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 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.

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 nine months ended September 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 4,013 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.

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 4,006 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

(3) As of June 30, 2024, we removed 77,000 Rentable Square Feet for an office building we are converting to apartments. See"Development" further below.

Current wording

(3) As of September 30, 2024, we removed 67,000 Rentable Square Feet for an office building we are converting to apartments. See"Development" further below.

Previous wording

(4) Unit totals exclude units vacated as part of removing Barrington Plaza from the rental market. The leased and occupancy rates exclude the impact of Barrington Plaza. See"Property to be Removed from Service" further below.

Current wording

(4) Unit totals exclude units vacated as part of removing Barrington Plaza from the rental market. The leased and occupancy rates exclude Barrington Plaza. See"Property to be Removed from Service" further below.

Previous wording

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

Current wording

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

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. 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.

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 September 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 September 30, 2023 and$54.8 millionfor the nine months ended September 30, 2023, which is included in Depreciation and amortization on our consolidated statements of operations.

Previous 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.

Current wording

(iv) During the nine months ended, September 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 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.

Current wording

The rent on leases subject to rent change during the nine months ended September 30, 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.

Previous wording

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

Current wording

Our operating results were adversely impacted by the effects of inflation and higher interest rates during the nine months ended September 30, 2024 and September 30, 2023.

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 (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.

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 nine months ended September 30, 2024 and September 30, 2023.

Previous 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.

Current wording

For the three months ended September 30, 2024, FFO decreased by $3.4 million, or 3.8%, to $86.0 million, compared to $89.4 million for the three months ended September 30, 2023. The decrease was primarily due to: (i) lower office occupancy and tenant recoveries, (ii) higher office operating expenses, (iii) the removal of our Barrington Plaza property from service during the second quarter of 2023, and (iv) higher interest expense. The decrease was partly offset by (i) lower general and administrative expenses, (ii) higher interest income, (iii) new units from our multifamily development projects, and (iv) higher multifamily rental rates.

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 effectsof inflation during the six months ended June 30, 2024 and June 30, 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 nine months ended September 30, 2024 and September 30, 2023.

Previous wording

The table below presents a reconciliation of Net income attributable to common stockholders (the most directly comparable GAAP measure) to Same Property NOI:

Current wording

The table below presents a reconciliation of Net income (loss) attributable to common stockholders (the most directly comparable GAAP measure) to Same Property NOI:

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 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.

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 nine months ended September 30, 2024, we generated cash from operations of $334.6 million. As of September 30, 2024, we had $544.2 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. We are currently in the process of amending and extending a $400.0 million loan on a portfolio of assets held by one of our consolidated JVs that matures on December 19, 2024. While it is the parties' expectation that this transaction will close prior to the due date there are no assurances and the joint venture could be required to pay off the loan or it may be assigned to a special servicer.

Previous 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.

Current wording

Our operating cash flows were adversely impacted by the effects of inflation and higher interest rates during the nine months ended September 30, 2024 and September 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 $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.

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 increase in cash from operating activities of $2.4 millionwas primarilydue to: (i) higher cash provided by working capital, (ii) higher interest income, (iii) lower office property taxes, (iv) new units from our multifamily development projects, (v) higher multifamily rental rates, and (vi) lower general and administrative expenses. The increase was partly offset by (i) lower office occupancy and tenant recoveries, (ii) higher interest expense, and (iii) the removal of our Barrington Plaza property from service during the second quarter of 2023.

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 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.

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 $23.8 million was primarily due to a decrease in capital expenditures for improvements to real estate and developments, 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 $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.

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 decrease in cash from financing activities of $262.5 million was primarily due to net borrowings during the prior period, partly offset by the repurchase of common stock during the prior period.