Douglas Emmett(US:DEI)2019-02-14 01:32Financial Data and Key Metrics Changes - In Q4 2018, the company increased revenues by 8.2% and FFO by 7.8% to $102.8 million, or $0.52 per share [22] - For the full year 2018, revenues increased by 8.5%, FFO rose by 12.7% to $399.7 million, or $2.02 per share, and AFFO increased by 7.4% to $309.7 million [23] - The same-property cash NOI increased by 3.1% in Q4 and by 3.5% for the full year 2018 [22][23] Business Line Data and Key Metrics Changes - The company reported a straight-line rent roll-up of 31.4% and a cash rent roll-up of 13.6% for the entire year 2018 [19] - The multifamily portfolio achieved a total annualized rent increase of 7.7%, driven by strong demand for newly developed units [21] Market Data and Key Metrics Changes - The leasing spreads in Q4 were 26.3% for straight-line rent and 12.7% for cash roll-up, with total office portfolio lease rates increasing to 91.7% and occupancy rising to 90.3% [19] - The fundamentals in the market remain solid with robust demand across diverse industries, and new office construction is almost nonexistent [18] Company Strategy and Development Direction - The company plans to convert a 25-story office tower in downtown Honolulu into approximately 500 new workforce apartments to address the rental housing shortage [10] - The company aims to pursue more repositioning opportunities in 2019 and beyond, which are expected to provide significant incremental revenue growth [9] - The development platform has matured, contributing meaningfully to FFO growth [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 5% to 6% growth in same-property cash NOI in 2019, despite facing two significant headwinds [24] - The company anticipates that the impact of non-cash revenue will be minimal, with only 1.8% of total revenues coming from straight-line and mark-to-market items [24] - Management highlighted the importance of their construction and redevelopment platform for driving predictable growth in the future [74] Other Important Information - The company has a strong balance sheet with an AFFO payout ratio under 62% and no loans maturing before 2022 [16] - Over 95% of eligible office space is ENERGY STAR certified, reflecting the company's commitment to sustainability [20] Q&A Session Summary Question: Impact of Bishop transaction on FFO - Management confirmed that the conversion will occur in phases, minimizing disruption and aiming for a neutral impact on FFO [30] Question: Same-store cash NOI growth and market impact - Management indicated that larger leases in the market are positively influencing their portfolio, with embedded rent bumps around 4% to 6% [32] Question: Office repositioning projects and ROI - Management noted that ongoing projects are showing positive rent spreads and are expected to yield high returns [36][40] Question: Acquisition activity and capital plan - Management expressed optimism about the acquisition pipeline for 2019, with a focus on maintaining strong cash flow for construction activities [54][56] Question: Changes in lease accounting impact - Management clarified that the reduction in FFO guidance due to lease accounting changes is now expected to be less severe than initially thought [25][79] Question: Same-store NOI guidance and expense growth - Management provided insights on expected same-store NOI growth, indicating a normalized expense growth rate of 3% to 4% [50]