Thank you for joining us. Welcome to Douglas Emmett's quarterly earnings call, which is being recorded. I will now turn the call over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.

Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. When we reach the question-and-answer portion in consideration of others, please limit yourself to one question and one follow-up. I will now turn the call over to Jordan.

Good morning, and thank you for joining us. While we continue to closely monitor macroeconomic concerns, we haven't seen any impact on leasing in our markets with strong results in both our office and residential portfolios last quarter. We leased 973,000 square feet of office space, including over 300,000 square feet of new leases. So we have now achieved positive absorption across our total portfolio for 3 of the last 4 quarters. Our office rental rates remain steady and concessions remain low. Our multifamily portfolio had another tremendous quarter with full occupancy, increasing rents and same-property cash NOI growth exceeding 10%. We're also making good progress on the 4 key growth strategies I talked about last quarter: leasing up our office portfolio, which remains our #1 focus; redeveloping our 712-unit Brentwood apartment property, now rebranded as The Landmark Residences; retenanting Studio Plaza; and augmenting our existing portfolio with best-in-class properties. In that regard, I'm pleased to announce that we plan to convert our recently acquired 10900 Wilshire office property into 320 apartments in the prime Westwood submarket. As you saw with our office to residential conversion in Hawaii, we expect this conversion will not only enhance the value of 10900 Wilshire, but will also reduce office vacancy in the submarket. Finally, having already addressed all of our 2025 maturities, we have begun refinancing our 2026 debt maturities at very competitive rates, which Kevin will discuss.

Thanks, Jordan, and good morning, everyone. At 10900 Wilshire, we are now planning a 320-unit apartment community with state-of-the-art amenities in one of L.A.'s most desirable apartment markets. The Westwood residential submarket has significant unmet demand from UCLA faculty and executives. The existing 247,000 square foot office tower will be converted into apartments and integrated with a new residential building that we are constructing on Ashton Avenue. Including the cost to acquire the property, to convert the existing office tower and to construct the new building, we expect that our new plan will increase the total project cost to be approximately $200 million to $250 million. The first apartments in the existing office tower could be delivered in the next 18 months. Like our very successful conversion of 1132 Bishop in Honolulu, the conversion will take place in phases over a number of years as office floors in the building are vacated. We anticipate that the ground-up development of the new building should take approximately 3 years. At Studio Plaza, we remain pleased by the market response to the revitalized project. Our repositioning work is moving along rapidly with the lobby renovation on several floors of corridor and restroom upgrades now complete and our first tenant taking occupancy. We expect the remaining exterior site work to be completed during the third quarter with additional floors completed on a rolling basis. Turning to financing. After quarter end, we refinanced a $200 million office loan that was set to mature in September 2026. The new nonrecourse interest-only loan has a floating rate of 200 over SOFR, which we have swapped to a fixed rate of 5.6% until August 2030. The new loan matures in August 2032.

Thanks, Kevin. Good morning, everyone. During the second quarter, across our total portfolio, we signed 245 leases covering 973,000 square feet, including over 300,000 square feet of new leases with healthy leasing to tenants over 10,000 square feet. Looking ahead, our office leasing pipeline is robust and our remaining office expirations in 2025 and 2026 are below historical averages. The overall straight-line value of new leases we signed in the quarter increased by 2.4%, with cash spreads down 13.3%. At an average of only $6.06 per square foot per year, our leasing costs during the second quarter remained well below the average for other office REITs in our benchmark group. Our residential portfolio remained essentially fully leased at 99.3% with strong demand. With that, I'll turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone. Compared to the second quarter of 2024, revenue increased by 2.7%, FFO decreased to $0.37 per share and AFFO decreased to $54.5 million. And same-property cash NOI was down 1.1% as office expenses in the prior year were reduced by a large property tax refund, creating a tough comparison. Excluding property tax refunds, our same-property cash NOI would have been slightly positive. At approximately 4.9% of revenue, our G&A remains low relative to our benchmark group. Turning to guidance. We now expect our 2025 net income per common share diluted to be between $0.07 and $0.11, and we are narrowing our guidance range for FFO per fully diluted share to be between $1.43 and $1.47. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions.

And your first question comes from John Kim with BMO Capital Markets.

I wanted to ask your leasing activity versus the occupancy and lease rate because the activity was very strong once again. When you look back last quarter, you had 351,000 square feet expiring during the quarter. So it would seem like there would be a buildup in occupancy and lease rate during the quarter, but there wasn't. So I guess what's implied in that was that over 600,000 square feet of the leasing done this quarter were for early renewals or leases not expiring during the second quarter. I was wondering if that was abnormally high for you? And where do you think occupancy goes for the rest of the year?

So there were a lot of questions in there, John. Currently, there is a significant gap between leased and occupied space. Typically, this would be considered a positive sign. For example, in 2009, our lowest point for this gap was under 100 basis points, and now we are around 270 basis points. This gap raises the question of whether we are actively leasing or struggling to do so. We have also mentioned that we are focusing on larger deals, which we appreciate, but they take longer to finalize since they replace existing tenants. Our leasing pipeline is strong, and I'm still optimistic about our direction. However, if this gap begins to shrink significantly, it might indicate a slowdown in leasing. While it can decrease when we are well-filled, it usually means we are having difficulties with leasing when the numbers are close. Many people observed the decrease in occupancy and may have interpreted it differently, but I view the situation positively due to the high leasing activity. Historically, our average for this gap has been between 150 to 180 basis points, so the current gap is substantial, which I consider a positive sign, though Mark can take that as he sees fit.

And so when you look at your leasing pipeline or what you're negotiating today, how much of that is a continuation of this, like larger tenants that may not take occupancy in the near term?

Leased is leased. Those are signed deals, so they are no longer in the pipeline. What we are focused on now are the deals in process at different stages, such as letters of intent and lease negotiations, as well as how close we are to signing. Once a deal is finalized, it moves into the leased category. When we announce that we are back to securing significant deals, we are pleased with the progress at Studio Plaza and believe our pipeline looks robust. Although I wish the signing process was happening more quickly, we are still securing a lot of leases. I wanted to include a number in my prepared remarks, but it became cumbersome due to other contributions. When I mention that we had a good day with 300,000 square feet signed on deals, that reflects over 30% new leases. This is a positive indicator, regardless of its immediate impact, as it reflects our long-term retention metrics. I'm encouraged by this number and it's the highlight for me this quarter. While I have previously noted the challenges in leasing, I want to clarify that I am feeling positive about the current situation. It is still challenging, but I am not negative about our leasing progress; things are looking good.

And your next question comes from Blaine Heck with Wells Fargo.

Can you tell us what the lease rate is on Studio Plaza at this point? How we should think about the timing of NOI contributions from those leases that you've signed thus far? And maybe just some color on the demand for the additional space at the property.

Blaine, so we're not giving leasing stats on individual buildings or individual leases consistent with the way we've kind of always done that. Obviously, you can tell based on our comments that we're pleased with the velocity of the leasing and how well the building is being received by tenants in that market. And as Kevin said, we already moved our first tenant in. So we'll have some rent coming in. The real NOI contribution will come over time. Some of the deals we've done are larger. And so like Jordan said, they take longer to build out and move in. So we'll look for that, not a big impact this year.

Great. And then second question, with respect to 10900 Wilshire, can you talk about the time line a little bit and touch on kind of any major lease expirations at the building that will allow you to go in and convert the space? And also how we should think about the NOI drag from those vacates in '26 and maybe any offsetting capitalized interest?

We're planning to implement a strategy similar to what we did in Hawaii for the tower. As we regain space, we'll convert it to residential. There will be significant changes on the first floor, including altering the entrance and constructing a new building at the back, which will require capital investment. There will be a typical delay between when one tenant moves out and new tenants move in. However, I believe this project will ultimately put us in a better position, similar to our experience with 1132 Bishop in Hawaii, where we quickly leased out the residential floors. While there will be some lag, we're undertaking substantial renovations and improving amenities, which should enhance our net operating income once we complete the conversion.

And your next question comes from Anthony Paolone with JPMorgan.

I wanted to go back to John's questions on occupancy side. You kept your guide for the full year at 78% to 80%, but I think the first half, it looks like that was in the like low maybe 78%. So do you think you're going to see a second half where there's some absorption then and gets you to the middle of that range? Or how should we just think about that given you kept the range?

Yes. So the guidance is an average for the year, Tony. Obviously, we're still comfortable with that range. And we're not going to give guidance on just the second half where we're going to go. But hopefully, we'll get some absorption, but I think we're very comfortable that we'll be within that range for the full year on the average.

Okay. And then just the second one, just following up on 10900. Any brackets around just what the yield on the all-in cost might end up being when you're all done?

Well, we actually have given that. I mean we told you because we didn't just wake up one day and say, let's convert it. We've been looking at these various scenarios depending on where leasing went and tenants and how we thought we were going to get floors back and frankly, some work that we were being required to do because the rail is coming through and it's right in the front of the building, we have to move the entrance. But anyway, I think I told you already when we bought it, we were going in over a tenant, and I think we're going to be right around there on the way out, too. By the way, that's yield on cost. And we're still not even talking about cash flow IRR, which is like good.

Right. So on your new updated budget numbers, you feel good about a 10 on that.

You realize these numbers kind of roll out over years. But yes, I feel very good about what we're doing.

And your next question comes from Alexander Goldfarb with Piper Sandler.

Good job on the office conversion. If it's anything like the Bishop project, it should be successful. Jordan, for the big picture, during this quarter's apartment REIT earnings calls, L.A. was mentioned as one of the weakest markets, with various REITs pointing to weak job growth, lingering COVID delinquencies, supply issues, and the Hollywood strikes. Specifically for your properties on the West side and in the Valley, do you believe that L.A.'s economy and real estate demand are currently weak? I'm trying to understand if the apartment REIT comments reflect a broader trend in L.A., or if you think that given how far we are into the recovery, L.A. should be performing better this year compared to what was expected back in January. I'm curious to know how L.A. stands now relative to your January expectations and whether you align with the apartment REIT perspective or have a different viewpoint.

I think what you're observing is linked to how people own their properties and the locations of those buildings. I can say I'm surprised because we're not going to maintain this level of growth in our residential rents long-term; they are simply too high. Historically, our residential rent growth in our markets has been between 4% and 5%. To see numbers reaching around 10% this quarter is unrealistic and unsustainable. However, we operate in a very specific area on the West side, which is extremely competitive. We own high-end properties and are continually improving them, which is reflected in our positive reception in the market. If our properties weren't performing well, we wouldn't be converting our space at 10900. There is indeed a shortage. As for the broader Los Angeles County market, I can't comment on what's happening there. Nevertheless, we have been proactive buyers of significant residential properties in this tight market. Many REITs don't have much presence here, where we focus primarily on Brownwood, Brentwood, Westwood, and Santa Monica. That likely explains the disparity in views.

I'm asking about the bigger picture in L.A. overall, including the office sector. Back in January, did you anticipate that L.A. would be performing better and that your portfolio would be stronger today? Is it on track, or is it slightly lagging? That's the point I'm trying to address. This includes things like office apartments across the overall L.A. area.

I believe apartments are performing better than I initially expected, and they are doing exceptionally well. However, assessing the office sector from one quarter to the next is quite challenging. Nevertheless, I anticipate that the overall results for the year will align with my expectations.

Okay. For my second question, I noticed in your PowerPoint that Los Angeles has more tech workers than Silicon Valley. Given the recent growth in San Francisco, particularly in AI, do you anticipate that L.A.'s tech scene will experience the same strong demand for leasing that we’re seeing in San Francisco? Or is the tech environment in L.A. so distinct from the Bay Area that the trends there, especially with the AI developments, may not be relevant to tech users in L.A.?

I believe the Los Angeles tech scene is closely linked to the entertainment industry. Many tech companies are drawn here due to the strong presence of the entertainment world. However, I have greater expectations for advancements in medical research and quantum computing, as UCLA is investing significantly in creating a major research center that will attract talent from around the globe. This facility is set to become one of the largest quantum computing centers in the nation and will be the leading center for immunology research. While tech has largely engaged with content creators in the entertainment sector rather than pure tech fields, there remains a strong connection between the two.

And your next question comes from Upal Rana with KeyBanc Capital Markets.

Just wanted to follow up on Blaine's question on Studio Plaza leasing. You mentioned you already have a tenant moving in, but are the ones that have leased space but haven't moved in, do you anticipate them to move in at some point this year? Or is this more of a '26 event?

I think we'll have other tenants moving in this year, yes.

Okay. Great. And then on Barrington Plaza, now The Landmark Residences, what's driving the redevelopment costs higher there? It looks like you anticipate $400 million now versus $300 million earlier this year. And what do you expect the yield to be there now?

I think we initially estimated the costs to be over $300 million, but I mentioned it's approximately that figure. What's primarily influencing this change is that we now have contracts in place, which allows us to understand the actual costs better. Previously, we were relying on estimates. There have likely been some increases in costs for certain areas, as well as reductions in others. This difference highlights the transition from rough estimates to a more accurate range. Although we're still within that original territory, we feel we're leaning closer to around $400 million. We've indicated that it's more closely aligned with that figure now. In terms of yield, we are in good shape.

And your next question comes from Nick Yulico with Scotiabank.

Can you provide more details about the Westwood office market regarding the residential conversion? I understand you own several major buildings in that area. With one building being taken out of service, what benefits do you foresee for the submarket? Additionally, have you secured any larger tenants whose leases are expiring in that building for space in your other properties or within your portfolio?

For the most part, the tenants are learning about this at the same time you are. However, we will make a significant effort to keep them satisfied and hopefully encourage them to move into other buildings we own, and we are concentrated on that. I don’t want to create any misconceptions about the situation being similar to Hawaii. While it’s true that this is taking some space out of the market, in Hawaii, tenants would have ended up moving to other buildings because that was their only option. Here in Westwood, however, it can compete with Century City and potentially even with Beverly Hills, the Olympic office Corridor, and perhaps a little with Brentwood. Therefore, these tenants are not as restricted, but I believe many of them prefer to be in Westwood. This could prove beneficial for the overall portfolio. Taking product out of the market is always advantageous in any market, so we will see that effect.

Okay. And second question just goes back to leasing volume. And I know there's already some questions on this, but specifically, I'm asking about the stabilized lease rate. So nothing about occupancy or occupancy versus leased rate. Just what's the catalyst to get your leased rate improved? Just thinking about the volume of new leases that you need to get to? And what would drive that higher if certain industries becoming active? Or any more commentary on that would be helpful.

We have analyzed this extensively because I am eager to understand what to anticipate as the economy progresses. As a significant economy, once we begin to move forward, we experience growth across various sectors simultaneously. I've been investigating what we can expect when the economy does start to pick up and people feel confident in spending, expanding, and hiring, regardless of the industry. We have a diverse range of industries in our markets, and I wonder how quickly things can change and at what pace. Ken and I have managed through four or even five recessions, providing us with substantial history related to portfolio recovery and leasing speeds. The most recent recession, around 2008 to 2010, was notably slow in terms of annual gains, but surprisingly, we didn't experience significant losses. It was perceived as a major downturn, yet the actual losses were less than anticipated. In past recoveries, we can expect an average increase of around 3% per year in either occupancy or lease rates if we are in a substantial recovery period. The driving forces behind these changes can come from various industries such as education, research, accounting, legal, entertainment, and tourism. When people feel at ease with the economy, this is the type of movement we have seen with our large portfolio. In fact, our average increase is consistently over 3%.

And the next question comes from Seth Bergey with Citi.

I just wanted to circle back on Studio Plaza. Just how are the rents that you're kind of getting there on some of the new leases kind of compared to your initial expectations? And then as we think about a timing perspective, I understand you guys aren't giving the lease rate, but what is kind of the build time before you would be able to kind of recognize revenue on some of the leases you're signing there?

Peter, do you want to answer that?

Yes, I think our rental rates are in line with our expectations. We're satisfied with the rates we've been achieving and the deals we've secured. Regarding timing, it really depends on the size of the tenant. Larger tenants and their build-outs take considerably longer, whereas we've already moved in some smaller tenants. The smaller speculative build-outs that we regularly handle can be completed quickly, while the larger ones can take a significant amount of time.

Okay. Great. And then my second one is just kind of on the tax credits that California passed. You've seen for the entertainment industry. Are you seeing any impact on that with respect to demand?

I think that are you talking about the entertainment, the moviemaking tax credits?

Yes.

We don't have much insight into that. We don't own any studios, and when it comes to manufacturing, we're more focused on the administrative aspects or the vendors that support it. The tax credits are intended to encourage filming in California, but most of the work happens here anyway, since that's where people live. Whether it's sound work or other production roles, everyone is here, including accountants, agents, and lawyers. So I can't say if there's a significant impact. Victor probably has a better understanding of that. We derive revenue from people using our facilities for filming, but honestly, it's likely under $1 million a year. Yes, it's under $1 million annually. They primarily use our buildings for projects like the Barbie movie and other films you've likely seen filmed in our locations.

And your next question comes from Jana Galan with Bank of America.

Could you provide an update on whether you are seeing increased touring or demand in your portfolio due to the various positive catalysts in L.A., such as the university investment, expanded tax credits, and the World Cup next year? Or is it still too early to tell?

I can’t specify those exact segments, but it’s appropriate to inquire about our pipeline, which we’ve mentioned looks very promising. Perhaps that’s influencing things. I believe it’s a collective situation. People seem exhausted from not having their space and are bringing everyone back. There’s no uncertainty about people returning anymore; there's a desire to get them settled into their work environments. This shift has eliminated the notion that occupancy costs would decrease because people could work from home indefinitely. The reality is that people are back at work, and our pipeline has expanded as a result.

And then maybe just on the cash re-leasing spreads, they were a little bit lower than they've been trending. I don't know if there was anything to call out on specific leases or just the nature of the role.

Yes. It's just kind of the mix and nature of the role. That number will bounce around quarter-to-quarter based on kind of the mix that gets done and some larger tenants or whatever it might be. We look at the straight-line metric is kind of the one that we focus on more because that captures the full value of the prior lease compared to the full value of the new lease. We have very high annual rent escalators built into our leases. They're on average greater than 3% a year. So very hard to have a positive cash spread when you've got such good bumps throughout the lease and you're in a market like this where market rents aren't screaming up. So pleased that our cash or our straight-line spreads have stayed positive. They were positive again. They've actually stayed positive throughout since the pandemic.

Your next question comes from Peter Abramowitz with Jefferies.

Just wondering if you can give a little bit more color on the decision to convert the asset on Wilshire to residential rather than kind of invest in it and try to release it as office. Was that based on something you saw in the market? Or do you think it's just better risk-adjusted returns by converting it? Just wondering if you could give a little bit more color there.

There were several unique aspects of the building that made it necessary for us to consider converting it. We already anticipated needing to replace some larger tenants, which created the opportunity to work on multiple floors simultaneously. We are constructing a residential building at the back, which meant we had to incorporate residential amenities as part of the plan. Additionally, a subway stop is being placed right in front of the building, which affected our front entrance and forced us to relocate it and completely redesign the first floor. This situation required us to address the first floor anyway. The tower has favorable floor plates for residential use, allowing for more flexible unit layouts compared to adhering to strict structural limitations. All these factors contributed to it being a cost-effective and attractive candidate for conversion, and we felt it was a good direction to pursue since we acquired the property.

Seeing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.

Well, thank you all for joining us, and I'm sure we will be speaking to you during the quarter. So goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.