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Section 1: 8-K (8-K)

Document


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 13, 2018

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Douglas Emmett, Inc.
(Exact name of registrant as specified in its charter)


Maryland
1-33106
20-3073047
(State or other jurisdiction of incorporation)
Commission file number
(I.R.S. Employer identification No.)

808 Wilshire Boulevard, Suite 200, 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):
 
o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))











Item 2.02 Results of Operations and Financial Condition

On February 13, 2018, Douglas Emmett, Inc. released its financial results for the quarter ended December 31, 2017 by posting to its website its Fourth Quarter 2017 Earnings Results and Operating Information package (attached as Exhibit 99.1).  The information contained in this report on Form 8-K, including the attached Exhibit, 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 exhibit is furnished with this Current Report on Form 8-K:

Exhibit No.    Description

99.1    Fourth Quarter 2017 Earnings Results and Operation Information



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 13, 2018
By:
/s/ MONA M. GISLER
 
 
 
Mona M. Gisler
 
 
 
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 3,380 apartment units (excluding our residential development pipeline) in the premier coastal submarkets of Los Angeles and Honolulu.
Quarterly Results: 2017 Fourth Quarter compared to 2016 Fourth Quarter
Net income attributable to common stockholders increased by 49.9% to $29.5 million.
FFO increased by 13.7% to $95.4 million, or $0.49 per fully diluted share.
AFFO increased by 21.8% to $76.1 million.
Same property Cash NOI increased by 4.8% to $109.5 million.
Annual Results: 2017 compared to 2016
Net income attributable to common stockholders increased by 10.6% to $94.4 million. Excluding $14.3 million of gains from investment sales recorded in 2016, net income attributable to common stockholders increased by 29.4% to $94.4 million.
FFO increased by 8.9% to $354.7 million, or $1.90 per fully diluted share.
AFFO increased by 10.9% to $288.4 million.
Same property Cash NOI increased by 5.0% to $428.1 million.
Office: The leased and occupancy rates for our total office portfolio increased to 91.4% and 89.8%, respectively, from the prior quarter. We signed 699,000 square feet of office leases during the fourth quarter. Comparing office leases we signed during the fourth quarter to the expiring leases covering the same space, straight-line rents increased 28.1% and starting cash rents increased 12.2% compared to expiring cash rents.
Multifamily: Our in place multifamily rents increased by over 3% year-over-year and our leased rate increased by 30 basis points to 98.8% from the prior quarter.
Acquisition: In December 2017, we increased our market share in our submarkets to 28% with the acquisition of a 146,300 square foot Class A office property in Beverly Hills for $143.6 million. To fund the purchase, we issued 2.6 million OP units, used a small amount of cash on hand, and assumed a $32.3 million non-recourse loan that matures in June 2038 and bears interest at 4.55%.
Debt:
In December 2017, a consolidated joint venture that we manage, and in which we own a 20% interest, borrowed $400 million under a secured, non-recourse interest-only loan maturing in December 2024. The loan bears interest at LIBOR + 1.30%, which was effectively fixed at 3.47% for five years through interest rate swaps. The loan is secured by five office properties owned by the joint venture. The joint venture used a portion of the proceeds to pay off a $365.5 million acquisition loan facility.
In February 2018, we borrowed $335 million under a secured, non-recourse interest-only loan maturing in March 2025. The loan bears interest at LIBOR + 1.3%, which was effectively fixed at 3.84% for five years through interest rate swaps. The loan is secured by a wholly-owned office property. We used the proceeds from the loan and our credit line to pay off two loans totaling $426 million scheduled to mature in 2019.
With the exception of a loan on our development project at Moanalua, our next term loan maturity is four years away in 2022.
Development: During the fourth quarter, we leased the first 60 new units at our Moanalua apartment community. We expect to start construction at our 376 unit apartment tower in Brentwood over the next few months. See page 22 for more information.
Dividends: We increased our quarterly cash dividend by 9% to $0.25 per common share, or $1.00 on an annualized basis. On January 15, 2018, we paid a quarterly cash dividend to our shareholders of record on December 29, 2017.
Guidance: We are initiating 2018 full year guidance for Net Income Per Common Share - diluted of $0.65 to $0.71 and for FFO of $1.97 to $2.03 fully diluted. See page 23 for more information.

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 Fourth Quarter 2017 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.  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 outstanding indebtedness; 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 Securities and Exchange Commission. Although we believe that our assumptions 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 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 December 31, 2017

 
Office Portfolio
 
 
 
 
 
 
 
 
 
Consolidated
 
Total
 
 
Properties
63

 
71

 
 
Rentable square feet (in thousands)
16,539

 
18,369

 
 
Leased rate
91.5
%
 
91.4
%
 
 
Occupancy rate
89.9
%
 
89.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multifamily Portfolio
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
Properties
 
 
10

 
 
Units
 
 
3,380

 
 
Leased rate
 
 
98.8
%
 
 
 
 
 
 
 

 
Market Capitalization (in thousands, except price per share)
 
 
 
 
 
 
 
Fully diluted shares outstanding as of December 31, 2017
 
197,904

 
 
Common stock closing price per share (NYSE:DEI)
 
$
41.06

 
 
Equity capitalization
 
$
8,125,920

 
 
 
 
 
 

 
Net Debt (in thousands)(1)
 
 
 
 
 
 
 
 
 
Consolidated
 
Our Share
 
 
 
 
 
 
 
 
$
4,152,308

 
$
3,730,761

 
 
Less: cash and cash equivalents
(176,645
)
 
(77,264
)
 
 
Net debt
$
3,975,663

 
$
3,653,497

 
 
 
 
 
 
 

 
Leverage Ratio (in thousands, except percentages)
 
 
 
 
 
 
 
Pro forma enterprise value
 
$
11,779,417

 
 
Our share of net debt to pro forma enterprise value
 
31
%
 
 
 
 
 
 

 
AFFO Payout Ratio
 
 
 
 
 
 
 
Three Months ended December 31, 2017
 
59.0
%
 
 
 
 
 
 
_______________________________________
(1)
See page 12 for details and a reconciliation to the consolidated debt on our balance sheet.


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, 2017
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Company Overview


Board of Directors and Executive Officers
as of December 31, 2017


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
President and Chief Executive Officer, Geisinger Health System
Virginia A. McFerran
President and Chief Executive Officer, Optum Analytics
Thomas E. O’Hern
Senior Executive Vice President, CFO & Treasurer, Macerich Company
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
Mona M. Gisler
Chief Financial Officer
Kevin A. Crummy
Chief Investment Officer


CORPORATE OFFICES
808 Wilshire Boulevard, Suite 200, 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
smcelhinney@douglasemmett.com

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Financial Results


Consolidated Balance Sheets
(in thousands)

 
December 31, 2017
 
December 31, 2016
 
Unaudited
 
Audited
Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
1,062,345

 
$
1,022,340

Buildings and improvements
7,886,201

 
7,221,124

Tenant improvements and lease intangibles
756,190

 
696,197

Property under development
124,472

 
58,459

Investment in real estate, gross
9,829,208

 
8,998,120

Less: accumulated depreciation and amortization
(2,012,752
)
 
(1,789,678
)
Investment in real estate, net
7,816,456

 
7,208,442

Cash and cash equivalents
176,645

 
112,927

Tenant receivables, net
2,980

 
2,165

Deferred rent receivables, net
106,021

 
93,165

Acquired lease intangible assets, net
4,293

 
5,147

Interest rate contract assets
60,069

 
35,656

Investment in unconsolidated real estate funds
107,735

 
144,289

Other assets
18,442

 
11,914

Total assets
$
8,292,641

 
$
7,613,705

 
 
 
 
Liabilities
 
 
 

Secured notes payable and revolving credit facility, net
$
4,117,390

 
$
4,369,537

Interest payable, accounts payable and deferred revenue
103,947

 
75,229

Security deposits
50,414

 
45,990

Acquired lease intangible liabilities, net
75,635

 
67,191

Interest rate contract liabilities
807

 
6,830

Dividends payable
42,399

 
34,857

Total liabilities
4,390,592

 
4,599,634

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,696

 
1,515

Additional paid-in capital
3,272,539

 
2,725,157

Accumulated other comprehensive income
43,099

 
15,156

Accumulated deficit
(879,810
)
 
(820,685
)
Total Douglas Emmett, Inc. stockholders' equity
2,437,524

 
1,921,143

Noncontrolling interests
1,464,525

 
1,092,928

Total equity
3,902,049

 
3,014,071

Total liabilities and equity
$
8,292,641

 
$
7,613,705




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 December 31,
 
Year Ended
December 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Office rental
 

 
 

 
 

 
 

Rental revenues
$
143,172

 
$
131,814

 
$
552,846

 
$
498,214

Tenant recoveries
14,301

 
12,736

 
54,006

 
46,847

Parking and other income
27,565

 
26,000

 
108,694

 
100,572

Total office revenues
185,038

 
170,550

 
715,546

 
645,633

 
 
 
 
 
 
 
 
Multifamily rental
 
 
 
 
 
 
 
Rental revenues
22,279

 
22,362

 
89,039

 
89,996

Parking and other income
1,873

 
1,731

 
7,467

 
6,922

Total multifamily revenues
24,152

 
24,093

 
96,506

 
96,918

 
 
 
 
 
 
 
 
Total revenues
209,190

 
194,643

 
812,052

 
742,551

 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Office expenses
58,393

 
56,356

 
233,633

 
214,546

Multifamily expenses
6,535

 
5,995

 
24,401

 
23,317

General and administrative
9,045

 
9,384

 
36,234

 
34,957

Depreciation and amortization
70,620

 
66,967

 
276,761

 
248,914

Total operating expenses
144,593

 
138,702

 
571,029

 
521,734

 
 
 
 
 
 
 
 
Operating income
64,597

 
55,941

 
241,023

 
220,817

 
 
 
 
 
 
 
 
Other income
2,560

 
2,232

 
9,712

 
8,759

Other expenses
(1,881
)
 
(1,649
)
 
(7,037
)
 
(9,477
)
Income, including depreciation, from unconsolidated funds
1,478

 
2,248

 
5,905

 
7,812

Interest expense
(34,768
)
 
(36,306
)
 
(145,176
)
 
(146,148
)
Income before gains
31,986

 
22,466

 
104,427

 
81,763

Gains on sales of investments in real estate

 

 

 
14,327

Net income
31,986

 
22,466

 
104,427

 
96,090

Less:  Net income attributable to noncontrolling interests
(2,450
)
 
(2,765
)
 
(9,984
)
 
(10,693
)
Net income attributable to common stockholders
$
29,536

 
$
19,701

 
$
94,443

 
$
85,397

 
 
 
 
 
 
 
 
Net income per common share - basic
$
0.17

 
$
0.13

 
$
0.58

 
$
0.57

Net income per common share - diluted
$
0.17

 
$
0.13

 
$
0.58

 
$
0.55

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
169,521

 
151,446

 
160,905

 
149,299

Weighted average shares of common stock outstanding - diluted
169,562

 
154,052

 
161,230

 
153,190




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,
 
2017
 
2016
 
2017
 
2016
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
29,536

 
$
19,701

 
$
94,443

 
$
85,397

Depreciation and amortization of real estate assets
70,620

 
66,967

 
276,761

 
248,914

Net income attributable to noncontrolling interests
2,450

 
2,765

 
9,984

 
10,693

Adjustments attributable to unconsolidated funds(2)
4,080

 
4,081

 
16,220

 
16,016

 Adjustments attributable to consolidated joint ventures(2)
(11,311
)
 
(9,635
)
 
(42,674
)
 
(20,961
)
Gains on sales of investments in real estate

 

 

 
(14,327
)
FFO
$
95,375

 
$
83,879

 
$
354,734

 
$
325,732

 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO
$
95,375

 
$
83,879

 
$
354,734

 
$
325,732

Straight-line rent
(3,843
)
 
(2,685
)
 
(12,855
)
 
(13,600
)
Net accretion of acquired above- and below-market leases
(4,716
)
 
(4,783
)
 
(18,006
)
 
(18,198
)
Loan costs
4,000

 
2,565

 
11,443

 
8,853

Recurring capital expenditures, tenant improvements and leasing commissions
(20,806
)
 
(24,144
)
 
(73,025
)
 
(64,515
)
Non-cash compensation expense
4,998

 
5,217

 
18,461

 
17,448

Adjustments attributable to unconsolidated funds(2)
(1,568
)
 
(1,070
)
 
(5,113
)
 
(5,990
)
Adjustments attributable to consolidated joint ventures(2)
2,650

 
3,514

 
12,788

 
10,385

AFFO
$
76,090

 
$
62,493

 
$
288,427

 
$
260,115

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - diluted
169,562

 
154,052

 
161,230

 
153,190

Weighted average units in our operating partnership outstanding
25,836

 
25,920

 
25,796

 
26,426

Weighted average fully diluted shares outstanding
195,398

 
179,972

 
187,026

 
179,616

 
 
 
 
 
 
 
 
Net income per common share - diluted
$
0.17

 
$
0.13

 
$
0.58

 
$
0.55

FFO per share - fully diluted
$
0.49

 
$
0.47

 
$
1.90

 
$
1.81

Dividends declared per share
$
0.25

 
$
0.23

 
$
0.94

 
$
0.89

______________________________________________
(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.



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)
(Unaudited; in thousands, except statistics)
 
 
 
 
 
 
 
 
As of December 31,
 
 
 
2017
 
2016
 
 
Office Statistics
 
 
 
 
 
Number of properties
51

 
51

 
 
Rentable square feet (in thousands)
12,989

 
12,941

 
 
Ending % leased
92.2
%
 
93.0
%
 
 
Ending % occupied
90.9
%
 
90.8
%
 
 
Quarterly average % occupied
90.5
%
 
90.7
%
 
 
 
 
 
 
 
 
Multifamily Statistics
 
 
 
 
 
Number of properties
9

 
9

 
 
Number of units
2,640

 
2,640

 
 
Ending % leased
99.3
%
 
99.4
%
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
% Favorable
 
 
 
2017
 
2016
 
(Unfavorable)
 
 
Net Operating Income (NOI)(1)
 
 
 
 
 
 
 
Office revenues
$
139,781

 
$
134,711

 
3.8
 %
 
 
Office expenses
(43,286
)
 
(43,861
)
 
1.3
 %
 
 
Office NOI
96,495

 
90,850

 
6.2
 %
 
 
 
 
 
 
 
 
 
 
Multifamily revenues (2)
20,514

 
20,463

 
0.2
 %
 
 
Multifamily expenses
(5,271
)
 
(4,994
)
 
(5.5
)%
 
 
Multifamily NOI
15,243

 
15,469

 
(1.5
)%
 
 
 
 
 
 
 
 
 
 
Total NOI
$
111,738

 
$
106,319

 
5.1
 %
 
 
 
 
 
 
 
 
 
 
Cash Net Operating Income (NOI)(1)
 
 
 
 
 
 
 
Office cash revenues
$
137,590

 
$
133,159

 
3.3
 %
 
 
Office cash expenses
(43,299
)
 
(43,874
)
 
1.3
 %
 
 
Office cash NOI
94,291

 
89,285

 
5.6
 %
 
 
 
 
 
 
 
 
 
 
Multifamily cash revenues
20,507

 
20,174

 
1.7
 %
 
 
Multifamily cash expenses
(5,271
)
 
(4,994
)
 
(5.5
)%
 
 
Multifamily cash NOI
15,236

 
15,180

 
0.4
 %
 
 
 
 
 
 
 
 
 
 
Total Cash NOI
$
109,527

 
$
104,465

 
4.8
 %
 
 
 
 
 
 
 
 
 
_________________________________________________
(1)
See page 10 for a reconciliation to net income attributable to common stockholders.
(2) The 2016 period includes $280,000 in non-cash revenue from the amortization of below-market lease intangibles from our IPO related to our pre-1999 residential units. The completion of that amortization in the fourth quarter of 2016 reduced 2017 multifamily revenue by 1.4%.

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 December 31,
 
2017
 
2016
 
 
 
 
Same property office cash revenues
$
137,590

 
$
133,159

Non cash adjustments per definition of NOI
2,191

 
1,552

Same property office revenues
139,781

 
134,711

 
 
 
 
Same property office cash expenses
(43,299
)
 
(43,874
)
Non cash adjustments per definition of NOI
13

 
13

Same property office expenses
(43,286
)
 
(43,861
)
 
 
 
 
Office NOI
96,495

 
90,850

 
 
 
 
Same property multifamily cash revenues
20,507

 
20,174

Non cash adjustments per definition of NOI
7

 
289

Same property multifamily revenues
20,514

 
20,463

 
 
 
 
Same property multifamily expenses
(5,271
)
 
(4,994
)
 
 
 
 
Multifamily NOI
15,243

 
15,469

 
 
 
 
Same Property NOI
111,738

 
106,319

Non-comparable office revenues
45,257

 
35,839

Non-comparable office expenses
(15,107
)
 
(12,495
)
Non-comparable multifamily revenues
3,638

 
3,630

Non-comparable multifamily expenses
(1,264
)
 
(1,001
)
NOI
144,262

 
132,292

General and administrative
(9,045
)
 
(9,384
)
Depreciation and amortization
(70,620
)
 
(66,967
)
Operating income
64,597

 
55,941

Other income
2,560

 
2,232

Other expenses
(1,881
)
 
(1,649
)
Income, including depreciation, from unconsolidated real estate funds
1,478

 
2,248

Interest expense
(34,768
)
 
(36,306
)
Net income
31,986

 
22,466

Less: Net income attributable to noncontrolling interests
(2,450
)
 
(2,765
)
Net income attributable to common stockholders
$
29,536

 
$
19,701









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 December 31, 2017
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
168,842

 
$
40,348

 
$
19,347

Office and multifamily operating expenses
$
52,004

 
$
12,924

 
$
6,238

Straight-line rent
$
1,394

 
$
2,449

 
$
150

Above/below-market lease revenue
$
870

 
$
3,846

 
$
7

Cash NOI attributable to outside interests(3)
$

 
$
14,083

 
$
4,796

Our share of cash NOI(4)
$
114,574

 
$
7,046

 
$
8,156

 
 
 
 
 
 
 
Year ended December 31, 2017
 
 
 
 
 
 
 
Wholly-Owned Properties
 
Consolidated Joint Ventures(1)
 
Unconsolidated Funds(2)
 
 
 
 
 
 
Revenues
$
667,282

 
$
144,770

 
$
75,897

Office and multifamily operating expenses
$
210,221

 
$
47,813

 
$
25,976

Straight-line rent
$
4,869

 
$
7,986

 
$
683

Above/below-market lease revenue
$
3,770

 
$
14,236

 
$
48

Cash NOI attributable to outside interests(3)
$

 
$
49,470

 
$
18,080

Our share of cash NOI(4)
$
448,422

 
$
25,265

 
$
31,110

______________________________________________________
(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 28% based on square footage. The JVs own a combined ten Class A office properties totaling 2.8 million square feet 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 60.0% 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

 
Outstanding Loans
(As of December 31, 2017, unaudited and in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity Date(1)
 
Principal Balance
 
Our Share(2)
 
Effective Rate(3)
 
Swap Maturity Date
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Wholly-Owned Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
2/1/2019
(4) 
$
146,974

 
$
146,974

 
4.00%
 
 
 
6/5/2019
(4) 
280,721

 
280,721

 
3.85%
 
 
 
10/1/2019
 
145,000

 
145,000

 
LIBOR + 1.25%
 
 
 
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
 
220,000

 
220,000

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

 
300,000

 
3.46%
 
1/1/2022
 
 
4/1/2025
 
102,400

 
102,400

 
2.84%
 
3/1/2020
 
 
12/1/2025
 
115,000

 
115,000

 
2.76%
 
12/1/2020
 
 
6/1/2027
 
550,000

 
550,000

 
3.16%
 
6/1/2022
 
 
6/1/2038
(4) 
32,213

 
32,213

 
4.55%
 
 
 
8/21/2020
(5) 

 

 
LIBOR + 1.40%
 
 
 
Subtotal
 
3,172,308

 
3,172,308

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Joint Ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
2/28/2023
 
580,000

 
174,000

 
2.37%
 
3/1/2021
 
 
12/20/2024
 
400,000

 
80,000

 
3.47%
 
1/1/2023
 
 
Total Consolidated Loans
(6) 
$
4,152,308

 
$
3,426,308

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
3/1/2023
 
$
110,000

 
$
26,762

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

 
277,691

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

 
$
304,453

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
 
 
 
$
3,730,761

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________________________________________________________
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)
Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule.
(5)
$400 million revolving credit facility. Unused commitment fees range from 0.15% to 0.20%.
(6)
Our consolidated debt on the balance sheet of $4.12 billion is calculated by adding $4.2 million of unamortized loan premium and deducting $39.1 million of unamortized deferred loan costs from our total consolidated loans of $4.15 billion.

 
 
 
 
 
Statistics for Consolidated Loans with interest fixed under the terms of the loan or a swap
 
 
 
 
 
 
Principal balance (in billions)
$4.01
 
 
Weighted average remaining life (including extension options)
5.8 years
 
 
Weighted average remaining fixed interest period
3.3 years
 
 
Weighted average annual interest rate
3.09%
 
 
 
 
 
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

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Portfolio Data


Office Portfolio Summary
Total Office Portfolio as of December 31, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Submarket
 
Number of Properties
 
Rentable Square
Feet
 
Percent of Square Feet of Our Total Portfolio
 
Submarket Rentable Square Feet(1)
 
Our Market Share in Submarket(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills(3)
 
11

 
2,190,450

 
11.9
%
 
7,294,498
 
27.1
%
 
 
Brentwood
 
15

 
2,059,393

 
11.2

 
3,446,845
 
59.7

 
 
Burbank
 
1

 
420,949

 
2.3

 
6,919,450
 
6.1

 
 
Century City
 
3

 
948,362

 
5.2

 
10,064,599
 
9.4

 
 
Honolulu
 
4

 
1,752,753

 
9.5

 
5,088,599
 
34.4

 
 
Olympic Corridor
 
5

 
1,139,058

 
6.2

 
3,408,039
 
33.4

 
 
Santa Monica
 
11

 
1,424,715

 
7.8

 
9,985,872
 
14.3

 
 
Sherman Oaks/Encino
 
12

 
3,476,387

 
18.9

 
6,179,829
 
56.3

 
 
Warner Center/Woodland Hills
 
3

 
2,829,802

 
15.4

 
7,049,002
 
40.1

 
 
Westwood
 
6

 
2,126,962

 
11.6

 
4,721,523
 
45.0

 
 
Total
 
71

 
18,368,831

 
100.0
%
 
64,158,256
 
28.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________
(1)
Source is the 2017 fourth quarter CBRE Marketview report.
(2)
Calculated by dividing Rentable Square Feet by the applicable Submarket Rentable Square Feet.
(3)
Includes a 216,000 square foot property located just outside the Beverly Hills city limits. To calculate our percentage of the submarket, we have eliminated the property from the numerator and the denominator for consistency with third party data.




































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

13                     Go to Table of Contents

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Portfolio Data

 
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of December 31, 2017
Annualized Rent by Submarket
 
392173038_aex99_chart-37621a09.jpg
 
 
 
 
 
 
 
 
 
 
 
Submarket
Percentage Leased(1)
 
Annualized Rent(2)
 
Annualized Rent Per Leased Square Foot(2)
 
Monthly Rent Per Leased Square Foot(2)
 
 
 
 
 
 
 
 
 
 
 
 
Beverly Hills
94.5
%
 
$
95,219,751

 
$
48.31

 
$
4.03

 
 
Brentwood
91.4

 
76,851,458

 
42.27

 
3.52

 
 
Burbank
100.0

 
16,773,977

 
39.85

 
3.32

 
 
Century City
96.0

 
38,535,579

 
45.16

 
3.76

 
 
Honolulu
88.2

 
49,387,255

 
33.51

 
2.79

 
 
Olympic Corridor
93.9

 
36,201,013

 
36.17

 
3.01

 
 
Santa Monica
97.7

 
86,244,081

 
66.82

 
5.57

 
 
Sherman Oaks/Encino
90.3

 
107,636,909

 
35.69

 
2.97

 
 
Warner Center/Woodland Hills
86.7

 
68,617,835

 
28.79

 
2.40

 
 
Westwood
90.0

 
87,277,528

 
47.25

 
3.94

 
 
Total / Weighted Average
91.4
%
 
$
662,745,386

 
41.23

 
3.44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recurring Office Capital Expenditures per Rentable Square Foot
 
 
 
 
For the Three Months ended December 31, 2017
 
$
0.05

 
 
For the Year Ended December 31, 2017
 
$
0.26

 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________
(1)
Includes 304,524 square feet with respect to signed leases not yet commenced at December 31, 2017.
(2)
Excludes signed leases not yet commenced at December 31, 2017.

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

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Portfolio Data


Office Lease Diversification
Total Office Portfolio as of December 31, 2017
392173038_deiofficeleasediver2017q4.jpg
 
 
 
 
 
 
 
Portfolio Tenant Size
 
 
 
Median
 
Average
 
 
 
 
 
 
 
 
Square feet
2,600
 
5,500
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Leases
 
Rentable Square Feet
 
Annualized Rent
 
 
Square Feet Under Lease
 
Number
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,500 or less
 
1,435

 
49.1
%
 
1,990,217

 
12.4
%
 
$
80,989,194

 
12.2
%
 
 
2,501-10,000
 
1,117

 
38.2

 
5,491,428

 
34.2

 
222,059,782

 
33.5

 
 
10,001-20,000
 
237

 
8.1

 
3,250,301

 
20.2

 
133,945,197

 
20.2

 
 
20,001-40,000
 
102

 
3.5

 
2,800,584

 
17.4

 
114,787,147

 
17.3

 
 
40,001-100,000
 
30

 
1.0

 
1,687,015

 
10.5

 
76,192,452

 
11.5

 
 
Greater than 100,000
 
4

 
0.1

 
855,762

 
5.3

 
34,771,614

 
5.3

 
 
Total for all leases
 
2,925

 
100.0
%
 
16,075,307

 
100.0
%
 
$
662,745,386

 
100.0
%
 
 
 
 
 
 
 






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

Largest Office Tenants
Total Office Portfolio as of December 31, 2017

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
2019-2021
 
433,252

 
2.4
%
 
$
17,198,129

 
2.6
%
 
 
UCLA(3)
 
24

 
11

 
2017-2027
 
268,368

 
1.5

 
12,826,744

 
1.9

 
 
William Morris Endeavor(4)
 
1

 
1

 
2027
 
195,131

 
1.1

 
10,737,401

 
1.6

 
 
Morgan Stanley(5)
 
5

 
5

 
2022-2027
 
144,848

 
0.8

 
8,260,106

 
1.2

 
 
Equinox Fitness(6)
 
5

 
5

 
2019-2033
 
180,087

 
1.0

 
7,330,624

 
1.1

 
 
Total
 
38

 
25

 
 
 
1,221,686

 
6.8
%
 
$
56,353,004

 
8.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
(1)
Expiration dates are per lease (expiration dates do not reflect storage and similar leases).
(2)
Square footage expires as follows: 421,000 square feet in 2019, 2,000 square feet in 2020, and 10,000 square feet in 2021.
(3)
Square footage expires as follows: 3,000 square feet in 2017, 14,000 square feet in 2018, 13,000 square feet in 2019, 41,000 square feet in 2020, 41,000 square feet in 2021, 55,000 square feet in 2022, 34,000 square feet in 2023, 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 193,000 square feet in 2022.
(5)
Square footage expires as follows: 15,000 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 16,000 square feet in 2024.
(6)
Square footage expires as follows: 33,000 square feet in 2019, 42,000 square feet in 2020, 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.

16                     Go to Table of Contents

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Portfolio Data

 
Office Industry Diversification
Total Office Portfolio as of December 31, 2017

Percentage of Annualized Rent by Tenant Industry
392173038_aex99_chart-37881a09.jpg
 
 
 
 
 
 
 
 
Industry
 
Number of Leases
 
Annualized Rent as a Percent of Total
 
 
 
 
 
 
 
 
 
Legal
 
569

 
18.3
%
 
 
Financial Services
 
382

 
14.7

 
 
Entertainment
 
210

 
12.3

 
 
Accounting & Consulting
 
372

 
10.9

 
 
Real Estate
 
279

 
10.7

 
 
Health Services
 
375

 
8.1

 
 
Retail
 
200

 
5.9

 
 
Technology
 
129

 
5.0

 
 
Insurance
 
106

 
4.3

 
 
Educational Services
 
49

 
3.2

 
 
Public Administration
 
89

 
2.4

 
 
Advertising
 
67

 
1.9

 
 
Manufacturing & Distribution
 
50

 
1.2

 
 
Other
 
48

 
1.1

 
 
Total
 
2,925

 
100.0
%
 
 
 
 
 
 
 
 
NOTE:  See the "Definitions" section for definitions of certain terms used in this Earnings Package.

17                     Go to Table of Contents

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Portfolio Data

Office Lease Expirations
Total Office Portfolio as of December 31, 2017
392173038_aex99_chart-37968a09.jpg
(1) Average of the percentage of leases expiring at December 31, 2014, 2015, and 2016 with the same remaining duration as the leases for the labeled year had at December 31, 2017. Acquisitions are included in the comparable average commencing in the quarter after the acquisition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year of Lease Expiration
 
Number of Leases
 
Rentable Square Feet
 
Expiring Square Feet as a Percent of Total
 
Annualized Rent at December 31, 2017
 
Annualized Rent as a Percent of Total
 
Annualized Rent Per Leased Square Foot(1)
 
Annualized Rent Per Leased Square Foot at Expiration(2)