 | ||
Executive Summary
We are one of the largest owners and operators of high-quality office and multifamily properties located in the premier coastal markets of Southern California and Hawaii, with a total portfolio that includes 15.3 million square feet of Class A office properties and 3,336 apartment units.
| • | Overview: The recovery of our markets continues to strengthen, driven by improving employment numbers and strong demand from diverse industries. Unemployment in West Los Angeles has dropped from about 8% two years ago to about 6% today. With the strengthening economy, the greater Los Angeles office market posted its best net absorption since 2005, with West LA accounting for over 42% of the total. In particular, technology and media growth is accelerating, especially as technology companies expand in Los Angeles to take advantage of the nexus of technology and media. We are seeing tenant demand not only from tech and media firms, but also from the related growth of their service providers. |
| • | Financial Results: Compared to the prior year quarter, our Funds From Operations (FFO) increased by 6.0% to $68.1 million and our Adjusted Funds From Operations (AFFO) increased by 4.1% to $53.6 million, our GAAP net income attributable to common stockholders increased by 23.2% to $10.9 million and our same property cash NOI increased by 0.9%. For the full year, our FFO per diluted share increased by 3.4% to $1.54, our AFFO per diluted share increased by 2.5% to $1.21, and our GAAP net income per common share decreased by 3.1% to $0.31. |
| • | Office Fundamentals: During the fourth quarter, we leased 595,032 square feet of office space. Excluding the acquisition that we made during the quarter, our total office portfolio remained leased at 92.5% while our occupancy increased by 93 basis points to 90.6%. With our office rents increasing, straight line rents on leases signed during the quarter were 6.2% higher than the rent on the same space under the expiring lease. |
| • | Multifamily Fundamentals: Our multifamily portfolio was fully leased, with average asking rents 6.6% higher than in the fourth quarter of 2013. |
| • | Debt: Our net consolidated debt to enterprise value was 40% at December 31, 2014, and we have no material debt maturities in 2015. Nevertheless, to extend our maturities and take advantage of the current interest rate environment, during 2015 we expect to (i) refinance $100 million of residential loans due in 2016 and 2017, (ii) refinance a $400 million loan due in 2017 and (iii) obtain permanent financing for our recent and announced acquisitions. |
| • | Acquisitions: |
| ◦ | On October 16, 2014, we purchased a 216,000 square foot Class "A" multi-tenant office property adjacent to Beverly Hills for $74.5 million, or approximately $348 per square foot. |
| ◦ | On December 30, 2014, we purchased a 468 unit multifamily property in Honolulu for $146.0 million, or approximately $312,000 per unit. |
| ◦ | On January 5, 2015, we agreed to purchase a 224,000 square foot Class “A” multi-tenant office property in Encino for $89.0 million, or approximately $397 per square foot. Subject to typical closing conditions, the purchase is scheduled to close in the first quarter of 2015. |
| • | Dividends: We have increased our quarterly cash dividend to $0.21 per common share, or $0.84 per common share on an annualized basis. Our strong 64.3% AFFO payout ratio gives us ample liquidity as well as room for additional dividend growth. |
| • | Guidance: We are providing 2015 full year guidance of $1.57 to $1.63 per diluted share for FFO and $1.20 to $1.26 per diluted share for AFFO. For details, please see page 23. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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Table of Contents
| PAGE | |
| COMPANY OVERVIEW | |
| FINANCIAL RESULTS | |
| PORTFOLIO DATA | |
Forward Looking Statements
This Fourth Quarter 2014 Earnings Results and Operating Information supplements the information provided in our reports filed with the Securities and Exchange Commission. It contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements presented in this Earnings Package, and those that we may make orally or in writing from time to time, are based on our beliefs and assumptions. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors, some of which are beyond our control or ability to predict, including, but not limited to: adverse economic and real estate developments in Southern California and Honolulu; a general downturn in the economy; decreased rental rates or increased tenant incentives and vacancy rates; defaults on, and early terminations and non-renewal of, leases by tenants; increased interest rates and operating costs; failure to generate sufficient cash flows to service our outstanding indebtedness; difficulties in acquiring properties; failure to successfully operate properties; failure to maintain our status as a REIT; possible adverse changes in rent control laws and regulations; environmental uncertainties; risks related to natural disasters; lack or insufficient insurance; inability to successfully expand into new markets or submarkets; risks associated with property development; conflicts of interest with our officers; changes in real estate and zoning laws and increases in real property tax rates; possible future terrorist attacks; and other risks and uncertainties detailed in our Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. 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, please use caution in relying on previously reported forward-looking statements to anticipate future results or trends. This Earnings Package and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements.
2
| Company Overview | |
Corporate Data
as of December 31, 2014
| Office Portfolio | Consolidated | Total Portfolio(1) | |||||
| Number of office properties | 53 | 61 | |||||
| Square feet (in thousands) | 13,489 | 15,313 | |||||
Leased rate(2) | 92.0 | % | 92.5 | % | |||
Occupancy rate(2) | 90.2 | % | 90.5 | % | |||
| Multifamily Portfolio | Consolidated | ||||||
| Number of multifamily properties | 10 | ||||||
| Number of multifamily units | 3,336 | ||||||
| Multifamily leased rate | 99.3 | % | |||||
| Market Capitalization (in thousands, except price per share) | ||||||
| Closing price per share of common stock (NYSE:DEI) | $ | 28.40 | ||||
| Shares of common stock outstanding | 144,869 | |||||
| Fully diluted shares outstanding | 177,254 | |||||
Equity capitalization(3) | $ | 5,034,015 | ||||
Net debt(4) | $ | 3,416,467 | ||||
| Total enterprise value | $ | 8,450,482 | ||||
| Net debt/total enterprise value | 40 | % | ||||
_______________________________________________
| (1) | Our total portfolio includes two unconsolidated institutional real estate funds in which we own significant equity interests. |
| (2) | These statistics include the impact of a property which we acquired during the quarter with significant vacancy. Excluding the impact of that acquisition, the leased rate for our total office portfolio was 92.5% and the occupied rate was 90.6%. |
| (3) | Equity capitalization represents our fully diluted shares multiplied by the closing price of our stock on December 31, 2014. |
| (4) | Net debt represents our consolidated debt, net of our cash and cash equivalents. Net debt excludes the debt of our unconsolidated real estate funds. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Company Overview | |
Property Map
as of December 31, 2014
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| Company Overview | |
Board of Directors and Executive Officers
as of December 31, 2014
OUR BOARD OF DIRECTORS
______________________________________________________________________________________________________
| Dan A. Emmett | Chairman of the Board – Douglas Emmett, Inc. | |
| Jordan L. Kaplan | Chief Executive Officer and President – Douglas Emmett, Inc. | |
| Kenneth M. Panzer | Chief Operating Officer – Douglas Emmett, Inc. | |
| Christopher H. Anderson | Retired Real Estate Executive and Investor | |
| Leslie E. Bider | Chief Executive Officer – PinnacleCare | |
| Dr. David T. Feinberg | Chief Executive Officer – University of California, Los Angeles (UCLA) Hospital System, Associate Vice Chancellor – UCLA Health Sciences | |
| Thomas E. O’Hern | Senior Executive Vice President, Chief Financial Officer & Treasurer – Macerich Company | |
| William E. Simon, Jr. | Co-chairman, William E. Simon & Sons, LLC | |
OUR EXECUTIVE OFFICERS
______________________________________________________________________________________________________
| Dan A. Emmett | Chairman of the Board | |
| Jordan L. Kaplan | Chief Executive Officer and President | |
| Kenneth M. Panzer | Chief Operating Officer | |
| Theodore E. Guth | Chief Financial Officer | |
| Kevin A. Crummy | Chief Investment Officer | |
CORPORATE OFFICES
808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401
Phone: (310) 255-7700
For more information, please visit our website at www.douglasemmett.com or contact:
Stuart McElhinney, Vice President, Investor Relations
(310) 255-7751
smcelhinney@douglasemmett.com
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| Financial Results | |
Consolidated Balance Sheets
(in thousands)
| December 31, 2014 | December 31, 2013 | ||||||
| (unaudited) | (audited) | ||||||
| Assets | |||||||
| Investment in real estate: | |||||||
| Land | $ | 900,813 | $ | 867,284 | |||
| Buildings and improvements | 5,590,118 | 5,386,446 | |||||
| Tenant improvements and lease intangibles | 666,672 | 759,003 | |||||
| Investment in real estate, gross | 7,157,603 | 7,012,733 | |||||
| Less: accumulated depreciation and amortization | (1,531,157 | ) | (1,495,819 | ) | |||
| Investment in real estate, net | 5,626,446 | 5,516,914 | |||||
| Cash and cash equivalents | 18,823 | 44,206 | |||||
| Tenant receivables, net | 2,143 | 1,760 | |||||
| Deferred rent receivables, net | 74,997 | 69,662 | |||||
| Acquired lease intangible assets, net | 3,527 | 3,744 | |||||
| Investment in unconsolidated real estate funds | 171,390 | 182,896 | |||||
| Other assets | 57,270 | 28,607 | |||||
| Total assets | $ | 5,954,596 | $ | 5,847,789 | |||
| Liabilities | |||||||
| Secured notes payable and revolving credit facility | $ | 3,435,290 | $ | 3,241,140 | |||
| Interest payable, accounts payable and deferred revenue | 54,364 | 52,763 | |||||
| Security deposits | 37,450 | 35,470 | |||||
| Acquired lease intangible liabilities, net | 45,959 | 59,543 | |||||
| Interest rate contracts | 37,386 | 63,144 | |||||
| Dividends payable | 30,423 | 28,521 | |||||
| Total liabilities | 3,640,872 | 3,480,581 | |||||
| Equity | |||||||
| Douglas Emmett, Inc. stockholders' equity: | |||||||
| Common stock | 1,449 | 1,426 | |||||
| Additional paid-in capital | 2,678,798 | 2,653,905 | |||||
| Accumulated other comprehensive income (loss) | (30,089 | ) | (50,554 | ) | |||
| Accumulated deficit | (706,700 | ) | (634,380 | ) | |||
| Total Douglas Emmett, Inc. stockholders' equity | 1,943,458 | 1,970,397 | |||||
| Noncontrolling interests | 370,266 | 396,811 | |||||
| Total equity | 2,313,724 | 2,367,208 | |||||
| Total liabilities and equity | $ | 5,954,596 | $ | 5,847,789 | |||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Consolidated Operating Results
(unaudited and in thousands, except per share data)
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| (audited) | |||||||||||||||
| Revenues: | |||||||||||||||
| Office rental: | |||||||||||||||
| Rental revenues | $ | 100,182 | $ | 98,464 | $ | 396,524 | $ | 394,739 | |||||||
| Tenant recoveries | 10,741 | 10,974 | 44,461 | 45,144 | |||||||||||
| Parking and other income | 19,890 | 18,738 | 78,437 | 74,717 | |||||||||||
| Total office revenues | 130,813 | 128,176 | 519,422 | 514,600 | |||||||||||
| Multifamily rental: | |||||||||||||||
| Rental revenues | 18,842 | 18,063 | 74,289 | 71,209 | |||||||||||
| Parking and other income | 1,436 | 1,437 | 5,828 | 5,727 | |||||||||||
| Total multifamily revenues | 20,278 | 19,500 | 80,117 | 76,936 | |||||||||||
| Total revenues | 151,091 | 147,676 | 599,539 | 591,536 | |||||||||||
| Operating Expenses: | |||||||||||||||
| Office expenses | 45,520 | 44,427 | 181,177 | 174,952 | |||||||||||
| Multifamily expenses | 5,174 | 4,820 | 20,664 | 19,928 | |||||||||||
| General and administrative | 7,151 | 5,890 | 27,332 | 26,614 | |||||||||||
| Depreciation and amortization | 51,263 | 49,823 | 202,512 | 191,351 | |||||||||||
| Total operating expenses | 109,108 | 104,960 | 431,685 | 412,845 | |||||||||||
| Operating income | 41,983 | 42,716 | 167,854 | 178,691 | |||||||||||
| Other income | 5,033 | 2,237 | 17,675 | 6,402 | |||||||||||
| Other expenses | (1,981 | ) | (1,422 | ) | (7,095 | ) | (4,199 | ) | |||||||
| Income (loss), including depreciation, from unconsolidated real estate funds | 988 | (237 | ) | 3,713 | 3,098 | ||||||||||
| Interest expense | (32,619 | ) | (32,716 | ) | (128,507 | ) | (130,548 | ) | |||||||
| Acquisition-related expenses | (606 | ) | (74 | ) | (786 | ) | (607 | ) | |||||||
| Net income | 12,798 | 10,504 | 52,854 | 52,837 | |||||||||||
| Less: Net income attributable to noncontrolling interests | (1,905 | ) | (1,661 | ) | (8,233 | ) | (7,526 | ) | |||||||
| Net income attributable to common stockholders | $ | 10,893 | $ | 8,843 | $ | 44,621 | $ | 45,311 | |||||||
| Net income per common share – basic | $ | 0.08 | $ | 0.06 | $ | 0.31 | $ | 0.32 | |||||||
| Net income per common share – diluted | $ | 0.07 | $ | 0.06 | $ | 0.30 | $ | 0.31 | |||||||
| Weighted average shares of common stock outstanding - basic | 144,823 | 142,603 | 144,013 | 142,556 | |||||||||||
| Weighted average shares of common stock outstanding - diluted | 176,436 | 174,600 | 176,221 | 174,802 | |||||||||||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Consolidated Funds From Operations & Adjusted Funds From Operations
(unaudited and in thousands, except per share data)
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Funds From Operations (FFO) | |||||||||||||||
| Net income attributable to common stockholders | $ | 10,893 | $ | 8,843 | $ | 44,621 | $ | 45,311 | |||||||
| Depreciation and amortization of real estate assets | 51,263 | 49,823 | 202,512 | 191,351 | |||||||||||
| Net income attributable to noncontrolling interests | 1,905 | 1,661 | 8,233 | 7,526 | |||||||||||
Adjustments attributable to consolidated joint venture and investment in unconsolidated real estate funds(1) | 4,008 | 3,873 | 15,670 | 15,894 | |||||||||||
| FFO | $ | 68,069 | $ | 64,200 | $ | 271,036 | $ | 260,082 | |||||||
| Adjusted Funds From Operations (AFFO) | |||||||||||||||
| FFO | $ | 68,069 | $ | 64,200 | $ | 271,036 | $ | 260,082 | |||||||
| Straight-line rent | (1,958 | ) | (1,753 | ) | (5,335 | ) | (6,470 | ) | |||||||
| Net accretion of acquired above and below market leases | (5,578 | ) | (3,723 | ) | (16,084 | ) | (15,693 | ) | |||||||
| Amortization of interest rate contracts and deferred loan costs | 1,070 | 1,263 | 4,147 | 4,302 | |||||||||||
| Recurring capital expenditures, tenant improvements and leasing commissions | (14,436 | ) | (10,693 | ) | (53,224 | ) | (43,862 | ) | |||||||
| Non-cash compensation expense | 6,780 | 2,509 | 13,722 | 10,005 | |||||||||||
Adjustments attributable to consolidated joint venture and investment in unconsolidated real estate funds(1) | (324 | ) | (293 | ) | (729 | ) | (2,218 | ) | |||||||
| AFFO | $ | 53,623 | $ | 51,510 | $ | 213,533 | $ | 206,146 | |||||||
| Weighted average share equivalents outstanding - diluted | 176,436 | 174,600 | 176,221 | 174,802 | |||||||||||
| FFO per share- diluted | $ | 0.39 | $ | 0.37 | $ | 1.54 | $ | 1.49 | |||||||
| AFFO per share- diluted | $ | 0.30 | $ | 0.30 | $ | 1.21 | $ | 1.18 | |||||||
| Dividends per share | $ | 0.21 | $ | 0.20 | $ | 0.81 | $ | 0.74 | |||||||
| AFFO payout ratio | 64.27 | % | 60.03 | % | 64.53 | % | 60.00 | % | |||||||
____________________________________________________
| (1) | Adjusts for (i) the portion of each listed adjustment item that is attributed to the noncontrolling interest in our consolidated joint venture and (ii) the effect of each listed adjustment item on our share of the results of our unconsolidated Funds. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Consolidated Same Property(1) Statistical & Financial Data
(unaudited and in thousands, except statistics)
| As of December 31, | |||||||
| 2014 | 2013 | ||||||
| Same Property Office Statistics | |||||||
| Number of properties | 49 | 49 | |||||
| Rentable square feet (in thousands) | 12,777 | 12,775 | |||||
| Ending % leased | 91.9 | % | 92.3 | % | |||
| Ending % occupied | 90.1 | % | 90.7 | % | |||
| Quarterly average % occupied | 89.7 | % | 90.5 | % | |||
| Same Property Multifamily Statistics | |||||||
| Number of properties | 9 | 9 | |||||
| Number of units | 2,868 | 2,868 | |||||
Ending % leased(2) | 99.4 | % | 99.5 | % | |||
| Three Months Ended December 31, | % Favorable | |||||||||||
| 2014 | 2013 | (Unfavorable) | ||||||||||
| Same Property Net Operating Income - GAAP Basis | ||||||||||||
| Total office revenues | $ | 124,911 | $ | 124,263 | 0.5 | % | ||||||
| Total office expenses | (43,025 | ) | (42,550 | ) | (1.1 | )% | ||||||
| Office NOI | 81,886 | 81,713 | 0.2 | % | ||||||||
| Total multifamily revenues | 20,222 | 19,500 | 3.7 | % | ||||||||
| Total multifamily expenses | (5,157 | ) | (4,820 | ) | (7.0 | )% | ||||||
| Multifamily NOI | 15,065 | 14,680 | 2.6 | % | ||||||||
| Same Property NOI - GAAP basis | $ | 96,951 | $ | 96,393 | 0.6 | % | ||||||
| Same Property Net Operating Income - Cash Basis | ||||||||||||
| Total office revenues | $ | 121,173 | $ | 120,293 | 0.7 | % | ||||||
| Total office expenses | (43,033 | ) | (42,596 | ) | (1.0 | )% | ||||||
| Office NOI | 78,140 | 77,697 | 0.6 | % | ||||||||
| Total multifamily revenues | 19,384 | 18,660 | 3.9 | % | ||||||||
| Total multifamily expenses | (5,157 | ) | (4,820 | ) | (7.0 | )% | ||||||
| Multifamily NOI | 14,227 | 13,840 | 2.8 | % | ||||||||
| Same Property NOI - cash basis | $ | 92,367 | $ | 91,537 | 0.9 | % | ||||||
____________________________________________________
| (1) | Our same property statistics and NOI for 2014 include all of our consolidated properties other than (i) a 225,000 square foot office property in Beverly Hills that we acquired in May 2013, (ii) a 191,000 square foot office property in Encino that we acquired in August 2013, (iii) a 216,000 square foot office property adjacent to Beverly Hills that we acquired in October 2014, (iv) a 468 unit multifamily property in Honolulu that we acquired in December 2014, and (v) a 79,000 square foot office property in Honolulu (a joint venture in which we own a two thirds interest) which is undergoing a repositioning. |
| (2) | In calculating the percentage of units leased, we removed from the numerator and denominator 4 units at one property in Honolulu which were temporarily unoccupied as a result of fire damage. The lost rent from those units is being recovered by insurance. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Reconciliation of Same Property NOI to GAAP Net Income
(unaudited and in thousands)
| Three Months Ended December 31, | |||||||
| 2014 | 2013 | ||||||
| Same property office revenues - cash basis | $ | 121,173 | $ | 120,293 | |||
| GAAP adjustments per definition of NOI - cash basis | 3,738 | 3,970 | |||||
| Same property office revenues - GAAP basis | 124,911 | 124,263 | |||||
| Same property office expenses - cash basis | (43,033 | ) | (42,596 | ) | |||
| GAAP adjustments per definition of NOI - cash basis | 8 | 46 | |||||
| Same property office expenses - GAAP basis | (43,025 | ) | (42,550 | ) | |||
| Office NOI - GAAP basis | 81,886 | 81,713 | |||||
| Same property multifamily revenues - cash basis | 19,384 | 18,660 | |||||
| GAAP adjustments per definition of NOI - cash basis | 838 | 840 | |||||
| Same property multifamily revenues - GAAP basis | 20,222 | 19,500 | |||||
| Same property multifamily expenses - cash basis | (5,157 | ) | (4,820 | ) | |||
| GAAP adjustments per definition of NOI - cash basis | — | — | |||||
| Same property multifamily expenses - GAAP basis | (5,157 | ) | (4,820 | ) | |||
| Multifamily NOI - GAAP basis | 15,065 | 14,680 | |||||
| Total same property NOI - GAAP basis | 96,951 | 96,393 | |||||
| Non-comparable office revenues | 5,902 | 3,913 | |||||
| Non-comparable office expenses | (2,495 | ) | (1,877 | ) | |||
| Non-comparable multifamily revenues | 56 | — | |||||
| Non-comparable multifamily expenses | (17 | ) | — | ||||
| Total NOI - GAAP basis | 100,397 | 98,429 | |||||
| General and administrative | (7,151 | ) | (5,890 | ) | |||
| Depreciation and amortization | (51,263 | ) | (49,823 | ) | |||
| Operating income | 41,983 | 42,716 | |||||
| Other income | 5,033 | 2,237 | |||||
| Other expense | (1,981 | ) | (1,422 | ) | |||
| Income (loss), including depreciation, from unconsolidated real estate funds | 988 | (237 | ) | ||||
| Interest expense | (32,619 | ) | (32,716 | ) | |||
| Acquisition-related expenses | (606 | ) | (74 | ) | |||
| Net income | 12,798 | 10,504 | |||||
| Less: Net income attributable to noncontrolling interests | (1,905 | ) | (1,661 | ) | |||
| Net income attributable to common stockholders | $ | 10,893 | $ | 8,843 | |||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Operating Results of Unconsolidated Real Estate Funds(1)
(unaudited and in thousands)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
Summary Income Statement of Unconsolidated Real Estate Funds(2) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Office revenues | $ | 16,958 | $ | 16,349 | $ | 66,234 | $ | 63,976 | ||||||||
| Office expenses | (6,902 | ) | (8,282 | ) | (27,221 | ) | (27,321 | ) | ||||||||
| NOI | 10,056 | 8,067 | 39,013 | 36,655 | ||||||||||||
| General and administrative | (101 | ) | (107 | ) | (262 | ) | (331 | ) | ||||||||
| Depreciation and amortization | (6,845 | ) | (6,606 | ) | (27,014 | ) | (26,173 | ) | ||||||||
| Operating income | 3,110 | 1,354 | 11,737 | 10,151 | ||||||||||||
| Other income | — | — | 114 | — | ||||||||||||
| Interest expense | (2,916 | ) | (2,931 | ) | (11,597 | ) | (10,980 | ) | ||||||||
| Net income (loss) | $ | 194 | $ | (1,577 | ) | $ | 254 | $ | (829 | ) | ||||||
FFO of Unconsolidated Real Estate Funds(2) | ||||||||||||||||
| Net income (loss) | $ | 194 | $ | (1,577 | ) | $ | 254 | $ | (829 | ) | ||||||
| Add back: depreciation and amortization | 6,845 | 6,606 | 27,014 | 26,173 | ||||||||||||
| FFO | $ | 7,039 | $ | 5,029 | $ | 27,268 | $ | 25,344 | ||||||||
| Our Share of the Unconsolidated Real Estate Funds FFO | ||||||||||||||||
| Our share of the unconsolidated real estate funds' net income (loss) | $ | 177 | $ | (982 | ) | $ | 476 | $ | (19 | ) | ||||||
| Add back: our share of the funds' depreciation and amortization | 3,987 | 3,856 | 15,697 | 15,189 | ||||||||||||
| Equity allocation and basis difference | 811 | 745 | 3,237 | 3,117 | ||||||||||||
| Our share of the unconsolidated real estate funds' FFO | $ | 4,975 | $ | 3,619 | $ | 19,410 | $ | 18,287 | ||||||||
__________________________________________________
| (1) | We manage and own significant equity interests in two unconsolidated institutional real estate Funds, which own a combined eight Class A office properties, totaling 1.8 million square feet, in our submarkets. Our ownership interest entitles us to a pro rata share of any distributions based on our ownership (a weighted average of approximately 60% at December 31, 2014 based on square footage), additional distributions based on the total invested capital and a carried interest if the investors’ distributions exceed a hurdle rate. We also receive fees and reimbursement of expenses for managing our unconsolidated Funds’ properties. |
| (2) | These amounts represent 100% (not our pro-rata share) of the amounts related to the Funds on a combined basis. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Consolidated Debt Balances
(as of December 31, 2014, unaudited and in thousands)
| Description | Maturity Date | Principal Balance | Effective Annual Rate (2) | Swap Maturity Date | |||||
Term Debt(1) | |||||||||
| 12/24/2015 | $ | 20,000 | LIBOR + 1.45% | -- | |||||
| 3/1/2016 | 16,140 | (3) | LIBOR + 1.60% | -- | |||||
| 3/1/2016 | 82,000 | LIBOR + 0.62% | -- | ||||||
| 6/1/2017 | 18,000 | LIBOR + 0.62% | -- | ||||||
| 10/2/2017 | 400,000 | 4.45% | 7/1/2015 | ||||||
| 4/2/2018 | 510,000 | 4.12% | 4/1/2016 | ||||||
| 8/1/2018 | 530,000 | 3.74% | 8/1/2016 | ||||||
| 8/5/2018 | 355,000 | (4) | 4.14% | -- | |||||
| 2/1/2019 | 155,000 | (5) | 4.00% | -- | |||||
| 6/5/2019 | 285,000 | (6) | 3.85% | -- | |||||
| 10/1/2019 | 145,000 | LIBOR + 1.25% | -- | ||||||
| 3/1/2020 | (8) | 349,070 | 4.46% | (7) | -- | ||||
| 11/2/2020 | 388,080 | 3.65% | 11/1/2017 | ||||||
Total Term Debt(1) | $ | 3,253,290 | |||||||
Revolving credit facility(9) | 12/11/2017 | 182,000 | LIBOR + 1.40% | -- | |||||
| Total Debt | $ | 3,435,290 | |||||||
_________________________________________________________________________
| (1) | As of December 31, 2014, (i) the weighted average remaining life of our outstanding term debt (excluding our revolving credit line) was 3.9 years; (ii) of the $2.97 billion of term debt on which the interest rate was fixed under the terms of the loan or a swap, the weighted average remaining life was 4.0 years, the weighted average remaining period during which interest was fixed was 2.4 years, and the weighted average annual interest rate was 4.05%; and (iii) including the non-cash amortization of interest rate contracts and prepaid financing, the effective weighted average interest rate was 4.15%. Except as otherwise noted, each loan is secured by a separate collateral pool consisting of one or more properties, requiring monthly payments of interest only with outstanding principal due upon maturity. |
| (2) | Includes the effect of interest rate contracts and excludes amortization of prepaid financing, all shown on an actual/360-day basis. |
| (3) | The borrower is a consolidated entity in which our Operating Partnership owns a two-thirds interest. |
| (4) | Interest-only until February 2016, with principal amortization thereafter based upon a 30-year amortization schedule. |
| (5) | Interest-only until February 2015, with principal amortization thereafter based upon a 30-year amortization schedule. |
| (6) | Interest only until February 2017, with principal amortization thereafter based upon a 30-year amortization schedule. |
| (7) | Interest rate is fixed until March 1, 2018, and is floating thereafter, with principal amortization commencing after May 2016 based upon a 30-year amortization schedule. |
| (8) | We have two one-year extension options to extend the maturity as late as March 1, 2020, subject to meeting certain conditions. |
| (9) | $300.0 million revolving credit facility secured by 3 separate collateral pools consisting of a total of 6 properties. Unused commitment fees range from 0.15% to 0.20%. |
Unconsolidated Debt Balances
(as of December 31, 2014, unaudited and in thousands)
| Maturity Date | Principal Balance | Our Share of Principal | Effective Annual Rate(1) | Swap Maturity Date | |||||||
| 4/1/2016 | $ | 52,040 | $ | 12,622 | (2) | 5.67% | �� | ||||
| 5/1/2018 | 325,000 | 222,980 | (3) | 2.35% | 5/1/2017 | ||||||
| $ | 377,040 | $ | 235,602 | ||||||||
_________________________________________________________________________
| (1) | Includes the effect of interest rate contracts and excludes amortization of prepaid financing, all shown on an actual/360-day basis. |
| (2) | Loan to one of our unconsolidated Funds secured by one property. The loan requires monthly payments of principal and interest. |
| (3) | Loan to one of our unconsolidated Funds secured by six properties. The loan requires monthly payments of interest only, with outstanding principal due upon maturity. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Summary
as of December 31, 2014
| Submarket | Number of Properties | Rentable Square Feet | Percent of Square Feet of Our Total Portfolio | Submarket Rentable Square Feet | Our Market Share in Submarket | |||||||||||
| Beverly Hills | 9 | 1,860,656 | 12.1 | % | 7,741,422 | 21.2 | % | |||||||||
| Brentwood | 14 | 1,700,975 | 11.1 | 3,356,126 | 50.7 | |||||||||||
| Burbank | 1 | 420,949 | 2.7 | 6,733,458 | 6.3 | |||||||||||
| Century City | 3 | 916,952 | 6.0 | 10,064,599 | 9.1 | |||||||||||
| Honolulu | 4 | 1,716,709 | 11.2 | 5,088,599 | 33.7 | |||||||||||
| Olympic Corridor | 5 | 1,098,074 | 7.2 | 3,014,329 | 36.4 | |||||||||||
| Santa Monica | 8 | 972,957 | 6.4 | 8,709,282 | 11.2 | |||||||||||
| Sherman Oaks/Encino | 12 | 3,372,131 | 22.0 | 6,171,530 | 54.6 | |||||||||||
| Warner Center/Woodland Hills | 3 | 2,856,441 | 18.7 | 7,203,647 | 39.7 | |||||||||||
| Westwood | 2 | 396,808 | 2.6 | 4,443,398 | 8.9 | |||||||||||
| Total | 61 | 15,312,652 | 100.0 | % | 62,526,390 | 24.1 | % | |||||||||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Percentage Leased and In-Place Rents
as of December 31, 2014
Office Annualized Rent by Submarket
| Submarket | Percentage Leased(1) | Annualized Rent | Annualized Rent Per Leased Square Foot(2) | Monthly Rent Per Leased Square Foot | |||||||||||||
| Beverly Hills | 97.6 | % | $ | 71,814,590 | $ | 40.94 | $ | 3.41 | |||||||||
| Brentwood | 93.5 | 57,808,560 | 37.02 | 3.08 | |||||||||||||
| Burbank | 100.0 | 15,991,862 | 37.99 | 3.17 | |||||||||||||
| Century City | 97.2 | 34,352,716 | 38.80 | 3.23 | |||||||||||||
Honolulu(3) | 88.7 | 49,833,814 | 34.00 | 2.83 | |||||||||||||
| Olympic Corridor | 95.5 | 30,503,639 | 30.50 | 2.54 | |||||||||||||
Santa Monica(4) | 99.4 | 51,295,940 | 54.69 | 4.56 | |||||||||||||
| Sherman Oaks/Encino | 93.1 | 96,952,150 | 31.80 | 2.65 | |||||||||||||
| Warner Center/Woodland Hills | 83.8 | 61,986,061 | 27.66 | 2.31 | |||||||||||||
| Westwood | 94.9 | 13,403,008 | 35.89 | 2.99 | |||||||||||||
| Total / Weighted Average | 92.5 | $ | 483,942,340 | 35.35 | 2.95 | ||||||||||||
| Recurring Office Capital Expenditures per Rentable Square Foot | |||||||||||||||||
| For the three months ended December 31, 2014 | $ | 0.04 | |||||||||||||||
| For the twelve months ended December 31, 2014 | $ | 0.20 | |||||||||||||||
_______________________________________________________________
| (1) | Includes 299,553 square feet with respect to signed leases not yet commenced. |
| (2) | Represents annualized rent divided by leased square feet (excluding signed leases not commenced). |
| (3) | Includes $2,754,954 of annualized rent attributable to a health club that we operate. |
| (4) | Includes $1,432,927 of annualized rent attributable to our corporate headquarters. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Tenant Diversification
as of December 31, 2014
Percentage of Annualized Office Rent by Lease Size
Individual tenants paying more than 1% of aggregate Annualized Rent(1): | |||||||||||||||||||||||
| Tenant | Number of Leases | Number of Properties | Lease Expiration(2) | Total Leased Square Feet | Percent of Rentable Square Feet | Annualized Rent | Percent of Annualized Rent | ||||||||||||||||
Time Warner(3) | 3 | 3 | 2017-2023 | 580,812 | 3.8 | % | $ | 21,513,884 | 4.4 | % | |||||||||||||
William Morris Endeavor(4) | 1 | 1 | 2027 | 181,215 | 1.2 | 9,067,624 | 1.9 | ||||||||||||||||
| The Macerich Partnership, L.P. | 1 | 1 | 2018 | 90,832 | 0.6 | 4,940,295 | 1.1 | ||||||||||||||||
| Total | 5 | 5 | 852,859 | 5.6 | % | $ | 35,521,803 | 7.4 | % | ||||||||||||||
| (1) Based on minimum base rent in leases expiring after December 31, 2014. | |||||||||||||||||||||||
| (2) Expiration dates are per leases. For tenants with multiple leases, the range shown reflects all leases other than storage and similar leases. | |||||||||||||||||||||||
| (3) Includes a 150,000 square foot lease expiring in April 2016 (the existing subtenant has leased 101,000 square feet of this space commencing on expiration of the current lease and continuing until July 2023), a 10,000 square foot lease expiring in December 2017, and a 421,000 square foot lease expiring in September 2019 with an option to terminate the lease in September 2016. | |||||||||||||||||||||||
| (4) Tenant has an option to terminate this lease in December 2022. | |||||||||||||||||||||||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Lease Distribution
as of December 31, 2014
| Square Feet Under Lease | Number of Leases | Leases as a Percent of Total | Rentable Square Feet | Square Feet as a Percent of Total | Annualized Rent | Annualized Rent as a Percent of Total | ||||||||||||
| 2,500 or less | 1,335 | 51.2% | 1,844,445 | 12.0% | $ | 64,645,500 | 13.4% | |||||||||||
| 2,501-10,000 | 956 | 36.7 | 4,582,430 | 29.9 | 156,819,070 | 32.4 | ||||||||||||
| 10,001-20,000 | 208 | 8.0 | 2,833,310 | 18.5 | 102,842,052 | 21.2 | ||||||||||||
| 20,001-40,000 | 80 | 3.1 | 2,091,842 | 13.7 | 72,158,756 | 14.9 | ||||||||||||
| 40,001-100,000 | 22 | 0.8 | 1,331,340 | 8.7 | 50,753,977 | 10.5 | ||||||||||||
| Greater than 100,000 | 5 | 0.2 | 1,005,941 | 6.6 | 36,722,985 | 7.6 | ||||||||||||
| Subtotal | 2,606 | 100.0% | 13,689,308 | (1) | 89.4% | 483,942,340 | 100.0% | |||||||||||
| Signed leases not commenced | 299,553 | 2.0 | ||||||||||||||||
| Available | 1,148,295 | 7.5 | ||||||||||||||||
| Building Management Use | 113,820 | 0.7 | ||||||||||||||||
BOMA Adjustment(2) | 61,676 | 0.4 | ||||||||||||||||
| Total | 2,606 | 100.0% | 15,312,652 | 100.0% | $ | 483,942,340 | 100.0% | |||||||||||
| (1) Average tenant size is approximately 5,300 square feet. Median tenant size is approximately 2,400 square feet. | ||||||||||||||||||
| (2) Represents square footage adjustments for leases that do not reflect BOMA 1996 remeasurement. | ||||||||||||||||||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Industry Diversification
as of December 31, 2014
Percentage of Annualized Office Rent by Tenant Industry
| Industry | Number of Leases | Annualized Rent as a Percent of Total | |||||
| Legal | 517 | 18.9 | % | ||||
| Entertainment | 185 | 14.1 | |||||
| Financial Services | 331 | 13.8 | |||||
| Real Estate | 203 | 9.3 | |||||
| Health Services | 348 | 8.6 | |||||
| Accounting & Consulting | 314 | 8.5 | |||||
| Retail | 186 | 6.7 | |||||
| Insurance | 119 | 5.9 | |||||
| Technology | 122 | 4.7 | |||||
| Advertising | 74 | 2.6 | |||||
| Public Administration | 79 | 2.4 | |||||
| Educational Services | 29 | 1.8 | |||||
| Other | 99 | 2.7 | |||||
| Total | 2,606 | 100.0 | % | ||||
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Lease Expirations
as of December 31, 2014
| Year of Lease Expiration | Number of Leases | Rentable Square Feet | Expiring Square Feet as a Percent of Total | Annualized Rent at December 31, 2014 | Annualized Rent as a Percent of Total | Annualized Rent Per Leased Square Foot(1) | Annualized Rent Per Leased Square Foot at Expiration(2) | |||||||||||||||||||
| Short Term Leases | 57 | 209,662 | 1.4 | % | $ | 6,224,797 | 1.3 | % | $ | 29.69 | $ | 30.10 | ||||||||||||||
| 2015 | 443 | 1,438,177 | 9.4 | 48,469,169 | 10.0 | 33.70 | 34.11 | |||||||||||||||||||
| 2016 | 526 | 2,088,148 | 13.6 | 72,763,925 | 15.0 | 34.85 | 36.23 | |||||||||||||||||||
| 2017 | 508 | 2,216,236 | 14.5 | 74,031,812 | 15.3 | 33.40 | 35.71 | |||||||||||||||||||
| 2018 | 349 | 1,729,145 | 11.3 | 65,506,660 | 13.5 | 37.88 | 41.11 | |||||||||||||||||||
| 2019 | 268 | 1,707,763 | 11.1 | 59,488,861 | 12.3 | 34.83 | 38.90 | |||||||||||||||||||
| 2020 | 183 | 1,390,939 | 9.1 | 48,880,255 | 10.1 | 35.14 | 40.04 | |||||||||||||||||||
| 2021 | 100 | 860,343 | 5.6 | 31,467,278 | 6.5 | 36.58 | 42.72 | |||||||||||||||||||
| 2022 | 55 | 482,419 | 3.1 | 17,253,861 | 3.6 | 35.77 | 41.84 | |||||||||||||||||||
| 2023 | 47 | 668,708 | 4.4 | 21,678,722 | 4.5 | 32.42 | 41.29 | |||||||||||||||||||
| 2024 | 43 | 298,629 | 2.0 | 11,317,797 | 2.3 | 37.90 | 47.08 | |||||||||||||||||||
| Thereafter | 27 | 599,139 | 3.9 | 26,859,203 | 5.6 | 44.83 | 61.99 | |||||||||||||||||||
| Subtotal/Weighted Average | 2,606 | 13,689,308 | 89.4 | 483,942,340 | 100.0 | 35.35 | 39.38 | |||||||||||||||||||
| Signed leases not commenced | 299,553 | 2.0 | ||||||||||||||||||||||||
| Available | 1,148,295 | 7.5 | ||||||||||||||||||||||||
| Building Management Use | 113,820 | 0.7 | ||||||||||||||||||||||||
BOMA Adjustment(3) | 61,676 | 0.4 | ||||||||||||||||||||||||
| Total/Weighted Average | 2,606 | 15,312,652 | 100.0 | % | $ | 483,942,340 | 100.0 | % | 35.35 | 39.38 | ||||||||||||||||
___________________________________________________
| (1) | Represents annualized rent at December 31, 2014 divided by leased square feet. |
| (2) | Represents annualized rent at expiration divided by leased square feet. |
| (3) | Represents the square footage adjustments for leases that do not reflect BOMA 1996 remeasurement. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Quarterly Lease Expirations - Next Four Quarters
as of December 31, 2014
| Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | |||||||||||||||
Expiring SF(1) | 255,892 | 415,506 | 262,304 | 504,475 | ||||||||||||||
| Percentage of Portfolio | 1.9 | % | 3.0 | % | 1.9 | % | 3.7 | % | ||||||||||
Expiring Rent per SF(2) | $ | 32.99 | $ | 34.32 | $ | 34.46 | $ | 34.33 | ||||||||||
| Detailed Submarket Data | |||||||||||||||||||
| Due to the small square footage of leases in each quarter in each submarket, and the varying terms and square footage of the individual leases and the individual buildings involved, these numbers should be extrapolated with caution. | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | |||||||||||||||
| Beverly Hills | Expiring SF(1) | 760 | 32,447 | 16,250 | 75,919 | ||||||||||||||
Expiring Rent per SF(2) | $ | 37.26 | $ | 44.93 | $ | 38.57 | $ | 39.20 | |||||||||||
| Brentwood | Expiring SF(1) | 17,413 | 31,562 | 19,829 | 50,009 | ||||||||||||||
Expiring Rent per SF(2) | $ | 37.17 | $ | 35.91 | $ | 36.53 | $ | 36.04 | |||||||||||
| Century City | Expiring SF(1) | 17,323 | 35,617 | 33,087 | 27,403 | ||||||||||||||
Expiring Rent per SF(2) | $ | 36.52 | $ | 36.42 | $ | 39.07 | $ | 35.11 | |||||||||||
| Honolulu | Expiring SF(1) | 49,713 | 46,067 | 13,731 | 77,485 | ||||||||||||||
Expiring Rent per SF(2) | $ | 33.42 | $ | 33.10 | $ | 33.85 | $ | 32.31 | |||||||||||
| Olympic Corridor | Expiring SF(1) | 32,775 | 36,911 | 40,125 | 33,047 | ||||||||||||||
Expiring Rent per SF(2) | $ | 31.63 | $ | 32.30 | $ | 32.14 | $ | 30.22 | |||||||||||
| Santa Monica | Expiring SF(1) | 4,925 | 48,225 | 14,915 | 20,877 | ||||||||||||||
Expiring Rent per SF(2) | $ | 54.57 | $ | 40.16 | $ | 55.10 | $ | 43.68 | |||||||||||
| Sherman Oaks/Encino | Expiring SF(1) | 53,777 | 80,367 | 74,964 | 96,708 | ||||||||||||||
Expiring Rent per SF(2) | $ | 32.76 | $ | 31.05 | $ | 30.11 | $ | 31.88 | |||||||||||
| Warner Center/Woodland Hills | Expiring SF(1) | 76,753 | 92,015 | 40,382 | 72,798 | ||||||||||||||
Expiring Rent per SF(2) | $ | 30.23 | $ | 30.33 | $ | 29.75 | $ | 27.69 | |||||||||||
| Westwood | Expiring SF(1) | 2,453 | 12,295 | 9,021 | 50,229 | ||||||||||||||
Expiring Rent per SF(2) | $ | 34.25 | $ | 35.23 | $ | 40.05 | $ | 41.06 | |||||||||||
_________________________________________________________________
| (1) | Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of December 31, 2014, other than 209,662 square feet of short-term leases. The variations in this number from quarter to quarter primarily reflects the mix of buildings/submarkets involved, although it is also impacted by the varying terms and square footage of the individual leases involved. |
| (2) | Includes the impact of rent escalations over the entire term of the expiring lease, and thus is not directly comparable to asking rents. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Total Office Portfolio Leasing Activity
for the three months ended December 31, 2014
| Rentable Square feet | Percentage | |||||||
| Net Absorption During Quarter | 1,050 | 0.01% | ||||||
| Office Leases Signed During Quarter | Number of leases | Rentable square feet | Weighted Average Lease Term (months) | |||||
| New leases | 76 | 218,373 | 68 | |||||
| Renewal leases | 75 | 376,659 | 68 | |||||
| All leases | 151 | 595,032 | 68 | |||||
Change in Rental Rates for Office Leases Executed during the Quarter(1) | |||||||
| Starting Cash Rent | Straight-line Rent | Expiring Cash Rent | |||||
| Leases executed during the quarter | $37.58 | $39.39 | N/A | ||||
| Prior leases for same space | $35.42 | $37.10 | $39.95 | ||||
| Percentage change | 6.1% | 6.2% | (5.9)% | (2) | |||
Average Office Lease Transaction Costs (Per Square Foot)(3) | |||||
| Lease Transaction Costs | Lease Transaction Costs per Annum | ||||
| New leases signed during quarter | $39.51 | $6.96 | |||
| Renewal leases signed during quarter | $24.63 | $4.37 | |||
| All leases signed during quarter | $30.09 | $5.33 | |||
________________________________________________________________
| (1) | Represents the average initial stabilized cash rents and straight-line on new and renewal leases executed during the quarter compared to the prior lease on the same space, excluding short term leases and new leases on space which had not been leased for at least a year. |
| (2) | The percentage change represents the difference in the starting cash rent on leases executed during the quarter compared to the expiring cash rent on the prior leases for the same space. |
| (3) | Represents weighted average tenant improvements and leasing commissions. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Multifamily Portfolio Summary
as of December 31, 2014
Multifamily Annualized Rent by Submarket
| Submarket | Number of Properties | Number of Units | Units as a Percent of Total | ||||||||||
| Brentwood | 5 | 950 | 28 | % | |||||||||
| Honolulu | 3 | 1,566 | 47 | ||||||||||
| Santa Monica | 2 | 820 | 25 | ||||||||||
| Total | 10 | 3,336 | 100 | % | |||||||||
| Submarket | Percent Leased | Annualized Rent | Monthly Rent Per Leased Unit | ||||||||||
Brentwood(1) | 99.6 | % | $ | 26,604,828 | $ | 2,344 | |||||||
Honolulu(1) | 99.6 | 31,963,632 | 1,712 | ||||||||||
Santa Monica(2) | 98.5 | 25,022,472 | 2,581 | ||||||||||
| Total / Weighted Average | 99.3 | % | $ | 83,590,932 | 2,105 | ||||||||
| Recurring Multifamily Capital Expenditures per Unit | |||||
| For the three months ended December 31, 2014 | $ | 113 | |||
| For the twelve months ended December 31, 2014 | $ | 466 | |||
________________________________________________________________
| (1) | In calculating the percentage of units leased, we removed from the numerator and denominator 4 units at one property in Honolulu which were temporarily unoccupied as a result of fire damage. Lost rent from those units is being covered by insurance. |
| (2) | Excludes 10,013 square feet of ancillary retail space generating annualized rent of $310,921. |
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Multifamily Development Projects
Rendering of our Moanalua Hillside Apartments, Honolulu Hawaii development, including new entry and common area facilities, new 8 story buildings and re-skinned existing 4 and 6 story buildings.
We are currently working on two multi-family development projects located on sites that we already own:
| Moanalua Hillside Apartments, Honolulu, Hawaii | |||
| Projected Units | Estimated Cost (1) | Anticipated Completion of Construction | |
| 500 | $120M | 2016/2017 | |
| Our Moanalua Hillside apartments currently include 696 apartment units located on 28 acres near downtown Honolulu and key military bases. We are adding 500 new units, upgrading the existing apartment buildings, improving the parking and landscaping, building a new leasing and management office and building a new recreation building with a fitness facility and a new pool and deck area. | |||
| The Landmark, Brentwood, California | |||
| Projected Units | Estimated Cost(1) | Anticipated Start of Construction | Anticipated Construction Period |
| 376 | $100M - $120M | late 2015/early 2016 | 18-24 months |
| The Landmark would be the first new residential high-rise development west of the 405 freeway in almost 40 years, offering stunning oceans views and luxury amenities. Present plans call for a 34 story, 376 unit tower located on a site currently housing a supermarket. However, the process in Los Angeles often results in significant changes in development plans and/or significant unanticipated delays. | |||
_________________________________________
| (1) | Estimated cost does not include the costs of the land, which in each case was previously purchased in connection with the current use. In the case of The Landmark, the cost of the existing underground parking garage is also not included. |
NOTES:
| (1) | All figures are only estimates, as development in our markets is long and complex and subject to inherent uncertainties. |
| (2) | Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions. |
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| Guidance | |
2015 OUTLOOK
| Metric | 2015 Guidance |
| Funds From Operations (FFO) | $1.57 to $1.63 per share |
| Adjusted Funds From Operations (AFFO) | $1.20 to $1.26 per share |
| Metric | Commentary | Assumption Range |
| Average Office Occupancy | Calculated by averaging the occupancy rates for each quarter in the year, which is determined by averaging the last day of the quarter with the last day of the prior quarter. | 90% to 91% |
| Residential Leased Rate | We manage our apartment portfolio to be fully leased as a result of supply constraints and rent control in our markets. | Essentially Fully Leased |
Same Property Cash NOI(1) | Includes fees from early lease terminations and prior year CAM reconciliations. | Year over Year Increase of 1% to 2% |
Core Same Property Cash NOI(1) | Excludes fees from early lease terminations and prior year CAM reconciliations. | Year over Year Increase of 2% to 3% |
| Revenue From Above/Below Market Leases | Assumes that FFO will be lowered by about $.02 per share as a result of the continuing decline of non-cash Revenues From Above/Below Market Leases. | $11 to $13.5 Million |
| Straight-Line Revenue | Assumes that non-cash Straight-Line Revenues will be essentially the same as in 2014. | $4 to $6 Million |
| G&A | We expect to maintain G&A at approximately 5% of revenue. | $27 to $30 Million |
| Interest Expense | Assumes that FFO will be lowered by about $.06 per share as a result of increased Interest Expense from early refinancings. During 2015, we plan to take advantage of favorable long term interest rates by (i) refinancing $100 million of existing residential loans due in 2016 and 2017, (ii) refinancing an existing $400 million loan due in 2017 and (iii) obtaining permanent financing for our recent and announced acquisitions to pay off our floating rate credit line. | $137 to $141 Million |
| Weighted Average Diluted Shares | Range based on variations in average stock price; does not assume any new stock offerings. | 177 to 178 Million |
| Other Income (net) | Assumes that Other Income (net) will decline to a normalized run rate after the first quarter. We expect to acquire the fee interest under one of our Honolulu office buildings in the first quarter, which will accelerate $6.6 million of FAS 141 into Other Income that quarter. | |
| Acquisitions/ Dispositions | Does not include any impact (including related costs) from acquisitions or dispositions that have not been announced. | |
| (1) | Our same properties for 2015 include all of our consolidated properties other than (i) a 216,000 square foot office property we acquired in October 2014, (ii) a 468 unit multifamily property in Honolulu we acquired in December 2014, (iii) a 413,000 square foot office property which included a 35,000 square foot store on which we expect to develop a residential tower, (iv) a 224,000 square foot office property we expect to acquire during the first quarter of 2015 and (v) a 79,000 square foot office property in Honolulu (a joint venture in which we own a two thirds interest) which is undergoing a repositioning. |
Except as disclosed, our guidance does not include the impact from possible future property acquisitions or dispositions, including acquisition and disposition costs, other possible capital markets activities or impairment charges. The guidance and representative assumptions on this page are forward looking statements and reflect our views of current and future market conditions. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors, some of which 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 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.
NOTE: Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.
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| Definitions | |
Adjusted Funds From Operations (AFFO): We calculate AFFO from FFO by (i) eliminating the impact on FFO of straight-line rent; amortization/accretion of acquired above/below market leases; amortization/accretion of loan premiums/discounts; amortization of interest rate contracts and deferred loan costs; non-cash compensation expense; and adjustments attributable to consolidated joint ventures and investments in unconsolidated real estate funds, and (ii) subtracting recurring capital expenditures, tenant improvements and leasing commissions. AFFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. AFFO is not intended to represent cash flow, but may provide an additional perspective on our operating results and our ability to fund cash needs and pay dividends. As a widely reported measure of the performance of REITs, AFFO is also used by some investors to compare our performance with other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to that of other REITs. AFFO should be considered only as a supplement to net income as a measure of our performance.
Annualized Rent: Represents annualized monthly cash base rent (i.e., excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the measurement date (does not include 299,553 square feet with respect to signed leases not yet commenced at December 31, 2014). For our triple net Burbank and Honolulu office properties, annualized rent is calculated by adding expense reimbursements to base rent. Annualized rent does not include lost rent covered by insurance.
Average Occupancy Rates: Calculated by averaging the occupancy rates on the last day of the quarter and of the prior quarter and, for periods longer than a quarter, by averaging the occupancy rates for all the quarters in the period.
Beverly Hills: We include in our Beverly Hills submarket data one property consisting of approximately 216,000 square feet located just outside the Beverly Hills city limits. In calculating our percentage of the submarket, we have eliminated this property from both the numerator and the denominator for consistency with third party data.
Diluted Shares: Diluted shares are calculated in accordance with GAAP and represent ownership in our company through shares of common stock, units in our Operating Partnership and other convertible equity instruments.
Funds From Operations (FFO): We calculate FFO before noncontrolling interests in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT). FFO is a non-GAAP financial measure which represents net income calculated in accordance with GAAP, excluding gains (or losses) from sales of depreciable operating property, real estate depreciation and amortization (other than amortization of deferred loan costs), and after adjustments attributable to consolidated joint ventures and investments in unconsolidated real estate funds. We provide FFO as a supplemental performance measure because, by excluding gains and losses from property dispositions, and real estate depreciation and amortization, some investors use it to 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 is used by some 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, tenant improvements 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 other REITs. 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 or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.
GAAP: GAAP refers to accounting principles generally accepted in the United States.
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| Definitions | |
Net Operating Income (NOI): NOI is a non-GAAP measure consisting of the revenue and expense attributable to the real estate properties that we own and operate. We present two forms of NOI:
| • | “NOI - GAAP basis” is calculated by excluding the following from our net income : general and administrative expense, depreciation and amortization expense, other income, other expense, income (or loss) including depreciation from unconsolidated real estate funds, interest expense, acquisition related expenses, and net income attributable to noncontrolling interests. |
| • | “NOI - Cash basis” is calculated by excluding from the GAAP basis NOI our straight-line rent and the amortization/accretion of acquired above/below market leases. |
We provide NOI as a supplemental performance measure because, by excluding the adjustments listed above, some investors use it to 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, NOI is used by some investors 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, tenant improvements 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. NOI should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our liquidity or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.
Occupancy Rate: Represents percent leased, not including signed leases not yet commenced, as of December 31, 2014.
Properties Owned: Our "Consolidated Portfolio" includes all of the properties included in our consolidated results, of which we own 100%, except for a 79,000 square foot property owned by a joint venture in which we own a 66.67% interest. Our "Total Portfolio" includes our Consolidated Portfolio plus eight properties totaling 1.8 million square feet owned by our unconsolidated real estate Funds, in which we own a weighted average of approximately 60% based on square footage.
Recurring Capital Expenditures: Building improvements and leasing costs required to maintain current revenues once a property has been stabilized, including capital expenditures and leasing costs for acquired buildings being stabilized, for newly developed space and for upgrades to improve revenues or operating expenses, and well as those resulting from casualty damage or bringing the property into compliance with governmental requirements.
Rentable Square Feet: Based on BOMA 1996 remeasurement. At December 31, 2014, total consists of 13,988,861 leased square feet (including 299,553 square feet with respect to signed leases not commenced), 1,148,295 available square feet, 113,820 building management use square feet and 61,676 square feet of BOMA 1996 adjustment on leased space.
Same Property NOI: To facilitate a comparison of NOI between reported periods, we calculate 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 in a consistent manner, and reported in our consolidated results, during the entire span of both periods being compared. Therefore, we excluded from our same property set for this quarter any properties (i) acquired on or after January 1, 2013; (ii) sold, contributed or otherwise removed from our consolidated financial statements before December 31, 2014; or (iii) that underwent a major repositioning project that we believed significantly affected its results at any point during the period commencing on January 1, 2013 and ending on December 31, 2014.
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| Definitions | |
Shares of Common Stock Outstanding: Represents undiluted common shares outstanding as of December 31, 2014, and therefore excludes units in our Operating Partnership and other convertible equity instruments.
Short Term Leases: Represents leases that expired on or before the measurement date or had a term of less than one year, including hold over tenancies, month to month leases and other short term occupancies.
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