Earnings call transcript Q1 2023

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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. [Operator Instructions] I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Stuart McElhinney

you. Thank

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

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

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

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

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

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

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

call Jordan. over turn I now will the to

Jordan Kaplan

us. morning, Thank for you Good everyone. joining

the actually in the call, rate, even signed quarter pipeline by last during in quarter the in increase expense. that up we higher interest our the compared was decline in we on resulted operating to leasing more quarter than revenue the our Our first slowdown usual. though The offset of is mentioned first XXXX, but a costs leases lease and

reduced for but conservative concerns and we footage. less on response feet for demand XX,XXX strong and us, tenants cash and obstacles. to recessionary have remote assumptions challenging have office become pose to square have all office more economy average under to in square appeal is continue tenants some large who total we our markets, dominate our oversupply larger seem overwhelming tenants urban national reduced additional NOI. but reliance about for The because Accordingly, concerns, same-property leased CBDs, occupancy of We work, from

As short commutes on low and pandemic. relatively I smaller supported high public have supply during constraints, utilization reliance volume leasing before, market said tenants, the our and transit

pandemic markets until fourth quarter our was tenants eased, recession. leasing larger the XXXX more As when in strong concerned the very of became about

to While economic remain confident new downturns our the navigate challenges. not and unpleasant, resilience to in us. are in our are they portfolio ability of We these

stock million and through economy. our of our guided opportunities take the recessions common March of have other well and early and positioned silver April, shares company found in We advantage repurchased to current created the by We always are late X X lining. we

Kevin. that to will turn With the I over call

Kevin Crummy

Thanks, good Jordan, morning, and everyone.

Our balance are flow strong. after sheet dividends cash and

almost unencumbered. XXXX until during like our remains portfolio developed outstanding and half to office these. have our December debt We We maturing our debt times company strategy no of protect

first Our mortgages debt secured the level. property all nonrecourse is at by trustee

level have covenants. debt and corporate corporate no no We

will downturn. it record We and perfect debt confident repayment have maintain XX-year during are this we a

in our best and for than us of AFFO liquidity. Our the half industry, substantial our one cash leaving use remains dividends with after we flow of less dividends,

XXX of users which we year. At floors leased we by Brentwood, are several began more currently new conversion delivering office and April and and expect Our At units Honolulu, deliver for XX% apartment at Landmark floors just continue The pace. the Bishop up of year-end. perform project, multifamily unconverted floor have X over in Place office that good lease by another to a our projects in delivered units remain, will last leased Only residential to well now X years. we L.A.

the turn call I'll over that, With Stuart. to

Stuart McElhinney

consisting XXX Smaller leases. Good everyone. office of XXX,XXX of QX. feet signed leasing square feet our XXX,XXX leases square square We renewal to feet, and drive Kevin. in new of XXX,XXX continue tenants morning, leases, Thanks, covering

were leasing during for cash. negative line straight for X.X% first and quarter positive X% the Our spreads

this rental rates better our While is don't to until rate lease expect meaningful begins recover. office somewhat in than we to gains achieve recent quarters,

which $X.XX leasing quarters were average costs than per below Our square for REITs quarter foot this bit per a is group. benchmark our other in year, well and lower recent

Turning to multifamily.

Our Peter up portfolio. over that I'll quarter to portfolio at the was discuss call With and continue XX.X% our rents to end, turn roll leased to our results. across

Peter Seymour

Stuart. morning, Good Thanks, everyone.

compared higher to and multifamily addition new increased rates. revenue results X.X%, Turning by and XXXX, to rental XXX has of units increased by of reflecting quarter portfolio, in-place our which the office the our to units first multifamily

decreased by as primarily FFO higher our result rate of expense share, decreased XX.X% X% AFFO floating to debt. million. to a $X.XX $XX.X interest on per

per by leasing offset to rental this in costs and tenants last pressure we on our parking tenant foot low, costs remain by and Although utilities revenue executed the improvement higher move we cash X.X% continued NOI square number paid with decreased revenue, wages. Same-property whom leases large with a inflationary quarter year. of

Our G&A remains X.X% to revenue. at group of benchmark only relative low very our

and X March $XX.XX of an million of During shares early cost our we per share. repurchased average late at April, common stock

Turning to guidance.

for offset and and straight-line to said, million Jordan we between $X We adjusted range negative be be expect benefit These buyback. XX% expected of for be million. now average the revenue As stock office and by cash our X.X% $X to adjusting which of between between are occupancy, for our the adjustments to growth assumption our and we NOI same-property XX% year. negative X.X% are

guidance our $X.XX So per for full year FFO between remains range and $X.XX share.

refer please assumptions in package. underlying on the For schedule information guidance, earnings to the our

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

the turn take can questions. the call to so we your now over will operator I

Operator

be [Operator Instructions] from question Alexander first will from Piper the And Goldfarb Sandler.

Alexander Goldfarb

two So questions.

swaps buyback, on rate off a I stock this year. the First, have burned the believe floating debt where you

rising the your thoughts the pay and instead of rates? rate So using try buybacks cash impact to floating down are of to that what on those loans reduce

Jordan Kaplan

floating good re-swap debt. become just margin, to an opportunity re-swap pretty think there it's want is I we question do a it. mean, we The have rate the I good is when to Well, is to actually I and going think at it? -- debt

you look not reasonable already. out, almost think year, swaps it a I down a rate longer If including back little to this

So anxious cash to not I'm that. use for

actually, is over just section and call very to I for scenes that his it better CFO, CFO, and so the Mona lot with In that doesn't on good debt our like the there's is like of is Stuart uses something. that's to it, our mention I'd which a opening think Peter re-record time lead-in left to in again. Stuart said it. behind over our

one. didn't ages. use -- one last meant one He mean actually year. use just the So last from dark my like the he last for said, use last He my my

ago. maybe So nobody But they caught for us. from pulled except years that obviously one anyways, X

your was question? what Now second

Alexander Goldfarb

And you investor the second is, tenants moving were these portfolio. your weak L.A. Downtown we out space and so also the West a are not spot in to question coming all event, talking lot how about tenants yet Hawaii you're at the side, being when tenants were that talking the in are large about for enough the

think, tenants. active, the I larger active. if downtown moving curious tenants, very that we West tenants, tenants to not just would small L.A. are are And rationalize I'm those So large side, how --

So as increase activity we see some wouldn't in tenant large in why well? your portfolio

Jordan Kaplan

larger reflected Century even than been has City. increase bit that actually accommodate. a of in They're we can most So

XX,XXX more you Century -- the when full almost -- that's already, tenant get so and are nothing City, over we us, mean, of XX And we I is have I we some don't way them, XX,XXX And but So large think, XX, operates. now floor of feet. have a space. blocks plenty the right? full Century those to of floors all gone, City the a other and don't to to is tenants, X floor towers lot close To XX buildings of

Century. -- Now them ton they in to moved of a move

space have someone would And the I some think there's But those tend hoping right that City Hills that that's we are of Beverly full a we just it. where is accommodated when Century have looking XX,XXX bit those head. the there. where now. little had markets, places had blocks activity feet in to maybe not people like of And haven't move and in for very other West will we're

Alexander Goldfarb

would some eventually? spillover expect But you Okay.

Jordan Kaplan

in Well, Tenants to don't They that are it. is have more definitely there's the look moving. downtown can be or I you there area. of -- know over some from smaller I mean, west side. Yes. And if I a reports ones at to it's a Pasadena that probably in what live the moving tenants other reason think -- reports there. [ph], great

way a all them across. it's make so to for big hop And the the deal

come to are Now trouble office probably downtown. these ones people they might who having like into the larger getting

we'll and be that I've stories everyone mean, they're firms come saying but we're have in don't is moving. downtown. we So saying, that back back to want called the anecdotal in, I heard law they're

paying abandoning literally in are leases, them leasing space everybody they they're Century and back now saying, they're So in. okay, City still are and on

that mean, some -- definitely be spillover, But I don't think whatever. will I So they're think, -- way. I know there our mean I that I hope, moving

Operator

is question next of Bank America. the And Camille from [ph] from

Unidentified Analyst

Brentwood seeing we move Olympic to Can Corridor your been of kind they on have in the what bit leasing the submarkets? out. you're it's more -- teams and reasons when a focus saying What

Stuart McElhinney

that they're tenants kind It's and out reasons -- long is almost firms. different of of tenants, reasons. our They're a seen. of X,XXX growing, list retiring X list you a move same breaking they're reasons shrinking, huge of they're that or partners off mean, I list. as we've always got the they list into we've It's

point -- shift to or So to no in noticeable there. trends

small they're some submarkets. small submarkets some Some we've I in movement the But submarkets to changes. that there some know -- so around sensitive are you our mentioned submarkets, had specific of

really around think easily in L.A., our really because Hawaii kind changes. small bounce we the of with useful on regions, So to individual focus internally can major Valley submarkets West it's and more pretty

Unidentified Analyst

up in my the seem appreciated. follow-up to comments there's events And changes been enough your very if tenants momentum much of leasing small I active through guess level XXXX? any list, question, watch And your keep demand Okay. as you if Are tenant markets. [indiscernible] the to following you recent tracking on any this have be

Jordan Kaplan

Okay.

did we down seeing and So it. as slow down we the force you're and shadowed pipeline last quarter, saw it slowing

seeing of more we good a So amount that. to but not this to if is want activity. used we're it's this? did I closer going which X what than We're down of million this you're feet, to to be we No, are we still seeing activity, quarter to be X mean, is over which feet, if to XXX,XXX and of amount -- me slow anything XXX,XXX. XXX,XXX We want not feet. around asking

your was I off, -- to What able we So I off second consider view don't don't but don't question? lot it is a being as -- it substantially go more.

Unidentified Analyst

to there's changes If list? tenant been any watch your credit

Jordan Kaplan

tenants -- guess -- X There I of there's versions so are that.

still are tenants away the chipping and So kind down, number that paying group chipping and that away stand down. from are and COVID, hangover of

last I COVID, it to and And in almost because And said, even here going little the pay. up. I We asking if don't have saw not if know the and list, That's don't watch I is tenants weren't that State paying tenants no. can of that all not if saying where but you much, think end going time a you million. very kept these was XX% our people we recall, to number, noteworthy on but there, would of be our not good, amount, pay. when you're more yes, tenants are credit $XX

I is, on think forget tenants. years smaller nothing mean, maybe where of as almost we've it's that going And good X actually said, going very COVID whatever, the the XX end X be the the XX%. lease credit. They it's number. they like or up is points, the sign by personally. about to reason And way, have to for I basis over are we

right So not long our default a portfolio lot over that wouldn't in haul, expect of a and I the now. -- lot

Operator

the question from Wells And next is Heck from Fargo. Blaine

Blaine Heck

really to don't but tenants were fully around have I have to portfolio the tenants? you office supporting the quarter in you beneficial but have the general implemented. office not to companies and remote be exactly, guys mandates of can REIT smaller your about peers return that Jordan, several from optimism much now expressed this whether particular, tech, L.A. maybe you talk in this quick of tech pandemic some exposure during the others know kind market go to that those of think could your

Jordan Kaplan

Yes.

and for to So all stay L.A. whether love economies anywhere. or work, I the I San -- back those come people it back and or don't York economy it's economy Francisco seeing going home very tenants be tenants, good and New love I people it's people in. bringing where to seeing be think and at And large

that was spot frankly. to one, Even able our Ken sends the more quite you and Ken say been I been it it's mean little I parking, long we've know the way portfolio, And it's our blah, It's specifically over want to XX%. analysis it. we're be a that back to our sent to a to anything I of full, track I the like noticed like love fast. think of in big blah, deal we -- for to it's XXX% going the is If or I level like about And me to pre-pandemic. visitor last talk would XX% of don't going more a time. we're in but Maybe way getting to been back blah-blah, leasing. don't think I visitor go blah. getting on XXX% me,

So, a don't but did that way issue real whatever, else. the slowdown say would the it recession don't think if we're or benefit they call like real a that know estate to the to are conservative I'd approaching, the recession good entire actually that's anything want is I I expecting there's to think that -- -- we're people estate a I I that a be facing recession caused or leasing. us, in having

have -- come work not I our out in well. as of been company. since been this that through to last dissimilar come running kind we've this And think running we'll we extremely the it, And the and it's way recession. we've been recessions X sure I'm we from I've out

Blaine Heck

Can this they're maybe kind or requirements interested and any recent office return talk acquiring of or you've Okay, that Switching what front. they that's assets real targets and you really gears of whether helpful willing to partners investment environment? color. conversations in about with your quickly had the return multifamily in sort capital have

Kevin Crummy

been We've anxious calls, because to super same of Kevin. partners and it's some having previous in the market. on as capital Blaine, having there a not this people And are way, are with are lot our that there conversations feel we've some. said meetings although deploy those we capital

office So it's okay West going in to multifamily And be lower both L.A. competition. our with and partners. are

all And return adjusted so we've with rates. our expectations accordance in interest

But forward opportunities we're going and to be as not deploying to out it's it so And was. some looking coming capital.

Operator

is Griffin question Citi. And the from next from Michael

Michael Griffin

on Maybe allocation. capital on to piggyback question there Blaine's

talked to being kind ready opportunities. You've look at about of

so okay these I office at transaction then for you're that partners. And U been out trade being that's investment think helps other of the you and got kind one L.A., we've opportunity? multi and Kevin, so on a just better your contacts supply as West Prop front. your not seen of some the stuff talked about the with seeing potential -- of or know your Does there? exactly mainly with sort valuations. you've Anything in like talking Orange from discounted County, wheelhouse, I market screen

Kevin Crummy

Sure.

multifamily are perspective. the the So more and near the think out figure for tenant there's a trying underwriting to and certainty from for that an term people office demand in I the around well, perspective demand

I at expect multifamily range is tighter trade to So than a would going that office. price

although to of where towards operating out that be see I'm year, we're maybe look latter potential. maximize And opportunities. that we we're some come we a haven't into smaller optimistic needs our a so really asset haven't profile can that the And that tenant rent we its looking the this what anything something base, assets we in far, going And the are for. specifically or with seen really just repositioned asset half platform roll to of for the fits to that deploy problem seen yet,

Jordan Kaplan

will really I residential, be see opportunities that surprised like me feel in way. to say it I let just

think still pretty it trading I tight.

tide, see that's of chance because that where lot from in to which and I excel. just think we markets, against it, conviction but go -- means the we you the that's weakest the the office, capital I good -- have broader have if better deals not it's of where some fun around you a conviction know like we making a

Unidentified Analyst

is this [ph] Michael. here Nick with And Joseph

occupancy. Just a question on

I there occupancy you how Can the think you XX% ended? for full is just get average the guide through the given year. talk XQ just

Jordan Kaplan

a want out Well, because do is I of pretty to occupancy quarter or at it -- and want talk of what we're function start mean, about so you happens quarter, me? this is do we'd projecting leasing. can look you happened so in terms this we good what leasing

be we're to we so well. it's our kind is leasing, out. I -- calculating And average to of mean, therefore, go be hit for going math actually lower. didn't We just goals and occupancy going

Operator

question next Steve from the ISI. is Evercore Sakwa And from

Steve Sakwa

for morning thanks an missed I about about this Peter. his clarifying Jordan, Great. announcement thought resignation. I

Jordan Kaplan

so kind actually By that the she here this still surprised hear works asked to weird. was yes, [indiscernible] also do of mean way, -- too. I Mona she anyway but maybe because to

Steve Sakwa

Yes.

is to coming clear that on volume extent up lot the problem. in in Jordan, comments, you that then outlook this the based rate is new lynchpin firmer will, sounds your doesn't did run of on until of rate, like the to suggest And is but of really occupancy leasing less renewal you the this year, kind an that So volume. clearly, up an you and And more that, RTO if sort of the and a back really does new economy problem getting the side quarter footing? it new did leasing, it's know I leasing, economic on lease of the

Jordan Kaplan

not, you So understand hope situation. but I you what certainly the said, probably

deal accelerating we're our constantly keep there'll doing we're a think the this, -- me we I this way. the it that push we and quarter that's on I that actually some be this I quarters, adding hope little like a that say get true. -- when and hopeful low things. new I'm Usually, quarter the leasing, oddly we and just probably, and that next know Let was have low better. doing we'll X that very for we recovery. do not

a occupancy. that adjust I think I ago, rate us run I and was this than said it it second just number lower our is Obviously, to caused a expect, lower. would

this the -- So this what expecting, basically, I'm quarter, assumptions, to the new in all which not we're rate well, for our not expecting probably be would gave it. we in of our adjustment -- rest of run

-- over we'll the I understand quarters, certainly X recovery next I quarters. think get but it, So some but you X

Steve Sakwa

Okay, what of capital sort where side, digits would you'd share cheaply, great. And high understand agree of certain then single the at the to pushing apartments come I'm on double deal. and the I you, be probably deployment buyback. you own. have probably trade you low wrestling won't just with at against cap the on implied digits, maybe sort new guess already I up stack is days, know and with that you so how And I looking office rate

I as them as buying So you back good than are can to already you that make what envision stock? more accretive even deals own mean, finding

Jordan Kaplan

I I can a it. Well, envision envision can lot of things.

there was be Now So -- anxious it. there might a think take want saying, in that you're us. but own frankly, don't Very, anymore." know, not -- doing so -- I just that's run the Kevin the out that I'm might that still to to there know own but are And on, a and of -- there talking there's focusing really have top are best whatever to very to there's we some And I sell getting there the you, deals deal lot, that what opportunities I having opportunities market lot out about. happens where over, not good. and he's in. chunk lot say what big people few groups opportunity right there's be deals "You I'll I of sell just around And to we think okay? are us building and XXX% I come that a deals of to I'm good a own we'd a where we going we of very for be this this, we of is that's the some kind But attitude to like office people described. do. around, of and maybe are whole deals the in still is out And traveling there,

Operator

Street. next Green from And be from question the Burzinski Dylan will

Dylan Burzinski

Most asked impact guys any given been I curious, of But Hollywood that your already. my just questions have you out guys' to the of have sightseeing the news portfolio? and do on guess coming there, expect

Peter Seymour

Dylan, might when up -- get we much a it's have Peter. business. pretty to don't overall we that it and little probably impact. to have our space away, lot temporary -- a and but We're shouldn't I bit shows running that's of tend production -- it's ancillary go

Dylan Burzinski

do on year? you that have expiration next of discussions half Warner with then in given of And guys you're their the Bros, having the sort update any latter

Jordan Kaplan

going we although don't mean, think that lot said out, I think update. move right have I I much doing they is of they're expectation that, I a and our they're now. they said through an haven't

-- they're changing fast. -- And so their maybe plans are it's not

Now any in said not moving to coin, to have of under they other I marketing us we're to because until of -- we're come don't pressure say the they're on That's any and buildings. side they the the out be kind going options. also

you end -- go are and they're to But -- how out company able know expect cut end the if guys working away. at move this about reason So to cost, I to them same a where they see up. cuts then they're announcements play moment, the to that because just read we going they they're they're continuously is costs.

And that. at up. that's So don't view point, end they're to going rebuilding now their this to some we're going where we know say and or change

Dylan Burzinski

a the the space utilization today? have of of sense you Do

Jordan Kaplan

back space. that would have But I office I just think low, say been I it barely I to that of like very bring into that's like way. utilization slow extremely every have. they think their the utilization office any. -- if start studios people space mean, is people

Operator

will Okusanya from the Suisse. from next Omotayo Credit question And come

Omotayo Okusanya

Yes.

that a are to swaps with dropping to the regards quick be going Just off. question

the I going that given was around Fed were variable the think from kind still the mindset before underlying just of policy? idea of news some let rate the to latest you again [indiscernible]. Is the

Jordan Kaplan

Fed the yet -- did do announcement their did Hey, they...

Omotayo Okusanya

[ph]. did they Yes,

Jordan Kaplan

new company the I've of the of I like actually past, storm, it. that's kite. as to debt we of about even think to think the this X nobody in opportunities course. though which swap the fly I to might flies is said some terms have swaps intention we margins a Well, and news don't it's is it in there year. kind mean, be I also have out, kite start to put whole heard in it good me. in. so could now, low in Xs, swap, earlier very But just is maybe let fine, play down floating, some layering considering next and and number more during I just need our year That starting -- a not forward range. this back We start I put the our wind out -- of I to to fixing you some

see to settle bit before sell So do things I like time little to so. we a how

Operator

from The is Instructions] a from Michael question Griffin Citi. next follow-up [Operator

Michael Griffin

in lease, have -- you know on I think Bros I'm a conversion the I have Warner touched you the curious, Hawaii. question

don't a because hard like filmed be that a studio, I to floor place, think a for this could movie at stuff conversion? said thought. area? it pretty like apartments of they converted but film there doing candidate you be the general Just might Landmark. in or around I you're -- they like Is mean, some

Jordan Kaplan

there, building, I solid Media imagine a District, going new tell been scenario construction the weakness. been years, mean Burbank be market I could place Beverly mean, office maybe is a converted you and County. happened we actually more very for it's the some apartment can't because do be Monica that office of which and showing showing going that. what's I all Santa L.A. during in the But But market. that and off-market, maybe while Hills. recession it's that it's to I that floor a to weakness seems to -- downtown even but this it's like mean building strongest strong XX really I'm on,

do can't enough you building to see I I don't that's and rents apartment almost gap a down like unless rents So a imagine spread to there conversion. really dysfunctional. encourage the wide between being have office a anybody

probably Frankly, I rents apartment are there, out than rents. higher office think

just have a moving So it is that's going the the of the market to some saying, we I tenant district. now, mean, term media conversion, because idea better we miles with have we're where in especially vacancy, long from do a

Michael Griffin

to that is to it's point, or of But like into feet maybe if the they so speak. square to single tenants, like big building unmet got the a cut whatever, tenant hard butter, user XXX,XXX like building, that smaller how up it the bread and

Jordan Kaplan

building broken I mean, what good There's feet. we're you're can still My And up there, easily. are smaller tenants I'd The really of very being tenants, for dealing do a can I mean, few The so XXX,XXX like with quite our we tenants. up. to, that be large mean, larger broken is no floor go the tenants more though. guess is plates XX,XXX perfect. X floors or are X do there's only to -- would reality to tenant. I they're long to be that

our where in middle the just of That's Hills, have like it; grown one that's But other in one the happen buildings. they're heartland list tenants, ends. of they which have WME. that's of the Beverly small that's big We right the is large-ish,

Operator

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

Jordan Kaplan

us, quarter. all again joining speaking in you you for the forward with Well, we and look thank to

Operator

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

disconnect. now may You

Douglas Emmett (DEI) 3 May 232023 Q1 Earnings call transcript