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Section 1: 8-K (8-K)

Document
false0001364250 0001364250 2019-08-05 2019-08-05


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): August 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 August 5, 2019, Douglas Emmett, Inc. released its financial results for the quarter ended June 30, 2019 by posting to its website its Second 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
 
101.INS
 
XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase 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:
August 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 4,069 apartment units in the premier coastal submarkets of Los Angeles and Honolulu.
Outstanding Financial Results: For the quarter ended June 30, 2019 compared to the quarter ended June 30, 2018:
We grew our revenues by 5.0% to a record $230.5 million.
We grew our net income attributable to common stockholders by 7.2% to $34.0 million.
We grew our FFO by 7.0% to $107.8 million, or $0.54 per fully diluted share.
We grew our AFFO by 25.8% to $95.5 million.
We grew our same property Cash NOI by 7.7% to $141.0 million.
Strong Operating Results: During the second quarter, we signed approximately 870,000 square feet of office leases. As a result, we increased the leased rate in our office portfolio by 45 basis points to 92.2%, and our occupancy rate to 90.4%. We continue to post strong leasing spreads as a result of robust tenant demand. Comparing the office leases we signed during the second quarter to the expiring leases for the same space, we improved straight-line rents by 30.9% and cash rents by 12.0%.
Portfolio Growth: In June, we acquired The Glendon, a residential community in Westwood with 350 apartments and approximately 50,000 square feet of retail, for $365 million. We contributed this property to an existing consolidated joint venture in which we have a 20% capital interest. This acquisition and the newly constructed units at Moanalua brought our residential portfolio to 4,069 units, up over 15% from a year ago. Our multifamily portfolio remained fully leased at 99.0%.
Strategic Balance Sheet Management: We see current low long-term interest rates and tight lending spreads as an opportunity for strategic balance sheet management. As a result, by the end of 2019, we expect to:
Significantly Extend Our Debt Maturities. Eliminate all debt maturities prior to 2023 and add almost 5 years to the weighted average life of $1.5 to $2 billion of debt, pushing our average debt maturity for that debt to 2027.
Lock in Low Interest Rates. Fix the interest rate of our outstanding floating rate debt while adding close to 5 years to the fixed interest period and lowering the interest rate on the debt we refinance.
Increase Liquidity. Increase our future financing flexibility by expanding our pool of unencumbered properties to almost 40% of our portfolio.
Reduce Overall Leverage. Reduce our share of outstanding net debt by nearly $200 million before the impact of new acquisitions this year.
Since May, we have already made substantial progress:
We paid off $630 million of debt with an average interest rate of 3.50%, including $220 million just after quarter end.
We closed $540 million of ten-year, secured, non-recourse loans with interest effectively fixed at an average of 3.25% through 2027. This total includes the acquisition loan for The Glendon.
We reduced our overall leverage by nearly $200 million by issuing common stock at $41 per share.
We lowered and extended the fixed interest rate on a $102 million loan for 36 months.




Continued on next page

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Guidance:
Increasing Guidance for Occupancy and Same Property Cash NOI. Based on the strength of our operating results, we are increasing our guidance for 2019 same property cash NOI growth to between 6% and 7%, and our guidance for average 2019 office occupancy to between 90.0% and 91.0%.
Better FFO from Operations. We expect that stronger operating results and the acquisition of The Glendon will positively impact our 2019 FFO by approximately 3 cents per share.
One-Time Costs of Strategic Balance Sheet Management. We expect that one-time cash and non-cash refinancing costs and dilution from the equity issuance will negatively impact our 2019 FFO by 4 to 6 cents per share.
Impact on Net Income and FFO. The net impact of these items:
Reduces our 2019 guidance for Net Income per Common Share - Diluted to between $0.67 and $0.71 per share.
Reduces our 2019 guidance for FFO to between $2.08 and $2.12 per share.
See page 24 for more details on our guidance.




















NOTE:  See the non-GAAP reconciliations for FFO & AFFO on page 9 and same property NOI on page 11.
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Table of Contents
COMPANY OVERVIEW
 
 
 
 
FINANCIAL RESULTS
 
 
 
 
PORTFOLIO DATA
 
 
 
 
               GUIDANCE
 
 
 
 
               DEFINITIONS

Forward Looking Statements
This Second 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.

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Company Overview

 
Corporate Data
as of June 30, 2019

 
Office Portfolio
 
 
 
 
 
 
 
 
 
Consolidated
 
Total
 
 
Properties
64

 
72

 
 
Rentable square feet (in thousands)
16,581

 
18,421

 
 
Leased rate
92.3
%
 
92.2
%
 
 
Occupancy rate
90.5
%
 
90.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily Portfolio
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
Properties
 
 
11

 
 
Units
 
 
4,069

 
 
Leased rate
 
 
99.0
%
 
 
 
 
 
 
 

 
Market Capitalization (in thousands, except price per share)
 
 
 
 
 
 
 
Fully diluted shares outstanding as of June 30, 2019
 
203,918

 
 
Common stock closing price per share (NYSE:DEI)
 
$
39.84

 
 
Equity capitalization
 
$
8,124,090

 
 
 
 
 
 

 
Net Debt (in thousands)
 
 
 
 
 
 
 
 
 
Consolidated
 
Our Share
 
 
 
 
 
 
 
 
Debt principal(1) 
$
4,338,626

 
$
3,802,443

 
 
Less: cash and cash equivalents(2)
(303,962
)
 
(248,744
)
 
 
Net debt
$
4,034,664

 
$
3,553,699

 
 
 
 
 
 
 

 
Leverage Ratio (in thousands, except percentage)
 
 
 
 
 
 
 
Pro forma enterprise value
 
$
11,677,789

 
 
Our share of net debt to pro forma enterprise value
 
30
%
 
 
 
 
 
 

 
AFFO Payout Ratio
 
 
 
 
 
 
 
Three Months ended June 30, 2019
 
54.3
%
 
 
 
 
 
 
_______________________________________
(1)
See page 13 for a reconciliation of consolidated debt principal and our share of debt principal to consolidated debt on the balance sheet.
(2)
Our share of cash and cash equivalents is calculated starting with our consolidated cash and cash equivalents of $304.0 million, then deducting the other owners' share of our JVs' cash and cash equivalents of $82.4 million and then adding our share of our unconsolidated Funds' cash and cash equivalents of $27.2 million.
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 June 30, 2019
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Company Overview


Board of Directors and Executive Officers
as of June 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

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)

 
June 30, 2019
 
December 31, 2018
 
 
 
 
 
Unaudited
 
 
Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
1,100,412

 
$
1,065,099

Buildings and improvements
8,436,246

 
7,995,203

Tenant improvements and lease intangibles
859,618

 
840,653

Property under development
70,834

 
129,753

Investment in real estate, gross
10,467,110

 
10,030,708

Less: accumulated depreciation and amortization
(2,374,596
)
 
(2,246,887
)
Investment in real estate, net
8,092,514

 
7,783,821

Ground lease right-of-use asset
7,481

 

Cash and cash equivalents
303,962

 
146,227

Tenant receivables, net
5,199

 
4,371

Deferred rent receivables, net
131,518

 
124,834

Acquired lease intangible assets, net
2,993

 
3,251

Interest rate contract assets
16,788

 
73,414

Investment in unconsolidated real estate funds
106,017

 
111,032

Other assets
11,239

 
14,759

Total assets
$
8,677,711

 
$
8,261,709

 
 
 
 
Liabilities
 
 
 

Secured notes payable and revolving credit facility, net
$
4,304,913

 
$
4,134,030

Ground lease liability
10,885

 

Interest payable, accounts payable and deferred revenue
117,672

 
130,154

Security deposits
52,141

 
50,733

Acquired lease intangible liabilities, net
42,503

 
52,569

Interest rate contract liabilities
51,672

 
1,530

Dividends payable
45,565

 
44,263

Total liabilities
4,625,351

 
4,413,279

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,752

 
1,702

Additional paid-in capital
3,484,180

 
3,282,316

Accumulated other comprehensive (loss) income
(25,853
)
 
53,944

Accumulated deficit
(964,927
)
 
(935,630
)
Total Douglas Emmett, Inc. stockholders' equity
2,495,152

 
2,402,332

Noncontrolling interests
1,557,208

 
1,446,098

Total equity
4,052,360

 
3,848,430

Total liabilities and equity
$
8,677,711

 
$
8,261,709


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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Office rental
 

 
 

 
 

 
 

Rental revenues and tenant recoveries(1)
$
171,674

 
$
164,815

 
$
338,909

 
$
323,639

Parking and other income
30,515

 
28,946

 
60,570

 
57,455

Total office revenues
202,189

 
193,761

 
399,479

 
381,094

 
 
 
 
 
 
 
 
Multifamily rental
 
 
 
 
 
 
 
Rental revenues
26,308

 
23,655

 
51,201

 
46,716

Parking and other income
2,037

 
2,053

 
4,040

 
3,906

Total multifamily revenues
28,345

 
25,708

 
55,241

 
50,622

 
 
 
 
 
 
 
 
Total revenues
230,534

 
219,469

 
454,720

 
431,716

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Office expenses
64,308

 
61,818

 
127,757

 
122,174

Multifamily expenses
7,712

 
6,908

 
15,267

 
13,606

General and administrative expenses
9,159

 
9,437

 
18,991

 
19,004

Depreciation and amortization
78,724

 
73,379

 
158,597

 
145,877

Total operating expenses
159,903

 
151,542

 
320,612

 
300,661

 
 
 
 
 
 
 
 
Operating income
70,631

 
67,927

 
134,108

 
131,055

 
 
 
 
 
 
 
 
Other income
2,892

 
2,792

 
5,790

 
5,422

Other expenses
(1,807
)
 
(2,086
)
 
(3,652
)
 
(3,819
)
Income, including depreciation, from unconsolidated funds
2,207

 
1,668

 
3,758

 
3,174

Interest expense
(34,063
)
 
(33,268
)
 
(67,356
)
 
(66,168
)
Net income
39,860

 
37,033

 
72,648

 
69,664

Less:  Net income attributable to noncontrolling interests
(5,894
)
 
(5,349
)
 
(9,981
)
 
(9,774
)
Net income attributable to common stockholders
$
33,966

 
$
31,684

 
$
62,667

 
$
59,890

 
 
 
 
 
 
 
 
Net income per common share - basic
$
0.20

 
$
0.19

 
$
0.36

 
$
0.35

Net income per common share - diluted
$
0.20

 
$
0.19

 
$
0.36

 
$
0.35

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.26

 
$
0.25

 
$
0.52

 
$
0.50

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
172,498

 
169,916

 
171,366

 
169,759

Weighted average shares of common stock outstanding - diluted
172,498

 
169,926

 
171,366

 
169,776

_____________________________________________
(1)
Rental revenues and tenant recoveries include tenant recoveries of $16.2 million and $14.7 million for the three months ended June 30, 2019 and 2018, and $29.9 million and $25.7 million for the six months ended June 30, 2019 and 2018, respectively.

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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
33,966

 
$
31,684

 
$
62,667

 
$
59,890

Depreciation and amortization of real estate assets
78,724

 
73,379

 
158,597

 
145,877

Net income attributable to noncontrolling interests
5,894

 
5,349

 
9,981

 
9,774

Adjustments attributable to unconsolidated funds(2)
4,336

 
4,052

 
8,850

 
8,149

 Adjustments attributable to consolidated joint ventures(2)
(15,119
)
 
(13,670
)
 
(29,196
)
 
(26,912
)
FFO
$
107,801

 
$
100,794

 
$
210,899

 
$
196,778

 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO
$
107,801

 
$
100,794

 
$
210,899

 
$
196,778

Straight-line rent
(2,315
)
 
(4,019
)
 
(6,684
)
 
(9,191
)
Net accretion of acquired above- and below-market leases
(4,396
)
 
(6,143
)
 
(8,516
)
 
(12,295
)
Loan costs
2,404

 
1,868

 
4,271

 
4,177

Recurring capital expenditures, tenant improvements and capitalized leasing expenses(3)
(14,689
)
 
(24,148
)
 
(32,472
)
 
(47,415
)
Non-cash compensation expense
4,359

 
4,923

 
8,866

 
9,982

Adjustments attributable to unconsolidated funds(2)
(1,619
)
 
(1,881
)
 
(3,613
)
 
(4,267
)
Adjustments attributable to consolidated joint ventures(2)
3,965

 
4,558

 
7,886

 
9,176

AFFO
$
95,510

 
$
75,952

 
$
180,637

 
$
146,945

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - diluted
172,498

 
169,926

 
171,366

 
169,776

Weighted average units in our operating partnership outstanding
28,687

 
28,053

 
28,670

 
28,158

Weighted average fully diluted shares outstanding
201,185

 
197,979

 
200,036

 
197,934

 
 
 
 
 
 
 
 
Net income per common share - diluted
$
0.20

 
$
0.19

 
$
0.36

 
$
0.35

FFO per share - fully diluted
$
0.54

 
$
0.51

 
$
1.05

 
$
0.99

Dividends paid per share(4)
$
0.26

 
$
0.25

 
$
0.52

 
$
0.50

______________________________________________
(1)
Presents the FFO and AFFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership, including our share of our consolidated joint ventures and our unconsolidated Funds.
(2)
Adjusts for the portion of each other listed adjustment item on our share of the results of our unconsolidated Funds and for each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated joint ventures.
(3)
We adopted the new lease accounting rules in the first quarter of 2019. Under the new rules, we expense non-incremental leasing expenses (leasing expenses not directly related to the signing of a lease) and capitalize incremental leasing expenses. Since non-incremental leasing expenses are included in the calculation of net income attributable to common stockholders and FFO, the 2019 capitalized leasing expenses adjustment to AFFO only includes incremental leasing expenses.
(4)
Reflects dividends paid within the respective quarters.





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,
 
 
 
2019
 
2018
 
 
Office Statistics
 
 
 
 
 
Number of properties
60

 
60

 
 
Rentable square feet (in thousands)
15,500

 
15,435

 
 
Ending % leased
92.3
%
 
92.0
%
 
 
Ending % occupied
90.4
%
 
89.1
%
 
 
Quarterly average % occupied
90.4
%
 
89.1
%
 
 
 
 
 
 
 
 
Multifamily Statistics
 
 
 
 
 
Number of properties
9

 
9

 
 
Number of units
2,640

 
2,640

 
 
Ending % leased
99.4
%
 
99.8
%
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
% Favorable
 
 
 
2019
 
2018
 
(Unfavorable)
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
Office revenues
$
190,130

 
$
180,643

 
5.3
 %
 
 
Office expenses
(59,112
)
 
(56,760
)
 
(4.1
)%
 
 
Office NOI
131,018

 
123,883

 
5.8
 %
 
 
 
 
 
 
 
 
 
 
Multifamily revenues 
21,410

 
21,170

 
1.1
 %
 
 
Multifamily expenses
(5,351
)
 
(5,341
)
 
(0.2
)%
 
 
Multifamily NOI
16,059

 
15,829

 
1.5
 %
 
 
 
 
 
 
 
 
 
 
Total NOI
$
147,077

 
$
139,712

 
5.3
 %
 
 
 
 
 
 
 
 
 
 
Cash Net Operating Income (NOI)
 
 
 
 
 
 
 
Office cash revenues
$
184,073

 
$
171,816

 
7.1
 %
 
 
Office cash expenses
(59,112
)
 
(56,760
)
 
(4.1
)%
 
 
Office cash NOI
124,961

 
115,056

 
8.6
 %
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
21,405

 
21,164

 
1.1
 %
 
 
Multifamily cash expenses
(5,351
)
 
(5,341
)
 
(0.2
)%
 
 
Multifamily cash NOI
16,054

 
15,823

 
1.5
 %
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
141,015

 
$
130,879

 
7.7
 %
 
 
 
 
 
 
 
 
 
_________________________________________________
(1) The amounts presented include 100% (not our pro-rata share). See page 11 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.

10                     Go to Table of Contents

399054602_bluelogo_headeraa08.jpg
 
Financial Results

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


 
Three Months Ended June 30,
 
2019
 
2018
 
 
 
 
Same property office cash revenues
$
184,073

 
$
171,816

Non cash adjustments per definition of NOI
6,057

 
8,827

Same property office revenues
190,130

 
180,643

 
 
 
 
Same property office expenses
(59,112
)
 
(56,760
)
 
 
 
 
Office NOI
131,018

 
123,883

 
 
 
 
Same property multifamily cash revenues
21,405

 
21,164

Non cash adjustments per definition of NOI
5

 
6

Same property multifamily revenues
21,410

 
21,170

 
 
 
 
Same property multifamily expenses
(5,351
)
 
(5,341
)
 
 
 
 
Multifamily NOI
16,059

 
15,829

 
 
 
 
Same Property NOI
147,077

 
139,712

Non-comparable office revenues
12,059

 
13,118

Non-comparable office expenses
(5,196
)
 
(5,058
)
Non-comparable multifamily revenues
6,935

 
4,538

Non-comparable multifamily expenses
(2,361
)
 
(1,567
)
NOI
158,514

 
150,743

General and administrative expenses
(9,159
)
 
(9,437
)
Depreciation and amortization
(78,724
)
 
(73,379
)
Operating income
70,631

 
67,927

Other income
2,892

 
2,792

Other expenses
(1,807
)
 
(2,086
)
Income, including depreciation, from unconsolidated real estate funds
2,207

 
1,668

Interest expense
(34,063
)
 
(33,268
)
Net income
39,860

 
37,033

Less: Net income attributable to noncontrolling interests
(5,894
)
 
(5,349
)
Net income attributable to common stockholders
$
33,966

 
$
31,684










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


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

 
Three Months Ended June 30,
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
186,864

 
$
43,670

 
$
21,015

Office and multifamily operating expenses
$
58,025

 
$
13,995

 
$
6,871

Straight-line rent
$
782

 
$
1,533

 
$
300

Above/below-market lease revenue
$
1,427

 
$
2,969

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

 
$
16,740

 
$
4,943

Our share of cash NOI(4)
$
126,630

 
$
8,433

 
$
8,904

 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
369,571

 
$
85,149

 
$
41,173

Office and multifamily operating expenses
$
115,277

 
$
27,747

 
$
13,698

Straight-line rent
$
3,210

 
$
3,474

 
$
506

Above/below-market lease revenue
$
2,805

 
$
5,711

 
$
(6
)
Cash NOI attributable to outside interests(3)
$

 
$
32,042

 
$
9,601

Our share of cash NOI(4)
$
248,279

 
$
16,175

 
$
17,374

______________________________________________________
(1)
Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three consolidated joint ventures ("JVs") which we manage and in which we own a weighted average interest of approximately 27% based on square footage. The JVs own a combined eleven Class A office properties totaling 2.8 million square feet and one residential property with 350 apartments in our submarkets. We are entitled to (i) distributions based on invested capital, (ii) fees for property management and other services, (iii) reimbursement of certain acquisition-related expenses and certain other costs and (iv) in most cases, additional distributions based on Cash NOI.
(2)
Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three unconsolidated Funds which we manage and in which we own a weighted average interest of approximately 63% based on square footage. The Funds own a combined eight Class A office properties totaling 1.8 million square feet in our submarkets. We are entitled to (i) priority distributions, (ii) distributions based on invested capital, (iii) a carried interest if the investors’ distributions exceed a hurdle rate, (iv) fees for property management and other services and (v) reimbursement of certain costs.  
(3)
Represents the share of Cash NOI allocable under the applicable agreements to interests other than our fully diluted shares.
(4)
Represents the share of Cash NOI allocable to our fully diluted shares.













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

12                     Go to Table of Contents

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Financial Results

 
Loans
(As of June 30, 2019, unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity Date(1)
 
Principal Balance
(In Thousands)
 
Our Share(2)
(In Thousands)
 
Effective
Rate(3)
 
Swap Maturity Date
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Wholly-Owned Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
4/15/2022
 
$
340,000

 
$
340,000

 
2.77%
 
4/1/2020
 
 
7/27/2022
 
180,000

 
180,000

 
3.06%
 
7/1/2020
 
 
11/1/2022
 
400,000

 
400,000

 
2.64%
 
11/1/2020
 
 
6/23/2023
 
360,000

 
360,000

 
2.57%
 
7/1/2021
 
 
12/23/2023
(4)
220,000

 
220,000

 
3.62%
 
12/23/2021
 
 
1/1/2024
 
300,000

 
300,000

 
3.46%
 
1/1/2022
 
 
3/3/2025
 
335,000

 
335,000

 
3.84%
 
3/1/2023
 
 
4/1/2025
(5)
102,400

 
102,400

 
2.84%
 
3/1/2023
 
 
6/1/2027
 
550,000

 
550,000

 
3.16%
 
6/1/2022
 
 
6/1/2029
 
255,000

 
255,000

 
3.26%
 
6/1/2027
 
 
6/1/2029
(6)
125,000

 
125,000

 
2.55%
 
6/1/2027
 
 
6/1/2038
(7)
31,227

 
31,227

 
4.55%
 
N/A
 
 
8/21/2023
(8)

 

 
LIBOR + 1.15%
 
N/A
 
 
Subtotal
 
3,198,627

 
3,198,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Joint Ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
2/28/2023
 
580,000

 
174,000

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

 
80,000

 
3.47%
 
1/1/2023
 
 
6/1/2029
 
160,000

 
32,000

 
3.25%
 
7/1/2027
 
 
Total Consolidated Loans
(9)
$
4,338,627

 
$
3,484,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
3/1/2023
 
$
110,000

 
$
27,091

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

 
290,725

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

 
$
317,816

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
 
 
 
$
3,802,443

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Except as noted below, each loan (including our revolving credit facility) is non-recourse and secured by one or more separate collateral pools consisting of one or more properties, and requires interest-only monthly payments with the outstanding principal due upon maturity.
(1)
Maturity dates include the effect of extension options.
(2)
"Our Share" is a non-GAAP measure calculated by multiplying the principal balance by our share of the borrowing entity's equity.
(3)
Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs.
(4)
We paid this loan off on July 1, 2019 and terminated the related swaps.
(5)
Effective rate will decrease to 2.76% after March 2, 2020.
(6)
Effective rate will increase to 3.25% after December 1, 2020.
(7)
Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule.
(8)
$400 million revolving credit facility. Unused commitment fees range from 0.10% to 0.15%.
(9)
Our consolidated debt on the balance sheet of $4.30 billion is calculated by adding $3.9 million of unamortized loan premium and deducting $37.6 million of unamortized deferred loan costs from our total consolidated loans of $4.34 billion.
 
 
 
 
 
Statistics for consolidated loans with interest fixed under the terms of the loan or a swap
 
 
 
 
 
 
Principal balance (in billions)
$4.34
 
 
Weighted average remaining life (including extension options)
5.5 years
 
 
Weighted average remaining fixed interest period
3.1 years
 
 
Weighted average annual interest rate
3.08%
 
 
 
 
 
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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399054602_bluelogo_headeraa08.jpg
 
Portfolio Data


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


 
 
 
 
 
 
 
 
 
 
 
 
Submarket
 
Number of Properties
 
Rentable Square
Feet
 
Submarket Rentable Square Feet(1)
 
Our Market Share in Submarket(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Brentwood
 
15

 
2,084,627

 
3,336,801
 
62.5
%
 
 
Sherman Oaks/Encino
 
12

 
3,487,488

 
6,528,253
 
53.4

 
 
Westwood
 
7

 
2,185,150

 
4,259,142
 
51.3

 
 
Warner Center/Woodland Hills
 
3

 
2,845,577

 
7,667,855
 
37.1

 
 
Honolulu(3)
 
4

 
1,638,418

 
4,949,122
 
33.1

 
 
Olympic Corridor
 
5

 
1,142,885

 
3,451,688
 
33.1

 
 
Beverly Hills(4)
 
11

 
2,196,067

 
6,911,291
 
28.6

 
 
Santa Monica
 
11

 
1,427,671

 
9,250,950
 
15.4

 
 
Century City
 
3

 
957,269

 
10,148,454
 
9.4

 
 
Burbank
 
1

 
456,205

 
7,060,975
 
6.5

 
 
Total / Weighted Average(5)
 
72

 
18,421,357

 
63,564,531
 
39.4
%
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________
(1)
Source is the 2019 second quarter CBRE Marketview report.
(2)
Calculated by dividing Rentable Square Feet by the applicable Submarket Rentable Square Feet.
(3)
We removed approximately 125,000 rentable square feet of vacant space at an office building we are converting to residential apartments. Third party submarket data was updated for consistency. See page 23.
(4)
Includes a 218,000 square foot property located just outside the Beverly Hills city limits. To calculate our percentage of the submarket, the property is not included in the numerator or the denominator for consistency with third party data.
(5)
The average of our market share in all submarkets is weighted based on the square feet of exposure in our total portfolio to each submarket.






























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

14                     Go to Table of Contents

399054602_bluelogo_headeraa08.jpg
 
Portfolio Data

 
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of June 30, 2019
Annualized Rent by Submarket
 
399054602_chart-d1a7dc79f7a55daa909a07.jpg
 
 
 
 
 
 
 
 
 
 
 
Submarket
Percent
Leased(1)
 
Annualized Rent(2)
 
Annualized Rent Per Leased Square Foot(2)
 
Monthly Rent Per Leased Square Foot(2)
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills
96.5
%
 
$
105,485,768

 
$
51.94

 
$
4.33

 
 
Brentwood
90.4

 
81,705,710

 
45.17

 
3.76

 
 
Burbank
100.0

 
22,714,720

 
49.79

 
4.15

 
 
Century City
93.5

 
41,176,963

 
49.67

 
4.14

 
 
Honolulu
94.1

 
50,548,267

 
35.25

 
2.94

 
 
Olympic Corridor
93.9

 
40,112,941

 
39.60

 
3.30

 
 
Santa Monica
93.6

 
93,352,961

 
72.87

 
6.07

 
 
Sherman Oaks/Encino
92.0

 
114,357,721

 
37.10

 
3.09

 
 
Warner Center/Woodland Hills
86.9

 
70,675,101

 
29.60

 
2.47

 
 
Westwood
91.5

 
95,174,300

 
50.01

 
4.17

 
 
Total / Weighted Average
92.2
%
 
$
715,304,452

 
$
44.08

 
$
3.67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recurring Office Capital Expenditures per Rentable Square Foot
 
 
 
 
Three months ended June 30, 2019
 
$
0.05

 
 
Six months ended June 30, 2019
 
$
0.13

 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________
(1)
Includes 330,019 square feet with respect to signed leases not yet commenced at June 30, 2019.
(2)
Excludes signed leases not yet commenced at June 30, 2019.


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

15                     Go to Table of Contents

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Portfolio Data


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



399054602_q22019leasediversification.jpg

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


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Leases
 
Rentable Square Feet
 
Annualized Rent
 
 
Square Feet Under Lease
 
Number
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,500 or less
 
1,402

 
48.3
%
 
1,952,705

 
12.0
%
 
$
84,666,329

 
11.8
%
 
 
2,501-10,000
 
1,124

 
38.8

 
5,525,359

 
34.1

 
238,711,197

 
33.4

 
 
10,001-20,000
 
239

 
8.2

 
3,298,227

 
20.3

 
141,139,636

 
19.7

 
 
20,001-40,000
 
101

 
3.5

 
2,754,224

 
16.9

 
120,070,006

 
16.8

 
 
40,001-100,000
 
32

 
1.1

 
1,793,097

 
11.1

 
88,763,883

 
12.4

 
 
Greater than 100,000
 
4

 
0.1

 
902,669

 
5.6

 
41,953,401

 
5.9

 
 
Total for all leases
 
2,902

 
100.0
%
 
16,226,281

 
100.0
%
 
$
715,304,452

 
100.0
%
 
 
 
 
 
 
 






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

16                     Go to Table of Contents

399054602_bluelogo_headeraa08.jpg
 
Portfolio Data


Largest Office Tenants
Total Office Portfolio as of June 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
%
 
$
23,164,538

 
3.2
%
 
 
UCLA(3)
 
26

 
10

 
 2019-2027
 
321,106

 
1.7

 
16,015,025

 
2.2

 
 
William Morris Endeavor(4)
 
1

 
1

 
2027
 
206,782

 
1.1

 
11,667,814

 
1.6

 
 
Morgan Stanley(5)
 
5

 
5

 
2022-2027
 
145,488

 
0.8

 
9,262,989

 
1.3

 
 
Equinox Fitness(6)
 
5

 
5

 
2020 - 2033
 
180,087

 
1.0

 
7,595,231

 
1.1

 
 
Total
 
40

 
24

 
 
 
1,322,238

 
7.1
%
 
$
67,705,597

 
9.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
(1)
Expiration dates are per lease (expiration dates do not reflect storage and similar leases).
(2)
Square footage expires as follows: 2,000 square feet in 2020, 10,000 square feet in 2023, and 456,000 square feet in 2024.
(3)
Square footage expires as follows: 6,000 square feet in 2019, 41,000 square feet in 2020, 69,000 square feet in 2021, 55,000 square feet in 2022, 40,000 square feet in 2023, 11,000 square feet in 2024, 32,000 square feet in 2025, and 67,000 square feet in 2027. Tenant has options to terminate 31,000 square feet in 2020, 15,000 square feet in 2023, and 51,000 square feet in 2025.
(4)
Tenant has an option to terminate 2,000 square feet in 2020 and 205,000 square feet in 2022.
(5)
Square footage expires as follows: 16,000 square feet in 2022, 30,000 square feet in 2023, 26,000 square feet in 2025, and 74,000 square feet in 2027. Tenant has options to terminate 30,000 square feet in 2021, and 26,000 square feet in 2022.
(6)
Square footage expires as follows: 42,000 square feet in 2020, 33,000 square feet in 2024, 31,000 square feet in 2027, 44,000 square feet in 2028, and 30,000 square feet in 2033.

















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

17                     Go to Table of Contents

399054602_bluelogo_headeraa08.jpg
 
Portfolio Data

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

Percentage of Annualized Rent by Tenant Industry
399054602_chart-f3366907e79553e5af8a07.jpg
 
 
 
 
 
 
 
 
Industry
 
Number of Leases
 
Annualized Rent as a Percent of Total
 
 
 
 
 
 
 
 
 
Legal
 
566

 
18.1
%
 
 
Financial Services
 
391

 
15.0

 
 
Entertainment
 
212

 
12.9

 
 
Real Estate
 
293

 
11.3

 
 
Accounting & Consulting
 
350

 
10.1

 
 
Health Services
 
368

 
7.5

 
 
Retail
 
190

 
5.9

 
 
Technology
 
127

 
5.2

 
 
Insurance
 
106

 
4.0

 
 
Educational Services
 
58

 
3.6

 
 
Public Administration
 
90

 
2.4