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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 001-33106
nysedei-20200630_g1.jpg

Douglas Emmett, Inc.
(Exact name of registrant as specified in its charter)
Maryland20-3073047
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1299 Ocean Avenue, Suite 1000,Santa Monica,California90401
(Address of principal executive offices)(Zip Code)

(310) 255-7700
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.01 par value per shareDEINew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class Outstanding atJuly 31, 2020
Common Stock, $0.01 par value per share 175,374,886shares
1



DOUGLAS EMMETT, INC.
FORM 10-Q
Table of Contents
Page
 
 
 
 
 
     Overview
     Other Assets
     Equity
     EPS
 

2

Table of Contents
Glossary
Abbreviations used in this Report:
AOCIAccumulated Other Comprehensive Income (Loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
ATMAt-the-Market
BOMABuilding Owners and Managers Association
CEOChief Executive Officer
CFOChief Financial Officer
CodeInternal Revenue Code of 1986, as amended
COVID-19Coronavirus Disease 2019
DEIDouglas Emmett, Inc.
EPSEarnings Per Share
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
FFOFunds From Operations
Fund XDouglas Emmett Fund X, LLC
FundsUnconsolidated Institutional Real Estate Funds
GAAPGenerally Accepted Accounting Principles (United States)
JVJoint Venture
LIBORLondon Interbank Offered Rate
LTIP UnitsLong-Term Incentive Plan Units
NAREITNational Association of Real Estate Investment Trusts
OCIOther Comprehensive Income (Loss)
OP UnitsOperating Partnership Units
Operating PartnershipDouglas Emmett Properties, LP
Opportunity FundFund X Opportunity Fund, LLC
Partnership XDouglas Emmett Partnership X, LP
PCAOBPublic Company Accounting Oversight Board (United States)
REITReal Estate Investment Trust
ReportQuarterly Report on Form 10-Q
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
TRSTaxable REIT Subsidiary(ies)
USUnited States
USDUnited States Dollar
VIEVariable Interest Entity(ies)

3

Table of Contents
Glossary
Defined terms used in this Report:

Annualized RentAnnualized cash base rent (excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the reporting date and expiring after the reporting date. Annualized Rent for our triple net office properties (in Honolulu and one single tenant building in Los Angeles) is calculated by adding expense reimbursements and estimates of normal building expenses paid by tenants to base rent. Annualized Rent does not include lost rent recovered from insurance and rent for building management use. Annualized Rent includes rent for a health club that we own and operate in Honolulu and for our corporate headquarters in Santa Monica. We report Annualized Rent because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine tenant demand and to compare our performance and value with other REITs. We use Annualized Rent to manage and monitor the performance of our office and multifamily portfolios.
Consolidated PortfolioIncludes all of the properties included in our consolidated results, including our consolidated JVs.
Funds From Operations (FFO)
We calculate FFO in accordance with the standards established by NAREIT by excluding gains (or losses) on sales of investments in real estate, gains (or losses) from changes in control of investments in real estate, real estate depreciation and amortization (other than amortization of right-of-use assets for which we are the lessee and amortization of deferred loan costs), and impairment write-downs of real estate from our net income (including adjusting for the effect of such items attributable to consolidated JVs and unconsolidated Funds, but not for noncontrolling interests included in our Operating Partnership). FFO is a non-GAAP supplemental financial measure that we report because we believe it is useful to our investors. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report for a discussion of FFO.
Leased RateThe percentage leased as of the reporting date. Management space is considered leased. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating percentage leased. We report Leased Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Leased Rate to manage and monitor the performance of our office and multifamily portfolios.
Net Operating Income (NOI)
We calculate NOI as revenue less operating expenses attributable to the properties that we own and operate. NOI is calculated by excluding the following from our net income: general and administrative expense, depreciation and amortization expense, other income, other expenses, income from unconsolidated Funds, interest expense, gain from consolidation of JVs, gains (or losses) on sales of investments in real estate and net income attributable to noncontrolling interests. NOI is a non-GAAP supplemental financial measure that we report because we believe it is useful to our investors. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report for a discussion of our Same Property NOI.
Occupancy RateWe calculate the Occupancy Rate by excluding signed leases not yet commenced from the Leased Rate. Management space is considered occupied. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating Occupancy Rate. We report Occupancy Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Occupancy Rate to manage and monitor the performance of our office and multifamily portfolios.
Rental RateWe present two forms of Rental Rates - Cash Rental Rates and Straight-Line Rental Rates. Cash Rental Rate is calculated by dividing the rent paid by the Rentable Square Feet. Straight-Line Rental Rate is calculated by dividing the average rent over the lease term by the Rentable Square Feet.
4

Table of Contents
Glossary
Recurring Capital ExpendituresBuilding improvements required to maintain revenues once a property has been stabilized, and excludes capital expenditures for (i) acquired buildings being stabilized, (ii) newly developed space, (iii) upgrades to improve revenues or operating expenses or significantly change the use of the space, (iv) casualty damage and (v) bringing the property into compliance with governmental or lender requirements. We report Recurring Capital Expenditures because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine our cash flow requirements and to compare our performance with other REITs. We use Recurring Capital Expenditures to manage and monitor the performance of our office and multifamily portfolios.
Rentable Square Feet
Based on the BOMA remeasurement and consists of leased square feet (including square feet with respect to signed leases not commenced as of the reporting date), available square feet, building management use square feet and square feet of the BOMA adjustment on leased space. We report Rentable Square Feet because it is a widely reported measure of the performance and value of equity REITs, and is also used by some investors to compare our performance and value with other REITs. We use Rentable Square Feet to manage and monitor the performance of our office portfolio.
Same PropertiesOur consolidated properties that 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 exclude from our same property subset any properties (i) acquired during the comparative periods; (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements during the comparative periods; or (iii) that underwent a major repositioning project or were impacted by development activity that we believed significantly affected the properties' results during the comparative periods.
Short-Term LeasesRepresents 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.
Total PortfolioIncludes our Consolidated Portfolio plus the properties owned by our Fund.
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Forward Looking Statements


This Report contains forward-looking statements within the meaning of the Section 27A of the Securities Act and Section 21E of the Exchange Act. You can find many (but not all) of these statements by looking for words such as “believe”, “expect”, “anticipate”, “estimate”, “approximate”, “intend”, “plan”, “would”, “could”, “may”, “future” or other similar expressions in this Report. We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements used in this Report, or those that we make orally or in writing from time to time, are based on our beliefs and assumptions, as well as information currently available to us. Actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors beyond our control or ability to predict. 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 future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution when relying on previously reported forward-looking statements, which were based on results and trends at the time they were made, to anticipate future results or trends. Some of the risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:

adverse developments related to the COVID-19 pandemic;
adverse economic or real estate developments affecting Southern California or Honolulu, Hawaii;
competition from other real estate investors in our markets;
decreasing rental rates or increasing tenant incentive and vacancy rates;
defaults on, early terminations of, or non-renewal of leases by tenants;
increases in interest rates or operating costs;
insufficient cash flows to service our outstanding debt or pay rent on ground leases;
difficulties in raising capital;
inability to liquidate real estate or other investments quickly;
adverse changes to rent control laws and regulations;
environmental uncertainties;
natural disasters;
insufficient insurance, or increases in insurance costs;
inability to successfully expand into new markets and submarkets;
difficulties in identifying properties to acquire and failure to complete acquisitions successfully;
failure to successfully operate acquired properties;
risks associated with property development;
risks associated with JVs;
conflicts of interest with our officers and reliance on key personnel; 
changes in zoning and other land use laws;
adverse results of litigation or governmental proceedings;
failure to comply with laws, regulations and covenants that are applicable to our business;
possible terrorist attacks or wars;
possible cyber attacks or intrusions;
adverse changes to accounting rules;
weaknesses in our internal controls over financial reporting;
failure to maintain our REIT status under federal tax laws; and
adverse changes to tax laws, including those related to property taxes.

For further discussion of these and other risk factors see Item 1A. "Risk Factors” in our 2019 Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and Item 1A. "Risk Factors" in this Report. This Report 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 to reflect events or circumstances after the date of this Report.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Douglas Emmett, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 June 30, 2020December 31, 2019
Unaudited
Assets  
Investment in real estate:  
Land$1,152,684  $1,152,684  
Buildings and improvements9,329,652  9,308,481  
Tenant improvements and lease intangibles922,909  905,753  
Property under development158,949  111,715  
Investment in real estate, gross11,564,194  11,478,633  
Less: accumulated depreciation and amortization(2,679,255) (2,518,415) 
Investment in real estate, net8,884,939  8,960,218  
Ground lease right-of-use asset7,475  7,479  
Cash and cash equivalents176,393  153,683  
Tenant receivables16,996  5,302  
Deferred rent receivables118,210  134,968  
Acquired lease intangible assets, net5,736  6,407  
Interest rate contract assets  22,381  
Investment in unconsolidated Fund47,742  42,442  
Other assets13,886  16,421  
Total Assets$9,271,377  $9,349,301  
Liabilities  
Secured notes payable and revolving credit facility, net$4,666,603  $4,619,058  
Ground lease liability10,877  10,882  
Interest payable, accounts payable and deferred revenue139,607  131,410  
Security deposits58,419  60,923  
Acquired lease intangible liabilities, net43,126  52,367  
Interest rate contract liabilities259,293  54,616  
Dividends payable49,113  49,111  
Total liabilities5,227,038  4,978,367  
Equity  
Douglas Emmett, Inc. stockholders' equity:  
Common Stock, $0.01 par value, 750,000,000 authorized, 175,374,886 and 175,369,746 outstanding at June 30, 2020 and December 31, 2019, respectively
1,754  1,754  
Additional paid-in capital3,486,442  3,486,356  
Accumulated other comprehensive loss(179,471) (17,462) 
Accumulated deficit(827,748) (758,576) 
Total Douglas Emmett, Inc. stockholders' equity2,480,977  2,712,072  
Noncontrolling interests1,563,362  1,658,862  
Total equity4,044,339  4,370,934  
Total Liabilities and Equity$9,271,377  $9,349,301  
See accompanying notes to the consolidated financial statements.
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Douglas Emmett, Inc.
Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)




 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Revenues    
Office rental    
Rental revenues and tenant recoveries$158,813  $171,674  $344,640  $338,909  
Parking and other income18,176  30,515  52,238  60,570  
Total office revenues176,989  202,189  396,878  399,479  
Multifamily rental    
Rental revenues25,872  26,308  54,958  51,201  
Parking and other income4,935  2,037  7,310  4,040  
Total multifamily revenues30,807  28,345  62,268  55,241  
Total revenues207,796  230,534  459,146  454,720  
Operating Expenses    
Office expenses60,301  64,308  129,965  127,757  
Multifamily expenses8,856  7,712  18,212  15,267  
General and administrative expenses9,863  9,159  20,198  18,991  
Depreciation and amortization98,765  78,724  196,542  158,597  
Total operating expenses177,785  159,903  364,917  320,612  
Operating income30,011  70,631  94,229  134,108  
Other income325  2,892  2,314  5,790  
Other expenses(478) (1,807) (1,874) (3,652) 
(Loss) income from unconsolidated Funds(140) 2,207  183  3,758  
Interest expense(35,190) (34,063) (70,610) (67,356) 
Net (loss) income(5,472) 39,860  24,242  72,648  
Less: Net loss (income) attributable to noncontrolling interests7,502  (5,894) 4,711  (9,981) 
Net income attributable to common stockholders$2,030  $33,966  $28,953  $62,667  
Net income per common share – basic and diluted$0.01  $0.20  $0.16  $0.36  
 
See accompanying notes to the consolidated financial statements.
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Douglas Emmett, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited and in thousands)



 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net (loss) income$(5,472) $39,860  $24,242  $72,648  
Other comprehensive loss: cash flow hedges(20,795) (81,613) (228,254) (114,921) 
Comprehensive loss(26,267) (41,753) (204,012) (42,273) 
Less: Comprehensive loss attributable to noncontrolling interests14,698  18,923  70,956  25,143  
Comprehensive loss attributable to common stockholders$(11,569) $(22,830) $(133,056) $(17,130) 
 

See accompanying notes to the consolidated financial statements.


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Douglas Emmett, Inc.
Consolidated Statements of Equity
(Unaudited; in thousands, except per share data)

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Shares of Common StockBeginning balance175,375  170,237  175,370  170,215  
Exchange of OP Units for common stock  54  5  76  
Issuance of common stock  4,932    4,932  
Ending balance175,375  175,223  175,375  175,223  
Common StockBeginning balance$1,754  $1,702  $1,754  $1,702  
Exchange of OP units for common stock  1    1  
Issuance of common stock  49    49  
Ending balance$1,754  $1,752  $1,754  $1,752  
Additional Paid-in CapitalBeginning balance$3,486,442  $3,282,388  $3,486,356  $3,282,316  
Exchange of OP Units for common stock  859  90  1,222  
Repurchase of OP Units with cash    (4) (291) 
Issuance of common stock, net  200,933    200,933  
Ending balance$3,486,442  $3,484,180  $3,486,442  $3,484,180  
AOCIBeginning balance$(165,872) $30,943  $(17,462) $53,944  
Cash flow hedge adjustments(13,599) (56,796) (162,009) (79,797) 
Ending balance$(179,471) $(25,853) $(179,471) $(25,853) 
Accumulated DeficitBeginning balance$(780,562) $(953,335) $(758,576) $(935,630) 
ASU 2016-02 adoption      (2,144) 
Net income attributable to common stockholders2,030  33,966  28,953  62,667  
Dividends(49,216) (45,558) (98,125) (89,820) 
Ending balance$(827,748) $(964,927) $(827,748) $(964,927) 
Noncontrolling InterestsBeginning balance$1,587,945  $1,426,484  $1,658,862  $1,446,098  
ASU 2016-02 adoption      (355) 
Net (loss) income attributable to noncontrolling interests(7,502) 5,894  (4,711) 9,981  
Cash flow hedge adjustments(7,196) (24,817) (66,245) (35,124) 
Contributions  176,000    176,000  
Distributions(13,448) (28,214) (31,814) (43,974) 
Exchange of OP Units for common stock  (860) (90) (1,223) 
Repurchase of OP Units with cash    (3) (216) 
Stock-based compensation3,563  2,721  7,363  6,021  
Ending balance$1,563,362  $1,557,208  $1,563,362  $1,557,208  
  
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Douglas Emmett, Inc.
Consolidated Statements of Equity
(Unaudited; in thousands, except per share data)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Total EquityBeginning balance$4,129,707  $3,788,182  $4,370,934  $3,848,430  
ASU 2016-02 adoption      (2,499) 
Net (loss) income(5,472) 39,860  24,242  72,648  
Cash flow hedge adjustments(20,795) (81,613) (228,254) (114,921) 
Issuance of common stock, net  200,982    200,982  
Repurchase of OP Units with cash    (7) (507) 
Contributions  176,000    176,000  
Dividends(49,216) (45,558) (98,125) (89,820) 
Distributions(13,448) (28,214) (31,814) (43,974) 
Stock-based compensation3,563  2,721  7,363  6,021  
Ending balance$4,044,339  $4,052,360  $4,044,339  $4,052,360  
Dividends declared per common share$0.28  $0.26  $0.56  $0.52  

See accompanying notes to the consolidated financial statements.
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Douglas Emmett, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)

        
 Six Months Ended June 30,
20202019
Operating Activities  
Net income$24,242  $72,648  
Adjustments to reconcile net income to net cash provided by operating activities:  
Income from unconsolidated Funds(183) (3,758) 
Depreciation and amortization196,542  158,597  
Net accretion of acquired lease intangibles(8,571) (8,516) 
Straight-line rent16,758  (6,684) 
Write-off of uncollectible amounts 15,992  9  
Loan premium amortized and written off(2,043) (102) 
Deferred loan costs amortized and written off3,791  4,380  
Derivative non-cash adjustments  (7) 
Amortization of stock-based compensation5,753  5,013  
Operating distributions from unconsolidated Funds394  3,756  
Change in working capital components:  
Tenant receivables(27,686) (837) 
Interest payable, accounts payable and deferred revenue9,811  (2,222) 
Security deposits(2,504) 501  
Other assets4,513  5,398  
Net cash provided by operating activities236,809  228,176  
Investing Activities  
Capital expenditures for improvements to real estate(74,151) (83,944) 
Capital expenditures for developments(53,780) (30,327) 
Insurance recoveries for damage to real estate4,015    
Property acquisition  (364,524) 
Acquisition of additional interests in unconsolidated Fund(6,591) (7,518) 
Capital distributions from unconsolidated Funds548  3,869  
Net cash used in investing activities(129,959) (482,444) 
Financing Activities  
Proceeds from borrowings544,000  832,318  
Repayment of borrowings(494,372) (657,673) 
Loan cost payments(3,824) (6,625) 
Contributions from noncontrolling interests in consolidated JVs  163,556  
Distributions paid to noncontrolling interests(31,814) (31,530) 
Dividends paid to common stockholders(98,123) (88,518) 
Repurchase of OP Units(7) (507) 
Proceeds from issuance of common stock, net  200,982  
Net cash used in financing activities(84,140) 412,003  
Increase in cash and cash equivalents and restricted cash22,710  157,735  
Cash and cash equivalents and restricted cash - beginning balance153,804  146,348  
Cash and cash equivalents and restricted cash - ending balance$176,514  $304,083  
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Douglas Emmett, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)

Reconciliation of Ending Cash Balance
Six Months Ended June 30,
20202019
Cash and cash equivalents - ending balance$176,393  $303,962  
Restricted cash - ending balance121  121  
Cash and cash equivalents and restricted cash - ending balance$176,514  $304,083