DEI - Earnings call transcript Q1 2019

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Operator

Ladies and gentlemen thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After management’s prepared remarks’ you will receive instructions for participating in the question-and-answer session. the Relations to for turn President McElhinney, now Investor of Douglas will conference Stuart over Vice I Emmett. Please go ahead.

Stuart McElhinney

Thank you.

on Kevin next and will be Joining President XX webcast live This days. today the for website Jordan being are us and our Kaplan, call and is CEO; Seymour, replay Crummy, Peter CIO; available from our our CFO. call our during the

Relations find our earnings section Investor of also the our can You at website. package

today's of non-GAAP the financial You call can during in package. discussed find reconciliations earnings measures

During These of by us. this of, on forward-looking the to call, course made we forward-looking the make will and assumptions based available statements. information currently statements are beliefs

Our uncertainties predict. ability actual unknown to affected that and control known risks, and or results trends, will are be by factors beyond our

that expected they our Although, our differ future to our guarantees of will reasonable, be and Therefore, expectations, be those incorrect. may assumptions can not to are performance, results be are some material. prove differences from and future we actual believe

a Investor others, For which one in in the of of found portion, please yourself risks, limit follow-up. our be can SEC the potential the to question-and-answer some our over question turn to section When refer and call we filings, of consideration website. will reach detailed to one I please Relations more description now Jordan.

Jordan Kaplan

by a in our new X.X%. add growth, downtown strong our approximately apartments FFO by grew Place, and XXX great Good with as morning, office XX-story our non-cash everyone. We AFFO leasing Compared Last NOI X.X%. to start. converting Honolulu plan is a from continue cost. quarter announced lower Thank us. square-foot tower. first XXXX, benefit cash by cash we to to revenue joining replace XXX,XXX Driven by you grew quarter, by for workforce Bishop increased off to of we revenue XXXX I XX%, our same-property

reduced XXXX, operating by our across of entire We start remains a focus square major foot Since Sustainability to team. XX% expect per summer. we our our energy construction this portfolio. consumption

uncommon not us first consumption two XX% For by during for energy reduce to new is acquisitions, the it years.

I our I'll earnings call. Finally, as Kevin. Officer. CFO his to Peter With Chief continuing and to is the our Gisler Accounting Seymour Mona call is over that, Peter want now turn to first welcome

Kevin Crummy

Thanks, on high-rise Brentwood, everyone. schedule and tower Jordan, good In construction XXXX the our morning, late completion. a budget on of and for XXX-unit remains apartment

We We rental a on believe we up will already continue group that to our return our are opportunities capital. wrapping impact repositioning office are high provide first plan repositioning invested rates. and of positive projects to seeing pursuing

For example, office while revolving In March, repositioning building creative by secured credit Warner gym Center a we into $XXX are office a a vacant million ceilings and we spacious XX-foot XX,XXX-square-foot properties. facility our six XXX,XXX-square-foot with non-recourse balconies. renewed property, converting

our balance maturity extending XX% in facility under AFFO The to lowered interest healthy we've credit line sheet matures interest of extended our reduced and flow date, at addition and rate fees. remains strong. payout an cash plus In X.XX% the and LIBOR With our ratio the the XXXX. August is unused bears

Although, see to the over and the that, more now I recent has going our With are call trades frenetic the will we markets Stuart. from of opportunities to some volume years, in good expect seeing declined forward. of turn pace

Stuart McElhinney

XXX,XXX XX.X% covering leases. were quarter QX, spreads for of square everyone. remained in concentration rate The morning These In the of roll-up Leasing XX.X%. XX.X% Thanks we results reflect lease office portfolio Valley. leases slightly straight-line XXX rent and feet square XXX,XXX for for to high total feet, X.X% Good new occupancy a including signed Kevin. office leases our cash for increased roll-up. and the

our relocation years, time first of office other combined has the demand. buildings XX.X%. tenant rate Honolulu to Place with seeing to lease increased in This our increased Bishop is Honolulu the tenants For from

remained multiXfamily portfolio side, quarter fully end. the our at leased On

up pace to units over Our now continued a to results. at completed discuss I'll good Moanalua the our with Peter rents our at to turn recently call lease pro well forma. above

Peter Seymour

morning Thanks Good everyone. Stuart.

in results. XX.X% We increased QX We are same-property XXXX, Compared X.X%. cash pleased to X.X%. increased X.X% increased with million, share. a our quarter by year $XX.X and per We first the NOI or our million $XXX.X FFO increased to ago by revenues we of we AFFO $X.XX to

Even our leasing revenues expenses benchmark As of this you only we below now G&A that remains include know, of group. G&A. our change, with in internal X.X% certain our and is well

and the strength Based guidance. assumption our same-property X.X%. between operations and in X.X% growth increases, Turning we of core to rent cash our on continued to for have increased NOI

of our result for this $X.XX are raising XXXX per $X.XX to other a factors, $X.XX by we guidance FFO and between and As share.

acquisitions, As usual, guidance assume impact financings. not or dispositions our the of does future

to package. over information call more operator, now can For in I your our earnings questions. please we on the the refer schedule turn underlying take the guidance, to so the will the assumptions

Operator

session. will ahead. now Evercore. from question-and-answer Green go the We begin with Jason Instructions] comes question The first Please [Operator

Jason Green

afternoon. Good

Just of strong Or but X%, a spreads represent is growth rent anything question deceleration different which that on the does market mix on space? still a a is a there rent perspective? coming at from going quarter-over-quarter. in Is just

Stuart McElhinney

that the quarter-to-quarter, quarter, a Valley still with this Hey, in roll-up. really higher happy a Jason. still be had roll-up but concentration And percent. just good of very choppy the could Yes, we seeing leases metric

Jason Green

the is is into a what the at strategy is? then and activity Got little the terms it. you taking percentage there in clearly still look long-term laggard And Center Warner your of out deeper Can markets. level a leased. just what go

Stuart McElhinney

percentage We're progress year basis from a up there. We've great ago. points made in XXX Yeah. lease

and seeing progress pleased we're activity. So with still generally the good

Jason Green

it. Got Thank you.

Operator

Capital Please next Mailman comes The Craig from question with KeyBanc go ahead. Markets.

Craig Mailman

guys. Hey,

on spreads. rent the Just a follow-up

little continue percent the you we Just have of of looking exploration have in to mean, you bit a previous Valley the next few of moderation I lease decent had XX-plus quarter expect amount to the guys kind kind – Honolulu. kind guys a it's the two that quarters? of and should relative

Stuart McElhinney

really provide trends what the we're quarter. individual don't an so signed guidance seeing roll-ups, quarter-to-quarter. it gets just in on predict Overall, because be to are good, depending We can on but choppy lease it's hard

Jordan Kaplan

I don't the said two that. presume markets those we the named steep as I that, just have correct do you on roll-up you're to mean, you consumer that though. mean Westside

Craig Mailman

too Yeah. rents in seen And is are demand – all? Have up. early? Or you move you said has you guys seeing Honolulu it market picked at

Jordan Kaplan

market We've rents seen move. Yes.

Craig Mailman

one And one. then just other

that investment your of view guys think And Burbank holding loan rolls until asset there all of what Warner again. their out just few You happens at you that a change years kind with have that space? big does out do Time But there? to

Kevin Crummy

to it's the And all, first Bros. I Kevin. Craig, it's increased actually their of Hey, Disney's about only been excited Warner some super market. mean, absorbing space there. we're not out commitment

as So a drum. it's tight

runs until XXXX. Our lease

say roll that, really as it building. really no years and what's market is space tight. out five that of indication forward going it's But I our tough happen. So to there's said really, And to is coming

So as we that's as much know.

Craig Mailman

Thank you.

Operator

Finn go The next Brendan Wells ahead. question comes from Fargo. Please with

Brendan Finn

on And these about guys. much office on guess spend types investment? $XX I you'll you can indicated guys you XXXX. plan seeing on the that talk of of projects next level morning. projects on then you're repositioning guys Hey, how any In I maybe year? that guess returns to presentation in million initial spend you about Good the expectations

Jordan Kaplan

Okay.

– did on the So we spend give we spend given we on Have gave XXXX. XXXX?

Stuart McElhinney

about said We $XX Yeah. million.

Jordan Kaplan

be on The any So is returns similar did? very – we what We literally think don't asking. expected to which have for XXXX have the you're we're mean, I that returns. don't this I I in a going to number are year

On all that doing. equivalently probably going finish very the they other are add stuff year four we projects high-payback projects. we're as other the And to projects we're this

high So useless say all so try XX But IRR to high that IRR. these and numbers are they're numbers. XX it's

Brendan Finn

you. Got

on on helpful. the that guidance. Okay. of drivers behind you of or you Can increase on point is the side? a comment in office guess Thanks. by That's the more guys didn't same-store? a kind of just just expense basis increase benefit it then, office Is the XX And driven two? combination multifamily? I And guidance is more it Or then occupancy since guys

Peter Seymour

you mean is I Yeah. this can Peter. –

that really think it's in driving combination number. I of expense control see there. the results That's main quarter growth And growth a this can the in was and rent and driver big the office. the You that's

Brendan Finn

guys. Thanks, Okay.

Operator

comes with Manny question Citi. ahead. Korchman next from go Please The

Manny Korchman

Hi, everyone.

out? sticking Or focused repositioning space to is the vacant for you anyone from upside? just any you around buildings, Just just of Do loss revenue to vacant a anticipate it that? any are second. then get more and or sort tenants more there on move Do have of

Jordan Kaplan

of by I the I unhappy them the some them mean, the we'll in a when tenants we hits stuff be think have through without And then very that talked the I get building And we're I the out when course here really think changes are the locations. being about we about -- section. one is I within improving his occupancy driven don't is and of expecting high -- moving on work be see that candidates various of not substantial whether way good it. other What, doing some I'm result all of even doing in of much fully think Stuart work which in know us two Westside. tenants prepared to work. then we're saw building. until in Hawaii accommodate -- of of in our them always taking in Valley, for returns as the what And can you we're which

Manny Korchman

pick-up Thank you. might again. And mentioned on acquisitions it you the

structure you thinking years? Just the place the about last put in JVs few were if maybe we to similar that

Kevin Crummy

buildings size millions mind really hundreds lot that of dollars in that's Manny, of and of on equity. require a keep and our the of property markets of the because our dependent don't

into stuff And drops so look existing it to smaller might at opportunity-by-opportunity. sheet venture. it on kind for have the an of maybe that balance come We

Manny Korchman

guys. Thanks,

Operator

Lynch. question Feldman with Merrill comes ahead. Bank next from of America Please Jamie The go

Jamie Feldman

Great. the plan? driving Can REIT appetite legislation Or to on at then you your talk pickup that invest there? the docket more with And demand mean in your Honolulu? What's would all change in I there redevelopment do the it? about

Jordan Kaplan

kind the moving tenants that to of equation took working area. things. Big course, result We're the So you of then, we're the off XXX,XXX of just X,XXX that's And accommodate with know And I supply/demand One and there a think, pickup whole not in but there appropriately. we're two feet. university to X,XXX large doing area. is in that that whole out work thing. changing tenants situation squared of with moving downtown, is the just

the there. -- hasn't out of terms REIT legislation is passed, still In that still

comment not So until on goes. -- it that don't where we're I going see want to we

Jamie Feldman

the saying growth you're there's actually pickup side a in But demand demand job and on Okay. downtown? in

Jordan Kaplan

of settled have signed beyond that we work X,XXX that What course we're I'm in multi-office for into moving as way building. their demand and which demand is additional is the is that some a tenants X,XXX and is some downtown the saying looking there's supply you creating fact to moving multi-resi know in creating of candidate out of coming reducing area out large and front. then tenants the to the on know side the are demand others all are viable downtown the And the office other

Jamie Feldman

Okay. on And in looks guys you and City maybe you then Westwood you vacancy a an And then provide Thank Brentwood. update you. an Century can it if have dip blocks on available. have -- like that the update

portfolio? ins more the Just or just there's was sizable if and outs of anything there, that

Stuart McElhinney

Yeah.

Just building I activity of our a across buildings move think two-floor in several a ins we're Brentwood, in typical We couple We but of a tenants’ and move tenant good normal size there. got Westwood. out out of outs. had seeing kind

done fall. opportunity good excited a for that's a it'll a some be there through -- pretty us major And the break space about we're that's So going in repositioning. to up building really in

Jamie Feldman

the City spaces? Century And

Stuart McElhinney

submarkets are Yeah. Monica I I of good ago. activity Century making strongest City getting there on we're But focus and think that on we're our both and a two City, couple those. those Century know of good progress. quarters Santa was of

Jamie Feldman

you. Thank great. Okay. All right,

Operator

BMO question next Capital Kim Please Markets. John from comes go The with ahead.

John Kim

you. Thank

the on energy a for like time these repositioning. looks there to case changes It are this buildings? improve mostly adding of of are a instance Just some except of for investments that office the Or your investments cosmetic the follow-up efficiency around? Is maybe some lot retail.

Jordan Kaplan

ended this my in important separately the we've I'm been because on don't do in -- that's mentioned have of strides, are to know which lot that going efficiency, as section in energy you being more you mean, put -- just we among but to actually the on particularly we we've I because because re-positioning money many investing such because we're ones And been we that We repositioning. say asked of glad rates that mention it a you buildings made up up. count what there group we great than going was going

So fact forma, have all of their terms the the of pickups one seller we to lower the the to and when costs. And building building it's rates utilization, of energy increasing we're us pro helpful that against our be reducing of at energy best otherwise a when like we cost amount on running rapidly in programs, our a super lot fighting of buy what's consumption. noise gains in we're those working the we're what it's look that's but course would you in of been compared in creating provides going our terms tremendous the because

John Kim

place on you the the returns on Jordan, could got figure investments? you those

Jordan Kaplan

within of fall terms payback. I most three Well, of years in think them

So -- the you look of we benefits even and and two stuff them get utilities that. credits years think like that at like of look I some the almost back in from can terms when

return increasing the unfortunately very they charge as high at rate their which keeps up as -- they they're obviously churn and -- So keep us. they're moving

John Kim

additional the at. And between office and then Could on break you down you're opportunities that multi-family? looking that

Jordan Kaplan

to can and say, extent and the it Valley. Well, down in I at office Yeah. mean and we're break Westside there's looking I the both. -- multifamily to

John Kim

you're the or pursuing on bullish or mentioned multifamily you I'm weighted I like multifamily just And seem last it trying opportunities you wondering towards to just know than more -- you're more -- were I'm office. call on if that mixed-use.

Jordan Kaplan

Well, secret product. were is a valuable related very And to to going to you multifamily good deal have come a always that I not we opportunities pursue multifamily, up. but mean institutional then have a it's

very So when it at cap off, trade low they cuts rates.

works a you find down. can of deal So buy that super none you those And when turn that good. that's we

time, office Not always it's that office. a it's Now ratio why at not out. same to in an come fact that's And the we multifamily more buy available equal like. way or deals to if our and amount more priced just you see that we're a leans willing

John Kim

Thank you.

Operator

Stifel. The comes with Please next question from ahead. go John Guinee

John Guinee

couple questions. A Great. of cleanup

this First, that in Sherman that's one or asset? recollection expansion is of stabilized It’s the you And XXX% own XXX,XXX and I your what's that square Honolulu apartment XXX,XXX question. If operating? correct, second, of feet retail then have status Oaks.

Jordan Kaplan

So leased. that just the completed, residential I it's think we around two-thirds

we year-end. And as before so it -- and we've leased said in fully to past, expected the be

before I think be leased it'll easily fully year-end.

has project successful really that So just tremendously been for us.

of Sherman the to particular particularly on that don't a guidance know we office. is retail, terms have I without retail the I Oaks giving mean fit In well building,

the know of We I have around that retail Galleria office that all high issues serves a have corner. around community. that density thinking Oaks that you're I we know the and don't of office any Sherman there particular of

John Guinee

Okay.

looking That I'm it include page properties the multifamily X, property doesn't Honolulu? X,XXX leased. has XX-prop lease-up your units, if in corporate to clarify, of just XX.X at on the So data

Jordan Kaplan

think That's right. that look it says if are doesn't lease-up. section that Yes. include That's that at the lease-up. properties And I guidance you in actually

John Guinee

on what then that? current Got commercial XXXX talk residential, ballots you. Prop this the last your and split -- question. about thinking time. XX think between what's you And the on do all We But

Jordan Kaplan

top XX And current well. simple My they're think that fact polling not very complicated of is to by it's my that is very said. thinking be supported of all that What trying on the unlikely continues than actually it that you thing is extremely I the Prop is to just more do prediction popular.

John Guinee

Great. Thank you.

Operator

Sandler Alexander go with Goldfarb O'Neill. Please from ahead. The next question comes

Alexander Goldfarb

out good there. Hey morning

questions just from me. two So

where few first to some out guys is early The done cancel you a proactive ago, back and had take got years leasing you re-let. space to tenants the

trying Are space through seek Just trying to of to you office given the at also do undertake Are what's the go early renovations the as you from portfolio talking aiming get as space? office to you're tenants? you on. about some you that utilize going that to

Jordan Kaplan

the market terms mean general like Absolutely. economics? in I in of

tenants just in people all couple more when terms were that sophistication ago rents in of and successful exist opportunities seen have of Westside, amount rise the knocking aren't as plentiful north we the of in Now, as space opportunities they a as the the that of years that. were of through

Alexander Goldfarb

rehab a the guys sense? are? do on the and was to economics to and have -- tenants they to just So don't now and are market this the do have therefore you're some up that the sort stuff? for the Okay. And Brentwood trying to drawing you're to separate now you whatever building the wasn't The few trying Hawaii I have Again, into then question been guys mean, years residential. out many in years is surprise. Hawaii Jordan, as so because in been other sense because far that the obviously the you always as theme you is a it? that board you just had for the you of Apartments this at the But a makes what in economics a buildings the more as are are to far and you status that but productive. the guys of now losing you more of what makes how guys multifamily. buildings these stepping potentially for I'm that just lot have office Versus your always or making plan were had understand A Is as work recently stay competitive finding them the that your Or improving actually function of much at amenities that environment's putting need be economics game that mind, implementing you

Jordan Kaplan

Okay.

being it. seconds really to question a going it. asked I'm take to that's to I'm -- and answer great going like give I So two

we XX most all in when markets. -- company All the how protects a go about always recession for the operating way And across how you part the the price tenants platform out rents operated platform. we the generally you a think you in into historically has talked us have if is see first about of you the come of So a perspective. recession. fact company, talk And the years, if operating all at to from flatten

outperform platform if filled everybody a a you'll so tight you're the strong keep differentiation operating we recession. so that our becomes numbers, that and rent platform, there dramatically see, operating a And sophisticated and at else in we market, And buildings our our you look is lot and in strong revenues markets way way. buildings. market across keep When and a of our across

and that income, in So our pay in rent and very is spend we and When push then recession, if redo and order to you operating situation have income? to that rent out in recession, then to you capital answer we us get projects this capital then your And of markets those see because revenue for because you we were through now occupancy. saying, putting good platform a we rental when start and change a that cause return. is at difference can kind you they're to the that so rent there But differentiation. back it many capital that out you it buying We And that differentiation only the lay all and time that's why in becomes we capital. be to that these lay see If we in because you'll get and wouldn't the is market when of spent. then into kind protects high capital do yes, rates multiples, capital our that tight out differentiation that get would there's us program. very you're does paid the doesn't undertaking buildings see the of from paid buying on studying to can know you rent will be

out we're the we capital. why getting for paid that's laying So know

long, -- how that that's that long. works That was but was why Sorry way. that

Alexander Goldfarb

call. a quick been It's

the for time. you thank So

Jordan Kaplan

Okay.

Operator

The next Baird. go Rodgers comes question Please with from Dave ahead.

Dave Rodgers

question, seen office last transactions know Jordan, a into in lot the I recent larger obviously the most transactions. this dovetails of or cycle we've maybe but don't if leasing

Are you've if are finding larger tenants to you together together of don't in space available If I aggregate of as to there in know able guys is or find office more think you it's smaller it so kind space $X.X possible, the got your that harder interested? more for the but million demand I markets?

Jordan Kaplan

lean demand from opposite of in coming lot a lot demand small coming of tenants. from a exact We There's large There's the tenants. direction.

to tenants the smaller large frankly towards from tenants lean from we turnover we are not the large the returns cost speaking think get the after the trying space get higher returns space. costs getting I than going tenants, up, of So because break and you all in

to again smaller large we forward break take So we when -- large because never risk that to medicine, our it and would prefer a always then never a have it tenants lease space represents going up, space.

So, blocks we lean of more to up breaking towards aggregating space. creating and than large to

coming there's more are Although there will say, when I there rare tenants on the in large tenant it's on high and the of a is lot it's -- But areas, demand super side. side. demand both large obviously

Dave Rodgers

in to follow-up going your of going and metrics your who's stay that the Great. in conversion might a existing there just portfolio? that how good play next or of portfolio now? kind tenants that's And to two? any to sense have out impact Then you office won't? clarity Honolulu Who maybe resi. Do to the have and the a year better and Is financial to

Jordan Kaplan

-- cleared already going mean, I we four said not forward. Well, floors. we've giving guidance have we're I that

to expect accommodate next our properly we tenants space. year. XXX their to next in them with We work and want deliver placed and get Obviously, units

the we residential. time the In as building to want end where whole be want to they until to each go with going know tenant progresses, So, they we and won't do is what through those answers go.

Dave Rodgers

Great, okay. Thanks.

Operator

Germain next from Mitch with [Operator Please comes The Instructions] JMP question Securities. ahead. go

Mitch Germain

office creative guys development contemplating? that timeline What's on Yes. the you the are

Jordan Kaplan

that Brentwood? mean we're the of conversion gym doing out in the You

Mitch Germain

exactly. Yeah,

Jordan Kaplan

will I before end going the this that's completed project that it to a year. of and next start suspect be year, It's

Mitch Germain

anything that? or real approvals no hold-up So, with like

Jordan Kaplan

There's just always gave a approvals think hold-up one but, the you. with timeline I that's reasonable I

Mitch Germain

then And growth Or... there? obviously Thanks. of pace rent anything but itself, market to is on the into rents, the slowing I bit. a there is the read know multifamily

Jordan Kaplan

we don't Xs mean don't a in while. I for the all I and the higher, where I think to. and got used get high I've think stabilizes. look, it And Xs even to – two always No. mean growth that three. should be necessarily number thought I very think which you used I rent or sometimes Xs and that's

Mitch Germain

you. Thank

Operator

This turn remarks. concludes conference our question-and-answer Jordan session. to I any would for over the back like to Kaplan closing

Jordan Kaplan

Thank and you you us, speaking quarter. next look we everybody joining to for forward with again

Operator

The Thank today's you for presentation. conference attending concluded. has now

disconnect. may You now

Douglas Emmett (DEI) 3 May 192019 Q1 Earnings call transcript