Douglas Emmett (DEI) 8-K 2011 Second Quarter Earnings Results

  808 Wilshire Boulevard, 2nd FloorT: 310.255.7700 Santa Monica, California 90401F: 310.255.7702  

FOR IMMEDIATE RELEASE

Mary Jensen, Vice President – Investor Relations

310.255.7751 or mjensen@douglasemmett.com

Douglas Emmett Reports

2011 Second Quarter Earnings Results

Reports FFO of $0.37 Per Diluted Share

Increases Annual FFO Guidance

SANTA MONICA, CALIFORNIA – August 2, 2011 – Douglas Emmett, Inc. (NYSE:DEI), a real estate investment trust (REIT), today announced its financial results for the quarter ended June 30, 2011.

Financial Results

Funds From Operations (FFO) for the three months ended June 30, 2011 totaled $58.3 million, or $0.37 per diluted share, compared to $46.8 million, or $0.30 per diluted share, for the three months ended June 30, 2010.  FFO for the six months ended June 30, 2011 totaled $122.6 million, or $0.77 per diluted share, compared to $94.9 million, or $0.61 per diluted share, for the six months ended June 30, 2010.

For the three months ended June 30, 2011, the Company reported a GAAP net loss of $5.0 million attributable to common stockholders, or $0.04 per diluted share.  This compares to a GAAP net loss of $9.0 million, or $0.07 per diluted share, attributable to common stockholders for the three months ended June 30, 2010.  For the six months ended June 30, 2011, the Company reported a GAAP net loss of $5.4 million attributable to common stockholders, or $0.04 per diluted share.  This compares to a GAAP net loss of $17.3 million, or $0.14 per diluted share, attributable to common stockholders for the six months ended June 30, 2010.

Company Operations

Office:  During the second quarter, Douglas Emmett had its second consecutive quarter of net positive absorption, totaling 22,073 square feet.  Douglas Emmett continued to benefit from healthy leasing volume, which resulted in signing 86 new leases covering 263,391 square feet in the second quarter of 2011, compared to 81 new leases covering 261,110 square feet in the first quarter of 2011.  In addition, Douglas Emmett signed 118 renewal leases in the second quarter of 2011, totaling 402,554 square feet, compared to 104 leases covering 447,560 square feet being signed in the first quarter of 2011.

Excluding the eight properties owned by its unconsolidated funds, Douglas Emmett’s office portfolio was 89.9% leased and 87.7% occupied at June 30, 2011.  Douglas Emmett’s total office portfolio, including its fund-owned properties, was 88.8% leased and 86.7% occupied at June 30, 2011.  The occupied percentage represents the portion of Douglas Emmett’s office portfolio that is leased where the rent commencement date has occurred.

On a cash basis, same property office revenues decreased to $113.2 million in the second quarter of 2011 from $114.1 million in the second quarter of 2010.  Same property office expenses, on a cash basis, increased to $38.5 million in the second quarter of 2011 from $37.2 million in the second quarter of 2010.  On a GAAP basis, same property office revenues decreased to $119.4 million in the second quarter of 2011 from $122.1 million in the second quarter of 2010, and same property office expenses increased to $38.5 million in the second quarter of 2011 from $37.1 million in the second quarter of 2010.

Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Company Operations (cont’d)

Multifamily:  At June 30, 2011, Douglas Emmett’s multifamily portfolio was 99.4% leased.  On a cash basis, same property multifamily revenues increased to $16.7 million for the quarter ended June 30, 2011, from $16.1 million for the quarter ended June 30, 2010.  On a GAAP basis, same property multifamily revenues increased to $17.5 million for the quarter ended June 30, 2011 from $17.0 million for the quarter ended June 30, 2010.

Cash Position

As of June 30, 2011, Douglas Emmett had $332.1 million in cash and cash equivalents on hand, compared to $272.4 million at December 31, 2010.

Financings

Since September 2010, Douglas Emmett has closed six term loan transactions totaling over $2.5 billion at weighted average fixed interest rate of 4.07%, completing its term loan financing program.  Two of those loans were closed subsequent to June 30, 2011.  The first is a secured, non-recourse $355 million term loan that matures on August 5, 2018 and bears interest at annual fixed rate of 4.14% per annum.  The second is a secured, non-recourse $530 million term loan that matures on August 1, 2018 and bears interest at a floating rate equal to LIBOR plus 170 basis points that has been swapped to an effective fixed interest rate of at 3.74% until August 1, 2016.

Douglas Emmett currently intends to repay the remaining $522 million of its 2012 debt maturities from its cash on hand and a new secured, revolving floating rate credit line, which it will likely put in place over the next few quarters.  Prior to the end of 2011, Douglas Emmett also expects to terminate its $322.5 million interest rate swap that is scheduled to expire on August 1, 2012.  However, the decisions on whether to obtain a new credit line and to terminate the $322.5 million swap are still being evaluated and will depend on future events.

Acquisitions

On April 19, 2011, an institutional fund managed and partly owned by Douglas Emmett acquired a 74,000 square foot Class “A” office building located on Rodeo Drive in the heart of Beverly Hills for a contract price of $42 million, or $568 per square foot.

Dividends

During the quarter, Douglas Emmett’s Board of Directors approved a 30% increase in its quarterly cash dividend to $0.13 per share, or $0.52 per common share on an annualized basis.  On July 15, 2011, the dividend was paid to shareholders of record as of June 30, 2011.

ATM Program

Pursuant to its previously announced At-the-Market (“ATM”) program, Douglas Emmett has sold an aggregate of 3 million shares at a weighted average price of $20.35 per share for aggregate gross proceeds of $61.1 million.

Guidance

Douglas Emmett has raised its 2011 FFO guidance range to $1.32 - $1.36 per diluted share from $1.27 - $1.35 per diluted share.  The revised guidance includes both the potential termination of the $322.5 million interest rate swap and the impact of more favorable interest expenses, which are largely expected to offset each other.  The cost of terminating the interest rate swap is currently estimated to reduce 2011 FFO by approximately $10 million (although the cost and timing of any such termination will depend on future events).  Other estimates and assumptions will be discussed during the conference call.

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Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Conference Call and Webcast Information

A conference call to discuss the Company’s 2011 second quarter financial results is scheduled for Wednesday, August 3, 2011 at 2:00 pm Eastern Time or 11:00 am Pacific Time.  Interested parties can access the live call or the replay as follows:

§ Internet: Go to www.douglasemmett.com at least fifteen minutes prior to the start time of the call in order to register, download and install any necessary audio software.

§ Phone: 877-298-7945 (U.S./Canada) or 706-758-2996 (International) – conference ID #78954700

§ Replay: A rebroadcast of the live call will be available for 90 days on the Company’s website at www.douglasemmett.com. Alternatively, a digital replay will be available at approximately 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time, on Wednesday, August 3, 2011 through Wednesday, August 10, 2011 using 800-642-1687 (U.S./Canada), or 706-645-9291 (International) and conference ID #78954700.

Supplemental Information

Supplemental financial information for the Company’s 2011 second quarter results can be accessed on the Company’s website under the Investor Relations section at www.douglasemmett.com.

About Douglas Emmett, Inc.

Douglas Emmett, Inc. (NYSE: DEI) is a fully integrated, self-administered and self-managed real estate investment trust (REIT), and one of the largest owners and operators of high-quality office and multifamily properties located in premier submarkets in Southern California and Hawaii.  The Company’s properties are concentrated in ten submarkets – Brentwood, Olympic Corridor, Century City, Santa Monica, Beverly Hills, Westwood, Sherman Oaks/Encino, Warner Center/Woodland Hills, Burbank and Honolulu.  The Company focuses on owning and acquiring a substantial share of top-tier office properties and premier multifamily communities in neighborhoods that possess significant supply constraints, high-end executive housing and key lifestyle amenities.  The Company maintains a website at www.douglasemmett.com.

Safe Harbor Statement

Except for the historical facts, the statements in this press release are forward-looking statements based on our beliefs about, and assumptions made by, and information currently available to us about known and unknown risks, trends, uncertainties and factors that may be 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 inevitably prove to be incorrect.  As a result, our actual future results can be expected to differ from our expectations, and those differences may be material.  Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.  For a discussion of some of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Douglas Emmett, Inc.

Consolidated Balance Sheets

(in thousands)

	June 30, 2011			December 31, 2010
	(unaudited)
Assets
Investment in real estate:
Land	$	851,679		$	851,679
Buildings and improvements		5,229,278			5,226,269
Tenant improvements and lease intangibles		613,691			592,735
Investment in real estate, gross		6,694,648			6,670,683
Less: accumulated depreciation		(1,028,190	)		(913,923	)
Investment in real estate, net		5,666,458			5,756,760
Cash and cash equivalents		332,139			272,419
Tenant receivables, net		1,290			1,591
Deferred rent receivables, net		54,229			48,933
Interest rate contracts		28,753			52,528
Acquired lease intangible assets, net		7,604			9,356
Investment in unconsolidated real estate funds		117,659			110,920
Other assets		35,229			26,782
Total assets	$	6,243,361		$	6,279,289
Liabilities
Secured notes payable	$	3,664,740		$	3,658,000
Unamortized non-cash debt premium		4,482			10,133
Interest rate contracts		74,603			99,687
Accrued interest payable		14,700			12,789
Accounts payable and accrued expenses		36,134			45,004
Acquired lease intangible liabilities, net		97,811			110,244
Security deposits		32,995			31,850
Dividends payable		16,318			12,413
Total liabilities		3,941,783			3,980,120
Equity
Douglas Emmett, Inc. stockholders’ equity:
Common stock		1,255			1,241
Additional paid-in capital		2,358,833			2,332,307
Accumulated other comprehensive income (loss)		(46,334	)		(58,765	)
Accumulated deficit		(481,835	)		(447,722	)
Total Douglas Emmett, Inc. stockholders’ equity		1,831,919			1,827,061
Noncontrolling interests		469,659			472,108
Total equity		2,301,578			2,299,169
Total liabilities and equity	$	6,243,361		$	6,279,289

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Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Douglas Emmett, Inc.

Consolidated Statements of Operations

(unaudited and in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenues:
Office rental:
Rental revenues	$	98,109		$	98,695		$	197,319		$	197,442
Tenant recoveries		12,744			7,710			22,069			14,188
Parking and other income		17,046			15,838			33,906			31,389
Total office revenues		127,899			122,243			253,294			243,019
Multifamily rental:
Rental revenues		16,230			15,879			32,275			31,778
Parking and other income		1,279			1,087			2,430			2,199
Total multifamily revenues		17,509			16,966			34,705			33,977
Total revenues		145,408			139,209			287,999			276,996
Operating Expenses:
Office expenses		42,183			37,198			82,787			73,312
Multifamily expenses		4,736			4,434			9,485			9,002
General and administrative		6,820			5,944			14,306			11,794
Depreciation and amortization		57,114			54,921			114,267			110,253
Total operating expenses		110,853			102,497			220,845			204,361
Operating income		34,555			36,712			67,154			72,635
Other income		343			151			599			397
Loss, including depreciation, from unconsolidated real estate funds		(255	)		(2,200	)		(1,779	)		(3,704	)
Interest expense		(40,852	)		(45,676	)		(72,528	)		(90,810	)
Acquisition-related expenses		—			(292	)		—			(292	)
Net loss		(6,209	)		(11,305	)		(6,554	)		(21,774	)
Less:  Net loss attributable to noncontrolling interests		1,193			2,314			1,189			4,496
Net loss attributable to common stockholders	$	(5,016	)	$	(8,991	)	$	(5,365	)	$	(17,278	)
Net loss per common share – basic and diluted (1)	$	(0.04	)	$	(0.07	)	$	(0.04	)	$	(0.14	)
Weighted average shares of common stock outstanding – basic and diluted (1)		124,610			122,332			124,411			121,990

(1)   Basic and diluted shares are calculated in accordance with accounting principles generally accepted in the United States (GAAP) and include common stock plus dilutive equity instruments, as appropriate.  Since we were in a net loss position during the three and six months ended June 30, 2011 and 2010, all potentially dilutive instruments, including OP units (operating partnership units) and LTIP units (Long-Term Incentive Plan units that are limited partnership units in our OP) were anti-dilutive and have been excluded from our computation of weighted average dilutive shares outstanding.

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Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Douglas Emmett, Inc.

FFO Reconciliation

(unaudited and in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Funds From Operations (FFO) (1)										��
Net loss attributable to common stockholders	$	(5,016	)	$	(8,991	)	$	(5,365	)	$	(17,278	)
Depreciation and amortization of real estate assets		57,114			54,921			114,267			110,253
Net loss attributable to noncontrolling interests		(1,193	)		(2,314	)		(1,189	)		(4,496	)
Amortization of swap termination fee (2)		4,480			―			8,910			―
Less: adjustments attributable to consolidated joint venture and                unconsolidated investment in real estate funds		2,884			3,168			6,004			6,377
FFO	$	58,269		$	46,784		$	122,627		$	94,856
Weighted average share equivalents outstanding - fully diluted		158,737			156,489			158,367			156,224
FFO per share - fully diluted	$	0.37		$	0.30		$	0.77		$	0.61

(1)

We calculate funds from operations before noncontrolling interest (FFO) in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT).  FFO represents net income (loss), computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable operating property, real estate depreciation and amortization (other than amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. We provide FFO as a supplemental performance measure because, by excluding real estate depreciation and amortization and gains and losses from property dispositions, it can illustrate trends in occupancy rates, rental rates and operating costs from year to year.  We also believe that, as a widely recognized measure of the performance of REITs, FFO can be used by investors as a basis to compare our operating performance with that of other REITs.  However, FFO has limitations as a measure of our performance because it excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to those other REITs’ FFO.  Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance.  FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.  FFO should not be used as a supplement to or substitute measure for cash flow from operating activities computed in accordance with GAAP.

(2)

For the three and six months ended June 30, 2011, GAAP interest expense was increased by $4.48 million and $8.91 million, respectively, of non-cash amortization from interest rate swaps we terminated in November 2010.  In calculating FFO for each period, we offset this amortization by an equivalent amount, leaving a net zero impact on FFO, since we recorded the full impact of the swap termination payment in FFO in the fourth quarter of 2010.  Please  note that there will be a similar add-back until the GAAP non-cash amortization balance is fully amortized in August 2011.

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Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Douglas Emmett, Inc.

Same Property Statistical and Financial Data

(unaudited and in thousands, except statistics)

	As of June 30,
	2011		2010
Same Property Office Statistics
Number of properties	49		49
Rentable square feet	11,892,376		11,891,220
% leased	89.8	%	91.1	%
% occupied	87.7	%	89.7	%
Same Property Multifamily  Statistics
Number of properties	9		9
Number of units	2,868		2,868
% leased	99.4	%	99.3	%

	Three Months Ended June 30,
	2011			2010			% Favorable (Unfavorable)
Same Property Net Operating Income – GAAP Basis (1)(2)
Total office revenues	$	119,356		$	122,058		(2.2	)%
Total multifamily revenues		17,509			16,966		3.2
Total revenues		136,865			139,024		(1.6	)
Total office expense		(38,498	)		(37,118	)	(3.7	)
Total multifamily expense		(4,736	)		(4,434	)	(6.8	)
Total property expense		(43,234	)		(41,552	)	(4.0	)
Same Property NOI - GAAP basis	$	93,631		$	97,472		(3.9	)%
Same Property Net Operating Income - Cash Basis (1)(2)
Total office revenues	$	113,224		$	114,130		(0.8	)%
Total multifamily revenues		16,652			16,088		3.5
Total revenues		129,876			130,218		(0.3	)
Total office expense		(38,544	)		(37,164	)	(3.7	)
Total multifamily expense		(4,736	)		(4,434	)	(6.8	)
Total property expense		(43,280	)		(41,598	)	(4.0	)
Same Property NOI - cash basis	$	86,596		$	88,620		(2.3	)%

NOTE:  See below for a description of same property, cash basis and NOI.

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Douglas Emmett, Inc. Announces 2011 Second Quarter Earnings Results

Douglas Emmett, Inc.

Reconciliation of Same Property NOI to GAAP Net Income (Loss) (1)(2)

(unaudited and in thousands)

	Three Months Ended June 30,
	2011			2010
Same property office revenues - cash basis	$	113,224		$	114,130
GAAP adjustments		6,132			7,928
Same property office revenues - GAAP basis		119,356			122,058
Same property multifamily revenues - cash basis		16,652			16,088
GAAP adjustments		857			878
Same property multifamily revenues - GAAP basis		17,509			16,966
Same property revenues - GAAP basis		136,865			139,024
Same property office expenses - cash basis		(38,544	)		(37,164	)
GAAP adjustments		46			46
Same property office expenses - GAAP basis		(38,498	)		(37,118	)
Same property multifamily expenses - cash basis		(4,736	)		(4,434	)
GAAP adjustments		―			―
Same property multifamily expenses - GAAP basis		(4,736	)		(4,434	)
Same property expenses - GAAP basis		(43,234	)		(41,552	)
Same property Net Operating Income (NOI) - GAAP basis		93,631			97,472
Non-comparable office revenues		8,543			185
Non-comparable office expenses		(3,685	)		(80	)
Total property NOI - GAAP basis		98,489			97,577
General and administrative expenses		(6,820	)		(5,944	)
Depreciation and amortization		(57,114	)		(54,921	)
Operating income		34,555			36,712
Other income		343			151
Loss, including depreciation, from unconsolidated real estate funds		(255	)		(2,200	)
Interest expense		(40,852	)		(45,676	)
Acquisition-related expenses		―			(292	)
Net loss		(6,209	)		(11,305	)
Less: Net loss attributable to noncontrolling interests		1,193			2,314
Net loss attributable to common stockholders	$	(5,016	)	$	(8,991	)

(1)

To facilitate a comparison of NOI between periods, we provide comparable amounts for a subset of our owned properties referred to as our “same properties.”  Same property amounts are calculated as the amounts attributable to properties which have been owned and operated by us, and reported in our consolidated results, during the entire span of both periods compared.  Therefore, any properties either acquired after the first day of the earlier comparison period or sold, contributed or otherwise removed from our consolidated financial statements before the last day of the later comparison period are excluded from same properties.  We may also exclude from the same property set any property that is undergoing a major repositioning project that would impact the comparability of its results between two periods.

(2)

Net operating income (NOI) is a non-GAAP measure consisting of the revenue and expense attributable to the real estate properties that we own and operate.  Although NOI is considered a non-GAAP measure, we present NOI on a “GAAP basis” by using property revenues and expenses calculated in accordance with GAAP.  The most directly comparable GAAP measure to NOI is net income (or loss), adjusted to exclude general and administrative expense, depreciation and amortization expense, interest income, interest expense, income from unconsolidated partnerships, income (or loss) attributable to noncontrolling interests, gains (or losses) from sales of depreciable operating properties, net income from discontinued operations and extraordinary items. We also provide NOI calculated on a “cash basis”.  Cash basis NOI is also a non-GAAP measure that we calculate by excluding from GAAP basis NOI our straight-line rent adjustments and the amortization of above/below market lease intangible assets and liabilities. We provide NOI (on both a “GAAP “and “cash” basis) as a supplemental performance measure because, by excluding real estate depreciation and amortization expense and gains (or losses) from property dispositions, some investors use it to illustrate trends in occupancy rates, rental rates and operating costs from year to year.  We also believe that some investors find NOI useful as a basis to compare our operating performance with that of other REITs. However, NOI has limitations as a measure of our performance because it excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations).  Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to those other REITs’ NOI.  Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.  NOI should not be used as a substitute measure for cash flow from operating activities computed in accordance with GAAP.

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