Douglas Emmett Inc 10-Q for FY2020 Q1

Douglas Emmett Inc (DEI)

10-Q 2020-05-08 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Douglas Emmett Inc filed this 10-Q on May 8, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $251.35M; up 12.1% from $224.19M a year earlier
Net income: $26.92M; down 6.2% from net income of $28.7M a year earlier

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Maryland	20-3073047
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



1299 Ocean Avenue, Suite 1000	,	Santa Monica	,	California	90401
(Address of principal executive offices)					(Zip Code)



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	DEI	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



Class	Outstanding at	May 1, 2020
Common Stock, $0.01 par value per share	175,374,886	shares



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

DOUGLAS EMMETT, INC. FORM 10-Q

Table of Contents

		Page

	Glossary	3
	Forward Looking Statements	6

	PART I. FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)	7
	Consolidated Balance Sheets	7
	Consolidated Statements of Operations	8
	Consolidated Statements of Comprehensive Income (Loss)	9
	Consolidated Statements of Equity	10
	Consolidated Statements of Cash Flows	11
	Notes to Consolidated Financial Statements	13
	Overview	13
	Summary of Significant Accounting Policies	14
	Ground Lease	15
	Acquired Lease Intangibles	16
	Investments in Unconsolidated Funds	17
	Other Assets	18
	Secured Notes Payable and Revolving Credit Facility, Net	19
	Interest Payable, Accounts Payable and Deferred Revenue	21
	Derivative Contracts	21
	Equity	23
	EPS	25
	Fair Value of Financial Instruments	26
	Segment Reporting	28
	Future Minimum Lease Rental Receipts	29
	Commitments, Contingencies & Guarantees	29
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4	Controls and Procedures	44

	PART II. OTHER INFORMATION

Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3	Defaults Upon Senior Securities	45
Item 4	Mine Safety Disclosures	45
Item 5	Other Information	46
Item 6	Exhibits	46

	SIGNATURES	47



AOCI	Accumulated Other Comprehensive Income (Loss)
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
ATM	At-the-Market
BOMA	Building Owners and Managers Association
CEO	Chief Executive Officer
CFO	Chief Financial Officer
Code	Internal Revenue Code of 1986, as amended
COVID-19	Coronavirus Disease 2019
DEI	Douglas Emmett, Inc.
EPS	Earnings Per Share
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FFO	Funds From Operations
Fund X	Douglas Emmett Fund X, LLC
Funds	Unconsolidated Institutional Real Estate Funds
GAAP	Generally Accepted Accounting Principles (United States)
JV	Joint Venture
LIBOR	London Interbank Offered Rate
LTIP Units	Long-Term Incentive Plan Units
NAREIT	National Association of Real Estate Investment Trusts
OCI	Other Comprehensive Income (Loss)
OP Units	Operating Partnership Units
Operating Partnership	Douglas Emmett Properties, LP
Opportunity Fund	Fund X Opportunity Fund, LLC
Partnership X	Douglas Emmett Partnership X, LP
PCAOB	Public Company Accounting Oversight Board (United States)
REIT	Real Estate Investment Trust
Report	Quarterly Report on Form 10-Q
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
TRS	Taxable REIT Subsidiary(ies)
US	United States
USD	United States Dollar
VIE	Variable Interest Entity(ies)



Annualized Rent	Annualized cash base rent (excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the reporting date and expiring after the reporting date. Annualized Rent for our triple net office properties (in Honolulu and two single tenant buildings in Los Angeles) is calculated by adding expense reimbursements and estimates of normal building expenses paid by tenants to base rent. Annualized Rent does not include lost rent recovered from insurance and rent for building management use. Annualized Rent includes rent for a health club that we own and operate in Honolulu and for our corporate headquarters in Santa Monica. We report Annualized Rent because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine tenant demand and to compare our performance and value with other REITs. We use Annualized Rent to manage and monitor the performance of our office and multifamily portfolios.
Consolidated Portfolio	Includes all of the properties included in our consolidated results, including our consolidated JVs.
Funds From Operations (FFO)	We calculate FFO in accordance with the standards established by NAREIT by excluding gains (or losses) on sales of investments in real estate, gains (or losses) from changes in control of investments in real estate, real estate depreciation and amortization (other than amortization of right-of-use assets for which we are the lessee and amortization of deferred loan costs), and impairment write-downs of real estate from our net income (including adjusting for the effect of such items attributable to consolidated JVs and unconsolidated Funds, but not for noncontrolling interests included in our Operating Partnership). FFO is a non-GAAP supplemental financial measure that we report because we believe it is useful to our investors. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report for a discussion of FFO.
Leased Rate	The percentage leased as of the reporting date. Management space is considered leased. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating percentage leased. We report Leased Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Leased Rate to manage and monitor the performance of our office and multifamily portfolios.
Net Operating Income (NOI)	We calculate NOI as revenue less operating expenses attributable to the properties that we own and operate. NOI is calculated by excluding the following from our net income: general and administrative expense, depreciation and amortization expense, other income, other expenses, income from unconsolidated Funds, interest expense, gain from consolidation of JVs, gains (or losses) on sales of investments in real estate and net income attributable to noncontrolling interests. NOI is a non-GAAP supplemental financial measure that we report because we believe it is useful to our investors. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report for a discussion of our Same Property NOI.
Occupancy Rate	We calculate the Occupancy Rate by excluding signed leases not yet commenced from the Leased Rate. Management space is considered occupied. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating Occupancy Rate. We report Occupancy Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Occupancy Rate to manage and monitor the performance of our office and multifamily portfolios.
Rental Rate	We present two forms of Rental Rates - Cash Rental Rates and Straight-Line Rental Rates. Cash Rental Rate is calculated by dividing the rent paid by the Rentable Square Feet. Straight-Line Rental Rate is calculated by dividing the average rent over the lease term by the Rentable Square Feet.



Recurring Capital Expenditures	Building improvements required to maintain revenues once a property has been stabilized, and excludes capital expenditures for (i) acquired buildings being stabilized, (ii) newly developed space, (iii) upgrades to improve revenues or operating expenses or significantly change the use of the space, (iv) casualty damage and (v) bringing the property into compliance with governmental or lender requirements. We report Recurring Capital Expenditures because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine our cash flow requirements and to compare our performance with other REITs. We use Recurring Capital Expenditures to manage and monitor the performance of our office and multifamily portfolios.
Rentable Square Feet	Based on the BOMA remeasurement and consists of leased square feet (including square feet with respect to signed leases not commenced as of the reporting date), available square feet, building management use square feet and square feet of the BOMA adjustment on leased space. We report Rentable Square Feet because it is a widely reported measure of the performance and value of equity REITs, and is also used by some investors to compare our performance and value with other REITs. We use Rentable Square Feet to manage and monitor the performance of our office portfolio.
Same Properties	Our consolidated properties that have been owned and operated by us in a consistent manner, and reported in our consolidated results during the entire span of both periods being compared. We exclude from our same property subset any properties (i) acquired during the comparative periods; (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements during the comparative periods; or (iii) that underwent a major repositioning project or were impacted by development activity that we believed significantly affected the properties' results during the comparative periods.
Short-Term Leases	Represents leases that expired on or before the reporting date or had a term of less than one year, including hold over tenancies, month to month leases and other short-term occupancies.
Total Portfolio	Includes our Consolidated Portfolio plus the properties owned by our Fund.


•	adverse developments related to the Coronavirus (COVID-19) global pandemic;


•	adverse economic or real estate developments affecting Southern California or Honolulu, Hawaii;


•	competition from other real estate investors in our markets;


•	decreasing rental rates or increasing tenant incentive and vacancy rates;


•	defaults on, early terminations of, or non-renewal of leases by tenants;


•	insufficient cash flows to service our outstanding debt or pay rent on ground leases;


•	difficulties in raising capital;


•	environmental uncertainties;


•	inability to liquidate real estate or other investments quickly;


•	inability to successfully expand into new markets and submarkets;


•	difficulties in identifying properties to acquire and failure to complete acquisitions successfully;


•	conflicts of interest with our officers and reliance on key personnel;


•	adverse results of litigation or governmental proceedings;


•	failure to comply with laws, regulations and covenants that are applicable to our business;


•	weaknesses in our internal controls over financial reporting;


•	failure to maintain our REIT status under federal tax laws; and


•	adverse changes to tax laws, including those related to property taxes.

Douglas Emmett, Inc. Consolidated Balance Sheets (In thousands, except share data)


	March 31, 2020			December 31, 2019

	Unaudited
Assets
Investment in real estate:
Land	$	1,152,684		$	1,152,684
Buildings and improvements	9,307,283			9,308,481
Tenant improvements and lease intangibles	907,767			905,753
Property under development	143,019			111,715
Investment in real estate, gross	11,510,753			11,478,633
Less: accumulated depreciation and amortization	(2,592,996		)	(2,518,415		)
Investment in real estate, net	8,917,757			8,960,218
Ground lease right-of-use asset	7,477			7,479
Cash and cash equivalents	174,696			153,683
Tenant receivables	5,801			5,302
Deferred rent receivables	133,563			134,968
Acquired lease intangible assets, net	6,064			6,407
Interest rate contract assets	—			22,381
Investment in unconsolidated Fund	48,346			42,442
Other assets	19,350			16,421
Total Assets	$	9,313,054		$	9,349,301

Liabilities
Secured notes payable and revolving credit facility, net	$	4,620,215		$	4,619,058
Ground lease liability	10,878			10,882
Interest payable, accounts payable and deferred revenue	156,195			131,410
Security deposits	60,356			60,923
Acquired lease intangible liabilities, net	47,769			52,367
Interest rate contract liabilities	238,821			54,616
Dividends payable	49,113			49,111
Total liabilities	5,183,347			4,978,367

Equity
Douglas Emmett, Inc. stockholders' equity:
Common Stock, $0.01 par value, 750,000,000 authorized, 175,374,886 and 175,369,746 outstanding at March 31, 2020 and December 31, 2019, respectively	1,754			1,754
Additional paid-in capital	3,486,442			3,486,356
Accumulated other comprehensive loss	(165,872		)	(17,462		)
Accumulated deficit	(780,562		)	(758,576		)
Total Douglas Emmett, Inc. stockholders' equity	2,541,762			2,712,072
Noncontrolling interests	1,587,945			1,658,862
Total equity	4,129,707			4,370,934
Total Liabilities and Equity	$	9,313,054		$	9,349,301



	Three Months Ended March 31,
	2020			2019

Revenues
Office rental
Rental revenues and tenant recoveries	$	185,827		$	167,235
Parking and other income	34,062			30,055
Total office revenues	219,889			197,290

Multifamily rental
Rental revenues	29,086			24,893
Parking and other income	2,375			2,003
Total multifamily revenues	31,461			26,896

Total revenues	251,350			224,186

Operating Expenses
Office expenses	69,664			63,449
Multifamily expenses	9,356			7,555
General and administrative expenses	10,335			9,832
Depreciation and amortization	97,777			79,873
Total operating expenses	187,132			160,709

Operating income	64,218			63,477

Other income	1,989			2,898
Other expenses	(1,396		)	(1,845		)
Income from unconsolidated Funds	323			1,551
Interest expense	(35,420		)	(33,293		)
Net income	29,714			32,788
Less: Net income attributable to noncontrolling interests	(2,791		)	(4,087		)
Net income attributable to common stockholders	$	26,923		$	28,701

Net income per common share – basic and diluted	$	0.15		$	0.17



	Consolidated Portfolio	Total Portfolio
Office
Wholly-owned properties	53	53
Consolidated JV properties	17	17
Unconsolidated Fund properties	—	2
	70	72

Multifamily
Wholly-owned properties	10	10
Consolidated JV properties	1	1
	11	11

Total	81	83



Twelve months ending March 31:	(In thousands)

2021	$	733
2022	733
2023	733
2024	733
2025	733
Thereafter	45,262
Total future minimum lease payments	$	48,927


(1)	Recorded as a net increase to office and multifamily rental revenues.


(2)	Recorded as a decrease to office parking and other income.


(1)	The distributions are not directly comparable to the prior period, the distributions during the three months ended March 31, 2020 reflect distributions from Partnership X, whereas the distributions during the three months ended March 31, 2019 reflect distributions from the Opportunity Fund, Fund X and Partnership X.


(1)	The results of operations are not directly comparable to the prior period, the balances for the three months ended March 31, 2020 reflect the operations of Partnership X, whereas the balances for the three months ended March 31, 2019 reflect the combined operations of the Opportunity Fund, Fund X and Partnership X.



Description	Maturity Date⁽¹⁾	Principal Balance as of March 31, 2020			Principal Balance as of December 31, 2019			Variable Interest Rate	Fixed Interest Rate⁽²⁾	Swap Maturity Date

		(In thousands)

Wholly Owned Subsidiaries
Term loan⁽³⁾	1/1/2024	$	300,000		$	300,000		LIBOR + 1.55%	3.46%	1/1/2022
Term loan⁽³⁾	3/3/2025	335,000			335,000			LIBOR + 1.30%	3.84%	3/1/2023
Fannie Mae loan⁽³⁾	4/1/2025	102,400			102,400			LIBOR + 1.25%	2.76%	3/1/2023
Term loan⁽³⁾⁽⁴⁾	8/15/2026	415,000			415,000			LIBOR + 1.10%	2.58%	8/1/2025
Term loan⁽³⁾	9/19/2026	400,000			400,000			LIBOR + 1.15%	2.44%	9/1/2024
Term loan⁽³⁾⁽⁵⁾	9/26/2026	200,000			200,000			LIBOR + 1.20%	2.77%	10/1/2024
Term loan⁽³⁾⁽⁶⁾	11/1/2026	400,000			400,000			LIBOR + 1.15%	2.18%	10/1/2024
Fannie Mae loan⁽³⁾	6/1/2027	550,000			550,000			LIBOR + 1.37%	3.16%	6/1/2022
Fannie Mae loan⁽³⁾	6/1/2029	255,000			255,000			LIBOR + 0.98%	3.26%	6/1/2027
Fannie Mae loan⁽³⁾⁽⁷⁾	6/1/2029	125,000			125,000			LIBOR + 0.98%	2.55%	6/1/2027
Term loan⁽⁸⁾	6/1/2038	30,679			30,864			N/A	4.55%	N/A
Revolving credit facility⁽⁹⁾	8/21/2023	—			—			LIBOR + 1.15%	N/A	N/A
Total Wholly Owned Subsidiary Debt		3,113,079			3,113,264

Consolidated JVs
Term loan⁽³⁾	2/28/2023	580,000			580,000			LIBOR + 1.40%	2.37%	3/1/2021
Term loan⁽³⁾	7/1/2024	400,000			400,000			LIBOR + 1.65%	3.44%	7/1/2022
Term loan⁽³⁾	12/19/2024	400,000			400,000			LIBOR + 1.30%	3.47%	1/1/2023
Term loan⁽³⁾	6/1/2029	160,000			160,000			LIBOR + 0.98%	3.25%	7/1/2027
Total Consolidated Debt⁽¹⁰⁾		4,653,079			4,653,264
Unamortized loan premium, net		6,526			6,741
Unamortized deferred loan costs, net		(39,390		)	(40,947		)
Total Consolidated Debt, net		$	4,620,215		$	4,619,058


(2)	Effective rate as of March 31, 2020. Includes the effect of interest rate swaps and excludes the effect of prepaid loan fees. See Note 9 for details of our interest rate swaps. See below for details of our loan costs.


(3)	The loan agreement includes a zero-percent LIBOR floor. The corresponding swaps do not include such a floor.