Executive Summary
We own and operate 17.7 million square feet of Class A office properties, 3,320 apartment units and a residential development pipeline of approximately 850 units in the premier coastal submarkets of Los Angeles and Honolulu.
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| • | Financial Results: Compared to the prior year: |
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| • | Our fourth quarter (i) net income attributable to common stockholders increased by 39.1% to $19.7 million, (ii) Funds From Operations (FFO) increased by 15.7% to $83.9 million, (iii) Adjusted Funds From Operations (AFFO) increased by 5.7% to $62.5 million, and (iv) same property cash NOI increased by 6.4% to $102.7 million. |
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| • | Our annual (i) net income attributable to common stockholders increased by 46.3% to $85.4 million, (ii) FFO increased by 12.4% to $325.7 million (excluding the one-time $6.6 million non-cash income item in 2015, the increase was 15.0%), (iii) AFFO increased by 12.7% to $260.1 million, and (iv) same property cash NOI increased by 5.6% to $401.2 million. |
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| • | Office Fundamentals: During the fourth quarter, we leased 773,218 square feet of office space, increasing the leased rate for our total office portfolio to 92.2% from 91.9% at the end of the third quarter. Straight-line rents for office leases signed during the fourth quarter increased 25.8% from expiring leases covering the same space, while starting cash rents increased 8.5% compared to the expiring cash rents. The rent roll up is slightly lower than recent quarters due to increased leasing volume in Warner Center and Honolulu, which have experienced smaller rent increases in recent years. |
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| • | Multifamily Fundamentals: Our multifamily portfolio remained fully leased, and same property cash revenues increased by 3.8% compared to the prior year quarter. The strong cash revenue growth included in GAAP residential revenues was partially offset by a $560,000 decrease in non-cash revenues. |
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| • | Debt: During the fourth quarter, we closed two loans totaling $520 million: |
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| ▪ | A secured, non-recourse $220 million interest-only loan that matures in December 2023. The loan bears interest at LIBOR + 1.70%, which is effectively fixed at 3.62% per annum until December 2021 through an interest rate swap. The loan is secured by six office properties. |
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| ▪ | A secured, non-recourse $300 million interest-only loan that matures in January 2024. The loan bears interest at LIBOR + 1.55%, which is effectively fixed at 3.46% per annum until January 2022 through an interest rate swap. The loan is secured by a single office property and associated retail space. |
We used the proceeds of these loans and cash on hand to pay off a $530 million loan that was scheduled to mature in 2018.
During the fourth quarter, we also paid off a $15.7 million loan scheduled to mature in 2017.
At December 31, 2016, our pro forma net debt to enterprise value was 38%. We have no material debt maturities until August 2018.
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| • | Dividends: We increased our quarterly cash dividend by 4.5% to $0.23 per common share, or $0.92 on an annualized basis. |
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| • | Guidance: We are providing per share 2017 full year guidance of $0.54 to $0.60 for Net Income Per Common Share (diluted), $1.88 to $1.94 for FFO (fully diluted) and $1.53 to $1.59 for AFFO (fully diluted). See page 23. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Table of Contents
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| COMPANY OVERVIEW |
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| FINANCIAL RESULTS |
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| PORTFOLIO DATA |
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Forward Looking Statements
This Fourth Quarter 2016 Earnings Results and Operating Information, which we refer to as our Earnings Package, 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 of 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.
Corporate Data
as of December 31, 2016
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| | | | | | | |
| | Office Portfolio | |
| | | | | | |
| | | Consolidated | | Total Portfolio | |
| | Properties | 59 |
| | 67 |
| |
| | Rentable Square Feet (in thousands) | 15,867 |
| | 17,690 |
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| | Leased rate | 92.1 | % | | 92.2 | % | |
| | Occupancy rate | 90.1 | % | | 90.4 | % | |
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| | | | | | |
| | Multifamily Portfolio | |
| | | | | | |
| | | | | Consolidated | |
| | Properties | | | 10 |
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| | Units | | | 3,320 |
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| | Leased rate | | | 99.1 | % | |
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| | | | | | |
| | Market Capitalization (in thousands, except price per share) | |
| | | | | |
| | Fully Diluted Shares outstanding | | 180,364 |
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| | Common stock closing price per share (NYSE:DEI) | | $ | 36.56 |
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| | Equity Capitalization | | $ | 6,594,113 |
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| | | | | | |
| | Leverage Ratio (in thousands, except percentages) | |
| | | | | |
| | Consolidated Net Debt(1)(2) | | $ | 4,295,156 |
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| | Pro Forma Net Debt(1)(3) | | $ | 4,063,589 |
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| | Pro forma enterprise value | | $ | 10,657,701 |
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| | Pro forma net debt to enterprise value | | 38 | % | |
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| | AFFO Payout Ratio | |
| | | | | |
| | Three months ended December 31, 2016 | | 62.5 | % | |
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__________________________________________________
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| (1) | See page 12 for more information concerning our outstanding loans. |
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| (2) | Net of cash and cash equivalents of $112.9 million, without deducting unamortized deferred loan costs of $38.5 million. |
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| (3) | Net of cash and cash equivalents of $71.4 million, without deducting unamortized deferred loan costs of $29.1 million. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Property Map
as of December 31, 2016
Board of Directors and Executive Officers
as of December 31, 2016
BOARD OF DIRECTORS
___________________________________________________________________________________________________________________________________
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| Dan A. Emmett | Our Executive Chairman of the Board |
| Jordan L. Kaplan | Our Chief Executive Officer and President |
| Kenneth M. Panzer | Our Chief Operating Officer |
| Christopher H. Anderson | Retired Real Estate Executive and Investor |
| Leslie E. Bider | Chief Executive Officer, PinnacleCare |
| Dr. David T. Feinberg | President and Chief Executive Officer, Geisinger Health System |
| Virginia A. McFerran | President and Chief Executive Officer, Optum Analytics |
| 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 |
EXECUTIVE OFFICERS
___________________________________________________________________________________________________________________________________
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| Dan A. Emmett | Chairman of the Board |
| Jordan L. Kaplan | Chief Executive Officer and President |
| Kenneth M. Panzer | Chief Operating Officer |
| Mona M. Gisler | 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
Consolidated Balance Sheets
(Unaudited, in thousands)
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| | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| Assets | |
| | |
|
| Investment in real estate: | |
| | |
|
| Land | $ | 1,022,340 |
| | $ | 897,916 |
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| Buildings and improvements | 7,221,124 |
| | 5,644,546 |
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| Tenant improvements and lease intangibles | 696,197 |
| | 696,647 |
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| Property under development | 58,459 |
| | 26,900 |
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| Investment in real estate, gross | 8,998,120 |
| | 7,266,009 |
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| Less: accumulated depreciation and amortization | (1,789,678 | ) | | (1,687,998 | ) |
| Investment in real estate, net | 7,208,442 |
| | 5,578,011 |
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| Real estate held for sale, net | — |
| | 42,943 |
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| Cash and cash equivalents | 112,927 |
| | 101,798 |
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| Tenant receivables, net | 2,165 |
| | 1,907 |
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| Deferred rent receivables, net | 93,165 |
| | 79,837 |
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| Acquired lease intangible assets, net | 5,147 |
| | 4,484 |
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| Interest rate contract assets | 35,656 |
| | 4,830 |
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| Investment in unconsolidated real estate funds | 144,289 |
| | 164,631 |
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| Other assets | 11,914 |
| | 87,720 |
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| Total assets | $ | 7,613,705 |
| | $ | 6,066,161 |
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| Liabilities | | | |
|
Secured notes payable and revolving credit facility, net(1) | $ | 4,369,537 |
| | $ | 3,611,276 |
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| Interest payable, accounts payable and deferred revenue | 75,229 |
| | 57,417 |
|
| Security deposits | 45,990 |
| | 38,683 |
|
| Acquired lease intangible liabilities, net | 67,191 |
| | 28,605 |
|
| Interest rate contract liabilities | 6,830 |
| | 16,310 |
|
| Dividends payable | 34,857 |
| | 32,322 |
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| Total liabilities | 4,599,634 |
| | 3,784,613 |
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| Equity | | | |
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| Douglas Emmett, Inc. stockholders' equity: | | | |
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| Common stock | 1,515 |
| | 1,469 |
|
| Additional paid-in capital | 2,725,157 |
| | 2,706,753 |
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| Accumulated other comprehensive income (loss) | 15,156 |
| | (9,285 | ) |
| Accumulated deficit | (820,685 | ) | | (772,726 | ) |
| Total Douglas Emmett, Inc. stockholders' equity | 1,921,143 |
| | 1,926,211 |
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| Noncontrolling interests | 1,092,928 |
| | 355,337 |
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| Total equity | 3,014,071 |
| | 2,281,548 |
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| Total liabilities and equity | $ | 7,613,705 |
| | $ | 6,066,161 |
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____________________________________________________
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| (1) | See page 12 for more information. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Consolidated Operating Results
(Unaudited; in thousands, except per share data)
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| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | |
| Revenues | |
| | |
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| Office rental | |
| | |
| | |
| | |
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| Rental revenues | $ | 131,814 |
| | $ | 104,553 |
| | $ | 498,214 |
| | $ | 412,448 |
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| Tenant recoveries | 12,736 |
| | 10,452 |
| | 46,847 |
| | 43,139 |
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| Parking and other income | 26,000 |
| | 21,498 |
| | 100,572 |
| | 85,388 |
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| Total office revenues | 170,550 |
| | 136,503 |
| | 645,633 |
| | 540,975 |
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| | | | | | | | |
| Multifamily rental | | | | | | | |
| Rental revenues | 22,362 |
| | 22,155 |
| | 89,996 |
| | 87,907 |
|
| Parking and other income | 1,731 |
| | 1,773 |
| | 6,922 |
| | 6,892 |
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| Total multifamily revenues | 24,093 |
| | 23,928 |
| | 96,918 |
| | 94,799 |
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| | | | | | | | |
| Total revenues | 194,643 |
| | 160,431 |
| | 742,551 |
| | 635,774 |
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| | | | | | | | |
| Operating Expenses | | | | | | | |
| Office expenses | 56,356 |
| | 46,620 |
| | 214,546 |
| | 186,556 |
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| Multifamily expenses | 5,995 |
| | 5,921 |
| | 23,317 |
| | 23,862 |
|
| General and administrative | 9,384 |
| | 8,795 |
| | 34,957 |
| | 30,496 |
|
| Depreciation and amortization | 66,967 |
| | 52,024 |
| | 248,914 |
| | 205,333 |
|
| Total operating expenses | 138,702 |
| | 113,360 |
| | 521,734 |
| | 446,247 |
|
| | | | | | | | |
| Operating income | 55,941 |
| | 47,071 |
| | 220,817 |
| | 189,527 |
|
| | | | | | | | |
| Other income | 2,232 |
| | 2,125 |
| | 8,759 |
| | 15,228 |
|
| Other expenses | (1,646 | ) | | (1,674 | ) | | (6,609 | ) | | (6,470 | ) |
| Income, including depreciation, from unconsolidated funds | 2,248 |
| | 4,146 |
| | 7,812 |
| | 7,694 |
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| Interest expense | (36,306 | ) | | (33,932 | ) | | (146,148 | ) | | (135,453 | ) |
| Acquisition-related expenses | (3 | ) | | (1,130 | ) | | (2,868 | ) | | (1,771 | ) |
| Income before gains | 22,466 |
| | 16,606 |
| | 81,763 |
| | 68,755 |
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| Gains on sales of investments in real estate | — |
| | — |
| | 14,327 |
| | — |
|
| Net income | 22,466 |
| | 16,606 |
| | 96,090 |
| | 68,755 |
|
| Less: Net income attributable to noncontrolling interests | (2,765 | ) | | (2,439 | ) | | (10,693 | ) | | (10,371 | ) |
| Net income attributable to common stockholders | $ | 19,701 |
| | $ | 14,167 |
| | $ | 85,397 |
| | $ | 58,384 |
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| | | | | | | | |
| Net income per common share - basic | $ | 0.129 |
| | $ | 0.096 |
| | $ | 0.569 |
| | $ | 0.398 |
|
| Net income per common share - diluted | $ | 0.127 |
| | $ | 0.093 |
| | $ | 0.554 |
| | $ | 0.386 |
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| | | | | | | | |
| Weighted average shares of common stock outstanding - basic | 151,446 |
| | 146,780 |
| | 149,299 |
| | 146,089 |
|
| Weighted average shares of common stock outstanding - diluted | 154,052 |
| | 151,531 |
| | 153,190 |
| | 150,604 |
|
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Funds From Operations & Adjusted Funds From Operations(1)
(Unaudited; in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| Funds From Operations (FFO) | | | | | | | |
| Net income attributable to common stockholders | $ | 19,701 |
| | $ | 14,167 |
| | $ | 85,397 |
| | $ | 58,384 |
|
| Depreciation and amortization of real estate assets | 66,967 |
| | 52,024 |
| | 248,914 |
| | 205,333 |
|
| Net income attributable to noncontrolling interests | 2,765 |
| | 2,439 |
| | 10,693 |
| | 10,371 |
|
Adjustments attributable to unconsolidated funds(2) | 4,081 |
| | 3,918 |
| | 16,016 |
| | 15,919 |
|
Adjustments attributable to consolidated joint ventures(2) | (9,635 | ) | | (21 | ) | | (20,961 | ) | | (97 | ) |
| Gains on sales of investments in real estate | — |
| | — |
| | (14,327 | ) | | — |
|
| FFO | $ | 83,879 |
| | $ | 72,527 |
| | $ | 325,732 |
| | $ | 289,910 |
|
| | | | | | | | |
| Adjusted Funds From Operations (AFFO) | | | | | | | |
| FFO | $ | 83,879 |
| | $ | 72,527 |
| | $ | 325,732 |
| | $ | 289,910 |
|
| Straight-line rent | (2,685 | ) | | (373 | ) | | (13,600 | ) | | (4,840 | ) |
Net accretion of acquired above- and below-market leases(3) | (4,783 | ) | | (3,294 | ) | | (18,198 | ) | | (19,100 | ) |
| Loan costs | 2,565 |
| | 1,649 |
| | 8,853 |
| | 7,181 |
|
| Recurring capital expenditures, tenant improvements and leasing commissions | (24,144 | ) | | (15,755 | ) | | (64,515 | ) | | (54,334 | ) |
| Non-cash compensation expense | 5,217 |
| | 4,942 |
| | 17,448 |
| | 15,234 |
|
Adjustments attributable to unconsolidated funds(2) | (1,070 | ) | | (574 | ) | | (5,990 | ) | | (3,189 | ) |
Adjustments attributable to consolidated joint ventures(2) | 3,514 |
| | (4 | ) | | 10,385 |
| | — |
|
| AFFO | $ | 62,493 |
| | $ | 59,118 |
| | $ | 260,115 |
| | $ | 230,862 |
|
| | | | | | | | |
| Weighted average shares of common stock outstanding - diluted | 154,052 |
| | 151,531 |
| | 153,190 |
| | 150,604 |
|
| Weighted average units in our operating partnership outstanding | 25,920 |
| | 26,698 |
| | 26,426 |
| | 27,174 |
|
| Weighted average fully diluted shares outstanding | 179,972 |
| | 178,229 |
| | 179,616 |
| | 177,778 |
|
| | | | | | | | |
| Net income per common share - diluted | $ | 0.13 |
| | $ | 0.09 |
| | $ | 0.55 |
| | $ | 0.39 |
|
| FFO per share - fully diluted | $ | 0.47 |
| | $ | 0.41 |
| | $ | 1.81 |
| | $ | 1.63 |
|
| Dividends declared per share | $ | 0.23 |
| | $ | 0.22 |
| | $ | 0.89 |
| | $ | 0.85 |
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| (1) | Reflects the FFO and AFFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership, including our share of our consolidated joint ventures and our unconsolidated Funds. |
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| (2) | Adjusts for the portion of each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated joint ventures and the effect of each other listed adjustment item on our share of the results of our unconsolidated Funds. |
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| (3) | The twelve months ended December 31, 2015 includes $6.6 million of accretion for an above-market ground lease related to the acquisition of land under one of our office buildings during the first quarter of 2015. In addition, we completed amortizing certain lease intangibles related to our pre-1999 residential units in October 2016, which reduced our non-cash revenue by $560,000 in the fourth quarter of 2016 and will reduce our non-cash revenue by approximately $3.0 million in 2017. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Same Property Statistics & Net Operating Income (NOI)
(Unaudited; in thousands, except statistics)
|
| | | | | | | |
| | | | | | |
| | | As of December 31, | |
| | | 2016 | | 2015 | |
| | Office Statistics | | | | |
| | Number of properties | 50 |
| | 50 |
| |
| | Rentable Square Feet (in thousands) | 12,713 |
| | 12,556 |
| |
| | Ending % leased | 92.9 | % | | 92.9 | % | |
| | Ending % occupied | 90.6 | % | | 91.3 | % | |
| | Quarterly average % occupied | 90.5 | % | | 91.2 | % | |
| | | | | | |
| | Multifamily Statistics | | | | |
| | Number of properties | 9 |
| | 9 |
| |
| | Number of units | 2,640 |
| | 2,640 |
| |
| | Ending % leased | 99.4 | % | | 98.7 | % | |
| | | | | | |
|
| | | | | | | | | | | | |
| | | | | | | | |
| | | Three Months Ended December 31, | | % Favorable | |
| | | 2016 | | 2015 | | (Unfavorable) | |
| | Net Operating Income (NOI)(1) | |
| | |
| | |
| |
| | Office revenues | $ | 132,092 |
| | $ | 127,736 |
| | 3.4 | % | |
| | Office expenses | (43,098 | ) | | (43,017 | ) | | (0.2 | )% | |
| | Office NOI | 88,994 |
| | 84,719 |
| | 5.0 | % | |
| | | | | | | | |
| | Multifamily revenues | 20,463 |
| | 20,265 |
| | 1.0 | % | |
| | Multifamily expenses | (4,994 | ) | | (4,900 | ) | | (1.9 | )% | |
| | Multifamily NOI | 15,469 |
| | 15,365 |
| | 0.7 | % | |
| | | | | | | | |
| | | $ | 104,463 |
| | $ | 100,084 |
| | 4.4 | % | |
| | | | | | | | |
| | Cash Net Operating Income (NOI)(1) | | | | | | |
| | Office cash revenues | $ | 130,646 |
| | $ | 125,083 |
| | 4.4 | % | |
| | Office cash expenses | (43,111 | ) | | (43,029 | ) | | (0.2 | )% | |
| | Office Cash NOI | 87,535 |
| | 82,054 |
| | 6.7 | % | |
| | | | | | | | |
| | Multifamily cash revenues | 20,174 |
| | 19,428 |
| | 3.8 | % | |
| | Multifamily cash expenses | (4,994 | ) | | (4,900 | ) | | (1.9 | )% | |
| | Multifamily Cash NOI | 15,180 |
| | 14,528 |
| | 4.5 | % | |
| | | | | | | | |
| | | $ | 102,715 |
| | $ | 96,582 |
| | 6.4 | % | |
| | | | | | | | |
____________________________________________
| |
| (1) | For a reconciliation of these items to Net Income, please see page 10. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Reconciliation of Same Property NOI to Net Income
(Unaudited and in thousands)
|
| | | | | | | |
| | Three Months Ended December 31, |
| | 2016 | | 2015 |
| | | | |
| Same property office cash revenues | $ | 130,646 |
| | $ | 125,083 |
|
| Non cash adjustments per definition of NOI | 1,446 |
| | 2,653 |
|
| Same property office revenues | 132,092 |
| | 127,736 |
|
| | | | |
| Same property office cash expenses | (43,111 | ) | | (43,029 | ) |
| Non cash adjustments per definition of NOI | 13 |
| | 12 |
|
| Same property office expenses | (43,098 | ) | | (43,017 | ) |
| | | | |
| Office NOI | 88,994 |
| | 84,719 |
|
| | | | |
| Same property multifamily cash revenues | 20,174 |
| | 19,428 |
|
| Non cash adjustments per definition of NOI | 289 |
| | 837 |
|
| Same property multifamily revenues | 20,463 |
| | 20,265 |
|
| | | | |
| Same property multifamily cash expenses | (4,994 | ) | | (4,900 | ) |
| Non cash adjustments per definition of NOI | — |
| | — |
|
| Same property multifamily expenses | (4,994 | ) | | (4,900 | ) |
| | | | |
| Multifamily NOI | 15,469 |
| | 15,365 |
|
| | | | |
| Same Property NOI | 104,463 |
| | 100,084 |
|
| Non-comparable office revenues | 38,458 |
| | 8,767 |
|
| Non-comparable office expenses | (13,258 | ) | | (3,603 | ) |
| Non-comparable multifamily revenues | 3,630 |
| | 3,663 |
|
| Non-comparable multifamily expenses | (1,001 | ) | | (1,021 | ) |
| NOI | 132,292 |
| | 107,890 |
|
| General and administrative | (9,384 | ) | | (8,795 | ) |
| Depreciation and amortization | (66,967 | ) | | (52,024 | ) |
| Operating income | 55,941 |
| | 47,071 |
|
| Other income | 2,232 |
| | 2,125 |
|
| Other expenses | (1,646 | ) | | (1,674 | ) |
| Income, including depreciation, from unconsolidated real estate funds | 2,248 |
| | 4,146 |
|
| Interest expense | (36,306 | ) | | (33,932 | ) |
| Acquisition-related expenses | (3 | ) | | (1,130 | ) |
| Income before gains | 22,466 |
| | 16,606 |
|
| Gains on sales of investments in real estate | — |
| | — |
|
| Net income | 22,466 |
| | 16,606 |
|
| Less: Net income attributable to noncontrolling interests | (2,765 | ) | | (2,439 | ) |
| Net income attributable to common stockholders | $ | 19,701 |
| | $ | 14,167 |
|
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Supplemental Financial Data for Joint Ventures and Funds
(Unaudited, in thousands)
The tables below present certain financial data for our wholly owned properties, consolidated joint ventures and unconsolidated funds:
|
| | | | | | | | | | | |
| | Three months ended December 31, 2016 |
| | | | | | |
| | Wholly Owned Properties | | Consolidated Joint Ventures(1) | | Unconsolidated Funds(2) |
| | | | | | |
| Revenues | $ | 163,715 |
| | $ | 30,928 |
| | $ | 19,067 |
|
| Operating expenses | $ | 51,922 |
| | $ | 10,430 |
| | $ | 6,351 |
|
| Straight-line rent | $ | 567 |
| | $ | 2,118 |
| | $ | (40 | ) |
| Above/below-market lease revenue | $ | 1,352 |
| | $ | 3,431 |
| | $ | 26 |
|
Cash NOI attributable to outside interests(3) | $ | — |
| | $ | 9,744 |
| | $ | 4,729 |
|
Our share of Cash NOI(4) | $ | 109,874 |
| | $ | 5,205 |
| | $ | 8,001 |
|
| | | | | | |
| | Twelve months ended December 31, 2016 |
| | | | | | |
| | Wholly Owned Properties | | Consolidated Joint Ventures(1) | | Unconsolidated Funds(2) |
| | | | | | |
| Revenues | $ | 651,582 |
| | $ | 90,969 |
| | $ | 73,171 |
|
| Operating expenses | $ | 207,039 |
| | $ | 30,825 |
| | $ | 24,620 |
|
| Straight-line rent | $ | 5,036 |
| | $ | 8,564 |
| | $ | 654 |
|
| Above/below-market lease revenue | $ | 7,949 |
| | $ | 10,249 |
| | $ | 117 |
|
Cash NOI attributable to outside interests(3) | $ | — |
| | $ | 23,777 |
| | $ | 17,970 |
|
Our share of Cash NOI(4) | $ | 431,558 |
| | $ | 17,554 |
| | $ | 29,810 |
|
______________________________________________________
| |
| (1) | Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three consolidated joint ventures which we manage and partially own and which own a combined seven Class A office properties totaling 2.3 million square feet in our submarkets. We are entitled to (i) distributions based on invested capital as well as additional distributions based on Cash NOI, (ii) fees for property management and other services and (iii) reimbursement of certain acquisition-related expenses and certain other costs. |
| |
| (2) | Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for two unconsolidated Funds which we manage and partially own and which own a combined eight Class A office properties totaling 1.8 million square feet in our submarkets. We are entitled to (i) priority distributions in addition to distributions based on invested capital, (ii) a carried interest if the investors’ distributions exceed a hurdle rate, (iii) fees for property management and other services and (iv) reimbursement of certain costs. |
| |
| (3) | Represents the share of Cash NOI attributable to interests other than our fully diluted shares under the applicable agreements. |
| |
| (4) | Represents the share of Cash NOI attributable to our fully diluted shares. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Outstanding Loans
(As of December 31, 2016, unaudited and in thousands) | |
| | | | | | | | |
| | | | | | | | | | | |
| | Maturity Date(1) | | Principal Balance | | Our Share(2) | | Effective Rate(3) | | Swap Maturity Date | |
| | | | | | | | | | | |
| | Consolidated Loans - Wholly Owned Subsidiaries | |
| | | | | | | | | | | |
| | 2/28/2018 | | $ | 1,000 |
| | $ | 1,000 |
| | 3.00% | | -- | |
| | 8/5/2018 | (4) | 349,933 |
| | 349,933 |
| | 4.14% | | -- | |
| | 2/1/2019 | (4) | 149,911 |
| | 149,911 |
| | 4.00% | | -- | |
| | 6/5/2019 | (5) | 285,000 |
| | 285,000 |
| | 3.85% | | -- | |
| | 10/1/2019 | | 145,000 |
| | 145,000 |
| | LIBOR + 1.25% | | -- | |
| | 3/1/2020 | (4)(6) | 345,759 |
| | 345,759 |
| | 4.46% | | -- | |
| | 11/1/2020 | | 388,080 |
| | 388,080 |
| | 3.65% | | 11/1/2017 | |
| | 4/15/2022 | | 340,000 |
| | 340,000 |
| | 2.77% | | 4/1/2020 | |
| | 7/27/2022 | | 180,000 |
| | 180,000 |
| | 3.06% | | 7/1/2020 | |
| | 11/1/2022 | | 400,000 |
| | 400,000 |
| | 2.64% | | 11/1/2020 | |
| | 6/23/2023 | | 360,000 |
| | 360,000 |
| | 2.57% | | 7/1/2021 | |
| | 12/23/2023 | | 220,000 |
| | 220,000 |
| | 3.62% | | 12/23/2021 | |
| | 1/1/2024 | | 300,000 |
| | 300,000 |
| | 3.46% | | 1/1/2022 | |
| | 4/1/2025 | | 102,400 |
| | 102,400 |
| | 2.84% | | 3/1/2020 | |
| | 12/1/2025 | | 115,000 |
| | 115,000 |
| | 2.76% | | 12/1/2020 | |
| | 8/21/2020 | (7) | — |
| | — |
| | LIBOR + 1.40% | | -- | |
| | Subtotal | | $ | 3,682,083 |
| | $ | 3,682,083 |
| | | | | |
| | | | | | | | | | | |
| | Consolidated Loans - Joint Ventures | |
| | | | | | | | | | | |
| | 7/21/2019 | | 146,000 |
| | 29,200 |
| | LIBOR + 1.55% | | -- | |
| | 2/28/2023 | | 580,000 |
| | 174,000 |
| | 2.37% | | 3/1/2021 | |
| | Total Consolidated Loans | (8) | $ | 4,408,083 |
| | $ | 3,885,283 |
| | | | | |
| | | | | | | | | | | |
| | Unconsolidated Loans - our Funds | |
| | | | | | | | | | | |
| | 5/1/2018 | | $ | 325,000 |
| | $ | 222,980 |
| | 2.35% | | 5/1/2017 | |
| | 3/1/2023 | | 110,000 |
| | 26,680 |
| | 2.30% | | 3/1/2021 | |
| | Total Unconsolidated Loans | | $ | 435,000 |
| | $ | 249,660 |
| | | | | |
| | | | | | | | | | | |
| | Total Loans | | | | $ | 4,134,943 |
| | | | | |
| | | | | | | | | | | |
___________________________________________________
Except as otherwise noted below, each loan (including our revolving credit facility) is non-recourse and secured by one or more separate collateral pools consisting of one or more properties, and requires monthly payments of interest only with the outstanding principal due upon maturity.
| |
| (1) | Maturity dates include the effect of extension options. |
| |
| (2) | Our share is determined by multiplying the principal balance by our share of the borrowing entity. |
| |
| (3) | Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs. |
| |
| (4) | Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule. |
| |
| (5) | Interest only until February 2017, with principal amortization thereafter based upon a 30-year amortization schedule. |
| |
| (6) | Interest rate is fixed until March 1, 2018. |
| |
| (7) | $400 million revolving credit facility. Unused commitment fees range from 0.15% to 0.20% |
| |
| (8) | At December 31, 2016, the weighted average remaining life, including extension options, of our total consolidated term loans (excluding our revolving credit facility) was 4.9 years. For the $4.12 billion of term loans on which the interest rate was fixed under the terms of the loan or a swap, the weighted average (i) remaining life was 5.0 years, (ii) remaining period during which the interest rate was fixed was 3.2 years, (iii) annual interest rate was 3.28% and (iv) effective interest rate was 3.43% (including the non-cash amortization of deferred loan costs). |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Portfolio Summary
Total Office Portfolio as of December 31, 2016
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Submarket | | Number of Properties | | Rentable Square Feet | | Percent of Square Feet of Our Total Portfolio | | Submarket Rentable Square Feet(1) | | Our Market Share in Submarket(2) | |
| | | | | | | | | | | | | |
| | Beverly Hills(3) | | 9 |
| | 1,863,488 |
| | 10.5 | % | | 7,275,566 | | 22.6 | % | |
| | Brentwood | | 15 |
| | 2,052,964 |
| | 11.6 |
| | 3,446,845 | | 59.6 |
| |
| | Burbank | | 1 |
| | 420,949 |
| | 2.4 |
| | 6,847,218 | | 6.1 |
| |
| | Century City | | 3 |
| | 948,138 |
| | 5.4 |
| | 10,064,599 | | 9.4 |
| |
| | Honolulu | | 4 |
| | 1,716,716 |
| | 9.7 |
| | 5,088,599 | | 33.7 |
| |
| | Olympic Corridor | | 5 |
| | 1,139,057 |
| | 6.4 |
| | 3,408,039 | | 33.4 |
| |
| | Santa Monica | | 9 |
| | 1,128,082 |
| | 6.4 |
| | 9,619,872 | | 11.7 |
| |
| | Sherman Oaks/Encino | | 12 |
| | 3,471,575 |
| | 19.6 |
| | 6,179,129 | | 56.2 |
| |
| | Warner Center/Woodland Hills | | 3 |
| | 2,822,807 |
| | 16.0 |
| | 7,227,247 | | 39.1 |
| |
| | Westwood | | 6 |
| | 2,126,676 |
| | 12.0 |
| | 4,721,523 | | 45.0 |
| |
| | Total | | 67 |
| | 17,690,452 |
| | 100.0 | % | | 63,878,637 | | 27.4 | % | |
| | | | | | | | | | | | | |
| |
| (1) | The submarket Rentable Square Feet is sourced from the 2016 fourth quarter CBRE Marketview report. Changes from last quarter are due to adjustments made by CBRE with respect to existing buildings, not new construction. |
| |
| (2) | Our market share in the submarket is calculated by dividing Rentable Square Feet by the submarket Rentable Square Feet. |
| |
| (3) | In our Beverly Hills submarket data we include 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. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of December 31, 2016
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 | 97.0 | % | | $ | 77,837,712 |
| | $ | 44.03 |
| | $ | 3.67 |
| |
| | Brentwood | 93.6 |
| | 74,272,049 |
| | 39.98 |
| | 3.33 |
| |
| | Burbank | 100.0 |
| | 16,022,903 |
| | 38.06 |
| | 3.17 |
| |
| | Century City | 94.5 |
| | 36,044,643 |
| | 42.58 |
| | 3.55 |
| |
| | Honolulu(3) | 89.3 |
| | 47,971,368 |
| | 33.04 |
| | 2.75 |
| |
| | Olympic Corridor | 95.7 |
| | 33,948,416 |
| | 33.68 |
| | 2.81 |
| |
| | Santa Monica(4) | 96.8 |
| | 63,754,156 |
| | 60.95 |
| | 5.08 |
| |
| | Sherman Oaks/Encino | 90.8 |
| | 104,171,085 |
| | 34.30 |
| | 2.86 |
| |
| | Warner Center/Woodland Hills | 88.2 |
| | 67,244,700 |
| | 28.38 |
| | 2.36 |
| |
| | Westwood | 89.6 |
| | 82,495,539 |
| | 44.84 |
| | 3.74 |
| |
| | Total / Weighted Average | 92.2 | % | | $ | 603,762,571 |
| | 38.59 |
| | 3.22 |
| |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Recurring Office Capital Expenditures per Rentable Square Foot | | | | | |
| | For the three months ended December 31, 2016 | | $ | 0.07 |
| |
| | For the twelve months ended December 31, 2016 | | $ | 0.24 |
| |
| | | | | | | | | | |
_______________________________________________________________
| |
| (1) | Includes 321,358 square feet with respect to signed leases not yet commenced at December 31, 2016. |
| |
| (2) | Represents annualized rent divided by leased square feet (excluding signed leases not commenced at December 31, 2016). |
| |
| (3) | Includes $2,855,236 of annualized rent attributable to a health club that we operate. |
| |
| (4) | Includes $2,228,661 of annualized rent attributable to our corporate headquarters. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Lease Diversification
Total Office Portfolio as of December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Office Leases | | Rentable Square Feet | | Annualized Rent | |
| | Square Feet Under Lease | | Number | | Percent | | Amount | | Percent | | Amount | | Percent | |
| | | | | | | | | | | | | | | |
| | 2,500 or less | | 1,408 |
| | 49.4 | % | | 1,940,049 |
| | 12.4 | % | | $ | 74,514,984 |
| | 12.3 | % | |
| | 2,501-10,000 | | 1,075 |
| | 37.7 |
| | 5,278,845 |
| | 33.7 |
| | 200,534,799 |
| | 33.2 |
| |
| | 10,001-20,000 | | 235 |
| | 8.3 |
| | 3,229,652 |
| | 20.7 |
| | 123,509,919 |
| | 20.5 |
| |
| | 20,001-40,000 | | 98 |
| | 3.4 |
| | 2,634,536 |
| | 16.8 |
| | 103,415,976 |
| | 17.1 |
| |
| | 40,001-100,000 | | 29 |
| | 1.0 |
| | 1,601,307 |
| | 10.2 |
| | 65,673,192 |
| | 10.9 |
| |
| | Greater than 100,000 | | 5 |
| | 0.2 |
| | 961,114 |
| | 6.2 |
| | 36,113,701 |
| | 6.0 |
| |
| | Total | | 2,850 |
| | 100.0 | % | | 15,645,503 |
| | 100.0 | % | | $ | 603,762,571 |
| | 100.0 | % | |
| | | |
| | Our median tenant size is approximately 2,600 square feet and our average tenant size is approximately 5,500 square feet. | |
| | | |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Largest Office Tenants
Total Office Portfolio as of December 31, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Tenants paying 1% or more of our aggregate Annualized Rent: | |
| | | |
| | Tenant | | Number of Leases | | Number of Properties | | Lease Expiration(1) | | Total Leased Square Feet | | Percent of Rentable Square Feet | | Annualized Rent | | Percent of Annualized Rent | |
| | | | | | | | | | | | | | | | | |
| | Time Warner(2) | | 2 |
| | 2 |
| | 2017-2019 | | 430,810 |
| | 2.4 | % | | $ | 16,333,703 |
| | 2.7 | % | |
| | William Morris Endeavor(3) | | 1 |
| | 1 |
| | 2027 | | 184,995 |
| | 1.1 |
| | 9,827,227 |
| | 1.6 |
| |
| | UCLA(4) | | 21 |
| | 10 |
| | 2017-2026 | | 202,266 |
| | 1.1 |
| | 8,811,347 |
| | 1.4 |
| |
| | Equinox Fitness(5) | | 5 |
| | 5 |
| | 2018-2033 | | 180,087 |
| | 1.0 |
| | 6,968,612 |
| | 1.2 |
| |
| | Total | | 29 |
| | 18 |
| | | | 998,158 |
| | 5.6 | % | | $ | 41,940,889 |
| | 6.9 | % | |
| | | | | | | | | | | | | | | | | |
| | | |
| | (1) Expiration dates are per lease. Ranges reflect leases other than storage and similar leases. | |
| | (2) The square footage under these leases expire as follows: 10,000 square feet in 2017 and 421,000 square feet in 2019. | |
| | (3) Tenant has options to terminate 2,000 square feet in 2020 and 183,000 square feet in 2022. | |
| | (4) The square footage under these leases expire as follows: 12,000 square feet in 2017, 45,000 square feet in 2018, 13,000 square feet in 2019, 39,000 square feet in 2020, 41,000 square feet in 2021 (tenant has an option to terminate 7,000 square feet in 2020), 36,000 square feet in 2022 (tenant has an option to terminate 24,000 square feet in 2020), and 15,000 square feet in 2026 (tenant has an option to terminate 15,000 square feet in 2023). | |
| | (5) The square footage under these leases expire as follows: 44,000 square feet in 2018, 33,000 square feet in 2019, 42,000 square feet in 2020, 31,000 square feet in 2027 and 30,000 square feet in 2033. | |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Industry Diversification
Total Office Portfolio as of December 31, 2016
Percentage of Annualized Rent by Tenant Industry
|
| | | | | | | |
| | | | | | | |
| | Industry | | Number of Leases | | Annualized Rent as a Percent of Total | |
| | | | | | | |
| | Legal | | 551 | | 18.0 | % | |
| | Financial Services | | 377 | | 14.2 |
| |
| | Entertainment | | 201 | | 12.9 |
| |
| | Real Estate | | 259 | | 10.3 |
| |
| | Accounting & Consulting | | 360 | | 9.8 |
| |
| | Health Services | | 370 | | 8.9 |
| |
| | Retail | | 205 | | 6.2 |
| |
| | Technology | | 129 | | 5.7 |
| |
| | Insurance | | 106 | | 4.7 |
| |
| | Educational Services | | 46 | | 2.9 |
| |
| | Public Administration | | 94 | | 2.5 |
| |
| | Advertising | | 70 | | 2.0 |
| |
| | Other | | 82 | | 1.9 |
| |
| | Total | | 2,850 | | 100.0 | % | |
| | | | | | | |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Lease Expirations
Total Office Portfolio as of December 31, 2016
(1) Average of the percentage of leases at December 31, 2013, 2014, and 2015 with the same remaining duration as the leases for the labeled year had at December 31, 2016. Acquisitions are included in the prior year average commencing in the quarter after the acquisition.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Year of Lease Expiration | | Number of Leases | | Rentable Square Feet | | Expiring Square Feet as a Percent of Total | | Annualized Rent at December 31, 2016 | | 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 | | 80 |
| | 300,259 |
| | 1.7 | % | | $ | 9,803,372 |
| | 1.6 | % | | $ | 32.65 |
| | $ | 32.66 |
| |
| | 2017 | | 576 |
| | 2,284,574 |
| | 12.9 |
| | 82,221,433 |
| | 13.6 |
| | 35.99 |
| | 36.50 |
| |
| | 2018 | | 576 |
| | 2,365,060 |
| | 13.4 |
| | 93,494,397 |
| | 15.5 |
| | 39.53 |
| | 41.34 |
| |
| | 2019 | | 455 |
| | 2,214,506 |
| | 12.5 |
| | 83,818,030 |
| | 13.9 |
| | 37.85 |
| | 40.61 |
| |
| | 2020 | | 413 |
| | 2,281,143 |
| | 12.9 |
| | 87,268,594 |
| | 14.5 |
| | 38.26 |
| | 42.34 |
| |
| | 2021 | | 329 |
| | 1,964,727 |
| | 11.1 |
| | 76,769,053 |
| | 12.7 |
| | 39.07 |
| | 44.21 |
| |
| | 2022 | | 156 |
| | 1,118,894 |
| | 6.3 |
| | 42,095,036 |
| | 7.0 |
| | 37.62 |
| | 46.00 |
| |
| | 2023 | | 95 |
| | 1,039,800 |
| | 5.9 |
| | 38,349,743 |
| | 6.4 |
| | 36.88 |
| | 44.31 |
| |
| | 2024 | | 62 |
| | 523,985 |
| | 2.9 |
| | 20,115,263 |
| | 3.3 |
| | 38.39 |
| | 48.16 |
| |
| | 2025 | | 38 |
| | 494,710 |
| | 2.8 |
| | 23,004,431 |
| | 3.8 |
| | 46.50 |
| | 60.25 |
| |
| | 2026 | | 33 |
| | 454,912 |
| | 2.6 |
| | 19,959,682 |
| | 3.3 |
| | 43.88 |
| | 59.36 |
| |
| | Thereafter | | 37 |
| | 602,933 |
| | 3.4 |
| | 26,863,537 |
| | 4.4 |
| | 44.55 |
| | 60.10 |
| |
| | Subtotal/Weighted Average | | 2,850 |
| | 15,645,503 |
| | 88.4 | % | | 603,762,571 |
| | 100.0 | % | | 38.59 |
| | 43.47 |
| |
| | Signed leases not commenced | | 321,358 |
| | 1.8 |
| | | | | | | | | |
| | Available | | 1,382,064 |
| | 7.8 |
| | | | | | | | | |
| | Building Management Use | | 124,952 |
| | 0.7 |
| | | | | | | | | |
| | BOMA Adjustment(3) | | | | 216,575 |
| | 1.3 |
| | | | | | | | | |
| | Total/Weighted Average | | 2,850 |
| | 17,690,452 |
| | 100.0 | % | | $ | 603,762,571 |
| | 100.0 | % | | 38.59 |
| | 43.47 |
| |
| | | | | | | | | | | | | | | | | |
___________________________________________________
| |
| (1) | Represents annualized rent at December 31, 2016 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 remeasurement. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Quarterly Lease Expirations - Next Four Quarters
Total Office Portfolio as of December 31, 2016
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | Q1 2017 | | Q2 2017 | | Q3 2017 | | Q4 2017 | |
| | | | | | | | | | | |
| | Expiring Square Feet(1) | | 383,042 | | 501,812 | | 579,048 | | 820,672 | |
| | Percentage of Portfolio | | 2.2 | % | | 2.8 | % | | 3.3 | % | | 4.6 | % | |
| | Expiring Rent per Square Foot(2) | | $36.59 | | $38.33 | | $35.21 | | $36.25 | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | | |
| | 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, the data in this table should only be extrapolated with caution. | |
| | | | | | | | | | | |
| | | | Q1 2017 | | Q2 2017 | | Q3 2017 | | Q4 2017 | |
| | | | | | | | | | | | |
| | Beverly Hills | Expiring SF(1) | | 48,199 |
| | 42,942 |
| | 54,480 |
| | 33,720 |
| |
| | Expiring Rent per SF(2) | | $41.42 | | $40.39 | | $43.71 | | $39.61 | |
| | | | | | | | | | | | |
| | Brentwood | Expiring SF(1) | | 34,418 |
| | 80,189 |
| | 75,661 |
| | 65,111 |
| |
| | Expiring Rent per SF(2) | | $35.04 | | $37.61 | | $36.26 | | $45.64 | |
| | | | | | | | | | | | |
| | Century City | Expiring SF(1) | | 28,669 |
| | 60,521 |
| | 12,136 |
| | 58,998 |
| |
| | Expiring Rent per SF(2) | | $43.75 | | $46.89 | | $40.19 | | $37.33 | |
| | | | | | | | | | | | |
| | Honolulu | Expiring SF(1) | | 24,257 |
| | 49,468 |
| | 46,016 |
| | 153,215 |
| |
| | Expiring Rent per SF(2) | | $30.11 | | $30.52 | | $32.72 | | $31.71 | |
| | | | | | | | | | | | |
| | Olympic Corridor | Expiring SF(1) | | 19,360 |
| | 23,995 |
| | 68,061 |
| | 80,878 |
| |
| | Expiring Rent per SF(2) | | $32.42 | | $31.38 | | $33.93 | | $34.78 | |
| | | | | | | | | | | | |
| | Santa Monica | Expiring SF(1) | | 10,586 |
| | 19,036 |
| | 2,223 |
| | 40,963 |
| |
| | Expiring Rent per SF(2) | | $48.65 | | $63.18 | | $46.41 | | $56.24 | |
| | | | | | | | | | | | |
| | Sherman Oaks/Encino | Expiring SF(1) | | 97,088 |
| | 78,818 |
| | 208,080 |
| | 125,111 |
| |
| | Expiring Rent per SF(2) | | $33.08 | | $34.30 | | $33.70 | | $35.79 | |
| | | | | | | | | | | | |
| | Warner Center/Woodland Hills | Expiring SF(1) | | 39,742 |
| | 71,737 |
| | 88,974 |
| | 206,741 |
| |
| | Expiring Rent per SF(2) | | $29.00 | | $31.07 | | $30.64 | | $30.64 | |
| | | | | | | | | | | | |
| | Westwood | Expiring SF(1) | | 80,723 |
| | 75,106 |
| | 23,417 |
| | 55,935 |
| |
| | Expiring Rent per SF(2) | | $41.15 | | $43.23 | | $47.74 | | $43.79 | |
| | | | | | | | | | | | |
_________________________________________________________________
| |
| (1) | Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of December 31, 2016, other than 300,259 square feet of short-term leases. |
| |
| (2) | Includes the impact of rent escalations over the entire term of the expiring lease, and is therefore not directly comparable to starting rents. Fluctuations in this number from quarter to quarter primarily reflects the mix of buildings/submarkets involved, and is also impacted by the varying terms and square footage of the individual leases expiring. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Office Leasing Activity
Total Office Portfolio during the three months ended December 31, 2016
|
| | | | | | | | |
| | | | | | | | | |
| | | | | | Rentable Square Feet | | Percentage | |
| | | | | | | | | |
| | Net Absorption During Quarter(1) | | 42,510 | | 0.24% | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | Office Leases Signed During Quarter | | Number of leases | | Rentable Square Feet | | Weighted Average Lease Term (months) | |
| | | | | | | | | |
| | New leases | | 90 | | 321,629 | | 61 | |
| | Renewal leases | | 100 | | 451,589 | | 53 | |
| | All leases | | 190 | | 773,218 | | 56 | |
| | | | | | | | | |
|
| | | | | | | |
| | | | | | | | |
| | Change in Annual Rental Rates (Per Square Foot) for Office Leases Executed during the Quarter(2) | |
| | | | | | | | |
| | | Starting Cash Rent | | Straight-line Rent | | Expiring Cash Rent | |
| | | | | | | | |
| | Leases signed during the quarter | $42.27 | | $43.96 | | N/A | |
| | Prior leases for the same space | $34.34 | | $34.95 | �� | $38.96 | |
| | Percentage change | 23.1% | | 25.8% | | 8.5% | (3) |
| | | | | | | | |
|
| | | | | |
| | | | | | |
| | Average Office Lease Transaction Costs (Per Square Foot)(4) | |
| | | | | | |
| | | Lease Transaction Costs | | Lease Transaction Costs per Annum | |
| | | | | | |
| | New leases signed during the quarter | $35.66 | | $7.03 | |
| | Renewal leases signed during the quarter | $20.11 | | $4.58 | |
| | All leases signed during the quarter | $26.58 | | $5.68 | |
| | | | | | |
________________________________________________________________
| |
| (1) | Net absorption excludes the impact of acquisitions, dispositions and building remeasurements during the quarter. |
| |
| (2) | Represents the average initial stabilized cash and straight-line rents on new and renewal leases signed during the quarter compared to the prior lease on the same space, excluding Short Term Leases and leases on space where the prior lease was terminated more than a year before signing of the new lease. |
| |
| (3) | The percentage change for expiring cash rent represents the comparison between the starting cash rent on leases executed during the quarter and the expiring cash rent on the prior leases for the same space. |
| |
| (4) | Represents the weighted average of tenant improvements and leasing commissions. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Multifamily Portfolio Summary
as of December 31, 2016
Annualized Rent by Submarket
|
| | | | | | | | | | | | | |
| | | | | | | | | |
| | Submarket | | Number of Properties | | Number of Units | | Units as a Percent of Total | |
| | | | | | | | | |
| | Brentwood | | 5 | | 950 |
| | 28 | % | |
| | Honolulu(1) | | 3 | | 1,550 |
| | 47 |
| |
| | Santa Monica | | 2 | | 820 |
| | 25 |
| |
| | Total | | 10 | | 3,320 |
| | 100 | % | |
| | | | | | | | | |
| | Submarket | | Percent Leased | | Annualized Rent | | Monthly Rent Per Leased Unit | |
| | | | | | | | | |
| | Brentwood | | 99.7 | % | | $ | 29,198,220 |
| | $ | 2,569 |
| |
| | Honolulu | | 98.3 |
| | 33,051,648 |
| | 1,807 |
| |
| | Santa Monica(2) | | 99.8 |
| | 27,593,928 |
| | 2,811 |
| |
| | Total / Weighted Average | | 99.1 | % | | $ | 89,843,796 |
| | 2,276 |
| |
| | | | | | | | | |
|
| | | | | |
| | | | |
| | Recurring Multifamily Capital Expenditures per Unit | | |
| | | | |
| | For the three months ended December 31, 2016 | $ | 111 |
| |
| | | | |
| | For the twelve months ended December 31, 2016 | $ | 469 |
| |
| | | | |
________________________________________________________________
(1) Sixteen units were removed during the fourth quarter as a result of development activity.
| |
| (2) | Excludes 10,013 square feet of ancillary retail space generating annualized rent of $370,885. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Multifamily Development Projects(1)
Rendering of our proposed new residential tower in Brentwood (center), with a new park in the foreground, and our existing residential and office buildings (left and right respectively).
We are currently working on two multifamily development projects located on sites that we already own:
|
| | | |
| Moanalua Hillside Apartments, Honolulu, Hawaii |
| Projected Units (net) | Estimated Cost | Anticipated Delivery |
| 475 | $120 million | Phase 1 (238 Units) - Late 2017 Phase 2 (237 Units) - Late 2018 |
| We are adding 475 units (net of existing units removed) to our Moanalua Hillside apartment community located on 28 acres near downtown Honolulu and key military bases. The $120 million estimated cost of the new units does not include the cost of the land which we owned before beginning the project. We also plan to invest additional capital to upgrade the existing units, improve the parking and landscaping, build a new leasing and management office, and construct a new recreation and fitness facility with a new pool. |
|
| | | |
| The Landmark, Brentwood, California |
| Projected Units | Estimated Cost | Anticipated Start of Construction | Anticipated Construction Period |
| 376 | $120 - $140 million | Late 2017 | 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 ocean 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 unanticipated delays. The $120 - $140 million estimated cost does not include the cost of the land or the existing underground parking garage, both of which we owned before beginning the project. |
| |
| (1) | All figures are estimates, as development in our markets is long and complex and subject to inherent uncertainties. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
2017 OUTLOOK(1)
|
| |
| Metric | 2017 Guidance (per share) |
| Net Income Per Common Share - Diluted | $0.54 to $0.60 |
| Funds From Operations (FFO) - Fully Diluted | $1.88 to $1.94 |
| Adjusted Funds From Operations (AFFO) - Fully Diluted | $1.53 to $1.59 |
Below are some of the assumptions we used in providing this guidance:
|
| | |
| Metric | Commentary | Assumption Range |
| Average Office Occupancy | Based on our total office portfolio | 90% to 91% |
| Residential Leased Rate | We manage our apartment portfolio to be fully leased due to rent control in our markets. This does not include the impact of the lease up of newly developed units placed in service during the year. | Essentially Fully Leased |
| Same Property Cash NOI | Includes revenue from early lease terminations and prior year CAM reconciliations.2 | Annual Increase of 5% to 6% |
| Core Same Property Cash NOI | Excludes revenue from early lease terminations and prior year CAM reconciliations.2 | Annual Increase of 5.5% to 6.5% |
| Net Revenue from Above/Below Market Leases | Since our IPO, our non-cash revenue from below-market leases has benefited from amortizing below-market leases related to our pre-1999 residential units. These below-market leases were fully amortized in October 2016. This will reduce our non-cash revenue by approximately $3.0 million in 2017. | $13.5 to $15.5 million |
| Straight-Line Revenue | | $8.5 to $10.5 million |
| G&A | | $35 to $39 million |
| Interest Expense | | $148 to $151 million |
| Weighted Average Fully Diluted Shares Outstanding | | 180 to 181 million |
____________________________________________________
| |
| (1) | Except as disclosed, our guidance does not include the impact of possible future property acquisitions or dispositions, including acquisition and disposition costs, financings, other possible capital markets activities or impairment charges. The guidance and representative assumptions on this page are forward looking statements, subject to the safe harbor contained at the beginning of this Earnings Package, and reflect our views of current and future market conditions. Ranges represent a set of likely assumptions, but actual results could fall outside the range presented. Only a few of our assumptions underlying our guidance are disclosed above, and our actual results will be affected by known and unknown risks, trends, uncertainties and other factors, some of which are beyond our control or ability to predict. Although we believe that the assumptions underlying our guidance are reasonable, they are not guarantees of future performance and some of them will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences could be material. |
| |
| (2) | We expect to exclude the following properties from our same property subset for 2017: (i) six office properties totaling 2.2 million square feet which we acquired during 2016 through two consolidated joint ventures, (ii) a multifamily property in Honolulu where we expect to add a net additional 475 units, (iii) a 661,000 square foot office property in Los Angeles which included a 35,000 square foot gym which is undergoing a repositioning, (iv) a 79,000 square foot office property in Honolulu (a joint venture in which we own a two-thirds interest) undergoing a repositioning, and (v) a 168,000 square foot office property which we sold during the third quarter of 2016. Our same property results do not include the results of our unconsolidated Funds. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
Reconciliation of Non-GAAP Guidance
(Unaudited and in millions, except per share amounts)
Below is a reconciliation of our guided Net Income Per Common Share - Diluted to FFO and AFFO per share- Fully Diluted for 2017:
|
| | | | | | | |
| Reconciliation of net income attributable to common stockholders to FFO | Low | | High |
| |
| Net income attributable to common stockholders | $ | 83 |
| | $ | 92 |
|
| Adjustments for depreciation and amortization of real estate assets | 270 |
| | 260 |
|
| Adjustments for noncontrolling interests, consolidated JVs and unconsolidated funds | (13 | ) | | (2 | ) |
| FFO | $ | 340 |
| | $ | 350 |
|
| |
| Reconciliation of FFO to AFFO | | | |
| | | | |
| FFO | $ | 340 |
| | $ | 350 |
|
| Adjustments for non cash revenues | (22 | ) | | (26 | ) |
| Adjustments for loan costs and non cash compensation expense | 34 |
| | 23 |
|
| Adjustments for recurring capital expenditures, tenant improvements and leasing commissions | (75 | ) | | (65 | ) |
| Adjustments for consolidated JVs and unconsolidated funds | — |
| | 4 |
|
| AFFO | $ | 277 |
| | $ | 286 |
|
| | | | |
| Reconciliation of shares outstanding | High | | Low |
| | |
| Weighted average shares of common stock outstanding - diluted | 155 |
| | 154 |
| Weighted average units in our operating partnership outstanding | 26 |
| | 26 |
| Weighted average fully diluted shares outstanding | 181 |
| | 180 |
| |
| Per share | Low | | High |
| |
| Net Income Per Common Share - Diluted | $ | 0.54 |
| | $ | 0.60 |
|
| FFO per share - Fully Diluted | $ | 1.88 |
| | $ | 1.94 |
|
| AFFO per share - Fully Diluted | $ | 1.53 |
| | $ | 1.59 |
|
_____________________________________________
This reconciliation should be used as an example only, with the numbers presented only as representative assumptions. Ranges represent a set of likely assumptions, but actual results could fall outside the range presented. All assumptions are forward looking statements, subject to the safe harbor contained at the beginning of this Earnings Package, and reflect our views of current and future market conditions. Our actual results will be affected by known and unknown risks, trends, uncertainties and other factors, some of which are beyond our control or ability to predict. Although we believe that the assumptions underlying the guidance are reasonable, they are not guarantees of future performance and some of them will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences could be material.
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain 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 and hedge ineffectiveness of interest rate contracts; amortization/expense of loan costs; non-cash compensation expense, and (ii) subtracting recurring capital expenditures, tenant improvements and leasing commissions (including adjusting for the effect of such items attributable to consolidated joint ventures and unconsolidated real estate funds, but not for noncontrolling interests included in our calculation of fully diluted equity). Recurring capital capital expenditures, tenant improvements and leasing commissions are those required to maintain current revenues once a property has been stabilized, generally excluding those for acquired buildings being stabilized, newly developed space and upgrades to improve revenues or operating expenses, as well as those resulting from casualty damage or bringing the property into compliance with governmental requirements. We report AFFO because it is a widely reported measure of the performance of equity Real Estate Investments Trusts (REITs), and is also used by some investors to compare our performance with other REITs. However, the National Association of Real Estate Investment Trusts (NAREIT) has not defined AFFO, and other REITs may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to the AFFO of other REITs. AFFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. AFFO 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.
AFFO Payout Ratio: Represents dividends paid within each period divided by the AFFO for that period.
Annualized Rent: Represents annualized cash base rent (i.e. excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the reporting date and expiring after the reporting date (does not include 321,358 square feet with respect to signed leases not yet commenced at December 31, 2016). For our triple net office properties (in Honolulu and two single tenant buildings in Los Angeles), annualized rent is calculated by adding expense reimbursements to base rent. Annualized rent does not include lost rent recovered from insurance.
Average Occupancy Rates: Calculated by averaging the Occupancy Rates on the last day of the current and prior quarter and, for reporting periods longer than a quarter, by averaging the Occupancy Rates for all the quarters in the respective reported 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.
Consolidated Portfolio: Includes all of the properties included in our consolidated results, including our consolidated joint ventures. We own 100% of our consolidated portfolio except for seven office properties totaling 2.3 million square feet which we own through three consolidated joint ventures and in which we own a weighted average of approximately 29% based on square footage.
Consolidated Net Debt: Represents our consolidated debt, net of cash and cash equivalents and before deducting unamortized deferred loan costs.
Equity Capitalization: Represents our Fully Diluted Shares multiplied by the closing price of our common stock on December 31, 2016.
Fully Diluted Shares: Represents the sum of our diluted shares outstanding plus the outstanding units in our operating partnership.
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, real estate depreciation and amortization (other than amortization of deferred loan costs) from our net income (including adjusting for the effect of such items attributable to consolidated joint ventures and unconsolidated real estate funds, but not for noncontrolling interests included in our calculation of fully diluted equity). We report FFO because it is a widely reported measure of the performance of equity REITs, and is also used by some investors to identify trends in occupancy rates, rental rates and operating costs from year to year, and to compare our performance with other REITs. FFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. FFO has limitations as a measure of our performance because it excludes depreciation and amortization of real estate, 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. FFO 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. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to the FFO of other REITs.
GAAP: Refers to accounting principles generally accepted in the United States.
Net Income Per Common Share - Diluted: We calculate Net Income Per Common Share - Diluted by dividing the net income attributable to common stockholders for the period by the weighted average number of common shares and dilutive instruments outstanding during the period using the treasury stock method. We account for unvested LTIP awards that contain nonforfeitable rights to dividends as participating securities and include these securities in the computation using the two-class method.
Net Operating Income (NOI): We calculate NOI as revenue less operating expenses attributable to the properties that we own and operate. We present two forms of NOI:
| |
| • | NOI: is calculated by excluding the following from our net income: general and administrative expense, depreciation and amortization expense, other income, other expense, income, including depreciation, from unconsolidated real estate funds, interest expense, acquisition related expenses, gains (or losses) on sales of investments in real estate and net income attributable to noncontrolling interests. |
| |
| • | Cash NOI: is calculated by excluding from NOI our straight-line rent and the amortization/accretion of acquired above/below market leases. |
We report NOI because it is a widely recognized measure of the performance of equity REITs, and is used by some investors to identify trends in occupancy rates, rental rates and operating costs and to compare our operating performance with that of other REITs. NOI is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. 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. 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. Other REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to the NOI of other REITs.
Occupancy Rate: The percentage leased, excluding signed leases not yet commenced, as of December 31, 2016.
Pro Forma Net Debt: Represents our share of Consolidated Net Debt and our share of our unconsolidated real estate funds' debt, net of cash and cash equivalents and before deducting unamortized deferred loan costs.
Rentable Square Feet: Based on the BOMA remeasurement. At December 31, 2016, total consists of 15,966,861 leased square feet (including 321,358 square feet with respect to signed leases not commenced), 1,382,064 available square feet, 124,952 building management use square feet and 216,575 square feet of BOMA adjustment on leased space.
Same Property NOI: To facilitate a comparison of NOI between reported periods, we report NOI for a subset of our consolidated properties referred to as our “same properties”, which are 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. Our same property results do not include the results of our unconsolidated Funds. We excluded from our same property subset for 2016 any properties (i) acquired on or after January 1, 2015; (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements on or after January 1, 2015; or (iii) that underwent a major repositioning project that we believed significantly affected its results at any point during the period commencing on or after January 1, 2015.
Our same properties for 2016 include all of our consolidated properties other than (i) six office properties totaling 2.2 million square feet which we acquired during 2016 through two consolidated joint ventures which we manage and in which we hold a weighted average interest of approximately 28% based on square footage, (ii) a 227,000 square foot office property that we acquired in March 2015, (iii) a multifamily property in Honolulu where we expect to add a net additional 475 units, (iv) a 661,000 square foot office property in Los Angeles which included a 35,000 square foot gym which is undergoing a repositioning, (v) a 79,000 square foot office property in Honolulu (a joint venture in which we own a two-thirds interest) undergoing a repositioning and (vi) a 168,000 square foot office property which we sold during the third quarter of 2016.
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 eight properties totaling 1.8 million square feet owned by our two unconsolidated real estate Funds, in which we own a weighted average of approximately 60% based on square footage.
