NYSE:DEI Douglas Emmett Q4 2024 Earnings Report $14.26 +0.12 (+0.85%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$14.24 -0.02 (-0.14%) As of 04/25/2025 06:30 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Douglas Emmett EPS ResultsActual EPS$0.38Consensus EPS -$0.06Beat/MissBeat by +$0.44One Year Ago EPSN/ADouglas Emmett Revenue ResultsActual RevenueN/AExpected Revenue$245.03 millionBeat/MissN/AYoY Revenue GrowthN/ADouglas Emmett Announcement DetailsQuarterQ4 2024Date2/4/2025TimeAfter Market ClosesConference Call DateWednesday, February 5, 2025Conference Call Time2:00PM ETUpcoming EarningsDouglas Emmett's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 2:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Douglas Emmett Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 5, 2025 ShareLink copied to clipboard.PresentationSkip to Participants Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session. Operator00:00:16I would now like to turn the conference over to Stuart Mickelheny, Vice President of Investor Relations for Douglas Hemmied. Please go ahead. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:00:23Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO Kevin Crummey, our CIO and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next ninety days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non GAAP financial measures discussed during today's call in the earnings package. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:00:50During the course of this call, we will make forward looking statements. These forward looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are 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 prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences may be material. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:01:22For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. When we reach the question and answer portion, in consideration of others, please limit yourself to one question and one follow-up. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:01:38I will now turn the call over to Jordan. Jordan KaplanPresident and CEO at Douglas Emmett00:01:41Good morning and thank you for joining us. The recent fires in and around Los Angeles have been devastating, impacting many of our friends, partners and coworkers. Douglas Emmett is supporting the city's recovery efforts with our personnel and expertise. Fortunately, none of our properties were damaged by the fires. Jordan KaplanPresident and CEO at Douglas Emmett00:02:02We've made significant progress on several key growth initiatives. In January, we purchased an office property and By Right residential development site at the corner of Wilshire And Westwood Boulevards. In Burbank, following the move out of Warner Brothers, we have begun redevelopment of our 456,000 square foot Studio Plaza office building to convert it into a multi tenant property. We are signing leases that will commence as common areas and the related floors are completed. Our seven twelve unit Barrington Plaza residential property now has a permit to begin construction. Jordan KaplanPresident and CEO at Douglas Emmett00:02:44As expected, our fourth quarter was adversely affected by the Warner Brothers departure. Lower office occupancy and higher interest rates also negatively impacted twenty twenty four revenues and FFO. However, we maintained stable office rental rates, good control over our operating expenses and continue to produce strong performance across our residential assets. Excluding the Warner Brothers move out, we achieved positive absorption during the second half of twenty twenty four, even with muted fourth quarter leasing due to the holidays both falling mid week. Looking ahead, our 2025 lease expirations are 25% lower than twenty twenty four's record high and well below our five year average. Jordan KaplanPresident and CEO at Douglas Emmett00:03:35We're also seeing a rebound in demand from larger office tenants. Given these factors, I'm optimistic that we will achieve positive absorption during 2025. I am also excited that our ongoing development projects will provide strong long term growth. Kevin can provide some details on our new development project. Kevin CrummyChief Investment Officer at Douglas Emmett00:03:59Thanks, Jordan, and good morning, everyone. As Jordan mentioned, we formed a new joint venture to acquire a 17 story, 247,000 square foot office building and adjoining residential development site in Westwood. We estimate the JV's total investment, including acquisition, upgrades to the existing tower and construction of a new residential building will be approximately $150,000,000 to $200,000,000 over a three to four year period depending upon our final plan. The new JV obtained a $61,800,000 secured non recourse interest only loan that matures in January 2030 and has a fixed rate of 6% until July 2027 and six point two five percent thereafter. We manage and own a 30% interest in the new JV and expect to enjoy significant operating and leasing synergies due to the proximity of our other Westwood properties. Kevin CrummyChief Investment Officer at Douglas Emmett00:05:06During December 2024, we also closed a $325,000,000 loan for another of our joint ventures in which we own 20%. The loan replaced a $400,000,000 loan that we paid down using cash on hand in that JV. The new debt matures in December 2028 and is secured by five office properties with interest swapped at a fixed rate of 6.36% until January 2028. With that, I will turn the call over to Stuart. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:05:41Thanks, Kevin. Good morning, everyone. For all of 2024, we signed eight seventy six office leases totaling a record 3,800,000 square feet for an average of 945,000 square feet per quarter. During the fourth quarter, we signed two zero four office leases covering 796,000 square feet, including 242,000 square feet of new leases and 554,000 square feet of renewal leases. New leasing demand from tenants over 10,000 square feet improved again in Q4 and is now back to our pre pandemic average. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:06:17The overall value of new leases we signed in the quarter increased by 4% with cash spreads down 7%. At an average of only $5.46 per square foot per year, our leasing costs during the fourth quarter remained well below the average for other office REITs in our benchmark group. Our residential portfolio remained essentially fully leased at 99.1% with good demand. With that, I'll turn the call over to Peter to discuss our results. Peter SeymourCFO at Douglas Emmett00:06:46Thanks, Stuart. Good morning, everyone. Reviewing our results compared to the fourth quarter of twenty twenty three, revenue decreased by 5.5% due to lower office occupancy, which combined with higher interest expense lowered FFO to $0.38 per share and AFFO to $58,700,000 And same property cash NOI decreased by 4.5% due to lower office revenues, partly offset by 6% multifamily growth and good expense control. At just under 5% of revenue, our G and A remains low relative to our benchmark group. Turning to guidance, we expect our 2025 net income per common share diluted to be between negative $0.17 and negative $0.11 and our FFO per fully diluted share to be between $1.42 and $1.48 Our guidance includes the consolidation of our previously unconsolidated fund and the new joint venture that we just formed. Peter SeymourCFO at Douglas Emmett00:07:49However, we do not expect a significant contribution to FFO from the new joint venture during 2025 as we only own 30% and we expect NOI to be impacted by construction. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities. I will now turn the call over to the operator, so we can take your questions. Operator00:08:58And our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander GoldfarbManaging Director at Piper Sandler Companies00:09:04Hey, good morning. Good morning out there and certainly thoughts and prayers with those affected in the communities. Jordan, first question, I'm sure you can imagine is, we're reading a lot about some local politicians proposing or wanting to have rent freezes or eviction moratoriums. Just a sense of on the ground, what you think the likelihood of any of these happening and how you think if CEQA and the Coastal Commission truly will stand down and allow the development to go on or if you think they're also going to be challenging some of the governor's emergency initiatives. Jordan KaplanPresident and CEO at Douglas Emmett00:09:50In terms of the rent freezes, I mean, I hope they don't do anything. I know it was like moved kind of off the agenda for a while, snuck back on the agenda. I don't know what's going to happen with it. I'm hopeful from conversations that we don't have to face that again. It certainly hasn't been good for the production of rental housing. Jordan KaplanPresident and CEO at Douglas Emmett00:10:12In terms of the Coastal Commission and CEQA impacting the redevelopment of the Palisades, if you're talking about Palisades for Coastal Commission for sure, I think the Governor's order was extremely clear and then he reissued a second order to make sure it was triply clear when the Coastal Commission came back and said, we still want to be involved. And in terms of kind of the politics and the way that Coastal Commission is created, if what he wants is them not to be involved, they're not going to be involved. And he came on super strong. And by the way, the city also came on super strong. They want to fast track the reconstruction and they're working pretty hard to make sure in their words and conversations I've had with them to make sure they stay out of their own way. Jordan KaplanPresident and CEO at Douglas Emmett00:11:04So, I'm optimistic on that. Alexander GoldfarbManaging Director at Piper Sandler Companies00:11:06Okay. And then the second question, Jordan, is you gave optimistic outlook that you'll see positive absorption this year and that leasing is trending the right way. But when we look at the occupancy for the year, the guidance is 78 to 80, which is basically I think we're 79 now. So, how do we drive that average office occupancy, which basically applies flat with your positive comments on absorption and leasing trends? Jordan KaplanPresident and CEO at Douglas Emmett00:11:38Well, I mean, ops occupancy is a range to be fair. But, I will also say, occupancy is people moving in. We're working on a lot of leasing. Leasing has a lag time and especially if we're successful and we get positive absorption out of the year. And you've seen this, I know you've seen this in the past that when our leasing amps up, the spread between leased and occupied widens. Jordan KaplanPresident and CEO at Douglas Emmett00:12:03And so, I'm hopeful that we see positive absorption on leasing and of course, that's always like a great sign for occupancy moving up or eventually moving up, but there's a real lag there all the time. Operator00:12:20Our next question will come from Nick Yulico with Scotiabank. Nicholas YulicoManaging Director at Scotiabank00:12:27Following up on the leasing topic and guidance, is there a way you could give us a feeling for leasing volume assumed in guidance this year versus last year, flat, up, down in order to get to the occupancy range that you're talking about? Jordan KaplanPresident and CEO at Douglas Emmett00:12:52So, last year at the end of the year, we saw a real slowdown, which a leading indicator for us is good earnings. So, we saw it really slow down. I mean, like substantially below the amount of showings we would expect to have even in December because of the way that kind of those two there were two Wednesdays of holidays, so people seem to have sort of blown out both weeks at the end. But so, it didn't even get to our average. And we're now seeing showings in January and going forward that are way above our average. Jordan KaplanPresident and CEO at Douglas Emmett00:13:30And that's one, if not, there's others of the reasons I'm just feeling. It's that combined with that we have historically very low move outs or very low roll this year, I should say roll not move outs. We have very low roll this year, which we typically expect to get about 70% of. So, when you have lower roll and then you turn around and you go, I'm feeling good about showings and you're feeling good about the pipeline, then I'm going to be optimistic and I'm telling you guys that I am. Nicholas YulicoManaging Director at Scotiabank00:14:04Okay. And then I guess secondly is just in terms of if you could just talk about how a little bit more about how January leasing is shaping up. I don't know how much January really makes or breaks a year or not, but anything you could talk about in terms of if the fire has impacted whether it's sort of existing tenants thinking about space or leasing decisions that were kind of in the works with people if there's been any impact so far on leasing? Jordan KaplanPresident and CEO at Douglas Emmett00:14:41I think it's very hard to tell whether the fire is going to have any impact on it. Quite frankly, I don't think it is. But, there's not any data out there to figure that out yet. And even if it does have a tiny impact, and I couldn't even tell you if it would be plus or minus, the tide, the general positive tide that I just described in terms of kind of our outlook and what's going on, I think would overwhelm it. So I don't think it would be meaningful anyway. Nicholas YulicoManaging Director at Scotiabank00:15:19All right. Thanks. Appreciate Nicholas YulicoManaging Director at Scotiabank00:15:21it. Jordan KaplanPresident and CEO at Douglas Emmett00:15:21All right. Operator00:15:23Our next question will come from Steve Sakwa with Evercore. Please go ahead. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:15:30Jordan, I know you're probably low to talk about cap rates on individual deals, but can you just help us kind of size up maybe what the economics look like for both kind of the office and the planned apartment at the new acquisition of 10,900 just so we can kind of help think about either stabilized yields, IRRs, how do we think about that investment? Jordan KaplanPresident and CEO at Douglas Emmett00:15:56So, that's great that you know, I mean, we've only been working together for what, it's almost our twentieth year or something. So, that's true. I hate cap rates. I don't think cap rates are particularly indicative other than the cap rate on it, like at market leased apartment building. But I will because you ask, I will say with you knowing, I really don't like cap rates as an indicator of anything that I think we're going in at a little over a 10 cap rate and I expect when we're done with all our work to be over 10% cap Jordan KaplanPresident and CEO at Douglas Emmett00:16:34rate. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:16:34And just to be clear, that's just on the office component or that's office and residential combined? Jordan KaplanPresident and CEO at Douglas Emmett00:16:43Well, going in, it could be on anything but the obviously, the office and then coming out, it's combined. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:16:52And then, moving up to the Warner Brothers building, just as we think about the money you're putting in the $75,000,000 to $100,000,000 of CapEx redevelopment. I know Warner Brothers was paying kind of low 60s rent on that building. When you're done with the work, how do you think the new rents for the multi tenant building will stack up to that prior rent? Jordan KaplanPresident and CEO at Douglas Emmett00:17:18I think that well, I will say there so remember, they just moved out like a month or two ago. I think that we're very pleased with our leasing and we're not talking about individual deals. But, we try to describe in our prepared remarks that we're already leasing. And what's now is like we got to get this work done and get the common areas done and get some of these floors done so we can get these people in and paying. So, I would say this, we feel very good about what's going on there. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:17:57Okay, thanks. Jordan KaplanPresident and CEO at Douglas Emmett00:17:59Okay, thanks, Dean. Operator00:18:01And our next question will come from Blaine Heck with Wells Fargo. Please go ahead. Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:18:07Great. Thanks. Good morning out there. Just to follow-up on a couple of your answers. Can you remind us what the lag is between leasing and occupancy that's typical in your portfolio? Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:18:17And I guess you mentioned 70% for retention. So just to confirm, that's what you guys are expecting this year, especially given that we noticed you've got a lot of expirations in the valley towards the end of the year. Are those a concern at all? Jordan KaplanPresident and CEO at Douglas Emmett00:18:33So, we are expecting and I got to tell you, historically, with a lot of regularity experience, I think the real number is like 69 something. And that's very has historically quarter to quarter doesn't not a big deal, but it's very reliable over three, four quarters. So, that's why we're expecting and I would expect it here. And so, that was your question on renewal. And what was your other question? Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:19:06Just the typical lag between leasing and occupancy. Jordan KaplanPresident and CEO at Douglas Emmett00:19:11So, that number can range from 100 to like three fifty basis points and even higher. I mean, if you're really leasing at a torrid pace, it gets up above 300. When things are extremely lackluster, it gets down it can get down to 100. I would say, if you just look at it like there's never a normal time in real estate. But anything you would call normal time, maybe 150 basis points. Jordan KaplanPresident and CEO at Douglas Emmett00:19:42But I got to tell you, if you go back a few years when we were doing a ton of leasing, I don't know if you remember going back, but there was a time when like sort of COVID was over, but I know people weren't talking about recessions. We had a kind of a weird year there where we got positive again. And I remember we got up to about $350,000,000 and everyone was saying, when are they going to move in, when are they going to move in? And I said, well, you just want to keep that $3.50 because it means we're just doing a lot of leasing, because they were trying to like get the $3.50 back down. You don't want it to go down because those people move in, you want to have more people that are in that pipeline. Jordan KaplanPresident and CEO at Douglas Emmett00:20:21But that seems to be the Jordan KaplanPresident and CEO at Douglas Emmett00:20:22nature of it. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:20:23And Blaine, if you're asking about timing on moving folks in after we've signed a lease, typically it's very quickly we can move folks in the quarter or within two quarters of when they sign their lease. But of course on Studio Plaza with building out multi tenant quarters and that kind of stuff, it's going to take longer. Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:20:41Very helpful. Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:20:45That was fine. That was helpful commentary from you too, Jordan. And then just secondly on the acquisition, it looks like this is a new JV partner. If that's the case, can you tell us anything about that partner and their willingness to do more deals with you? And then whether QIA was considered as a partner and kind of their ongoing interest in investing with Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:21:07you? Thanks. Jordan KaplanPresident and CEO at Douglas Emmett00:21:10So, we don't really like to talk about our JV partners. And to be perfectly frank, they don't they're not anxious to be in the press. If they want to say something themselves, they're always welcome to do it. Jordan KaplanPresident and CEO at Douglas Emmett00:21:21But we've been asked the question I got to tell you, I think every quarter for now four or five years, we've been asked whether our JV partners still had an interest in buying office, still had an interest in resi, had it this, that and the other. And I said, yes, they definitely do. And you can look at the fact of how much we got squeezed down on this deal to know how aggressively they do want to be in these deals. I mean, that money is out there. And I'm happy that we were able to do a deal and give those guys some way to have some participation because if you don't give them deals, you're going to lose their attention. Jordan KaplanPresident and CEO at Douglas Emmett00:22:06And I know Kevin's been doing a good amount of traveling with Stuart and Griff and they've been getting out and continuing to send those guys. We think we're going to be able to make deals, and now we're making them. So I'm super happy about that. Operator00:22:25Our next question will come from Jeff Spector with Bank of America. Please go ahead. Jeffrey SpectorManaging Director at Bank of America00:22:31Great. Thank you. Jordan, a follow-up question on your comments around absorption. When we've met you in the past, you've talked about in a healthy I guess if there's health positive absorption, you want to see one third new, you want to see 2,000 to 4,000, 10 thousand to 15,000 square foot tenants. Can you provide a bit more color on what you're seeing in the market that backs up your thoughts for 25% besides the fact that you have less roll? Jeffrey SpectorManaging Director at Bank of America00:22:59Thank you. Jordan KaplanPresident and CEO at Douglas Emmett00:23:03So, less roll makes a big difference for sure. But, we're just seeing we're just getting a lot of activity as Stuart has said and this is one of the questions he was going to answer. But we again saw last quarter a great return of the over 10,000 square foot tenants and back to like at or above our norm, which has been what's been missing in terms of us achieving really the big goal, which is to get something in the $800,000 and to be one third new. And so, we were really having trouble getting there with the one third new because we need some of these larger guys to come back and they've come back. And then, add on to that, that as this year has launched out, I mean, we're just seeing we're just feeling much better about everything that's going on in terms of the actual lease activity, the showings and all the rest of it. Jordan KaplanPresident and CEO at Douglas Emmett00:24:04I mean, that's what caused me to write that in our prepared remarks. Jeffrey SpectorManaging Director at Bank of America00:24:11Thank you. And I guess, could you talk a little bit more about that new demand, in particular, the larger tenants? What type of industries they're coming from or they're in, I should say? Thank you. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:24:25Yes. We saw demand across the board. It wasn't concentrated in any particular industry. So we saw real estate. We saw across the board kind of demand in Q4 for those larger tenants. Jeffrey SpectorManaging Director at Bank of America00:24:42Thank you. Operator00:24:45The next Operator00:24:46question will come from Michael Griffin with Citi. Please go ahead. Michael GriffinSenior Equity Research Analyst at Citigroup00:24:51Great, thanks. Maybe to expand a little bit on Jeff's question surrounding the large tenant demand. I mean, in your summation, what has maybe changed in that tenants' mindset that makes them more confident to go out and sign leases? Is it improved business confidence? Is it an updated outlook on the economy? Michael GriffinSenior Equity Research Analyst at Citigroup00:25:12I know that work from home was never really an issue with your tenant base, but maybe just kind of the why you're seeing those sort of tenants come back to the market? Jordan KaplanPresident and CEO at Douglas Emmett00:25:25I didn't know why they weren't back last year. I didn't really I know that many large tenants were taking sort of a posture of prepare to be in a like extreme recession or that's what's coming or whatever. And I'm sure that attitude has changed and that played some role. But I got to tell you, I also watched our leasing group, our operating platform, and I will add our kind of development group, which we kind of maintained and actually oddly grew during this time and a lot of people are kind of falling away from some of those things. And they've adjusted strategies, they've been figured out how to be and where to be aggressive in this market and how to get attention. Jordan KaplanPresident and CEO at Douglas Emmett00:26:20And I don't know whether it's us, it's everybody, it's them changing their attitude, But we are some of it is just I can see it in our platform because I saw when we were bidding inside of the deal what was going on and other people that were trying to come in the market and because they might have thought that would be a good deal. And I could see that we're now substantially more qualified to handle and take advantage of these opportunities, both from leasing perspective in terms of even the our platform is even more robust now and from the perspective of having not only maintained but sort of built up our development platform. I mean, this is rare. We're now taking on multiple development deals. And I know on that deal we've just been on, I don't think anyone was even realizing there was another development opportunity there. Jordan KaplanPresident and CEO at Douglas Emmett00:27:18So, I'm feeling really good about all I mean, I feel great about it, not even just really good about our growth stuff. And I wrote that in my prepared remarks, like we have a lot of growth things going on now. Michael GriffinSenior Equity Research Analyst at Citigroup00:27:31No, that's helpful color. I can definitely gauge the And then just maybe one follow-up on the 10900 Wilshire acquisition. Do you envision this as a big tenant building? Would it be more your bread and butter kind of tenants? And anything you can comment on the upcoming rent roll or lease maturities and whether or not there's a mark to market opportunity in the building? Jordan KaplanPresident and CEO at Douglas Emmett00:28:00That building uniquely has presented us with more than one extremely good option and we need to before we talk more about it, we need to decide what direction we're going in. So, we need to spend a little more time on that. I feel that that building provides a lot of opportunity, but we got to decide in which direction we're going to go in Jordan KaplanPresident and CEO at Douglas Emmett00:28:19and we need to get Jordan KaplanPresident and CEO at Douglas Emmett00:28:20that done in the next relatively soon. So, I'm going to let that sit for a while. Michael GriffinSenior Equity Research Analyst at Citigroup00:28:28Sounds good. Appreciate it. That's it for me. Michael GriffinSenior Equity Research Analyst at Citigroup00:28:32Thanks. Operator00:28:33All right. And the next question will come from Rich Anderson with Wedbush. Please go ahead. Rich AndersonManaging Director at Wedbush Securities00:28:38Thanks. Good morning. So a quarter or two ago, Jordan, you had mentioned on Warner Center, I hope it's not single tenant. And now it's definitely not single tenant, it sounds like, based on the money you're spending. What have you guys done to sort of gauge the market to get you to the point where you're so committed to a multi tenant execution that you're spending that kind of money on it? Rich AndersonManaging Director at Wedbush Securities00:29:07Was there some work done on the ground to say, okay, we got some real opportunity here, but it's not going to be 450,000 square feet. I'm just curious what the process was? Jordan KaplanPresident and CEO at Douglas Emmett00:29:18So, I think you're talking about Studio Plaza, which is the tenant was Warner the old tenant was Warner Brothers. Rich AndersonManaging Director at Wedbush Securities00:29:26You know what I Rich AndersonManaging Director at Wedbush Securities00:29:28meant. Jordan KaplanPresident and CEO at Douglas Emmett00:29:28So, it would have been look, I'm not going to say just like all good developers and leasing guys, I mean, if a 450,000 if we would have had the problem of returning down a 450,000 foot tenant, I guess maybe I don't know that we would have turned that down. I had never seen us do that. But so I'm not sure that we had really distributed risk of multi tenant buildings. It's a great market. Jordan KaplanPresident and CEO at Douglas Emmett00:30:10We did benefit from it being a single tenant building or well, we had a decade in there when it wasn't. But in general, two out of the three decades, it was a single tenant building. And I'm pleased now to be obviously, nobody likes having their building vacate, but I'm pleased that we have an opportunity now to extremely de risk that building and lease it up. And like I said, we like what we're seeing on the lease up. I mean, we like what's going on. Jordan KaplanPresident and CEO at Douglas Emmett00:30:40So that's good. Rich AndersonManaging Director at Wedbush Securities00:30:43Do you think you'll have some real concrete stuff to talk about in the quarter that quickly from a leasing perspective? Jordan KaplanPresident and CEO at Douglas Emmett00:30:50Well, I'm really telling you we're signing leases. But if you're saying to me, are we going to start like tracking it that way? No, but we're not going to just take one building and start tracking it. But if you're asking me in terms of like having the building ready for those tenants to move in, we have actually given a bunch of info on that and that works going on. I think we might even have some imagery and stuff on our website on that building and you could see what it's going to look like going forward as has been seen by the people we're leasing to and our prospects. Rich AndersonManaging Director at Wedbush Securities00:31:25Okay. And then second question, interest expense is projected to be up 15% some odd year over year, a lot of clear rationale behind that, swaps, expirations and so on. I'm wondering if the environment is causing you to sort of change your way in your approach to the balance sheet at any level. You're kind of exposed to quite a bit of variable rate debt and that increases as time passes in 2025. Anything you can share with how you might manage this situation in the current macro environment? Jordan KaplanPresident and CEO at Douglas Emmett00:32:05So, well, we've never been in love with variable rate debt. It's just that we got to go variable when a loan is coming up, right? So we normally borrow seven years and fix it for five and we expect to refinance. And because of the way the market's been, we've been stuck with stuff that's kind of during those two years has gone to floating. It's not that that's been a strategy. Jordan KaplanPresident and CEO at Douglas Emmett00:32:27And as you can see from the deals that we did, which Kevin described in his prepared remarks, those deals are fixed, right? They're both in the sixes. So, I mean, we're willing to live with that. And as stuff comes up and we have the opportunity to make those changes with the longer term loan and those opportunities, we're probably going to swap it or do fixed rate deals. Rich AndersonManaging Director at Wedbush Securities00:32:59Okay, good enough. Thanks very much. Jordan KaplanPresident and CEO at Douglas Emmett00:33:02All right. Operator00:33:05Next question will come from Anthony Paolone with JPMorgan. Please go ahead. Anthony PaoloneExecutive Director at J.P. Morgan00:33:10Thanks. Maybe we'll stay on debt for a minute. If we look out to '26, I think you have about $1,300,000,000 coming due. Any likelihood of addressing some of that earlier than next year? And is any of that in guidance? Anthony PaoloneExecutive Director at J.P. Morgan00:33:25And also, just anything we should be looking out for as we look out to that, whether it's a big increase in spreads or where some of that debt might reside at the asset level that we need to consider? Jordan KaplanPresident and CEO at Douglas Emmett00:33:42So, well, we just announced two deals. So, you have some comps on interest rates leased, right? In terms of working on them, we definitely want to deal with them this year and are working on that. But because of the way the market is, it's as equally uncomfortable for us as everybody that we're having a walk down the line so far and deal with these loans when they're so much closer to maturity. But, the 26 debt, we at this time are very focused on dealing with now and making deals and extending out. Jordan KaplanPresident and CEO at Douglas Emmett00:34:20And for sure, we're definitely working on that. Anthony PaoloneExecutive Director at J.P. Morgan00:34:24So, there's some of that in the interest rate guidance, I assume? Jordan KaplanPresident and CEO at Douglas Emmett00:34:29No, no, because we don't include in our guidance deals that aren't done. So, when those deals are done, then that will go in there. But until they're done, we don't include like perspective or potential deals in the guidance. Anthony PaoloneExecutive Director at J.P. Morgan00:34:47Got it. Okay. And then just follow-up on 10,900, you talked about how much you like the deal and it's pretty unique. So, should we think about that as one off or are you seeing capital markets thought out there and a deal pipeline starting to build more broadly? Jordan KaplanPresident and CEO at Douglas Emmett00:35:08Do you want to answer? Kevin CrummyChief Investment Officer at Douglas Emmett00:35:10This is Kevin, Anthony. So, we did see a number of larger tenant format buildings that traded last year, but that's not what we do. We're looking for multi tenant assets that we can apply our operating platform to. And so this was a great opportunity. It was a perfect fit. Kevin CrummyChief Investment Officer at Douglas Emmett00:35:30And I'm optimistic that there's going to Kevin CrummyChief Investment Officer at Douglas Emmett00:35:33be more of that in our Kevin CrummyChief Investment Officer at Douglas Emmett00:35:34markets over the coming year. Operator00:35:43And the next question will come from John Kim with BMO Capital Markets. Please go ahead. John KimManaging Director - US Real Estate at BMO Capital Markets00:35:50Thank you. I could see why you wanted to disclose the 10% cap rate on October. But I wanted to ask about that. So on the office side, I think Jordan you mentioned that's the going in cap rate, but you do have some options. So I was wondering if there was some maturities and maybe some upside of that 10% if you redevelop it. John KimManaging Director - US Real Estate at BMO Capital Markets00:36:11And then on the multifamily, developing at a 10% yield, is that an affordable housing multifamily development and that's the reason why you can get that attractive yield? And just one more detail, if you could provide it. Jordan KaplanPresident and CEO at Douglas Emmett00:36:27So, I said above 10%. I didn't say 10%, just to be clear, in both instances. And the multifamily is not low income. It's that market. John KimManaging Director - US Real Estate at BMO Capital Markets00:36:45So, how were you able to get that? I mean, it's hard to develop above a 6%, I think, in multifamily. Jordan KaplanPresident and CEO at Douglas Emmett00:36:56It's a function of everything surrounding the deal. It's rents in the area, it's the cost to build the building, it's the price we paid and then handled that option was included in the deal. I said it on an earlier Kevin's reminding by writing on a piece of paper that it does not include there's no allocation of land because I'm telling you right now we bought it with no building and I just gave you the cap rate. So, there's no and you're assuming that we're building it for a 10 cap rate. But anyway, in what I told you is for the entire project, it's not just for the apartment building, not to say that it won't be a high cap rate. Jordan KaplanPresident and CEO at Douglas Emmett00:37:43But, Jordan KaplanPresident and CEO at Douglas Emmett00:37:47what I described earlier about kind of people's recognition of that opportunity with respect to this deal, I'm pretty sure we're the only ones that saw it because we have such a kind of robust development platform to begin with and we know what's going on here obviously. And you know there's been some changes to state law that we're very familiar with. And I've been pointing out to you guys that there's locations along Wilshire that we own today and that now like it's a new world. Now you can buy, write, build resi and with all that knowledge here and our development group and being able to understand costs and the fact that what literally, I don't know, blocks away in Brantley, we just built the high rise. We just have a lot of information on this front. Jordan KaplanPresident and CEO at Douglas Emmett00:38:35And so, we were able to recognize the opportunity and be able to also add that in. And it's very easy to do. Jordan KaplanPresident and CEO at Douglas Emmett00:38:45And we paid a Jordan KaplanPresident and CEO at Douglas Emmett00:38:46price that I think when we're bidding against everybody just contemplated that it was the building that's standing there today. John KimManaging Director - US Real Estate at BMO Capital Markets00:38:56Congrats. That sounds great. Just wanted to follow-up on your guidance. What is contemplated as far as capitalized interest and how did capitalized interest end up last year? I think you were in an $8,000,000 run rate in 2024. Peter SeymourCFO at Douglas Emmett00:39:14Yes, it's Peter. I mean, we don't give guidance specifically on capitalized interest, but you can assume that as we expand development, there will be a bit more of it. And Peter SeymourCFO at Douglas Emmett00:39:28yes, Peter SeymourCFO at Douglas Emmett00:39:28I think that's all I have to say on that. John KimManaging Director - US Real Estate at BMO Capital Markets00:39:31Can you remind us if Studio Plaza has secured debt? It does not. Great. Thank you. Operator00:39:44The next question will come from Dylan Brzezinski with Green Street. Please go ahead. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:39:51Good afternoon, guys. Thanks for taking the question. Jordan, just wanted to go back to your previous comment about having existing density within the operating portfolio today. I know you guys kind of alluded to it in the past, but can you kind of describe just Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:40:04how big Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:40:04of an opportunity set that is? Peter SeymourCFO at Douglas Emmett00:40:11Thousands of units. Jordan KaplanPresident and CEO at Douglas Emmett00:40:13Okay. It's thousands of units. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:40:21And I guess, I mean, is there any sense for a lot of these to be near term endeavors or are these sort of longer term in nature in terms of being able to actually get at that and start development process? Jordan KaplanPresident and CEO at Douglas Emmett00:40:33So, I've been asked in the past like how rapidly are we going because there was changes in state law and how rapidly are we going to move in and build and continue building units because we're a primary owner along Wilshire where most of this is impacted by these changes. And I had said in the past, I think our goal would be to do a deal in Hawaii and a deal in LA, have two deals going at a time at any particular time, but the deals take a few years and then you finish them and then you go to the next thing. And you would say, well, wait a minute, you're already in like more than one deal here because we're doing Barrington complete redo and now we also just took on another one. And so and as I said, I mean, I think it's a function of how strong our development group has become and maybe it is the case that we could take on more than one, but I'm not anxious to take on many more than two. We have two now, and it just takes a lot. Jordan KaplanPresident and CEO at Douglas Emmett00:41:47We have three now. Do we have three now? Yes. Okay. We have three now. Jordan KaplanPresident and CEO at Douglas Emmett00:41:52Stuart's putting fingers of three. So yes, we have a lot going on. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:42:00Great. And one more, if I may. You mentioned tenant activity over 10,000 square feet getting back to sort of pre pandemic levels. Can you kind of just talk about what you guys think is sort of driving this renewed optimism amongst this cohort of tenants? Jordan KaplanPresident and CEO at Douglas Emmett00:42:17Well, as I so, I think there's two kind of big things going on. Number one is, I do believe larger tenants are doing a bit of an about face and they're no longer in a completely guarded position vis a vis like a dramatic recession that's going to come and beat the place up. And I think that shift is definitely making a difference. But I'm going to tell you, I also see a difference in our penetration in the market and our teasing out tenants and getting access to tenants and getting these niches deals made. And it's hard for me to I don't know how to separate the two. Jordan KaplanPresident and CEO at Douglas Emmett00:42:56I could tell you, we got a lot more big tenant deals going, but we got a lot of people focused on it. I mean, if you ask any we have 800 people and if you go to any of them go, what's going on at Delco Summit, they're leasing, leasing, leasing. I mean, that's what's been going on. So, if you say that long enough and hard enough and focused enough and strategic enough, you're going to do leasing. So, and that's what's happening. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:43:25Great. Appreciate your comments. Operator00:43:30Question comes from Opal Rana with KeyBanc Capital Markets. Please go ahead. Upal RanaDirector - Senior Equity Research Analyst at KeyBanc Capital Markets00:43:36Great. Thanks for taking my question. The $335,000,000 loan that matures in March and that you're currently in the process of negotiating an amendment and an extension on, what are the conversations have been there like? And what's the probability of the amendment finalizing by the due date? Jordan KaplanPresident and CEO at Douglas Emmett00:43:56I mean, I don't think I'm prepared to discuss that, anything that's going on there right now. I mean, obviously, you've already outlined what's going on and that's probably the amount we're willing to discuss. So we don't like to discuss deals certainly in process and we really actually announce them after they're done and closed. Upal RanaDirector - Senior Equity Research Analyst at KeyBanc Capital Markets00:44:19Okay, sure. And then my other question would be on the 10,900 acquisition. You have about 40,000 square feet expiring this summer with some of it being sublet as well. What's your confidence that those tenants may resign? And have you had any preliminary conversation with those tenants prior to purchasing the asset, especially with your plans to upgrade the existing tower? Jordan KaplanPresident and CEO at Douglas Emmett00:44:43Well, I mean, we're in the market, we're obviously familiar with all the tenants. So, I don't know that I can I mean, we're not going to talk about individual tenants? We kind of gave you we have a couple of paths we can follow and we have to decide what path we're going to follow. I'm not I don't want to give guidance on a building like for midterm. We kind of gave you where we are today and where we're confident we're headed. Jordan KaplanPresident and CEO at Douglas Emmett00:45:14It has a lot going on. It has redevelopment, it has residential, it has a lot going on. So we need to just play that out and make some better decisions about it or make some decisions about it. I'm sure it will be good. Operator00:45:35And our next question will come from Jamie Feldman with Wells Fargo. Please go ahead. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:45:40Great. Thanks for taking the question. Just thinking big picture about the impact of the wildfires, if you fast forward a couple of years here, what do you think is going to be most different about Los Angeles going forward? And then then, based on the conversations going on with rebuilding and planning, what are you most optimistic about and what causes you the most concern about things moving forward? Jordan KaplanPresident and CEO at Douglas Emmett00:46:09So, this morning, there was an article in The New York Times about the Palisades. And it made a lot of projections about where the Palisades is headed in terms of a market, in terms of the people that are going to be there. And how the Palisades is going to change and the focus it's getting. I read it and I thought that that outcome was that was probably a good guess as anything, because there's a lot of history around other communities that have been impacted by fire, which is devastating. I mean, I didn't spend a lot of time at the beginning of this thing, but you can't imagine how much time personally the people here at Douglas Hemet, I personally can, I mean, Stuart, Kevin, Peter, not even back in his house? Jordan KaplanPresident and CEO at Douglas Emmett00:47:09I mean, what's going on now is I would have never imagined, but if you want to like jump very far forward and say like where does this all go in the end, you look at what has happened in Malibu and other markets where fires come through, you already know that the city is dedicated to making a bunch of extremely positive changes to that area in terms of where supportive of development, allowing development to be more rapid. I know a lot of people are talking about law company. I know very few people are just saying I'm out of here. Actually, almost to a tee, people are either like how fast can I rebuild and then and they're also in the market for their neighbor's lot? So I see that happening. Jordan KaplanPresident and CEO at Douglas Emmett00:47:55And I think to myself, this has been horrible destruction. We're going to go through a rough few years, but it does give me optimism about where the Palisades is headed. And so we'll see. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:48:12Okay. Thank you for that. I know it's a difficult topic. And then, I guess, just thinking about commercial real estate, we've heard about some high school leases in Santa Monica. Anything you think changes in terms of the demand profile for the different submarkets you're in or other submarkets that might be more interesting for you guys going forward with the rebuilding changes? Jordan KaplanPresident and CEO at Douglas Emmett00:48:36Well, I know we're talking to some schools too. I know there's some schools that have like kind of look for space because of course they want to stay open, right? I mean, they have all the kids and that whole thing. And I know that other schools that are were not damaged around Santa Monica. I'm on the Board of one school in Culver City, I don't want to mention them, but I know they're now accommodating other schools, students and programs to try and help out. Jordan KaplanPresident and CEO at Douglas Emmett00:49:08So, I know that that is all going on. Putting that aside, I have to say again, the actual Pacific Palisades area, they had one or two medical office buildings, medical with a little bit of normal office or some other normal office. There are the schools and there are businesses, but I'm not sure that that transplant in the size of our market is going to be the thing that like makes a big difference. And as I said, the tide of just the kind of tide of leasing, I think would overwhelm any of that. I know that I was asked earlier, which I said like a lot of people just have been displaced and they're renting houses that might not be as big as their other, where they were before, work from home to the small degree that it existed might be much more difficult now. Jordan KaplanPresident and CEO at Douglas Emmett00:50:07People want come in the office, maybe they're renting a smart place, they don't have an office or something until they build their house back. I don't even think work from home is impacting us that much. So I'm not even I can't even say that I think that will make a big difference to leasing and especially against where I think the tide of leasing is going. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:50:29Okay. I Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:50:30would assume Santa Monica gets No, that's super helpful. I mean, I Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:50:34would assume Santa Monica would get the benefit from reconstruction type architects, engineers. I mean, is that the closest part? Jordan KaplanPresident and CEO at Douglas Emmett00:50:43Well, I think Santa Monica and Brentwood and Westwood, all these areas here, I think you will that it's way too early for that to happen. But if you're saying to me there's a lot of capital that's about to come into this place and when more capital comes in, that means they need more office space and there's going to be construction and activity here in a big way for quite a few years. Yes, I mean, that will incrementally, I'm sure, make a difference. But the difference isn't a chance to get made yet, so we aren't seeing it yet. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:51:15Okay. All right. Thank you. And we send our best to your entire team. Jordan KaplanPresident and CEO at Douglas Emmett00:51:19Thanks. Operator00:51:22Our next question is a follow-up from Nick Yulico with Scotiabank. Please go ahead. Nicholas YulicoManaging Director at Scotiabank00:51:28Thanks. Just going back to 10,900, Will, sure not to beat a dead horse on this, but it looks to us that you bought the leasehold in that asset on the ground. So is that correct? And is that also why the cap rate yield expectation you're citing is higher than what some would expect? Jordan KaplanPresident and CEO at Douglas Emmett00:51:48No, we bought it in fee. We own the ground in the building. We own both. We own the whole thing. Nicholas YulicoManaging Director at Scotiabank00:51:57Thank you. Jordan KaplanPresident and CEO at Douglas Emmett00:51:58All righty. Operator00:52:01This concludes our question and answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks. Jordan KaplanPresident and CEO at Douglas Emmett00:52:09Okay. Well, thank you for joining us. I know this was a complicated release and I appreciate that you guys spent the time to look it over and had a lot of good questions. And we will be speaking with you again in a quarter. Goodbye. Operator00:52:23The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.Read moreParticipantsExecutivesStuart McElhinneyVice President, Investor RelationsKevin CrummyChief Investment OfficerPeter SeymourCFOAnalystsJordan KaplanPresident and CEO at Douglas EmmettAlexander GoldfarbManaging Director at Piper Sandler CompaniesNicholas YulicoManaging Director at ScotiabankSteve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISIBlaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo SecuritiesJeffrey SpectorManaging Director at Bank of AmericaMichael GriffinSenior Equity Research Analyst at CitigroupRich AndersonManaging Director at Wedbush SecuritiesAnthony PaoloneExecutive Director at J.P. MorganJohn KimManaging Director - US Real Estate at BMO Capital MarketsDylan BrzezinskiAnalyst at Green Street Advisors, LLCUpal RanaDirector - Senior Equity Research Analyst at KeyBanc Capital MarketsJamie FeldmanManaging Director, Head of REIT Research at Wells FargoPowered by Conference Call Audio Live Call not available Earnings Conference CallDouglas Emmett Q4 202400:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipants Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Douglas Emmett Earnings HeadlinesDouglas Emmett chairman to retireApril 22, 2025 | seekingalpha.comDouglas Emmett Announces Board Members’ RetirementApril 21, 2025 | tipranks.comHere’s How to Claim Your Stake in Elon’s Private Company, xAIEven though xAI is a private company, tech legend and angel investor Jeff Brown found a way for everyday folks like you… To partner with Elon on what he believes will be the biggest AI project of the century… Starting with as little as $500.April 27, 2025 | Brownstone Research (Ad)Douglas Emmett Inc (DEI) Announces First Quarter 2025 Earnings Release and Conference CallApril 3, 2025 | gurufocus.comDouglas Emmett Announces Dates for Its 2025 First Quarter Earnings Results and Live Conference CallApril 3, 2025 | gurufocus.comDouglas Emmett Announces Dates for Its 2025 First Quarter Earnings Results and Live Conference CallApril 3, 2025 | investing.comSee More Douglas Emmett Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Douglas Emmett? 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PresentationSkip to Participants Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. At this time, all participants are in a listen only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session. Operator00:00:16I would now like to turn the conference over to Stuart Mickelheny, Vice President of Investor Relations for Douglas Hemmied. Please go ahead. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:00:23Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO Kevin Crummey, our CIO and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next ninety days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non GAAP financial measures discussed during today's call in the earnings package. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:00:50During the course of this call, we will make forward looking statements. These forward looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are 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 prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences may be material. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:01:22For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. When we reach the question and answer portion, in consideration of others, please limit yourself to one question and one follow-up. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:01:38I will now turn the call over to Jordan. Jordan KaplanPresident and CEO at Douglas Emmett00:01:41Good morning and thank you for joining us. The recent fires in and around Los Angeles have been devastating, impacting many of our friends, partners and coworkers. Douglas Emmett is supporting the city's recovery efforts with our personnel and expertise. Fortunately, none of our properties were damaged by the fires. Jordan KaplanPresident and CEO at Douglas Emmett00:02:02We've made significant progress on several key growth initiatives. In January, we purchased an office property and By Right residential development site at the corner of Wilshire And Westwood Boulevards. In Burbank, following the move out of Warner Brothers, we have begun redevelopment of our 456,000 square foot Studio Plaza office building to convert it into a multi tenant property. We are signing leases that will commence as common areas and the related floors are completed. Our seven twelve unit Barrington Plaza residential property now has a permit to begin construction. Jordan KaplanPresident and CEO at Douglas Emmett00:02:44As expected, our fourth quarter was adversely affected by the Warner Brothers departure. Lower office occupancy and higher interest rates also negatively impacted twenty twenty four revenues and FFO. However, we maintained stable office rental rates, good control over our operating expenses and continue to produce strong performance across our residential assets. Excluding the Warner Brothers move out, we achieved positive absorption during the second half of twenty twenty four, even with muted fourth quarter leasing due to the holidays both falling mid week. Looking ahead, our 2025 lease expirations are 25% lower than twenty twenty four's record high and well below our five year average. Jordan KaplanPresident and CEO at Douglas Emmett00:03:35We're also seeing a rebound in demand from larger office tenants. Given these factors, I'm optimistic that we will achieve positive absorption during 2025. I am also excited that our ongoing development projects will provide strong long term growth. Kevin can provide some details on our new development project. Kevin CrummyChief Investment Officer at Douglas Emmett00:03:59Thanks, Jordan, and good morning, everyone. As Jordan mentioned, we formed a new joint venture to acquire a 17 story, 247,000 square foot office building and adjoining residential development site in Westwood. We estimate the JV's total investment, including acquisition, upgrades to the existing tower and construction of a new residential building will be approximately $150,000,000 to $200,000,000 over a three to four year period depending upon our final plan. The new JV obtained a $61,800,000 secured non recourse interest only loan that matures in January 2030 and has a fixed rate of 6% until July 2027 and six point two five percent thereafter. We manage and own a 30% interest in the new JV and expect to enjoy significant operating and leasing synergies due to the proximity of our other Westwood properties. Kevin CrummyChief Investment Officer at Douglas Emmett00:05:06During December 2024, we also closed a $325,000,000 loan for another of our joint ventures in which we own 20%. The loan replaced a $400,000,000 loan that we paid down using cash on hand in that JV. The new debt matures in December 2028 and is secured by five office properties with interest swapped at a fixed rate of 6.36% until January 2028. With that, I will turn the call over to Stuart. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:05:41Thanks, Kevin. Good morning, everyone. For all of 2024, we signed eight seventy six office leases totaling a record 3,800,000 square feet for an average of 945,000 square feet per quarter. During the fourth quarter, we signed two zero four office leases covering 796,000 square feet, including 242,000 square feet of new leases and 554,000 square feet of renewal leases. New leasing demand from tenants over 10,000 square feet improved again in Q4 and is now back to our pre pandemic average. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:06:17The overall value of new leases we signed in the quarter increased by 4% with cash spreads down 7%. At an average of only $5.46 per square foot per year, our leasing costs during the fourth quarter remained well below the average for other office REITs in our benchmark group. Our residential portfolio remained essentially fully leased at 99.1% with good demand. With that, I'll turn the call over to Peter to discuss our results. Peter SeymourCFO at Douglas Emmett00:06:46Thanks, Stuart. Good morning, everyone. Reviewing our results compared to the fourth quarter of twenty twenty three, revenue decreased by 5.5% due to lower office occupancy, which combined with higher interest expense lowered FFO to $0.38 per share and AFFO to $58,700,000 And same property cash NOI decreased by 4.5% due to lower office revenues, partly offset by 6% multifamily growth and good expense control. At just under 5% of revenue, our G and A remains low relative to our benchmark group. Turning to guidance, we expect our 2025 net income per common share diluted to be between negative $0.17 and negative $0.11 and our FFO per fully diluted share to be between $1.42 and $1.48 Our guidance includes the consolidation of our previously unconsolidated fund and the new joint venture that we just formed. Peter SeymourCFO at Douglas Emmett00:07:49However, we do not expect a significant contribution to FFO from the new joint venture during 2025 as we only own 30% and we expect NOI to be impacted by construction. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities. I will now turn the call over to the operator, so we can take your questions. Operator00:08:58And our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander GoldfarbManaging Director at Piper Sandler Companies00:09:04Hey, good morning. Good morning out there and certainly thoughts and prayers with those affected in the communities. Jordan, first question, I'm sure you can imagine is, we're reading a lot about some local politicians proposing or wanting to have rent freezes or eviction moratoriums. Just a sense of on the ground, what you think the likelihood of any of these happening and how you think if CEQA and the Coastal Commission truly will stand down and allow the development to go on or if you think they're also going to be challenging some of the governor's emergency initiatives. Jordan KaplanPresident and CEO at Douglas Emmett00:09:50In terms of the rent freezes, I mean, I hope they don't do anything. I know it was like moved kind of off the agenda for a while, snuck back on the agenda. I don't know what's going to happen with it. I'm hopeful from conversations that we don't have to face that again. It certainly hasn't been good for the production of rental housing. Jordan KaplanPresident and CEO at Douglas Emmett00:10:12In terms of the Coastal Commission and CEQA impacting the redevelopment of the Palisades, if you're talking about Palisades for Coastal Commission for sure, I think the Governor's order was extremely clear and then he reissued a second order to make sure it was triply clear when the Coastal Commission came back and said, we still want to be involved. And in terms of kind of the politics and the way that Coastal Commission is created, if what he wants is them not to be involved, they're not going to be involved. And he came on super strong. And by the way, the city also came on super strong. They want to fast track the reconstruction and they're working pretty hard to make sure in their words and conversations I've had with them to make sure they stay out of their own way. Jordan KaplanPresident and CEO at Douglas Emmett00:11:04So, I'm optimistic on that. Alexander GoldfarbManaging Director at Piper Sandler Companies00:11:06Okay. And then the second question, Jordan, is you gave optimistic outlook that you'll see positive absorption this year and that leasing is trending the right way. But when we look at the occupancy for the year, the guidance is 78 to 80, which is basically I think we're 79 now. So, how do we drive that average office occupancy, which basically applies flat with your positive comments on absorption and leasing trends? Jordan KaplanPresident and CEO at Douglas Emmett00:11:38Well, I mean, ops occupancy is a range to be fair. But, I will also say, occupancy is people moving in. We're working on a lot of leasing. Leasing has a lag time and especially if we're successful and we get positive absorption out of the year. And you've seen this, I know you've seen this in the past that when our leasing amps up, the spread between leased and occupied widens. Jordan KaplanPresident and CEO at Douglas Emmett00:12:03And so, I'm hopeful that we see positive absorption on leasing and of course, that's always like a great sign for occupancy moving up or eventually moving up, but there's a real lag there all the time. Operator00:12:20Our next question will come from Nick Yulico with Scotiabank. Nicholas YulicoManaging Director at Scotiabank00:12:27Following up on the leasing topic and guidance, is there a way you could give us a feeling for leasing volume assumed in guidance this year versus last year, flat, up, down in order to get to the occupancy range that you're talking about? Jordan KaplanPresident and CEO at Douglas Emmett00:12:52So, last year at the end of the year, we saw a real slowdown, which a leading indicator for us is good earnings. So, we saw it really slow down. I mean, like substantially below the amount of showings we would expect to have even in December because of the way that kind of those two there were two Wednesdays of holidays, so people seem to have sort of blown out both weeks at the end. But so, it didn't even get to our average. And we're now seeing showings in January and going forward that are way above our average. Jordan KaplanPresident and CEO at Douglas Emmett00:13:30And that's one, if not, there's others of the reasons I'm just feeling. It's that combined with that we have historically very low move outs or very low roll this year, I should say roll not move outs. We have very low roll this year, which we typically expect to get about 70% of. So, when you have lower roll and then you turn around and you go, I'm feeling good about showings and you're feeling good about the pipeline, then I'm going to be optimistic and I'm telling you guys that I am. Nicholas YulicoManaging Director at Scotiabank00:14:04Okay. And then I guess secondly is just in terms of if you could just talk about how a little bit more about how January leasing is shaping up. I don't know how much January really makes or breaks a year or not, but anything you could talk about in terms of if the fire has impacted whether it's sort of existing tenants thinking about space or leasing decisions that were kind of in the works with people if there's been any impact so far on leasing? Jordan KaplanPresident and CEO at Douglas Emmett00:14:41I think it's very hard to tell whether the fire is going to have any impact on it. Quite frankly, I don't think it is. But, there's not any data out there to figure that out yet. And even if it does have a tiny impact, and I couldn't even tell you if it would be plus or minus, the tide, the general positive tide that I just described in terms of kind of our outlook and what's going on, I think would overwhelm it. So I don't think it would be meaningful anyway. Nicholas YulicoManaging Director at Scotiabank00:15:19All right. Thanks. Appreciate Nicholas YulicoManaging Director at Scotiabank00:15:21it. Jordan KaplanPresident and CEO at Douglas Emmett00:15:21All right. Operator00:15:23Our next question will come from Steve Sakwa with Evercore. Please go ahead. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:15:30Jordan, I know you're probably low to talk about cap rates on individual deals, but can you just help us kind of size up maybe what the economics look like for both kind of the office and the planned apartment at the new acquisition of 10,900 just so we can kind of help think about either stabilized yields, IRRs, how do we think about that investment? Jordan KaplanPresident and CEO at Douglas Emmett00:15:56So, that's great that you know, I mean, we've only been working together for what, it's almost our twentieth year or something. So, that's true. I hate cap rates. I don't think cap rates are particularly indicative other than the cap rate on it, like at market leased apartment building. But I will because you ask, I will say with you knowing, I really don't like cap rates as an indicator of anything that I think we're going in at a little over a 10 cap rate and I expect when we're done with all our work to be over 10% cap Jordan KaplanPresident and CEO at Douglas Emmett00:16:34rate. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:16:34And just to be clear, that's just on the office component or that's office and residential combined? Jordan KaplanPresident and CEO at Douglas Emmett00:16:43Well, going in, it could be on anything but the obviously, the office and then coming out, it's combined. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:16:52And then, moving up to the Warner Brothers building, just as we think about the money you're putting in the $75,000,000 to $100,000,000 of CapEx redevelopment. I know Warner Brothers was paying kind of low 60s rent on that building. When you're done with the work, how do you think the new rents for the multi tenant building will stack up to that prior rent? Jordan KaplanPresident and CEO at Douglas Emmett00:17:18I think that well, I will say there so remember, they just moved out like a month or two ago. I think that we're very pleased with our leasing and we're not talking about individual deals. But, we try to describe in our prepared remarks that we're already leasing. And what's now is like we got to get this work done and get the common areas done and get some of these floors done so we can get these people in and paying. So, I would say this, we feel very good about what's going on there. Steve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISI00:17:57Okay, thanks. Jordan KaplanPresident and CEO at Douglas Emmett00:17:59Okay, thanks, Dean. Operator00:18:01And our next question will come from Blaine Heck with Wells Fargo. Please go ahead. Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:18:07Great. Thanks. Good morning out there. Just to follow-up on a couple of your answers. Can you remind us what the lag is between leasing and occupancy that's typical in your portfolio? Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:18:17And I guess you mentioned 70% for retention. So just to confirm, that's what you guys are expecting this year, especially given that we noticed you've got a lot of expirations in the valley towards the end of the year. Are those a concern at all? Jordan KaplanPresident and CEO at Douglas Emmett00:18:33So, we are expecting and I got to tell you, historically, with a lot of regularity experience, I think the real number is like 69 something. And that's very has historically quarter to quarter doesn't not a big deal, but it's very reliable over three, four quarters. So, that's why we're expecting and I would expect it here. And so, that was your question on renewal. And what was your other question? Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:19:06Just the typical lag between leasing and occupancy. Jordan KaplanPresident and CEO at Douglas Emmett00:19:11So, that number can range from 100 to like three fifty basis points and even higher. I mean, if you're really leasing at a torrid pace, it gets up above 300. When things are extremely lackluster, it gets down it can get down to 100. I would say, if you just look at it like there's never a normal time in real estate. But anything you would call normal time, maybe 150 basis points. Jordan KaplanPresident and CEO at Douglas Emmett00:19:42But I got to tell you, if you go back a few years when we were doing a ton of leasing, I don't know if you remember going back, but there was a time when like sort of COVID was over, but I know people weren't talking about recessions. We had a kind of a weird year there where we got positive again. And I remember we got up to about $350,000,000 and everyone was saying, when are they going to move in, when are they going to move in? And I said, well, you just want to keep that $3.50 because it means we're just doing a lot of leasing, because they were trying to like get the $3.50 back down. You don't want it to go down because those people move in, you want to have more people that are in that pipeline. Jordan KaplanPresident and CEO at Douglas Emmett00:20:21But that seems to be the Jordan KaplanPresident and CEO at Douglas Emmett00:20:22nature of it. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:20:23And Blaine, if you're asking about timing on moving folks in after we've signed a lease, typically it's very quickly we can move folks in the quarter or within two quarters of when they sign their lease. But of course on Studio Plaza with building out multi tenant quarters and that kind of stuff, it's going to take longer. Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:20:41Very helpful. Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:20:45That was fine. That was helpful commentary from you too, Jordan. And then just secondly on the acquisition, it looks like this is a new JV partner. If that's the case, can you tell us anything about that partner and their willingness to do more deals with you? And then whether QIA was considered as a partner and kind of their ongoing interest in investing with Blaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo Securities00:21:07you? Thanks. Jordan KaplanPresident and CEO at Douglas Emmett00:21:10So, we don't really like to talk about our JV partners. And to be perfectly frank, they don't they're not anxious to be in the press. If they want to say something themselves, they're always welcome to do it. Jordan KaplanPresident and CEO at Douglas Emmett00:21:21But we've been asked the question I got to tell you, I think every quarter for now four or five years, we've been asked whether our JV partners still had an interest in buying office, still had an interest in resi, had it this, that and the other. And I said, yes, they definitely do. And you can look at the fact of how much we got squeezed down on this deal to know how aggressively they do want to be in these deals. I mean, that money is out there. And I'm happy that we were able to do a deal and give those guys some way to have some participation because if you don't give them deals, you're going to lose their attention. Jordan KaplanPresident and CEO at Douglas Emmett00:22:06And I know Kevin's been doing a good amount of traveling with Stuart and Griff and they've been getting out and continuing to send those guys. We think we're going to be able to make deals, and now we're making them. So I'm super happy about that. Operator00:22:25Our next question will come from Jeff Spector with Bank of America. Please go ahead. Jeffrey SpectorManaging Director at Bank of America00:22:31Great. Thank you. Jordan, a follow-up question on your comments around absorption. When we've met you in the past, you've talked about in a healthy I guess if there's health positive absorption, you want to see one third new, you want to see 2,000 to 4,000, 10 thousand to 15,000 square foot tenants. Can you provide a bit more color on what you're seeing in the market that backs up your thoughts for 25% besides the fact that you have less roll? Jeffrey SpectorManaging Director at Bank of America00:22:59Thank you. Jordan KaplanPresident and CEO at Douglas Emmett00:23:03So, less roll makes a big difference for sure. But, we're just seeing we're just getting a lot of activity as Stuart has said and this is one of the questions he was going to answer. But we again saw last quarter a great return of the over 10,000 square foot tenants and back to like at or above our norm, which has been what's been missing in terms of us achieving really the big goal, which is to get something in the $800,000 and to be one third new. And so, we were really having trouble getting there with the one third new because we need some of these larger guys to come back and they've come back. And then, add on to that, that as this year has launched out, I mean, we're just seeing we're just feeling much better about everything that's going on in terms of the actual lease activity, the showings and all the rest of it. Jordan KaplanPresident and CEO at Douglas Emmett00:24:04I mean, that's what caused me to write that in our prepared remarks. Jeffrey SpectorManaging Director at Bank of America00:24:11Thank you. And I guess, could you talk a little bit more about that new demand, in particular, the larger tenants? What type of industries they're coming from or they're in, I should say? Thank you. Stuart McElhinneyVice President, Investor Relations at Douglas Emmett00:24:25Yes. We saw demand across the board. It wasn't concentrated in any particular industry. So we saw real estate. We saw across the board kind of demand in Q4 for those larger tenants. Jeffrey SpectorManaging Director at Bank of America00:24:42Thank you. Operator00:24:45The next Operator00:24:46question will come from Michael Griffin with Citi. Please go ahead. Michael GriffinSenior Equity Research Analyst at Citigroup00:24:51Great, thanks. Maybe to expand a little bit on Jeff's question surrounding the large tenant demand. I mean, in your summation, what has maybe changed in that tenants' mindset that makes them more confident to go out and sign leases? Is it improved business confidence? Is it an updated outlook on the economy? Michael GriffinSenior Equity Research Analyst at Citigroup00:25:12I know that work from home was never really an issue with your tenant base, but maybe just kind of the why you're seeing those sort of tenants come back to the market? Jordan KaplanPresident and CEO at Douglas Emmett00:25:25I didn't know why they weren't back last year. I didn't really I know that many large tenants were taking sort of a posture of prepare to be in a like extreme recession or that's what's coming or whatever. And I'm sure that attitude has changed and that played some role. But I got to tell you, I also watched our leasing group, our operating platform, and I will add our kind of development group, which we kind of maintained and actually oddly grew during this time and a lot of people are kind of falling away from some of those things. And they've adjusted strategies, they've been figured out how to be and where to be aggressive in this market and how to get attention. Jordan KaplanPresident and CEO at Douglas Emmett00:26:20And I don't know whether it's us, it's everybody, it's them changing their attitude, But we are some of it is just I can see it in our platform because I saw when we were bidding inside of the deal what was going on and other people that were trying to come in the market and because they might have thought that would be a good deal. And I could see that we're now substantially more qualified to handle and take advantage of these opportunities, both from leasing perspective in terms of even the our platform is even more robust now and from the perspective of having not only maintained but sort of built up our development platform. I mean, this is rare. We're now taking on multiple development deals. And I know on that deal we've just been on, I don't think anyone was even realizing there was another development opportunity there. Jordan KaplanPresident and CEO at Douglas Emmett00:27:18So, I'm feeling really good about all I mean, I feel great about it, not even just really good about our growth stuff. And I wrote that in my prepared remarks, like we have a lot of growth things going on now. Michael GriffinSenior Equity Research Analyst at Citigroup00:27:31No, that's helpful color. I can definitely gauge the And then just maybe one follow-up on the 10900 Wilshire acquisition. Do you envision this as a big tenant building? Would it be more your bread and butter kind of tenants? And anything you can comment on the upcoming rent roll or lease maturities and whether or not there's a mark to market opportunity in the building? Jordan KaplanPresident and CEO at Douglas Emmett00:28:00That building uniquely has presented us with more than one extremely good option and we need to before we talk more about it, we need to decide what direction we're going in. So, we need to spend a little more time on that. I feel that that building provides a lot of opportunity, but we got to decide in which direction we're going to go in Jordan KaplanPresident and CEO at Douglas Emmett00:28:19and we need to get Jordan KaplanPresident and CEO at Douglas Emmett00:28:20that done in the next relatively soon. So, I'm going to let that sit for a while. Michael GriffinSenior Equity Research Analyst at Citigroup00:28:28Sounds good. Appreciate it. That's it for me. Michael GriffinSenior Equity Research Analyst at Citigroup00:28:32Thanks. Operator00:28:33All right. And the next question will come from Rich Anderson with Wedbush. Please go ahead. Rich AndersonManaging Director at Wedbush Securities00:28:38Thanks. Good morning. So a quarter or two ago, Jordan, you had mentioned on Warner Center, I hope it's not single tenant. And now it's definitely not single tenant, it sounds like, based on the money you're spending. What have you guys done to sort of gauge the market to get you to the point where you're so committed to a multi tenant execution that you're spending that kind of money on it? Rich AndersonManaging Director at Wedbush Securities00:29:07Was there some work done on the ground to say, okay, we got some real opportunity here, but it's not going to be 450,000 square feet. I'm just curious what the process was? Jordan KaplanPresident and CEO at Douglas Emmett00:29:18So, I think you're talking about Studio Plaza, which is the tenant was Warner the old tenant was Warner Brothers. Rich AndersonManaging Director at Wedbush Securities00:29:26You know what I Rich AndersonManaging Director at Wedbush Securities00:29:28meant. Jordan KaplanPresident and CEO at Douglas Emmett00:29:28So, it would have been look, I'm not going to say just like all good developers and leasing guys, I mean, if a 450,000 if we would have had the problem of returning down a 450,000 foot tenant, I guess maybe I don't know that we would have turned that down. I had never seen us do that. But so I'm not sure that we had really distributed risk of multi tenant buildings. It's a great market. Jordan KaplanPresident and CEO at Douglas Emmett00:30:10We did benefit from it being a single tenant building or well, we had a decade in there when it wasn't. But in general, two out of the three decades, it was a single tenant building. And I'm pleased now to be obviously, nobody likes having their building vacate, but I'm pleased that we have an opportunity now to extremely de risk that building and lease it up. And like I said, we like what we're seeing on the lease up. I mean, we like what's going on. Jordan KaplanPresident and CEO at Douglas Emmett00:30:40So that's good. Rich AndersonManaging Director at Wedbush Securities00:30:43Do you think you'll have some real concrete stuff to talk about in the quarter that quickly from a leasing perspective? Jordan KaplanPresident and CEO at Douglas Emmett00:30:50Well, I'm really telling you we're signing leases. But if you're saying to me, are we going to start like tracking it that way? No, but we're not going to just take one building and start tracking it. But if you're asking me in terms of like having the building ready for those tenants to move in, we have actually given a bunch of info on that and that works going on. I think we might even have some imagery and stuff on our website on that building and you could see what it's going to look like going forward as has been seen by the people we're leasing to and our prospects. Rich AndersonManaging Director at Wedbush Securities00:31:25Okay. And then second question, interest expense is projected to be up 15% some odd year over year, a lot of clear rationale behind that, swaps, expirations and so on. I'm wondering if the environment is causing you to sort of change your way in your approach to the balance sheet at any level. You're kind of exposed to quite a bit of variable rate debt and that increases as time passes in 2025. Anything you can share with how you might manage this situation in the current macro environment? Jordan KaplanPresident and CEO at Douglas Emmett00:32:05So, well, we've never been in love with variable rate debt. It's just that we got to go variable when a loan is coming up, right? So we normally borrow seven years and fix it for five and we expect to refinance. And because of the way the market's been, we've been stuck with stuff that's kind of during those two years has gone to floating. It's not that that's been a strategy. Jordan KaplanPresident and CEO at Douglas Emmett00:32:27And as you can see from the deals that we did, which Kevin described in his prepared remarks, those deals are fixed, right? They're both in the sixes. So, I mean, we're willing to live with that. And as stuff comes up and we have the opportunity to make those changes with the longer term loan and those opportunities, we're probably going to swap it or do fixed rate deals. Rich AndersonManaging Director at Wedbush Securities00:32:59Okay, good enough. Thanks very much. Jordan KaplanPresident and CEO at Douglas Emmett00:33:02All right. Operator00:33:05Next question will come from Anthony Paolone with JPMorgan. Please go ahead. Anthony PaoloneExecutive Director at J.P. Morgan00:33:10Thanks. Maybe we'll stay on debt for a minute. If we look out to '26, I think you have about $1,300,000,000 coming due. Any likelihood of addressing some of that earlier than next year? And is any of that in guidance? Anthony PaoloneExecutive Director at J.P. Morgan00:33:25And also, just anything we should be looking out for as we look out to that, whether it's a big increase in spreads or where some of that debt might reside at the asset level that we need to consider? Jordan KaplanPresident and CEO at Douglas Emmett00:33:42So, well, we just announced two deals. So, you have some comps on interest rates leased, right? In terms of working on them, we definitely want to deal with them this year and are working on that. But because of the way the market is, it's as equally uncomfortable for us as everybody that we're having a walk down the line so far and deal with these loans when they're so much closer to maturity. But, the 26 debt, we at this time are very focused on dealing with now and making deals and extending out. Jordan KaplanPresident and CEO at Douglas Emmett00:34:20And for sure, we're definitely working on that. Anthony PaoloneExecutive Director at J.P. Morgan00:34:24So, there's some of that in the interest rate guidance, I assume? Jordan KaplanPresident and CEO at Douglas Emmett00:34:29No, no, because we don't include in our guidance deals that aren't done. So, when those deals are done, then that will go in there. But until they're done, we don't include like perspective or potential deals in the guidance. Anthony PaoloneExecutive Director at J.P. Morgan00:34:47Got it. Okay. And then just follow-up on 10,900, you talked about how much you like the deal and it's pretty unique. So, should we think about that as one off or are you seeing capital markets thought out there and a deal pipeline starting to build more broadly? Jordan KaplanPresident and CEO at Douglas Emmett00:35:08Do you want to answer? Kevin CrummyChief Investment Officer at Douglas Emmett00:35:10This is Kevin, Anthony. So, we did see a number of larger tenant format buildings that traded last year, but that's not what we do. We're looking for multi tenant assets that we can apply our operating platform to. And so this was a great opportunity. It was a perfect fit. Kevin CrummyChief Investment Officer at Douglas Emmett00:35:30And I'm optimistic that there's going to Kevin CrummyChief Investment Officer at Douglas Emmett00:35:33be more of that in our Kevin CrummyChief Investment Officer at Douglas Emmett00:35:34markets over the coming year. Operator00:35:43And the next question will come from John Kim with BMO Capital Markets. Please go ahead. John KimManaging Director - US Real Estate at BMO Capital Markets00:35:50Thank you. I could see why you wanted to disclose the 10% cap rate on October. But I wanted to ask about that. So on the office side, I think Jordan you mentioned that's the going in cap rate, but you do have some options. So I was wondering if there was some maturities and maybe some upside of that 10% if you redevelop it. John KimManaging Director - US Real Estate at BMO Capital Markets00:36:11And then on the multifamily, developing at a 10% yield, is that an affordable housing multifamily development and that's the reason why you can get that attractive yield? And just one more detail, if you could provide it. Jordan KaplanPresident and CEO at Douglas Emmett00:36:27So, I said above 10%. I didn't say 10%, just to be clear, in both instances. And the multifamily is not low income. It's that market. John KimManaging Director - US Real Estate at BMO Capital Markets00:36:45So, how were you able to get that? I mean, it's hard to develop above a 6%, I think, in multifamily. Jordan KaplanPresident and CEO at Douglas Emmett00:36:56It's a function of everything surrounding the deal. It's rents in the area, it's the cost to build the building, it's the price we paid and then handled that option was included in the deal. I said it on an earlier Kevin's reminding by writing on a piece of paper that it does not include there's no allocation of land because I'm telling you right now we bought it with no building and I just gave you the cap rate. So, there's no and you're assuming that we're building it for a 10 cap rate. But anyway, in what I told you is for the entire project, it's not just for the apartment building, not to say that it won't be a high cap rate. Jordan KaplanPresident and CEO at Douglas Emmett00:37:43But, Jordan KaplanPresident and CEO at Douglas Emmett00:37:47what I described earlier about kind of people's recognition of that opportunity with respect to this deal, I'm pretty sure we're the only ones that saw it because we have such a kind of robust development platform to begin with and we know what's going on here obviously. And you know there's been some changes to state law that we're very familiar with. And I've been pointing out to you guys that there's locations along Wilshire that we own today and that now like it's a new world. Now you can buy, write, build resi and with all that knowledge here and our development group and being able to understand costs and the fact that what literally, I don't know, blocks away in Brantley, we just built the high rise. We just have a lot of information on this front. Jordan KaplanPresident and CEO at Douglas Emmett00:38:35And so, we were able to recognize the opportunity and be able to also add that in. And it's very easy to do. Jordan KaplanPresident and CEO at Douglas Emmett00:38:45And we paid a Jordan KaplanPresident and CEO at Douglas Emmett00:38:46price that I think when we're bidding against everybody just contemplated that it was the building that's standing there today. John KimManaging Director - US Real Estate at BMO Capital Markets00:38:56Congrats. That sounds great. Just wanted to follow-up on your guidance. What is contemplated as far as capitalized interest and how did capitalized interest end up last year? I think you were in an $8,000,000 run rate in 2024. Peter SeymourCFO at Douglas Emmett00:39:14Yes, it's Peter. I mean, we don't give guidance specifically on capitalized interest, but you can assume that as we expand development, there will be a bit more of it. And Peter SeymourCFO at Douglas Emmett00:39:28yes, Peter SeymourCFO at Douglas Emmett00:39:28I think that's all I have to say on that. John KimManaging Director - US Real Estate at BMO Capital Markets00:39:31Can you remind us if Studio Plaza has secured debt? It does not. Great. Thank you. Operator00:39:44The next question will come from Dylan Brzezinski with Green Street. Please go ahead. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:39:51Good afternoon, guys. Thanks for taking the question. Jordan, just wanted to go back to your previous comment about having existing density within the operating portfolio today. I know you guys kind of alluded to it in the past, but can you kind of describe just Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:40:04how big Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:40:04of an opportunity set that is? Peter SeymourCFO at Douglas Emmett00:40:11Thousands of units. Jordan KaplanPresident and CEO at Douglas Emmett00:40:13Okay. It's thousands of units. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:40:21And I guess, I mean, is there any sense for a lot of these to be near term endeavors or are these sort of longer term in nature in terms of being able to actually get at that and start development process? Jordan KaplanPresident and CEO at Douglas Emmett00:40:33So, I've been asked in the past like how rapidly are we going because there was changes in state law and how rapidly are we going to move in and build and continue building units because we're a primary owner along Wilshire where most of this is impacted by these changes. And I had said in the past, I think our goal would be to do a deal in Hawaii and a deal in LA, have two deals going at a time at any particular time, but the deals take a few years and then you finish them and then you go to the next thing. And you would say, well, wait a minute, you're already in like more than one deal here because we're doing Barrington complete redo and now we also just took on another one. And so and as I said, I mean, I think it's a function of how strong our development group has become and maybe it is the case that we could take on more than one, but I'm not anxious to take on many more than two. We have two now, and it just takes a lot. Jordan KaplanPresident and CEO at Douglas Emmett00:41:47We have three now. Do we have three now? Yes. Okay. We have three now. Jordan KaplanPresident and CEO at Douglas Emmett00:41:52Stuart's putting fingers of three. So yes, we have a lot going on. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:42:00Great. And one more, if I may. You mentioned tenant activity over 10,000 square feet getting back to sort of pre pandemic levels. Can you kind of just talk about what you guys think is sort of driving this renewed optimism amongst this cohort of tenants? Jordan KaplanPresident and CEO at Douglas Emmett00:42:17Well, as I so, I think there's two kind of big things going on. Number one is, I do believe larger tenants are doing a bit of an about face and they're no longer in a completely guarded position vis a vis like a dramatic recession that's going to come and beat the place up. And I think that shift is definitely making a difference. But I'm going to tell you, I also see a difference in our penetration in the market and our teasing out tenants and getting access to tenants and getting these niches deals made. And it's hard for me to I don't know how to separate the two. Jordan KaplanPresident and CEO at Douglas Emmett00:42:56I could tell you, we got a lot more big tenant deals going, but we got a lot of people focused on it. I mean, if you ask any we have 800 people and if you go to any of them go, what's going on at Delco Summit, they're leasing, leasing, leasing. I mean, that's what's been going on. So, if you say that long enough and hard enough and focused enough and strategic enough, you're going to do leasing. So, and that's what's happening. Dylan BrzezinskiAnalyst at Green Street Advisors, LLC00:43:25Great. Appreciate your comments. Operator00:43:30Question comes from Opal Rana with KeyBanc Capital Markets. Please go ahead. Upal RanaDirector - Senior Equity Research Analyst at KeyBanc Capital Markets00:43:36Great. Thanks for taking my question. The $335,000,000 loan that matures in March and that you're currently in the process of negotiating an amendment and an extension on, what are the conversations have been there like? And what's the probability of the amendment finalizing by the due date? Jordan KaplanPresident and CEO at Douglas Emmett00:43:56I mean, I don't think I'm prepared to discuss that, anything that's going on there right now. I mean, obviously, you've already outlined what's going on and that's probably the amount we're willing to discuss. So we don't like to discuss deals certainly in process and we really actually announce them after they're done and closed. Upal RanaDirector - Senior Equity Research Analyst at KeyBanc Capital Markets00:44:19Okay, sure. And then my other question would be on the 10,900 acquisition. You have about 40,000 square feet expiring this summer with some of it being sublet as well. What's your confidence that those tenants may resign? And have you had any preliminary conversation with those tenants prior to purchasing the asset, especially with your plans to upgrade the existing tower? Jordan KaplanPresident and CEO at Douglas Emmett00:44:43Well, I mean, we're in the market, we're obviously familiar with all the tenants. So, I don't know that I can I mean, we're not going to talk about individual tenants? We kind of gave you we have a couple of paths we can follow and we have to decide what path we're going to follow. I'm not I don't want to give guidance on a building like for midterm. We kind of gave you where we are today and where we're confident we're headed. Jordan KaplanPresident and CEO at Douglas Emmett00:45:14It has a lot going on. It has redevelopment, it has residential, it has a lot going on. So we need to just play that out and make some better decisions about it or make some decisions about it. I'm sure it will be good. Operator00:45:35And our next question will come from Jamie Feldman with Wells Fargo. Please go ahead. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:45:40Great. Thanks for taking the question. Just thinking big picture about the impact of the wildfires, if you fast forward a couple of years here, what do you think is going to be most different about Los Angeles going forward? And then then, based on the conversations going on with rebuilding and planning, what are you most optimistic about and what causes you the most concern about things moving forward? Jordan KaplanPresident and CEO at Douglas Emmett00:46:09So, this morning, there was an article in The New York Times about the Palisades. And it made a lot of projections about where the Palisades is headed in terms of a market, in terms of the people that are going to be there. And how the Palisades is going to change and the focus it's getting. I read it and I thought that that outcome was that was probably a good guess as anything, because there's a lot of history around other communities that have been impacted by fire, which is devastating. I mean, I didn't spend a lot of time at the beginning of this thing, but you can't imagine how much time personally the people here at Douglas Hemet, I personally can, I mean, Stuart, Kevin, Peter, not even back in his house? Jordan KaplanPresident and CEO at Douglas Emmett00:47:09I mean, what's going on now is I would have never imagined, but if you want to like jump very far forward and say like where does this all go in the end, you look at what has happened in Malibu and other markets where fires come through, you already know that the city is dedicated to making a bunch of extremely positive changes to that area in terms of where supportive of development, allowing development to be more rapid. I know a lot of people are talking about law company. I know very few people are just saying I'm out of here. Actually, almost to a tee, people are either like how fast can I rebuild and then and they're also in the market for their neighbor's lot? So I see that happening. Jordan KaplanPresident and CEO at Douglas Emmett00:47:55And I think to myself, this has been horrible destruction. We're going to go through a rough few years, but it does give me optimism about where the Palisades is headed. And so we'll see. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:48:12Okay. Thank you for that. I know it's a difficult topic. And then, I guess, just thinking about commercial real estate, we've heard about some high school leases in Santa Monica. Anything you think changes in terms of the demand profile for the different submarkets you're in or other submarkets that might be more interesting for you guys going forward with the rebuilding changes? Jordan KaplanPresident and CEO at Douglas Emmett00:48:36Well, I know we're talking to some schools too. I know there's some schools that have like kind of look for space because of course they want to stay open, right? I mean, they have all the kids and that whole thing. And I know that other schools that are were not damaged around Santa Monica. I'm on the Board of one school in Culver City, I don't want to mention them, but I know they're now accommodating other schools, students and programs to try and help out. Jordan KaplanPresident and CEO at Douglas Emmett00:49:08So, I know that that is all going on. Putting that aside, I have to say again, the actual Pacific Palisades area, they had one or two medical office buildings, medical with a little bit of normal office or some other normal office. There are the schools and there are businesses, but I'm not sure that that transplant in the size of our market is going to be the thing that like makes a big difference. And as I said, the tide of just the kind of tide of leasing, I think would overwhelm any of that. I know that I was asked earlier, which I said like a lot of people just have been displaced and they're renting houses that might not be as big as their other, where they were before, work from home to the small degree that it existed might be much more difficult now. Jordan KaplanPresident and CEO at Douglas Emmett00:50:07People want come in the office, maybe they're renting a smart place, they don't have an office or something until they build their house back. I don't even think work from home is impacting us that much. So I'm not even I can't even say that I think that will make a big difference to leasing and especially against where I think the tide of leasing is going. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:50:29Okay. I Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:50:30would assume Santa Monica gets No, that's super helpful. I mean, I Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:50:34would assume Santa Monica would get the benefit from reconstruction type architects, engineers. I mean, is that the closest part? Jordan KaplanPresident and CEO at Douglas Emmett00:50:43Well, I think Santa Monica and Brentwood and Westwood, all these areas here, I think you will that it's way too early for that to happen. But if you're saying to me there's a lot of capital that's about to come into this place and when more capital comes in, that means they need more office space and there's going to be construction and activity here in a big way for quite a few years. Yes, I mean, that will incrementally, I'm sure, make a difference. But the difference isn't a chance to get made yet, so we aren't seeing it yet. Jamie FeldmanManaging Director, Head of REIT Research at Wells Fargo00:51:15Okay. All right. Thank you. And we send our best to your entire team. Jordan KaplanPresident and CEO at Douglas Emmett00:51:19Thanks. Operator00:51:22Our next question is a follow-up from Nick Yulico with Scotiabank. Please go ahead. Nicholas YulicoManaging Director at Scotiabank00:51:28Thanks. Just going back to 10,900, Will, sure not to beat a dead horse on this, but it looks to us that you bought the leasehold in that asset on the ground. So is that correct? And is that also why the cap rate yield expectation you're citing is higher than what some would expect? Jordan KaplanPresident and CEO at Douglas Emmett00:51:48No, we bought it in fee. We own the ground in the building. We own both. We own the whole thing. Nicholas YulicoManaging Director at Scotiabank00:51:57Thank you. Jordan KaplanPresident and CEO at Douglas Emmett00:51:58All righty. Operator00:52:01This concludes our question and answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks. Jordan KaplanPresident and CEO at Douglas Emmett00:52:09Okay. Well, thank you for joining us. I know this was a complicated release and I appreciate that you guys spent the time to look it over and had a lot of good questions. And we will be speaking with you again in a quarter. Goodbye. Operator00:52:23The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.Read moreParticipantsExecutivesStuart McElhinneyVice President, Investor RelationsKevin CrummyChief Investment OfficerPeter SeymourCFOAnalystsJordan KaplanPresident and CEO at Douglas EmmettAlexander GoldfarbManaging Director at Piper Sandler CompaniesNicholas YulicoManaging Director at ScotiabankSteve SakwaSenior Managing Director & Senior Equity Research Analyst at Evercore ISIBlaine HeckExecutive Director & Senior Equity Research Analyst at Wells Fargo SecuritiesJeffrey SpectorManaging Director at Bank of AmericaMichael GriffinSenior Equity Research Analyst at CitigroupRich AndersonManaging Director at Wedbush SecuritiesAnthony PaoloneExecutive Director at J.P. MorganJohn KimManaging Director - US Real Estate at BMO Capital MarketsDylan BrzezinskiAnalyst at Green Street Advisors, LLCUpal RanaDirector - Senior Equity Research Analyst at KeyBanc Capital MarketsJamie FeldmanManaging Director, Head of REIT Research at Wells FargoPowered by