Douglas Emmett(DEI) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's financial performance, condition, and management's analysis for the quarter ended March 31, 2021 Financial Statements Presents unaudited consolidated financial statements, showing total assets of $9.25 billion, liabilities of $5.23 billion, and a net income decline to $7.6 million Consolidated Financial Statements As of March 31, 2021, total assets were $9.25 billion, liabilities $5.23 billion, with net income sharply down to $7.6 million from $29.7 million year-over-year Consolidated Balance Sheet Summary (As of March 31, 2021) | Category | Amount (in thousands) | | :--- | :--- | | Total Assets | $9,249,737 | | Investment in real estate, net | $8,850,908 | | Cash and cash equivalents | $184,274 | | Total Liabilities | $5,229,212 | | Secured notes payable and revolving credit facility, net | $4,775,994 | | Total Equity | $4,020,525 | Consolidated Statement of Operations Summary (Three Months Ended March 31) | Category | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $216,295 | $251,350 | | Total Operating Expenses | $173,857 | $187,132 | | Net Income | $7,588 | $29,714 | | Net Income per Share (basic and diluted) | $0.06 | $0.15 | Consolidated Statement of Cash Flows Summary (Three Months Ended March 31) | Category | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $125,044 | $153,510 | | Net cash used in investing activities | ($79,317) | ($64,785) | | Net cash used in financing activities | ($33,838) | ($67,712) | Notes to Consolidated Financial Statements Provides detailed disclosures on the company's REIT portfolio, debt structure, segment performance, and significant future development commitments - As of March 31, 2021, the company's consolidated portfolio consisted of a 17.8 million square foot office portfolio and 4,325 multifamily apartment units[33] - Charges for uncollectible tenant receivables and deferred rent receivables, primarily due to the COVID-19 pandemic, reduced office revenues by $1.8 million for the three months ended March 31, 2021[44] - The company has contractual commitments of approximately $116.5 million for development projects and $22.6 million for repositioning and capital expenditures[114] Management's Discussion and Analysis (MD&A) Discusses the COVID-19 pandemic's adverse impact on operations, leading to a 19.6% FFO decrease and a 16.0% Same Property NOI decline, while highlighting solid liquidity Overview and COVID-19 Impact The COVID-19 pandemic materially impacted operations, causing $1.8 million in tenant receivable write-offs and a 1% decline in office portfolio leased percentage - The company's rent collections were negatively impacted by unusually punitive ordinances in Los Angeles, Beverly Hills, and Santa Monica, which prohibit evictions and allow rent deferral for residential, retail, and office tenants[125] - In Q1 2021, the company wrote off $1.8 million in tenant receivables and deferred rent receivables, primarily due to the COVID-19 pandemic[126] - The total office portfolio leased percentage declined by 1% to 87.7% due to new leasing volume remaining below pre-pandemic levels, while the multifamily portfolio remained strong at 99.6% leased[127] Developments and Rental Rate Trends The company is advancing two major multifamily development projects, while rental rate trends show pressure with office straight-line rent down 0.3% and multifamily rent down 6.3% - The company is building a 34-story high-rise with 376 apartments in West Los Angeles and converting a 25-story office tower into approximately 500 apartments in downtown Honolulu[134][135] Office Rent Roll (Q1 2021 vs. Expiring Leases) | Rent Type | Expiring Rate | New/Renewal Rate | Percentage Change | | :--- | :--- | :--- | :--- | | Cash Rent | $43.37 | $39.41 | (9.1)% | | Straight-line Rent | $40.25 | $40.13 | (0.3)% | - For multifamily properties, the rent on leases subject to change during Q1 2021 was 6.3% lower than the prior rent on the same unit[143] Non-GAAP Measures (FFO and Same Property NOI) Funds From Operations (FFO) decreased 19.6% to $89.9 million, and Same Property Net Operating Income (NOI) fell 16.0% due to pandemic impacts - FFO for Q1 2021 decreased by $21.9 million, or 19.6%, to $89.9 million, compared to $111.9 million for Q1 2020[155] Same Property NOI Change (Q1 2021 vs Q1 2020) | Segment | Change | Commentary | | :--- | :--- | :--- | | Total NOI | (16.0)% | Driven by declines in both segments | | Office NOI | (16.9)% | Due to lower collections, occupancy, and parking income | | Multifamily NOI | (9.2)% | Due to lower collections and rental rates | FFO Reconciliation (in thousands) | Line Item | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net income attributable to common stockholders | $11,601 | $26,923 | | Depreciation and amortization of real estate assets | $92,797 | $97,777 | | Adjustments for noncontrolling interests & unconsolidated Fund | ($14,461) | ($12,818) | | FFO | $89,937 | $111,882 | Liquidity and Capital Resources The company maintains solid liquidity with $184.3 million in cash, $295 million credit facility availability, and 41% unencumbered office portfolio - As of March 31, 2021, the company had $184.3 million of cash and cash equivalents and a $105.0 million outstanding balance on its $400.0 million revolving credit facility[163] - Approximately 41% of the company's total office portfolio is unencumbered, providing flexibility for future financing[165] - The company has an At-the-Market (ATM) program allowing it to sell up to $400.0 million of common stock to meet long-term liquidity needs[164] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through swaps and is actively monitoring the transition from USD-LIBOR to alternative reference rates - The company's main market risk is interest rate risk, which it mitigates by using interest rate swaps to hedge its floating-rate debt; as of March 31, 2021, no consolidated floating-rate debt was unhedged, except for the revolving credit facility[172] - The company is managing the transition from USD-LIBOR to an alternative reference rate (like SOFR), as its floating-rate loans and swaps are indexed to LIBOR; the publication of most USD-LIBOR settings is expected to cease after June 30, 2023[173][174][175] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[176] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2021[176] PART II. OTHER INFORMATION This section addresses legal proceedings and risk factors, confirming no material adverse legal actions or changes to previously disclosed risks Legal Proceedings & Risk Factors The company is not party to any material legal proceedings, and there are no material changes to previously disclosed risk factors - The company is not currently a party to any legal proceedings expected to have a materially adverse effect on its business[180] - There are no material changes to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K[181]