Douglas Emmett(DEI) - 2024 Q3 - Quarterly Report

Glossary This section provides a comprehensive list of abbreviations and definitions for key financial and operational terms used throughout the report - This section provides a comprehensive list of abbreviations and definitions for key terms used throughout the report, such as FFO (Funds From Operations), NOI (Net Operating Income), Same Properties, and Leased Rate, which are essential for understanding the company's financial and operational performance metrics[5][7][8] Forward Looking Statements This section outlines forward-looking statements, emphasizing that actual results may differ due to various economic and operational risks - The report contains forward-looking statements based on current beliefs and assumptions, which are subject to known and unknown risks and uncertainties. The company cautions investors that actual results may differ materially from expectations[10] - Key risk factors that could affect future results include adverse economic conditions in Southern California or Honolulu, competition, decreasing rental rates, reduced demand for office space due to remote work, increases in interest rates and operating costs, and failure to maintain REIT status[11] PART I. FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for the nine months ended September 30, 2024, showing a net income of $15.1 million and total assets of $9.45 billion Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $9,451,764 | $9,644,218 | | Investment in real estate, net | $8,618,766 | $8,753,184 | | Cash and cash equivalents | $544,227 | $523,082 | | Total Liabilities | $5,794,250 | $5,798,821 | | Secured notes payable, net | $5,513,086 | $5,543,171 | | Total Equity | $3,657,514 | $3,845,397 | Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Total revenues | $741,499 | $761,209 | | Net income (loss) | $15,102 | $(19,932) | | Net income (loss) attributable to common stockholders | $24,405 | $(2,251) | | Net income (loss) per common share – basic and diluted | $0.14 | $(0.02) | Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $334,590 | $332,209 | | Net cash used in investing activities | $(156,570) | $(180,373) | | Net cash (used in) provided by financing activities | $(156,947) | $105,557 | - As of September 30, 2024, the company's consolidated portfolio consisted of 68 office properties (17.6 million sq. ft.) and 14 multifamily properties (4,476 units). The total portfolio, including an unconsolidated fund, comprised 70 office properties[26][27][28] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, noting adverse impacts from inflation and higher interest rates, with FFO decreasing 3.8% YoY and Same Property NOI declining 6.1% YoY Portfolio Occupancy and Leased Rates (Total Portfolio) | Portfolio | Metric | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | :--- | | Office | Leased Rate | 82.0% | - | | | Occupancy Rate | 79.4% | 81.0% | | Multifamily | Leased Rate | 99.1% | - | | | Occupancy Rate | 97.4% | 96.7% | Funds From Operations (FFO) (in thousands) | Period | FFO | Change YoY | | :--- | :--- | :--- | | Three Months Ended Sep 30, 2024 | $86,015 | -3.8% | | Nine Months Ended Sep 30, 2024 | $268,145 | -5.7% | Same Property NOI Change YoY (Q3 2024 vs Q3 2023) | Segment | NOI Change YoY | | :--- | :--- | | Office | (7.7)% | | Multifamily | 2.1% | | Total | (6.1)% | - The company is converting a 25-story office tower in Honolulu into 493 rental apartments. As of September 30, 2024, 91% of the planned units have been delivered and 98% of those delivered are leased[122] - The Barrington Plaza Apartments property was removed from the rental market in Q2 2023 for a multi-year reconstruction, which negatively impacted revenues and FFO. A significant majority of tenants had vacated by September 30, 2024[124] - The company expects to meet short-term liquidity needs through cash on hand ($544.2 million) and operating cash flow. A $400.0 million JV loan maturing in December 2024 is currently being refinanced[163] Quantitative and Qualitative Disclosures About Market Risk This section details the company's primary market risk from interest rate fluctuations on its debt, with 23% being unhedged floating-rate debt - As of September 30, 2024, 23% of the company's consolidated borrowings were unhedged floating-rate debt[174] - A 100 basis point increase in the benchmark interest rate would increase annual interest expense on unhedged floating-rate borrowings by $13.0 million[174] - The company utilizes interest rate swaps and caps to mitigate risk. 62% of debt is fixed or swap-fixed, and 15% is capped. The maximum potential annual interest expense increase on capped-rate debt is $15.8 million[173] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[175] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[175] PART II. OTHER INFORMATION Legal Proceedings The company reports no material adverse legal proceedings, excluding ordinary routine litigation - The company is not currently a party to any legal proceedings that it believes would have a materially adverse effect on its business[177] Risk Factors The company states no material changes to the risk factors disclosed in its 2023 Annual Report on Form 10-K - There are no material changes from the risk factors disclosed in the 2023 Annual Report on Form 10-K[178] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - None[178] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[178] Mine Safety Disclosures This item is not applicable to the company - Not applicable[178] Other Information The company reports no other material information and no director or officer trading arrangement adoptions or terminations in Q3 2024 - During Q3 2024, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[178] Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as Inline XBRL data files[180] Signatures The report was duly signed on November 8, 2024, by Jordan L. Kaplan, President and CEO, and Peter D. Seymour, CFO - The report was duly signed on November 8, 2024, by Jordan L. Kaplan, President and CEO, and Peter D. Seymour, CFO[183]