Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in listen-only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session. I will now turn the conference over to Stuart McElhenney, Vice President of Investor Relations for Douglas Emmett.

please go ahead. Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO, Kevin Crummey, 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 During 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. Thank you. I will now turn the call over to Jordan.

Good morning, and thank you for joining us. Our operating results were once again exceptional. In a consecutive six months, we delivered our best results since 2019 for a feed of new leases. I understand that everyone is watching our leasing for signs of becoming increasingly high. We believe that this part of the cycle presents a rare opportunity to expand our portfolio at a significant discount to long-term value. Thus far, we have made two acquisitions, including an April acquisition in which we and our joint venture partners paid $260 million for a portfolio of premium medical office properties located in the Beverly Hills Golden Triangle, encompassing almost the entire 400 block of Bedford Drive. Outstanding job done by our operations team and our capital markets crew. These results reflect their sustained hard work. We remain hyper-focused on growing earnings through leasing, acquisitions, and the redevelopment of smart residences. We've also been successful at extending our debt at lower rates than are available. Before I finish, I can't help but mention recent referrals in the media to Jevon's Paradox, which compares the impact of AI adoption on job growth and office demand to past transformative technologies such as personal computers, the Internet, and cloud computing.

This April, a new joint venture managed by us acquired the Bedford Collection, a five-building, 246,000-square-foot medical office portfolio located in the Beverly Hills Goldman Sachs, a 13% stake in the joint venture's $150 million of equity. The joint venture also borrowed $130 million, secured by a non-recourse, interest-only first trustee loan, maturing in April 2031. The loan bears interest of SOFR plus 170 basis points, which we have effectively fixed at 5.26% per annum through April 2030. Projects that Jordan mentioned are progressing nicely. In Brentwood, our multi-year redevelopment of the 712-unit landmark residences continues in full swing. At 10900 Wilshire and Westwood, we expect to commence construction this year to convert the property into a 323-unit apartment at Studio Plaza in Burbank. The redevelopment is completed and leasing is well underway, with some tenants already taking occupancy. With that, I will turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone. During the first quarter, we signed 218 office leases totaling 909,000 square feet, including a single quarter of 61,000 square feet of new leases. We signed 448,000 square feet of renewal leases, and as Jordan mentioned, leasing was particularly strong from new tenants over 10,000 square feet. Tenant retention remains strong, consistent with our history across many industries, with legal, financial, real estate, and accounting representing the top five. We continue to sign new leases that are more valuable than the expiring lease for the same value of new leases we signed in the quarter, increased by 5.3%. As a result of our very healthy fixed 3% to 5% annual rent increases over the life of the expiring average, significantly below the benchmark average for other office REITs, exceptional new and larger leasing, which typically require more tenant improvement costs. Though it continues to perform well, it remains over 99% leased.

2025 revenue remained essentially flat at 251 million dollars ffo decreased to 37 cents per share and affo decreased to 49 million dollars reflecting higher interest expense and lower interest income partly offset by strong multi-family performance same property cash noi decreased 1.4 percent for the quarter at approximately 5.4 percent of revenue our gna remains the lowest among our benchmark group in terms of guidance we still expect our 2026 diluted net income per common share to be between negative 20 and negative 14 cents and our fully diluted ffo per share to be between a dollar 39 and a dollar 45. we expect the ffo gains from the bedford acquisition to be largely offset by higher assumed interest expense reflecting the flattening interest rate 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. We will now begin the question and answer session.

In consideration of other participants, please limit your queries to one question and one follow-up. To ask a question, you may press star then one on your touchtone phone. If you were using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. At this time we will pause momentarily to assemble our roster. Our first question comes from

Steve Sacqua with Evercore ISI. Please go ahead. Yeah, thanks. Good morning out there. I don't know, Jordan or maybe Stuart, could you guys maybe just expound a little bit on the leasing volume? Obviously, the new leasing was quite strong, and we're just trying to get our arms around whether there were any larger leases that might have kind of skewed the quarterly volume here, if you could provide any maybe insight on how many over 10,000s got done this quarter versus historically done just to kind of gauge the breadth of the leasing activity. Yeah, Steve, it's Stuart. Yeah, as we

said, it was record amount of leasing in that over 10,000 category, really strong. There were a number of deals between 10 and 20,000 feet, and there were a few deals over 20,000 feet that were in, So very strong, a bunch of industries, entertainment, legal. So it was a wide variety of industries in that larger category. But it's the strongest leasing we've had of that size ever.

Okay, thanks. And then maybe a follow-up, Jordan. Can you provide any just additional, I guess, valuation metrics, kind of yield, return on equity, stabilize yield on the Bedford transaction? Obviously, we can back into a price per foot, but, you know, any kind of going in cap rates or return on equity that you could share for Douglas Emmett would be helpful.

Not to give out that information, although you don't even have to back. It's important, and I'm beyond pleased with the deal. I think that we're lucky that it came up at a time when…

Those were my two questions.

Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Sure. And good morning out there. Jordan, you mentioned Javon's paradox. So I had to Google that to look what that is. But are you seeing that? Were you just making that comment on its own? Or do you have real anecdotes that you're seeing in the marketplace of people saying, hey, because of AI and all the innovation that's going on, we actually need to hire more? I'm just sort of curious if it was just a comment that you threw out or you're actually seeing it in leasing discussions.

You know, are leasing's really picking up, as you saw? I cannot say I've seen that exact thing happening. But the reason I was just saying it now for, I mean, is I just think, you said to me the number of people employed FBMD, because I don't believe that one bit. And if you look back, they have made that same prediction, whatever the case may be, to the exact tops, but there's many examples. Okay. And the second question is, and I know

I've asked you before about the South Bay, like El Segundo and those markets south of LAX, but just hearing recently about more demand for aerospace and defense and that's sort of that community's long history. Do you guys, as you think about acquisitions, especially you've shown you still have a lot of JV capital that wants into the market, would you reassess and possibly consider entering some of those markets if you feel like the aerospace defense you know has renewed legs over this cycle or your view or maybe kevin's view is there's enough acquisition demand in your traditional markets and maybe you're not so sure how long the aerospace uh demand is that you're going to stick where you are versus possibly entering uh you know some new sub markets

i think the problem with those other markets that you're mentioning is that people can still build, and if aerospace really picks up down there, they're going to build more facilities for them. And that always worries me in a market. Getting in, you've got to be even at a period of green limit on supply. We're saying that.

Thank you. The next question will come from Anthony Paolone with J.P. Morgan. Please go ahead.

Thank you. Jordan, you talked about just finding bottom here, but can you maybe step back just to give us your thoughts on LA in general and how that's playing into tenant behavior, desire to sign leases, just a little bit more on the ground in terms of what the feedback has been from prospective tenants.

When you say LA in general, I don't know if you're saying as opposed to another one of the gateway markets, but LA in general, in many aspects, just generally feels like it's coming back. I mean, you see it in the leasing. We see it in the differences of policing and permissiveness that's coming back, and I hope it holds up.

And then at Studio Plaza, you said it sounds like tenants are starting to take some space there. When should we think about that just being put to bed in terms of stabilized and up and running?

It felt like Warner Brothers moved out, a real good mix of tenants, good demand for the building, leasing it up, and a good mix of some tenants or provide amenity to the building. It's just a whole thing. We redid the building. It's one of my greatest happinesses.

Do you think it's another year to get to 90-plus or two years out?

Tony, we're not going to give a timeline. We're pleased with the pace so far. Like, when it's stabilized, we'll move it back into the in-service portfolio, but we don't like to give individual building data.

Our next question comes from Jana Gallin with Bank of America. Please go ahead.

Thank you, Ness. Congrats on the strong start to the year. The spread between the leased and commenced occupancy continues to widen. When you think about the expected commencement, the forward pipeline, and then the expiration schedule, does it seem like this quarter has been kind of the trough in the occupancy number?

As Jordan said in his remarks, you know, we're not ready to call a bottom. We're certainly pleased with the pace of leasing the last few quarters and hope that continues. We're really pleased to see that lease to occupied spread widen out. It's three and a half now. That means we've been doing a lot of leasing. Of course, those folks will need to move in, which will happen over the next few quarters. With the larger leases that we're signing, that takes a little longer than our typical tenant. So the commencement dates are, you know, out a little further than, you know, the typical 2,500-foot guy that we can get in very quickly. But hopefully that spread stays wide. We need to do a lot of leasing, and when that spread is wide, that means that we've done a lot of leasing and those folks need to move in.

Thank you. And can you give us maybe, like, just rough estimates for the under $10,000? you know that would be maybe like a two-quarter lag and then maybe the larger or any kind of rule

of thumb for us to think about in modeling yeah for the for the typical the 2500 foot guy we can get them in very quickly i mean we build a lot of move-in ready spec suites that's a program that we're very aggressive about we try to have all of our buildings have a couple of those suites ready to go those can be in extremely fast but a more typical average for that smaller tenant is a few months so they can be moved in within a quarter or two of when we sign the lease and then for the larger guys it really depends on the level of build out significant build outs going on so some of those folks will be moving in next year so that is really deal specific thank

you our next question comes from seth burgy with city please go ahead hi thanks for taking my

question um i guess just to you know follow up in some of those comments on on the sign not commenced spread how much of that you know 350 basis points is smaller tenants that you can kind of get in quickly versus skewed by some of the larger leases that will take a bit longer to get those tenants moved in I

have the breakdown between small and large in that in that I know a lot of it is still are you know under 10,000 feet guys so I suspect we'll have steady move-ins throughout the rest of 2026 and then some of the larger guys are going to take a little

longer like i said and then just as a follow-up you know i know you're not ready to kind of call bottom here but you know what are you seeing in terms of tour activity or kind of the forward pipeline um that gives you confidence that things will kind of improve over the coming quarters

it's the good activity that we've been seeing these last six months that's continued uh The pipeline is good. Healthy activity, tours, calls, all the metrics we look at all seem very healthy.

Our next question comes from Upul Rana with KeyBank Capital Markets. Please go ahead.

Can you hear me now? On the Bedford collection, you know, is there a mark-to-market opportunity there or any kind of expected rent growth that you can achieve there?

I think there's always a small mark-to-market opportunity in everything we've been doing, but not a stunning one, like with a, you know, sometimes you buy a building, the rent's like less than half. That's not that. We own a lot of medical offices.

This isn't kind of our first foray into that product type. We own probably about a million feet of medical office. It's a fantastic product. We love the tenants. They're very sticky. They invest a lot of their own money in the space. So we're very pleased to add to that.

Okay, great. that. That was helpful. And then, you know, could you maybe talk a little bit on the potential to do additional external growth opportunities that you're seeing in the market? I know you've talked about developing Resi and trying to buy a stabilized office, which you've been doing, but just curious what kinds of opportunities you're seeing and the depth that you're seeing

out in your markets. It's Kevin. We're seeing a lot of activity and, you know, more than half of it is off market where somebody reaches out. And so, you know, we're feeling pretty good about the about the um engagement that we're having with people we just need to close the gap and and come up with um pricing that makes sense okay thank you up next we have john kim with

bmo capital markets please go ahead good morning um with the bedford collection uh you announced that you have a third of the class a office space in beverly hills and i'm wondering if you could talk about what kind of scale advantages or pricing power that provides you as we

get from the market control we have you know across our portfolio on the operating side there's tremendous synergies we've looked at like the last 10 or 11 acquisitions we've made we're able to lower operating expenses on average about 20% so it's meaningful savings we do that because we're so localized we have such concentrations of buildings close to each other that we We can have expensive people shared across properties. We don't have to have a manager at every single building or a very expensive engineer at every single building. We also negotiate very large contracts across our portfolio so that gets us better pricing. Even more important than the operating side is on the leasing side gives us the ability to offer space to any tenant to fit them into our portfolio. If we've already got them in the portfolio and they're growing or they're shrinking, We can move them maybe across the street in one of our other buildings that has space that will work for them. And generally, with the small tenants that we have, our goal is not to rip out the space every time and spend $200 a foot rebuilding it. The spaces are built out pretty standardized, and we want to move tenants into a space that already works for them, the configuration with the conference room and the offices the way they like it, and spend a little bit of TIs, new paint, new carpet, whatever that is, get them in quickly, and not spend a lot of capital. That's why you see our leasing costs on average are so much lower than the other office reach you'll look at. And having the concentration in those markets allows us to do that because if we own 30% of the space in Beverly Hills, we're going to have an opportunity to take any requirement in that market and show them several options that should work for, you know, the amount of space they need.

So is your intention to keep this portfolio of medical office, or are you indifferent in the kind of lease it's any kind of the month space?

If you're speaking about the Bedford collection, it will stay medical office. Is that your question?

Yeah.

Yeah, Bedford will stay medical. We own several medical office properties in Beverly Hills. Like I said, it's a fantastic product. But my comments about the synergies work across medical and just regular office.

And then when you mentioned that you're not ready to call the bottom, is that on occupancy or leasing? I'm just wondering if the midpoint of your occupancy guidance is achievable, if there's the floor to come down even further.

Well, we definitely feel like it's achievable. That's why we left the range where it is. So we're comfortable with the range on occupancy. Q1 is typically a tough occupancy quarter for us because more than their fair share of leases expire on 1231 for whatever reason. So then anybody that moves out, that occupancy dip hits Q1. So, it's not unusual for us to see a small decline in occupancy in Q1 and then ramp up throughout the rest of the year, which is what we expected in our own guide when we gave the range.

Got it. Okay. Thank you.

Our next question comes from Dylan Berzynski with Green Street. Please go ahead.

Hi, guys. Thanks for taking the question. Just maybe touching on the various submarkets, we noticed that net absorption or lease percentage increased in the west side and Honolulu declined in the valley. Any sort of discernible trends from that? I mean, should we expect the valley to maybe lag in its recovery versus the west side?

No, I wouldn't expect that. I think we did some good leasing in the valley. It's just pockets here and there, and it depends on the, you know, whatever leases got side in that quarter but we would expect the valley to to increase along with the west side we're getting good activity there sherman oaks and seno has had a lot of activity um warner center which has typically been our laggard market out there i also you know good tours good activity so no i wouldn't expect the valley to continue to lag to increase the least rate in all our sub markets and we definitely think that's a tool and then just touching back on sort of the capital

markets and transaction environment given that what appears to be just recovering leasing backdrop are you seeing any increased competition from other buyers that are getting in bidding tents as you guys take a look at all these transactions that you guys have referenced

i think um the term people are using is office curious um and so you know people are kicking the tires there haven't been a lot of of the type of assets in our markets that we get super excited about like we did with bedford so um you know as i i believe and you're seeing this up in san francisco and you're seeing this in new york you know as these markets recover more and more people start to pay attention to it but um you know right now we're trying to buy as much as we can because the prices relative to the long-term values are at a significant discount you know i think that

But, you know, I remember this kind of thing happening in the 90s. I think that one of the things when people are exiting it for a while, the operating platforms get denuded. If they want to come back in, they're even more nervous. And I think it's going to give us an edge for a little while because I've seen many operating group dissolve. And it doesn't mean they're...

That couple of color guys, thanks so much.

Our next question comes from Rich Anderson with Cantor Fitzgerald. Please go ahead.

Good morning. So, Jordan, you said when Warner Brothers left Studio Plaza, you described yourself as frightened. I don't remember you saying that at the time, but nonetheless, I get it. But I'm curious when you think about the totality of your business today. Obviously, things are looking great in terms of a possible bottoming, but where is work still left to be done? Where are the shortcomings of the Douglas Emmett portfolio in your mind that still need your attention?

First of all, I actually was frightened, but I wasn't frightened because I thought the building wouldn't lease up or be able to lease up. I was frightened for how long it would take to get tenants because it was right dead center at a time when, you know, it turned out that neither of those extremely nice bills. Tenants are kind of boating to be there. Today, I'm focused on kind of finishing off our debt program. There's not a lot left to do to extend that out. And then I need to get out there and make sure we make some good acquisitions.

Stu, you said, you know, the larger tenant leasing is a mix of all. So then what would you say the common thread is to this happening for you guys? Because this is the second time we're at least second time we're hearing, you know, some optimism around larger leases. What is the communication from those entities sort of saying about why they're willing to do it? Is there any sort of theme around why you're seeing more in the way of larger lease activity?

I think that, as I said on the last call, a lot of what we're seeing is sort of sideline fatigue. I mean, they've been holding off, holding off, holding off, trying to wait to see where things are headed. We'll make a lot of money in this market breaking and saying, well, we're just going to take deals and start expanding because, and our new tenants coming into the market, they need more people waiting. I mean, there was an article recently that said that people just become sort of indifferent towards the wild fluctuations and they're going to just do business as usual and move forward. I don't know what mix of things that is because I think it sounds good.

Thanks very much.

This concludes our question and answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.