(Save the date: RealShare Apartments comes to the Westin Bonaventure, Los Angeles, October 24.)

SANTA MONICA, CA-With a total office leased rate at 90.1% and multifamily portfolio fully leased, Douglas Emmett Inc.’s second-quarter results “exceeded our expectations,” said president and CEO Jordan Kaplan during the REIT’s earnings call this week. The firm netted 52,000 square feet of additional leasing during the quarter and did not see any slowdown despite well-publicized national and global economic concerns.

Kaplan said with a tough 2011 comparison quarter, the firm’s same-property cash NOI grew by 2.8% in the second quarter, and it leased more new office space during that time than in any other quarter since its IPO. Douglas Emmett now has four submarkets with increasing office rental rates, as Century City joins Santa Monica, Beverly Hills and the Encino/Sherman Oaks markets.

The REIT’s multifamily portfolio is seeing strong rental-rate increases. “We believe our multifamily portfolio has significant additional running room,” Kaplan said. “As a result of our improving fundamentals, we are increasing 2012 estimates for same-property NOI and occupancy growth, although as we have said before, both measures are subject to quarterly variations.”

The firm also closed a seven-year, 2.85% fixed-rate loan recently. “We believe that the long-term benefits of locking in historically low rates outweigh the negative impact on short-term earnings,” Kaplan emphasized. “We continue to work on a variety of potential office and apartment acquisitions.”

While some sellers have begun to bring product to market, it remains to be seen whether those properties will actually trade, he said. “We still hope that this part of the cycle will provide real opportunities for external growth.”

CFO Ted Guth spoke next about the firm’s second-quarter results, office and multifamily fundamentals, recent financing and an update on its 2012 guidance. Compared to the same period in 2011, Douglas Emmett’s second-quarter 2012 FFO increased 5.7% to $61.6 million, which was more than accounted for by lower interest expense—largely from its outstanding debt—and improved revenues in both office and multifamily portfolios. Compared to the same period in 2011, the company’s AFFO increased 12% to $50.9 million or 29 cents per diluted share “as our tenant improvement and leasing commissions declined to more typical levels from the unusually high numbers last quarter,” Guth said.

Comparing results from the REIT’s combined multifamily and office same properties from second-quarter 2012 to second-quarter 2011, revenues increased 0.7% on a gap basis and 2.2% on a cash basis, expenses increased by 1% on both a gap and a cash basis and NOI increased 0.6% on a gap basis and 2.6% on a cash basis, he added.

During second-quarter 2012, the firm increased the lease percentage for its total office portfolio by 30 bps to 90.1% and its occupancy rates by 30 bps to 88.2%. “We signed 829,000 square feet of office leases, setting a company record for new-tenant leasing of 320,000 square feet of new deals,” said Guth.

Although the company’s average rent on executed leases increased from last quarter, the average rent on expiring leases grew even more, with the average rent on executed leases 8.3% lower than the average expiring rent on the same space, most of this decline reflecting the impact of annual rent bumps.

“The negative impact on office revenues affects approximately 11% to 14% of our office portfolio, which is offset by annual rent bumps in our remaining leases,” Guth added.

Of the firm’s 2,900 units, 99.8% were leased as of June 30, with asking rents 6.2% higher this year than in second-quarter 2011. Regarding its balance sheet, Douglas Emmett was able to further push out its debt ladder at historically low interest rates and has ample liquidity.

Guth said the firm estimates its new loan will adversely affect its FFO in 2012 by about 3 cents per share, offset by improvements and fundamentals. Office occupancy is expected to grow by 0.5%, although he expects office occupancy by the end of 2012 will be 1.5% higher than at the end of 2011.

As GlobeSt.com previously reported, RBZ LLP, one of the largest public accounting firms in Southern California, recently relocated from the Landmark I building at 11755 Wilshire Blvd. to expanded space at the Landmark II building at 11766 Wilshire Blvd. here, which is owned by Douglas Emmett.

Instant Insights /

Douglas Emmett Q2 New Office Deals Total 320,000 SF

Related Stories

Recommended For You