DOUGLAS EMMETT, INC. 
The following discussion should be read in conjunction with our Forward Looking Statements disclaimer, and our consolidated financial statements and related notes in Part I, Item 1 of this Report. During the six months endedJune 30, 2021 , our results of operations were impacted by the COVID-19 pandemic and transactions - see "Impacts of the COVID-19 Pandemic on our Business" and "Financings, Developments and Repositionings" further below.
Business Description
Douglas Emmett, Inc. is a fully integrated, self-administered and self-managed REIT. Through our interest in ourOperating Partnership and its subsidiaries, our consolidated JVs and our unconsolidated Fund, we are one of the largest owners and operators of high-quality office and multifamily properties inLos Angeles County, California and inHonolulu, Hawaii . We focus on owning, acquiring, developing and managing a substantial market share of top-tier office properties and premier multifamily communities in neighborhoods that possess significant supply constraints, high-end executive housing and key lifestyle amenities. As ofJune 30, 2021 , our portfolio consisted of the following (including ancillary retail space): Consolidated Portfolio(1) Total Portfolio(2) Office Class A Properties 69 71 Rentable Square Feet (in thousands)(3) 17,810 18,195 Leased rate 87.3% 87.3% Occupancy rate 84.9% 84.8% Multifamily Properties 12 12 Units 4,335 4,335 Leased rate 99.4% 99.4% Occupied rate 97.6% 97.6%
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(1) Our Consolidated Portfolio includes the properties in our consolidated results. Through our subsidiaries, we wholly-own 53 office properties totaling 13.6 million square feet and 11 residential properties with 3,985 apartments. Through three consolidated JVs, we partially own 16 office properties totaling 4.2 million square feet and one residential property with 350 apartments. Our Consolidated Portfolio also includes two wholly-owned land parcels from which we receive ground rent from ground leases to the owners of a Class A office building and a hotel (the land parcels are not included in the number ofClass A Properties ). (2) Our Total Portfolio includes our Consolidated Portfolio as well as two properties totaling 0.4 million square feet owned by our unconsolidated Fund, PartnershipX. See Note 6 to our consolidated financial statements in Item 1 of this Report for more information about Partnership X. (3) As ofJune 30, 2021 , we removed approximately 274,000 Rentable Square Feet of vacant space at an office building that we are converting to residential apartments. See "Financings, Developments and Repositionings" further below.
Revenues by Segment and Location
During the six months ended
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Impacts of the COVID-19 Pandemic on our Business
Our buildings have remained open and available to our tenants throughout the pandemic. While improving, our rent collections continue to be negatively impacted by the pandemic and our markets' very tenant-oriented lease enforcement moratoriums, which remain considerably out of sync with other gateway markets. This quarter saw increased leasing activity compared with prior quarters. OurLos Angeles submarkets are subject to unusually punitive ordinances prohibiting evictions and allowing rent deferral for residential, retail, and office tenants, regardless of financial distress. The ordinances cover our residential, retail and office tenants (with some carveouts for large tenants) and generally prohibit landlords not only from evicting tenants but also from imposing any late fees or interest and allow tenants to pay back the deferred rent over a certain period. We wrote off certain tenant receivables and deferred rent receivables, and we continued to experience a significant decrease in our parking revenues due to lower utilization during the pandemic. For the three and six months endedJune 30, 2021 , charges for uncollectible tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our rental revenues and tenant recoveries by$0.8 million and$2.5 million , respectively. If we subsequently collect amounts that were previously written off, then the amounts collected will be recorded as an increase to our rental revenues and tenant recoveries. See "Revenue Recognition" in Note 2 to our consolidated financial statements in Item 1 of this Report. It is unclear how the COVID-19 pandemic will impact our future collections. During the six months endedJune 30, 2021 , we had lower variable expenses which partly offset the write-offs of tenant receivables and deferred rent receivables and the decrease in our parking revenues.
Despite record leasing volume for the three months ended
Other considerations that could impact our future leasing, rent collections, and revenue include:
•How long the pandemic continues. •Whether the local governments that have authorized rent deferrals in our markets modify or extend the deferral terms, or alternatively allow them to expire as written. •Whether more tenants stop paying rent if the impact to their business worsens. •How attendance in our buildings changes and impacts parking revenue or rent collection. •How leasing activity and occupancy will evolve, including any long-term trends after the pandemic ends.
On the capital front, construction is continuing on our two large multifamily development projects. See "Developments" further below.
Overall, we expect the COVID-19 pandemic to continue to adversely impact many parts of our business, and those impacts have been, and will continue, to be material. For more information about the risks to our business, please see Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 32
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Financings, Developments and Repositionings
Financings
During the first quarter of 2021: •We paid down the principal balance of our unconsolidated Fund's term loan by$5.25 million from$110.0 million to$104.75 million . See "Off-Balance Sheet Arrangements" further below. •Interest rate swaps which hedged the$580.0 million term interest-only loan of one of our consolidated JV's expired and were replaced by forward swaps executed in 2020. This reduced the term-loan swap-fixed rate from 2.37% to 2.17%. During the second quarter of 2021: •We closed a secured, non-recourse$300.0 million interest-only term loan scheduled to mature inMay 2028 . The loan bears interest at LIBOR + 1.40%, which was effectively fixed through interest rate swaps at 2.21% untilJune 2026 . The loan is secured by three office properties that were previously unencumbered. We used$175.0 million of the proceeds to pay off our revolving credit facility balance.
See Notes 8 and 10 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt and derivatives, respectively.
Developments
•Residential High-Rise Tower ,Brentwood, California - "The Landmark" In West Los Angeles, we are nearing completion of a 34-story high-rise apartment building with 376 apartments. The tower is being built on a site that is directly adjacent to an existing office building, a one acre park, and a 712 unit residential property, all of which we own. The cost to complete the project is approximately$40.0 million and we expect to begin delivering units during the fourth quarter of 2021. •1132Bishop Street ,Honolulu, Hawaii - "The Residences at Bishop Place " In downtownHonolulu , we are converting a 25-story, 490 thousand square foot office tower into 493 rental apartments. This project is helping to address the severe shortage of rental housing inHonolulu and revitalize the central business district, where we own a significant portion of the Class A office space. As ofJune 30, 2021 , we had delivered and leased 174 units, and the conversion will continue in phases through 2025 as the remaining office space is vacated. In select cases, we may relocate tenants to our other office buildings inHonolulu , although we do not have enough vacancy to accommodate all of them. Currently, the estimate to deliver the remaining 319 units is approximately$60.0 million , though the ultimate cost will depend on construction timing and costs over the next few years.
Repositionings
We often strategically purchase properties with large vacancies or expected
near-term lease roll-over and use our knowledge of the property and submarket to
reposition the property for the optimal use and tenant mix. In addition, we may
reposition properties already in our portfolio. The work we undertake to
reposition a building typically takes months or even years, and could involve a
range of improvements from a complete structural renovation to a targeted
remodeling of selected spaces. During the repositioning, the affected property
may display depressed rental revenue and occupancy levels that impact our
results and, therefore, comparisons of our performance from period to period.
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Rental Rate Trends - Total Portfolio
Office Rental Rates
Our office rental rates for 2020 and the six months endedJune 30, 2021 were adversely impacted by the COVID-19 pandemic, although these declines were partly offset by lower tenant improvements. The table below presents the average annual rental rate per leased square foot and the annualized lease transaction costs per leased square foot for leases executed in our total office portfolio during the respective periods: Six Months Ended Year Ended December 31, June 30, 2021 2020 2019 2018 2017 Average straight-line rental rate(1)(2)$44.64 $45.26 $49.65 $48.77 $44.48 Annualized lease transaction costs(3)$4.36 $5.11 $6.02 $5.80 $5.68
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(1)These average rental rates are not directly comparable from year to year because the averages are significantly affected from period to period by factors such as the buildings, submarkets, and types of space and terms involved in the leases executed during the respective reporting period. Because straight-line rent takes into account the full economic value during the full term of each lease, including rent concessions and escalations, we believe that it may provide a better comparison than ending cash rents, which include the impact of the annual escalations over the entire term of the lease. (2)Reflects the weighted average straight-line Annualized Rent. (3)Reflects the weighted average leasing commissions and tenant improvement allowances divided by the weighted average number of years for the leases. Excludes leases substantially negotiated by the seller in the case of acquired properties and leases for tenants relocated from space at the landlord's request.
Office
The table below presents the rent roll for new and renewed leases per leased square foot executed in our total office portfolio:
Six Months Ended June 30, 2021
Expiring
Rent Roll(1)(2) Rate(2) New/Renewal Rate(2) Percentage Change
Cash Rent $46.49 $43.01 (7.5)%
Straight-line Rent $42.08 $44.64 6.1%
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(1)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 leases with a term of twelve
months or less, leases where the prior lease was terminated more than a year
before signing of the new lease, leases for tenants relocated at the landlord's
request, leases in acquired buildings where we believe the information about the
prior agreement is incomplete or where we believe the base rent reflects other
off-market inducements to the tenant, and other non-comparable leases.
(2)Our office rent roll can fluctuate from period to period as a result of
changes in our submarkets, buildings and term of the expiring leases, making
these metrics difficult to predict.
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Multifamily Rental Rates
Our multifamily rental rates in 2020 and the six months endedJune 30, 2021 were adversely impacted by the COVID-19 pandemic. The table below presents the average annual rental rate per leased unit for new tenants: Six Months Ended Year Ended December 31, June 30, 2021 2020 2019 2018 2017 Average annual rental rate - new tenants(1)$28,044 $28,416 $28,350 $27,542 $28,501
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(1) These average rental rates are not directly comparable from year to year because of changes in the properties and units included. For example: (i) the average for 2018 decreased from 2017 because we added a significant number of units at ourMoanalua Hillside Apartments development inHonolulu , where the rental rates are lower than the average in our portfolio, and (ii) the average for 2019 increased from 2018 because we acquired The Glendon where higher rental rates offset the effect of adding additional units at ourMoanalua Hillside Apartments development.
Multifamily Rent Roll
The rent on leases subject to rent change during the six months endedJune 30, 2021 (new tenants and existing tenants undergoing annual rent review) was 0.2% higher on average than the prior rent on the same unit.
Occupancy Rates - Total Portfolio
Our office occupancy rates for 2020 and the six months endedJune 30, 2021 were adversely impacted by the COVID-19 pandemic. Our multifamily occupancy rates for 2020 were adversely impacted by the COVID-19 pandemic but have improved in the six months endedJune 30, 2021 . The tables below present the occupancy rates for our total office portfolio and multifamily portfolio: December 31, Occupancy Rates(1) as of: June 30, 2021 2020 2019 2018 2017 Office portfolio 84.8% 87.4% 91.4% 90.3% 89.8% Multifamily portfolio(2) 97.6% 94.2% 95.2% 97.0% 96.4% Six Months Ended Year Ended December 31, Average Occupancy Rates(1)(3): June 30, 2021 2020 2019 2018 2017 Office portfolio 86.2% 89.5% 90.7% 89.4% 89.5% Multifamily portfolio(2) 96.1% 94.2% 96.5% 96.6% 97.2%
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(1)Occupancy rates include the impact of property acquisitions, most of whose occupancy rates at the time of acquisition were below that of our existing portfolio. (2)The Occupancy Rate for our multifamily portfolio was impacted by our acquisition of The Glendon property in 2019, and new units at ourMoanalua Hillside Apartments development inHonolulu in 2019 and 2018. (3)Average occupancy rates are calculated by averaging the occupancy rates at the end of each of the quarters in the period and at the end of the quarter immediately prior to the start of the period. 35
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Office Lease Expirations
As of
[[Image Removed: nysedei-20210630_g4.jpg]]____________________________________________________
(1) Average of the percentage of leases atJune 30, 2018 , 2019, and 2020 with the same remaining duration as the leases for the labeled year had atJune 30, 2021 . Acquisitions are included in the prior year average commencing in the quarter after the acquisition. 36
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Results of Operations
Comparison of three months ended
Our results in both periods were adversely affected by the COVID-19 pandemic.
The current period generally compares favorably with the comparable period due
to the gradual recovery and lower write-offs of uncollectible receivables.
Three Months Ended June 30, Favorable (Unfavorable)
2021 2020 Change % Commentary
(In thousands)
Revenues
The increase was
primarily due to better
collections and a
decrease in write-offs
of uncollectible
Office rental receivables and in an
revenue and $ 173,757 $ 158,813 $ 14,944 9.4 % increase in tenant
tenant recoveries. This was
recoveries partly offset by a
decrease in rental
revenues due to a
decrease in occupancy
and lower accretion from
below-market leases.
The decrease was
primarily due to a
Office parking $ 18,169 $ 18,176 $ (7) - % decrease in other
and other income income, partly offset by
an increase in parking
income.
The increase was
primarily due to rental
revenues from new units
at our Bishop Place
Multifamily development project in
revenue $ 33,080 $ 30,807 $ 2,273 7.4 % Hawaii, and an increase
in rental revenues at
our other residential
properties due to an
increase in occupancy
and better collections.
Operating expenses
The increase was
Office rental primarily due to an
expenses $ 63,541 $ 60,301 $ (3,240) (5.4) % increase in insurance
expense, property taxes
and utility expenses.
The increase was
primarily due to an
increase in insurance
Multifamily $ 9,251 $ 8,856 $ (395) (4.5) % expense, property taxes,
rental expenses and rental expenses from
our new units at our
Bishop Place development
project in Hawaii.
General and The decrease was
administrative $ 9,558 $ 9,863 $ 305 3.1 % primarily due to a
expenses decrease in personnel
expenses.
The expense was higher
in the second quarter of
2020 due to accelerated
Depreciation and $ 93,900 $ 98,765 $ 4,865 4.9 % depreciation for an
amortization office building in
Honolulu that we are
converting to a
residential building.
Non-Operating Income and Expenses
The increase was
Other income $ 1,329 $ 325 $ 1,004 308.9 % primarily due to
recoveries of
transaction fees.
The decrease was due to
the elimination of
expenses from a health
club in Honolulu that we
Other expenses $ (454) $ (478) $ 24 5.0 % closed permanently in
the fourth quarter of
2020, partly offset by
higher transaction
expenses.
The increase was due to
an increase in the net
Income (loss) income of Partnership X,
from $ 286 $ (140) $ 426 304.3 % which was primarily due
unconsolidated to a decrease in
Fund write-offs of
uncollectible
receivables.
The increase was
primarily due to an
increase in debt and
lower debt premium
Interest expense $ (35,935) $ (35,190) $ (745) (2.1) % accretion, partly offset
by a decrease in loan
costs and an increase in
interest capitalized
related to development
activity.
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Comparison of six months ended
Our comparison of results was adversely impacted by the COVID-19 pandemic. Despite a gradual recovery and significantly lower write-offs during the current six month period, the first three months of the prior period results were largely unaffected by the COVID-19 pandemic.
Six Months Ended June 30, Favorable (Unfavorable)
2021 2020 Change % Commentary
(In thousands)
Revenues
The decrease was
primarily due to (i) a
decrease in rental
revenues due to lower
occupancy and a decrease
in accretion from
Office rental below-market leases, and
revenue and (ii) a decrease in
tenant $ 341,936 $ 344,640 $ (2,704) (0.8) % tenant recoveries due to
recoveries lower recoverable
operating expenses. The
decrease was partly
offset by better
collections and a
decrease in write-offs
of uncollectible
receivables.
The decrease was
Office parking $ 36,633 $ 52,238 $ (15,605) (29.9) % primarily due to a
and other income decrease in parking
activity.
The increase was
primarily due to rental
revenues from new units
at our Bishop Place
Multifamily $ 62,732 $ 62,268 $ 464 0.7 % development project in
revenue Hawaii, partly offset by
a decrease in revenues
from our other
properties due to lower
collections.
Operating expenses
The decrease was
primarily due to a
decrease in parking,
janitorial and utility
expenses, which were all
Office rental $ 125,719 $ 129,965 $ 4,246 3.3 % due to lower tenant
expenses utilization. The
decrease in those
expenses was partly
offset by an increase in
insurance expense and
property taxes.
The increase was
primarily due to rental
expenses from our new
units at our Bishop
Place development
project in Hawaii, and
an increase in expenses
at our other residential
Multifamily properties. The increase
rental expenses $ 18,562 $ 18,212 $ (350) (1.9) % in expenses at our other
properties was due to an
in increase in insurance
expense and property
taxes, which was partly
offset by a decrease in
personnel expenses,
scheduled services
expenses and repairs and
maintenance expenses .
General and The decrease was
administrative $ 19,129 $ 20,198 $ 1,069 5.3 % primarily due to a
expenses decrease in personnel
expenses.
The expense was higher
in the second quarter of
2020 due to accelerated
Depreciation and $ 186,697 $ 196,542 $ 9,845 5.0 % depreciation for an
amortization office building in
Honolulu that we are
converting to a
residential building.
Non-Operating Income and Expenses
The decrease was
primarily due to (i)
revenues included during
the six months ended
June 30, 2020 from a
health club in Honolulu
Other income $ 1,680 $ 2,314 $ (634) (27.4) % that we closed
permanently in the
fourth quarter of 2020,
and (ii) a decrease in
interest income, partly
offset by (iii)
recoveries of
transaction fees.
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Six Months Ended June 30, Favorable (Unfavorable)
2021 2020 Change % Commentary
(In thousands)
The decrease was
primarily due to (i)
expenses during the six
months ended June 30,
Other expenses $ (617) $ (1,874) $ 1,257 67.1 % 2020 for the health club
in Honolulu that we
closed, partly offset by
(ii) higher transaction
expenses in the current
period.
The increase was due to
an increase in the net
Income from income of Partnership X,
unconsolidated $ 453 $ 183 $ 270 147.5 % which was primarily due
Fund to a decrease in
write-offs of
uncollectible
receivables.
The increase was
primarily due to an
increase in debt and
lower debt premium
Interest expense $ (71,140) $ (70,610) $ (530) (0.8) % accretion, partly offset
by a decrease in loan
costs and an increase in
interest capitalized
related to development
activity.
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Non-GAAP Supplemental Financial Measure: FFO
Usefulness to Investors
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 the impact of trends in occupancy rates, rental rates and operating costs from year to year, excluding impacts from changes in the value of our real estate, and to compare our performance with other REITs. FFO is a non-GAAP financial measure for which we believe that net income (loss) is the most directly comparable GAAP financial measure. FFO has limitations as a measure of our performance because it excludes depreciation and amortization of real estate, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. FFO should be considered only as a supplement to net income (loss) 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. See "Results of Operations" above for a discussion of the items that impacted our net income.
Comparison of three months ended
For the three months endedJune 30, 2021 , FFO increased by$12.1 million , or 14.3%, to$96.5 million , compared to$84.4 million for the three months endedJune 30, 2020 . The increase was primarily due to (i) an increase in revenues from our office portfolio due to higher collections and lower write-offs of uncollectible receivables and an increase in tenant recoveries, and (ii) an increase in revenues from our residential portfolio due to higher occupancy and better collections.
Comparison of six months ended
For the six months endedJune 30, 2021 , FFO decreased by$9.8 million , or 5.0%, to$186.5 million , compared to$196.3 million for the six months endedJune 30, 2020 . The decrease was primarily due to a decrease in parking income as a result of lower parking activity due to the COVID-19 pandemic.
Reconciliation to GAAP
The table below reconciles our FFO (the FFO attributable to our common stockholders and noncontrolling interests in ourOperating Partnership - which includes our share of our consolidated JVs and our unconsolidated Fund's FFO) to net income attributable to common stockholders (the most directly comparable GAAP measure): Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2021 2020 2021 2020 Net income attributable to common stockholders$ 16,197 $ 2,030 $ 27,798 $ 28,953 Depreciation and amortization of real estate assets 93,900 98,765 186,697 196,542 Net loss attributable to noncontrolling interests (2,215) (7,502) (6,228) (4,711) Adjustments attributable to unconsolidated Fund(1) 692 696 1,400 1,350 Adjustments attributable to consolidated JVs(2) (12,061) (9,581) (23,217) (25,844) FFO$ 96,513 $ 84,408 $ 186,450 $ 196,290
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(1)Adjusts for our share of Partnership X's depreciation and amortization of
real estate assets.
(2)Adjusts for the net income (loss) and depreciation and amortization of real
estate assets that is attributable to the noncontrolling interests in our
consolidated JVs.
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Non-GAAP Supplemental Financial Measure: Same Property NOI
Usefulness to Investors
We report Same Property NOI to facilitate a comparison of our operations between reported periods. Many investors use Same Property NOI to evaluate our operating performance and to compare our operating performance with other REITs, because it can reduce the impact of investing transactions on operating trends. Same Property NOI is a non-GAAP financial measure for which we believe that net income (loss) is the most directly comparable GAAP financial measure. We report Same Property 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. Same Property NOI has limitations as a measure of our performance because it excludes depreciation and amortization expense, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. Other REITs may not calculate Same Property NOI in the same manner. As a result, our Same Property NOI may not be comparable to the Same Property NOI of other REITs. Same Property NOI should be considered only as a supplement to net income (loss) 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.
Comparison of three months ended
OurSame Properties for 2021 included 67 office properties, aggregating 17.6 million Rentable Square Feet, and 10 multifamily properties with an aggregate 3,449 units. The amounts presented reflect 100% (not our pro-rata share). Three Months Ended June 30, Favorable (Unfavorable) 2021 2020 Change % Commentary (In thousands) The increase was primarily due to (i) better collections and a decrease in write-offs of uncollectible receivables, (ii) an increase in tenant recoveries, and Office revenues$ 190,590 $ 173,313 $ 17,277 10.0 % (iii) an increase in parking income. This was partly offset by a decrease in rental revenues due to a decrease in occupancy and lower accretion from below-market leases. The increase was primarily due to an Office expenses (61,677) (58,296) (3,381) (5.8) % increase in insurance, property taxes and utilities. Office NOI 128,913 115,017 13,896 12.1 % The increase was primarily due to an increase in Multifamily revenues 25,658 24,699 959 3.9 % rental revenues due to an increase in occupancy and better collections. The increase was primarily due to an increase in insurance, personnel expenses and Multifamily expenses (7,805) (7,515) (290) (3.9) % property taxes, which was partly offset by a decrease in scheduled services and repairs and maintenance. Multifamily NOI 17,853 17,184 669 3.9 % Total NOI$ 146,766 $ 132,201 $ 14,565 11.0 % 41
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Reconciliation to GAAP
The table below presents a reconciliation of our Same Property NOI to net income attributable to common stockholders:
Three Months Ended June 30,
(In thousands) 2021 2020
Same Property NOI $ 146,766 $ 132,201
Non-comparable office revenues 1,336 3,676
Non-comparable office expenses (1,864) (2,005)
Non-comparable multifamily revenues 7,422 6,108
Non-comparable multifamily expenses (1,446) (1,341)
NOI 152,214 138,639
General and administrative expenses (9,558) (9,863)
Depreciation and amortization (93,900) (98,765)
Operating income 48,756 30,011
Other income 1,329 325
Other expenses (454) (478)
Income (loss) from unconsolidated Fund 286 (140)
Interest expense (35,935) (35,190)
Net income (loss) 13,982 (5,472)
Less: Net loss attributable to noncontrolling
interests 2,215 7,502
Net income attributable to common stockholders $ 16,197 $ 2,030
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Comparison of six months ended
OurSame Properties for 2021 included 67 office properties, aggregating 17.6 million Rentable Square Feet, and 10 multifamily properties with an aggregate 3,449 units. The amounts presented include 100% (not our pro-rata share). Our Same Property comparison of results was adversely impacted by the COVID-19 pandemic. Despite a gradual recovery and significantly lower write-offs during the current six month period, the first three months of the prior period results were largely unaffected by the COVID-19 pandemic. Six Months Ended June 30, Favorable (Unfavorable) 2021 2020 Change % Commentary (In thousands) The decrease was primarily due to (i) a decrease in parking income due to lower parking activity, and (ii) a decrease in tenant recoveries due to lower Office revenues$ 374,121 $ 388,931 $ (14,810) (3.8)% recoverable operating expenses, partly offset by an increase in rental revenues due to better collections and lower write-offs of uncollectible receivables. The decrease was primarily due to a decrease in parking, janitorial and utility expenses, which were all due to Office expenses (122,139) (125,821)
3,682 2.9% lower tenant
utilization.
The decrease in
those expenses
was partly
offset by an
increase in
insurance
expenses and
property taxes.
Office NOI 251,982 263,110 (11,128) (4.2)%
The decrease
was primarily
due to a
decrease in
Multifamily revenues 50,601 51,413 (812) (1.6)% rental revenues
due to lower
rental rates
and
collections.
The increase
was primarily
due to an
increase in
insurance
expenses and
property taxes,
Multifamily expenses (15,565) (15,299) (266) (1.7)% partly offset
by a decrease
in legal fees,
repairs and
maintenance and
scheduled
services
expenses.
Multifamily NOI 35,036 36,114 (1,078) (3.0)%
Total NOI $ 287,018 $ 299,224 $ (12,206) (4.1)%
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Reconciliation to GAAP
The table below presents a reconciliation of our Same Property NOI to net income attributable to common stockholders:
Six Months Ended June 30,
(In thousands) 2021 2020
Same Property NOI $ 287,018 $ 299,224
Non-comparable office revenues 4,448 7,947
Non-comparable office expenses (3,580) (4,144)
Non-comparable multifamily revenues 12,131 10,855
Non-comparable multifamily expenses (2,997) (2,913)
NOI 297,020 310,969
General and administrative expenses (19,129) (20,198)
Depreciation and amortization (186,697) (196,542)
Operating income 91,194 94,229
Other income 1,680 2,314
Other expenses (617) (1,874)
Income from unconsolidated Fund 453 183
Interest expense (71,140) (70,610)
Net income 21,570 24,242
Less: Net loss attributable to noncontrolling
interests 6,228 4,711
Net income attributable to common stockholders $ 27,798 $ 28,953 Liquidity and Capital Resources
Short-term liquidity
During the six months endedJune 30, 2021 , we generated cash from operations of$221.8 million . As ofJune 30, 2021 , we had$330.9 million of cash and cash equivalents, and we had no balance outstanding on our$400.0 million revolving credit facility. Our earliest debt maturity isFebruary 28, 2023 . Excluding acquisitions, development projects and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand, cash generated by operations and our revolving credit facility. See Note 8 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt. Long-term liquidity Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, development projects and debt refinancings. We do not expect to have sufficient funds on hand to cover these long-term cash requirements due to the requirement to distribute at least 90% of our income on an annual basis imposed by REIT federal tax rules. We plan to meet our long-term liquidity needs through long-term secured non-recourse indebtedness, the issuance of equity securities, including common stock and OP Units, as well as property dispositions and JV transactions. We have an ATM program which would allow us, subject to market conditions, to sell up to$400.0 million of shares of common stock. We only use property level, non-recourse debt. As ofJune 30, 2021 , approximately 46% of our total office portfolio is unencumbered. To mitigate the impact of changing interest rates on our cash flows from operations, we generally enter into interest rate swap agreements with respect to our loans with floating interest rates. These swap agreements generally expire between one to two years before the maturity date of the related loan, during which time we can refinance the loan without any interest penalty. See Notes 8 and 10 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt and derivative contracts, respectively. 44
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Table of Contents
Certain Contractual Obligations
See the following notes to our consolidated financial statements in Item 1 of this Report for information regarding our contractual commitments:
•Note 4 - minimum future ground lease payments; •Note 8 - minimum future principal payments for our secured notes payable and revolving credit facility, and the interest rates that determine our future periodic interest payments; and •Note 16 - contractual commitments.
Off-Balance Sheet Arrangements
Debt
Our Fund, Partnership X, has its own secured non-recourse debt, and we have made certain environmental and other limited indemnities and guarantees covering customary non-recourse carve-outs related to that loan. Partnership X has agreed to indemnify us for any amounts that we would be required to pay under this agreement. As ofJune 30, 2021 , all of the obligations under the loan agreement have been performed in accordance with its terms. See Note 16 to our consolidated financial statements in Item 1 of this Report for more information about Partnership X. Cash Flows
Comparison of six months ended
Our comparison of results was adversely impacted by the COVID-19 pandemic. Despite a gradual recovery and significantly lower write-offs during the current six month period, the first three months of the prior period results were largely unaffected by the COVID-19 pandemic.
Six Months Ended June 30, Increase
2021 2020 (Decrease) In Cash %
(In thousands)
Net cash provided by
operating activities(1) $ 221,838 $ 236,809 $ (14,971) (6.3) %
Net cash used in investing
activities(2) $ (158,161) $ (129,959) $ (28,202) (21.7) %
Net cash provided by (used
in) financing activities(3) $ 94,872 $ (84,140) $ 179,012 212.8 %
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(1) Our cash flows from operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectibility of tenant receivables, the level of our operating and general and administrative expenses, and interest expense. The decrease in cash from operating activities was primarily due to the decrease in the operating income from our office portfolio (office revenues less office rental expenses). The decrease in the operating income from our office portfolio was primarily due to a decrease in parking income due to a decrease in parking activity as a result of the COVID-19 pandemic. (2) Our cash flows from investing activities is generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures. The decrease in cash from investing activities was primarily due to an increase in capital expenditures for developments of$52.1 million and insurance recoveries for damage to real estate in 2020 of$2.7 million , partly offset by a decrease in capital expenditures for improvements to real estate of$20.3 million and the acquisition of an additional interest in our fund in 2020 for$6.6 million . (3) Our cash flows from financing activities are generally impacted by our borrowings and capital activities, as well as dividends and distributions paid to common stockholders and noncontrolling interests, respectively. The increase in cash from financing activities was primarily due to an increase in net borrowings of$175.0 million and a decrease in distributions paid to noncontrolling interests of$4.3 million . 45
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Table of Contents Critical Accounting Policies We have not made any changes to our critical accounting policies disclosed in our 2020 Annual Report on Form 10-K. Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with US GAAP, and which requires us to make estimates of certain items, which affect the reported amounts of our assets, liabilities, revenues and expenses. While we believe that our estimates are based upon reasonable assumptions and judgments at the time that they are made, some of our estimates could prove to be incorrect, and those differences could be material. Some of our estimates are subject to adjustment as we believe appropriate, based on revised estimates, and reconciliation to actual results when available.
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