | 4.3 | 33,166,156 | 4.6 | 41.82 | 42.02 | |||||||||||||||||||
2020 | 658 | 2,739,593 | 14.9 | 114,136,690 | 16.0 | 41.66 | 42.75 | |||||||||||||||||||
2021 | 582 | 2,621,820 | 14.2 | 110,615,941 | 15.4 | 42.19 | 44.69 | |||||||||||||||||||
2022 | 450 | 2,234,190 | 12.1 | 94,224,024 | 13.1 | 42.17 | 46.37 | |||||||||||||||||||
2023 | 328 | 2,168,498 | 11.8 | 99,496,943 | 13.9 | 45.88 | 52.09 | |||||||||||||||||||
2024 | 249 | 2,066,394 | 11.2 | 92,702,271 | 13.0 | 44.86 | 53.57 | |||||||||||||||||||
2025 | 140 | 1,083,268 | 5.9 | 50,074,689 | 7.0 | 46.23 | 57.23 | |||||||||||||||||||
2026 | 65 | 614,635 | 3.3 | 30,025,290 | 4.2 | 48.85 | 62.11 | |||||||||||||||||||
2027 | 63 | 988,693 | 5.4 | 47,135,151 | 6.6 | 47.67 | 61.43 | |||||||||||||||||||
2028 | 40 | 368,757 | 2.0 | 20,610,536 | 2.9 | 55.89 | 73.12 | |||||||||||||||||||
Thereafter | 26 | 221,192 | 1.2 | 9,794,816 | 1.4 | 44.28 | 65.83 | |||||||||||||||||||
Subtotal/weighted average | 2,902 | 16,226,281 | 88.1 | % | 715,304,452 | 100.0 | % | 44.08 | 49.96 | |||||||||||||||||
Signed leases not commenced | 330,019 | 1.8 | ||||||||||||||||||||||||
Available | 1,432,030 | 7.8 | ||||||||||||||||||||||||
Building management use | 130,113 | 0.7 | ||||||||||||||||||||||||
BOMA adjustment(3) | 302,914 | 1.6 | ||||||||||||||||||||||||
Total/weighted average | 2,902 | 18,421,357 | 100.0 | % | $ | 715,304,452 | 100.0 | % | $ | 44.08 | $ | 49.96 | ||||||||||||||
(1) | Represents annualized rent at June 30, 2019 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 |
Q3 2019 | Q4 2019 | Q1 2020 | Q2 2020 | |||||||||||
Expiring Square Feet(1) | 290,539 | 502,496 | 606,066 | 572,311 | ||||||||||
Percentage of Portfolio | 1.8 | % | 3.1 | % | 3.7 | % | 3.5 | % | ||||||
Expiring Rent per Square Foot(2) | $41.94 | $42.07 | $42.22 | $42.28 | ||||||||||
Submarket Data | |||||||||||||||
Due to the small square footage of leases in each quarter in each submarket, and the varying terms and square footage of the individual leases and the individual buildings involved, the data in this table should only be extrapolated with caution. | |||||||||||||||
Q3 2019 | Q4 2019 | Q1 2020 | Q2 2020 | ||||||||||||
Beverly Hills | Expiring SF(1) | 49,146 | 63,850 | 31,769 | 85,563 | ||||||||||
Expiring rent per SF(2) | $49.71 | $64.99 | $54.44 | $45.78 | |||||||||||
Brentwood | Expiring SF(1) | 47,896 | 57,286 | 101,998 | 66,712 | ||||||||||
Expiring rent per SF(2) | $46.10 | $50.95 | $48.69 | $47.00 | |||||||||||
Century City | Expiring SF(1) | 9,329 | 13,477 | 29,832 | 6,293 | ||||||||||
Expiring rent per SF(2) | $45.49 | $49.73 | $49.51 | $51.62 | |||||||||||
Honolulu | Expiring SF(1) | 25,406 | 55,106 | 92,859 | 28,786 | ||||||||||
Expiring rent per SF(2) | $35.25 | $36.03 | $33.67 | $34.28 | |||||||||||
Olympic Corridor | Expiring SF(1) | 29,126 | 11,241 | 62,980 | 44,744 | ||||||||||
Expiring rent per SF(2) | $42.79 | $36.85 | $39.88 | $38.43 | |||||||||||
Santa Monica | Expiring SF(1) | 14,911 | 14,517 | 37,679 | 79,527 | ||||||||||
Expiring rent per SF(2) | $66.93 | $61.05 | $55.96 | $65.68 | |||||||||||
Sherman Oaks/Encino | Expiring SF(1) | 42,735 | 198,395 | 137,845 | 105,753 | ||||||||||
Expiring rent per SF(2) | $33.75 | $34.43 | $37.49 | $36.56 | |||||||||||
Warner Center/Woodland Hills | Expiring SF(1) | 48,715 | 63,482 | 61,091 | 116,444 | ||||||||||
Expiring rent per SF(2) | $30.70 | $31.55 | $31.09 | $29.35 | |||||||||||
Westwood | Expiring SF(1) | 23,275 | 25,142 | 50,013 | 38,489 | ||||||||||
Expiring rent per SF(2) | $44.28 | $51.07 | $51.98 | $41.73 | |||||||||||
(1) | Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of June 30, 2019, other than 326,206 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. |
Portfolio Data |
Net Absorption During Quarter(1) | 0.45% | ||
Office Leases Signed During Quarter | Number of Leases | Rentable Square Feet | Weighted Average Lease Term (months) | |||||
New leases | 96 | 295,014 | 45 | |||||
Renewal leases | 125 | 574,320 | 47 | |||||
All leases | 221 | 869,334 | 46 | |||||
Change in Rental Rates for Office Leases Executed during the Quarter(2) | |||||||
Expiring Rate(2) | New/Renewal Rate(2) | Percentage Change | |||||
Cash Rent | $45.10 | $50.50 | 12.0% | ||||
Straight-line Rent | $40.86 | $53.49 | 30.9% | ||||
Average Office Lease Transaction Costs | |||||
Lease Transaction Costs PSF | Lease Transaction Costs per Annum | ||||
New leases signed during the quarter | $26.97 | $7.19 | |||
Renewal leases signed during the quarter | $21.52 | $5.48 | |||
All leases signed during the quarter | $23.37 | $6.04 | |||
(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 annual initial stabilized cash and straight-line rents per square foot on new and renewed leases signed during the quarter compared to the prior leases for the same space. Excludes Short Term Leases, leases where the prior lease was terminated more than a year before signing of the new lease, leases for tenants relocated from space being taken out of service, 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. |
Portfolio Data |
Submarket | Number of Properties | Number of Units | Units as a Percent of Total | ||||||||||
Honolulu(1) | 3 | 1,949 | 48 | % | |||||||||
Santa Monica | 2 | 820 | 20 | ||||||||||
West Los Angeles | 6 | 1,300 | 32 | ||||||||||
Total | 11 | 4,069 | 100 | % | |||||||||
Submarket | Percent Leased | Annualized Rent(2) | Monthly Rent Per Leased Unit | ||||||||||
Honolulu(1) | 99.2 | % | $ | 43,022,508 | $ | 1,859 | |||||||
Santa Monica | 99.3 | 29,683,032 | 3,043 | ||||||||||
West Los Angeles | 98.5 | 48,452,016 | 3,157 | ||||||||||
Total / Weighted Average | 99.0 | % | $ | 121,157,556 | $ | 2,511 | |||||||
Recurring Multifamily Capital Expenditures per Unit | |||||
Three months ended June 30, 2019 | $ | 184 | |||
Six months ended June 30, 2019 | $ | 362 | |||
(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 $404,497, which is not included in multifamily annualized rent. |
Developments |
1132 Bishop Street, Honolulu, Hawaii | |
In downtown Honolulu, we are converting a 25 story, 490,000 square foot office tower into approximately 500 rental apartments. This project will help address the severe shortage of rental housing in Honolulu, and revitalize the central business district, where we own a significant portion of the Class A office space. We expect the conversion to occur in phases over a number of years as the office space is vacated. In select cases, we will relocate tenants to our other office buildings in Honolulu, although we do not have enough vacancy to accommodate all of them. We currently estimate that construction costs will be $80 million to $100 million, although the inherent uncertainties of development are compounded by the multi-year and phased nature of the conversion. Assuming timely approvals, we expect the first units to be delivered in 2020. | |
Moanalua Hillside Apartments, Honolulu, Hawaii | |
Shortly after the 2018 year-end we completed construction of our 491 unit apartment development at Moanalua. This project now includes a total of 1,171 units on 28 acres. We have also completed upgrades to the existing buildings, improved the parking and landscaping, built a new leasing and management office and constructed a new fitness center and two pools, resulting in one of the most modern and desirable workforce housing communities in Hawaii. | |
Residential High Rise Tower, Brentwood, California | |
In Brentwood, we are building 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 an 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. We expect construction to take about three years. | Rendering of our new residential tower in Brentwood (center), with a new park in the foreground, and our existing residential and office buildings (left and right, respectively). |
Guidance |
Metric | Per Share |
Net income per common share - diluted | $0.67 to $0.71 |
FFO per share - fully diluted | $2.08 to $2.12 |
Metric | Commentary | Assumption Range | Compared to Prior Assumption |
Average Office Occupancy | 90% to 91% | Increased | |
Residential Leased Rate | Our assumption excludes the impact of leasing up new units. | Essentially fully leased | Unchanged |
Same Property Cash NOI Growth | 6.0% to 7.0% | Increased | |
Above/Below Market Net Revenue | Includes 100% of our consolidated JVs share (not our pro-rata share). | $14 to $16 million | Unchanged |
Straight-line Revenue | Includes 100% of our consolidated JVs share (not our pro rata share). | $9 to $11 million | Unchanged |
G&A | $39 to $43 million | Unchanged | |
Interest Expense, Including Refinancing Costs | Includes $3 to $5 million of non-recurring non-cash costs relating to our refinancing activities. Includes 100% of our consolidated JVs share (not our pro rata share), including our new Glendon acquisition loan of which our share is 20%. | $140 to $143 million | Increased |
Guidance |
Reconciliation of net income attributable to common stockholders to FFO | Low | High | |||||
Net income attributable to common stockholders | $ | 115.9 | $ | 122.8 | |||
Adjustments for depreciation and amortization of real estate assets | 330.0 | 320.0 | |||||
Adjustments for noncontrolling interests, consolidated JVs and unconsolidated funds | (25.7 | ) | (14.6 | ) | |||
FFO | $ | 420.2 | $ | 428.2 | |||
Reconciliation of shares outstanding | High | Low | |||||
Weighted average shares of common stock outstanding - diluted | 173.0 | 173.0 | |||||
Weighted average units in our operating partnership outstanding | 29.0 | 29.0 | |||||
Weighted average fully diluted shares outstanding | 202.0 | 202.0 | |||||
Per share | Low | High | |||||
Net income per common share - diluted | $ | 0.67 | $ | 0.71 | |||
FFO per share - fully diluted | $ | 2.08 | $ | 2.12 |
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. |
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