Douglas Emmett Inc

Previous wording

The following discussion should be read in conjunction with our Forward Looking Statements disclaimer, and our consolidated financial statements and related notes in Part I, Item 1 of this Report. During the three months ended March 31, 2024, our results of operations were impacted by various transactions - see "Debt and Equity Transactions, Development and Repositioning Projects, and Other Transactions" further below.

Current wording

The following discussion should be read in conjunction with our Forward Looking Statements disclaimer, and our consolidated financial statements and related notes in Part I, Item 1 of this Report. During the six months ended June 30, 2024, our results of operations were impacted by various transactions - see "Debt and Equity Transactions, Development and Repositioning Projects, and Other Transactions" further below.

Previous wording

(1) Our Consolidated Portfolio includes the properties in our consolidated results. Through our subsidiaries, we wholly-own 52 office properties totaling 13.4 million square feet and 12 residential properties with 4,058 apartments. Through four consolidated JVs, we partially own an additional 16 office properties totaling 4.2 million square feet and two residential properties with 470 apartments. Our Consolidated Portfolio excludes two wholly-owned land parcels from which we receive ground rent from ground leases to the owners of a Class A office building and a hotel.

Current wording

(1) Our Consolidated Portfolio includes the properties in our consolidated results. Through our subsidiaries, we wholly-own 52 office properties totaling 13.4 million square feet and 12 residential properties with 4,013 apartments. Through four consolidated JVs, we partially own an additional 16 office properties totaling 4.2 million square feet and two residential properties with 470 apartments. Our Consolidated Portfolio excludes two wholly-owned land parcels from which we receive ground rent from ground leases to the owners of a Class A office building and a hotel.

Previous wording

During the three months ended March 31, 2024, revenues from our Consolidated Portfolio were derived as follows:

Current wording

During the six months ended June 30, 2024, revenues from our Consolidated Portfolio were derived as follows:

Previous wording

See Notes 8,10 and 11 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt, derivatives and equity, respectively.

Current wording

See Notes 8, 10 and 11 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt, derivatives and equity, respectively.

Previous wording

In downtown Honolulu, we are converting a 25-story, 493 thousand square foot office tower into 493 rental apartments. This project is helping to 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. As of March 31, 2024, we had delivered 91% of the planned units and leased 99% of the units delivered. The conversion of the final two floors occupied by office tenants will continue as those floors are vacated.

Current wording

In downtown Honolulu, we are converting a 25-story, 493 thousand square foot office tower into 493 rental apartments. This project is helping to 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. As of June 30, 2024, we had delivered 91% of the planned units and leased 98% of the units delivered. The conversion of the final two floors occupied by office tenants will continue as those floors are vacated.

Previous wording

During the second quarter of 2023, we removed our Barrington Plaza Apartments property in Los Angeles from the rental market. A reconstruction of this property is expected to take a number of years at a cost of several hundred million dollars. We are currently in litigation with the insurance providers in 2020 for Barrington Plaza to recover certain costs associated with reconstruction. As of March 31, 2024, a significant majority of the tenants have vacated, and we expect the remainder to vacate shortly, although the schedule could be impacted by legal or regulatory actions. During any period when the property is unoccupied, we will not generate any revenue from it.

Current wording

During the second quarter of 2023, we removed our Barrington Plaza Apartments property in Los Angeles from the rental market. A reconstruction of this property is expected to take a number of years at a cost of several hundred million dollars. As of June 30, 2024, a significant majority of the tenants have vacated. See "Legal Proceedings" in Note 16 to our consolidated financial statements in Part I, Item 1 of this Report. During any period when the property is unoccupied, we will not generate any revenue from it. We accelerated and recorded additional depreciation expense of $27.4 million for the three months ended June 30, 2023, which is included in Depreciation and amortization on our consolidated statements of operations.

Previous wording

(1)Represents the average annual initial stabilized cash and straight-line rents per square foot on new and renewed leases signed during the period compared to the prior leases for the same space. Excludes leases with a term of twelve months or less, leases where the prior lease was terminated more than a year before signing of the new lease, leases for tenants relocated at the landlord's request, leases in acquired buildings where we believe the information about the prior agreement is incomplete or where we believe the base rent reflects other off-market inducements to the tenant, and other non-comparable leases.

Current wording

(1)Represents the average annual initial stabilized cash and straight-line rents per square foot on new and renewed leases signed during the period compared to the prior leases for the same space. Excludes leases with a term of twelve months or less, leases where the prior lease was terminated more than a year before signing of the new lease, leases for tenants relocated at the landlord's request, leases in acquired buildings where we believe the information about the prior agreement is incomplete or where we believe the base rent reflects other off-market inducements to the tenant, and other non-comparable leases, such as retail leases.

Previous wording

(iv) During the first quarter of 2024, the average was impacted by leasing of units at our newly developed West Los Angeles property, where the rental rates were higher than the average in our portfolio.

Current wording

(iv) During the six months ended, June 30, 2024, the average was impacted by leasing of units at our newly developed West Los Angeles property, where the rental rates were higher than the average in our portfolio.

Previous wording

The rent on leases subject to rent change during the three months ended March 31, 2024 (new tenants and existing tenants undergoing annual rent review) was 2.9% higher on average than the prior rent on the same unit after adjusting for rent concessions.

Current wording

The rent on leases subject to rent change during the six months ended June 30, 2024 (new tenants and existing tenants undergoing annual rent review) was 3.1% higher on average than the prior rent on the same unit after adjusting for rent concessions.

Previous wording

(2)Our office occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022.

Current wording

(1)Our office occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022.

Previous wording

(3)Our Occupancy Rates may not be directly comparable from year to year, as they can be impacted by acquisitions, dispositions, development and redevelopment projects. Excludes units vacated as part of removing Barrington Plaza from the rental market until June of 2023 and excludes the impact of Barrington Plaza entirely starting in July 2023.

Current wording

(2)Our Occupancy Rates may not be directly comparable from year to year, as they can be impacted by acquisitions, dispositions, development and redevelopment projects. Excludes units vacated as part of removing Barrington Plaza from the rental market until June of 2023 and excludes the impact of Barrington Plaza entirely starting in July 2023.

Previous wording

(5)Our multifamily occupancy rates were adversely impacted by the COVID-19 pandemic during 2020 but recovered during 2021 and 2022.

Current wording

(3)Our multifamily occupancy rates were adversely impacted by the COVID-19 pandemic during 2020 but recovered during 2021 and 2022.

Previous wording

The table below reconciles our FFO (the FFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership - which includes our share of our consolidated JVs and our unconsolidated Fund's FFO) to net income attributable to common stockholders (the most directly comparable GAAP measure). Our FFO was adversely impacted by the effects of inflation and higher interest rates during the three months ended March 31, 2024 and March 31, 2023.

Current wording

The table below reconciles our FFO (the FFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership - which includes our share of our consolidated JVs and our unconsolidated Fund's FFO) to net income (loss) attributable to common stockholders (the most directly comparable GAAP measure). Our FFO was adversely impacted by the effects of inflation and higher interest rates during the three months and six months ended June 30, 2024 and June 30, 2023.

Previous wording

For the three months ended March 31, 2024, FFO decreased by $8.6 million, or 8.7%, to $90.1 million, compared to $98.6 million for the three months ended March 31, 2023. The decrease was primarily due to higher interest expense, lower office occupancy and tenant recoveries, and the removal of our Barrington Plaza property from service during the second quarter of 2023. The decrease was partly offset by higher interest income, lower property taxes, new units from our multifamily development projects and higher parking income.

Current wording

For the three months ended June 30, 2024, FFO decreased by $4.4 million, or 4.5%, to $92.1 million, compared to $96.4 million for the three months ended June 30, 2023. The decrease was primarily due to higher interest expense, lower office occupancy and tenant recoveries, and the removal of our Barrington Plaza property from service during the second quarter of 2023. The decrease was partly offset by lower property taxes, higher interest income and new units from our multifamily development projects.

Previous wording

Our Same Properties for 2024 included 66 office properties, aggregating 17.1 million Rentable Square Feet, and 11 multifamily properties with an aggregate 3,569 units. The amounts presented below reflect 100% (not our pro-rata share). Our Same Property results were adversely impacted by the effects of inflation during the three months ended March 31, 2024 and March 31, 2023.

Current wording

Our Same Properties for 2024 included 66 office properties, aggregating 17.1 million Rentable Square Feet, and 11 multifamily properties with an aggregate 3,569 units. The amounts presented below reflect 100% (not our pro-rata share). Our Same Property results were adversely impacted by the effectsof inflation during the three months ended June 30, 2024 and June 30, 2023.

Previous wording

Our short-term liquidity needs consist primarily of funds necessary for our operating activities, development, repositioning projects, dividends, distributions and discretionary share repurchases. During the three months ended March 31, 2024, we generated cash from operations of $139.0 million. As of March 31, 2024, we had $556.7 million of cash and cash equivalents. Our earliest term loan maturity is December 2024. See Note 8 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt. Excluding acquisitions and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand and cash generated by operations.

Current wording

Our short-term liquidity needs consist primarily of funds necessary for our operating activities, development, repositioning projects, dividends, distributions and discretionary share repurchases. During the six months ended June 30, 2024, we generated cash from operations of $230.9 million. As of June 30, 2024, we had $561.1 million of cash and cash equivalents. See Note 8 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt maturities and interest rate swap expirations. Excluding acquisitions and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand and cash generated by operations. With respect to our short-term debt maturities, we expect to refinance or extend them prior to maturity.

Previous wording

Our operating cash flows were adversely impacted by the effects of inflation and higher interest rates during the three months ended March 31, 2024 and March 31, 2023.

Current wording

Our operating cash flows were adversely impacted by the effects of inflation and higher interest rates during the six months ended June 30, 2024 and June 30, 2023.

Previous wording

(1) Our cash flows from operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectibility of tenant receivables, the level of our operating and general and administrative expenses, and interest expense. The decrease in cash from operating activities of $6.5 millionwas primarily due to higher interest expense, lower office occupancy and tenant recoveries, and the removal of our Barrington Plaza property from service during the second quarter of 2023. The decrease was partly offset by higher interest income, lower property taxes, new units from our multifamily development projects and higher parking income.

Current wording

(1) Our cash flows from operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectibility of tenant receivables, the level of our operating and general and administrative expenses, and interest expense. The decrease in cash from operating activities of $10.8 millionwas primarily due tohigher interest expense, lower office occupancy and tenant recoveries, and the removal of our Barrington Plaza property from service during the second quarter of 2023. The decrease was partly offset by lower property taxes, higher interest income and new units from our multifamily development projects.

Previous wording

(2) Our cash flows from investing activities is generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures. The decrease in cash from investing activities of $11.0 million was primarily due to an increase in capital expenditures for improvements to real estate and an acquisition of an additional interest in our unconsolidated fund, Partnership X, partly offset by a decrease in capital expenditures for developments.

Current wording

(2) Our cash flows from investing activities is generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures. The increase in cash from investing activities of $9.7 million was primarily due to a decrease in capital expenditures for developments and improvements to real estate, partly offset by an acquisition of an additional interest in our unconsolidated fund, Partnership X.

Previous wording

(3) Our cash flows from financing activities are generally impacted by our borrowings and capital activities, as well as dividends and distributions paid to common stockholders and noncontrolling interests, respectively. The increase in cash from financing activities of $17.9 million was primarily due to the repurchase of common stock during the first quarter of 2023 and a decrease in dividends paid to common stockholders.

Current wording

(3) Our cash flows from financing activities are generally impacted by our borrowings and capital activities, as well as dividends and distributions paid to common stockholders and noncontrolling interests, respectively. The increase in cash from financing activities of $44.8 million was primarily due to the repurchase of common stock during the prior period, partly offset by net borrowings during the prior period.