Form 8-K Douglas Emmett Inc For: May 03
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (date of earliest event reported)
May 3, 2016
Douglas Emmett, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 1-33106 | 20-3073047 |
(State or other jurisdiction of incorporation) | Commission file number | (I.R.S. Employer identification No.) |
808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (310) 255-7700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On May 3, 2016, Douglas Emmett, Inc. released its financial results for the quarter ended March 31, 2016 by posting to its website its First Quarter 2016 Earnings Results and Operating Information package (attached as Exhibit 99.1). The information contained in this report on Form 8-K, including the attached Exhibit, shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by Douglas Emmett, Inc. under the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
The following exhibit is furnished with this Current Report on Form 8-K:
Exhibit No. Description
99.1 First Quarter 2016 Earnings Results and Operating Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DOUGLAS EMMETT, INC. | |||
Dated: | May 3, 2016 | By: | /s/ MONA M. GISLER |
Mona M. Gisler | |||
Chief Financial Officer | |||
 | ||
Executive Summary
We are one of the largest owners and operators of high-quality office and multifamily properties located in the premier coastal markets of Southern California and Hawaii, with a total portfolio that includes 17.2 million square feet of Class A office properties and 3,336 apartment units.
• | Office Fundamentals: In our core Los Angeles office submarkets (which includes West L.A. and Sherman Oaks/Encino), average rents continue to rise by more than 10% per year. As a result, straight-line rents in office leases that we signed during the first quarter were up 22.7% from the prior leases covering the same space, while the starting cash rents were 7.0% higher than the expiring cash rent. We leased 670,877 square feet during the first quarter. The leased and occupancy rates for our total office portfolio (including our recently acquired Westwood portfolio) declined to 92.1% and 90.4%, respectively. |
• | Multifamily Fundamentals: Our multifamily portfolio was fully leased, with average asking rents 3.4% higher than in the first quarter of 2015. |
• | Financial Results: Compared to the prior year quarter, (i) our Funds From Operations (FFO) increased by 0.1% (9.7% excluding a $6.6 million one-time non-cash item in 2015) to $76.1 million; (ii) our Adjusted Funds From Operations (AFFO) increased by 17.0% to $62.5 million; (iii) our GAAP net income attributable to common stockholders decreased by 17.8% to $15.4 million; and (iv) our same property cash NOI increased by 4.3% to $97.4 million. |
• | Acquisition: On February 29, 2016, we paid $1.34 billion, or $777 per square foot, for a 1.7 million square foot office portfolio consisting of four Class "A" office buildings located in the Westwood submarket of West Los Angeles. We will manage these assets through a joint venture in which we will hold 30% of the equity capital. We also provided additional bridge equity of $240 million, which will be repaid (with interest at 2%) in the second quarter. The results from the Westwood portfolio are consolidated in our financial statements. Our first quarter only includes one month of the results from this portfolio. |
Debt: Our pro forma net debt to enterprise value (adjusted to reflect our share of consolidated and unconsolidated debt after repayment of the Westwood bridge equity) was 43% at March 31, 2016. During the first quarter,
◦ | One of our unconsolidated funds closed a seven-year, non-recourse $110 million interest-only term loan, with interest effectively fixed at 2.30% per annum for five years. After paying off the existing $51 million loan, the fund realized net proceeds of approximately $57 million. |
◦ | As mentioned above, in connection with the acquisition of the Westwood portfolio our consolidated joint venture closed a seven year, non-recourse $580 million interest-only loan, with interest effectively fixed at 2.37% per annum for five years. |
• | Dividends: On April 15, 2016, we paid a quarterly cash dividend of $0.22 per common share, or $0.88 per common share on an annualized basis, to our shareholders of record on March 31, 2016. Our strong 61.5% AFFO payout ratio leaves us with ample liquidity as well as room for additional dividend growth. |
• | Guidance: Reflecting higher than expected NOI from our same properties and the acquisition of the new Westwood portfolio, we are increasing our 2016 full year guidance to $1.74 to $1.80 per diluted share for FFO and $1.38 to $1.44 per diluted share for AFFO. See page 23. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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Table of Contents
COMPANY OVERVIEW | |
FINANCIAL RESULTS | |
PORTFOLIO DATA | |
Forward Looking Statements
This First Quarter 2016 Earnings Results and Operating Information, which we refer to as our Earnings Package, supplements the information provided in our reports filed with the Securities and Exchange Commission. It contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements presented in this Earnings Package, and those that we may make orally or in writing from time to time, are based on our beliefs and assumptions. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors, some of which are beyond our control or ability to predict, including, but not limited to: adverse economic and real estate developments in Southern California and Honolulu; a general downturn in the economy; decreased rental rates or increased tenant incentives and vacancy rates; defaults on, and early terminations and non-renewal of, leases by tenants; increased interest rates and operating costs; failure to generate sufficient cash flows to service our outstanding indebtedness; difficulties in acquiring properties; failure to successfully operate properties; failure to maintain our status as a REIT; possible adverse changes in rent control laws and regulations; environmental uncertainties; risks related to natural disasters; lack or insufficient insurance; inability to successfully expand into new markets or submarkets; risks associated with property development; conflicts of interest with our officers; changes in real estate and zoning laws and increases in real property tax rates; possible future terrorist attacks; and other risks and uncertainties detailed in our Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, please use caution in relying on previously reported forward-looking statements to anticipate future results or trends. This Earnings Package and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements.
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| Company Overview | |
Corporate Data
as of March 31, 2016
Office Portfolio | |||||||
Consolidated(1) | Total Portfolio(2) | ||||||
Properties | 58 | 66 | |||||
Rentable square feet (in thousands) | 15,419 | 17,243 | |||||
Leased rate | 92.1 | % | 92.1 | % | |||
Occupancy rate | 90.4 | % | 90.4 | % | |||
Multifamily Portfolio | |||||||
Consolidated | |||||||
Properties | 10 | ||||||
Units | 3,336 | ||||||
Leased rate | 99.3 | % | |||||
Market Capitalization (in thousands, except price per share) | ||||||
Closing price per share of common stock (NYSE: DEI) | $ | 30.11 | ||||
Shares of common stock outstanding | 147,384 | |||||
Fully diluted shares outstanding | 178,846 | |||||
Equity capitalization(3) | $ | 5,385,046 | ||||
Pro forma net debt(4) | $ | 4,052,812 | ||||
Pro forma total enterprise value | $ | 9,437,858 | ||||
Pro forma net debt/total enterprise value | 43 | % | ||||
_______________________________________________
(1) | Our consolidated portfolio includes four office properties that we acquired on February 29, 2016 through the Westwood Joint Venture. |
(2) | Our total portfolio includes eight office properties in two unconsolidated institutional real estate funds which we manage and of which we own a weighted average of approximately 60% at March 31, 2016 based on square footage. |
(3) | Equity capitalization represents our fully diluted shares multiplied by the closing price of our common stock on March 31, 2016. |
(4) | Pro forma net debt includes our pro forma share of the debt of our consolidated joint ventures and our unconsolidated real estate funds, in each case before deducting non-cash deferred loan fees and net of pro forma cash and cash equivalents. See page 12 of this report for additional information regarding our debt balances and pro forma share of that debt. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Company Overview | |
Property Map
as of March 31, 2016
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| Company Overview | |
Board of Directors and Executive Officers
as of March 31, 2016
OUR BOARD OF DIRECTORS
___________________________________________________________________________________________
Dan A. Emmett | Chairman of the Board – Douglas Emmett, Inc. |
Jordan L. Kaplan | Chief Executive Officer and President – Douglas Emmett, Inc. |
Kenneth M. Panzer | Chief Operating Officer – Douglas Emmett, Inc. |
Christopher H. Anderson | Retired Real Estate Executive and Investor |
Leslie E. Bider | Chief Executive Officer – PinnacleCare |
Dr. David T. Feinberg | President and Chief Executive Officer – Geisinger Health System |
Virginia A. McFerran | Founder and owner of M Consulting; former Chief Information Officer of the UCLA Health system |
Thomas E. O’Hern | Senior Executive Vice President, Chief Financial Officer & Treasurer – Macerich Company |
William E. Simon, Jr. | Co-chairman, William E. Simon & Sons, LLC |
OUR EXECUTIVE OFFICERS
____________________________________________________________________________________________
Dan A. Emmett | Chairman of the Board |
Jordan L. Kaplan | Chief Executive Officer and President |
Kenneth M. Panzer | Chief Operating Officer |
Mona M. Gisler | Chief Financial Officer |
Kevin A. Crummy | Chief Investment Officer |
CORPORATE OFFICES
808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401
Phone: (310) 255-7700
For more information, please visit our website at www.douglasemmett.com or contact:
Stuart McElhinney, Vice President, Investor Relations
(310) 255-7751
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| Financial Results | |
Consolidated Balance Sheets
(Unaudited, in thousands)
March 31, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Investment in real estate: | |||||||
Land | $ | 993,043 | $ | 897,916 | |||
Buildings and improvements | 6,884,342 | 5,644,546 | |||||
Tenant improvements and lease intangibles | 756,695 | 696,647 | |||||
Property under development | 28,316 | 26,900 | |||||
Investment in real estate, gross | 8,662,396 | 7,266,009 | |||||
Less: accumulated depreciation and amortization | (1,738,848 | ) | (1,687,998 | ) | |||
Investment in real estate, net | 6,923,548 | 5,578,011 | |||||
Real estate held for sale, net | 42,551 | 42,943 | |||||
Cash and cash equivalents | 72,191 | 101,798 | |||||
Tenant receivables, net | 3,668 | 1,907 | |||||
Deferred rent receivables, net | 82,756 | 79,837 | |||||
Acquired lease intangible assets, net | 4,661 | 4,484 | |||||
Interest rate contract assets | 1,493 | 4,830 | |||||
Investment in unconsolidated real estate funds | 148,602 | 164,631 | |||||
Other assets | 11,954 | 87,720 | |||||
Total assets | $ | 7,291,424 | $ | 6,066,161 | |||
Liabilities | |||||||
Secured notes payable and revolving credit facility, net(1) | $ | 4,469,957 | $ | 3,611,276 | |||
Interest payable, accounts payable and deferred revenue | 75,587 | 57,417 | |||||
Security deposits | 43,014 | 38,683 | |||||
Acquired lease intangible liabilities, net | 76,752 | 28,605 | |||||
Interest rate contract liabilities | 33,075 | 16,310 | |||||
Dividends payable | 32,424 | 32,322 | |||||
Total liabilities | 4,730,809 | 3,784,613 | |||||
Equity | |||||||
Douglas Emmett, Inc. stockholders' equity: | |||||||
Common stock | 1,474 | 1,469 | |||||
Additional paid-in capital | 2,712,150 | 2,706,753 | |||||
Accumulated other comprehensive loss | (27,313 | ) | (9,285 | ) | |||
Accumulated deficit | (789,784 | ) | (772,726 | ) | |||
Total Douglas Emmett, Inc. stockholders' equity | 1,896,527 | 1,926,211 | |||||
Noncontrolling interests | 664,088 | 355,337 | |||||
Total equity | 2,560,615 | 2,281,548 | |||||
Total liabilities and equity | $ | 7,291,424 | $ | 6,066,161 | |||
____________________________________________________
(1) | See page 12 of this report for additional information regarding our debt balances. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Consolidated Operating Results
(Unaudited; in thousands, except share and per share data)
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Revenues: | |||||||
Office rental: | |||||||
Rental revenues | $ | 111,006 | $ | 100,651 | |||
Tenant recoveries | 10,211 | 10,150 | |||||
Parking and other income | 23,162 | 20,655 | |||||
Total office revenues | 144,379 | 131,456 | |||||
Multifamily rental: | |||||||
Rental revenues | 22,427 | 21,644 | |||||
Parking and other income | 1,766 | 1,709 | |||||
Total multifamily revenues | 24,193 | 23,353 | |||||
Total revenues | 168,572 | 154,809 | |||||
Operating Expenses: | |||||||
Office expenses | 47,883 | 44,199 | |||||
Multifamily expenses | 6,031 | 5,820 | |||||
General and administrative | 8,071 | 7,361 | |||||
Depreciation and amortization | 55,552 | 49,834 | |||||
Total operating expenses | 117,537 | 107,214 | |||||
Operating income | 51,035 | 47,595 | |||||
Other income | 2,089 | 8,559 | |||||
Other expenses | (1,551 | ) | (1,572 | ) | |||
Income, including depreciation, from unconsolidated funds | 1,586 | 1,443 | |||||
Interest expense | (35,660 | ) | (33,639 | ) | |||
Acquisition-related expenses | (1,453 | ) | (290 | ) | |||
Net income | 16,046 | 22,096 | |||||
Less: Net income attributable to noncontrolling interests | (680 | ) | (3,397 | ) | |||
Net income attributable to common stockholders | $ | 15,366 | $ | 18,699 | |||
Net income per common share - basic | $ | 0.104 | $ | 0.128 | |||
Net income per common share - diluted | $ | 0.101 | $ | 0.124 | |||
Weighted average shares of common stock outstanding - basic | 147,236 | 145,327 | |||||
Weighted average shares of common stock outstanding - diluted | 151,451 | 149,802 | |||||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Funds From Operations & Adjusted Funds From Operations(1)
(Unaudited; in thousands, except share and per share data)
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Funds From Operations (FFO) | |||||||
Net income attributable to common stockholders | $ | 15,366 | $ | 18,699 | |||
Depreciation and amortization of real estate assets | 55,552 | 49,834 | |||||
Net income attributable to noncontrolling interests | 680 | 3,397 | |||||
Adjustments attributable to consolidated joint ventures and unconsolidated funds(2) | 4,518 | 4,081 | |||||
FFO | $ | 76,116 | $ | 76,011 | |||
Adjusted Funds From Operations (AFFO) | |||||||
FFO | $ | 76,116 | $ | 76,011 | |||
Straight-line rent | (2,919 | ) | (2,225 | ) | |||
Net accretion of acquired above and below market leases(3) | (3,304 | ) | (9,799 | ) | |||
Loan costs | 1,338 | 1,773 | |||||
Recurring capital expenditures, tenant improvements and leasing commissions | (12,296 | ) | (15,293 | ) | |||
Non-cash compensation expense | 4,097 | 3,638 | |||||
Adjustments attributable to consolidated joint ventures and unconsolidated funds(2) | (513 | ) | (653 | ) | |||
AFFO | $ | 62,519 | $ | 53,452 | |||
Weighted average share equivalents outstanding- fully diluted | 178,347 | 177,520 | |||||
FFO per share- fully diluted | $ | 0.43 | $ | 0.43 | |||
AFFO per share- fully diluted | $ | 0.35 | $ | 0.30 | |||
Dividends declared per share | $ | 0.22 | $ | 0.21 | |||
AFFO payout ratio(4) | 61.5 | % | 68.2 | % | |||
____________________________________________________
(1) | Reflects the FFO and AFFO attributable to the common stockholders and noncontrolling interests in our Operating Partnership, after (i) adding our share of the FFO & AFFO from our unconsolidated Funds and (ii) subtracting the FFO and AFFO attributable to the noncontrolling interests in our consolidated joint ventures. |
(2) | Adjusts for (i) the portion of each other listed adjustment item that is attributed to the noncontrolling interests in our consolidated joint ventures and (ii) the effect of each other listed adjustment item on our share of the results of our unconsolidated Funds. |
(3) | Other Income included accretion of an above-market ground lease related to the acquisition of the land under one of our office buildings of $6.6 million during the first quarter of 2015. |
(4) | Based on dividends paid within the respective quarter (i.e. declared in the previous quarter). |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Consolidated Same Property Statistics & Net Operating Income
(Unaudited; in thousands, except statistics)
As of March 31, | |||||||
2016 | 2015 | ||||||
Office Statistics | |||||||
Number of properties | 50 | 50 | |||||
Rentable square feet (in thousands) | 12,557 | 12,549 | |||||
Ending % leased | 92.8 | % | 92.7 | % | |||
Ending % occupied | 91.1 | % | 91.1 | % | |||
Quarterly average % occupied | 91.2 | % | 90.8 | % | |||
Multifamily Statistics | |||||||
Number of properties | 9 | 9 | |||||
Number of units | 2,640 | 2,640 | |||||
Ending % leased | 99.1 | % | 99.5 | % | |||
Three Months Ended March 31, | % Favorable | |||||||||||
2016 | 2015 | (Unfavorable) | ||||||||||
GAAP Basis Net Operating Income (NOI) | ||||||||||||
Office revenues | $ | 127,736 | $ | 125,204 | 2.0 | % | ||||||
Office expenses | (41,706 | ) | (41,208 | ) | (1.2 | )% | ||||||
Office NOI | 86,030 | 83,996 | 2.4 | % | ||||||||
Multifamily revenues | 20,553 | 19,685 | 4.4 | % | ||||||||
Multifamily expenses | (5,088 | ) | (4,814 | ) | (5.7 | )% | ||||||
Multifamily NOI | 15,465 | 14,871 | 4.0 | % | ||||||||
$ | 101,495 | $ | 98,867 | 2.7 | % | |||||||
Cash Basis Net Operating Income (NOI) | ||||||||||||
Office revenues | $ | 124,456 | $ | 120,624 | 3.2 | % | ||||||
Office expenses | (41,719 | ) | (41,221 | ) | (1.2 | )% | ||||||
Office NOI | 82,737 | 79,403 | 4.2 | % | ||||||||
Multifamily revenues | 19,717 | 18,779 | 5.0 | % | ||||||||
Multifamily expenses | (5,088 | ) | (4,814 | ) | (5.7 | )% | ||||||
Multifamily NOI | 14,629 | 13,965 | 4.8 | % | ||||||||
$ | 97,366 | $ | 93,368 | 4.3 | % | |||||||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Reconciliation of Same Property NOI to GAAP Net Income
(Unaudited and in thousands)
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Same property office revenues - cash basis | $ | 124,456 | $ | 120,624 | |||
GAAP adjustments per definition of NOI - cash basis | 3,280 | 4,580 | |||||
Same property office revenues - GAAP basis | 127,736 | 125,204 | |||||
Same property office expenses - cash basis | (41,719 | ) | (41,221 | ) | |||
GAAP adjustments per definition of NOI - cash basis | 13 | 13 | |||||
Same property office expenses - GAAP basis | (41,706 | ) | (41,208 | ) | |||
Office NOI - GAAP basis | 86,030 | 83,996 | |||||
Same property multifamily revenues - cash basis | 19,717 | 18,779 | |||||
GAAP adjustments per definition of NOI - cash basis | 836 | 906 | |||||
Same property multifamily revenues - GAAP basis | 20,553 | 19,685 | |||||
Same property multifamily expenses - cash basis | (5,088 | ) | (4,814 | ) | |||
GAAP adjustments per definition of NOI - cash basis | — | — | |||||
Same property multifamily expenses - GAAP basis | (5,088 | ) | (4,814 | ) | |||
Multifamily NOI - GAAP basis | 15,465 | 14,871 | |||||
Same property NOI - GAAP basis | 101,495 | 98,867 | |||||
Non-comparable office revenues | 16,643 | 6,252 | |||||
Non-comparable office expenses | (6,177 | ) | (2,991 | ) | |||
Non-comparable multifamily revenues | 3,640 | 3,668 | |||||
Non-comparable multifamily expenses | (943 | ) | (1,006 | ) | |||
NOI - GAAP basis | 114,658 | 104,790 | |||||
General and administrative | (8,071 | ) | (7,361 | ) | |||
Depreciation and amortization | (55,552 | ) | (49,834 | ) | |||
Operating income | 51,035 | 47,595 | |||||
Other income | 2,089 | 8,559 | |||||
Other expenses | (1,551 | ) | (1,572 | ) | |||
Income, including depreciation, from unconsolidated real estate funds | 1,586 | 1,443 | |||||
Interest expense | (35,660 | ) | (33,639 | ) | |||
Acquisition-related expenses | (1,453 | ) | (290 | ) | |||
Net income | 16,046 | 22,096 | |||||
Less: Net income attributable to noncontrolling interests | (680 | ) | (3,397 | ) | |||
Net income attributable to common stockholders | $ | 15,366 | $ | 18,699 | |||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Our Pro Forma Share of Cash NOI
(Unaudited, in thousands)
The following table presents our pro forma Cash NOI for the quarter ended March 31, 2016, consolidating our wholly owned properties, our consolidated joint ventures and our unconsolidated funds and eliminating the share of Cash NOI attributable to third party investors:
Wholly Owned Properties | Consolidated Joint Ventures(1) | Unconsolidated Funds(2) | Total | ||||||||||||
Revenues | $ | 160,051 | $ | 8,521 | $ | 17,475 | $ | 186,047 | |||||||
Operating Expenses | (51,000 | ) | (2,914 | ) | (6,146 | ) | (60,060 | ) | |||||||
GAAP NOI | 109,051 | 5,607 | 11,329 | 125,987 | |||||||||||
Less: | |||||||||||||||
Straight-line rent | (1,779 | ) | (1,140 | ) | (257 | ) | (3,176 | ) | |||||||
Revenue from below-market leases | (2,329 | ) | (975 | ) | (31 | ) | (3,335 | ) | |||||||
Cash NOI | 104,943 | 3,492 | 11,041 | 119,476 | |||||||||||
Share attributable to outside interests(3) | (1,262 | ) | (4,064 | ) | (5,326 | ) | |||||||||
Our Share of Cash NOI(4) | $ | 104,943 | $ | 2,230 | $ | 6,977 | $ | 114,150 | |||||||
_____________________________________
(1) | Represents the operating results of our consolidated joint ventures on a stand-alone basis (with property management fees excluded from operating expenses as a consolidating entry) for two consolidated joint ventures in which third party investors hold ownership interests. These joint ventures own a combined five Class A office properties, totaling 1.8 million square feet, in our submarkets. We are entitled to distributions based on invested capital as well as additional distributions based on cash NOI. We also receive fees for property management and other services and reimbursement of certain acquisition expenses and certain other costs. The results for the quarter ended March 31, 2016 reflect only one month of the results from the Westwood portfolio and do not reflect the repayment of our bridge equity expected to occur during the second quarter. |
(2) | Represents the operating results of our unconsolidated Funds on a stand-alone basis (with property management fees excluded from operating expenses as a consolidating entry) for two unconsolidated Funds which we manage and partially own and which own a combined eight Class A office properties, totaling 1.8 million square feet, in our submarkets. We are entitled to priority distributions in addition to distributions based on invested capital. We also receive a carried interest if the investors’ distributions exceed a hurdle rate, as well as fees and reimbursement of expenses for property management and other services and reimbursement of certain costs. |
(3) | Deducts the share of Cash NOI attributable to interests other than our fully diluted equity interests. |
(4) | Represents the share of Cash NOI attributable to our fully diluted equity interests. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Financial Results | |
Debt Balances (As of March 31, 2016, unaudited and in thousands) | |||||||||||||||
Maturity Date(1) | Principal Balance | Our Pro Forma Share(2) | Effective Rate(3) | Swap Maturity Date | |||||||||||
Consolidated Debt - Wholly Owned Subsidiaries | |||||||||||||||
12/24/2016 | $ | 20,000 | $ | 20,000 | 3.57% | 4/1/2016 | (8) | ||||||||
4/2/2018 | 256,140 | 256,140 | 4.12% | 4/1/2016 | (8) | ||||||||||
8/1/2018 | 530,000 | 530,000 | 3.74% | 8/1/2016 | |||||||||||
8/5/2018 | (4) | 354,501 | 354,501 | 4.14% | -- | ||||||||||
2/1/2019 | (4) | 152,038 | 152,038 | 4.00% | -- | ||||||||||
6/5/2019 | (5) | 285,000 | 285,000 | 3.85% | -- | ||||||||||
10/1/2019 | 145,000 | 145,000 | 3.37% | 4/1/2016 | (8) | ||||||||||
3/1/2020 | (6) | 349,070 | 349,070 | 4.46% | -- | ||||||||||
11/2/2020 | 388,080 | 388,080 | 3.65% | 11/1/2017 | |||||||||||
4/15/2022 | 340,000 | 340,000 | 2.77% | 4/1/2020 | |||||||||||
7/27/2022 | 180,000 | 180,000 | 3.06% | 7/1/2020 | |||||||||||
11/2/2022 | 400,000 | 400,000 | 2.64% | 11/1/2020 | |||||||||||
4/1/2025 | 102,400 | 102,400 | 2.84% | 3/1/2020 | |||||||||||
12/1/2025 | 115,000 | 115,000 | 2.76% | 12/1/2020 | |||||||||||
8/21/2020 | (7) | 290,000 | 50,000 | LIBOR + 1.40% | -- | ||||||||||
Total Wholly Owned Debt | $ | 3,907,229 | $ | 3,667,229 | |||||||||||
Consolidated Debt - Joint Ventures | |||||||||||||||
3/1/2017 | $ | 15,740 | $ | 10,493 | 3.72% | 4/1/2016 | (8) | ||||||||
2/28/2023 | 580,000 | 174,000 | 2.37% | 3/1/2021 | |||||||||||
Total Consolidated Debt | (9) | $ | 4,502,969 | $ | 3,851,722 | ||||||||||
Unconsolidated Debt of our Funds | |||||||||||||||
5/1/2018 | $ | 325,000 | $ | 222,980 | 2.35% | 5/1/2017 | |||||||||
3/1/2023 | 110,000 | 26,680 | 2.30% | 3/1/2021 | |||||||||||
Total Unconsolidated Debt | $ | 435,000 | $ | 249,660 | |||||||||||
Total Debt | $ | 4,101,382 | |||||||||||||
Except as otherwise noted below, each loan (including our revolving credit facility) is non-recourse, and secured by one or more separate collateral pools consisting of one or more properties, and requires monthly payments of interest only with the outstanding principal due upon maturity.
(1) | Maturity dates include the effect of extension options. |
(2) | Eliminates the share of third parties through our joint ventures and funds. Assumes the closing of the purchase of our bridge investment in a consolidated joint venture, which is scheduled for the second quarter, with the proceeds used to pay down the credit line. |
(3) | Includes the effect of interest rate swaps and excludes the effect of prepaid loan fees. |
(4) | Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule. |
(5) | Interest only until February 2017, with principal amortization thereafter based upon a 30-year amortization schedule. |
(6) | Interest rate is fixed until March 1, 2018. Interest only until May 2016, with principal amortization thereafter based upon a 30-year amortization schedule. |
(7) | $400.0 million revolving credit facility, with unused commitment fees between 0.15% to 0.20% |
(8) | The loans will carry floating rate interest when the related swap matures as follows: $20 million loan, LIBOR + 1.45%; $256.1 million loan, LIBOR + 2%; $145 million loan, LIBOR + 1.25% and $15.7 million loan, LIBOR + 1.6%. |
(9) | At March 31, 2016, the weighted average remaining life, including extension options, of our total consolidated term debt (excluding our revolving credit facility) was 4.6 years. For the $4.21 billion of term debt on which the interest rate was fixed under the terms of the loan or a swap, the weighted average (i) remaining life was 4.6 years, (ii) remaining period during which interest was fixed was 2.7 years, (iii) annual interest rate was 3.42% and (iv) effective interest rate was 3.57% (including the non-cash amortization of deferred loan costs). On our balance sheet, we carry our secured debt net of deferred loan fees in accordance with GAAP, as follows: |
Total Consolidated Debt | $ | 4,502,969 | |
Deferred loan fees, net | (33,012 | ) | |
Total Consolidated Debt, net | $ | 4,469,957 | |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Portfolio Summary
Total Office Portfolio as of March 31, 2016
Submarket | Number of Properties | Rentable Square Feet | Percent of Square Feet of Our Total Portfolio | Submarket Rentable Square Feet | Our Market Share in Submarket | |||||||||||
Beverly Hills | 9 | 1,861,339 | 10.8 | % | 7,408,659 | 22.2 | % | |||||||||
Brentwood | 14 | 1,672,849 | 9.7 | 3,356,126 | 49.8 | |||||||||||
Burbank | 1 | 420,949 | 2.4 | 6,733,458 | 6.3 | |||||||||||
Century City | 3 | 916,952 | 5.3 | 10,064,599 | 9.1 | |||||||||||
Honolulu | 4 | 1,716,715 | 10.0 | 5,088,599 | 33.7 | |||||||||||
Olympic Corridor | 5 | 1,098,078 | 6.4 | 3,524,632 | 31.2 | |||||||||||
Santa Monica | 8 | 973,169 | 5.6 | 9,526,221 | 10.2 | |||||||||||
Sherman Oaks/Encino | 13 | 3,602,989 | 20.9 | 6,171,530 | 58.4 | |||||||||||
Warner Center/Woodland Hills | 3 | 2,856,448 | 16.6 | 7,203,647 | 39.7 | |||||||||||
Westwood | 6 | 2,123,035 | 12.3 | 4,443,398 | 47.8 | |||||||||||
Total | 66 | 17,242,523 | 100.0 | % | 63,520,869 | 26.8 | % | |||||||||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Percentage Leased and In-Place Rents
Total Office Portfolio as of March 31, 2016
Annualized Rent by Submarket
Submarket | Percentage Leased(1) | Annualized Rent | Annualized Rent Per Leased Square Foot(2) | Monthly Rent Per Leased Square Foot | |||||||||||||
Beverly Hills | 97.2 | % | $ | 74,420,910 | $ | 42.57 | $ | 3.55 | |||||||||
Brentwood | 97.2 | 61,517,034 | 38.49 | 3.21 | |||||||||||||
Burbank | 100.0 | 16,022,903 | 38.06 | 3.17 | |||||||||||||
Century City | 92.2 | 33,836,548 | 40.54 | 3.38 | |||||||||||||
Honolulu(3) | 86.2 | 47,593,295 | 32.97 | 2.75 | |||||||||||||
Olympic Corridor | 97.4 | 33,653,369 | 32.00 | 2.67 | |||||||||||||
Santa Monica(4) | 98.7 | 53,196,484 | 57.40 | 4.78 | |||||||||||||
Sherman Oaks/Encino | 93.3 | 106,773,625 | 33.15 | 2.76 | |||||||||||||
Warner Center/Woodland Hills | 84.5 | 65,090,166 | 28.09 | 2.34 | |||||||||||||
Westwood | 89.1 | 78,274,936 | 43.19 | 3.60 | |||||||||||||
Total / Weighted Average | 92.1 | % | $ | 570,379,270 | 37.10 | 3.09 | |||||||||||
Recurring Office Capital Expenditures per Rentable Square Foot | |||||||||||||||||
For the three months ended March 31, 2016 | $ | 0.06 | |||||||||||||||
_______________________________________________________________
(1) | Includes 296,715 square feet with respect to signed leases not yet commenced at March 31, 2016. |
(2) | Represents annualized rent divided by leased square feet (excluding signed leases not commenced at March 31, 2016). |
(3) | Includes $2,796,991 of annualized rent attributable to a health club that we operate. |
(4) | Includes $2,142,943 of annualized rent attributable to our corporate headquarters. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Lease Diversification
Total Office Portfolio as of March 31, 2016
Office Leases | Rentable Square Feet | Annualized Rent | |||||||||||||||||||
Square Feet Under Lease | Number | Percent | Amount | Percent | Amount | Percent | |||||||||||||||
2,500 or less | 1,396 | 49.8 | % | 1,931,553 | 12.6 | % | $ | 70,824,694 | 12.4 | % | |||||||||||
2,501-10,000 | 1,044 | 37.2 | 5,074,042 | 33.0 | 184,182,249 | 32.3 | |||||||||||||||
10,001-20,000 | 234 | 8.4 | 3,208,476 | 20.9 | 119,380,679 | 20.9 | |||||||||||||||
20,001-40,000 | 96 | 3.4 | 2,544,033 | 16.6 | 95,220,174 | 16.7 | |||||||||||||||
40,001-100,000 | 29 | 1.0 | 1,607,100 | 10.4 | 63,206,619 | 11.1 | |||||||||||||||
Greater than 100,000 | 5 | 0.2 | 1,009,721 | 6.5 | 37,564,855 | 6.6 | |||||||||||||||
Total | 2,804 | 100.0 | % | 15,374,925 | 100.0 | % | $ | 570,379,270 | 100.0 | % | |||||||||||
Our median tenant size is approximately 2,500 square feet and our average tenant size is approximately 5,400 square feet. | |||||||||||||||||||||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Lease Diversification
Total Office Portfolio as of March 31, 2016
Tenants paying 1% or more of our aggregate Annualized Rent: | |||||||||||||||||||||||
Tenant | Number of Leases | Number of Properties | Lease Expiration(1) | Total Leased Square Feet | Percent of Rentable Square Feet | Annualized Rent | Percent of Annualized Rent | ||||||||||||||||
Time Warner(2) | 3 | 3 | 2016-2019 | 580,812 | 3.4 | % | $ | 21,643,181 | 3.8 | % | |||||||||||||
William Morris Endeavor(3) | 1 | 1 | 2027 | 184,995 | 1.1 | 9,539,067 | 1.7 | ||||||||||||||||
Equinox Fitness(4) | 6 | 5 | 2016-2033 | 182,201 | 1.1 | 6,959,135 | 1.2 | ||||||||||||||||
UCLA(5) | 16 | 6 | 2016-2026 | 150,261 | 0.9 | 6,282,571 | 1.1 | ||||||||||||||||
Total | 26 | 15 | 1,098,269 | 6.5 | % | $ | 44,423,954 | 7.8 | % | ||||||||||||||
(1) Expiration dates are per lease. Ranges reflects leases other than storage and similar leases. | |||||||||||||||||||||||
(2) The square footage under these leases expire as follows: 150,000 square feet in 2016 (of which 101,000 square feet has been leased by an existing subtenant until 2023), 10,000 square feet in 2017 and 421,000 square feet in 2019. | |||||||||||||||||||||||
(3) Tenant has an option to terminate this lease in 2022. | |||||||||||||||||||||||
(4) The square footage under these leases expire as follows: 2,000 square feet in 2016, 44,000 square feet in 2018, 33,000 square feet in 2019, 42,000 square feet in 2020, 31,000 square feet in 2027 and 30,000 square feet in 2033. | |||||||||||||||||||||||
(5) The square footage under these leases expire as follows: 6,000 square feet in 2016, 37,000 square feet in 2017, 5,000 square feet in 2018, 7,000 square feet in 2019, 18,000 square feet in 2020, 41,000 square feet in 2021, 36,000 square feet in 2022, and 15,000 square feet in 2026. | |||||||||||||||||||||||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Industry Diversification
Total Office Portfolio as of March 31, 2016
Percentage of Annualized Rent by Tenant Industry
Industry | Number of Leases | Annualized Rent as a Percent of Total | |||||
Legal | 548 | 17.6 | % | ||||
Financial Services | 357 | 13.7 | |||||
Entertainment | 206 | 13.7 | |||||
Real Estate | 242 | 9.8 | |||||
Accounting & Consulting | 331 | 9.5 | |||||
Health Services | 368 | 8.9 | |||||
Retail | 197 | 6.2 | |||||
Technology | 125 | 5.5 | |||||
Insurance | 110 | 4.9 | |||||
Educational Services | 47 | 2.9 | |||||
Public Administration | 92 | 2.5 | |||||
Advertising | 77 | 2.4 | |||||
Other | 104 | 2.4 | |||||
Total | 2,804 | 100.0 | % | ||||
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Lease Expirations
Total Office Portfolio as of March 31, 2016
(1) Average of the percentage of leases at March 31, 2013, 2014, 2015 with the same remaining duration as the leases for the labeled year had at March 31, 2016. Acquisitions are included in the prior year average commencing in the quarter after the acquisition.
Year of Lease Expiration | Number of Leases | Rentable Square Feet | Expiring Square Feet as a Percent of Total | Annualized Rent at March 31, 2016 | Annualized Rent as a Percent of Total | Annualized Rent Per Leased Square Foot(1) | Annualized Rent Per Leased Square Foot at Expiration(2) | |||||||||||||||||||
Short Term Leases | 57 | 249,630 | 1.4 | % | $ | 8,393,612 | 1.5 | % | $ | 33.62 | $ | 33.62 | ||||||||||||||
2016 | 351 | 1,102,304 | 6.4 | 37,985,313 | 6.7 | 34.46 | 34.79 | |||||||||||||||||||
2017 | 635 | 2,699,093 | 15.7 | 95,008,358 | 16.7 | 35.20 | 36.37 | |||||||||||||||||||
2018 | 522 | 2,228,024 | 12.9 | 86,334,980 | 15.1 | 38.75 | 41.28 | |||||||||||||||||||
2019 | 368 | 2,032,128 | 11.8 | 73,641,116 | 12.9 | 36.24 | 39.47 | |||||||||||||||||||
2020 | 345 | 2,113,844 | 12.3 | 78,423,173 | 13.8 | 37.10 | 41.83 | |||||||||||||||||||
2021 | 234 | 1,620,769 | 9.4 | 61,018,681 | 10.7 | 37.65 | 44.01 | |||||||||||||||||||
2022 | 91 | 814,570 | 4.7 | 30,010,464 | 5.3 | 36.84 | 44.13 | |||||||||||||||||||
2023 | 73 | 929,399 | 5.4 | 32,174,911 | 5.6 | 34.62 | 43.37 | |||||||||||||||||||
2024 | 50 | 414,334 | 2.4 | 15,575,583 | 2.7 | 37.59 | 47.39 | |||||||||||||||||||
2025 | 36 | 443,069 | 2.6 | 19,002,309 | 3.3 | 42.89 | 56.68 | |||||||||||||||||||
Thereafter | 42 | 727,761 | 4.2 | 32,810,770 | 5.7 | 45.08 | 62.39 | |||||||||||||||||||
Subtotal/Weighted Average | 2,804 | 15,374,925 | 89.2 | % | 570,379,270 | 100.0 | % | 37.10 | 41.84 | |||||||||||||||||
Signed leases not commenced | 296,715 | 1.7 | ||||||||||||||||||||||||
Available | 1,365,491 | 7.9 | ||||||||||||||||||||||||
Building Management Use | 117,439 | 0.7 | ||||||||||||||||||||||||
BOMA Adjustment(3) | 87,953 | 0.5 | ||||||||||||||||||||||||
Total/Weighted Average | 2,804 | 17,242,523 | 100.0 | % | $ | 570,379,270 | 100.0 | % | 37.10 | 41.84 | ||||||||||||||||
___________________________________________________
(1) | Represents annualized rent at March 31, 2016 divided by leased square feet. |
(2) | Represents annualized rent at expiration divided by leased square feet. |
(3) | Represents the square footage adjustments for leases that do not reflect BOMA remeasurement. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Quarterly Lease Expirations - Next Four Quarters
Total Office Portfolio as of March 31, 2016
Q2 2016 | Q3 2016 | Q4 2016 | Q1 2017 | |||||||||||
Expiring Square Feet(1) | 235,233 | 293,522 | 573,549 | 722,316 | ||||||||||
Percentage of Portfolio | 1.4 | % | 1.7 | % | 3.3 | % | 4.2 | % | ||||||
Expiring Rent per Square Foot(2) | $34.10 | $33.63 | $35.67 | $36.78 | ||||||||||
Submarket Data | |||||||||||||||
Due to the small square footage of leases in each quarter in each submarket, and the varying terms and square footage of the individual leases and the individual buildings involved, the data in this table should only be extrapolated with caution. | |||||||||||||||
Q2 2016 | Q3 2016 | Q4 2016 | Q1 2017 | ||||||||||||
Beverly Hills | Expiring SF(1) | 24,873 | 18,263 | 30,555 | 108,079 | ||||||||||
Expiring Rent per SF(2) | $34.14 | $43.99 | $38.49 | $39.84 | |||||||||||
Brentwood | Expiring SF(1) | 48,652 | 62,810 | 43,877 | 112,440 | ||||||||||
Expiring Rent per SF(2) | $36.57 | $32.70 | $39.29 | $39.35 | |||||||||||
Century City | Expiring SF(1) | 5,733 | 38,788 | 59,437 | 12,573 | ||||||||||
Expiring Rent per SF(2) | $32.00 | $36.89 | $38.03 | $38.63 | |||||||||||
Honolulu | Expiring SF(1) | 27,110 | 29,384 | 77,818 | 25,718 | ||||||||||
Expiring Rent per SF(2) | $33.79 | $30.45 | $33.40 | $30.99 | |||||||||||
Olympic Corridor | Expiring SF(1) | 1,610 | 29,353 | 74,581 | 35,661 | ||||||||||
Expiring Rent per SF(2) | $31.20 | $31.27 | $30.41 | $32.26 | |||||||||||
Santa Monica | Expiring SF(1) | 4,212 | 11,343 | 23,762 | 18,207 | ||||||||||
Expiring Rent per SF(2) | $40.59 | $40.17 | $48.46 | $53.68 | |||||||||||
Sherman Oaks/Encino | Expiring SF(1) | 66,534 | 71,696 | 171,331 | 207,829 | ||||||||||
Expiring Rent per SF(2) | $31.86 | $32.04 | $33.99 | $33.03 | |||||||||||
Warner Center/Woodland Hills | Expiring SF(1) | 22,342 | 23,064 | 37,331 | 77,892 | ||||||||||
Expiring Rent per SF(2) | $27.92 | $27.91 | $29.18 | $30.95 | |||||||||||
Westwood | Expiring SF(1) | 34,167 | 8,821 | 54,857 | 123,917 | ||||||||||
Expiring Rent per SF(2) | $38.92 | $42.44 | $43.15 | $41.55 | |||||||||||
_________________________________________________________________
(1) | Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of March 31, 2016, other than 249,630 square feet of short-term leases. |
(2) | Includes the impact of rent escalations over the entire term of the expiring lease, and is therefore not directly comparable to starting rents. Fluctuations in this number from quarter to quarter primarily reflects the mix of buildings/submarkets involved, and is also impacted by the varying terms and square footage of the individual leases expiring. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Office Leasing Activity
Total Office Portfolio during the three months ended March 31, 2016
Rentable Square feet | Percentage | |||||||
Net Absorption During Quarter(1) | (64,266) | (0.41)% | ||||||
Office Leases Signed During Quarter | Number of leases | Rentable square feet | Weighted Average Lease Term (months) | |||||
New leases | 68 | 259,456 | 60 | |||||
Renewal leases | 108 | 411,421 | 46 | |||||
All leases | 176 | 670,877 | 51 | |||||
Change in Annual Rental Rates (Per Square Foot) for Office Leases Executed during the Quarter(2) | |||||||
Starting Cash Rent | Straight-line Rent | Expiring Cash Rent | |||||
Leases signed during the quarter | $38.51 | $39.89 | N/A | ||||
Prior leases for the same space | $31.48 | $32.50 | $35.99 | ||||
Percentage change | 22.3% | 22.7% | 7.0% | (3) | |||
Average Office Lease Transaction Costs (Per Square Foot)(4) | |||||
Lease Transaction Costs | Lease Transaction Costs per Annum | ||||
New leases signed during the quarter | $33.83 | $6.79 | |||
Renewal leases signed during the quarter | $18.31 | $4.81 | |||
All leases signed during the quarter | $24.31 | $5.71 | |||
________________________________________________________________
(1) | We include net absorption with respect to acquisitions commencing with the quarter after the acquisition closes. |
(2) | Represents the average initial stabilized cash and straight-line rents on new and renewal leases signed during the quarter compared to the prior lease on the same space, excluding short term leases and leases on space where the prior lease was terminated more than a year before signing of the new lease. |
(3) | The percentage change for expiring cash rent represents the comparison between the starting cash rent on leases executed during the quarter and the expiring cash rent on the prior leases for the same space. |
(4) | Represents the weighted average of tenant improvements and leasing commissions. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Portfolio Data | |
Multifamily Portfolio Summary
as of March 31, 2016
Annualized Rent by Submarket
Submarket | Number of Properties | Number of Units | Units as a Percent of Total | ||||||||||
Brentwood | 5 | 950 | 28 | % | |||||||||
Honolulu | 3 | 1,566 | 47 | ||||||||||
Santa Monica | 2 | 820 | 25 | ||||||||||
Total | 10 | 3,336 | 100 | % | |||||||||
Submarket | Percent Leased | Annualized Rent | Monthly Rent Per Leased Unit | ||||||||||
Brentwood | 100.0 | % | $ | 28,275,960 | $ | 2,480 | |||||||
Honolulu | 98.5 | 33,061,524 | 1,786 | ||||||||||
Santa Monica(1) | 99.8 | 26,735,352 | 2,724 | ||||||||||
Total / Weighted Average | 99.3 | % | $ | 88,072,836 | 2,217 | ||||||||
Recurring Multifamily Capital Expenditures per Unit | |||||
For the three months ended March 31, 2016 | $ | 93 | |||
________________________________________________________________
(1) | Excludes 10,013 square feet of ancillary retail space generating annualized rent of $350,880. |
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Developments | |
Multifamily Development Projects
Rendering of our Moanalua Hillside Apartments, Honolulu Hawaii development, including the new entry and common area facilities, the new 8 story buildings and re-skinned existing 4 and 6 story buildings.
We are currently working on two multi-family development projects located on sites that we already own:
Moanalua Hillside Apartments, Honolulu, Hawaii | |||
Projected Units (net) | Estimated Cost | Anticipated Delivery of First Units | |
475 | $120 million | Late 2017 | |
We are adding 475 units (net of existing units removed) to our Moanalua Hillside apartment community located on 28 acres near downtown Honolulu and key military bases. The $120 million estimated cost of the new units does not include the cost of the land which we owned before beginning the project. We also plan to invest additional capital to upgrade the existing units, improve the parking and landscaping, build a new leasing and management office, and construct a new recreation and fitness facility with a new pool. | |||
The Landmark, Brentwood, California | |||
Projected Units | Estimated Cost | Anticipated Start of Construction | Anticipated Construction Period |
376 | $120 - $140 million | 2017 | 18-24 months |
The Landmark would be the first new residential high-rise development west of the 405 freeway in almost 40 years, offering stunning ocean views and luxury amenities. Present plans call for a 34 story, 376 unit tower located on a site currently housing a supermarket. However, the process in Los Angeles often results in significant changes in development plans and/or unanticipated delays. The $120 - $140 million estimated cost does not include the cost of the land or the existing underground parking garage, both of which we owned before beginning the project. | |||
NOTES:
(1) | All figures are only estimates, as development in our markets is long and complex and subject to inherent uncertainties. |
(2) | Please see the "Definitions" section at the end of this Earnings Package for certain definitions. |
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| Guidance | |
2016 OUTLOOK
Metric | 2016 Guidance |
Funds From Operations (FFO) | $1.74 to $1.80 per share |
Adjusted Funds From Operations (AFFO) | $1.38 to $1.44 per share |
Although not exhaustive, the following list is representative of certain of the assumptions we used in providing this guidance:
Metric | Commentary | Assumption Range | Compared to Prior Guidance |
Average Office Occupancy | Based on our total office portfolio and reflects the impact of the acquisition of the Westwood portfolio, which had more vacancy than our average Core Los Angeles properties. | 90% to 91.5% | Unchanged |
Residential Leased Rate | We manage our apartment portfolio to be fully leased as a result of supply constraints and rent control in our markets. | Essentially Fully Leased | Unchanged |
Same Property Cash NOI | Includes fees from early lease terminations and prior year CAM reconciliations. | Year over Year Increase of 4.5% to 5.5% | Revised |
Core Same Property Cash NOI | Excludes fees from early lease terminations and prior year CAM reconciliations. | Year over Year Increase of 5.5% to 6.5% | Revised |
Revenue from Above/Below Market Leases | $15 to $18 million | Revised | |
Straight-Line Revenue | $13 to $15 million | Revised | |
G&A | $32 to $35 million | Unchanged | |
Interest Expense | $147 to $150 million | Revised | |
Weighted Average Fully Diluted Share Equivalents | Range based on variations in our average stock price and does not assume any new stock offerings. | 178 to 179 million | Unchanged |
Other Income (net) | Excludes the impact of any special items. | $1.5 to 2.5 million | Revised |
Except as disclosed, our guidance does not include the impact from possible future property acquisitions or dispositions, including acquisition and disposition costs, financings, other possible capital markets activities or impairment charges. The guidance and representative assumptions on this page are forward looking statements, subject to the safe harbor contained at the beginning of this Earnings Package, and reflect our views of current and future market conditions. Only a few of our assumptions underlying our guidance are noted above, and our actual results will be affected by known and unknown risks, trends, uncertainties and factors, some of which are beyond our control or ability to predict. Although we believe that the assumptions underlying our guidance are reasonable, they are not guarantees of future performance and some of them will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material.
NOTE: Please see the "Definitions" section at the end of this Earnings Package for certain definitions.
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| Definitions | |
Adjusted Funds From Operations (AFFO): We calculate AFFO from FFO by (i) eliminating the impact on FFO of straight-line rent; amortization/accretion of acquired above/below market leases; amortization/accretion of loan premiums/discounts; amortization of interest rate contracts; amortization/expense of loan costs; non-cash compensation expense; and adjustments attributable to consolidated joint ventures and investments in unconsolidated real estate funds, and (ii) subtracting recurring capital expenditures, tenant improvements and leasing commissions. AFFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure. AFFO is not intended to represent cash flow, but may provide an additional perspective on our operating results and our ability to fund cash needs and pay dividends. As a widely reported measure of the performance of REITs, AFFO is also used by some investors to compare our performance with other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to that of other REITs AFFO. AFFO should be considered only as a supplement to net income as a measure of our performance.
Annualized Rent: Represents annualized cash base rent (i.e. excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the reporting date (does not include 296,715 square feet with respect to signed leases not yet commenced at March 31, 2016) and expiring after the reporting date. For our triple net Burbank and Honolulu office properties, annualized rent is calculated by adding expense reimbursements to base rent. Annualized rent does not include lost rent recovered from insurance.
Average Occupancy Rates: Calculated by averaging the occupancy rates on the last day of the current and prior quarter and, for reporting periods longer than a quarter, by averaging the occupancy rates for all the quarters in the respective reported period.
Beverly Hills: We include in our Beverly Hills submarket data one property consisting of approximately 216,000 square feet located just outside the Beverly Hills city limits. In calculating our percentage of the submarket, we have eliminated this property from both the numerator and the denominator for consistency with third party data.
Diluted Shares: We include common stock and other convertible equity instruments, but not units in our Operating Partnership, in calculating diluted shares.
Fully Diluted Shares: We include common stock and other convertible equity instruments, as well as units in our Operating Partnership, in calculating fully diluted shares
Funds From Operations (FFO): We calculate FFO before noncontrolling interests in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT). FFO is a non-GAAP financial measure which represents net income calculated in accordance with GAAP, excluding gains (or losses) from sales of depreciable operating property, real estate depreciation and amortization (other than amortization of deferred loan costs), and after adjustments attributable to consolidated joint ventures and investments in unconsolidated real estate funds. We provide FFO as a supplemental performance measure because some investors use it to identify trends in occupancy rates, rental rates and operating costs from year to year. We also believe that, as a widely recognized measure of the performance of REITs, FFO is used by some investors as a basis to compare our operating performance with that of other REITs. However, FFO has limitations as a measure of our performance because it excludes depreciation and amortization, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to other REITs FFO. FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.
GAAP: Refers to accounting principles generally accepted in the United States.
Net Operating Income (NOI): NOI is a non-GAAP measure consisting of the revenue and expenses attributable to the real estate properties that we own and operate. We present two forms of NOI:
• | GAAP basis NOI: is calculated by excluding the following from our net income : general and administrative expense, depreciation and amortization expense, other income, other expense, income, including depreciation, from unconsolidated real estate funds, interest expense, acquisition related expenses, and net income attributable to noncontrolling interests. |
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| Definitions | |
• | Cash basis NOI: is calculated by excluding from the GAAP basis NOI our straight-line rent and the amortization/accretion of acquired above/below market leases. |
We provide NOI as a supplemental performance measure because, by excluding the adjustments listed above, some investors use it to identify trends in occupancy rates, rental rates and operating costs from year to year. We also believe that, as a widely recognized measure of the performance of REITs, NOI is used by some investors as a basis to compare our operating performance with that of other REITs. However, NOI has limitations as a measure of our performance because it excludes depreciation and amortization expense, and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to those other REITs' NOI. NOI should be considered only as a supplement to net income as a measure of our performance and should not be used as a measure of our liquidity or cash flow, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.
Occupancy Rate: The percentage leased, excluding signed leases not yet commenced, as of March 31, 2016.
Properties Owned: Our "Consolidated Portfolio" includes all of the properties included in our consolidated results, including our consolidated joint ventures. We own 100% of these properties except for five office properties totaling approximately 1.8 million square feet, which we own through two consolidated joint ventures. Our "Total Portfolio" includes our Consolidated Portfolio plus eight properties totaling 1.8 million square feet owned by our unconsolidated real estate Funds, in which we own a weighted average of approximately 60% based on square footage.
Recurring Capital Expenditures: Building improvements and leasing costs required to maintain current revenues once a property has been stabilized, generally excluding capital expenditures and leasing costs for items such as acquired buildings being stabilized, newly developed space and upgrades to improve revenues or operating expenses, as well as those resulting from casualty damage or bringing the property into compliance with governmental requirements.
Rentable Square Feet: Based on the BOMA remeasurement. At March 31, 2016, total consists of 15,671,640 leased square feet (including 296,715 square feet with respect to signed leases not commenced), 1,365,491 available square feet, 117,439 building management use square feet and 87,953 square feet of BOMA adjustment on leased space.
Same Property NOI: To facilitate a comparison of NOI between reported periods, we calculate comparable amounts for a subset of our owned properties referred to as our “same properties.” Same property amounts are calculated as the amounts attributable to properties which have been owned and operated by us in a consistent manner, and reported in our consolidated results, during the entire span of both periods being compared. We excluded from our same property set for this quarter any properties (i) acquired on or after January 1, 2015; (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements on or after January 1, 2015; or (iii) that underwent a major repositioning project that we believed significantly affected its results at any point during the period commencing on or after January 1, 2015. Our same properties for 2016 include all of our consolidated properties other than (i) four office properties totaling approximately 1.7 million square feet which we acquired during the first quarter of 2016 through the Westwood Joint Venture, (ii) a 227,000 square foot office property that we acquired in March 2015, (ii) a 696 unit multifamily property in Honolulu where we expect to add a net additional 475 units, (iii) a 661,000 square foot office property which included a 35,000 square foot gym which is undergoing a repositioning, (vi) a 79,000 square foot office property in Honolulu (a joint venture in which we own a 66.67% interest) undergoing a repositioning and (v) a 168,000 square foot office property which is classified as held for sale.
Shares of Common Stock Outstanding: Represents undiluted common shares outstanding as of March 31, 2016, and therefore excludes units in our Operating Partnership and other convertible equity instruments.
Short Term Leases: Represents leases that expired on or before the reporting date or had a term of less than one year, including hold over tenancies, month to month leases and other short term occupancies.
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