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Section 1: 8-K (8-K)

Document
false0001364250 0001364250 2020-02-11 2020-02-11


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): February 11, 2020
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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 February 11, 2020, Douglas Emmett, Inc. released its financial results for the quarter ended December 31, 2019 by posting to its website its Fourth 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:
February 11, 2020
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 18.3 million square feet of Class A office properties and 4,161 apartment units in the premier coastal submarkets of Los Angeles and Honolulu.
Quarterly Results: For the three months ended December 31, 2019 compared to the three months ended December 31, 2018:
We grew our revenues by 7.8% to $243.9 million.
Our net income attributable to common stockholders, which included a gain of $307.9 million from the consolidation of a previously unconsolidated fund, increased by 986.6% to $278.6 million.
We grew our FFO by 7.0% to $110.0 million, or $0.54 per fully diluted share.
We grew our AFFO by 12.8% to $90.5 million.
We grew our same property Cash NOI by 7.3% to $143.5 million.
Annual Results: For 2019 compared to 2018:
We grew our revenues by 6.3% to $936.7 million.
Our net income attributable to common stockholders, which included a gain of $307.9 million from the consolidation mentioned above, increased by 213.3% to $363.7 million.
We grew our FFO by 6.3% to $424.8 million, or $2.10 per fully diluted share.
We grew our AFFO by 18.0% to $365.4 million.
We grew our same property Cash NOI by 7.5% to $560.4 million.
Strong Leasing: During the fourth quarter, we signed approximately 790,000 square feet of office leases. We increased the leased rate in our office portfolio by about 20 basis points to 93.3%, and our occupancy rate by 50 basis points to 91.4%. We continue to post strong leasing spreads as a result of robust tenant demand. Comparing the office leases we signed during the fourth quarter to the expiring leases for the same space, we grew straight-line rents by 28.6% and cash rents by 8.6%. Our multifamily portfolio remained fully leased at 98%.
Debt: On November 1, 2019 we closed a secured, non-recourse $400.0 million interest-only loan scheduled to mature in November 2026. The loan bears interest at LIBOR + 1.15%, which was effectively fixed through interest rate swaps at 2.18% until July 2021, and at 2.31% thereafter until October 2024. The loan is secured by four wholly-owned office properties. Part of the proceeds were used to pay off a $360.0 million loan that was scheduled to mature in June 2023. At year end we did not have any floating rate debt and our next term loan maturity is in February 2023. Our pool of unencumbered properties that provide flexibility for future financings has increased to 41% of our office portfolio.
Acquisition and Consolidation of Fund Interest: On November 21, 2019, we acquired an additional 16.3% of the equity in one of our previously unconsolidated funds in exchange for $76.9 million in cash and Operating Partnership Units valued at $14.4 million. We now own 89% of the entity, with the remainder owned by an institutional investor. The JV owns six Class A office properties totaling 1.5 million square feet in the prime Los Angeles submarkets of Beverly Hills, Santa Monica, Sherman Oaks/Encino and Warner Center. The JV also owns an interest of 9.4% in our remaining unconsolidated fund. As a result of the restructuring, the JV was consolidated in our financial statements as of November 21, 2019. This resulted in a one time gain of $307.9 million which affects Net Income but not FFO or AFFO.

Dividends: Commencing with our dividend paid on January 15, 2020, we increased our quarterly cash dividend by
8% to $0.28 per common share, or $1.12 on an annualized basis.

Guidance: We are initiating 2020 full year guidance for Net Income Per Common Share - Diluted of $0.68 to $0.74 and for FFO of $2.23 to $2.29 per fully diluted share. See page 23. In January we had a fire at one of our residential properties. We expect our damages to be covered by insurance and are comfortable with our guidance range.
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
 
 
 
 
           2020 GUIDANCE
 
 
Reconciliation of 2020 Non-GAAP Guidance
 
 
            DEFINITIONS

Forward Looking Statements (FLS)
This Fourth Quarter 2019 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, including the statements in the “Guidance” sections of this EP. 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 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 FLS in this EP or any previously reported FLS 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

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Company Overview


Corporate Data
as of December 31, 2019

 
Office Portfolio
 
 
 
 
 
 
 
 
 
Consolidated
 
Total
 
 
Properties
70

 
72

 
 
Rentable square feet (in thousands)
17,960

 
18,346

 
 
Leased rate
93.3
%
 
93.3
%
 
 
Occupancy rate
91.5
%
 
91.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily Portfolio
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
Properties
 
 
11

 
 
Units
 
 
4,161

 
 
Leased rate
 
 
98.1
%
 
 
 
 
 
 
 

 
Market Capitalization (in thousands, except price per share)
 
 
 
 
 
 
 
Fully Diluted Shares outstanding as of December 31, 2019
 
204,889

 
 
Common stock closing price per share (NYSE:DEI)
 
$
43.90

 
 
Equity Capitalization
 
$
8,994,644

 
 
 
 
 
 

 
Net Debt (in thousands)
 
 
 
 
 
 
 
 
 
Consolidated
 
Our Share
 
 
 
 
 
 
 
 
Debt principal(1) 
$
4,653,264

 
$
3,788,151

 
 
Less: cash and cash equivalents(2)
(153,683
)
 
(79,798
)
 
 
Net Debt
$
4,499,581

 
$
3,708,353

 
 
 
 
 
 
 

 
Leverage Ratio (in thousands, except percentage)
 
 
 
 
 
 
 
Pro Forma Enterprise Value
 
$
12,702,997

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

 
AFFO Payout Ratio
 
 
 
 
 
 
 
Three months ended December 31, 2019
 
58.7
%
 
 
 
 
 
 
_______________________________________
(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 $153.7 million, then deducting the other owners' share of our JVs' cash and cash equivalents of $75.7 million and then adding our share of our unconsolidated Fund's cash and cash equivalents of $1.9 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 December 31, 2019
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Company Overview


Board of Directors and Executive Officers
as of December 31, 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, Simon Quick Advisors
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)

 
December 31, 2019
 
December 31, 2018
 
 
 
 
 
Unaudited
 
 
Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
1,152,684

 
$
1,065,099

Buildings and improvements
9,308,481

 
7,995,203

Tenant improvements and lease intangibles
905,753

 
840,653

Property under development
111,715

 
129,753

Investment in real estate, gross
11,478,633

 
10,030,708

Less: accumulated depreciation and amortization
(2,518,415
)
 
(2,246,887
)
Investment in real estate, net
8,960,218

 
7,783,821

Ground lease right-of-use asset
7,479

 

Cash and cash equivalents
153,683

 
146,227

Tenant receivables
5,302

 
4,371

Deferred rent receivables
134,968

 
124,834

Acquired lease intangible assets, net
6,407

 
3,251

Interest rate contract assets
22,381

 
73,414

Investment in unconsolidated Funds
42,442

 
111,032

Other assets
16,421

 
14,759

Total assets
$
9,349,301

 
$
8,261,709

 
 
 
 
Liabilities
 
 
 

Secured notes payable and revolving credit facility, net
$
4,619,058

 
$
4,134,030

Ground lease liability
10,882

 

Interest payable, accounts payable and deferred revenue
131,410

 
130,154

Security deposits
60,923

 
50,733

Acquired lease intangible liabilities, net
52,367

 
52,569

Interest rate contract liabilities
54,616

 
1,530

Dividends payable
49,111

 
44,263

Total liabilities
4,978,367

 
4,413,279

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,754

 
1,702

Additional paid-in capital
3,486,356

 
3,282,316

Accumulated other comprehensive (loss) income
(17,462
)
 
53,944

Accumulated deficit
(758,576
)
 
(935,630
)
Total Douglas Emmett, Inc. stockholders' equity
2,712,072

 
2,402,332

Noncontrolling interests
1,658,862

 
1,446,098

Total equity
4,370,934

 
3,848,430

Total liabilities and equity
$
9,349,301

 
$
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(1) 
(Unaudited; in thousands, except per share data)

 
Three Months Ended December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Office rental
 

 
 

 
 

 
 

Rental revenues and tenant recoveries(2)
$
180,389

 
$
170,828

 
$
694,315

 
$
661,147

Parking and other income
30,987

 
28,955

 
122,440

 
116,784

Total office revenues
211,376

 
199,783

 
816,755

 
777,931

 
 
 
 
 
 
 
 
Multifamily rental
 
 
 
 
 
 
 
Rental revenues
29,642

 
24,466

 
110,697

 
95,423

Parking and other income
2,875

 
2,015

 
9,230

 
7,962

Total multifamily revenues
32,517

 
26,481

 
119,927

 
103,385

 
 
 
 
 
 
 
 
Total revenues
243,893

 
226,264

 
936,682

 
881,316

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Office expenses
67,971

 
64,289

 
264,482

 
252,751

Multifamily expenses
9,287

 
7,368

 
33,681

 
28,116

General and administrative expenses
9,859

 
10,197

 
38,068

 
38,641

Depreciation and amortization
108,867

 
89,920

 
357,743

 
309,864

Total operating expenses
195,984

 
171,774

 
693,974

 
629,372

 
 
 
 
 
 
 
 
Operating income
47,909

 
54,490

 
242,708

 
251,944

 
 
 
 
 
 
 
 
Other income
2,911

 
3,041

 
11,653

 
11,414

Other expenses
(1,908
)
 
(2,364
)
 
(7,216
)
 
(7,744
)
Income from unconsolidated Funds
1,334

 
1,878

 
6,923

 
6,400

Interest expense
(35,555
)
 
(33,513
)
 
(143,308
)
 
(133,402
)
Gain from consolidation of JV
307,938

 

 
307,938

 

Net income
322,629

 
23,532

 
418,698

 
128,612

Less:  Net income attributable to noncontrolling interests
(44,071
)
 
2,103

 
(54,985
)
 
(12,526
)
Net income attributable to common stockholders
$
278,558

 
$
25,635

 
$
363,713

 
$
116,086

 
 
 
 
 
 
 
 
Net income per common share - basic
$
1.58

 
$
0.15

 
$
2.09

 
$
0.68

Net income per common share - diluted
$
1.58

 
$
0.15

 
$
2.09

 
$
0.68

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.28

 
$
0.26

 
$
1.06

 
$
1.01

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
175,356

 
170,121

 
173,358

 
169,893

Weighted average shares of common stock outstanding - diluted
175,356

 
170,121

 
173,358

 
169,902

_______________________________________________________________________
(1)
On November 21, 2019, we restructured one of our previously unconsolidated funds, after which it is treated as a consolidated JV. The results of the consolidated JV are included in our operating results from November 21, 2019 (before November 21, 2019, our share of the Fund's net income was included in the line item Income from unconsolidated Funds). See the executive summary for a description of the transaction.
(2)
Rental revenues and tenant recoveries include tenant recoveries of $15.8 million and $15.6 million for the three months ended December 31, 2019 and 2018, and $62.0 million and $57.7 million for the years ended December 31, 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 December 31,
 
Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
278,558

 
$
25,635

 
$
363,713

 
$
116,086

Depreciation and amortization of real estate assets
108,867

 
89,920

 
357,743

 
309,864

Net income attributable to noncontrolling interests
44,071

 
(2,103
)
 
54,985

 
12,526

Adjustments attributable to unconsolidated Funds(2)
2,630

 
4,320

 
15,815

 
16,702

Adjustments attributable to consolidated JVs(2)
(16,162
)
 
(14,964
)
 
(59,505
)
 
(55,448
)
Gain from consolidation of JV
(307,938
)
 

 
(307,938
)
 

FFO
$
110,026

 
$
102,808

 
$
424,813

 
$
399,730

 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO
$
110,026

 
$
102,808

 
$
424,813

 
$
399,730

Straight-line rent
(836
)
 
(6,098
)
 
(10,134
)
 
(18,813
)
Net accretion of acquired above- and below-market leases
(3,745
)
 
(4,782
)
 
(16,264
)
 
(22,025
)
Loan costs
2,955

 
1,956

 
16,213

 
8,087

Recurring capital expenditures, tenant improvements and capitalized leasing expenses(3)
(25,355
)
 
(22,918
)
 
(77,321
)
 
(88,461
)
Non-cash compensation expense
5,124

 
7,392

 
18,288

 
22,298

Adjustments attributable to unconsolidated Funds(2)
(1,287
)
 
(1,701
)
 
(6,577
)
 
(7,422
)
Adjustments attributable to consolidated JVs(2)
3,652

 
3,622

 
16,412

 
16,328

AFFO
$
90,534

 
$
80,279

 
$
365,430

 
$
309,722

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - diluted
175,356

 
170,121

 
173,358

 
169,902

Weighted average units in our operating partnership outstanding
28,852

 
28,142

 
28,724

 
28,154

Weighted average fully diluted shares outstanding
204,208

 
198,263

 
202,082

 
198,056

 
 
 
 
 
 
 
 
Net income per common share - diluted
$
1.58

 
$
0.15

 
$
2.09

 
$
0.68

FFO per share - fully diluted
$
0.54

 
$
0.52

 
$
2.10

 
$
2.02

Dividends paid per share(4)
$
0.26

 
$
0.25

 
$
1.04

 
$
1.00

______________________________________________
(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 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 JVs.
(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 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 December 31,
 
 
 
2019
 
2018
 
 
Office Statistics
 
 
 
 
 
Number of properties
60

 
60

 
 
Rentable square feet (in thousands)
15,501

 
15,461

 
 
Ending % leased
93.5
%
 
92.2
%
 
 
Ending % occupied
91.6
%
 
90.7
%
 
 
Quarterly average % occupied
91.3
%
 
90.3
%
 
 
 
 
 
 
 
 
Multifamily Statistics
 
 
 
 
 
Number of properties
9

 
9

 
 
Number of units
2,640

 
2,640

 
 
Ending % leased
98.1
%
 
99.5
%
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
% Favorable
 
 
 
2019
 
2018
 
(Unfavorable)
 
 
Net Operating Income (NOI)
 
 
 
 
 
 
 
Office revenues
$
191,624

 
$
186,345

 
2.8
 %
 
 
Office expenses
(60,576
)
 
(58,983
)
 
(2.7
)%
 
 
Office NOI
131,048

 
127,362

 
2.9
 %
 
 
 
 
 
 
 
 
 
 
Multifamily revenues
21,274

 
21,298

 
(0.1
)%
 
 
Multifamily expenses
(5,660
)
 
(5,521
)
 
(2.5
)%
 
 
Multifamily NOI
15,614

 
15,777

 
(1.0
)%
 
 
 
 
 
 
 
 
 
 
Total NOI
$
146,662

 
$
143,139

 
2.5
 %
 
 
 
 
 
 
 
 
 
 
Cash Net Operating Income (NOI)
 
 
 
 
 
 
 
Office cash revenues
$
188,418

 
$
176,954

 
6.5
 %
 
 
Office cash expenses
(60,576
)
 
(58,983
)
 
(2.7
)%
 
 
Office cash NOI
127,842

 
117,971

 
8.4
 %
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
21,271

 
21,294

 
(0.1
)%
 
 
Multifamily cash expenses
(5,660
)
 
(5,521
)
 
(2.5
)%
 
 
Multifamily cash NOI
15,611

 
15,773

 
(1.0
)%
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
143,453

 
$
133,744

 
7.3
 %
 
 
 
 
 
 
 
 
 
_________________________________________________
(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.

9                     Go to Table of Contents

402748822_bluelogo_headeraa10.jpg
 
Financial Results

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


 
Three Months Ended December 31,
 
2019
 
2018
 
 
 
 
Same property office cash revenues
$
188,418

 
$
176,954

Non-cash adjustments per definition of NOI
3,206

 
9,391

Same property office revenues
191,624

 
186,345

 
 
 
 
Same property office expenses
(60,576
)
 
(58,983
)
 
 
 
 
Office NOI
131,048

 
127,362

 
 
 
 
Same property multifamily cash revenues
21,271

 
21,294

Non-cash adjustments per definition of NOI
3

 
4

Same property multifamily revenues
21,274

 
21,298

 
 
 
 
Same property multifamily expenses
(5,660
)
 
(5,521
)
 
 
 
 
Multifamily NOI
15,614

 
15,777

 
 
 
 
Same Property NOI
146,662

 
143,139

Non-comparable office revenues
19,752

 
13,438

Non-comparable office expenses
(7,395
)
 
(5,306
)
Non-comparable multifamily revenues
11,243

 
5,183

Non-comparable multifamily expenses
(3,627
)
 
(1,847
)
NOI
166,635

 
154,607

General and administrative expenses
(9,859
)
 
(10,197
)
Depreciation and amortization
(108,867
)
 
(89,920
)
Operating income
47,909

 
54,490

Other income
2,911

 
3,041

Other expenses
(1,908
)
 
(2,364
)
Income from unconsolidated Funds
1,334

 
1,878

Interest expense
(35,555
)
 
(33,513
)
Gain from consolidation of JV
307,938

 

Net income
322,629

 
23,532

Less: Net income attributable to noncontrolling interests
(44,071
)
 
2,103

Net income attributable to common stockholders
$
278,558

 
$
25,635









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 JVs & Funds
(Unaudited, in thousands)

 
Three Months Ended December 31, 2019
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated JVs(1)(2)
 
Unconsolidated Funds(1)(3)
 
 
 
 
 
 
Revenues
$
187,711

 
$
56,182

 
$
13,712

Office and multifamily operating expenses
$
58,952

 
$
18,306

 
$
4,530

Straight-line rent
$
146

 
$
690

 
$
5

Above/below-market lease revenue
$
893

 
$
2,852

 
$
(3
)
Cash NOI attributable to outside interests(4)
$

 
$
20,344

 
$
3,557

Our share of cash NOI(5)
$
127,720

 
$
13,990

 
$
5,623

 
 
 
 
 
 
 
Year Ended December 31, 2019
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated JVs(1)(2)
 
Unconsolidated Funds(1)(3)
 
 
 
 
 
 
Revenues
$
747,448

 
$
189,234

 
$
75,952

Office and multifamily operating expenses
$
235,827

 
$
62,336

 
$
25,656

Straight-line rent
$
4,664

 
$
5,470

 
$
798

Above/below-market lease revenue
$
5,060

 
$
11,204

 
$
(12
)
Cash NOI attributable to outside interests(4)
$

 
$
70,978

 
$
17,806

Our share of cash NOI(5)
$
501,897

 
$
39,246

 
$
31,704

______________________________________________________
(1)
On November 21, 2019, we restructured one of our previously unconsolidated funds, after which it is treated as a consolidated JV. The results of the consolidated JV are included in the Consolidated JVs column from November 21, 2019 (before November 21, 2019, the unconsolidated Fund's results were included in the Unconsolidated Funds column). See the executive summary for a description of the transaction.
(2)
Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for four consolidated JVs (three consolidated JVs during the period before November 21, 2019). We manage our JVs and own a weighted average interest of approximately 46% in them based on square footage (27% during the period before November 21, 2019). The JVs own a combined seventeen Class A office properties totaling 4.3 million square feet and one residential property with 350 apartments in our submarkets (eleven Class A properties totaling 2.8 million square feet and one residential property with 350 apartments during the period before November 21, 2019). 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.
(3)
Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for one unconsolidated Fund (three unconsolidated Funds during the period before November 21, 2019). We manage our remaining Fund in which we own an interest of approximately 30% (three Funds with a weighted average ownership interest of 63% based on square footage during the period before November 21, 2019). The Fund owns two Class A office properties totaling 0.4 million square feet in our submarkets (the Funds owned a combined eight Class A office properties totaling 1.8 million square feet during the period before November 21, 2019). 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.  
(4)
Represents the share of Cash NOI allocable under the applicable agreements to interests other than our Fully Diluted Shares.
(5)
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.

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Financial Results

 
Loans
(As of December 31, 2019, unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity Date(1)
 
Principal Balance
(In Thousands)
 
Our Share(2)
(In Thousands)
 
Effective
Rate(3)
 
Swap Maturity Date
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Wholly-Owned Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
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
(4)
102,400

 
102,400

 
2.84%
 
3/1/2023
 
 
8/15/2026
(5)
415,000

 
415,000

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

 
400,000

 
2.44%
 
9/1/2024
 
 
9/26/2026
(6)
200,000

 
200,000

 
2.77%
 
10/1/2024
 
 
11/1/2026
(7)
400,000

 
400,000

 
2.18%
 
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)
30,864

 
30,864

 
4.55%
 
N/A
 
 
8/21/2023
(10)

 

 
LIBOR + 1.15%
 
N/A
 
 
Subtotal
 
3,113,264

 
3,113,264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated JVs
 
 
 
 
 
 
 
 
 
 
 
 
 
2/28/2023
 
580,000

 
174,000

 
2.37%
 
3/1/2021
 
 
7/1/2024
 
400,000

 
356,000

 
3.44%
 
7/1/2022
 
 
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)
$
4,653,264

 
$
3,755,264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Fund
 
 
 
 
 
 
 
 
 
 
 
 
 
3/1/2023
 
$
110,000

 
$
32,887

 
2.30%
 
3/1/2021
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
 
 
 
$
3,788,151

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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. Certain of our loans require us to pay down the loan if necessary for the properties involved to meet minimum financial thresholds, although we have never had to make such a payment.
(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 December 31, 2019. Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs.
(4)
Effective rate will decrease to 2.76% on March 2, 2020.
(5)
Effective rate will increase to 3.07% on April 1, 2020.
(6)
Effective rate will decrease to 2.36% on July 1, 2020.
(7)
Effective rate will increase to 2.31% on July 1, 2021.
(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 $4.62 billion is calculated by adding $6.7 million of unamortized loan premium and deducting $40.9 million of unamortized deferred loan costs from our total consolidated loans of $4.65 billion.
 
 
 
 
 
Statistics for consolidated loans with interest fixed under the terms of the loan or a swap
 
 
 
 
 
 
Principal balance (in billions)
$4.65
 
 
Weighted average remaining life (including extension options)
6.1 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.

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402748822_bluelogo_headeraa10.jpg
 
Portfolio Data


Office Portfolio Summary
Total Office Portfolio as of December 31, 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

 
6,790,777

 
21,257,083
 
43.4

 
 
Honolulu(3)
 
4

 
1,562,235

 
4,872,939
 
32.1

 
 
Total / Average
 
72

 
18,345,944

 
63,488,348
 
39.3
%
 
 
 
 
 
 
 
 
 
 
 
 
_________________________________________________
(1)
The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2019 fourth 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
 
Our 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

 
3,488,995

 
53.4

 
 
 
Warner Center/Woodland Hills
 
3

 
2,845,577

 
37.1

 
 
 
Burbank
 
1

 
456,205

 
6.5

 
 
Honolulu
 
Honolulu(3)
 
4

 
1,562,235

 
32.1

 
 
 
 
Total / Weighted Average
 
72

 
18,345,944

 
39.3
%
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________
(3)
In calculating market share, we adjusted the rentable square footage by (i) removing approximately 202,000 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 December 31, 2019
Annualized Rent by Region
 
402748822_chart-570d9548cf3e5b83983a10.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
 
93.7
%
 
$
470,576,030

 
$
52.58

 
$
4.38

 
 
   Valley
 
92.6

 
214,855,878

 
35.55

 
2.96

 
 
Honolulu
 
94.3

 
48,661,931

 
34.96

 
2.91

 
 
Total / Weighted Average
 
93.3
%
 
$
734,093,839

 
$
44.80

 
$
3.73

 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________
(1)
Regional data reflects the following underlying submarket data:
 
 
 
 
 
 
 
 
 
 
Region
 
Submarket
 
Percent
Leased
 
Monthly Rent Per Leased Square Foot(2)
 
 
 
 
 
 
 
 
 
 
 
Westside
 
Beverly Hills
 
96.4
%
 
$
4.38

 
 
 
Brentwood
 
91.0

 
3.83

 
 
 
Century City
 
93.7

 
4.24

 
 
 
Olympic Corridor
 
93.6

 
3.37

 
 
 
Santa Monica
 
95.2

 
6.23

 
 
 
Westwood
 
92.5

 
4.25

 
 
Valley
 
Burbank
 
100.0

 
4.28

 
 
 
Sherman Oaks/Encino
 
94.3

 
3.13

 
 
 
Warner Center/Woodland Hills
 
89.4

 
2.49

 
 
Honolulu
 
Honolulu
 
94.3

 
2.91

 
 
 
 
Weighted Average
 
93.3
%
 
$
3.73

 
 
 
 
 
 
 
 
 
 

(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 December 31, 2019
$
0.09

 
 
Year ended December 31, 2019
$
0.27

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

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402748822_bluelogo_headeraa10.jpg
 
Portfolio Data


Office Lease Diversification
Total Office Portfolio as of December 31, 2019



402748822_leasediversificationgrapha02.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
 
1,406

 
47.9
%
 
1,961,349

 
12.0
%
 
$
86,387,301

 
11.8
%
 
 
2,501-10,000
 
1,150

 
39.2

 
5,647,365

 
34.5

 
248,326,228

 
33.8

 
 
10,001-20,000
 
243

 
8.3

 
3,357,323

 
20.5

 
144,200,267

 
19.7

 
 
20,001-40,000
 
99

 
3.4

 
2,722,556

 
16.6

 
121,979,833

 
16.6

 
 
40,001-100,000
 
32

 
1.1

 
1,789,354

 
10.9

 
89,728,037

 
12.2

 
 
Greater than 100,000
 
4

 
0.1

 
908,539

 
5.5

 
43,472,173

 
5.9

 
 
Total for all leases
 
2,934

 
100.0
%
 
16,386,486

 
100.0
%
 
$
734,093,839

 
100.0
%
 
 
 
 
 
 
 






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

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402748822_bluelogo_headeraa10.jpg
 
Portfolio Data


Largest Office Tenants
Total Office Portfolio as of December 31, 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
%
 
$
23,892,512

 
3.2
%
 
 
UCLA(3)
 
26

 
10

 
 2020-2027
 
335,996

 
1.8

 
16,964,929

 
2.3

 
 
William Morris Endeavor(4)
 
2

 
1

 
2022-2027
 
213,539

 
1.2

 
12,415,744

 
1.7

 
 
Morgan Stanley(5)
 
5

 
5

 
2022-2027
 
145,488

 
0.8

 
9,340,152

 
1.3

 
 
Equinox Fitness(6)
 
5

 
5

 
2024-2033
 
181,177

 
1.0

 
8,744,891

 
1.2

 
 
Total
 
41

 
24

 
 
 
1,344,975

 
7.3
%
 
$
71,358,228

 
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: 36,000 square feet in 2020; 72,000 square feet in 2021; 55,000 square feet in 2022; 46,000 square feet in 2023; 10,000 square feet in 2024; 49,000 square feet in 2025; and 67,000 square feet in 2027. Tenant has options to terminate 31,000 square feet in 2020; 16,000 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

402748822_bluelogo_headeraa10.jpg
 
Portfolio Data

 
Office Industry Diversification
Total Office Portfolio as of December 31, 2019

Percentage of Annualized Rent by Tenant Industry