Douglas Emmett(DEI) - 2020 Q4 - Annual Report

PART I Business Douglas Emmett is a REIT focused on high-quality office and multifamily properties in Los Angeles and Honolulu, aiming for significant market share and maintaining REIT status - The company is a REIT focused on high-quality office and multifamily properties in Los Angeles and Honolulu, targeting submarkets with significant supply constraints[22] Portfolio Summary as of December 31, 2020 | Portfolio Type | Office Space (sq ft) | Multifamily Units | | :--- | :--- | :--- | | Consolidated Portfolio | 17.8 million | 4,287 | | Total Portfolio (incl. unconsolidated Fund) | 18.2 million | 4,287 | - The business strategy involves concentrating properties to gain substantial market share, averaging approximately 38% of Class A office space in its submarkets, and utilizing a fully integrated operating platform with in-house leasing, management, and construction[26][27] - The company operates through two segments: office real estate and multifamily real estate, employing approximately 700 people as of year-end 2020[50][51] - Local government ordinances related to the COVID-19 pandemic have impacted operations by prohibiting evictions and allowing rent deferrals for residential, retail, and office tenants[46] Risk Factors The company faces significant risks including the COVID-19 pandemic, geographic concentration, substantial debt, market competition, and regulatory compliance - The COVID-19 pandemic is a primary risk, potentially affecting rent collections, tenant demand, and operational costs[63][64] - A high geographic concentration of properties in Los Angeles County and Honolulu exposes the company to localized economic downturns, regulatory changes, and natural disasters[67][68] - The company has substantial debt, which creates risks related to interest rate fluctuations, refinancing, and potential default, which could be exacerbated during economic downturns[71][72] - As of December 31, 2020, 11.4% of the total office portfolio was available for lease, and leases for 13.3% of the square footage were scheduled to expire in 2021, posing renewal and vacancy risks[85] - Failure to maintain its REIT qualification would lead to higher taxes and reduced cash available for distributions, significantly impacting financial performance[143][144] Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[168] Properties The company's portfolio includes 71 office properties and 12 multifamily properties, with detailed leasing statistics and tenant diversification Total Office Portfolio Summary (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Number of Properties | 71 | | Rentable Square Feet | 18,192,265 | | Weighted Average Market Share | 38.0% | | Percent Leased | 88.6% | Total Multifamily Portfolio Summary (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Number of Properties | 12 | | Number of Units | 4,287 | | Percent Leased | 98.2% | - The office portfolio is diversified across various industries, with the largest concentrations in Legal (18.3%), Financial Services (14.9%), and Entertainment (13.5%) based on annualized rent[180] - A significant portion of office leases are expiring in the near term, with 13.3% of rentable square feet expiring in 2021 and 13.6% in 2022[182] Legal Proceedings The company is not involved in any material legal proceedings that would adversely affect its operations - The company is not involved in any material legal proceedings outside the ordinary course of business[189] Mine Safety Disclosures This section is not applicable to the company's operations - No mine safety disclosures are reported[190] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, declared increased dividends in 2020, and underperformed the S&P 500 over five years - The company's common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol 'DEI'[193] Dividends Declared Per Common Share | Year | Q1 | Q2 | Q3 | Q4 | | :--- | :--- | :--- | :--- | :--- | | 2020 | $0.28 | $0.28 | $0.28 | $0.28 | | 2019 | $0.26 | $0.26 | $0.26 | $0.28 | - The cumulative total return on the company's common stock from December 31, 2015, to December 31, 2020, was 7.99%, underperforming the S&P 500's return of 103.04% over the same period[201] Selected Financial Data This section is blank due to the company's early adoption of SEC amendments eliminating this disclosure requirement - The company has ceased disclosing selected financial data in this item due to the early adoption of amendments to SEC Regulation S-K[7][202] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant negative impact of the COVID-19 pandemic on 2020 results, affecting revenues, net income, FFO, and NOI Impact of the COVID-19 Pandemic The COVID-19 pandemic negatively impacted 2020 operations, leading to reduced rent collections, lower parking revenue, and a decline in office portfolio leased percentage - For the year ended December 31, 2020, charges for uncollectible tenant and deferred rent receivables, primarily due to the COVID-19 pandemic, reduced office revenues by $41.0 million[210] - The total office portfolio leased percentage declined by 4.7% during 2020, ending the year at 88.6%, as new leasing volume remained below pre-pandemic levels[211] Results of Operations Total revenues and net income decreased in 2020, primarily due to pandemic impacts and a non-recurring gain in 2019 Comparison of Key Financial Metrics (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $891,523 | $936,682 | ($45,159) | (4.8)% | | Total Operating Expenses | $730,262 | $693,974 | ($36,288) | (5.2)% | | Net Income | $38,553 | $418,698 | ($380,145) | (90.8)% | | Net Income Attributable to Common Stockholders | $50,421 | $363,713 | ($313,292) | (86.1)% | - The significant decrease in Net Income was primarily due to a $307.9 million gain from the consolidation of a JV in 2019, which did not recur in 2020[243] Non-GAAP Supplemental Financial Measures FFO decreased by 12.3% and total Same Property NOI by 14.7% in 2020 due to pandemic impacts on operating income Funds From Operations (FFO) Reconciliation (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $50,421 | $363,713 | | Adjustments (Depreciation, Gains, etc.) | $322,120 | $61,100 | | FFO | $372,541 | $424,813 | Same Property NOI Change (2020 vs. 2019) | Segment | 2020 NOI (in thousands) | 2019 NOI (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Office | $455,621 | $537,839 | (15.3)% | | Multifamily | $42,967 | $46,894 | (8.4)% | | Total | $498,588 | $584,733 | (14.7)% | Liquidity and Capital Resources The company maintains strong liquidity with $172.4 million cash and $325 million credit facility availability, funding needs through operations, debt, or equity - As of December 31, 2020, the company had $172.4 million of cash and cash equivalents and a $75.0 million balance on its $400.0 million revolving credit facility[258] Cash Flow Summary (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $420,218 | $469,586 | | Net cash used in investing activities | ($265,175) | ($649,668) | | Net cash (used in) provided by financing activities | ($136,330) | $187,538 | Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on floating-rate debt using swaps and is monitoring the transition from LIBOR to SOFR - The company uses interest rate swaps to hedge interest rate risk on its floating-rate borrowings. As of December 31, 2020, no outstanding floating-rate debt was unhedged[280] - The company is monitoring the planned cessation of LIBOR after 2021 (or June 2023 for some settings) and the transition to alternative rates like SOFR, which could affect its floating-rate borrowings and interest rate swaps[281][283] Financial Statements and Supplementary Data This section refers to detailed financial statements and schedules located in Part IV, Item 15 of the report - The full financial statements and supplementary data are located in Part IV, Item 15 of this report[284] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - There were no disagreements with accountants on accounting and financial disclosure[285] Controls and Procedures The company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control - Management, including the CEO and CFO, concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[287] - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2020, that materially affected, or are reasonably likely to materially affect, internal controls[288] Other Information No other information is reported under this item - There is no information to report under this item[289] PART III Directors, Executive Compensation, and Corporate Governance Information for Items 10-14 is incorporated by reference from the company's 2021 Proxy Statement, covering directors, executive compensation, and governance - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2021 Proxy Statement[292][293][296][297] Securities Authorized for Issuance Under Stock-Based Compensation Plan (as of Dec 31, 2020) | Plan Category | Shares to be Issued (thousands) | Shares Remaining for Future Issuance (thousands) | | :--- | :--- | :--- | | Approved by stockholders | 2,855 | 9,062 | PART IV Exhibits and Financial Statement Schedule This section includes the consolidated financial statements, notes, auditor's report, and exhibit schedule for the fiscal year ended December 31, 2020 Consolidated Financial Statements Audited financial statements show total assets of $9.25 billion, total revenues of $891.5 million, and net income of $50.4 million in 2020 Key Balance Sheet Data (as of Dec 31, 2020, in thousands) | Account | Amount | | :--- | :--- | | Total Assets | $9,250,825 | | Total Liabilities | $5,254,806 | | Total Equity | $3,996,019 | Key Income Statement Data (Year ended Dec 31, 2020, in thousands) | Account | Amount | | :--- | :--- | | Total Revenues | $891,523 | | Net Income | $38,553 | | Net Income Attributable to Common Stockholders | $50,421 | | EPS (basic and diluted) | $0.28 | Key Cash Flow Data (Year ended Dec 31, 2020, in thousands) | Account | Amount | | :--- | :--- | | Net Cash from Operating Activities | $420,218 | | Net Cash used in Investing Activities | ($265,175) | | Net Cash used in Financing Activities | ($136,330) | Notes to Consolidated Financial Statements Notes detail accounting policies, real estate investment, debt, interest rate swaps, segment revenues, and development commitments - In December 2020, the company sold an 80,000 sq ft office property in Honolulu for $21.0 million, resulting in a $6.4 million gain[410] - As of December 31, 2020, total consolidated debt, net of unamortized costs, was $4.74 billion. The weighted average remaining life of the debt is 5.3 years with a weighted average annual interest rate of 3.02%[444][446] - The company uses interest rate swaps to hedge its floating-rate debt. As of year-end, it had 39 consolidated derivative contracts with a total notional value of $5.12 billion[451] - As of December 31, 2020, the company had remaining contractual commitments of approximately $148.2 million for development projects and $23.2 million for repositioning and tenant improvements[503] Form 10-K Summary This section is not applicable - No 10-K summary is provided[305]