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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Douglas Emmett Inc | NYSE:DEI | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.02 | -0.15% | 13.30 | 13.40 | 13.10 | 13.10 | 1,430,103 | 23:21:18 |
Maryland
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20-3073047
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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808 Wilshire Boulevard, Suite 200, Santa Monica, California
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90401
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
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Smaller reporting company
¨
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Class
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Outstanding at
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July 29, 2016
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Common Stock, $0.01 par value per share
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151,034,897
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shares
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DOUGLAS EMMETT, INC.
FORM 10-Q
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Table of Contents
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Page
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ASU
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Accounting Standards Updates
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ATM
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At-the-Market
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CEO
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Chief Executive Officer
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CFO
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Chief Financial Officer
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Code
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Internal Revenue Code of 1986, as amended
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Company
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Douglas Emmett, Inc.
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EPS
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Earnings Per Share
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Exchange Act
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Securities Exchange Act of 1934, as amended
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FASB
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Financial Accounting Standards Board
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FDIC
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Federal Deposit Insurance Corporation
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FFO
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Funds from Operations
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Fund X
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Douglas Emmett Fund X, LLC
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Funds
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Unconsolidated real estate funds
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GAAP
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Generally Accepted Accounting Principles
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LIBOR
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London Interbank Offered Rate
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LTIP Units
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Long-Term Incentive Plan Units
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NAREIT
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National Association of Real Estate Investment Trusts
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OP Units
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Operating Partnership Units
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Operating Partnership
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Douglas Emmett Properties, LP
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Partnership X
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Douglas Emmett Partnership X, LP
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PCAOB
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Public Company Accounting Oversight Board (United States)
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REIT
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Real Estate Investment Trust
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Report
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Quarterly Report on Form 10-Q
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SEC
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Securities and Exchange Commission (United States)
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Securities Act
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Securities Act of 1933, as amended
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TRS
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Taxable REIT subsidiary(ies)
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US
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United States
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VIE
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Variable Interest Entity
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Annualized rent
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Annualized cash base rent (excludes tenant reimbursements, parking and other income and lost rent recovered from insurance) before abatements under leases commenced as of the reporting date and expiring after the reporting date. For our triple net office properties (in Honolulu and two single tenant buildings in Los Angeles), annualized rent is calculated by adding expense reimbursements to base rent.
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•
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adverse economic or real estate developments in Southern California and Honolulu, Hawaii;
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•
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a general downturn in the economy, such as the global financial crisis that commenced in 2008;
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•
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decreased rental rates or increased tenant incentive and vacancy rates;
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•
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defaults on, early termination of, or non-renewal of leases by tenants;
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•
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increased interest rates and operating costs;
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•
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failure to generate sufficient cash flows to service our outstanding indebtedness;
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•
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difficulties in raising capital for our unconsolidated Funds;
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•
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difficulties in identifying properties to acquire and completing acquisitions;
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•
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failure to successfully operate acquired properties;
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•
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failure to maintain our status as a REIT under federal tax laws;
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•
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possible adverse changes in rent control laws and regulations;
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•
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environmental uncertainties;
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•
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risks related to natural disasters;
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•
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lack or insufficient amount of insurance, or changes to the cost of maintaining existing insurance coverage;
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•
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inability to successfully expand into new markets and submarkets;
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•
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risks associated with property development;
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•
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conflicts of interest with our officers;
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•
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changes in real estate zoning laws and increases in real property tax rates;
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•
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the negative results of litigation or governmental proceedings;
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•
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the consequences of any possible future terrorist attacks or wars; and
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•
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the consequences of any possible future cyber attacks or intrusions.
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Douglas Emmett, Inc.
Consolidated Balance Sheets
(Unaudited; in thousands, except share data)
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June 30, 2016
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December 31, 2015
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Assets
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Investment in real estate:
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Land
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$
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993,047
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$
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897,916
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Buildings and improvements
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6,886,909
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5,644,546
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Tenant improvements and lease intangibles
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768,864
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696,647
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Property under development
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32,871
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26,900
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Investment in real estate, gross
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8,681,691
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7,266,009
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Less: accumulated depreciation and amortization
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(1,796,242
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)
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(1,687,998
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)
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Investment in real estate, net
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6,885,449
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5,578,011
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Real estate held for sale, net
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42,591
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42,943
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Cash and cash equivalents
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77,166
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101,798
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Tenant receivables, net
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2,278
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1,907
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Deferred rent receivables, net
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87,473
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79,837
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Acquired lease intangible assets, net
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4,394
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4,484
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Interest rate contract assets
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—
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4,830
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Investment in unconsolidated real estate funds
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145,999
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164,631
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Other assets
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13,153
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87,720
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Total assets
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$
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7,258,503
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$
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6,066,161
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Liabilities
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Secured notes payable and revolving credit facility, net
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$
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4,280,925
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$
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3,611,276
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Interest payable, accounts payable and deferred revenue
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69,691
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57,417
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Security deposits
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43,755
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38,683
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Acquired lease intangible liabilities, net
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71,532
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28,605
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Interest rate contract liabilities
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46,052
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16,310
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Dividends payable
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32,827
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32,322
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Total liabilities
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4,544,782
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3,784,613
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Equity
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Douglas Emmett, Inc. stockholders' equity:
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Common Stock, $0.01 par value, 750,000,000 authorized, 149,214,897 and 146,919,187 outstanding at June 30, 2016 and December 31, 2015, respectively
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1,492
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1,469
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Additional paid-in capital
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2,665,241
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2,706,753
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Accumulated other comprehensive loss
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(36,992
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)
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(9,285
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)
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Accumulated deficit
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(804,129
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)
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(772,726
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)
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Total Douglas Emmett, Inc. stockholders' equity
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1,825,612
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1,926,211
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Noncontrolling interests
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888,109
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355,337
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Total equity
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2,713,721
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2,281,548
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Total liabilities and equity
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$
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7,258,503
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$
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6,066,161
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||||||||
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2016
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2015
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2016
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2015
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Revenues
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Office rental
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Rental revenues
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$
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126,650
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$
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103,808
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$
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237,656
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$
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204,459
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Tenant recoveries
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10,986
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11,463
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21,197
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21,613
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Parking and other income
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25,460
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21,520
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48,622
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42,175
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Total office revenues
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163,096
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136,791
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307,475
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268,247
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Multifamily rental
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Rental revenues
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22,406
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21,975
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44,833
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43,619
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Parking and other income
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1,713
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1,691
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3,479
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3,400
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Total multifamily revenues
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24,119
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23,666
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48,312
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47,019
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Total revenues
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187,215
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160,457
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355,787
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315,266
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Operating Expenses
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Office expenses
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53,381
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46,542
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101,264
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90,741
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Multifamily expenses
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5,341
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5,930
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11,372
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11,750
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General and administrative
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9,403
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7,473
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17,474
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14,834
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Depreciation and amortization
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62,568
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51,246
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|
118,120
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|
101,080
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Total operating expenses
|
130,693
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|
111,191
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248,230
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218,405
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||||
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||||||||
Operating income
|
56,522
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|
|
49,266
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107,557
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96,861
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|
||||
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||||||||
Other income
|
2,143
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|
2,415
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|
4,232
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|
10,974
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|
||||
Other expenses
|
(1,684
|
)
|
|
(1,619
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)
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(3,235
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)
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(3,191
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)
|
||||
Income, including depreciation, from unconsolidated real estate funds
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1,644
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|
1,207
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|
3,230
|
|
|
2,650
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|
||||
Interest expense
|
(37,703
|
)
|
|
(35,177
|
)
|
|
(73,363
|
)
|
|
(68,816
|
)
|
||||
Acquisition-related expenses
|
(224
|
)
|
|
(198
|
)
|
|
(1,677
|
)
|
|
(488
|
)
|
||||
Income before gains
|
20,698
|
|
|
15,894
|
|
|
36,744
|
|
|
37,990
|
|
||||
Gain on sale of investment in real estate
|
1,082
|
|
|
—
|
|
|
1,082
|
|
|
—
|
|
||||
Net income
|
21,780
|
|
|
15,894
|
|
|
37,826
|
|
|
37,990
|
|
||||
Less: Net income attributable to noncontrolling interests
|
(3,298
|
)
|
|
(2,446
|
)
|
|
(3,978
|
)
|
|
(5,843
|
)
|
||||
Net income attributable to common stockholders
|
$
|
18,482
|
|
|
$
|
13,448
|
|
|
$
|
33,848
|
|
|
$
|
32,147
|
|
|
|
|
|
|
|
|
|
||||||||
Net income attributable to common stockholders per share – basic
|
$
|
0.124
|
|
|
$
|
0.092
|
|
|
$
|
0.228
|
|
|
$
|
0.220
|
|
Net income attributable to common stockholders per share – diluted
|
$
|
0.120
|
|
|
$
|
0.089
|
|
|
$
|
0.221
|
|
|
$
|
0.213
|
|
|
|
|
|
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|
||||||||
Dividends declared per common share
|
$
|
0.22
|
|
|
$
|
0.21
|
|
|
$
|
0.44
|
|
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$
|
0.42
|
|
|
Three Months Ended June 30,
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Six Months Ended June 30,
|
||||||||||||
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2016
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2015
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2016
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2015
|
||||||||
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|
||||||||
Net income
|
$
|
21,780
|
|
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$
|
15,894
|
|
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$
|
37,826
|
|
|
$
|
37,990
|
|
Other comprehensive income (loss): cash flow hedges
|
(14,890
|
)
|
|
11,367
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|
|
(35,498
|
)
|
|
12,385
|
|
||||
Comprehensive income
|
6,890
|
|
|
27,261
|
|
|
2,328
|
|
|
50,375
|
|
||||
Less: Comprehensive (income) loss attributable to noncontrolling interests
|
1,913
|
|
|
(4,268
|
)
|
|
3,813
|
|
|
(7,998
|
)
|
||||
Comprehensive income attributable to common stockholders
|
$
|
8,803
|
|
|
$
|
22,993
|
|
|
$
|
6,141
|
|
|
$
|
42,377
|
|
|
Six Months Ended June 30,
|
||||||
|
2016
|
|
2015
|
||||
Operating Activities
|
|
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|
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|
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Net income
|
$
|
37,826
|
|
|
$
|
37,990
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Adjustments to reconcile net income to net cash provided by operating activities:
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Income, including depreciation, from unconsolidated real estate funds
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(3,230
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)
|
|
(2,650
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)
|
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Gain on sale of investment in real estate
|
(1,082
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)
|
|
—
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|
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Depreciation and amortization
|
118,120
|
|
|
101,080
|
|
||
Net accretion of acquired lease intangibles
|
(8,314
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)
|
|
(12,940
|
)
|
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Straight-line rent
|
(7,636
|
)
|
|
(3,366
|
)
|
||
Increase in the allowance for doubtful accounts
|
1,116
|
|
|
237
|
|
||
Amortization of deferred loan costs
|
3,235
|
|
|
3,974
|
|
||
Amortization of stock-based compensation
|
4,739
|
|
|
3,935
|
|
||
Operating distributions from unconsolidated real estate funds
|
893
|
|
|
535
|
|
||
Change in working capital components:
|
|
|
|
|
|
||
Tenant receivables
|
(1,487
|
)
|
|
(476
|
)
|
||
Interest payable, accounts payable and deferred revenue
|
12,455
|
|
|
3,133
|
|
||
Security deposits
|
5,072
|
|
|
(41
|
)
|
||
Other assets
|
5,064
|
|
|
4,784
|
|
||
Net cash provided by operating activities
|
166,771
|
|
|
136,195
|
|
||
|
|
|
|
||||
Investing Activities
|
|
|
|
|
|
||
Capital expenditures for improvements to real estate
|
(35,183
|
)
|
|
(37,590
|
)
|
||
Capital expenditures for developments
|
(5,967
|
)
|
|
(2,074
|
)
|
||
Property acquisitions
|
(1,257,513
|
)
|
|
(89,906
|
)
|
||
Deposits for property acquisitions
|
(5,000
|
)
|
|
—
|
|
||
Proceeds from sale of investment in real estate
|
241,053
|
|
|
—
|
|
||
Proceeds from repayment of note receivable
|
—
|
|
|
1,000
|
|
||
Loan payments received from related parties
|
763
|
|
|
606
|
|
||
Contributions to unconsolidated real estate funds
|
—
|
|
|
(12
|
)
|
||
Capital distributions from unconsolidated real estate funds
|
18,839
|
|
|
4,053
|
|
||
Net cash used in investing activities
|
(1,043,008
|
)
|
|
(123,923
|
)
|
||
|
|
|
|
||||
Financing Activities
|
|
|
|
|
|
||
Proceeds from borrowings
|
1,374,500
|
|
|
662,400
|
|
||
Repayment of borrowings
|
(693,511
|
)
|
|
(543,276
|
)
|
||
Loan costs
|
(14,575
|
)
|
|
(4,641
|
)
|
||
Contributions from noncontrolling interests in consolidated joint venture
|
320,000
|
|
|
—
|
|
||
Distributions to noncontrolling interests in our Operating Partnership
|
(16,787
|
)
|
|
(11,817
|
)
|
||
Cash dividends to common stockholders
|
(64,747
|
)
|
|
(61,054
|
)
|
||
Exercise of stock options
|
—
|
|
|
1,823
|
|
||
Taxes paid on exercise of stock options
|
(52,449
|
)
|
|
—
|
|
||
Repurchase of OP Units
|
(826
|
)
|
|
—
|
|
||
Net cash provided by financing activities
|
851,605
|
|
|
43,435
|
|
||
|
|
|
|
||||
Increase (decrease) in cash and cash equivalents
|
(24,632
|
)
|
|
55,707
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|
||
Cash and cash equivalents at beginning of period
|
101,798
|
|
|
18,823
|
|
||
Cash and cash equivalents at end of period
|
$
|
77,166
|
|
|
$
|
74,530
|
|
|
Six Months Ended June 30,
|
||||||
|
2016
|
|
2015
|
||||
SUPPLEMENTAL CASH FLOWS INFORMATION
|
|
|
|
||||
|
|
|
|
||||
OPERATING ACTIVITIES
|
|
|
|
||||
Cash paid for interest, net of capitalized interest of $503 and $463 for the six months ended June 30, 2016 and 2015, respectively
|
$
|
70,353
|
|
|
$
|
64,300
|
|
|
|
|
|
||||
NONCASH INVESTING TRANSACTIONS
|
|
|
|
||||
Accrual for capital expenditures for improvements to real estate and developments
|
$
|
181
|
|
|
$
|
1,369
|
|
Capitalized stock-based compensation for improvements to real estate and developments
|
$
|
448
|
|
|
$
|
402
|
|
Write-off of fully depreciated and amortized tenant improvements and lease intangibles
|
$
|
9,401
|
|
|
$
|
8,009
|
|
Write-off of fully amortized acquired lease intangible assets
|
$
|
598
|
|
|
$
|
14
|
|
Write-off of fully accreted acquired lease intangible liabilities
|
$
|
8,100
|
|
|
$
|
20,128
|
|
Settlement of note receivable in exchange for land and building acquired
|
$
|
—
|
|
|
$
|
26,500
|
|
Issuance of OP Units in exchange for land and building acquired
|
$
|
—
|
|
|
$
|
1,000
|
|
Application of deposit to purchase price of property
|
$
|
75,000
|
|
|
$
|
2,500
|
|
|
|
|
|
||||
NONCASH FINANCING TRANSACTIONS
|
|
|
|
||||
Loss from market value adjustments - our derivatives
|
$
|
(50,142
|
)
|
|
$
|
(5,740
|
)
|
Loss from market value adjustments - our unconsolidated Funds' derivatives
|
$
|
(1,149
|
)
|
|
$
|
(1,609
|
)
|
Dividends declared
|
$
|
65,252
|
|
|
$
|
61,352
|
|
Common stock issued in exchange for OP Units
|
$
|
11,458
|
|
|
$
|
17,203
|
|
Sources and Uses of Funds
|
Actual at Closing
(1)
|
Pro Forma Sell Down Adjustments
(2)
|
Pro Forma
|
||||||
|
|
|
|
||||||
Building square footage (in thousands)
|
1,725
|
|
1,725
|
||||||
|
|
|
|
||||||
Uses of funds - Investment in real estate:
|
|
|
|
||||||
Land
|
$
|
95,127
|
|
|
$
|
95,127
|
|
||
Buildings and improvements
|
1,238,162
|
|
|
1,238,162
|
|
||||
Tenant improvements and lease intangibles
|
50,497
|
|
|
50,497
|
|
||||
Acquired above and below-market leases, net
(3)
|
(51,273
|
)
|
|
(51,273
|
)
|
||||
Net assets and liabilities acquired
(4)
|
$
|
1,332,513
|
|
|
$
|
1,332,513
|
|
||
|
|
|
|
||||||
Source of funds:
|
|
|
|
||||||
Cash on hand
(5)
|
$
|
153,745
|
|
$
|
—
|
|
$
|
153,745
|
|
Credit facility
(6)
|
290,000
|
|
(240,000
|
)
|
50,000
|
|
|||
Non-recourse term loan, net
(7)
|
568,768
|
|
—
|
|
568,768
|
|
|||
Noncontrolling interests
|
320,000
|
|
240,000
|
|
560,000
|
|
|||
Total source of funds
|
$
|
1,332,513
|
|
$
|
—
|
|
$
|
1,332,513
|
|
(1)
|
Reflects the purchase of the Westwood portfolio on the Acquisition Date when we contributed
sixty
-percent of the equity to the consolidated joint venture.
|
(2)
|
Reflects our sale of thirty-percent of the equity in the joint venture on the Sell Down Date, presented as of the Acquisition Date, treated as in-substance real estate, which reduced our ownership interest in the joint venture to
thirty
-percent. We sold the interest for the
$240.0 million
we contributed plus an additional
$1.1 million
to compensate for our costs of holding the investment. We recognized a gain on the sale of
$1.1 million
. We used the proceeds from the sale to pay down the balance owed on our revolving credit facility.
|
(3)
|
As of the Acquisition Date, the weighted average remaining life of the acquired above-and below-market leases was approximately
4.4 years
.
|
(4)
|
The difference between the contract and purchase price related to credits received for prorations and similar matters.
|
(5)
|
Cash paid included
$75.0 million
paid through a deposit made before December 31, 2015 (which was included in other assets in the Company's consolidated balance sheet as reported in our 2015 Form 10-K filing),
$67.5 million
paid at closing, and
$11.2 million
spent on loan costs in connection with securing the
$580.0 million
term loan.
|
(6)
|
Reflects borrowings using the Company's credit facility, which bears interest at LIBOR plus
1.40%
.
|
(7)
|
Reflects
100%
(not only the Company's pro rata share) of a
$580.0 million
interest-only non-recourse loan, net of deferred loan costs of
$11.2 million
incurred to secure the loan. The loan has a
seven
-year term and is secured by the Westwood Portfolio. Interest on the loan is floating at LIBOR plus
1.40%
, which has been effectively fixed at
2.37%
per annum for
five
years through interest rate swaps. The deferred loan costs will be amortized over the
seven
-year loan term. Deferred loan costs are presented in the balance sheet as a direct deduction from the carrying amount of our secured notes payable and revolving credit facility.
|
Total office revenues
|
$
|
32,198
|
|
Net income attributable to common stockholders
(1)
|
$
|
154
|
|
|
Six Months Ended June 30,
|
||||||
|
2016
|
|
2015
|
||||
|
|
|
|
||||
Pro forma revenues
|
$
|
369,114
|
|
|
$
|
361,873
|
|
Pro forma net income attributable to common stockholders
(1)
|
$
|
32,698
|
|
|
$
|
33,678
|
|
Pro forma net income attributable to common stockholders per share – basic
|
$
|
0.221
|
|
|
$
|
0.230
|
|
Pro forma net income attributable to common stockholders per share – diluted
|
$
|
0.214
|
|
|
$
|
0.223
|
|
|
Harbor Court Land
|
|
First Financial Plaza
|
||||
|
|
|
|
||||
Building square footage (if applicable) (in thousands)
|
N/A
|
|
227
|
||||
|
|
|
|
||||
Investment in real estate:
|
|
|
|
||||
Land
|
$
|
12,060
|
|
|
$
|
12,092
|
|
Buildings and improvements
|
15,440
|
|
|
75,039
|
|
||
Tenant improvements and lease intangibles
|
—
|
|
|
6,065
|
|
||
Acquired above and below-market leases, net
|
—
|
|
|
(790
|
)
|
||
Net assets and liabilities acquired
|
$
|
27,500
|
|
|
$
|
92,406
|
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
||||
Above-market tenant leases
|
$
|
4,483
|
|
|
$
|
4,661
|
|
Accumulated amortization - above-market tenant leases
|
(2,543
|
)
|
|
(2,670
|
)
|
||
Below-market ground leases
|
3,198
|
|
|
3,198
|
|
||
Accumulated amortization - below-market ground leases
|
(744
|
)
|
|
(705
|
)
|
||
Acquired lease intangible assets, net
|
$
|
4,394
|
|
|
$
|
4,484
|
|
|
|
|
|
||||
Below-market tenant leases
|
$
|
146,977
|
|
|
$
|
103,327
|
|
Accumulated accretion - below-market tenant leases
|
(78,978
|
)
|
|
(78,280
|
)
|
||
Above-market ground leases
|
4,017
|
|
|
4,017
|
|
||
Accumulated accretion - above-market ground leases
|
(484
|
)
|
|
(459
|
)
|
||
Acquired lease intangible liabilities, net
|
$
|
71,532
|
|
|
$
|
28,605
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Net accretion of above/below-market tenant leases
(1)
|
$
|
5,001
|
|
|
$
|
3,202
|
|
|
$
|
8,296
|
|
|
$
|
6,322
|
|
Amortization of a below-market ground lease
(2)
|
(4
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(8
|
)
|
||||
Accretion of above-market ground lease
(3)
|
13
|
|
|
13
|
|
|
26
|
|
|
26
|
|
||||
Accretion of an above-market ground lease
(4)
|
—
|
|
|
—
|
|
|
—
|
|
|
6,600
|
|
||||
Total
|
$
|
5,010
|
|
|
$
|
3,211
|
|
|
$
|
8,314
|
|
|
$
|
12,940
|
|
(1)
|
Recorded as a net increase to office and multifamily rental revenues.
|
(2)
|
Ground lease from which we earn ground rent income. Recorded as a decrease to office parking and other income.
|
(3)
|
Ground lease from which we incur ground rent expense. Recorded as a decrease to office expense.
|
(4)
|
Ground lease from which we incurred ground rent expense. Recorded as an increase to other income. During the first quarter of
2015
, we acquired the fee interest in the land (Harbor Court Land). See Note
3
.
|
Twelve months ending June 30:
|
|
Net increase to revenues
|
|
Decrease to expenses
|
|
Total
|
||||||
|
|
|
|
|
|
|
||||||
2017
|
|
$
|
15,651
|
|
|
$
|
50
|
|
|
$
|
15,701
|
|
2018
|
|
12,198
|
|
|
50
|
|
|
12,248
|
|
|||
2019
|
|
11,232
|
|
|
50
|
|
|
11,282
|
|
|||
2020
|
|
9,427
|
|
|
50
|
|
|
9,477
|
|
|||
2021
|
|
6,646
|
|
|
50
|
|
|
6,696
|
|
|||
Thereafter
|
|
8,451
|
|
|
3,283
|
|
|
11,734
|
|
|||
Total
|
|
$
|
63,605
|
|
|
$
|
3,533
|
|
|
$
|
67,138
|
|
|
Six Months Ended June 30,
|
||||||
|
2016
|
|
2015
|
||||
|
|
|
|
||||
Cash distributions received from our Funds
|
$
|
19,732
|
|
|
$
|
4,588
|
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
||||
Total assets
|
$
|
692,332
|
|
|
$
|
691,543
|
|
Total liabilities
|
450,143
|
|
|
389,372
|
|
||
Total equity
|
242,189
|
|
|
302,171
|
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
||||
Restricted cash
|
$
|
194
|
|
|
$
|
194
|
|
Prepaid expenses
|
2,304
|
|
|
6,720
|
|
||
Other indefinite-lived intangible
|
1,988
|
|
|
1,988
|
|
||
Deposits in escrow
|
5,000
|
|
|
75,000
|
|
||
Furniture, fixtures and equipment, net
|
1,293
|
|
|
1,448
|
|
||
Other
|
2,374
|
|
|
2,370
|
|
||
Total other assets
|
$
|
13,153
|
|
|
$
|
87,720
|
|
Description
|
|
Principal Balance as of June 30, 2016
|
|
Principal Balance as of December 31, 2015
|
||||
|
|
|
|
|
||||
Aggregate swap fixed rate loans
|
|
$
|
2,995,480
|
|
|
$
|
2,492,360
|
|
Aggregate fixed rate loans
|
|
1,138,932
|
|
|
1,141,803
|
|
||
Aggregate floating rate loans
|
|
180,740
|
|
|
—
|
|
||
Total Debt
|
|
$
|
4,315,152
|
|
|
$
|
3,634,163
|
|
(1)
|
Maturity dates include the effect of extension options.
|
(2)
|
Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs. See Note
9
for the details of our interest rate contracts.
|
(3)
|
Requires monthly payments of principal and interest. Principal amortization is based upon a
30
-year amortization schedule.
|
(4)
|
Interest only until
February 2017
, with principal amortization thereafter based upon a
30
-year amortization schedule.
|
(5)
|
Interest rate is fixed until
March 1, 2018
. Interest-only payments until
May 1, 2016
, and principal amortization thereafter based upon a
30
-year amortization schedule.
|
(6)
|
$400.0 million
revolving credit facility. Unused commitment fees range from
0.15%
to
0.20%
.
|
(7)
|
Loan agreement includes a zero-percent LIBOR floor. The corresponding swaps do not include such a floor.
|
(8)
|
See Note
12
for our fair value disclosures.
|
(9)
|
At
June 30, 2016
, the minimum future principal payments due on our secured notes payable and revolving credit facility, excluding any maturity extension options, were as follows (in thousands):
|
Twelve months ending June 30:
|
|
||
|
|
||
2017
|
$
|
52,250
|
|
2018
|
358,512
|
|
|
2019
|
1,293,910
|
|
|
2020
|
145,000
|
|
|
2021
|
683,080
|
|
|
Thereafter
|
1,782,400
|
|
|
Total future principal payments
|
$
|
4,315,152
|
|
(10)
|
Deferred
loan costs are net of accumulated amortization of
$15.7 million
and
$15.2 million
at
June 30, 2016
and
December 31, 2015
, respectively. The table below (in thousands) sets forth loan costs and amortization of deferred loan costs, both of which are included in interest expense in our consolidated statements of operations:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Loan costs
|
$
|
808
|
|
|
$
|
—
|
|
|
$
|
827
|
|
|
$
|
—
|
|
Deferred loan cost amortization
|
1,916
|
|
|
2,201
|
|
|
3,235
|
|
|
3,974
|
|
||||
Total
|
$
|
2,724
|
|
|
$
|
2,201
|
|
|
$
|
4,062
|
|
|
$
|
3,974
|
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
||||
Interest payable
|
$
|
9,803
|
|
|
$
|
10,028
|
|
Accounts payable and accrued liabilities
|
36,201
|
|
|
23,716
|
|
||
Deferred revenue
|
23,687
|
|
|
23,673
|
|
||
Total interest payable, accounts payable and deferred revenue
|
$
|
69,691
|
|
|
$
|
57,417
|
|
|
|
Number of Interest Rate Swaps
|
|
Notional (in thousands)
(1)
|
|
|
|
|
|
Derivatives
|
|
19
|
|
$2,995,480
|
Unconsolidated Funds' derivatives
(2)
|
|
2
|
|
$435,000
|
(1)
|
See Note
12
for our derivative fair value disclosures.
|
(2)
|
The notional amount presented represents
100%
, not our pro-rata share, of the amounts related to our unconsolidated Funds. See Note
5
for more information regarding our unconsolidated Funds.
|
Fair value of derivatives in a liability position
(1)
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
|
||||
Derivatives
|
|
$
|
49,540
|
|
|
$
|
19,047
|
|
Unconsolidated Funds' derivatives
(2)
|
|
$
|
904
|
|
|
$
|
—
|
|
(1)
|
Includes accrued interest and excludes any adjustment for nonperformance risk.
|
(2)
|
The notional amount presented represents
100%
, not our pro-rata share, of the amounts related to our unconsolidated Funds. See Note
5
for more information regarding our unconsolidated Funds.
|
Fair value of derivatives in an asset position
(1)
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
|
||||
Derivatives
|
|
$
|
—
|
|
|
$
|
4,220
|
|
Unconsolidated Funds' derivatives
(2)
|
|
$
|
—
|
|
|
$
|
737
|
|
(1)
|
Includes accrued interest and excludes any adjustment for nonperformance risk.
|
(2)
|
The notional amount presented represents
100%
, not our pro-rata share, of the amounts related to our unconsolidated Funds. See Note
5
for more information regarding our unconsolidated Funds.
|
|
2016
|
|
2015
|
||||
Derivatives Designated as Cash Flow Hedges:
|
|
|
|
||||
Loss recorded in AOCI (effective portion) - derivatives
(1)(5)
|
$
|
(50,142
|
)
|
|
$
|
(5,740
|
)
|
Loss recorded in AOCI (effective portion) - unconsolidated Funds' derivatives
(2)(5)
|
$
|
(1,149
|
)
|
|
$
|
(1,609
|
)
|
Loss reclassified from AOCI (effective portion) - derivatives
(3)(5)
|
$
|
(15,569
|
)
|
|
$
|
(19,259
|
)
|
Loss reclassified from AOCI (effective portion) - unconsolidated Funds' derivatives
(4)(5)
|
$
|
(224
|
)
|
|
$
|
(475
|
)
|
Gain (loss) recorded as interest expense (ineffective portion)
(6)
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
||||
Derivatives Not Designated as Cash Flow Hedges:
|
|
|
|
|
|
||
Gain (loss) recorded as interest expense
(7)
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
Represents the change in fair value of our interest rate swaps, designated as cash flow hedges, which does not impact the statement of operations.
|
(2)
|
Represents our share of the change in fair value of our unconsolidated Funds' interest rate swaps designated as a cash flow hedges, which does not impact the statement of operations.
|
(3)
|
Reclassified from AOCI as an increase to interest expense.
|
(4)
|
Reclassified from AOCI as a decrease to income, including depreciation, from unconsolidated real estate funds (our share).
|
(5)
|
See the reconciliation of our AOCI in Note
10
.
|
(6)
|
We did not record any ineffectiveness related to our derivatives designated as cash flow hedges.
|
(7)
|
We do not have any derivatives that are not designated as cash flow hedges.
|
Derivatives
(1)
|
$
|
21,906
|
|
Unconsolidated Funds' derivatives
(2)
|
$
|
330
|
|
(1)
|
Reclassified as an increase to interest expense.
|
(2)
|
Reclassified as a decrease to income, including depreciation, from unconsolidated real estate funds (our share).
|
|
Douglas Emmett, Inc. Stockholders' Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
||||||
|
|
|
|
|
|
||||||
Balance as of January 1, 2016
|
$
|
1,926,211
|
|
|
$
|
355,337
|
|
|
$
|
2,281,548
|
|
Net income
|
33,848
|
|
|
3,978
|
|
|
37,826
|
|
|||
Cash flow hedge fair value adjustments
|
(27,707
|
)
|
|
(7,791
|
)
|
|
(35,498
|
)
|
|||
Contributions to consolidated joint venture
|
—
|
|
|
320,000
|
|
|
320,000
|
|
|||
Sale of equity interest in consolidated joint venture
|
—
|
|
|
239,971
|
|
|
239,971
|
|
|||
Dividends and distributions
|
(65,251
|
)
|
|
(16,787
|
)
|
|
(82,038
|
)
|
|||
Exchange of OP units for common stock
|
11,458
|
|
|
(11,458
|
)
|
|
—
|
|
|||
Repurchase of OP units
|
(498
|
)
|
|
(328
|
)
|
|
(826
|
)
|
|||
Exercise of stock options
|
(52,449
|
)
|
|
—
|
|
|
(52,449
|
)
|
|||
Stock-based compensation
|
—
|
|
|
5,187
|
|
|
5,187
|
|
|||
Balance as of June 30, 2016
|
$
|
1,825,612
|
|
|
$
|
888,109
|
|
|
$
|
2,713,721
|
|
|
Douglas Emmett, Inc. Stockholders' Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
||||||
|
|
|
|
|
|
||||||
Balance as of January 1, 2015
|
$
|
1,943,458
|
|
|
$
|
370,266
|
|
|
$
|
2,313,724
|
|
Net income
|
32,147
|
|
|
5,843
|
|
|
37,990
|
|
|||
Cash flow hedge fair value adjustments
|
10,230
|
|
|
2,155
|
|
|
12,385
|
|
|||
Dividends and distributions
|
(61,352
|
)
|
|
(11,817
|
)
|
|
(73,169
|
)
|
|||
Exchange of OP units for common stock
|
17,203
|
|
|
(17,203
|
)
|
|
—
|
|
|||
Issuance of OP units for cash
|
—
|
|
|
1,000
|
|
|
1,000
|
|
|||
Exercise of stock options
|
1,823
|
|
|
—
|
|
|
1,823
|
|
|||
Stock-based compensation
|
—
|
|
|
4,358
|
|
|
4,358
|
|
|||
Balance as of June 30, 2015
|
$
|
1,943,509
|
|
|
$
|
354,602
|
|
|
$
|
2,298,111
|
|
|
Six Months Ended June 30,
|
||||||
|
2016
|
|
2015
|
||||
|
|
|
|
||||
Net income attributable to common stockholders
|
$
|
33,848
|
|
|
$
|
32,147
|
|
|
|
|
|
||||
Transfers (to) from noncontrolling interests:
|
|
|
|
||||
Exchange of OP units with noncontrolling interests
|
11,458
|
|
|
17,203
|
|
||
Repurchase of OP units from noncontrolling interests
|
(498
|
)
|
|
—
|
|
||
Net transfers from noncontrolling interests
|
$
|
10,960
|
|
|
$
|
17,203
|
|
|
|
|
|
||||
Change from net income attributable to common stockholders and transfers from noncontrolling interests
|
$
|
44,808
|
|
|
$
|
49,350
|
|
|
2016
|
|
2015
|
||||
|
|
|
|
||||
Beginning balance
|
$
|
(9,285
|
)
|
|
$
|
(30,089
|
)
|
|
|
|
|
||||
Other comprehensive loss before reclassifications - derivatives
|
(50,142
|
)
|
|
(5,740
|
)
|
||
Other comprehensive loss before reclassifications - unconsolidated Funds' derivatives
|
(1,149
|
)
|
|
(1,609
|
)
|
||
Reclassifications from AOCI - derivatives
(2)
|
15,569
|
|
|
19,259
|
|
||
Reclassifications from AOCI - unconsolidated Funds' derivatives
(3)
|
224
|
|
|
475
|
|
||
Net current period OCI
|
(35,498
|
)
|
|
12,385
|
|
||
Less OCI attributable to noncontrolling interests
|
7,791
|
|
|
(2,155
|
)
|
||
OCI attributable to common stockholders
|
(27,707
|
)
|
|
10,230
|
|
||
|
|
|
|
||||
Ending balance
|
$
|
(36,992
|
)
|
|
$
|
(19,859
|
)
|
(1)
|
See Note
9
for the details of our derivatives and Note
12
for our derivative fair value disclosures.
|
(2)
|
Reclassification as an increase to interest expense.
|
(3)
|
Reclassification as a decrease to income, including depreciation, from unconsolidated real estate funds.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Numerator (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to common stockholders
|
$
|
18,482
|
|
|
$
|
13,448
|
|
|
$
|
33,848
|
|
|
$
|
32,147
|
|
Allocation to participating securities: Unvested LTIP units
|
(101
|
)
|
|
(67
|
)
|
|
(184
|
)
|
|
(165
|
)
|
||||
Numerator for the calculation of basic and diluted EPS
|
$
|
18,381
|
|
|
$
|
13,381
|
|
|
$
|
33,664
|
|
|
$
|
31,982
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator (in thousands):
|
|
|
|
|
|
|
|
||||||||
Weighted average shares of common stock outstanding - basic
|
147,722
|
|
|
145,898
|
|
|
147,479
|
|
|
145,614
|
|
||||
Effect of dilutive securities: Stock options
(1)
|
5,083
|
|
|
4,406
|
|
|
4,687
|
|
|
4,440
|
|
||||
Weighted average shares of common stock and common stock equivalents outstanding - diluted
|
152,805
|
|
|
150,304
|
|
|
152,166
|
|
|
150,054
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Basic EPS:
|
|
|
|
|
|
|
|
|
|||||||
Net income attributable to common stockholders per share
|
$
|
0.124
|
|
|
$
|
0.092
|
|
|
$
|
0.228
|
|
|
$
|
0.220
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
||||||
Net income attributable to common stockholders per share
|
$
|
0.120
|
|
|
$
|
0.089
|
|
|
$
|
0.221
|
|
|
$
|
0.213
|
|
(1)
|
The following securities were excluded from the computation of the weighted average diluted shares because the effect of including them would be anti-dilutive to the calculation of diluted EPS:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
|
|
|
|
|
|
|
|
||||
OP Units
|
25,114
|
|
|
26,740
|
|
|
25,331
|
|
|
26,627
|
|
Vested LTIP Units
|
807
|
|
|
4
|
|
|
811
|
|
|
351
|
|
Unvested LTIP units
|
679
|
|
|
573
|
|
|
613
|
|
|
539
|
|
Secured Notes Payable:
|
June 30, 2016
|
|
December 31, 2015
|
||||
|
|
|
|
||||
Fair value
|
$
|
4,376,574
|
|
|
$
|
3,691,075
|
|
Carrying value
|
$
|
4,315,152
|
|
|
$
|
3,634,163
|
|
|
June 30, 2016
|
|
December 31, 2015
|
||||
Derivative Assets:
|
|
|
|
||||
Fair value - derivatives
(1)
|
$
|
—
|
|
|
$
|
4,830
|
|
Fair value - unconsolidated Funds' derivatives
(2)
|
$
|
—
|
|
|
$
|
837
|
|
|
|
|
|
||||
Derivative Liabilities:
|
|
|
|
||||
Fair value - derivatives
(1)
|
$
|
46,052
|
|
|
$
|
16,310
|
|
Fair value - unconsolidated Funds' derivatives
(2)
|
$
|
878
|
|
|
$
|
—
|
|
(1)
|
Our derivatives are included in interest rate contracts in our consolidated balance sheet. The fair value excludes accrued interest (which is included in interest payable in the consolidated balance sheet).
|
(2)
|
Represents
100%
, not our pro-rata share, of the amounts related to our unconsolidated Funds. Our pro-rata share of the amounts related to the unconsolidated Funds' derivatives is included in our investment in unconsolidated real estate funds in our consolidated balance sheet.
See Note
5
for more information regarding our unconsolidated Funds.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Office Segment
|
|
|
|
|
|
|
|
||||||||
Total office revenues
|
$
|
163,096
|
|
|
$
|
136,791
|
|
|
$
|
307,475
|
|
|
$
|
268,247
|
|
Office expenses
|
(53,381
|
)
|
|
(46,542
|
)
|
|
(101,264
|
)
|
|
(90,741
|
)
|
||||
Office Segment profit
|
109,715
|
|
|
90,249
|
|
|
206,211
|
|
|
177,506
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Multifamily Segment
|
|
|
|
|
|
|
|
||||||||
Total multifamily revenues
|
24,119
|
|
|
23,666
|
|
|
48,312
|
|
|
47,019
|
|
||||
Multifamily expenses
|
(5,341
|
)
|
|
(5,930
|
)
|
|
(11,372
|
)
|
|
(11,750
|
)
|
||||
Multifamily Segment profit
|
18,778
|
|
|
17,736
|
|
|
36,940
|
|
|
35,269
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Total profit from all segments
|
$
|
128,493
|
|
|
$
|
107,985
|
|
|
$
|
243,151
|
|
|
$
|
212,775
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Total profit from all segments
|
$
|
128,493
|
|
|
$
|
107,985
|
|
|
$
|
243,151
|
|
|
$
|
212,775
|
|
General and administrative
|
(9,403
|
)
|
|
(7,473
|
)
|
|
(17,474
|
)
|
|
(14,834
|
)
|
||||
Depreciation and amortization
|
(62,568
|
)
|
|
(51,246
|
)
|
|
(118,120
|
)
|
|
(101,080
|
)
|
||||
Other income
|
2,143
|
|
|
2,415
|
|
|
4,232
|
|
|
10,974
|
|
||||
Other expenses
|
(1,684
|
)
|
|
(1,619
|
)
|
|
(3,235
|
)
|
|
(3,191
|
)
|
||||
Income, including depreciation, from unconsolidated real estate funds
|
1,644
|
|
|
1,207
|
|
|
3,230
|
|
|
2,650
|
|
||||
Interest expense
|
(37,703
|
)
|
|
(35,177
|
)
|
|
(73,363
|
)
|
|
(68,816
|
)
|
||||
Acquisition-related expenses
|
(224
|
)
|
|
(198
|
)
|
|
(1,677
|
)
|
|
(488
|
)
|
||||
Income before gains
|
20,698
|
|
|
15,894
|
|
|
36,744
|
|
|
37,990
|
|
||||
Gain on sale of investment in real estate
|
1,082
|
|
|
—
|
|
|
1,082
|
|
|
—
|
|
||||
Net income
|
21,780
|
|
|
15,894
|
|
|
37,826
|
|
|
37,990
|
|
||||
Less: Net income attributable to noncontrolling interests
|
(3,298
|
)
|
|
(2,446
|
)
|
|
(3,978
|
)
|
|
(5,843
|
)
|
||||
Net income attributable to common stockholders
|
$
|
18,482
|
|
|
$
|
13,448
|
|
|
$
|
33,848
|
|
|
$
|
32,147
|
|
Twelve months ending June 30:
|
|
||
|
|
||
2017
|
$
|
468,767
|
|
2018
|
417,345
|
|
|
2019
|
347,467
|
|
|
2020
|
293,830
|
|
|
2021
|
229,225
|
|
|
Thereafter
|
630,645
|
|
|
Total future minimum base rentals
(1)
|
$
|
2,387,279
|
|
(1)
|
Does not include (i) residential leases, which typically have a term of one year or less, (ii) tenant reimbursements, (iii) straight line rent, (iv) amortization/accretion of acquired above/below-market lease intangibles and (v) percentage rents. The amounts assume that early termination options held by tenants are not exercised.
|
Twelve months ending June 30:
|
|
||
|
|
||
2017
|
$
|
733
|
|
2018
|
733
|
|
|
2019
|
733
|
|
|
2020
|
733
|
|
|
2021
|
733
|
|
|
Thereafter
|
48,010
|
|
|
Total future minimum lease payments
(1)
|
$
|
51,675
|
|
(1)
|
Lease term ends on
December 31, 2086
. Ground rent is fixed at
$733 thousand
per year until
February 28, 2019
, and will then be reset to the greater of the existing ground rent or market. The table above assumes that the rental payments will continue to be
$733 thousand
per year after
February 28, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fund
(1)
|
|
Principal Balance
(1)
(in millions)
|
|
Loan Maturity Date
|
|
Variable Interest Rate
|
|
Swap Maturity Date
|
|
Swap Fixed Interest Rate
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fund X
(2)
|
|
$
|
325.0
|
|
|
5/1/2018
|
|
LIBOR + 1.75%
|
|
5/1/2017
|
|
2.35%
|
|
|
Partnership X
(3)
|
|
110.0
|
|
|
3/1/2023
|
|
LIBOR + 1.40%
|
|
3/1/2021
|
|
2.30%
|
|
|
|
|
|
$
|
435.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See Note
5
for more information regarding our unconsolidated Funds.
|
(2)
|
Floating rate term loan, swapped to fixed, which is secured by
six
properties and requires monthly payments of interest only, with the outstanding principal due upon maturity. As of
June 30, 2016
, assuming a zero-percent LIBOR interest rate during the remaining life of the swap, the maximum future payments under the swap agreement were
$1.7 million
.
|
(3)
|
Floating rate term loan, swapped to fixed, which is secured by
two
properties and requires monthly payments of interest only, with the outstanding principal due upon maturity. As of
June 30, 2016
, assuming a zero-percent LIBOR interest rate during the remaining life of the swap, the maximum future payments under the swap agreement were
$4.7 million
.
|
|
|
|
|
|
|
|
|
Consolidated
(1)
|
|
Total Portfolio
(2)
|
|
|
Office
|
|
|
|
|
|
Class A Properties
(3)
|
58
|
|
66
|
|
|
Rentable square feet (in thousands)
|
15,438
|
|
17,262
|
|
|
Leased rate
|
92.1%
|
|
92.1%
|
|
|
Occupied rate
|
90.7%
|
|
90.7%
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
|
|
|
Properties
|
10
|
|
10
|
|
|
Units
|
3,336
|
|
3,336
|
|
|
Leased rate
|
99.0%
|
|
99.0%
|
|
|
Occupied rate
|
96.9%
|
|
96.9%
|
|
|
|
|
|
|
|
(1)
|
Our consolidated portfolio includes all of the properties included in our consolidated results. We own 100% of these properties except for
five
office properties totaling approximately
1.8 million
square feet, which we own through
two
consolidated joint ventures. Our consolidated portfolio also included
two
parcels of land which are ground leased to the owners of a Class A office building and a hotel.
|
(2)
|
Our total portfolio includes our consolidated portfolio plus
eight
properties totaling approximately
1.8 million
square feet owned by our unconsolidated Funds, in which we own a weighted average of approximately
60%
based on square footage. See Note
5
to our consolidated financial statements in Item 1 of this Report for more information regarding our unconsolidated Funds.
|
•
|
During the first quarter of 2016, a consolidated joint venture which we manage and own an equity interest in, acquired four class A multi-tenant office properties located in Westwood, Los Angeles (Westwood Portfolio) for a contract price of
$1.34 billion
or approximately
$777
per square foot. As of the Acquisition Date, we had contributed sixty-percent of the equity to the joint venture, but subsequently reduced that investment to thirty-percent on May 31, 2016 when we sold half of our ownership interest to a third party investor.
|
•
|
During the second quarter of 2016, we entered into an agreement to sell a
168,000
square foot class A office property located in Sherman Oaks, Los Angeles with a carrying value of
$42.6 million
for
$56.7 million
. We expect the transaction to close during the third quarter of 2016. The property is classified as real estate held for sale in our consolidated balance sheets.
|
•
|
On July 21, 2016, a new joint venture, which we manage and in which we expect to retain a twenty to thirty-percent equity interest, purchased a 365,000 square foot class A multi-tenant office property in Brentwood, Los Angeles, for $225 million, or approximately $616 per square foot.
|
•
|
During the first quarter of 2016, a consolidated joint venture closed a seven year, non-recourse
$580.0 million
interest-only term loan as part of the acquisition of the Westwood Portfolio. The loan bears interest at
LIBOR + 1.40%
, and has been effectively fixed at
2.37%
per annum until
March 2021
through an interest rate swap. The loan is secured by the Westwood Portfolio.
|
•
|
During the first quarter of 2016, one of our unconsolidated Funds closed a seven year, non-recourse
$110.0 million
interest-only term loan. The loan bears interest at
LIBOR + 1.40%
, and has been effectively fixed at
2.30%
per annum until
March 2021
though an interest rate swap. The loan is secured by two office properties.
|
•
|
During the second quarter of 2016, we closed a seven year, non-recourse,
$360.0 million
interest-only loan, which bears interest at
LIBOR + 1.55%
, and has been effectively fixed at
2.57%
for five years. We used the proceeds to pay off a
$256.1 million
loan that was scheduled to mature in
April 2018
. The loan is secured by five office properties.
|
•
|
On July 21, 2016, the new consolidated joint venture which acquired the office property in Brentwood, Los Angeles closed a three year, interest only $90.0 million non-recourse loan bearing interest at LIBOR plus 1.55% which is secured by that office property.
|
•
|
During July 2016, we sold 1.4 million shares of our common stock in open market transactions under our ATM program for net proceeds of approximately $49.8 million, after commissions and other expenses.
|
•
|
During the first quarter of 2016, we commenced building an additional
475
apartments (net of existing units to be removed) at our Moanalua Hillside Apartments in Honolulu. We expect the construction will take approximately
18
months and cost approximately
$120.0 million
, which does not include the cost of the land which we already owned before beginning the project. As of
June 30, 2016
, we had a remaining commitment of
$114.2 million
for a contract for this development project. We are also upgrading the existing units, and as of
June 30, 2016
, we had a remaining commitment of
$1.8 million
for a contract directly related to these upgrades.
|
•
|
In Los Angeles, we are seeking to build a high rise apartment project with 376 units. Because development in our markets, particularly West Los Angeles, remains a long and uncertain process, we do not expect to break ground in Los Angeles before late
2017
, even if the entitlement process is successful. We expect the cost of the development to be approximately $120 million to $140 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Twelve Months Ended December 31,
|
|
||||||
|
Historical straight-line rents:
(1)
|
|
June 30, 2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rental rate
(2)
|
|
$42.29
|
|
$42.65
|
|
$35.93
|
|
$34.72
|
|
$32.86
|
|
|
Annualized lease transaction costs
(3)
|
|
$5.71
|
|
$4.77
|
|
$4.66
|
|
$4.16
|
|
$4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Because straight-line rent takes into account the full economic value of each lease, including accommodations and rent escalations, we believe that it may provide a better comparison than ending cash rents, which include the impact of the annual escalations over the entire term of the lease. However, care should be taken in any comparison, as the averages are often significantly affected from period to period by factors such as the buildings, submarkets, and types of space and terms involved in the leases executed during the respective reporting period.
|
(2)
|
Reflects the weighted average straight-line annualized base rent (i.e., excludes tenant reimbursements, parking and other revenue) per leased square foot. For our triple net leases, annualized rent is calculated by adding estimated expense reimbursements to base rent. The decline in the average rental rate for the
six months
ended
June 30, 2016
compared to 2015 reflects changes in the mix of submarkets in which we leased space.
|
(3)
|
Reflects the weighted average leasing commissions and tenant improvement allowances divided by the weighted average number of years for the respective leases.
|
•
|
Straight-line rent roll up.
The average straight-line rent of
$42.29
per square foot under new and renewal leases that we signed during the
six months
ended
June 30, 2016
was
26.8%
greater than the average straight-line rent of
$33.34
per square foot on the expiring leases for the same space. The rent roll up reflects continuing increases in average starting rental rates and more leases containing annual rent escalations in excess of 3% per annum.
|
•
|
Cash rent roll up.
The average starting cash rental rate of
$40.31
per square foot under new and renewal leases that we signed during the
six months
ended
June 30, 2016
was
25.4%
greater than the average starting cash rental rate of
$32.14
per square foot on the expiring leases for the same space, and
10.6%
greater than the average ending cash rental rate of
$36.45
per square foot on those expiring leases.
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Three Months Ending,
|
|
||||||||||||||
|
Expiring cash rents:
|
|
September 30, 2016
|
|
December 31, 2016
|
|
March 31, 2017
|
|
June 30, 2017
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Expiring square feet
(1)(3)
|
|
156,883
|
|
|
498,922
|
|
|
663,514
|
|
|
525,912
|
|
|
||||
|
Percentage of the portfolio
|
|
0.9
|
%
|
|
2.9
|
%
|
|
3.8
|
%
|
|
3.0
|
%
|
|
||||
|
Expiring rent per square foot
(2)(3)
|
|
$
|
32.52
|
|
|
$
|
35.80
|
|
|
$
|
36.84
|
|
|
$
|
38.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects existing leases that are scheduled to expire, excluding leases where (i) the existing tenant has renewed the lease on or before
June 30, 2016
, (ii) a new tenant has executed a lease on or before
June 30, 2016
that will commence after
June 30, 2016
, (iii) early termination options that are exercised after
June 30, 2016
, (iv) defaults occurring after
June 30, 2016
, and (v) short term leases, such as month to month leases and other short term leases. Short term leases are excluded because (a) they are not included in our changes in rental rate data, (b) have rental rates that may not be reflective of market conditions, and (c) can distort the data trends, particularly in the first quarter of the fiscal year.
|
(2)
|
Reflects annualized base rent before abatements (excludes tenant reimbursements, parking and other revenue) at expiration. Annualized base rent for triple net leases is calculated by adding expense reimbursements to base rent.
|
(3)
|
Variations in these numbers from quarter to quarter primarily reflects the mix of buildings/submarkets involved and is also impacted by the varying terms and square footage of the individual leases involved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Six months ended
|
|
Twelve Months Ended December 31,
|
|
||||||||||||||||
|
Average annual rental rate - new tenants:
|
|
June 30, 2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Rental rate
|
|
$
|
29,021
|
|
|
$
|
27,936
|
|
|
$
|
28,870
|
|
|
$
|
27,392
|
|
|
$
|
26,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
December 31,
|
|
|||||||||||
|
Occupancy Rates
(1)
as of:
|
|
June 30, 2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Office Portfolio
|
|
90.7
|
%
|
|
91.2
|
%
|
|
90.5
|
%
|
|
90.4
|
%
|
|
89.6
|
%
|
|
|
Multifamily Portfolio
|
|
96.9
|
%
|
|
98.0
|
%
|
|
98.2
|
%
|
|
98.7
|
%
|
|
98.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Six months ended
|
|
Twelve Months Ended December 31,
|
|
|||||||||||
|
Average Occupancy
Rates
(1)(2)
:
|
|
June 30, 2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Office Portfolio
|
|
90.8
|
%
|
|
90.9
|
%
|
|
90.0
|
%
|
|
89.7
|
%
|
|
88.3
|
%
|
|
|
Multifamily Portfolio
|
|
97.6
|
%
|
|
98.2
|
%
|
|
98.5
|
%
|
|
98.6
|
%
|
|
98.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Occupancy rates include the impact of property acquisitions, most of whose occupancy rates at the time of acquisition were well below that of our existing portfolio.
|
(2)
|
Average occupancy rates are calculated by averaging the occupancy rates on the first and last day of a quarter, and for periods longer than a quarter, by averaging the occupancy rates at the end of each of the quarters in the period and at the end of the quarter immediately prior to the start of the period.
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
||||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income attributable to common stockholders
|
$
|
18,482
|
|
|
$
|
13,448
|
|
|
$
|
33,848
|
|
|
$
|
32,147
|
|
|
|
Depreciation and amortization of real estate assets
|
62,568
|
|
|
51,246
|
|
|
118,120
|
|
|
101,080
|
|
|
||||
|
Net income attributable to noncontrolling interests
|
3,298
|
|
|
2,446
|
|
|
3,978
|
|
|
5,843
|
|
|
||||
|
Adjustments attributable to consolidated joint ventures and unconsolidated Funds
(1)
|
(1,436
|
)
|
|
3,854
|
|
|
3,082
|
|
|
7,935
|
|
|
||||
|
Gain on sale of investment in real estate
|
(1,082
|
)
|
|
—
|
|
|
(1,082
|
)
|
|
—
|
|
|
||||
|
FFO
|
$
|
81,830
|
|
|
$
|
70,994
|
|
|
$
|
157,946
|
|
|
$
|
147,005
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Adjusts for (i) the net income and depreciation and amortization of real estate assets that is attributable to the noncontrolling interests in our consolidated joint ventures and (ii) our share of our unconsolidated Funds depreciation and amortization of real estate assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fund
|
|
Principal Balance
(1)
(in millions)
|
|
Loan Maturity Date
|
|
Variable Interest Rate
|
|
Swap Maturity Date
|
|
Swap Fixed Interest Rate
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fund X
(2)
|
|
$
|
325.0
|
|
|
5/1/2018
|
|
LIBOR + 1.75%
|
|
5/1/2017
|
|
2.35%
|
|
|
Partnership X
(3)
|
|
110.0
|
|
|
3/1/2023
|
|
LIBOR + 1.40%
|
|
3/1/2021
|
|
2.30%
|
|
|
|
|
|
$
|
435.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We made certain environmental and other limited indemnities and guarantees covering customary non-recourse carve-outs under these loans, and also guaranteed the related swaps, although we have an indemnity from our
unconsolidated
Funds for any amounts that we would be required to pay under these agreements. As of
June 30, 2016
, all of the obligations under the loans and swap agreements have been performed by our
unconsolidated
Funds in accordance with the terms of those agreements.
|
(2)
|
Floating rate term loan, swapped to fixed, which is secured by six properties and requires monthly payments of interest only, with the outstanding principal due upon maturity. As of
June 30, 2016
, assuming a zero-percent LIBOR interest rate during the remaining life of the swap, the maximum future payments under the swap agreement were
$1.7 million
.
|
(3)
|
Floating rate term loan, swapped to fixed, which is secured by two properties and requires monthly payments of interest only, with the outstanding principal due upon maturity. As of
June 30, 2016
, assuming a zero-percent LIBOR interest rate during the remaining life of the swap, the maximum future payments under the swap agreement were
$4.7 million
.
|
|
|
DOUGLAS EMMETT, INC.
|
||
|
|
|
|
|
|
|
|
|
|
Date:
|
August 5, 2016
|
By:
|
/s/ JORDAN L. KAPLAN
|
|
|
|
|
Jordan L. Kaplan
|
|
|
|
|
President and CEO
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 5, 2016
|
By:
|
/s/ MONA M. GISLER
|
|
|
|
|
Mona M. Gisler
|
|
|
|
|
CFO
|
1 Year Douglas Emmett Chart |
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