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Section 1: 8-K (8-K)

Document
false0001364250 0001364250 2019-11-05 2019-11-05


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (date of earliest event reported): November 5, 2019
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Douglas Emmett, Inc.
(Exact name of registrant as specified in its charter)

Maryland
001-33106
20-3073047
(State or other jurisdiction of incorporation)
Commission file number
(I.R.S. Employer identification No.)

1299 Ocean Avenue, Suite 1000
,
Santa Monica
,
California
90401
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code:    (310) 255-7700


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share
 
DEI
 
New York Stock Exchange


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Item 2.02 Results of Operations and Financial Condition

On November 5, 2019, Douglas Emmett, Inc. released its financial results for the quarter ended September 30, 2019 by posting to its website its Third Quarter 2019 Earnings Results and Operating Information package (attached as Exhibit 99.1).  The information contained in this report on Form 8-K, including the attached Exhibits, shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by Douglas Emmett, Inc. under the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits: The following exhibits are furnished with this Current Report on Form 8-K:

Exhibit Number
 
Description
 
 
 
99.1
 
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
DOUGLAS EMMETT, INC.
 
 
 
 
Dated:
November 5, 2019
By:
/s/ PETER D. SEYMOUR
 
 
 
Peter D. Seymour
 
 
 
Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

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Executive Summary

We own and operate 18.4 million square feet of Class A office properties and 4,147 apartment units in the premier coastal submarkets of Los Angeles and Honolulu.
Outstanding Financial Results: For the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018:
We grew our revenues by 6.6% to $238.1 million.
Our net income attributable to common stockholders decreased by 26.4% to $22.5 million due to higher depreciation expense from our development and repositioning projects and loan costs related to our refinancing program.
We grew our FFO by 3.7% to $103.9 million, or $0.51 per fully diluted share. This growth was despite the expected impact from our strategic balance sheet activities which reduced our FFO for the quarter by 4 cents per share.
We grew our AFFO by 14.3% to $94.3 million.
We grew our same property Cash NOI by 6.7% to $140.5 million.
Strong Leasing: During the third quarter, we signed approximately 1,000,000 square feet of office leases, including a record 461,000 square feet of new leases. We increased the leased rate in our office portfolio by 94 basis points to 93.1%, and our occupancy rate by about 50 basis points to 90.9%. We continue to post strong leasing spreads as a result of robust tenant demand. Comparing the office leases we signed during the third quarter to the expiring leases for the same space, we grew straight-line rents by 29.1% and cash rents by 10.7%. Our multifamily portfolio remained fully leased at 99.3%.
Strategic Balance Sheet Activities: Taking advantage of current low long-term interest rates and tight lending spreads, since May we have successfully completed the refinancing of approximately $2.0 billion of debt with new secured, non-recourse loans maturing in 2026 and beyond. As a result, we added almost five years to that debt's average term while reducing its current interest rate by nearly 35 basis points to 2.63%.
Overall, we now have no debt due before 2023 and no floating rate debt at all. Our pool of unencumbered assets available for future financings has risen to 41% of our office portfolio, while Our Share of Net Debt to Pro Forma Enterprise Value is 29%.
With the loan we closed last week, we don’t foresee any more refinancing activity this year, although we will continue to monitor rates and spreads into 2020 for further opportunities.
Guidance:
Lowering Guidance for Net Income. We expect our Net Income per Common Share - Diluted to be between $0.57 and $0.59 per share for 2019, reflecting accelerated depreciation from certain office improvements and the Honolulu property we are converting from office to residential.
Increasing Guidance for 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 6.5% and 7.5%.
Narrowing Guidance for FFO. Our strong underlying operations and leasing have largely offset the 5 cent impact from our strategic balance sheet program. As a result, we are maintaining the midpoint for our full year FFO guidance, while narrowing the range to between $2.09 per share and $2.11 per share.
See page 23 for more details on our guidance.


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

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Table of Contents
COMPANY OVERVIEW
 
 
 
 
FINANCIAL RESULTS
 
 
 
 
PORTFOLIO DATA
 
 
 
 
               2019 GUIDANCE
 
 
 
 
               DEFINITIONS

Forward Looking Statements
This Third Quarter 2019 Earnings Results and Operating Information, which we refer to as our Earnings Package, supplements the information provided in our reports filed with the Securities and Exchange Commission (SEC).  It contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements presented in this Earnings Package, and those that we may make orally or in writing from time to time, are based on our beliefs and assumptions.  Our actual results will be affected by known and unknown risks, trends, uncertainties and factors, some of which are beyond our control or ability to predict, including, but not limited to: adverse economic and real estate developments in Southern California and Honolulu; a general downturn in the economy; decreased rental rates or increased tenant incentives and vacancy rates; defaults on, and early terminations and non-renewal of, leases by tenants; increased interest rates and operating costs; failure to generate sufficient cash flows to service our 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; lack of or insufficient insurance; inability to successfully expand into new markets or submarkets; risks associated with property development; conflicts of interest with our officers; changes in real estate and zoning laws and increases in real property tax rates; possible future terrorist attacks; and other risks and uncertainties detailed in our Annual Report on Form 10-K and other documents filed with the 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 forward-looking statements in this Earnings Package or any previously reported forward-looking statements to anticipate future results or trends. This Earnings Package and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements.

2

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Company Overview

 
Corporate Data
as of September 30, 2019

 
Office Portfolio
 
 
 
 
 
 
 
 
 
Consolidated
 
Total
 
 
Properties
64

 
72

 
 
Rentable square feet (in thousands)
16,516

 
18,356

 
 
Leased rate
93.2
%
 
93.1
%
 
 
Occupancy rate
91.0
%
 
90.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily Portfolio
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
Properties
 
 
11

 
 
Units
 
 
4,147

 
 
Leased rate
 
 
99.3
%
 
 
 
 
 
 
 

 
Market Capitalization (in thousands, except price per share)
 
 
 
 
 
 
 
Fully Diluted Shares outstanding as of September 30, 2019
 
204,004

 
 
Common stock closing price per share (NYSE:DEI)
 
$
42.83

 
 
Equity Capitalization
 
$
8,737,476

 
 
 
 
 
 

 
Net Debt (in thousands)
 
 
 
 
 
 
 
 
 
Consolidated
 
Our Share
 
 
 
 
 
 
 
 
Debt principal(1) 
$
4,213,446

 
$
3,677,262

 
 
Less: cash and cash equivalents(2)
(181,510
)
 
(130,637
)
 
 
Net Debt
$
4,031,936

 
$
3,546,625

 
 
 
 
 
 
 

 
Leverage Ratio (in thousands, except percentage)
 
 
 
 
 
 
 
Pro Forma Enterprise Value
 
$
12,284,101

 
 
Our Share of Net Debt to Pro Forma Enterprise Value
 
29
%
 
 
 
 
 
 

 
AFFO Payout Ratio
 
 
 
 
 
 
 
Three months ended September 30, 2019
 
56.3
%
 
 
 
 
 
 
_______________________________________
(1)
See page 12 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 $181.5 million, then deducting the other owners' share of our JVs' cash and cash equivalents of $79.0 million and then adding our share of our unconsolidated Funds' cash and cash equivalents of $28.1 million.
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Company Overview


Property Map
as of September 30, 2019
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Company Overview


Board of Directors and Executive Officers
as of September 30, 2019


BOARD OF DIRECTORS
______________________________________________________________________________________________________________
Dan A. Emmett
Our Executive Chairman of the Board
Jordan L. Kaplan
Our Chief Executive Officer and President
Kenneth M. Panzer
Our Chief Operating Officer
Christopher H. Anderson
Retired Real Estate Executive and Investor
Leslie E. Bider
Vice Chairman, PinnacleCare
Dr. David T. Feinberg
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
Johnese Spisso
President, UCLA Health; Chief Executive Officer, UCLA Hospital System; Associate Vice Chancellor, UCLA Health Sciences

EXECUTIVE OFFICERS
______________________________________________________________________________________________________________
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


CORPORATE OFFICES
1299 Ocean Avenue, Suite 1000, Santa Monica, California 90401
Phone: (310) 255-7700

For more information, please visit our website at www.douglasemmett.com or contact:
Stuart McElhinney, Vice President, Investor Relations
(310) 255-7751
[email protected]

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Financial Results


Consolidated Balance Sheets
(In thousands)

 
September 30, 2019
 
December 31, 2018
 
 
 
 
 
Unaudited
 
 
Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
1,100,412

 
$
1,065,099

Buildings and improvements
8,454,991

 
7,995,203

Tenant improvements and lease intangibles
850,124

 
840,653

Property under development
85,288

 
129,753

Investment in real estate, gross
10,490,815

 
10,030,708

Less: accumulated depreciation and amortization
(2,433,974
)
 
(2,246,887
)
Investment in real estate, net
8,056,841

 
7,783,821

Ground lease right-of-use asset
7,481

 

Cash and cash equivalents
181,510

 
146,227

Tenant receivables
5,113

 
4,371

Deferred rent receivables
134,132

 
124,834

Acquired lease intangible assets, net
2,877

 
3,251

Interest rate contract assets
11,925

 
73,414

Investment in unconsolidated Funds
102,280

 
111,032

Other assets
18,736

 
14,759

Total assets
$
8,520,895

 
$
8,261,709

 
 
 
 
Liabilities
 
 
 

Secured notes payable and revolving credit facility, net
$
4,176,967

 
$
4,134,030

Ground lease liability
10,884

 

Interest payable, accounts payable and deferred revenue
134,944

 
130,154

Security deposits
51,945

 
50,733

Acquired lease intangible liabilities, net
38,384

 
52,569

Interest rate contract liabilities
78,111

 
1,530

Dividends payable
45,598

 
44,263

Total liabilities
4,536,833

 
4,413,279

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,753

 
1,702

Additional paid-in capital
3,486,025

 
3,282,316

Accumulated other comprehensive (loss) income
(48,878
)
 
53,944

Accumulated deficit
(988,030
)
 
(935,630
)
Total Douglas Emmett, Inc. stockholders' equity
2,450,870

 
2,402,332

Noncontrolling interests
1,533,192

 
1,446,098

Total equity
3,984,062

 
3,848,430

Total liabilities and equity
$
8,520,895

 
$
8,261,709


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

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Financial Results


Consolidated Operating Results
(Unaudited; in thousands, except per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Office rental
 

 
 

 
 

 
 

Rental revenues and tenant recoveries(1)
$
175,017

 
$
166,680

 
$
513,926

 
$
490,319

Parking and other income
30,883

 
30,374

 
91,453

 
87,829

Total office revenues
205,900

 
197,054

 
605,379

 
578,148

 
 
 
 
 
 
 
 
Multifamily rental
 
 
 
 
 
 
 
Rental revenues
29,854

 
24,241

 
81,055

 
70,957

Parking and other income
2,315

 
2,041

 
6,355

 
5,947

Total multifamily revenues
32,169

 
26,282

 
87,410

 
76,904

 
 
 
 
 
 
 
 
Total revenues
238,069

 
223,336

 
692,789

 
655,052

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Office expenses
68,754

 
66,288

 
196,511

 
188,462

Multifamily expenses
9,127

 
7,142

 
24,394

 
20,748

General and administrative expenses
9,218

 
9,440

 
28,209

 
28,444

Depreciation and amortization
90,279

 
74,067

 
248,876

 
219,944

Total operating expenses
177,378

 
156,937

 
497,990

 
457,598

 
 
 
 
 
 
 
 
Operating income
60,691

 
66,399

 
194,799

 
197,454

 
 
 
 
 
 
 
 
Other income
2,952

 
2,951

 
8,742

 
8,373

Other expenses
(1,656
)
 
(1,561
)
 
(5,308
)
 
(5,380
)
Income, including depreciation, from unconsolidated Funds
1,831

 
1,348

 
5,589

 
4,522

Interest expense
(40,397
)
 
(33,721
)
 
(107,753
)
 
(99,889
)
Net income
23,421

 
35,416

 
96,069

 
105,080

Less:  Net income attributable to noncontrolling interests
(933
)
 
(4,855
)
 
(10,914
)
 
(14,629
)
Net income attributable to common stockholders
$
22,488

 
$
30,561

 
$
85,155

 
$
90,451

 
 
 
 
 
 
 
 
Net income per common share - basic
$
0.13

 
$
0.18

 
$
0.49

 
$
0.53

Net income per common share - diluted
$
0.13

 
$
0.18

 
$
0.49

 
$
0.53

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.26

 
$
0.25

 
$
0.78

 
$
0.75

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
175,278

 
169,926

 
172,684

 
169,815

Weighted average shares of common stock outstanding - diluted
175,278

 
169,931

 
172,684

 
169,828

_____________________________________________
(1)
Rental revenues and tenant recoveries include tenant recoveries of $16.3 million and $16.4 million for the three months ended September 30, 2019 and 2018, and $46.2 million and $42.1 million for the nine months ended September 30, 2019 and 2018, 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)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
22,488

 
$
30,561

 
$
85,155

 
$
90,451

Depreciation and amortization of real estate assets
90,279

 
74,067

 
248,876

 
219,944

Net income attributable to noncontrolling interests
933

 
4,855

 
10,914

 
14,629

Adjustments attributable to unconsolidated Funds(2)
4,335

 
4,233

 
13,185

 
12,382

 Adjustments attributable to consolidated joint ventures(2)
(14,147
)
 
(13,572
)
 
(43,343
)
 
(40,484
)
FFO
$
103,888

 
$
100,144

 
$
314,787

 
$
296,922

 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO
$
103,888

 
$
100,144

 
$
314,787

 
$
296,922

Straight-line rent
(2,614
)
 
(3,524
)
 
(9,298
)
 
(12,715
)
Net accretion of acquired above- and below-market leases
(4,003
)
 
(4,948
)
 
(12,519
)
 
(17,243
)
Loan costs
8,987

 
1,954

 
13,258

 
6,131

Recurring capital expenditures, tenant improvements and capitalized leasing expenses(3)
(19,494
)
 
(18,128
)
 
(51,966
)
 
(65,543
)
Non-cash compensation expense
4,298

 
4,924

 
13,164

 
14,906

Adjustments attributable to unconsolidated Funds(2)
(1,677
)
 
(1,454
)
 
(5,290
)
 
(5,721
)
Adjustments attributable to consolidated joint ventures(2)
4,874

 
3,530

 
12,760

 
12,706

AFFO
$
94,259

 
$
82,498

 
$
274,896

 
$
229,443

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - diluted
175,278

 
169,931

 
172,684

 
169,828

Weighted average units in our operating partnership outstanding
28,682

 
28,145

 
28,677

 
28,157

Weighted average fully diluted shares outstanding
203,960

 
198,076

 
201,361

 
197,985

 
 
 
 
 
 
 
 
Net income per common share - diluted
$
0.13

 
$
0.18

 
$
0.49

 
$
0.53

FFO per share - fully diluted
$
0.51

 
$
0.51

 
$
1.56

 
$
1.50

Dividends paid per share(4)
$
0.26

 
$
0.25

 
$
0.78

 
$
0.75

______________________________________________
(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.




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 September 30,
 
 
 
2019
 
2018
 
 
Office Statistics
 
 
 
 
 
Number of properties
60

 
60

 
 
Rentable square feet (in thousands)
15,499

 
15,443

 
 
Ending % leased
93.3
%
 
91.7
%
 
 
Ending % occupied
91.1
%
 
89.9
%
 
 
Quarterly average % occupied
90.8
%
 
89.5
%
 
 
 
 
 
 
 
 
Multifamily Statistics
 
 
 
 
 
Number of properties
9

 
9

 
 
Number of units
2,640

 
2,640

 
 
Ending % leased
99.4
%
 
99.7
%
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
% Favorable
 
 
 
2019
 
2018
 
(Unfavorable)
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
Office revenues
$
193,131

 
$
183,924

 
5.0
 %
 
 
Office expenses
(63,109
)
 
(61,076
)
 
(3.3
)%
 
 
Office NOI
130,022

 
122,848

 
5.8
 %
 
 
 
 
 
 
 
 
 
 
Multifamily revenues
21,506

 
21,288

 
1.0
 %
 
 
Multifamily expenses
(5,384
)
 
(5,330
)
 
(1.0
)%
 
 
Multifamily NOI
16,122

 
15,958

 
1.0
 %
 
 
 
 
 
 
 
 
 
 
Total NOI
$
146,144

 
$
138,806

 
5.3
 %
 
 
 
 
 
 
 
 
 
 
Cash Net Operating Income (NOI)
 
 
 
 
 
 
 
Office cash revenues
$
187,448

 
$
176,814

 
6.0
 %
 
 
Office cash expenses
(63,109
)
 
(61,076
)
 
(3.3
)%
 
 
Office cash NOI
124,339

 
115,738

 
7.4
 %
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
21,502

 
21,283

 
1.0
 %
 
 
Multifamily cash expenses
(5,384
)
 
(5,330
)
 
(1.0
)%
 
 
Multifamily cash NOI
16,118

 
15,953

 
1.0
 %
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
140,457

 
$
131,691

 
6.7
 %
 
 
 
 
 
 
 
 
 
_________________________________________________
(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 September 30,
 
2019
 
2018
 
 
 
 
Same property office cash revenues
$
187,448

 
$
176,814

Non cash adjustments per definition of NOI
5,683

 
7,110

Same property office revenues
193,131

 
183,924

 
 
 
 
Same property office expenses
(63,109
)
 
(61,076
)
 
 
 
 
Office NOI
130,022

 
122,848

 
 
 
 
Same property multifamily cash revenues
21,502

 
21,283

Non cash adjustments per definition of NOI
4

 
5

Same property multifamily revenues
21,506

 
21,288

 
 
 
 
Same property multifamily expenses
(5,384
)
 
(5,330
)
 
 
 
 
Multifamily NOI
16,122

 
15,958

 
 
 
 
Same Property NOI
146,144

 
138,806

Non-comparable office revenues
12,769

 
13,130

Non-comparable office expenses
(5,645
)
 
(5,212
)
Non-comparable multifamily revenues
10,663

 
4,994

Non-comparable multifamily expenses
(3,743
)
 
(1,812
)
NOI
160,188

 
149,906

General and administrative expenses
(9,218
)
 
(9,440
)
Depreciation and amortization
(90,279
)
 
(74,067
)
Operating income
60,691

 
66,399

Other income
2,952

 
2,951

Other expenses
(1,656
)
 
(1,561
)
Income, including depreciation, from unconsolidated Funds
1,831

 
1,348

Interest expense
(40,397
)
 
(33,721
)
Net income
23,421

 
35,416

Less: Net income attributable to noncontrolling interests
(933
)
 
(4,855
)
Net income attributable to common stockholders
$
22,488

 
$
30,561










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

10                     Go to Table of Contents

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Financial Results


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

 
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
190,166

 
$
47,903

 
$
21,067

Office and multifamily operating expenses
$
61,598

 
$
16,283

 
$
7,428

Straight-line rent
$
1,308

 
$
1,306

 
$
287

Above/below-market lease revenue
$
1,362

 
$
2,641

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

 
$
18,592

 
$
4,648

Our share of cash NOI(4)
$
125,898

 
$
9,081

 
$
8,707

 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
559,737

 
$
133,052

 
$
62,240

Office and multifamily operating expenses
$
176,875

 
$
44,030

 
$
21,126

Straight-line rent
$
4,518

 
$
4,780

 
$
793

Above/below-market lease revenue
$
4,167

 
$
8,352

 
$
(9
)
Cash NOI attributable to outside interests(3)
$

 
$
50,634

 
$
14,249

Our share of cash NOI(4)
$
374,177

 
$
25,256

 
$
26,081

______________________________________________________
(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.













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

11                     Go to Table of Contents

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Financial Results

 
Loans
(As of September 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
 
 
 
 
 
 
 
 
 
 
 
 
 
6/23/2023
(4)
$
360,000

 
$
360,000

 
2.57%
 
7/1/2021
 
 
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
 
 
8/15/2026
(6)
415,000

 
415,000

 
2.58%
 
8/1/2025
 
 
9/19/2026
 
400,000

 
400,000

 
2.44%
 
9/1/2024
 
 
9/26/2026
(7)
200,000

 
200,000

 
2.77%
 
10/1/2024
 
 
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
(8)
125,000

 
125,000

 
2.55%
 
6/1/2027
 
 
6/1/2038
(9)
31,046

 
31,046

 
4.55%
 
N/A
 
 
8/21/2023
(10)

 

 
LIBOR + 1.15%
 
N/A
 
 
Subtotal
 
3,073,446

 
3,073,446

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
(11)
$
4,213,446

 
$
3,359,446

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
$
3,677,262

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Except as noted below, each loan (including our revolving credit facility) is non-recourse and secured by one or more separate collateral pools consisting of one or more properties, and requires interest-only monthly payments with the outstanding principal due upon maturity.
(1)
Maturity dates include the effect of extension options.
(2)
"Our Share" is a non-GAAP measure calculated by multiplying the principal balance by our share of the borrowing entity's equity.
(3)
Effective rate as of September 30, 2019. Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs.
(4)
We paid this loan off on November 1, 2019 with the proceeds from a secured, non-recourse $400 million interest-only loan, scheduled to mature in November 2026, and effectively fixed through interest rate swaps at 2.18% until July 2021, which increases to 2.31% until October 2024.
(5)
Effective rate will decrease to 2.76% on March 2, 2020.
(6)
Effective rate will increase to 3.07% on April 1, 2020.
(7)
Effective rate will decrease to 2.36% on July 1, 2020.
(8)
Effective rate will increase to 3.25% on December 1, 2020.
(9)
Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule.
(10)
$400 million revolving credit facility. Unused commitment fees range from 0.10% to 0.15%.
(11)
Our consolidated debt on the balance sheet of $4.18 billion is calculated by adding $3.8 million of unamortized loan premium and deducting $40.3 million of unamortized deferred loan costs from our total consolidated loans of $4.21 billion.
 
 
 
 
 
Statistics for consolidated loans with interest fixed under the terms of the loan or a swap
 
 
 
 
 
 
Principal balance (in billions)
$4.21
 
 
Weighted average remaining life (including extension options)
6.2 years
 
 
Weighted average remaining fixed interest period
3.9 years
 
 
Weighted average annual interest rate
3.00%
 
 
 
 
 
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

12                     Go to Table of Contents

400839447_bluelogo_headeraa09.jpg
 
Portfolio Data


Office Portfolio Summary
Total Office Portfolio as of September 30, 2019


 
 
 
 
 
 
 
 
 
 
 
 
Region
 
Number of Properties
 
Our Rentable Square Feet
 
Region Rentable Square Feet(1)
 
Our Average Market Share(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
 
 
 
 
 
 
 
 
 
   Westside(3)
 
52

 
9,992,932

 
37,358,326
 
37.6
%
 
 
   Valley
 
16

 
6,789,270

 
21,257,083
 
43.4

 
 
Honolulu(3)
 
4

 
1,573,397

 
4,884,101
 
32.2

 
 
Total / Average
 
72

 
18,355,599

 
63,499,510
 
39.3
%
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________
(1)
The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2019 third quarter CBRE Marketview report for our submarkets in that region.
(2)
Our market share is calculated by dividing Rentable Square Feet by the applicable 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
 
Rentable Square Feet
 
Our Market Share(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Westside
 
Brentwood
 
15

 
2,085,745

 
62.5
%
 
 
 
Westwood
 
7

 
2,185,592

 
51.3

 
 
 
Olympic Corridor
 
5

 
1,142,885

 
33.1

 
 
 
Beverly Hills(3)
 
11

 
2,196,067

 
28.6

 
 
 
Santa Monica
 
11

 
1,425,374

 
15.4

 
 
 
Century City
 
3

 
957,269

 
9.4

 
 
Valley
 
Sherman Oaks/Encino
 
12

 
3,487,488

 
53.4

 
 
 
Warner Center/Woodland Hills
 
3

 
2,845,577

 
37.1

 
 
 
Burbank
 
1

 
456,205

 
6.5

 
 
Honolulu
 
Honolulu(3)
 
4

 
1,573,397

 
32.2

 
 
 
 
Total / Weighted Average
 
72

 
18,355,599

 
39.3
%
 
 
 
 
 
 
 
 
 
 
 
 

(3)
In calculating market share, we adjusted the rentable square footage by (i) removing approximately 190,000 rentable square feet of vacant space at an office building in Honolulu, which 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.

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Portfolio Data

Office Percentage Leased and In-Place Rents
Total Office Portfolio as of September 30, 2019
Annualized Rent by Region
 
400839447_chart-fe42a8018cb2d897688a02.jpg
 
 
 
 
 
 
 
 
 
 
 
 
Region(1)
 
Percent
Leased
 
Annualized Rent(2)
 
Annualized Rent Per Leased Square Foot(2)
 
Monthly Rent Per Leased Square Foot(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
 
 
 
 
 
 
 
 
 
   Westside
 
93.4
%
 
$
461,443,674

 
$
52.13

 
$
4.34

 
 
   Valley
 
92.6

 
212,215,111

 
35.21

 
2.93

 
 
Honolulu
 
93.6

 
48,817,737

 
34.93

 
2.91

 
 
Total / Weighted Average
 
93.1
%
 
$
722,476,522

 
$
44.39

 
$
3.70

 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________
(1)
Regional data reflects the following underlying submarket data:
 
 
 
 
 
 
 
 
 
 
Region
 
Submarket
 
Percent
Leased
 
Monthly Rent Per Leased Square Foot(2)
 
 
 
 
 
 
 
 
 
 
 
Westside
 
Beverly Hills
 
96.6
%
 
$
4.36

 
 
 
Brentwood
 
90.6

 
3.80

 
 
 
Century City
 
95.2

 
4.20

 
 
 
Olympic Corridor
 
92.5

 
3.33

 
 
 
Santa Monica
 
95.0

 
6.23

 
 
 
Westwood
 
91.7

 
4.21

 
 
Valley
 
Burbank
 
100.0

 
4.15

 
 
 
Sherman Oaks/Encino
 
94.7

 
3.11

 
 
 
Warner Center/Woodland Hills
 
88.9

 
2.48

 
 
Honolulu
 
Honolulu
 
93.6

 
2.91

 
 
 
 
Weighted Average
 
93.1
%
 
$
3.70

 
 
 
 
 
 
 
 
 
 

(2)
Does not include signed leases not yet commenced, which are included in percent leased but excluded from annualized rent.
 
 
 
 
 
 
 
Recurring Office Capital Expenditures per Rentable Square Foot
 
 
Three months ended September 30, 2019
$
0.07

 
 
Nine months ended September 30, 2019
$
0.21

 
 
 
 
 
 
 

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

14                     Go to Table of Contents

400839447_bluelogo_headeraa09.jpg
 
Portfolio Data


Office Lease Diversification
Total Office Portfolio as of September 30, 2019

400839447_q32019leasediversification.jpg

 
 
 
 
 
 
 
Portfolio Tenant Size
 
 
 
Median
 
Average
 
 
 
 
 
 
 
 
Square feet
2,700
 
5,600
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Leases
 
Rentable Square Feet
 
Annualized Rent
 
 
Square Feet Under Lease
 
Number
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,500 or less
 
1,407

 
48.2
%
 
1,956,331

 
12.0
%
 
$
85,694,827

 
11.9
%
 
 
2,501-10,000
 
1,135

 
38.9

 
5,602,649

 
34.4

 
243,828,862

 
33.7

 
 
10,001-20,000
 
243

 
8.3

 
3,349,478

 
20.6

 
143,857,357

 
19.9

 
 
20,001-40,000
 
99

 
3.4

 
2,712,166

 
16.7

 
119,077,661

 
16.5

 
 
40,001-100,000
 
31

 
1.1

 
1,746,325

 
10.7

 
87,271,589

 
12.1

 
 
Greater than 100,000
 
4

 
0.1

 
908,539

 
5.6

 
42,746,226

 
5.9

 
 
Total for all leases
 
2,919

 
100.0
%
 
16,275,488

 
100.0
%
 
$
722,476,522

 
100.0
%
 
 
 
 
 
 
 






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

15                     Go to Table of Contents

400839447_bluelogo_headeraa09.jpg
 
Portfolio Data


Largest Office Tenants
Total Office Portfolio as of September 30, 2019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
%
 
$
23,168,307

 
3.2
%
 
 
UCLA(3)
 
25

 
10

 
 2020-2027
 
321,106

 
1.7

 
16,131,526

 
2.2

 
 
William Morris Endeavor(4)
 
2

 
1

 
2022-2027
 
213,539

 
1.2

 
12,414,002

 
1.7

 
 
Morgan Stanley(5)
 
5

 
5

 
2022-2027
 
145,488

 
0.8

 
9,290,546

 
1.3

 
 
Equinox Fitness(6)
 
5

 
5

 
2024-2033
 
181,177

 
1.0

 
8,744,891

 
1.3

 
 
Total
 
40

 
24

 
 
 
1,330,085

 
7.2
%
 
$
69,749,272

 
9.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
(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: 38,000 square feet in 2020, 69,000 square feet in 2021, 55,000 square feet in 2022, 43,000 square feet in 2023, 10,000 square feet in 2024, 39,000 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)
Square footage expires as follows: 1,000 square feet in 2022 and 213,000 square feet in 2027. Tenant has an option to terminate 2,000 square feet in 2020 and 212,000 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, 26,000 square feet in 2022, and 32,000 square feet in 2024.
(6)
Square footage expires as follows: 34,000 square feet in 2024, 31,000 square feet in 2027, 44,000 square feet in 2028, 42,000 square feet in 2030, and 30,000 square feet in 2033.
















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

16                     Go to Table of Contents

400839447_bluelogo_headeraa09.jpg
 
Portfolio Data

 
Office Industry Diversification
Total Office Portfolio as of September 30, 2019

Percentage of Annualized Rent by Tenant Industry
400839447_chart-767da28af9065761856a06.jpg
 
 
 
 
 
 
 
 
Industry
 
Number of Leases
 
Annualized Rent as a Percent of Total
 
 
 
 
 
 
 
 
 
Legal
 
569

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