We own and operate 18.2 million square feet of Class A office properties and 4,335 apartment units (excluding our residential development pipeline) in the premier coastal submarkets of Los Angeles and Honolulu.
COVID-19 Update: We still face headwinds from the pandemic and our local governments' response. Los Angeles has extended its lease enforcement moratorium until September 30th and has returned to a mask mandate, despite our submarkets' vaccination rate of approximately 80% for people over 16 and over 65% for teens.
Quarterly Results: For the three months ended June 30, 2021 compared to the three months ended June 30, 2020:
•Our revenues increased by 8.3% to $225.0 million.
•Our net income attributable to common stockholders increased by 697.9% to $16.2 million.
•Our FFO increased by 14.3% to $96.5 million, or $0.47 per fully diluted share.
•Our AFFO decreased by 3.3% to $77.9 million.
•Our same property Cash NOI increased by 0.7% to $144.1 million.
Compared to the first quarter of 2021 our FFO per share increased by 3 cents, primarily due to better collections and roughly 1 cent per share from higher business interruption insurance recoveries. Only 1.2% of our revenue came from non-cash straight-line rent and above- and below-market lease adjustments.
Leasing: During the second quarter, we signed 253 office leases for an all-time high of approximately 1,297,000 square feet. As expected, even record leasing was not enough to completely offset our abnormally high lease expirations during the quarter, so our leased rate declined by 0.4% to 87.3%. Because it will take time for new tenants to move in, our occupancy declined by 1.5%. Comparing the office leases we signed during the second quarter to the expiring leases for the same space, straight-line rents increased by 9.5% and cash rents decreased by 6.6%. At the same time, we lowered our lease transaction costs by another 15% compared to the first quarter of 2021. Our multifamily portfolio remains essentially fully leased at 99.4%.
Balance Sheet: We closed a secured, non-recourse $300.0 million interest-only term loan scheduled to mature in May 2028. The loan bears interest at LIBOR + 1.40%, which was effectively fixed through interest rate swaps at 2.21% until June 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. We have no debt maturities before 2023, no financial covenants that could force us to issue equity, and 46% of our office portfolio is unencumbered.
Development: We remain very pleased with the progress of our two multifamily development projects. At 1132 Bishop, our 493 unit downtown Honolulu office to residential conversion, we have leased 100% of the 174 delivered units. We expect to deliver the first units at our 376 unit Brentwood high-rise apartment tower during the fourth quarter of 2021.
Dividends: On July 15, 2021, we paid a quarterly cash dividend of $0.28 per common share, or $1.12 on an annualized basis.
Guidance: We expect third quarter net income per common share diluted to be between $0.06 and $0.08 and FFO per share to be between $0.44 and $0.46. This reflects the usual higher seasonal utilities expenses, as well as additional interest expense from our new loan, lower beginning office occupancy, and lower business interruption insurance recoveries. We are not comfortable giving guidance for the fourth quarter, as our results will depend on the course of the pandemic and the timing and immediate impact of the expiration of the moratoriums. Our guidance does not include the impact of future property acquisitions or dispositions, financings, property damage recoveries, if any, or other possible capital markets activities or impairment charges.
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.
1 Go to Table of Contents
Table of Contents
COMPANY OVERVIEW
Corporate Data
3
Property Map
4
Board of Directors and Executive Officers
5
FINANCIAL RESULTS
Consolidated Balance Sheets
6
Consolidated Operating Results
7
Funds from Operations & Adjusted Funds From Operations
8
Same Property Statistics & Net Operating Income
9
Reconciliation of Same Property NOI to Net Income
10
Financial Data for JVs & Fund
11
Loans
12
PORTFOLIO DATA
Office Portfolio Summary
13
Office Percentage Leased and In-Place Rents
14
Office Lease Diversification
15
Largest Office Tenants
16
Office Industry Diversification
17
Office Lease Expirations
18
Office Lease Expirations - Next Four Quarters
19
Office Leasing Activity
20
Multifamily Portfolio Summary
21
Multifamily Development Projects
22
Reconciliation of Third Quarter 2021 Non-GAAP Guidance
23
DEFINITIONS
24
Forward Looking Statements (FLS)
This Second Quarter 2021 Earnings Results and Operating Information, which we refer to as our Earnings Package (EP), supplements the information provided in our reports filed with the Securities and Exchange Commission (SEC). It contains FLS 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. These statements include, but are not limited to, statements related to the expectations regarding the performance of our business, financial results, liquidity and capital resources and other non-historical statements. In some cases, these FLS can be identified by the use of words such as 'expect,' 'potential,' 'continue,' 'may,' 'will,' 'should,' 'could,' 'seeks,' 'projects,' 'intends,' 'plans,' 'estimates,' 'anticipates,' or the negative version of these words or other comparable words. FLS presented in this EP, 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 developments related to the Coronavirus (COVID-19) global pandemic; 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 debt; 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; fire and other property damage, 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 for 2020, and other documents filed with the SEC. Although we believe that our assumptions underlying our forward looking statements 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 any FLS in this EP to anticipate future results or trends. This EP and all subsequent written and oral FLS 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 FLS.
2
Company Overview
Corporate Data
as of June 30, 2021
Office Portfolio
Consolidated
Total
Properties
69
71
Rentable square feet (in thousands)
17,810
18,195
Leased rate
87.3
%
87.3
%
Occupancy rate
84.9
%
84.8
%
Multifamily Portfolio
Total
Properties
12
Units
4,335
Leased rate(1)
99.4
%
Market Capitalization (in thousands, except price per share)
Fully Diluted Shares outstanding as of June 30, 2021
206,136
Common stock closing price per share (NYSE:DEI)
$
33.62
Equity Capitalization
$
6,930,283
Net Debt(in thousands)
Consolidated
Our Share
Debt principal(2)
$
5,002,123
$
4,133,754
Less: cash and cash equivalents(3)
(330,934)
(254,268)
Net Debt
$
4,671,189
$
3,879,486
Leverage Ratio (in thousands, except percentage)
Pro Forma Enterprise Value
$
10,809,769
Our Share of Net Debt to Pro Forma Enterprise Value
36
%
AFFO Payout Ratio
Three months ended June 30, 2021
74.2
%
_______________________________________________
(1) Both the numerator and denominator used in calculating the percentage of units leased do not include 82 units at one property which are temporarily unoccupied as a result of a fire.
(2) See page 12 for a reconciliation of consolidated debt principal and our share of debt principal to consolidated debt on the balance sheet.
(3) Our share of cash and cash equivalents is calculated starting with our consolidated cash and cash equivalents of $330.9 million, then deducting the other owners' share of our JVs' cash and cash equivalents of $78.2 million and then adding our share of our unconsolidated Fund's cash and cash equivalents of $1.5 million.
NOTE: See the 'Definitions' section for definitions of certain terms used in this Earnings Package.
(1)Rental revenues and tenant recoveries include tenant recoveries for the following periods:
•$12.5 million and $10.0 million for the three months ended June 30, 2021 and 2020, respectively, and
•$21.5 million and $24.6 million for the six months ended June 30, 2021 and 2020, respectively.
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)
The table below presents a reconciliation of Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) to Net income attributable to common stockholders:
Three Months Ended June 30,
Six Months Ended June 30,
2021
2020
2021
2020
Funds From Operations (FFO)
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(2)
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
Adjusted Funds From Operations (AFFO)
FFO
$
96,513
$
84,408
$
186,450
$
196,290
Straight-line rent
(259)
15,352
(894)
16,758
Net accretion of acquired above- and below-market leases
(2,391)
(4,315)
(5,505)
(8,571)
Loan costs, loan premium amortization and swap amortization
1,764
727
3,356
1,950
Recurring capital expenditures, tenant improvements and capitalized leasing expenses(3)
(24,339)
(20,530)
(41,240)
(38,746)
Non-cash compensation expense
4,595
4,959
9,485
10,159
Adjustments attributable to unconsolidated Fund(2)
(137)
(134)
(319)
(198)
Adjustments attributable to consolidated JVs(2)
2,141
84
4,819
2,024
AFFO
$
77,887
$
80,551
$
156,152
$
179,666
Weighted average shares of common stock outstanding - diluted
175,471
175,375
175,468
175,374
Weighted average units in our operating partnership outstanding
(1)Presents the FFO and AFFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership, including our share of our consolidated JVs and our unconsolidated Fund.
(2)Adjusts for the portion of each other listed adjustment item on our share of the results of our unconsolidated Fund and for each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated JVs.
(3)Under the GAAP lease accounting 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 capitalized leasing expenses adjustment to AFFO only includes incremental leasing expenses.
(4)Reflects dividends paid within the respective periods.
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)(1)
(Unaudited; in thousands, except statistics)
As of June 30,
2021
2020
Office Statistics
Number of properties
67
67
Rentable square feet (in thousands)
17,557
17,557
Ending % leased
87.2
%
90.8
%
Ending % occupied
84.8
%
89.1
%
Quarterly average % occupied
85.5
%
89.6
%
Multifamily Statistics
Number of properties
10
10
Number of units
3,449
3,449
Ending % leased
99.3
%
98.4
%
Three Months Ended June 30,
% Favorable
2021
2020
(Unfavorable)
Net Operating Income (NOI)
Office revenues
$
190,590
$
173,313
10.0
%
Office expenses
(61,677)
(58,296)
(5.8)
%
Office NOI
128,913
115,017
12.1
%
Multifamily revenues
25,658
24,699
3.9
%
Multifamily expenses
(7,805)
(7,515)
(3.9)
%
Multifamily NOI
17,853
17,184
3.9
%
Total NOI
$
146,766
$
132,201
11.0
%
Cash Net Operating Income (NOI)
Office cash revenues
$
187,917
$
184,269
2.0
%
Office cash expenses
(61,677)
(58,296)
(5.8)
%
Office cash NOI
126,240
125,973
0.2
%
Multifamily cash revenues
25,659
24,698
3.9
%
Multifamily cash expenses
(7,805)
(7,515)
(3.9)
%
Multifamily cash NOI
17,854
17,183
3.9
%
Total Cash NOI
$
144,094
$
143,156
0.7
%
_________________________________________________
(1) The amounts presented include 100% (not our pro-rata share). See page 10 for a reconciliation of these non-GAAP measures 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 June 30,
2021
2020
Same property office cash revenues
$
187,917
$
184,269
Non-cash adjustments per definition of NOI
2,673
(10,956)
Same property office revenues
190,590
173,313
Same property office expenses
(61,677)
(58,296)
Office NOI
128,913
115,017
Same property multifamily cash revenues
25,659
24,698
Non-cash adjustments per definition of NOI
(1)
1
Same property multifamily revenues
25,658
24,699
Same property multifamily expenses
(7,805)
(7,515)
Multifamily NOI
17,853
17,184
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)
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
NOTE: See the 'Definitions' section for definitions of certain terms used in this Earnings Package.
(1) Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three consolidated JVs that we manage. We own a weighted average interest of approximately 46% (based on square footage) in the three JVs, which owned a combined sixteen Class A office properties totaling 4.2 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) 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 one unconsolidated Fund that we manage. We own an interest of approximately 34% in the Fund, which owns two Class A office properties totaling 0.4 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.
Except as noted below, our loans and revolving credit facility: (i) are non-recourse, (ii) are secured by separate collateral pools consisting of one or more properties, (iii) require interest-only monthly payments with the outstanding principal due at maturity, and (iv) contain certain financial covenants which could require us to deposit excess cash flow with the lender under certain circumstances unless we (at our option) either provide a guarantee or additional collateral or pay down the loan within certain parameters set forth in the loan documents. Certain loans with maturity date extensions require us to meet minimum financial thresholds in order to exercise those extensions.
(1)Maturity dates include the effect of extension options.
(2)'Our Share' is calculated by multiplying the principal balance by our share of the borrowing entity's equity, and is used to calculate the non-GAAP measure 'Our Share of Net Debt' - see Corporate Data on page 3.
(3)Effective rate as of June 30, 2021. Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs.
(4)Effective rate will increase to 2.31% on July 1, 2021.
(5)We closed this loan during the second quarter of 2021.
(6)Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule.
(7)$400 million revolving credit facility. The unused commitment fees range from 0.10% to 0.15%.
(8)Effective rate will decrease to 2.26% on July 1, 2022.
(9)Our consolidated debt on the balance sheet (see page 6) of $4.97 billion is calculated by adding $4.2 million of unamortized loan premium and deducting $36.7 million of unamortized deferred loan costs from our total consolidated loans of $5.00 billion.
Statistics for consolidated loans with interest fixed under the terms of the loan or a swap
Principal balance (in billions)
$5.00
Weighted average remaining life (including extension options)
5.0 years
Weighted average remaining fixed interest period
3.0 years
Weighted average annual interest rate
2.94%
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 June 30, 2021
Region
Number of Properties
Our Rentable Square Feet
Region Rentable Square Feet(1)
Our Average Market Share(2)
Los Angeles
Westside(3)
52
9,995,347
39,548,538
35.3
%
Valley
16
6,790,777
21,158,585
43.8
Honolulu(3)
3
1,409,121
4,982,875
28.3
Total / Average
71
18,195,245
65,689,998
38.0
%
_________________________________________________
(1) The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2021 second quarter CBRE Marketview report for our submarkets in that region.
(2) Our market share is calculated by dividing our Rentable Square Feet by the applicable Region's Rentable Square Feet, weighted in the case of averages based on the square feet of exposure in our total portfolio to each submarket as follows:
Region
Submarket
Number of Properties
Our Rentable Square Feet
Our Market Share(2)
Westside
Brentwood
15
2,085,745
60.3
%
Westwood
7
2,188,007
43.9
Olympic Corridor
5
1,142,885
34.5
Beverly Hills(3)
11
2,196,067
28.0
Santa Monica
11
1,425,374
14.2
Century City
3
957,269
9.0
Valley
Sherman Oaks/Encino
12
3,488,995
53.8
Warner Center/Woodland Hills
3
2,845,577
37.6
Burbank
1
456,205
6.4
Honolulu
Honolulu(3)
3
1,409,121
28.3
Total / Weighted Average
71
18,195,245
38.0
%
_______________________________________________
(3) In calculating market share, we adjusted the rentable square footage by (i) removing approximately 274,000 rentable square feet of vacant space at an office building in Honolulu that we are converting to residential apartments from both our rentable square footage and that of the submarket (see page 22) and (ii) removing a 218,000 square foot property located just outside the Beverly Hills city limits from both the numerator and the denominator.
NOTE: See the 'Definitions' section for definitions of certain terms used in this Earnings Package.
(1) Expiration dates are per lease (expiration dates do not reflect storage and similar leases).
(2) Square footage (rounded) expires as follows: 13,000 square feet in 2023; and 462,000 square feet in 2024.
(3) Square footage (rounded) expires as follows: 2 leases totaling 18,000 square feet in 2021; 7 leases totaling 71,000 square feet in 2022; 6 leases totaling 47,000 square feet in 2023; 2 leases totaling 11,000 square feet in 2024; 4 leases totaling 89,000 square feet in 2025; 2 lease totaling 24,000 square feet in 2026; and 2 leases totaling 67,000 square feet in 2027. Tenant has options to terminate 15,000 square feet in 2023; and 51,000 square feet in 2025.
(4) Square footage (rounded) expires as follows: 1,000 square feet in 2022; and 209,000 square feet in 2027. Tenant has an option to terminate 215,000 square feet in 2022.
(5) Square footage (rounded) 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 26,000 square feet in 2022; and 32,000 square feet in 2024.
(6) Square footage (rounded) expires as follows: 34,000 square feet in 2029; 46,000 square feet in 2035, 31,000 square feet in 2037, and 74,000 square feet in 2038.
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 June 30, 2021
Percentage of Annualized Rent by Tenant Industry
Industry
Number of Leases
Annualized Rent as a Percent of Total
Legal
564
18.5
%
Financial Services
373
15.0
Entertainment
172
13.7
Real Estate
297
11.9
Accounting & Consulting
308
9.9
Health Services
353
7.8
Retail
177
5.0
Technology
99
5.0
Insurance
90
3.6
Educational Services
52
3.5
Public Administration
87
2.7
Advertising
45
1.1
Manufacturing & Distribution
49
1.1
Other
48
1.2
Total
2,714
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 June 30, 2021
(1) Average of the percentage of leases expiring at June 30, 2018, 2019, and 2020 with the same remaining duration as the leases for the labeled year had at June 30, 2021. Acquisitions are included in the comparable average commencing in the quarter after the acquisition.
Year of Lease Expiration
Number of Leases
Rentable Square Feet
Expiring Square Feet as a Percent of Total
Annualized Rent at June 30, 2021
Annualized Rent as a Percent of Total
Annualized Rent Per Leased Square Foot(1)
Annualized Rent Per Leased Square Foot at Expiration(2)
(1)Includes leases with an expiration date in the applicable period where the space had not been re-leased as of June 30, 2021, other than 287,108 square feet of Short-Term Leases.
(2)Fluctuations in this number primarily reflect the mix of buildings/submarkets involved, as well as the varying terms and square footage of the individual leases expiring. As a result, the data in this table should only be extrapolated with caution. While the following table sets forth data for our underlying submarkets, that data is even more influenced by such issues:
Next Four Quarters
Region
Submarket
Expiring SF
Expiring Rent per SF
Westside
Beverly Hills
196,752
$50.90
Brentwood
311,833
$47.29
Century City
57,525
$52.08
Olympic Corridor
213,009
$42.91
Santa Monica
155,590
$80.34
Westwood
326,907
$54.10
Valley
Sherman Oaks/Encino
414,304
$39.71
Warner Center/Woodland Hills
298,273
$31.99
Honolulu
Honolulu
192,918
$32.72
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 June 30, 2021
Net Absorption During Quarter
(0.43)%
Office Leases Signed During Quarter
Number of Leases
Rentable Square Feet
Weighted Average Lease Term (months)
New leases
107
450,665
84
Renewal leases
146
845,890
53
All leases
253
1,296,555
64
Change in Rental Rates for Office Leases Executed during the Quarter(1)
(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.
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 June 30, 2021
Annualized Rent by Submarket
Submarket
Number of Properties
Number of Units
Units as a Percent of Total
Los Angeles
Santa Monica
2
820
19
%
West Los Angeles
6
1,300
30
Honolulu
4
2,215
51
Total
12
4,335
100
%
Submarket
Percent Leased
Annualized Rent(2)
Monthly Rent Per Leased Unit
Los Angeles
Santa Monica
99.4
%
$
29,823,612
$
3,053
West Los Angeles(1)
98.7
41,986,560
2,918
Honolulu
99.9
50,293,152
1,901
Total / Weighted Average
99.4
%
$
122,103,324
$
2,412
Recurring Multifamily Capital Expenditures per Unit (1)
(1) 82 units at one property which are temporarily unoccupied as a result of a fire are omitted from the calculation of Percent Leased. These units, as well as insurance recovery for lost rent, are also omitted from the calculation of Annualized Rent. Unit turn costs from this property are excluded from Recurring Multifamily Capital Expenditures per Unit calculation.
(2) The multifamily portfolio also includes 10,495 square feet of ancillary retail space generating annualized rent of $341,432, which is not included in multifamily annualized rent.
NOTE: See the 'Definitions' section for definitions of certain terms used in this Earnings Package.
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Developments
Development Projects
The Residences at Bishop Place, Honolulu, Hawaii
In downtown Honolulu, we are converting a 25-story, 490,000 square foot office tower into 493 rental apartments. This project is helping to 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 have already 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 in Honolulu, 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.
The Landmark, Brentwood, Los Angeles
In Brentwood, we are nearing completion of the first new residential high-rise development west of the 405 freeway in more than 40 years. The Landmark is a 34-story tower with 376 units offering stunning ocean views and luxury amenities. The site is directly adjacent to a 394,000 square foot 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 4th quarter of 2021.
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).
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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
Reconciliation of Third Quarter 2021 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
$
10.5
$
14.0
Adjustments for depreciation and amortization of real estate assets
95.0
90.0
Adjustments for noncontrolling interests, consolidated JVs and unconsolidated Fund
(14.9)
(9.2)
FFO
$
90.6
$
94.8
Weighted average fully diluted shares outstanding
High
Low
Weighted average shares of common stock outstanding - diluted
175.5
175.5
Weighted average units in our operating partnership outstanding
30.5
30.5
Weighted average fully diluted shares outstanding
206.0
206.0
Per share
Low
High
Net income per common share - diluted
$
0.06
$
0.08
FFO per share - fully diluted
$
0.44
$
0.46
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(1) Our guidance does not include the impact of future property acquisitions or dispositions, financings, property damage recoveries, if any, or other possible capital markets activities or impairment charges. The 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 capitalized leasing expenses (including adjusting for the effect of such items attributable to our consolidated JVs and our unconsolidated Fund, 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 or significantly change the use of the space, 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 (loss) is the most directly comparable GAAP financial measure. AFFO 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.
AFFO Payout Ratio:Represents dividends paid within each period divided by the AFFO for that period. We report AFFO Payout Ratio because it is a widely reported measure of the performance of equity REITs, and is also used by some investors to compare our performance with other REITs.
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 445,191 square feet with respect to signed leases not yet commenced at June 30, 2021). For our triple net office properties (in Honolulu and one single tenant building in Los Angeles), annualized rent is calculated for triple net leases 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 includes rent for our corporate headquarters in Santa Monica. We report Annualized Rent because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine tenant demand and to compare our performance and value with other REITs. We use Annualized Rent to manage and monitor the performance of our office and multifamily portfolios.
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 JVs. At June 30, 2021, we own 100% of our consolidated portfolio, except for sixteen office properties totaling 4.2 million square feet and one residential property with 350 apartments, which we own through three consolidated JVs and in which we own a weighted average interest of approximately 46% 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 the New York Stock Exchange as of June 30, 2021.
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Definitions
Fully Diluted Shares: Calculated according to the treasury stock method, based on our diluted outstanding stock and units in our Operating Partnership.
Fund: At June 30, 2021, we owned an interest of approximately 34% in Douglas Emmett Partnership X, LP (Partnership X). The Fund owns two office properties totaling 0.4 million square feet.
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, gains (or losses) from changes in control of investments in real estate, real estate depreciation and amortization (other than amortization of right-of-use assets for which we are the lessee and amortization of deferred loan costs), and impairment write-downs of real estate from our net income (loss) (including adjusting for the effect of such items attributable to our consolidated JVs and our unconsolidated Fund, 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 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 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 (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.
GAAP: Refers to accounting principles generally accepted in the United States.
Joint Ventures (JVs): At June 30, 2021, we owned a weighted average interest of approximately 46% based on square footage in three consolidated JVs. The JVs owned sixteen office properties totaling 4.2 million square feet and one residential property with 350 apartments. In December 2020, we sold an 80 thousand square foot office property in Honolulu, Hawaii, which was held by one of our consolidated JVs in which we owned a two-thirds capital interest. The JV was subsequently dissolved before December 31, 2020.
Lease Transaction Costs: Represents the weighted average of tenant improvements and leasing commissions 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 from space being taken out of service. We report Lease Transaction Costs because it is a widely reported measure of the performance of equity REITs, and is used by some investors to determine our cash needs and to compare our performance with other REITs. We use Lease Transaction Costs to manage and monitor the performance of our office and multifamily portfolios.
Leased Rate: The percentage leased as of June 30, 2021. Management space is considered leased. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating percentage leased. We report Leased Rates because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Leased Rate to manage and monitor the performance of our office and multifamily portfolios.
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. We report Net Absorption because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Net Absorption to manage and monitor the performance of our office portfolio.
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Definitions
Net Income Per Common Share - Diluted: We calculate Net Income Per Common Share - Diluted in accordance with GAAP 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 Long Term Incentive Plan Unit awards that contain non-forfeitable 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 (loss): general and administrative expenses, depreciation and amortization expense, other income, other expenses, income from unconsolidated Fund, interest expense, gains (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 (loss) 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 (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 NOI in a similar manner and, accordingly, our NOI may not be comparable to the NOI of other REITs.
Occupancy Rate: We calculate the Occupancy Rate by excluding signed leases not yet commenced from the Leased Rate. Management space is considered occupied. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating the Occupancy Rate. We report Occupancy Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Occupancy Rate to manage and monitor the performance of our office and multifamily portfolios.
Operating Partnership: Douglas Emmett Properties, LP
Our Share of Net Debt: We calculate Our Share of Net Debt by multiplying the principal balance of our consolidated loans and our unconsolidated Fund's loan 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 cash equivalent. We subtract cash and cash equivalents because they could be used to reduce the debt obligations, and 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.
Pro Forma Enterprise Value: We calculate Pro Forma Enterprise Value by adding Equity Capitalization to Our Share of Net Debt. Pro Forma Enterprise Value is a non-GAAP financial measure for which we believe that consolidated total equity and liabilities is the most directly comparable GAAP financial measure. We report Pro Forma Enterprise Value because some investors use it to evaluate and compare our financial position with that of other REITs.
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Definitions
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 or significantly change the use of the space, (iv) casualty damage and (v) bringing the property into compliance with governmental or lender requirements. We report Recurring Capital Expenditures because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine our cash flow requirements and to compare our performance with other REITs. We use Recurring Capital Expenditures to manage and monitor the performance of our office and multifamily portfolios.
Rental Rate: We report Rental Rate because it is a widely reported measure of the performance of equity REITs, and is used by some investors to compare our performance with other REITs. We use Rental Rate to manage and monitor the performance of our office and multifamily portfolios. We present two forms of Rental Rates:
•Cash Rental Rate: is calculated by dividing the rent paid by the Rentable Square Feet.
•Straight-Line Rental Rate: is calculated by dividing the average rent over the lease term by the Rentable Square Feet.
Rentable Square Feet: Based on the Building Owners and Managers Association (BOMA) measurement. At June 30, 2021, total consists of 15,597,960 leased square feet (including 445,191 square feet with respect to signed leases not commenced), 2,311,431 available square feet, 124,243 building management use square feet and 161,611 square feet of BOMA adjustment on leased space. We report Rentable Square Feet because it is a widely reported measure of the performance and value of equity REITs, and is also used by some investors to compare our performance and value with other REITs. We use Rentable Square Feet to manage and monitor the performance of our office portfolio.
Same Property NOI: To facilitate a comparison of NOI between reported periods, we report NOI for a subset of our properties referred to as our 'same properties,' which are properties that have been owned and operated by us during both periods being compared. We exclude from our same property subset properties that during the comparable periods were: (i) acquired, (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements, or (iii) that underwent a major repositioning project, were impacted by development activity, or suffered significant casualty loss that we believed significantly affected the properties' operating results. We also exclude rent received from ground leases. Our Same Property NOI is not adjusted for noncontrolling interests in properties which are not wholly owned. Our same properties for the second quarter of 2021 include all of our Consolidated Portfolio properties, other than (1) an 80,000 square foot office property in Honolulu that we sold in December 2020, (2) a 492,600 square foot office property in Honolulu affected by development activity, and (3) a residential community with 712 apartments and approximately 34,000 square feet of retail space in Los Angeles partially affected by fire damage. We report Same Property NOI because it is a widely reported measure of the performance and value of equity REITs, and it is used by some investors to: (i) analyze our operating results excluding the impact of properties not being operated on a consistent basis, and (ii) to compare our performance and value with other REITs. We use Same Property NOI to manage and monitor the performance of our office portfolio.
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: At June 30, 2021, our Total Portfolio included our Consolidated Portfolio plus two office properties totaling 0.4 million square feet owned by one unconsolidated Fund in which we owned approximately 34%.
'We' and 'our' refers to Douglas Emmett, Inc., our Operating Partnership and its subsidiaries, as well as our consolidated JVs and our unconsolidated Fund.
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Douglas Emmett Inc. published this content on 04 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 August 2021 10:25:32 UTC.
Douglas Emmett, Inc. is a fully integrated, self-administered and self-managed REIT. The Company owns and operates office and multifamily properties located in premier coastal submarkets in Los Angeles and Honolulu. The Company's properties are located in the Beverly Hills, Brentwood, Burbank, Century City, Olympic Corridor, Santa Monica, Sherman Oaks/Encino, Warner Center/Woodland Hills and Westwood submarkets of Los Angeles County, California, and in Honolulu, Hawaii. The Company operates through two segments: the office segment and the multifamily segment. The Company's segments include the acquisition, development, ownership and management of office and multifamily real estate. The services of its office segment include primarily the rental of office space and other tenant services, including parking and storage space rental. The services of its multifamily segment include primarily the rental of apartments and other tenant services, including parking and storage space rental.