EX-99.1 2 dei2013q3ex99-1.htm 2013 Q3 EARNINGS PACKAGE DEI 2013 Q3 ex99-1



Douglas Emmett, Inc.
 
EXECUTIVE SUMMARY
 





We are one of the largest owners and operators of high-quality office and multifamily properties located in the premier coastal submarkets of Southern California and Hawaii. Our properties are concentrated in ten submarkets - Beverly Hills, Brentwood, Burbank, Century City, Honolulu, Olympic Corridor, Santa Monica, Sherman Oaks/Encino, Warner Center/Woodland Hills and Westwood. We focus on owning and acquiring a substantial share of top-tier office properties and premier multifamily communities, in neighborhoods with significant supply constraints, high-end executive housing and key lifestyle amenities. We operate as a REIT and are listed on the New York Stock Exchange under the symbol DEI.

THIRD QUARTER 2013 EXECUTIVE SUMMARY

Fundamentals: During the quarter, the leased rate in our total office portfolio (excluding property acquisitions during the quarter) increased by 20 basis points, and our occupied percentage increased by 10 basis points. We continue to achieve higher net effective rents year over year in the majority of our portfolio. In our multifamily portfolio, which remains fully leased, our average asking rents were 7.4% higher than in the third quarter of 2012.
   
Funds From Operations: Our Funds From Operations (FFO) (adjusted for terminated swaps) increased by 11.7% to $64.0 million for the quarter ended September 30, 2013, compared to $57.3 million for the prior year quarter, and our Adjusted Funds From Operations increased by 10.1% to $49.2 million from $44.7 million. GAAP net income attributable to common stockholders increased by 112.7% to $10.8 million for the quarter ended September 30, 2013, compared to $5.1 million for the prior year quarter.

Same Property Cash NOI: Our same property cash NOI increased by 0.6% in the third quarter of 2013 compared to the third quarter of 2012, with our office and multifamily revenues increasing faster than operating expenses.

Acquisition: On August 15, 2013, we purchased a 191,000 square foot Class A office building located at 16501 Ventura Blvd. in Encino for a contract price of $61.0 million, or approximately $319 per square foot.

Leverage: At September 30, 2013, we had $148.8 million in cash and cash equivalents on our balance sheet, and our net consolidated debt to enterprise value was 44%.

Dividends: On October 15, 2013, we paid a quarterly cash dividend of $0.18 per share, or $0.72 on an annualized basis per share, to our shareholders of record on September 30, 2013. On November 5, 2013, our Board increased our annualized dividend by 11% to $0.80 per share, declaring a quarterly cash dividend of $0.20 per share payable on January 15, 2014 to shareholders of record on December 30, 2013. Over the last two and a half years, we have doubled our dividend payout. We continue to have one of the lowest AFFO payout ratios of our peers, leaving us good cash flow and room to continue growing our dividend in future periods as appropriate.

Guidance: We have adjusted our 2013 FFO guidance to $1.48 - $1.50 per diluted share.


NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.


Douglas Emmett, Inc.
 
TABLE OF CONTENTS
 


___________________________________________________
Forward Looking Statements
This Third Quarter 2013 Earnings Results and Operating Information 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.  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, such as the recent global financial crisis; decreased rental rates or increased tenant incentives and vacancy rates; defaults on, early terminations of, or 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 identifying properties to acquire and completing acquisitions; failure to successfully operate acquired properties and operations; 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 amount of 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; the consequences of any 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, investors should use caution in 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. 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 to reflect events or circumstances after the date of this Earnings Package.


Douglas Emmett, Inc.
CORPORATE DATA
 
as of September 30, 2013




Office Portfolio
Consolidated
Total Portfolio
 
Number of office properties
52

60

 
Square feet (in thousands)
13,271

15,094

 
Leased rate(1)
92.0
%
91.7
%
 
Occupied rate(1)
90.0
%
89.6
%
 
 
 
 
 
Multifamily Portfolio
 
 
 
Number of multifamily properties
 
9

 
Number of multifamily units
 
2,868

 
Multifamily leased rate
 
99.5
%
 

Market Capitalization (in thousands, except price per share)
 
Closing price per share of common stock (NYSE:DEI)
 
$
23.47

 
Shares of common stock outstanding
 
142,601

 
Fully diluted shares outstanding
 
174,449

 
Equity capitalization(2)
 
$
4,094,329

 
Net debt(3)
 
$
3,202,329

 
Total enterprise value
 
$
7,296,657

 
Net debt/total enterprise value
 
44
%
 
__________________________________________

(1)
These figures include the impact of property acquisitions during the quarter, and so may not be directly comparable to numbers from prior quarters. We often seek to use our operating platform to create value by acquiring buildings with greater vacancy than our portfolio. Excluding acquisitions during the third quarter, the leased rate for our Total Portfolio was 91.7% and the occupied rate was 89.8%.
(2) Common equity capitalization represents our fully diluted shares multiplied by the closing price of our stock on September 30, 2013.
(3)
Net debt represents our consolidated debt, net of our cash and cash equivalents.  It excludes the debt of our unconsolidated real estate funds.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.



3

Douglas Emmett, Inc.
 
PROPERTY MAP
 
as of September 30, 2013

 

4

Douglas Emmett, Inc.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
 
as of September 30, 2013

CORPORATE OFFICES

808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401
Phone: (310) 255-7700

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 Anderson
 
Retired Real Estate Executive and Investor
Leslie E. Bider
 
Chief Executive Officer – PinnacleCare
Dr. David T. Feinberg
 
Chief Executive Officer – University of California, Los Angeles (UCLA) Hospital System, Associate Vice Chancellor – UCLA Health Sciences
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
William Kamer
 
Chief Investment Officer
Theodore E. Guth
 
Chief Financial Officer

For more information, please visit our website at www.douglasemmett.com or contact:

Stuart McElhinney, Vice President, Investor Relations
(310) 255-7751
smcelhinney@douglasemmett.com


5

Douglas Emmett, Inc.
 
BALANCE SHEETS
 
(in thousands)

 
September 30, 2013
 
December 31, 2012
 
(unaudited)
 
 

Assets
 

 
 

Investment in real estate:
 

 
 

Land
$
867,284

 
$
851,679

Buildings and improvements
5,381,017

 
5,244,738

Tenant improvements and lease intangibles
745,555

 
690,120

Investment in real estate, gross
6,993,856

 
6,786,537

Less: accumulated depreciation
(1,445,996
)
 
(1,304,468
)
Investment in real estate, net
5,547,860

 
5,482,069

 
 
 
 
Cash and cash equivalents
148,811

 
373,203

Tenant receivables, net
1,594

 
1,331

Deferred rent receivables, net
67,909

 
63,192

Acquired lease intangible assets, net
3,899

 
4,707

Investment in unconsolidated real estate funds
186,282

 
149,478

Other assets
30,055

 
29,827

Total assets
$
5,986,410

 
$
6,103,807

 
 
 
 
Liabilities
 
 
 

Secured notes payable
$
3,351,140

 
$
3,441,140

Interest payable, accounts payable and accrued expenses
63,402

 
45,171

Security deposits
35,410

 
34,284

Acquired lease intangible liabilities, net
63,420

 
67,035

Interest rate contracts
71,114

 
100,294

Dividends payable
25,668

 
25,424

Total liabilities
3,610,154

 
3,713,348

 
 
 
 
Equity
 
 
 

Douglas Emmett, Inc. stockholders' equity:
 
 
 

Common stock
1,426

 
1,412

Additional paid-in capital
2,653,852

 
2,635,408

Accumulated other comprehensive income (loss)
(57,624
)
 
(82,991
)
Accumulated deficit
(614,703
)
 
(574,173
)
Total Douglas Emmett, Inc. stockholders' equity
1,982,951

 
1,979,656

Noncontrolling interests
393,305

 
410,803

Total equity
2,376,256

 
2,390,459

Total liabilities and equity
$
5,986,410

 
$
6,103,807



NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.


6

Douglas Emmett, Inc.
 OPERATING RESULTS
(unaudited and in thousands, except per share data)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 

 
 

 
 

 
 

Office rental:
 

 
 

 
 

 
 

Rental revenues
$
99,795

 
$
98,608

 
$
296,275

 
$
295,361

Tenant recoveries
11,867

 
11,337

 
34,170

 
33,099

Parking and other income
18,677

 
17,478

 
55,979

 
52,428

Total office revenues
130,339

 
127,423

 
386,424

 
380,888

 
 
 
 
 
 
 
 
Multifamily rental:
 
 
 
 
 
 
 
Rental revenues
17,929

 
17,165

 
53,146

 
50,865

Parking and other income
1,418

 
1,405

 
4,290

 
4,096

Total multifamily revenues
19,347

 
18,570

 
57,436

 
54,961

 
 
 
 
 
 
 
 
Total revenues
149,686

 
145,993

 
443,860

 
435,849

 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
Office expenses
46,494

 
44,293

 
130,525

 
127,684

Multifamily expenses
5,157

 
4,999

 
15,108

 
14,860

General and administrative
6,546

 
6,610

 
20,724

 
20,051

Depreciation and amortization
47,402

 
46,546

 
141,528

 
139,071

Total operating expenses
105,599

 
102,448

 
307,885

 
301,666

 
 
 
 
 
 
 
 
Operating income
44,087

 
43,545

 
135,975

 
134,183

 
 
 
 
 
 
 
 
Other income
2,138

 
626

 
4,165

 
2,027

Other expense
(1,402
)
 
(436
)
 
(2,777
)
 
(1,445
)
Income (loss), including depreciation, from unconsolidated real estate funds
811

 
(663
)
 
3,335

 
(2,764
)
Interest expense
(32,601
)
 
(36,844
)
 
(97,832
)
 
(110,996
)
Acquisition-related expenses
(290
)
 

 
(533
)
 

Net income
12,743

 
6,228

 
42,333

 
21,005

Less:  Net income attributable to noncontrolling interests
(1,992
)
 
(1,173
)
 
(5,865
)
 
(4,037
)
Net income attributable to common stockholders
$
10,751

 
$
5,055

 
$
36,468

 
$
16,968

 
 
 
 
 
 
 
 
Net income per common share – basic
$
0.08

 
$
0.04

 
$
0.26

 
$
0.12

Net income per common share – diluted
$
0.07

 
$
0.04

 
$
0.25

 
$
0.12

 
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding - basic
142,598

 
140,301

 
142,540

 
139,453

Weighted average shares of common stock outstanding - diluted
174,756

 
173,825

 
174,874

 
172,942


NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.



7

Douglas Emmett, Inc.
FUNDS FROM OPERATIONS AND
ADJUSTED FUNDS FROM OPERATIONS
 
(unaudited and in thousands, except per share data)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Funds From Operations (FFO)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
10,751

 
$
5,055

 
$
36,468

 
$
16,968

Depreciation and amortization of real estate assets
47,402

 
46,546

 
141,528

 
139,071

Net income attributable to noncontrolling interests
1,992

 
1,173

 
5,865

 
4,037

Adjustments attributable to consolidated joint venture and investment in unconsolidated real estate funds
3,890

 
3,387

 
12,021

 
9,910

FFO (before adjustments for terminated swaps)
64,035

 
56,161

 
195,882

 
169,986

Amortization of accumulated other comprehensive income as a result of terminated swaps (1)

 
1,148

 

 
8,855

FFO (after adjustments for terminated swaps)
$
64,035

 
$
57,309

 
$
195,882

 
$
178,841

 
 
 
 
 
 
 
 
Adjusted Funds From Operations (AFFO)
 
 
 
 
 
 
 
FFO (after adjustments for terminated swaps)
$
64,035

 
$
57,309

 
$
195,882

 
$
178,841

Straight-line rent
(2,318
)
 
(1,438
)
 
(4,717
)
 
(4,284
)
Amortization of acquired above and below market leases
(3,948
)
 
(4,626
)
 
(11,970
)
 
(13,962
)
Amortization of loan premium

 

 

 
(996
)
Amortization of interest rate contracts and deferred loan costs
936

 
1,255

 
3,039

 
3,300

Recurring capital expenditures, tenant improvements and leasing commissions
(11,651
)
 
(9,765
)
 
(33,169
)
 
(31,962
)
Non-cash compensation expense
2,507

 
2,291

 
7,496

 
6,795

Adjustments attributable to consolidated joint venture and investment in unconsolidated real estate funds
(318
)
 
(299
)
 
(1,925
)
 
(982
)
AFFO
$
49,243

 
$
44,727

 
$
154,636

 
$
136,750

 
 
 
 
 
 
 
 
Weighted average share equivalents outstanding - diluted
174,756

 
173,825

 
174,874

 
172,942

FFO per share- diluted
$0.37
 
$0.33
 
$1.12
 
$1.03
AFFO per share- diluted
$0.28
 
$0.26
 
$0.88
 
$0.79
AFFO payout ratio
62.79
%
 
57.39
%
 
60.00
%
 
53.10
%
Dividends per share declared
$0.18
 
$0.15
 
$0.54
 
$0.45
__________________________________________________

(1)
We terminated certain interest rate swaps in December 2011 in connection with the refinancing of related loans. In calculating FFO in 2012, we make an adjustment to treat debt interest rate swaps as terminated for all purposes in the quarter of termination. In contrast, under GAAP, terminated swaps can continue to impact net income over their original lives as if they were still outstanding. In the three and nine months ended September 30, 2012, GAAP net income was reduced by amortization expense as a result of certain swaps terminated in December 2011, and we offset that expense by an equivalent amount in calculating our FFO. We had no swap terminations in 2012 or 2013.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.



8

Douglas Emmett, Inc.
SAME PROPERTY STATISTICAL AND FINANCIAL DATA
(unaudited and in thousands, except statistics)

 
 
As of September 30,
 
 
 
2013
 
2012
 
 
Same Property Office Statistics(1)
 
 
 
 
 
Number of properties
49

 
49

 
 
Rentable square feet (in thousands)
12,775

 
12,772

 
 
Ending % leased
92.0
%
 
90.7
%
 
 
Ending % occupied
90.2
%
 
88.9
%
 
 
Quarterly average % occupied
90.2
%
 
89.0
%
 
 
 
 
 
 
 
 
Same Property Multifamily Statistics
 
 
 
 
 
Number of properties
9

 
9

 
 
Number of units
2,868

 
2,868

 
 
Ending % leased
99.5
%
 
99.8
%
 

 
 
Three Months Ended September 30,
 
% Favorable
 
 
 
2013
 
2012
 
(Unfavorable)
 
 
Same Property Net Operating Income - GAAP Basis
 

 
 

 
 

 
 
Total office revenues
$
127,151

 
$
126,409

 
0.6
 %
 
 
Total multifamily revenues
19,347

 
18,570

 
4.2
 %
 
 
Total revenues
146,498

 
144,979

 
1.0
 %
 
 
 
 
 
 
 
 
 
 
Total office expenses
(44,870
)
 
(43,848
)
 
(2.3
)%
 
 
Total multifamily expenses
(5,157
)
 
(4,999
)
 
(3.2
)%
 
 
Total property expenses
(50,027
)
 
(48,847
)
 
(2.4
)%
 
 
 
 
 
 
 
 
 
 
Same Property NOI - GAAP basis
$
96,471

 
$
96,132

 
0.4
 %
 
 
 
 
 
 
 
 
 
 
Same Property Net Operating Income - Cash Basis
 
 
 
 
 
 
 
Total office revenues
$
122,215

 
$
121,247

 
0.8
 %
 
 
Total multifamily revenues
18,517

 
17,727

 
4.5
 %
 
 
Total revenues
140,732

 
138,974

 
1.3
 %
 
 
 
 
 
 
 
 
 
 
Total office expenses
(44,916
)
 
(43,893
)
 
(2.3
)%
 
 
Total multifamily expenses
(5,157
)
 
(4,999
)
 
(3.2
)%
 
 
Total property expenses
(50,073
)
 
(48,892
)
 
(2.4
)%
 
 
 
 
 
 
 
 
 
 
Same Property NOI - cash basis
$
90,659

 
$
90,082

 
0.6
 %
 
 
 
 
 
 
 
 
 
_____________________________________________

(1)
Our same property NOI excludes a 225,000 square foot office property in Beverly Hills that we acquired in May 2013, a 191,000 square foot office property in Encino that we acquired in August 2013, and a 79,000 square foot office property in Honolulu (in which we own a two thirds interest) which is currently undergoing a repositioning.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

9

Douglas Emmett, Inc.
RECONCILIATION OF SAME PROPERTY NOI
TO GAAP NET INCOME
 
(unaudited and in thousands)


 
Three Months Ended September 30,
 
2013
 
2012
Same property office revenues - cash basis
$
122,215

 
$
121,247

GAAP adjustments per definition of NOI - cash basis
4,936

 
5,162

Same property office revenues - GAAP basis
127,151

 
126,409

 
 
 
 
Same property multifamily revenues - cash basis
18,517

 
17,727

GAAP adjustments per definition of NOI - cash basis
830

 
843

Same property multifamily revenues - GAAP basis
19,347

 
18,570

 
 
 
 
Same property revenues - GAAP basis
146,498

 
144,979

 
 
 
 
Same property office expenses - cash basis
(44,916
)
 
(43,893
)
GAAP adjustments per definition of NOI - cash basis
46

 
45

Same property office expenses - GAAP basis
(44,870
)
 
(43,848
)
 
 
 
 
Same property multifamily expenses - cash basis
(5,157
)
 
(4,999
)
GAAP adjustments per definition of NOI - cash basis

 

Same property multifamily expenses - GAAP basis
(5,157
)
 
(4,999
)
 
 
 
 
Same property expenses - GAAP basis
(50,027
)
 
(48,847
)
 


 


Same property Net Operating Income (NOI) - GAAP basis
96,471

 
96,132

Non-comparable office revenues
3,188

 
1,014

Non-comparable office expenses
(1,624
)
 
(445
)
Total property NOI - GAAP basis
98,035

 
96,701

General and administrative expenses
(6,546
)
 
(6,610
)
Depreciation and amortization
(47,402
)
 
(46,546
)
Operating income
44,087

 
43,545

Other income
2,138

 
626

Other expense
(1,402
)
 
(436
)
Income (loss), including depreciation, from unconsolidated real estate funds
811

 
(663
)
Interest expense
(32,601
)
 
(36,844
)
Acquisition-related expenses
(290
)
 

Net income
12,743

 
6,228

Less: Net income attributable to noncontrolling interests
(1,992
)
 
(1,173
)
Net income attributable to common stockholders
$
10,751

 
$
5,055



NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.


10

Douglas Emmett, Inc.
 
OPERATING RESULTS OF
 
UNCONSOLIDATED REAL ESTATE FUNDS(1)
 
 
(unaudited and in thousands)


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Summary Income Statement of Unconsolidated Real Estate Funds(2)
 
2013
 
2012
 
2013
 
2012
Office revenues
 
$
16,219

 
$
15,492

 
$
47,627

 
$
45,928

Office expenses
 
(6,877
)
 
(6,539
)
 
(19,039
)
 
(18,242
)
NOI
 
9,342

 
8,953

 
28,588

 
27,686

General and administrative
 
(61
)
 
(47
)
 
(224
)
 
(178
)
Depreciation and amortization
 
(6,553
)
 
(6,390
)
 
(19,567
)
 
(19,721
)
Operating income
 
2,728

 
2,516

 
8,797

 
7,787

Other income (expense)
 

 
(1
)
 

 
2

Interest expense
 
(2,922
)
 
(4,988
)
 
(8,049
)
 
(16,837
)
Net income (loss)
 
$
(194
)
 
$
(2,473
)
 
$
748

 
$
(9,048
)
 
 
 
 
 
 
 
 
 
FFO of Unconsolidated Real Estate Funds (2)
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(194
)
 
$
(2,473
)
 
$
748

 
$
(9,048
)
Add back: depreciation and amortization
 
6,553

 
6,390

 
19,567

 
19,721

FFO
 
$
6,359

 
$
3,917

 
$
20,315

 
$
10,673

 
 
 
 
 
 
 
 
 
Douglas Emmett's Share of the Unconsolidated Real Estate Funds FFO
 
 
 
 
 
 
 
 
Our share of the unconsolidated real estate funds' net income (loss)
 
$
17

 
$
(1,430
)
 
$
963

 
$
(5,175
)
Add back: our share of the funds' depreciation and amortization
 
3,829

 
3,557

 
11,333

 
10,438

Equity allocation and basis difference
 
794

 
767

 
2,372

 
2,411

Our share of the unconsolidated real estate funds' FFO
 
$
4,640

 
$
2,894

 
$
14,668

 
$
7,674


__________________________________________________

(1)
We manage and own significant equity interests in two unconsolidated institutional real estate Funds which own eight office properties. Our ownership interest entitles us to a pro rata share of any distributions based on our ownership (a weighted average of 60% at September 30, 2013 based on square footage), additional distributions based on the total invested capital, and a carried interest if the investors’ distributions exceed a hurdle rate.  We also receive fees and reimbursement of expenses for managing our unconsolidated Funds’ properties.  

(2)
These amounts represent 100% (not our pro-rata share) of amounts related to the Funds.


NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.





11

Douglas Emmett, Inc.
 
DEBT BALANCES
 
(unaudited and in thousands)


Consolidated Debt
Maturity Date
 
at September 30, 2013 (1)
 
Principal Balance
Effective Annual Rate (2)
 
3/3/2014
 
$
16,140

(3) 
LIBOR + 1.85%
 
 
2/1/2015
 
111,920

 
DMBS + 0.707%
(4) 
(Fannie Mae)
4/1/2015
 
150,000

 
LIBOR +1.50%
 
 
3/1/2016
 
82,000

 
LIBOR + 0.62%
 
(Fannie Mae)
6/1/2017
 
18,000

 
LIBOR + 0.62%
 
(Fannie Mae)
10/2/2017
 
400,000

 
4.45%
(5) 
 
4/2/2018
 
510,000

 
4.12%
(5) 
 
8/1/2018
 
530,000

 
3.74%
(5) 
 
8/5/2018
 
355,000

(6) 
4.14%
 
 
2/1/2019
 
155,000

(7) 
4.00%
 
 
6/5/2019
 
285,000

(8) 
3.85%
 
 
3/1/2020
(9) 
350,000

(10) 
4.46%
 
 
11/2/2020
 
388,080

 
3.65%
(5) 
 
 
 
$
3,351,140

 
 
 
 
____________________________________________________

(1)
As of September 30, 2013, (i) the weighted average remaining life of our outstanding debt was 4.9 years; (ii) of the $2.97 billion of debt on which the interest rate was fixed under the terms of the loan or a swap, the weighted average remaining life was 5.3 years, the weighted average remaining period during which interest was fixed was 3.6 years and the weighted average annual interest rate was 4.05%; and (iii) including the non-cash amortization of interest rate contracts and prepaid financing, the effective weighted average interest rate was 4.17%. Except as otherwise noted, each loan is secured by a separate collateral pool consisting of one or more properties, requiring monthly payments of interest only with outstanding principal due upon maturity.
(2)
Includes the effect of interest rate contracts and excludes amortization of prepaid financing, all shown on an actual/360-day basis.
(3)
The borrower is a consolidated entity in which our Operating Partnership owns a two-thirds interest.
(4)
The loan has a $75.0 million tranche bearing interest at DMBS + 0.76% and a $36.9 million tranche bearing interest at DMBS + 0.60%.
(5)
Interest rates effectively fixed through interest rate swaps until the following dates: $400.0 million loan, July 2015; $510.0 million loan, April 2016; $530.0 million loan, August 2016; and $388.1 million loan, November 2017.
(6)
Interest-only until February 2016, with principal amortization thereafter based upon a 30-year amortization table.
(7)
Interest-only until February 2015, with principal amortization thereafter based upon a 30-year amortization table.
(8)
Interest only until February 2017, with principal amortization thereafter based upon a 30-year amortization table.
(9)
We have 2 one-year extension options, which would extend the maturity to March 1, 2020 from March 1, 2018, subject to meeting certain conditions.
(10)
Interest-only until March 2014 with principal amortization thereafter based upon a 30-year amortization table.

Unconsolidated Debt
 
 
at September 30, 2013
Maturity Date
 
Outstanding Principal
 
Our Share of Principal
 
Effective Annual Rate
4/1/2016
 
$
53,457

 
$
12,966

(1) 
5.67%
5/1/2018
 
325,000

 
222,980

(2) 
2.35%
 
 
$
378,457

 
$
235,946

 
 
_____________________________________________________

(1)
Loan to one of our unconsolidated Funds which is secured by one property.  Requires monthly payments of principal and interest.
(2)
Loan to one of our unconsolidated Funds which is secured by a pool of six properties. Requires monthly payments of interest only, with outstanding principal due upon maturity. The swap fixing the rate on this loan expires on May 1, 2017.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

12

Douglas Emmett, Inc.
OFFICE PORTFOLIO SUMMARY
as of September 30, 2013



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
 
8

 
1,643,911

 
10.9
%
 
7,741,422
 
21.2
%
Brentwood
 
14

 
1,700,887

 
11.3

 
3,356,126
 
50.7

Burbank
 
1

 
420,949

 
2.8

 
6,707,410
 
6.3

Century City
 
3

 
916,060

 
6.1

 
10,064,599
 
9.1

Honolulu
 
4

 
1,716,706

 
11.4

 
5,088,599
 
33.7

Olympic Corridor
 
5

 
1,098,073

 
7.3

 
3,022,969
 
36.3

Santa Monica
 
8

 
972,795

 
6.4

 
8,700,348
 
11.2

Sherman Oaks/Encino
 
12

 
3,372,128

 
22.3

 
6,171,530
 
54.6

Warner Center/Woodland Hills
 
3

 
2,855,910

 
18.9

 
7,203,647
 
39.6

Westwood
 
2

 
396,808

 
2.6

 
4,443,398
 
8.9

Total
 
60

 
15,094,227

 
100.0
%
 
62,500,048
 
24.2



_____________________________________________________

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

13

Douglas Emmett, Inc.
OFFICE PORTFOLIO PERCENT LEASED AND IN-PLACE RENTS
 
as of September 30, 2013

Submarket
 
Percent Leased(1)
 
Annualized Rent
 
Annualized Rent Per Leased Square Foot (2)
 
Monthly Rent Per Leased Square Foot
Beverly Hills
 
95.0
%
 
$
61,477,702

 
$
41.50

 
$
3.46

Brentwood
 
89.3

 
54,836,671

 
37.13

 
3.09

Burbank
 
100.0

 
15,145,670

 
35.98

 
3.00

Century City
 
98.0

 
32,748,295

 
37.49

 
3.12

Honolulu(3)
 
86.8

 
46,053,597

 
31.98

 
2.66

Olympic Corridor
 
93.5

 
30,875,595

 
30.82

 
2.57

Santa Monica(4)
 
97.7

 
49,524,159

 
53.36

 
4.45

Sherman Oaks/Encino
 
95.1

 
97,560,230

 
31.84

 
2.65

Warner Center/Woodland Hills
 
83.7

 
65,500,442

 
28.41

 
2.37

Westwood
 
94.6

 
12,620,426

 
35.38

 
2.95

Total / Weighted Average
 
91.7

 
$
466,342,787

 
34.93

 
2.91

 
 
 
 
 
 
 
 
 
Recurring Office Capital Expenditures per Rentable Square Foot
For the three months ended September 30, 2013
 
 
 
 
 
$
0.06

For the nine months ended September 30, 2013
 
 
 
 
 
$
0.16

_______________________________________________________________

(1)
Includes 312,031 square feet with respect to signed leases not yet commenced.
(2)
Represents annualized rent divided by leased square feet (excluding signed leases not commenced).
(3)
Includes $3,003,143 of annualized rent attributable to a health club that we operate.
(4)
Includes $1,332,386 of annualized rent attributable to our corporate headquarters.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

14

Douglas Emmett, Inc.
MULTIFAMILY PORTFOLIO SUMMARY
as of September 30, 2013

 
Submarket
 
Number of Properties
 
Number of Units
 
Units as a Percent of Total
 
 
Brentwood
 
5
 
950

 
33
%
 
 
Honolulu
 
2
 
1,098

 
38

 
 
Santa Monica
 
2
 
820

 
29

 
 
Total
 
9
 
2,868

 
100
%
 
 
 
 
 
 
 
 
 
 
 
Submarket
 
Percent Leased
 
Annualized Rent
 
Monthly Rent Per Leased Unit
 
 
Brentwood
 
99.8
%
 
$
25,332,257

 
$
2,227

 
 
Honolulu
 
99.3

 
20,323,140

 
1,554

 
 
Santa Monica(1)
 
99.4

 
24,082,572

 
2,462

 
 
Total / Weighted Average
 
99.5
%
 
$
69,737,969

 
2,037

 
 
Recurring Multifamily Capital Expenditures per Unit
 
 
 
For the three months ended September 30, 2013
$
86

 
 
For the nine months ended September 30, 2013
$
221

 

________________________________________________________________

(1)
Excludes 8,013 square feet of ancillary retail space generating annualized rent of $173,510.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

15

Douglas Emmett, Inc.
OFFICE TENANT DIVERSIFICATION
as of September 30, 2013




Individual tenants paying more than 1% of aggregate Annualized Rent1:
Tenant
 
Number of Leases
 
Number of Properties
 
Lease Expiration(2)
 
Total Leased Square Feet
 
Percent of Rentable Square Feet
 
Annualized Rent
 
Percent of Annualized Rent
Time Warner (3)
 
4

 
4

 
2015-2023
 
625,750

 
4.1
%
 
$
22,402,484

 
4.8
%
William Morris Endeavor
 
1

 
1

 
2027
 
175,858

 
1.2

 
9,009,119

 
1.9

The Macerich Partnership, L.P.
 
1

 
1

 
2018
 
90,832

 
0.6

 
4,803,882

 
1.0

Total
 
6

 
6

 
 
 
892,440

 
5.9
%
 
$
36,215,485

 
7.7
%

_______________________________________________________________

(1)
Based on minimum base rent in leases expiring after September 30, 2013.
(2)
Expiration dates are per leases and do not assume exercise of renewal, extension or termination options.  For tenants with multiple leases, the range shown reflects all leases other than storage and similar leases.
(3)
Includes a 10,000 square foot lease expiring in April 2015, a 150,000 square foot lease expiring in April 2016 (we have executed a lease with the existing subtenant in 101,000 square feet of this space which will commence on expiration of the current lease and to continue until July 2023), a 421,000 square foot lease expiring in September 2019 and a 45,000 square foot lease expiring in December 2020.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

16

Douglas Emmett, Inc.
OFFICE LEASE DISTRIBUTION
 
as of September 30, 2013



Square Feet Under Lease
 
Number of Leases
 
Leases as a Percent of Total
 
Rentable Square Feet
 
Square Feet as a Percent of Total
 
Annualized Rent
 
Annualized Rent as a Percent of Total
2,500 or less
 
1,289

 
51.3%
 
1,771,288

 
11.8%
 
$
61,184,053

 
13.1%
2,501-10,000
 
913

 
36.4
 
4,308,134

 
28.5
 
146,133,582

 
31.3
10,001-20,000
 
203

 
8.1
 
2,776,225

 
18.4
 
98,599,456

 
21.1
20,001-40,000
 
79

 
3.1
 
2,118,530

 
14.0
 
72,828,483

 
15.6
40,001-100,000
 
22

 
0.9
 
1,364,748

 
9.0
 
51,720,592

 
11.1
Greater than 100,000
 
5

 
0.2
 
1,010,451

 
6.7
 
35,876,621

 
7.8
Subtotal
 
2,511

 
100.0%
 
13,349,376

(1) 
88.4%
 
466,342,787

 
100.0%
Signed leases not commenced
 
 
 
 
 
312,031

 
2.1
 
 
 
 
Available
 
 
 
 
 
1,253,264

 
8.3
 
 
 
 
Building Management Use
 
 
 
 
 
109,834

 
0.7
 
 
 
 
BOMA Adjustment(2)
 
 
 
 
 
69,722

 
0.5
 
 
 
 
Total
 
2,511

 
100.0%
 
15,094,227

 
100.0%
 
$
466,342,787

 
100.0%

_________________________________________________________________

(1)
Average tenant size is approximately 5,300 square feet.  Median tenant size is approximately 2,400 square feet.
(2)
Represents square footage adjustments for leases that do not reflect BOMA 1996 remeasurement.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.



17

Douglas Emmett, Inc.
INDUSTRY DIVERSIFICATION
 
as of September 30, 2013

Industry
 
Number of Leases
 
Annualized Rent as a Percent of Total
Legal
 
507
 
18.8
%
Financial Services
 
323
 
13.8

Entertainment
 
175
 
13.7

Real Estate
 
188
 
8.9

Accounting & Consulting
 
302
 
8.6

Health Services
 
319
 
8.1

Insurance
 
121
 
7.4

Retail
 
197
 
7.1

Technology
 
108
 
4.2

Advertising
 
70
 
2.7

Public Administration
 
69
 
2.3

Educational Services
 
26
 
1.6

Other
 
106
 
2.8

Total
 
2,511
 
100.0
%
_____________________________________________________

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

18

Douglas Emmett, Inc.
OFFICE LEASE EXPIRATIONS
 
as of September 30, 2013



Year of Lease Expiration
 
Number of Leases
 
Rentable Square Feet
 
Expiring Square Feet as a Percent of Total
 
Annualized Rent at September 30, 2013
 
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
 
65

 
201,277

 
1.3
%
 
$
6,221,836

 
1.3
%
 
$
30.91

 
$
30.99

2013
 
66

 
150,160

 
1.0

 
5,072,615

 
1.1

 
33.78

 
33.93

2014
 
473

 
1,913,193

 
12.7

 
68,934,270

 
14.8

 
36.03

 
36.24

2015
 
507

 
2,081,467

 
13.8

 
71,221,661

 
15.3

 
34.22

 
35.71

2016
 
439

 
1,940,416

 
12.8

 
65,685,142

 
14.1

 
33.85

 
36.08

2017
 
347

 
1,823,193

 
12.1

 
60,190,507

 
12.9

 
33.01

 
36.50

2018
 
282

 
1,454,111

 
9.6

 
54,485,772

 
11.7

 
37.47

 
41.69

2019
 
109

 
1,217,226

 
8.1

 
41,964,705

 
9.0

 
34.48

 
38.97

2020
 
87

 
770,247

 
5.1

 
26,493,535

 
5.7

 
34.40

 
41.31

2021
 
48

 
503,810

 
3.3

 
18,315,545

 
3.9

 
36.35

 
42.14

2022
 
27

 
251,423

 
1.7

 
8,435,081

 
1.8

 
33.55

 
42.92

Thereafter
 
61

 
1,042,853

 
6.9

 
39,322,118

 
8.4

 
37.71

 
49.18

Subtotal/Weighted Average
 
2,511

 
13,349,376

 
88.4

 
466,342,787

 
100.0

 
34.93

 
38.56

Signed leases not commenced
 
312,031

 
2.1

 
 
 
 
 
 
 
 
Available
 
1,253,264

 
8.3

 
 
 
 
 
 
 
 
Building Management Use
 
109,834

 
0.7

 
 
 
 
 
 
 
 
BOMA Adjustment(3)
 
 
 
69,722

 
0.5

 
 
 
 
 
 
 
 
Total/Weighted Average
 
2,511

 
15,094,227

 
100.0
%
 
$
466,342,787

 
100.0
%
 
34.93

 
38.56

_________________________________________________________________

(1)
Represents annualized rent at September 30, 2013 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 1996 remeasurement.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

19

Douglas Emmett, Inc.
QUARTERLY OFFICE LEASE EXPIRATIONS - NEXT FOUR QUARTERS
 
as of September 30, 2013



 
 
Q4 2013
 
Q1 2014
 
Q2 2014
 
Q3 2014
 
Expiring SF(1)
 
150,160
 
357,206
 
541,373
 
421,712
 
Percentage of Portfolio
 
1.1
%
 
2.7
%
 
4.1
%
 
3.2
%
 
Expiring Rent per SF(2)
 
$
33.93

 
$
38.33

 
$
34.49

 
$
37.92

 


Detailed Submarket Data(3)
 
 
Q4 2013
 
Q1 2014
 
Q2 2014
 
Q3 2014
 
Beverly Hills
Expiring SF(1)
 
16,878

 
40,875

 
36,263

 
60,045

 
 
Expiring Rent per SF
 
$
38.54

 
$
41.46

 
$
45.85

 
$
52.43

 
 
 
 
 
 
 
 
 
 
 
 
Brentwood
Expiring SF(1)
 
5,629

 
60,502

 
62,571

 
43,809

 
 
Expiring Rent per SF
 
$
39.76

 
$
33.07

 
$
36.17

 
$
43.30

 
 
 
 
 
 
 
 
 
 
 
 
Century City
Expiring SF(1)
 
4,877

 
6,013

 
39,193

 
15,510

 
 
Expiring Rent per SF
 
$
43.59

 
$
34.74

 
$
36.44

 
$
39.80

 
 
 
 
 
 
 
 
 
 
 
 
Honolulu
Expiring SF(1)
 
32,068

 
5,566

 
26,608

 
41,216

 
 
Expiring Rent per SF
 
$
32.78

 
$
31.78

 
$
30.86

 
$
32.08

 
 
 
 
 
 
 
 
 
 
 
 
Olympic Corridor
Expiring SF(1)
 
30,844

 
26,725

 
74,966

 
35,213

 
 
Expiring Rent per SF
 
$
32.67

 
$
32.59

 
$
34.29

 
$
32.41

 
 
 
 
 
 
 
 
 
 
 
 
Santa Monica
Expiring SF(1)
 
5,037

 
43,070

 
16,725

 
32,801

 
 
Expiring Rent per SF
 
$
55.14

 
$
66.43

 
$
76.49

 
$
42.57

 
 
 
 
 
 
 
 
 
 
 
 
Sherman Oaks/Encino
Expiring SF(1)
 
26,621

 
74,457

 
90,920

 
84,529

 
 
Expiring Rent per SF
 
$
30.28

 
$
35.08

 
$
32.79

 
$
36.59

 
 
 
 
 
 
 
 
 
 
 
 
Warner Center/Woodland Hills
Expiring SF(1)
 
18,657

 
94,046

 
192,245

 
102,295

 
 
Expiring Rent per SF
 
$
25.66

 
$
31.12

 
$
29.15

 
$
30.75

 
 
 
 
 
 
 
 
 
 
 
 
Westwood
Expiring SF(1)
 
9,549

 
5,952

 
1,882

 
6,294

 
 
Expiring Rent per SF
 
$
40.46

 
$
57.29

 
$
32.51

 
$
36.86

 
_________________________________________________________________

(1)
Includes leases with an expiration date in the applicable quarter where the space had not been re-leased as of September 30, 2013, other than 201,277 square feet of short term leases. The variations in this number from quarter to quarter primarily reflects the mix of buildings/submarkets involved, although it is also impacted by the varying terms and square footage of the individual leases involved.
(2)
Includes the impact of rent escalations over the entire term of the expiring lease, and thus is not directly comparable to asking rents.
(3)
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, these numbers should be extrapolated with caution.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

20

Douglas Emmett, Inc.
OFFICE PORTFOLIO LEASING ACTIVITY
for the three months ended September 30, 2013





 
 
 
 
 
Rentable Square feet
 
Percentage
 
 
Net Absorption During Quarter(1)
 
39,216
 
0.25%
 
 
 
 
 
 
 
 
 
 
 
Office Leases Signed During Quarter
 
Number of leases
 
Rentable square feet
 
Weighted Average Lease Term (months)
 
 
New leases
 
77
 
349,891
 
72
 
 
Renewal leases
 
102
 
343,138
 
57
 
 
All leases
 
179
 
693,029
 
64
 

 
Change in Rental Rate for Office Leases Executed during the Quarter(2)
 
 
 
 
 
 
 
 
 
 
 
Starting Cash Rent
 
Straight-line Rent
 
Expiring Cash Rent(3)
 
 
Leases executed during the quarter
$34.03
 
$35.73
 
N/A
 
 
Prior leases for same space
$32.51
 
$35.20
 
$38.57
 
 
Percentage change
4.7%
 
1.5%
 
(11.8)%
 

 
Average Office Lease Transaction Costs (Per Square Foot)(4)
 
 
 
Lease Transaction Costs
 
Lease Transaction Costs per Annum
 
 
New leases signed during quarter
$25.63
 
$4.30
 
 
Renewal leases signed during quarter
$17.38
 
$3.64
 
 
All leases signed during quarter
$21.54
 
$4.01
 

________________________________________________________________

(1)
Excludes any properties acquired during the quarter.
(2)
Represents the average initial stabilized cash rents and straight-line on new and renewal leases executed during the quarter compared to the prior lease on the same space, excluding short term leases and new leases on space which had not been leased for at least a year.
(3)
The percentage change represents the difference in the starting cash rent on leases executed during the quarter compared to the expiring cash rent on the prior leases for the same space, which reflects the impact of rent escalations over the entire term of the expiring lease. The impact on cash revenues in the quarter was offset by the increase in cash revenues due to the annual rent escalations on the continuing in place leases.
(4)
Represents weighted average tenant improvements and leasing commissions.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.


21

Douglas Emmett, Inc.
 
2013 GUIDANCE
 


2013 OUTLOOK:
Metric
Guidance
Compared to Prior Guidance
Funds From Operations (FFO)
$1.48 to $1.50 per share
Revised
Office occupancy rate as of 12/31/2013
1.0% to 1.5% greater than at 12/31/12(1)
Unchanged
Residential leased rate as of 12/31/2013
Essentially fully leased
Unchanged
Same store cash NOI growth rate
Up 1.5% to 2.0% from 2012(2)
Unchanged
G&A
$28 million to $29 million
Narrowed
Interest expense
$130 million to $131 million
Unchanged
FAS 141 revenue (from above/below market leases)
$15 million to $16 million
Unchanged
Straight-line revenue
$6 million to $7 million
Revised
Recurring capex (Office)
$0.25 per square foot
Unchanged
Recurring capex (Multifamily)
$400 to $450 per unit
Unchanged
Weighted average diluted shares
174.5 million to 175.5 million(3)
Unchanged

These projections are forward looking statements and reflect our views of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the impact of various events, some of which are referenced in this earnings package or during our quarterly conference calls. Except as disclosed, this guidance does not include the impact on operating results from possible future property acquisitions or dispositions, other possible capital markets activity and possible future impairment charges. There can be no assurance that our actual results will not differ materially from the estimates set forth above.
________________________________________

(1)
Adjusted for tenant departures deferred from the fourth quarter of 2012 into 2013, projected 2013 office occupancy growth would be about 1.6% to 2.1%. Occupancy in 2013 has also been negatively impacted by acquisitions during the year, as we have sought to use our operating platform to create value by acquiring buildings with greater vacancy than our portfolio.
(2)
Includes the impact of free rent associated with the strong occupancy growth in the fourth quarter of 2012 and the renewal of a large lease with AIG.
(3)
The variation depends on the market price for our common stock and not on any stock issuances.

NOTE:  Please see the page titled "Definitions" at the end of this Earnings Package for certain definitions.

22

Douglas Emmett, Inc.
 
DEFINITIONS
 

Adjusted Funds From Operations (AFFO):  We calculate AFFO by subtracting from FFO (as adjusted for terminated swaps - see FFO definition below) straight-line rent, amortization of acquired above and below market leases, amortization of loan premiums, recurring capital expenditures, tenant improvements and leasing commissions, and adjustments attributable to consolidated joint ventures and investment in unconsolidated real estate funds, and by adding amortization of interest rate contracts and deferred loan costs and non-cash compensation expense.  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 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 should be considered only as a supplement to net income as a measure of our performance.

Annualized Rent:  Represents annualized monthly cash base rent (i.e., excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the measurement date (does not include 312,031 square feet with respect to signed leases not yet commenced at September 30, 2013).  For our triple net Burbank and Honolulu office properties, annualized rent is calculated by adding expense reimbursements to base rent.
  
Diluted Shares:  Diluted shares are calculated in accordance with accounting principles generally accepted in the United States (GAAP) and represent ownership in our company through shares of common stock, units in our Operating Partnership and other convertible equity instruments.  

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), adjusted to treat debt interest rate swaps as terminated for all purposes in the quarter of termination (see footnote 1 on page 8 for details).  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 for investments in unconsolidated real estate funds.  We provide FFO as a supplemental performance measure because, by excluding real estate depreciation, amortization and gains and losses from property dispositions, some investors use it to illustrate 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 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. 

Net Operating Income (NOI):  NOI is a non-GAAP measure consisting of the revenue and expense attributable to the real estate properties that we own and operate. We present two forms of NOI:

“NOI - GAAP basis” is calculated by excluding the following from our net income : general and administrative expense, depreciation and amortization expense, other income, other expense, income (or loss) including depreciation from unconsolidated real estate funds, interest expense, acquisition related expenses, and net income attributable to noncontrolling interests.

“NOI - Cash basis” is calculated by excluding from GAAP basis NOI our straight-line rent and the amortization of acquired above and below market leases.
 We provide NOI as a supplemental performance measure because, by excluding real estate depreciation and amortization expense and gains (or losses) from property dispositions, some investors use it to illustrate trends in

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Douglas Emmett, Inc.
 
DEFINITIONS
 

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:  Represents percent leased, not including signed leases not yet commenced as of September 30, 2013.
 
Properties Owned:  All properties included are 100% owned except 8 properties totaling 1.8 million square feet owned by our unconsolidated real estate Funds, in which we own a weighted average of approximately 60%, and a 79,000 square foot property owned by a joint venture in which we own a 66.67% interest.

Quarterly Average Percent Occupied: Represents the average of the percentage occupied on the last day of the current and prior period.

Rentable Square Feet:  Based on BOMA 1996 remeasurement.  At September 30, 2013, total consists of 13,661,407 leased square feet (including 312,031 square feet with respect to signed leases not commenced), 1,253,264 available square feet, 109,834 building management use square feet and 69,722 square feet of BOMA 1996 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, and reported in our consolidated results, during the entire span of both periods compared.  Therefore, any properties either acquired after the first day of the earlier comparison period or sold, contributed or otherwise removed from our consolidated financial statements before the last day of the later comparison period are excluded from same properties.  We may also exclude from the same property set any property that is undergoing a major repositioning project that would impact the comparability of its results between two periods.

Shares of Common Stock Outstanding:  Represents undiluted common shares outstanding as of September 30, 2013, and therefore excludes units in our Operating Partnership and other convertible equity instruments.

Short Term Leases:  Represents leases that expired on or before the measurement date or had a term of less than one year, including, for example, hold over tenancies, month to month leases and other short term occupancies.

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