Executive Summary
We own and operate 18.4 million square feet of Class A office properties and 4,147 apartment units in the premier coastal submarkets of Los Angeles and Honolulu.
Outstanding Financial Results: For the quarter ended September 30, 2019 compared to the quarter ended September 30, 2018:
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| ◦ | We grew our revenues by 6.6% to $238.1 million. |
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| ◦ | Our net income attributable to common stockholders decreased by 26.4% to $22.5 million due to higher depreciation expense from our development and repositioning projects and loan costs related to our refinancing program. |
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| ◦ | We grew our FFO by 3.7% to $103.9 million, or $0.51 per fully diluted share. This growth was despite the expected impact from our strategic balance sheet activities which reduced our FFO for the quarter by 4 cents per share. |
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| ◦ | We grew our AFFO by 14.3% to $94.3 million. |
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| ◦ | We grew our same property Cash NOI by 6.7% to $140.5 million. |
Strong Leasing: During the third quarter, we signed approximately 1,000,000 square feet of office leases, including a record 461,000 square feet of new leases. We increased the leased rate in our office portfolio by 94 basis points to 93.1%, and our occupancy rate by about 50 basis points to 90.9%. We continue to post strong leasing spreads as a result of robust tenant demand. Comparing the office leases we signed during the third quarter to the expiring leases for the same space, we grew straight-line rents by 29.1% and cash rents by 10.7%. Our multifamily portfolio remained fully leased at 99.3%.
Strategic Balance Sheet Activities: Taking advantage of current low long-term interest rates and tight lending spreads, since May we have successfully completed the refinancing of approximately $2.0 billion of debt with new secured, non-recourse loans maturing in 2026 and beyond. As a result, we added almost five years to that debt's average term while reducing its current interest rate by nearly 35 basis points to 2.63%.
Overall, we now have no debt due before 2023 and no floating rate debt at all. Our pool of unencumbered assets available for future financings has risen to 41% of our office portfolio, while Our Share of Net Debt to Pro Forma Enterprise Value is 29%.
With the loan we closed last week, we don’t foresee any more refinancing activity this year, although we will continue to monitor rates and spreads into 2020 for further opportunities.
Guidance:
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| ◦ | Lowering Guidance for Net Income. We expect our Net Income per Common Share - Diluted to be between $0.57 and $0.59 per share for 2019, reflecting accelerated depreciation from certain office improvements and the Honolulu property we are converting from office to residential. |
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| ◦ | Increasing Guidance for Same Property Cash NOI. Based on the strength of our operating results, we are increasing our guidance for 2019 same property cash NOI growth to between 6.5% and 7.5%. |
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| ◦ | Narrowing Guidance for FFO. Our strong underlying operations and leasing have largely offset the 5 cent impact from our strategic balance sheet program. As a result, we are maintaining the midpoint for our full year FFO guidance, while narrowing the range to between $2.09 per share and $2.11 per share. |
See page 23 for more details on our guidance.
NOTE: See the non-GAAP reconciliations for FFO & AFFO on page 8 and same property NOI on page 10. NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
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 Third Quarter 2019 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 (SEC). 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 debt; 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 SEC. Although we believe that our assumptions underlying our forward looking statements 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 any forward-looking statements in this Earnings Package or any 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 September 30, 2019
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| | | | | | | |
| | Office Portfolio | |
| | | | | | |
| | | Consolidated | | Total | |
| | Properties | 64 |
| | 72 |
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| | Rentable square feet (in thousands) | 16,516 |
| | 18,356 |
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| | Leased rate | 93.2 | % | | 93.1 | % | |
| | Occupancy rate | 91.0 | % | | 90.9 | % | |
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| | Multifamily Portfolio | |
| | | | | | |
| | | | | Total | |
| | Properties | | | 11 |
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| | Units | | | 4,147 |
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| | Leased rate | | | 99.3 | % | |
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| | Market Capitalization (in thousands, except price per share) | |
| | | | | |
| | Fully Diluted Shares outstanding as of September 30, 2019 | | 204,004 |
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| | Common stock closing price per share (NYSE:DEI) | | $ | 42.83 |
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| | Equity Capitalization | | $ | 8,737,476 |
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| | Net Debt (in thousands) | |
| | | | | | |
| | | Consolidated | | Our Share | |
| | | | | | |
| | Debt principal(1) | $ | 4,213,446 |
| | $ | 3,677,262 |
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| | Less: cash and cash equivalents(2) | (181,510 | ) | | (130,637 | ) | |
| | Net Debt | $ | 4,031,936 |
| | $ | 3,546,625 |
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| | Leverage Ratio (in thousands, except percentage) | |
| | | | | |
| | Pro Forma Enterprise Value | | $ | 12,284,101 |
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| | Our Share of Net Debt to Pro Forma Enterprise Value | | 29 | % | |
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| | AFFO Payout Ratio | |
| | | | | |
| | Three months ended September 30, 2019 | | 56.3 | % | |
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_______________________________________
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| (1) | See page 12 for a reconciliation of consolidated debt principal and our share of debt principal to consolidated debt on the balance sheet. |
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| (2) | Our share of cash and cash equivalents is calculated starting with our consolidated cash and cash equivalents of $181.5 million, then deducting the other owners' share of our JVs' cash and cash equivalents of $79.0 million and then adding our share of our unconsolidated Funds' cash and cash equivalents of $28.1 million. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Property Map
as of September 30, 2019
Board of Directors and Executive Officers
as of September 30, 2019
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 | Vice Chairman, PinnacleCare |
| Dr. David T. Feinberg | Vice President, Google Health |
| Virginia A. McFerran | Vice President, Business Development, Google Health |
| Thomas E. O’Hern | Chief Executive Officer, Macerich |
| William E. Simon, Jr. | Partner, Massey Quick Simon & Co., LLC |
| Johnese Spisso | President, UCLA Health; Chief Executive Officer, UCLA Hospital System; Associate Vice Chancellor, UCLA Health Sciences |
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 |
| Peter D. Seymour | Chief Financial Officer |
| Kevin A. Crummy | Chief Investment Officer |
CORPORATE OFFICES
1299 Ocean Avenue, Suite 1000, 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
(In thousands)
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| | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | | | |
| | Unaudited | | |
| Assets | |
| | |
|
| Investment in real estate: | |
| | |
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| Land | $ | 1,100,412 |
| | $ | 1,065,099 |
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| Buildings and improvements | 8,454,991 |
| | 7,995,203 |
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| Tenant improvements and lease intangibles | 850,124 |
| | 840,653 |
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| Property under development | 85,288 |
| | 129,753 |
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| Investment in real estate, gross | 10,490,815 |
| | 10,030,708 |
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| Less: accumulated depreciation and amortization | (2,433,974 | ) | | (2,246,887 | ) |
| Investment in real estate, net | 8,056,841 |
| | 7,783,821 |
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| Ground lease right-of-use asset | 7,481 |
| | — |
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| Cash and cash equivalents | 181,510 |
| | 146,227 |
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| Tenant receivables | 5,113 |
| | 4,371 |
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| Deferred rent receivables | 134,132 |
| | 124,834 |
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| Acquired lease intangible assets, net | 2,877 |
| | 3,251 |
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| Interest rate contract assets | 11,925 |
| | 73,414 |
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| Investment in unconsolidated Funds | 102,280 |
| | 111,032 |
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| Other assets | 18,736 |
| | 14,759 |
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| Total assets | $ | 8,520,895 |
| | $ | 8,261,709 |
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| Liabilities | | | |
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| Secured notes payable and revolving credit facility, net | $ | 4,176,967 |
| | $ | 4,134,030 |
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| Ground lease liability | 10,884 |
| | — |
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| Interest payable, accounts payable and deferred revenue | 134,944 |
| | 130,154 |
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| Security deposits | 51,945 |
| | 50,733 |
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| Acquired lease intangible liabilities, net | 38,384 |
| | 52,569 |
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| Interest rate contract liabilities | 78,111 |
| | 1,530 |
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| Dividends payable | 45,598 |
| | 44,263 |
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| Total liabilities | 4,536,833 |
| | 4,413,279 |
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| Equity | | | |
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| Douglas Emmett, Inc. stockholders' equity: | | | |
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| Common stock | 1,753 |
| | 1,702 |
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| Additional paid-in capital | 3,486,025 |
| | 3,282,316 |
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| Accumulated other comprehensive (loss) income | (48,878 | ) | | 53,944 |
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| Accumulated deficit | (988,030 | ) | | (935,630 | ) |
| Total Douglas Emmett, Inc. stockholders' equity | 2,450,870 |
| | 2,402,332 |
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| Noncontrolling interests | 1,533,192 |
| | 1,446,098 |
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| Total equity | 3,984,062 |
| | 3,848,430 |
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| Total liabilities and equity | $ | 8,520,895 |
| | $ | 8,261,709 |
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NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Consolidated Operating Results
(Unaudited; in thousands, except per share data)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
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| Revenues | |
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| Office rental | |
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Rental revenues and tenant recoveries(1) | $ | 175,017 |
| | $ | 166,680 |
| | $ | 513,926 |
| | $ | 490,319 |
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| Parking and other income | 30,883 |
| | 30,374 |
| | 91,453 |
| | 87,829 |
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| Total office revenues | 205,900 |
| | 197,054 |
| | 605,379 |
| | 578,148 |
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| Multifamily rental | | | | | | | |
| Rental revenues | 29,854 |
| | 24,241 |
| | 81,055 |
| | 70,957 |
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| Parking and other income | 2,315 |
| | 2,041 |
| | 6,355 |
| | 5,947 |
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| Total multifamily revenues | 32,169 |
| | 26,282 |
| | 87,410 |
| | 76,904 |
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| | | | | | | | |
| Total revenues | 238,069 |
| | 223,336 |
| | 692,789 |
| | 655,052 |
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| | | | | | | | |
| Operating Expenses | | | | | | | |
| Office expenses | 68,754 |
| | 66,288 |
| | 196,511 |
| | 188,462 |
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| Multifamily expenses | 9,127 |
| | 7,142 |
| | 24,394 |
| | 20,748 |
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| General and administrative expenses | 9,218 |
| | 9,440 |
| | 28,209 |
| | 28,444 |
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| Depreciation and amortization | 90,279 |
| | 74,067 |
| | 248,876 |
| | 219,944 |
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| Total operating expenses | 177,378 |
| | 156,937 |
| | 497,990 |
| | 457,598 |
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| | | | | | | | |
| Operating income | 60,691 |
| | 66,399 |
| | 194,799 |
| | 197,454 |
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| | | | | | | | |
| Other income | 2,952 |
| | 2,951 |
| | 8,742 |
| | 8,373 |
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| Other expenses | (1,656 | ) | | (1,561 | ) | | (5,308 | ) | | (5,380 | ) |
| Income, including depreciation, from unconsolidated Funds | 1,831 |
| | 1,348 |
| | 5,589 |
| | 4,522 |
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| Interest expense | (40,397 | ) | | (33,721 | ) | | (107,753 | ) | | (99,889 | ) |
| Net income | 23,421 |
| | 35,416 |
| | 96,069 |
| | 105,080 |
|
| Less: Net income attributable to noncontrolling interests | (933 | ) | | (4,855 | ) | | (10,914 | ) | | (14,629 | ) |
| Net income attributable to common stockholders | $ | 22,488 |
| | $ | 30,561 |
| | $ | 85,155 |
| | $ | 90,451 |
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| | | | | | | | |
| Net income per common share - basic | $ | 0.13 |
| | $ | 0.18 |
| | $ | 0.49 |
| | $ | 0.53 |
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| Net income per common share - diluted | $ | 0.13 |
| | $ | 0.18 |
| | $ | 0.49 |
| | $ | 0.53 |
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| | | | | | | | |
| Dividends declared per common share | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.78 |
| | $ | 0.75 |
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| | | | | | | | |
| Weighted average shares of common stock outstanding - basic | 175,278 |
| | 169,926 |
| | 172,684 |
| | 169,815 |
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| Weighted average shares of common stock outstanding - diluted | 175,278 |
| | 169,931 |
| | 172,684 |
| | 169,828 |
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| (1) | Rental revenues and tenant recoveries include tenant recoveries of $16.3 million and $16.4 million for the three months ended September 30, 2019 and 2018, and $46.2 million and $42.1 million for the nine months ended September 30, 2019 and 2018, respectively. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Funds From Operations & Adjusted Funds From Operations(1)
(Unaudited; in thousands, except per share data)
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| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Funds From Operations (FFO) | | | | | | | |
| Net income attributable to common stockholders | $ | 22,488 |
| | $ | 30,561 |
| | $ | 85,155 |
| | $ | 90,451 |
|
| Depreciation and amortization of real estate assets | 90,279 |
| | 74,067 |
| | 248,876 |
| | 219,944 |
|
| Net income attributable to noncontrolling interests | 933 |
| | 4,855 |
| | 10,914 |
| | 14,629 |
|
Adjustments attributable to unconsolidated Funds(2) | 4,335 |
| | 4,233 |
| | 13,185 |
| | 12,382 |
|
Adjustments attributable to consolidated joint ventures(2) | (14,147 | ) | | (13,572 | ) | | (43,343 | ) | | (40,484 | ) |
| FFO | $ | 103,888 |
| | $ | 100,144 |
| | $ | 314,787 |
| | $ | 296,922 |
|
| | | | | | | | |
| Adjusted Funds From Operations (AFFO) | | | | | | | |
| FFO | $ | 103,888 |
| | $ | 100,144 |
| | $ | 314,787 |
| | $ | 296,922 |
|
| Straight-line rent | (2,614 | ) | | (3,524 | ) | | (9,298 | ) | | (12,715 | ) |
| Net accretion of acquired above- and below-market leases | (4,003 | ) | | (4,948 | ) | | (12,519 | ) | | (17,243 | ) |
| Loan costs | 8,987 |
| | 1,954 |
| | 13,258 |
| | 6,131 |
|
Recurring capital expenditures, tenant improvements and capitalized leasing expenses(3) | (19,494 | ) | | (18,128 | ) | | (51,966 | ) | | (65,543 | ) |
| Non-cash compensation expense | 4,298 |
| | 4,924 |
| | 13,164 |
| | 14,906 |
|
Adjustments attributable to unconsolidated Funds(2) | (1,677 | ) | | (1,454 | ) | | (5,290 | ) | | (5,721 | ) |
Adjustments attributable to consolidated joint ventures(2) | 4,874 |
| | 3,530 |
| | 12,760 |
| | 12,706 |
|
| AFFO | $ | 94,259 |
| | $ | 82,498 |
| | $ | 274,896 |
| | $ | 229,443 |
|
| | | | | | | | |
| Weighted average shares of common stock outstanding - diluted | 175,278 |
| | 169,931 |
| | 172,684 |
| | 169,828 |
|
| Weighted average units in our operating partnership outstanding | 28,682 |
| | 28,145 |
| | 28,677 |
| | 28,157 |
|
| Weighted average fully diluted shares outstanding | 203,960 |
| | 198,076 |
| | 201,361 |
| | 197,985 |
|
| | | | | | | | |
| Net income per common share - diluted | $ | 0.13 |
| | $ | 0.18 |
| | $ | 0.49 |
| | $ | 0.53 |
|
| FFO per share - fully diluted | $ | 0.51 |
| | $ | 0.51 |
| | $ | 1.56 |
| | $ | 1.50 |
|
Dividends paid per share(4) | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.78 |
| | $ | 0.75 |
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______________________________________________
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| (1) | Presents 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 on our share of the results of our unconsolidated Funds and for each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated joint ventures. |
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| (3) | We adopted the new lease accounting rules in the first quarter of 2019. Under the new rules, we expense non-incremental leasing expenses (leasing expenses not directly related to the signing of a lease) and capitalize incremental leasing expenses. Since non-incremental leasing expenses are included in the calculation of net income attributable to common stockholders and FFO, the 2019 capitalized leasing expenses adjustment to AFFO only includes incremental leasing expenses. |
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| (4) | Reflects dividends paid within the respective quarters. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Same Property Statistics & Net Operating Income (NOI)(1)
(Unaudited; in thousands, except statistics)
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| | | | | | | |
| | | | | | |
| | | As of September 30, | |
| | | 2019 | | 2018 | |
| | Office Statistics | | | | |
| | Number of properties | 60 |
| | 60 |
| |
| | Rentable square feet (in thousands) | 15,499 |
| | 15,443 |
| |
| | Ending % leased | 93.3 | % | | 91.7 | % | |
| | Ending % occupied | 91.1 | % | | 89.9 | % | |
| | Quarterly average % occupied | 90.8 | % | | 89.5 | % | |
| | | | | | |
| | Multifamily Statistics | | | | |
| | Number of properties | 9 |
| | 9 |
| |
| | Number of units | 2,640 |
| | 2,640 |
| |
| | Ending % leased | 99.4 | % | | 99.7 | % | |
| | | | | | |
|
| | | | | | | | | | | | |
| | | | | | | | |
| | | Three Months Ended September 30, | | % Favorable | |
| | | 2019 | | 2018 | | (Unfavorable) | |
| | Net Operating Income (NOI) | | | | | | |
| | Office revenues | $ | 193,131 |
| | $ | 183,924 |
| | 5.0 | % | |
| | Office expenses | (63,109 | ) | | (61,076 | ) | | (3.3 | )% | |
| | Office NOI | 130,022 |
| | 122,848 |
| | 5.8 | % | |
| | | | | | | | |
| | Multifamily revenues | 21,506 |
| | 21,288 |
| | 1.0 | % | |
| | Multifamily expenses | (5,384 | ) | | (5,330 | ) | | (1.0 | )% | |
| | Multifamily NOI | 16,122 |
| | 15,958 |
| | 1.0 | % | |
| | | | | | | | |
| | Total NOI | $ | 146,144 |
| | $ | 138,806 |
| | 5.3 | % | |
| | | | | | | | |
| | Cash Net Operating Income (NOI) | | | | | | |
| | Office cash revenues | $ | 187,448 |
| | $ | 176,814 |
| | 6.0 | % | |
| | Office cash expenses | (63,109 | ) | | (61,076 | ) | | (3.3 | )% | |
| | Office cash NOI | 124,339 |
| | 115,738 |
| | 7.4 | % | |
| | | | | | | | |
| | Multifamily cash revenues | 21,502 |
| | 21,283 |
| | 1.0 | % | |
| | Multifamily cash expenses | (5,384 | ) | | (5,330 | ) | | (1.0 | )% | |
| | Multifamily cash NOI | 16,118 |
| | 15,953 |
| | 1.0 | % | |
| | | | | | | | |
| | Total Cash NOI | $ | 140,457 |
| | $ | 131,691 |
| | 6.7 | % | |
| | | | | | | | |
_________________________________________________
(1) The amounts presented include 100% (not our pro-rata share). See page 10 for a reconciliation of these non-GAAP measures to net income attributable to common stockholders.
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Reconciliation of Same Property NOI to Net Income
(Unaudited and in thousands)
|
| | | | | | | |
| | Three Months Ended September 30, |
| | 2019 | | 2018 |
| | | | |
| Same property office cash revenues | $ | 187,448 |
| | $ | 176,814 |
|
| Non cash adjustments per definition of NOI | 5,683 |
| | 7,110 |
|
| Same property office revenues | 193,131 |
| | 183,924 |
|
| | | | |
| Same property office expenses | (63,109 | ) | | (61,076 | ) |
| | | | |
| Office NOI | 130,022 |
| | 122,848 |
|
| | | | |
| Same property multifamily cash revenues | 21,502 |
| | 21,283 |
|
| Non cash adjustments per definition of NOI | 4 |
| | 5 |
|
| Same property multifamily revenues | 21,506 |
| | 21,288 |
|
| | | | |
| Same property multifamily expenses | (5,384 | ) | | (5,330 | ) |
| | | | |
| Multifamily NOI | 16,122 |
| | 15,958 |
|
| | | | |
| Same Property NOI | 146,144 |
| | 138,806 |
|
| Non-comparable office revenues | 12,769 |
| | 13,130 |
|
| Non-comparable office expenses | (5,645 | ) | | (5,212 | ) |
| Non-comparable multifamily revenues | 10,663 |
| | 4,994 |
|
| Non-comparable multifamily expenses | (3,743 | ) | | (1,812 | ) |
| NOI | 160,188 |
| | 149,906 |
|
| General and administrative expenses | (9,218 | ) | | (9,440 | ) |
| Depreciation and amortization | (90,279 | ) | | (74,067 | ) |
| Operating income | 60,691 |
| | 66,399 |
|
| Other income | 2,952 |
| | 2,951 |
|
| Other expenses | (1,656 | ) | | (1,561 | ) |
| Income, including depreciation, from unconsolidated Funds | 1,831 |
| | 1,348 |
|
| Interest expense | (40,397 | ) | | (33,721 | ) |
| Net income | 23,421 |
| | 35,416 |
|
| Less: Net income attributable to noncontrolling interests | (933 | ) | | (4,855 | ) |
| Net income attributable to common stockholders | $ | 22,488 |
| | $ | 30,561 |
|
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Financial Data for Joint Ventures & Funds
(Unaudited, in thousands)
|
| | | | | | | | | | | |
| | Three Months Ended September 30, 2019 |
| | | | | | |
| | Wholly-Owned Properties | | Consolidated Joint Ventures(1) | | Unconsolidated Funds(2) |
| | | | | | |
| Revenues | $ | 190,166 |
| | $ | 47,903 |
| | $ | 21,067 |
|
| Office and multifamily operating expenses | $ | 61,598 |
| | $ | 16,283 |
| | $ | 7,428 |
|
| Straight-line rent | $ | 1,308 |
| | $ | 1,306 |
| | $ | 287 |
|
| Above/below-market lease revenue | $ | 1,362 |
| | $ | 2,641 |
| | $ | (3 | ) |
Cash NOI attributable to outside interests(3) | $ | — |
| | $ | 18,592 |
| | $ | 4,648 |
|
Our share of cash NOI(4) | $ | 125,898 |
| | $ | 9,081 |
| | $ | 8,707 |
|
| | | | | | |
| | Nine Months Ended September 30, 2019 |
| | | | | | |
| | Wholly-Owned Properties | | Consolidated Joint Ventures(1) | | Unconsolidated Funds(2) |
| | | | | | |
| Revenues | $ | 559,737 |
| | $ | 133,052 |
| | $ | 62,240 |
|
| Office and multifamily operating expenses | $ | 176,875 |
| | $ | 44,030 |
| | $ | 21,126 |
|
| Straight-line rent | $ | 4,518 |
| | $ | 4,780 |
| | $ | 793 |
|
| Above/below-market lease revenue | $ | 4,167 |
| | $ | 8,352 |
| | $ | (9 | ) |
Cash NOI attributable to outside interests(3) | $ | — |
| | $ | 50,634 |
| | $ | 14,249 |
|
Our share of cash NOI(4) | $ | 374,177 |
| | $ | 25,256 |
| | $ | 26,081 |
|
______________________________________________________
| |
| (1) | Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three consolidated joint ventures ("JVs") which we manage and in which we own a weighted average interest of approximately 27% based on square footage. The JVs own a combined eleven Class A office properties totaling 2.8 million square feet and one residential property with 350 apartments in our submarkets. We are entitled to (i) distributions based on invested capital, (ii) fees for property management and other services, (iii) reimbursement of certain acquisition-related expenses and certain other costs and (iv) in most cases, additional distributions based on Cash NOI. |
| |
| (2) | Represents stand-alone financial data (with property management fees excluded from operating expenses as a consolidating entry) for three unconsolidated Funds which we manage and in which we own a weighted average interest of approximately 63% based on square footage. The Funds own a combined eight Class A office properties totaling 1.8 million square feet in our submarkets. We are entitled to (i) priority distributions, (ii) distributions based on invested capital, (iii) a carried interest if the investors’ distributions exceed a hurdle rate, (iv) fees for property management and other services and (v) reimbursement of certain costs. |
| |
| (3) | Represents the share of Cash NOI allocable under the applicable agreements to interests other than our Fully Diluted Shares. |
| |
| (4) | Represents the share of Cash NOI allocable to our Fully Diluted Shares. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
|
| | | | | | | | | | | | | | |
| | Loans
(As of September 30, 2019, unaudited) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | Maturity Date(1) | | Principal Balance (In Thousands) | | Our Share(2) (In Thousands) | | Effective Rate(3) | | Swap Maturity Date | |
| | | | | | | | | | | |
| | Consolidated Wholly-Owned Subsidiaries | |
| | | | | | | | | | | |
| | 6/23/2023 | (4) | $ | 360,000 |
| | $ | 360,000 |
| | 2.57% | | 7/1/2021 | |
| | 1/1/2024 | | 300,000 |
| | 300,000 |
| | 3.46% | | 1/1/2022 | |
| | 3/3/2025 | | 335,000 |
| | 335,000 |
| | 3.84% | | 3/1/2023 | |
| | 4/1/2025 | (5) | 102,400 |
| | 102,400 |
| | 2.84% | | 3/1/2023 | |
| | 8/15/2026 | (6) | 415,000 |
| | 415,000 |
| | 2.58% | | 8/1/2025 | |
| | 9/19/2026 | | 400,000 |
| | 400,000 |
| | 2.44% | | 9/1/2024 | |
| | 9/26/2026 | (7) | 200,000 |
| | 200,000 |
| | 2.77% | | 10/1/2024 | |
| | 6/1/2027 | | 550,000 |
| | 550,000 |
| | 3.16% | | 6/1/2022 | |
| | 6/1/2029 | | 255,000 |
| | 255,000 |
| | 3.26% | | 6/1/2027 | |
| | 6/1/2029 | (8) | 125,000 |
| | 125,000 |
| | 2.55% | | 6/1/2027 | |
| | 6/1/2038 | (9) | 31,046 |
| | 31,046 |
| | 4.55% | | N/A | |
| | 8/21/2023 | (10) | — |
| | — |
| | LIBOR + 1.15% | | N/A | |
| | Subtotal | | 3,073,446 |
| | 3,073,446 |
| | | | | |
| | | | | | | | | | | |
| | Consolidated Joint Ventures | |
| | | | | | | | | | | |
| | 2/28/2023 | | 580,000 |
| | 174,000 |
| | 2.37% | | 3/1/2021 | |
| | 12/19/2024 | | 400,000 |
| | 80,000 |
| | 3.47% | | 1/1/2023 | |
| | 6/1/2029 | | 160,000 |
| | 32,000 |
| | 3.25% | | 7/1/2027 | |
| | Total Consolidated Loans | (11) | $ | 4,213,446 |
| | $ | 3,359,446 |
| | | | | |
| | | | | | | | | | | |
| | Unconsolidated Funds | |
| | | | | | | | | | | |
| | 3/1/2023 | | $ | 110,000 |
| | $ | 27,091 |
| | 2.30% | | 3/1/2021 | |
| | 7/1/2024 | | 400,000 |
| | 290,725 |
| | 3.44% | | 7/1/2022 | |
| | Total Unconsolidated Loans | | $ | 510,000 |
| | $ | 317,816 |
| | | | | |
| | | | | | | | | | | |
| | Total Loans | | | | $ | 3,677,262 |
| | | | | |
| | | | | | | | | | | |
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Except as 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 interest-only monthly payments with the outstanding principal due upon maturity.
| |
| (1) | Maturity dates include the effect of extension options. |
| |
| (2) | "Our Share" is a non-GAAP measure calculated by multiplying the principal balance by our share of the borrowing entity's equity. |
| |
| (3) | Effective rate as of September 30, 2019. Includes the effect of interest rate swaps and excludes the effect of prepaid loan costs. |
| |
| (4) | We paid this loan off on November 1, 2019 with the proceeds from a secured, non-recourse $400 million interest-only loan, scheduled to mature in November 2026, and effectively fixed through interest rate swaps at 2.18% until July 2021, which increases to 2.31% until October 2024. |
| |
| (5) | Effective rate will decrease to 2.76% on March 2, 2020. |
| |
| (6) | Effective rate will increase to 3.07% on April 1, 2020. |
| |
| (7) | Effective rate will decrease to 2.36% on July 1, 2020. |
| |
| (8) | Effective rate will increase to 3.25% on December 1, 2020. |
| |
| (9) | Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule. |
| |
| (10) | $400 million revolving credit facility. Unused commitment fees range from 0.10% to 0.15%. |
| |
| (11) | Our consolidated debt on the balance sheet of $4.18 billion is calculated by adding $3.8 million of unamortized loan premium and deducting $40.3 million of unamortized deferred loan costs from our total consolidated loans of $4.21 billion. |
|
| | | |
| | | | |
| | Statistics for consolidated loans with interest fixed under the terms of the loan or a swap | |
| | | | |
| | Principal balance (in billions) | $4.21 | |
| | Weighted average remaining life (including extension options) | 6.2 years | |
| | Weighted average remaining fixed interest period | 3.9 years | |
| | Weighted average annual interest rate | 3.00% | |
| | | | |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Portfolio Summary
Total Office Portfolio as of September 30, 2019
|
| | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Region | | Number of Properties | | Our Rentable Square Feet | | Region Rentable Square Feet(1) | | Our Average Market Share(2) | |
| | | | | | | | | | | |
| | Los Angeles | | | | | | | | | |
| | Westside(3) | | 52 |
| | 9,992,932 |
| | 37,358,326 | | 37.6 | % | |
| | Valley | | 16 |
| | 6,789,270 |
| | 21,257,083 | | 43.4 |
| |
| | Honolulu(3) | | 4 |
| | 1,573,397 |
| | 4,884,101 | | 32.2 |
| |
| | Total / Average | | 72 |
| | 18,355,599 |
| | 63,499,510 | | 39.3 | % | |
| | | | | | | | | | | |
_______________________________________________________
| |
| (1) | The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2019 third quarter CBRE Marketview report for our submarkets in that region. |
| |
| (2) | Our market share is calculated by dividing Rentable Square Feet by the applicable Rentable Square Feet, weighted in the case of averages based on the square feet of exposure in our total portfolio to each submarket as follows: |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Region | | Submarket | | Number of Properties | | Rentable Square Feet | | Our Market Share(2) | |
| | | | | | | | | | | |
| | Westside | | Brentwood | | 15 |
| | 2,085,745 |
| | 62.5 | % | |
| | | Westwood | | 7 |
| | 2,185,592 |
| | 51.3 |
| |
| | | Olympic Corridor | | 5 |
| | 1,142,885 |
| | 33.1 |
| |
| | | Beverly Hills(3) | | 11 |
| | 2,196,067 |
| | 28.6 |
| |
| | | Santa Monica | | 11 |
| | 1,425,374 |
| | 15.4 |
| |
| | | Century City | | 3 |
| | 957,269 |
| | 9.4 |
| |
| | Valley | | Sherman Oaks/Encino | | 12 |
| | 3,487,488 |
| | 53.4 |
| |
| | | Warner Center/Woodland Hills | | 3 |
| | 2,845,577 |
| | 37.1 |
| |
| | | Burbank | | 1 |
| | 456,205 |
| | 6.5 |
| |
| | Honolulu | | Honolulu(3) | | 4 |
| | 1,573,397 |
| | 32.2 |
| |
| | | | Total / Weighted Average | | 72 |
| | 18,355,599 |
| | 39.3 | % | |
| | | | | | | | | | | |
| |
| (3) | In calculating market share, we adjusted the rentable square footage by (i) removing approximately 190,000 rentable square feet of vacant space at an office building in Honolulu, which we are converting to residential apartments, from both our rentable square footage and that of the submarket (see page 22) and (ii) removing a 218,000 square foot property located just outside the Beverly Hills city limits from both the numerator and the denominator. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of September 30, 2019
Annualized Rent by Region
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Region(1) | | Percent Leased | | Annualized Rent(2) | | Annualized Rent Per Leased Square Foot(2) | | Monthly Rent Per Leased Square Foot(2) | |
| | | | | | | | | | | |
| | Los Angeles | | | | | | | | | |
| | Westside | | 93.4 | % | | $ | 461,443,674 |
| | $ | 52.13 |
| | $ | 4.34 |
| |
| | Valley | | 92.6 |
| | 212,215,111 |
| | 35.21 |
| | 2.93 |
| |
| | Honolulu | | 93.6 |
| | 48,817,737 |
| | 34.93 |
| | 2.91 |
| |
| | Total / Weighted Average | | 93.1 | % | | $ | 722,476,522 |
| | $ | 44.39 |
| | $ | 3.70 |
| |
| | | | | | | | | | | |
_______________________________________________________________
| |
| (1) | Regional data reflects the following underlying submarket data: |
|
| | | | | | | | | | | |
| | | | | | | | | |
| | Region | | Submarket | | Percent Leased | | Monthly Rent Per Leased Square Foot(2) | |
| | | | | | | | | |
| | Westside | | Beverly Hills | | 96.6 | % | | $ | 4.36 |
| |
| | | Brentwood | | 90.6 |
| | 3.80 |
| |
| | | Century City | | 95.2 |
| | 4.20 |
| |
| | | Olympic Corridor | | 92.5 |
| | 3.33 |
| |
| | | Santa Monica | | 95.0 |
| | 6.23 |
| |
| | | Westwood | | 91.7 |
| | 4.21 |
| |
| | Valley | | Burbank | | 100.0 |
| | 4.15 |
| |
| | | Sherman Oaks/Encino | | 94.7 |
| | 3.11 |
| |
| | | Warner Center/Woodland Hills | | 88.9 |
| | 2.48 |
| |
| | Honolulu | | Honolulu | | 93.6 |
| | 2.91 |
| |
| | | | Weighted Average | | 93.1 | % | | $ | 3.70 |
| |
| | | | | | | | | |
| |
| (2) | Does not include signed leases not yet commenced, which are included in percent leased but excluded from annualized rent. |
|
| | | | | | | |
| | | | | | |
| | Recurring Office Capital Expenditures per Rentable Square Foot | |
| | Three months ended September 30, 2019 | $ | 0.07 |
| |
| | Nine months ended September 30, 2019 | $ | 0.21 |
| |
| | | | | | |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Lease Diversification
Total Office Portfolio as of September 30, 2019
|
| | | | | |
| | | | | | |
| | Portfolio Tenant Size | |
| | | Median | | Average | |
| | | | | | |
| | Square feet | 2,700 | | 5,600 | |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Office Leases | | Rentable Square Feet | | Annualized Rent | |
| | Square Feet Under Lease | | Number | | Percent | | Amount | | Percent | | Amount | | Percent | |
| | | | | | | | | | | | | | | |
| | 2,500 or less | | 1,407 |
| | 48.2 | % | | 1,956,331 |
| | 12.0 | % | | $ | 85,694,827 |
| | 11.9 | % | |
| | 2,501-10,000 | | 1,135 |
| | 38.9 |
| | 5,602,649 |
| | 34.4 |
| | 243,828,862 |
| | 33.7 |
| |
| | 10,001-20,000 | | 243 |
| | 8.3 |
| | 3,349,478 |
| | 20.6 |
| | 143,857,357 |
| | 19.9 |
| |
| | 20,001-40,000 | | 99 |
| | 3.4 |
| | 2,712,166 |
| | 16.7 |
| | 119,077,661 |
| | 16.5 |
| |
| | 40,001-100,000 | | 31 |
| | 1.1 |
| | 1,746,325 |
| | 10.7 |
| | 87,271,589 |
| | 12.1 |
| |
| | Greater than 100,000 | | 4 |
| | 0.1 |
| | 908,539 |
| | 5.6 |
| | 42,746,226 |
| | 5.9 |
| |
| | Total for all leases | | 2,919 |
| | 100.0 | % | | 16,275,488 |
| | 100.0 | % | | $ | 722,476,522 |
| | 100.0 | % | |
| | | |
| | | |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Largest Office Tenants
Total Office Portfolio as of September 30, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | 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) | | 3 |
| | 3 |
| | 2020-2024 | | 468,775 |
| | 2.5 | % | | $ | 23,168,307 |
| | 3.2 | % | |
| | UCLA(3) | | 25 |
| | 10 |
| | 2020-2027 | | 321,106 |
| | 1.7 |
| | 16,131,526 |
| | 2.2 |
| |
| | William Morris Endeavor(4) | | 2 |
| | 1 |
| | 2022-2027 | | 213,539 |
| | 1.2 |
| | 12,414,002 |
| | 1.7 |
| |
| | Morgan Stanley(5) | | 5 |
| | 5 |
| | 2022-2027 | | 145,488 |
| | 0.8 |
| | 9,290,546 |
| | 1.3 |
| |
| | Equinox Fitness(6) | | 5 |
| | 5 |
| | 2024-2033 | | 181,177 |
| | 1.0 |
| | 8,744,891 |
| | 1.3 |
| |
| | Total | | 40 |
| | 24 |
| | | | 1,330,085 |
| | 7.2 | % | | $ | 69,749,272 |
| | 9.7 | % | |
| | | | | | | | | | | | | | | | | |
______________________________________________________
| |
| (1) | Expiration dates are per lease (expiration dates do not reflect storage and similar leases). |
| |
| (2) | Square footage expires as follows: 2,000 square feet in 2020, 10,000 square feet in 2023, and 456,000 square feet in 2024. |
| |
| (3) | Square footage expires as follows: 38,000 square feet in 2020, 69,000 square feet in 2021, 55,000 square feet in 2022, 43,000 square feet in 2023, 10,000 square feet in 2024, 39,000 square feet in 2025, and 67,000 square feet in 2027. Tenant has options to terminate 31,000 square feet in 2020, 15,000 square feet in 2023, and 51,000 square feet in 2025. |
| |
| (4) | Square footage expires as follows: 1,000 square feet in 2022 and 213,000 square feet in 2027. Tenant has an option to terminate 2,000 square feet in 2020 and 212,000 square feet in 2022. |
| |
| (5) | Square footage expires as follows: 16,000 square feet in 2022, 30,000 square feet in 2023, 26,000 square feet in 2025, and 74,000 square feet in 2027. Tenant has options to terminate 30,000 square feet in 2021, 26,000 square feet in 2022, and 32,000 square feet in 2024. |
| |
| (6) | Square footage expires as follows: 34,000 square feet in 2024, 31,000 square feet in 2027, 44,000 square feet in 2028, 42,000 square feet in 2030, and 30,000 square feet in 2033. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Industry Diversification
Total Office Portfolio as of September 30, 2019
Percentage of Annualized Rent by Tenant Industry
|
| | | | | | | | |
| | | | | | | |
| | Industry | | Number of Leases | | Annualized Rent as a Percent of Total | |
| | | | | | | |
| | Legal | | 569 |
| | 18.0 | % | |
| | Financial Services | | 392 |
| | 15.2 |
| |
| | Entertainment | | 226 |
| | 13.3 |
| |
| | Real Estate | | 292 |
| | 11.3 |
| |
| | Accounting & Consulting | | 349 |
| | 10.1 |
| |
| | Health Services | | 370 |
| | 7.5 |
| |
| | Retail | | 186 |
| | 5.9 |
| |
| | Technology | | 126 |
| | 5.0 |
| |
| | Insurance | | 104 |
| | 4.0 |
| |
| | Educational Services | | 57 |
| | 3.5 |
| |
| | Public Administration | | 92 |
| | 2.4 |
| |
| | Advertising | | 59 |
| | 1.5 |
| |
| | Manufacturing & Distribution | | 52 |
| | 1.1 |
| |
| | Other | | 45 |
| | 1.2 |
| |
| | Total | | 2,919 |
| | 100.0 | % | |
| | | | | | | |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Lease Expirations
Total Office Portfolio as of September 30, 2019
| |
| (1) | Average of the percentage of leases expiring at September 30, 2016, 2017, and 2018 with the same remaining duration as the leases for the labeled year had at September 30, 2019. Acquisitions are included in the comparable 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 September 30, 2019 | | 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 | | 89 |
| | 353,933 |
| | 1.9 | % | | $ | 13,165,764 |
| | 1.8 | % | | $ | 37.20 |
| | $ | 37.37 |
| |
| | 2019 | | 91 |
| | 324,003 |
| | 1.8 |
| | 13,706,118 |
| | 1.9 |
| | 42.30 |
| | 42.47 |
| |
| | 2020 | | 636 |
| | 2,511,402 |
| | 13.7 |
| | 105,066,732 |
| | 14.5 |
| | 41.84 |
| | 42.86 |
| |
| | 2021 | | 597 |
| | 2,640,888 |
| | 14.4 |
| | 112,333,213 |
| | 15.6 |
| | 42.54 |
| | 44.67 |
| |
| | 2022 | | 493 |
| | 2,320,970 |
| | 12.6 |
| | 98,484,311 |
| | 13.6 |
| | 42.43 |
| | 46.51 |
| |
| | 2023 | | 344 |
| | 2,255,006 |
| | 12.3 |
| | 104,191,778 |
| | 14.4 |
| | 46.20 |
| | 51.75 |
| |
| | 2024 | | 278 |
| | 2,176,052 |
| | 11.9 |
| | 99,525,615 |
| | 13.8 |
| | 45.74 |
| | 53.64 |
| |
| | 2025 | | 170 |
| | 1,257,974 |
| | 6.9 |
| | 57,425,726 |
| | 7.9 |
| | 45.65 |
| | 56.28 |
| |
| | 2026 | | 78 |
| | 711,302 |
| | 3.9 |
| | 34,203,825 |
| | 4.7 |
| | 48.09 |
| | 60.92 |
| |
| | 2027 | | 68 |
| | 1,035,791 |
| | 5.6 |
| | 49,727,867 |
| | 6.9 |
| | 48.01 |
| | 61.27 |
| |
| | 2028 | | 41 |
| | 371,259 |
| | 2.0 |
| | 20,480,152 |
| | 2.8 |
| | 55.16 |
| | 71.68 |
| |
| | Thereafter | | 34 |
| | 316,908 |
| | 1.7 |
| | 14,165,421 |
| | 2.1 |
| | 44.70 |
| | 67.41 |
| |
| | Subtotal/weighted average | | 2,919 |
| | 16,275,488 |
| | 88.7 | % | | $ | 722,476,522 |
| | 100.0 | % | | $ | 44.39 |
| | $ | 50.35 |
| |
| | Signed leases not commenced | | 417,816 |
| | 2.3 |
| | | | | | | | | |
| | Available | | 1,256,410 |
| | 6.8 |
| | | | | | | | | |
| | Building management use | | 129,074 |
| | 0.7 |
| | | | | | | | | |
| | BOMA adjustment(3) | | | | 276,811 |
| | 1.5 |
| | | | | | | | | |
| | Total/weighted average | | 2,919 |
| | 18,355,599 |
| | 100.0 | % | | $ | 722,476,522 |
| | 100.0 | % | | $ | 44.39 |
| | $ | 50.35 |
| |
| | | | | | | | | | | | | | | | | |
___________________________________________________
| |
| (1) | Represents annualized rent at September 30, 2019 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: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Lease Expirations - Next Four Quarters
Total Office Portfolio as of September 30, 2019
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | Q4 2019 | | Q1 2020 | | Q2 2020 | | Q3 2020 | |
| | | | | | | | | | | |
| | Los Angeles | | | | | | | | | |
| | Westside | | 125,911 | | 277,387 | | 235,383 | | 253,740 | |
| | Valley | | 183,885 | | 154,625 | | 205,443 | | 200,139 | |
| | Honolulu | | 14,207 | | 79,293 | | 23,876 | | 71,496 | |
| | Expiring Square Feet(1) | | 324,003 | | 511,305 | | 464,702 | | 525,375 | |
| | | | | | | | | | | |
| | Percentage of Portfolio | | 1.8 | % | | 2.8 | % | | 2.5 | % | | 2.9 | % | |
| | | | | | | | | | | |
| | Los Angeles | | | | | | | | | |
| | Westside | | $56.88 | | $50.76 | | $49.50 | | $49.95 | |
| | Valley | | $33.09 | | $34.32 | | $33.31 | | $34.91 | |
| | Honolulu | | $36.01 | | $34.93 | | $34.19 | | $35.34 | |
| | Expiring Rent per Square Foot(2) | | $42.47 | | $43.34 | | $41.56 | | $42.23 | |
| | | | | | | | | | | |
_________________________________________________________________
| |
| (1) | Includes leases with an expiration date in the applicable period where the space had not been re-leased as of September 30, 2019, other than 353,933 square feet of Short-Term Leases. |
| |
| (2) | Fluctuations in this number primarily reflect the mix of buildings/submarkets involved, as well as the varying terms and square footage of the individual leases expiring. As a result, the data in this table should only be extrapolated with caution. While the following table sets forth data for our underlying submarkets, that data is even more influenced by such issues: |
|
| | | | | | | | | |
| | | | | |
| | Region | | Submarket | | Expiring SF | | Expiring Rent per SF | |
| | | | | | | | | |
| | Westside | | Beverly Hills | | 158,215 |
| | $56.87 | |
| | | Brentwood | | 246,005 |
| | $48.90 | |
| | | Century City | | 98,131 |
| | $50.69 | |
| | | Olympic Corridor | | 142,964 |
| | $39.27 | |
| | | Santa Monica | | 118,193 |
| | $63.79 | |
| | | Westwood | | 128,913 |
| | $49.77 | |
| | Valley | | Sherman Oaks/Encino | | 472,977 |
| | $36.00 | |
| | | Warner Center/Woodland Hills | | 271,115 |
| | $30.23 | |
| | Honolulu | | Honolulu | | 188,872 |
| | $35.08 | |
| | | | | | | | | |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Office Leasing Activity
Total Office Portfolio during the Three Months ended September 30, 2019
|
| | | |
| | | | |
| | Net Absorption During Quarter(1) | 0.94% | |
| | | | |
|
| | | | | | | | |
| | | | | | | | |
| | Office Leases Signed During Quarter | Number of Leases | | Rentable Square Feet | | Weighted Average Lease Term (months) | |
| | | | | | | | |
| | New leases | 102 | | 460,877 |
| | 68 | |
| | Renewal leases | 107 | | 537,913 |
| | 57 | |
| | All leases | 209 | | 998,790 |
| | 62 | |
| | | | | | | | |
|
| | | | | | | |
| | | | | | | | |
| | Change in Rental Rates for Office Leases Executed during the Quarter(2) | |
| | | | | | | | |
| | | Expiring Rate(2) | | New/Renewal Rate(2) | | Percentage Change | |
| | | | | | | | |
| | Cash Rent | $40.95 | | $45.33 | | 10.7% | |
| | Straight-line Rent | $36.91 | | $47.67 | | 29.1% | |
| | | | | | | | |
|
| | | | | |
| | | | | | |
| | Average Office Lease Transaction Costs | |
| | | | | | |
| | | Lease Transaction Costs PSF | | Lease Transaction Costs per Annum | |
| | | | | | |
| | New leases signed during the quarter | $51.62 | | $9.11 | |
| | Renewal leases signed during the quarter | $20.57 | | $4.34 | |
| | All leases signed during the quarter | $34.83 | | $6.74 | |
| | | | | | |
________________________________________________________________
| |
| (1) | Net absorption represents the change in percentage leased between the last day of the current and prior quarter, excluding properties acquired or sold during the current quarter. |
| |
| (2) | Represents the average annual initial stabilized cash and straight-line rents per square foot on new and renewed leases signed during the quarter compared to the prior leases for the same space. Excludes Short Term Leases, leases where the prior lease was terminated more than a year before signing of the new lease, leases for tenants relocated from space being taken out of service, and leases in acquired buildings where we believe the information about the prior agreement is incomplete or where we believe base rent reflects other off-market inducements to the tenant that are not reflected in the prior lease document. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Multifamily Portfolio Summary
as of September 30, 2019
Annualized Rent by Submarket
|
| | | | | | | | | | | | | |
| | | | | | | | | |
| | Submarket | | Number of Properties | | Number of Units | | Units as a Percent of Total | |
| | | | | | | | | |
| | Los Angeles | | | | | | | |
| | Santa Monica | | 2 | | 820 |
| | 20 | % | |
| | West Los Angeles | | 6 | | 1,300 |
| | 31 |
| |
| | Honolulu(1) | | 3 | | 2,027 |
| | 49 |
| |
| | Total | | 11 | | 4,147 |
| | 100 | % | |
| | | | | | | | | |
| | Submarket | | Percent Leased | | Annualized Rent(2) | | Monthly Rent Per Leased Unit | |
| | | | | | | | | |
| | Los Angeles | | | | | | | |
| | Santa Monica | | 99.5 | % | | $ | 30,082,041 |
| | $ | 3,076 |
| |
| | West Los Angeles | | 99.7 |
| | 49,524,924 |
| | 3,189 |
| |
| | Honolulu(1) | | 99.0 |
| | 44,494,644 |
| | 1,853 |
| |
| | Total / Weighted Average | | 99.3 | % | | $ | 124,101,609 |
| | $ | 2,516 |
| |
| | | | | | | | | |
|
| | | | | |
| | | | |
| | Recurring Multifamily Capital Expenditures per Unit | | |
| | | | |
| | Three months ended September 30, 2019 | $ | 188 |
| |
| | Nine months ended September 30, 2019 | $ | 550 |
| |
| | | | |
________________________________________________________________
| |
| (1) | Includes newly developed units just made available for rent. |
| |
| (2) | The multifamily portfolio also includes 10,495 square feet of ancillary retail space generating annualized rent of $407,801, which is not included in multifamily annualized rent. |
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Development Projects
|
| |
| 1132 Bishop Street, Honolulu, Hawaii |
In downtown Honolulu, we are converting a 25 story, 490,000 square foot office tower into approximately 500 rental apartments. This project will help address the severe shortage of rental housing in Honolulu, and revitalize the central business district, where we own a significant portion of the Class A office space. We expect the conversion to occur in phases over a number of years as the office space is vacated. In select cases, we will relocate tenants to our other office buildings in Honolulu, although we do not have enough vacancy to accommodate all of them. We currently estimate that construction costs will be $80 million to $100 million, although the inherent uncertainties of development are compounded by the multi-year and phased nature of the conversion. Assuming timely approvals, we expect the first units to be delivered in 2020. | |
| Residential High Rise Tower, Brentwood, California |
| In Brentwood, we are building the first new residential high-rise development west of the 405 freeway in more than 40 years, offering stunning ocean views and luxury amenities. The 34 story, 376 unit tower is being built on a site that is directly adjacent to an office building and a 712 unit residential property that we own. The estimated budget is between $180 million and $200 million, not including the cost of the land which we have owned since 1997. As part of the project, we are investing additional capital to build a one acre park on Wilshire Boulevard that will be available to the public and provide a valuable amenity to our surrounding properties and community. We expect construction to take about three years. | Rendering of our new residential tower in Brentwood (center), with a new park in the foreground, and our existing residential and office buildings (left and right, respectively). |
_______________________________________________
All figures are estimates, as development in our markets is long and complex and subject to inherent uncertainties.
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
2019 Guidance
|
| |
| Metric | Per Share |
| Net income per common share - diluted | $0.57 to $0.59 |
| FFO per share - fully diluted | $2.09 to $2.11 |
Assumptions
|
| | | |
| Metric | Commentary | Assumption Range | Compared to Prior Assumption |
| Average Office Occupancy | | 90% to 91% | Unchanged |
| Residential Leased Rate | | Essentially fully leased | Unchanged |
| Same Property Cash NOI Growth | | 6.5% to 7.5% | Increased |
| Above/Below Market Net Revenue | | $14 to $16 million | Unchanged |
| Straight-line Revenue | | $9 to $11 million | Unchanged |
| G&A | | $39 to $43 million | Unchanged |
| Interest Expense | Includes non-cash and cash refinancing costs related to our strategic balance sheet activities | $140 to $143 million | Unchanged |
___________________________________________
Except as disclosed, our guidance does not include the impact of future property acquisitions or dispositions, financings, or 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 ranges 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. See page 24 for a reconciliation of our Non-GAAP guidance.
NOTE: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
Reconciliation of 2019 Non-GAAP Guidance(1)
(Unaudited; in millions, except per share amounts)
Reconciliation of our guided Net income per common share - diluted to FFO per share - fully diluted:
|
| | | | | | | |
| Reconciliation of net income attributable to common stockholders to FFO | Low | | High |
| |
| Net income attributable to common stockholders | $ | 98.6 |
| | $ | 102.1 |
|
| Adjustments for depreciation and amortization of real estate assets | 360.0 |
| | 350.0 |
|
| Adjustments for noncontrolling interests, consolidated JVs and unconsolidated Funds | (36.4 | ) | | (25.9 | ) |
| FFO | $ | 422.2 |
| | $ | 426.2 |
|
| |
| Reconciliation of shares outstanding | High | | Low |
| | |
| Weighted average shares of common stock outstanding - diluted | 173.0 |
| | 173.0 |
| Weighted average units in our operating partnership outstanding | 29.0 |
| | 29.0 |
| Weighted average fully diluted shares outstanding | 202.0 |
| | 202.0 |
|
| |
| Per share | Low | | High |
| |
| Net income per common share - diluted | $ | 0.57 |
| | $ | 0.59 |
|
| FFO per share - fully diluted | $ | 2.09 |
| | $ | 2.11 |
|
_____________________________________________
(1) 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 ranges 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: See the "Definitions" section for definitions of certain terms used in this Earnings Package.
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; loan costs such as 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 capitalized leasing expenses (including adjusting for the effect of such items attributable to consolidated joint ventures and unconsolidated Funds, but not for noncontrolling interests included in our calculation of fully diluted equity). Recurring capital expenditures, tenant improvements and leasing expenses 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 417,816 square feet with respect to signed leases not yet commenced at September 30, 2019). For our triple net office properties (in Honolulu and two single tenant buildings in Los Angeles), annualized rent is calculated by adding expense reimbursements and estimates of normal building expenses paid by tenants to base rent. Annualized Rent does not include lost rent recovered from insurance and rent for building management use. Annualized Rent does include rent for a health club that we own and operate in Honolulu and our corporate headquarters in Santa Monica.
Average Office Occupancy: 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.
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 eleven office properties totaling 2.8 million square feet and one residential property with 350 apartments, which we own through three consolidated joint ventures and in which we own a weighted average of approximately 27% based on square footage.
Consolidated Net Debt: Represents our consolidated debt, net of cash and cash equivalents, and before adding unamortized loan premium and deducting unamortized deferred loan costs. Cash and cash equivalents are subtracted because they could be used to reduce the debt obligations and unamortized loan premium and deferred loan costs are not adjusted for because they do not require cash settlement. Consolidated Net Debt is a non-GAAP financial measure for which we believe that consolidated debt is the most directly comparable GAAP financial measure. We report Consolidated Net Debt because some investors use it to evaluate and compare our leverage and financial position with that of other REITs. A limitation associated with using Consolidated Net Debt is that it subtracts cash and cash equivalents and may therefore imply that there is less debt than the most comparable GAAP financial measure indicates.
Equity Capitalization: Represents our Fully Diluted Shares multiplied by the closing price of our common stock on September 30, 2019.
Fully Diluted Shares: Calculated according to the treasury stock method, based on our diluted outstanding stock and units in our Operating Partnership.
Funds: Fund X Opportunity Fund, LLC, Douglas Emmett Fund X, LLC and Douglas Emmett Partnership X, LP.
Funds From Operations (FFO): We calculate FFO in accordance with the standards established by NAREIT by excluding gains (or losses) on sales of investments in real estate, gains (or losses) from changes in control of investments in real estate, real estate depreciation and amortization (other than amortization of right-of-use assets for which we are the lessee and amortization of deferred loan costs) from our net income (including adjusting for the effect of such items attributable to consolidated joint ventures and unconsolidated 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 expenses 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.
Lease Transaction Costs: Represents the weighted average of tenant improvements and leasing commissions for leases signed by us during the quarter, excluding leases substantially negotiated by the seller in the case of acquired properties and excluding leases for tenants relocated from space being taken out of service.
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 Funds, interest expense, 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 expenses 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 September 30, 2019. Management space is considered leased and occupied, while space taken out of service during a repositioning is excluded from both the numerator and denominator for calculating percentage leased and occupied.
Operating Partnership: Douglas Emmett Properties, LP
Our Share of Net Debt: We calculate Our Share of Net Debt by multiplying the principal balance of our consolidated loans and our unconsolidated Funds loans by our equity interest in the relevant borrower, and subtracting the product of cash and cash equivalents multiplied by our equity interest in the entity that owns the cash or equivalent. We subtract cash and cash equivalents because they could be used to reduce the debt obligations, but do not add unamortized loan premium or subtract unamortized deferred loan costs because they do not require cash settlement. Our Share of Net Debt is a non-GAAP financial measure for which we believe that consolidated debt is the most directly comparable GAAP financial measure. We report Our Share of Net Debt because some investors use it to evaluate and compare our leverage and financial position with that of other REITs.
Pro Forma Enterprise Value: We calculate Pro Forma Enterprise Value by adding Equity Capitalization to Our Share of Net Debt. Pro Forma Enterprise Value is a non-GAAP financial measure for which we believe that consolidated total equity and liabilities is the most directly comparable GAAP financial measure. We report Pro Forma Enterprise Value because some investors use it to evaluate and compare our financial position with that of other REITs.
Recurring Capital Expenditures: Building improvements required to maintain revenues once a property has been stabilized, and excludes capital expenditures for (i) acquired buildings being stabilized, (ii) newly developed space, (iii) upgrades to improve revenues or operating expenses, (iv) casualty damage and (v) bringing the property into compliance with governmental or lender requirements.
Rentable Square Feet: Based on the BOMA measurement. At September 30, 2019, total consists of 16,693,304 leased square feet (including 417,816 square feet with respect to signed leases not commenced), 1,256,410 available square feet, 129,074 building management use square feet and 276,811 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 properties referred to as our “same properties,” which are properties that have been owned and operated by us during both periods being compared. We exclude from our same property subset properties that during the comparable periods were: (i) acquired, (ii) sold, (iii) held for sale, contributed or otherwise removed from our consolidated financial statements, or (iv) that underwent a major repositioning project or were impacted by development activity that we believed significantly affected the properties' results. Our Same Property NOI is not adjusted for noncontrolling interests in properties which are not wholly owned. Our same properties for the three months ended September 30, 2019 include all of our Consolidated Portfolio properties, other than (1) a 80,500 square foot property in Honolulu, where the largest tenant is a health club that we own and operate, (2) a 492,600 square foot office property in Honolulu and a multifamily property in Honolulu which we expect to be affected by development activities, (3) a 583,000 square foot office property in Los Angeles which we expect to be affected by repositioning activity, and (4) a residential community in Los Angeles that we acquired in June 2019 with 350 apartments and approximately 50,000 square feet of retail space.
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 three unconsolidated Funds, in which we own a weighted average of approximately 63% based on square footage.
"We" and "our" refers to Douglas Emmett, Inc., our Operating Partnership and its subsidiaries, as well as our consolidated JVs and our unconsolidated Funds.
