DEI

Douglas Emmett Inc. 10-Q Summary

Business Context and Reporting Period

Company: Douglas Emmett, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: A fully integrated, self-administered Real Estate Investment Trust (REIT) owning and managing office and multifamily properties primarily in Los Angeles County, California, and Honolulu, Hawaii. As of June 30, 2009, the portfolio consisted of 49 office properties and nine multifamily properties. The company also holds an equity interest in an unconsolidated real estate fund, Douglas Emmett Fund X, LLC (Fund X).

Key Financial Metrics

Material Changes vs. Prior Period

• Deconsolidation of Fund X: The most significant change was the deconsolidation of six Class A office properties contributed to Fund X in February 2009. This removed approximately $12.2 million in rental revenue and $5.1 million in operating expenses from the consolidated results for the three months ended June 30, 2009, compared to the prior year.
• Revenue Decline: Total revenues decreased slightly by 1.2% year-over-year for the six-month period, primarily due to the deconsolidation of Fund X properties, partially offset by rate increases on new and renewal leases in the remaining portfolio.
• Improved Net Loss: Net loss attributable to common stockholders improved by approximately 21.6% year-over-year, driven by lower interest expense due to reduced debt levels and the deconsolidation of Fund X debt.
• Dividend Reduction: The quarterly dividend was reduced from $0.1875 per share in 2008 to $0.10 per share in 2009.
• Cash Position: Cash and cash equivalents increased significantly from $8.7 million to $43.3 million, aided by a $5.6 million gain on the disposition of the interest in Fund X and strong operating cash flows.

Guidance, Outlook, and Risks

• Liquidity: The company maintains a $370 million secured revolving credit facility with no borrowings outstanding as of June 30, 2009. Management anticipates that cash from operations and the credit facility will meet liquidity needs for the next 12 months.
• Debt Hedging: Approximately 99% of outstanding debt is hedged via interest rate swaps, effectively fixing the weighted average interest rate at 5.10%.
• Risks: Key risks include adverse economic conditions in Southern California and Honolulu, potential tenant defaults, increased vacancy rates, and the impact of the credit market downturn on future capital availability. The company also faces risks related to maintaining REIT status and environmental liabilities (asbestos) at 23 properties.
• Outlook: No specific forward-looking financial guidance was provided in this filing. Management noted that the current economic downturn could impact the availability and cost of capital.

Investor Verification Checklist

• Fund X Performance: Verify the operating performance and debt service coverage of the unconsolidated Fund X, as the company retains an equity interest and potential liability for swap agreements.
• Debt Maturities: Review the maturity schedule of the $3.28 billion debt portfolio, noting that $388 million is due in 2012 and $2.3 billion in 2013.
• Occupancy Trends: Monitor occupancy rates and rental rate trends in the Los Angeles and Honolulu submarkets, as revenue is sensitive to these factors.
• Dividend Sustainability: Assess the ability to maintain the current dividend rate of $0.40 annualized given the reduced earnings and net loss position.
• Derivative Exposure: Confirm the status of interest rate swap agreements and any potential credit risk associated with counterparties.