Douglas Emmett(DEI) - 2022 Q4 - Annual Report

Part I Business Douglas Emmett, Inc. is a REIT specializing in high-quality office and multifamily properties in premier Los Angeles and Honolulu submarkets Portfolio Summary as of December 31, 2022 | Portfolio Type | Consolidated | Total (incl. Unconsolidated Fund) | | :--- | :--- | :--- | | Office Properties | 69 | 71 | | - Wholly-owned | 53 | 53 | | - Consolidated JV | 16 | 16 | | - Unconsolidated Fund | — | 2 | | Multifamily Properties | 14 | 14 | | - Wholly-owned | 12 | 12 | | - Consolidated JV | 2 | 2 | - The company's business strategy focuses on concentrating high-quality office and multifamily properties in supply-constrained submarkets, achieving an average market share of Class A office space of approximately 37% as of year-end 2022[20][21] - The company operates through two primary segments: office and multifamily, encompassing acquisition, development, ownership, and management of real estate[25] - As of December 31, 2022, the company employed approximately 750 people, emphasizing a strong company culture, competitive compensation, and employee health and safety[47][50] Risk Factors The company faces significant risks from the COVID-19 pandemic, high inflation, geographic concentration, substantial debt, and regulatory compliance, impacting its operations and REIT status - The company's business is significantly exposed to risks from the COVID-19 pandemic and persistent high inflation, which could adversely affect operations, cash flows, and financial position[63][64] - All properties are located in Los Angeles County, CA, and Honolulu, HI, creating susceptibility to adverse local economic conditions, regulatory changes, and natural disasters like earthquakes and wildfires[65] - The company has substantial debt, exposing it to interest rate fluctuations and refinancing risks, with most floating-rate debt transitioning from USD-LIBOR to SOFR[66][69] - Failure to maintain REIT qualification would lead to higher taxes and reduced cash for distributions, requiring satisfaction of complex income, asset, and distribution requirements[121][122] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[139] Properties As of December 31, 2022, the company's portfolio included 71 office properties (18.1 million sq. ft., 87.0% leased) and 14 multifamily properties (5,013 units, 99.4% leased), with significant office lease expirations in 2023 Total Office Portfolio Summary (as of Dec 31, 2022) | Region | Number of Properties | Rentable Square Feet (sq. ft.) | Average Market Share | | :--- | :--- | :--- | :--- | | Los Angeles (Westside) | 52 | 9,998,784 | 34.7% | | Los Angeles (Valley) | 16 | 6,790,777 | 43.6% | | Honolulu | 3 | 1,277,664 | 24.7% | | Total / Average | 71 | 18,067,225 | 37.4% | Office Portfolio Percentage Leased and Rents (as of Dec 31, 2022) | Region | Percent Leased | Annualized Rent ($) | Monthly Rent Per Leased Sq. Ft. ($) | | :--- | :--- | :--- | :--- | | Los Angeles (Westside) | 87.1% | $465,109,266 | $4.73 | | Los Angeles (Valley) | 86.2% | $203,666,873 | $3.03 | | Honolulu | 91.3% | $38,029,901 | $2.86 | | Total / Weighted Avg. | 87.0% | $706,806,040 | $3.95 | - The office portfolio has a diversified tenant base by industry, with the top three being Legal (18.4% of annualized rent), Financial Services (15.6%), and Entertainment (14.5%)[150] - In 2023, 13.8% of the total office portfolio's rentable square feet is scheduled to expire, representing 16.0% of annualized rent[152][153] Multifamily Portfolio Summary (as of Dec 31, 2022) | Submarket | Number of Properties | Number of Units | Percent Leased | Monthly Rent Per Leased Unit ($) | | :--- | :--- | :--- | :--- | :--- | | Los Angeles (Santa Monica) | 3 | 940 | 99.0% | $4,372 | | Los Angeles (West LA) | 7 | 1,676 | 99.0% | $3,133 | | Honolulu | 4 | 2,397 | 99.8% | $2,151 | | Total / Weighted Avg. | 14 | 5,013 | 99.4% | $2,869 | Legal Proceedings The company is not currently involved in any legal proceedings expected to have a materially adverse effect on its business or financial condition - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business[165] Mine Safety Disclosures This item is not applicable to the company - No mine safety disclosures are reported[166] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Douglas Emmett's common stock (DEI) trades on NYSE; 2022 dividends totaled $1.03 per share, and its 5-year cumulative return was -54.52%, underperforming benchmarks Dividends Declared Per Common Share | Year | Q1 | Q2 | Q3 | Q4 | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | 2022 | $0.28 | $0.28 | $0.28 | $0.19 | $1.03 | | 2021 | $0.28 | $0.28 | $0.28 | $0.28 | $1.12 | 5-Year Cumulative Total Return Comparison (2017-2022) | Index | 12/31/17 | 12/31/22 | % Change | | :--- | :--- | :--- | :--- | | DEI | $100.00 | $45.48 | -54.52% | | S&P 500 | $100.00 | $156.88 | +56.88% | | NAREIT Equity | $100.00 | $119.77 | +19.77% | | Peer group | $100.00 | $50.01 | -49.99% | - The company made no repurchases of its equity securities during the period[172] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Douglas Emmett's revenues increased to $993.7 million, net income to $96.5 million, and FFO rose 9.4% to $419.7 million, driven by pandemic recovery and multifamily growth, despite inflation and rising interest rates Comparison of Operations (2022 vs. 2021) | (In thousands of dollars) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $993,652 | $918,397 | $75,255 | 8.2% | | Total operating expenses | $752,024 | $717,244 | $34,780 | 4.9% | | Net income | $96,540 | $56,131 | $40,409 | 72.0% | | FFO | $419,683 | $383,456 | $36,227 | 9.4% | | Same Property NOI | $614,486 | $592,257 | $22,229 | 3.8% | - The company's 2022 results were favorably impacted by a gradual recovery from the pandemic, better tenant collections, lower write-offs of uncollectible receivables, and higher multifamily rental rates, partially offset by inflation on rental expenses[184][204] - On April 26, 2022, the company acquired a 120-unit luxury multifamily building in Santa Monica for $330.0 million through a new 55%-owned consolidated joint venture[187] - The company is converting a 25-story office tower in Honolulu into 493 rental apartments, with 72% of units delivered and leased as of year-end 2022, with the project continuing in phases through 2025[191] - As of December 31, 2022, the company had $268.8 million in cash and no balance outstanding on its $400.0 million revolving credit facility, indicating strong short-term liquidity[220] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility on its floating-rate debt, with 89% fixed or swap-fixed, and is managing the transition from LIBOR to SOFR - As of December 31, 2022, 89% of the company's consolidated borrowings were fixed or swap-fixed; a 100 basis point increase in interest rates would increase annual interest expense on unhedged floating-rate debt by $5.6 million[240] - The company is transitioning its floating-rate borrowings and interest rate swaps from USD-LIBOR to SOFR, with the process expected to be complete by July 1, 2023, which could impact borrowing costs[241] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2022, including Balance Sheets, Statements of Operations, Comprehensive Income, Equity, and Cash Flows Key Financial Statement Data (as of or for the year ended Dec 31, 2022) | Metric | Amount (in thousands of dollars) | | :--- | :--- | | Balance Sheet | | | Total Assets | $9,747,446 | | Total Liabilities | $5,471,663 | | Total Equity | $4,275,783 | | Statement of Operations | | | Total Revenues | $993,652 | | Net Income | $96,540 | | Net Income Attributable to Common Stockholders | $97,145 | | Statement of Cash Flows | | | Net Cash Provided by Operating Activities | $496,888 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[244] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting in Q4 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[245] - No changes in internal control over financial reporting occurred during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[246] Other Information The company reports no other information for this item - None[247] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. This item is not applicable to the company - Not applicable[248] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement[251] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2023 Proxy Statement[252] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized under equity compensation plans, with 3.961 million shares for outstanding rights and 2.276 million shares available for future issuance as of December 31, 2022 Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Shares to be Issued Upon Exercise (in thousands of shares) | Shares Remaining for Future Issuance (in thousands of shares) | | :--- | :--- | :--- | | Stock-based compensation plans approved by stockholders | 3,961 | 2,276 | - The shares to be issued consist of 2.4 million vested and 1.6 million unvested LTIP Units; there are no outstanding options[254] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement[256] Principal Accounting Fees and Services The company's independent auditor is Ernst & Young LLP; details on fees and services are incorporated by reference from the 2023 Proxy Statement - The company's independent auditor is Ernst & Young LLP; details on fees and services are incorporated by reference from the 2023 Proxy Statement[257] Part IV Exhibits and Financial Statement Schedule This section lists all exhibits filed with the Form 10-K and serves as an index to the company's audited financial statements and related reports - This section provides an index to the company's financial statements, financial statement schedule, and a list of all exhibits filed with the report[259][260] Form 10-K Summary The company did not provide a summary for this item - None[262]