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Douglas Emmett, Inc. Q2 2010 Earnings Call Transcript

Douglas Emmett, Inc. Q2 2010 Earnings Call Transcript

Douglas Emmett, Inc. (DEI)

Q2 2010 Earnings Call Transcript

August 4, 2010 2:00 pm ET

Executives

TST Recommends

Mary Jensen – VP, IR

Jordan Kaplan – President and CEO

Bill Kamer – CFO

Analysts

Chris Callan – Morgan Stanley

Alexander Goldfarb – Sandler O'Neill

Jamie Feldman – Bank of America/Merrill Lynch

Josh Attie – Citi

Brendan Maiorana – Wells Fargo

John Guinee – Stifel

Sri Nagarajan – FBR Capital Markets

Michael Knott – Green Street Advisors

Rich Anderson – BMO Capital Markets

Michael Bilerman – Citi

Ross Nussbaum – UBS

Chris Callan – Morgan Stanley

Presentation

Operator

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Ladies and gentlemen, welcome to Douglas Emmett 2010 second quarter earnings conference call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management’s prepared remarks. At that time instructions will be provided to queue up for questions. At this time, I would like to turn the conference over to Mary Jensen, Vice President of Investor Relations for Douglas Emmett. Please proceed.

Mary Jensen

Thank you. With us today are Mr. Jordan Kaplan, President and Chief Executive Officer; and Mr. Bill Kamer, Chief Financial Officer. Please note that this call is being webcast live on our Web site and will be available for replay for the next 90 days and by phone for the next seven days. Our press release and supplemental package have been filed on Form 8-K with the SEC and both are also available on our Web site at douglasemmett.com.

During the course of this call, management will be making forward-looking statements. We caution investors that any forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. The actual outcome 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 inevitably prove to be incorrect. As a result our actual future results can be can be expected to differ from our expectations, and those differences may be material.

For a more detailed description of these risks, please refer to the company’s press release and the current SEC filings, which can be accessed in the Investor Relations section of the Douglas Emmett Web site.

Please note that the market data sources that are referenced in management’s prepared remarks are CB Richard Ellis for the Honolulu and Los Angeles office markets, REIT for the Los Angeles office market, MPF Research for the Los Angeles multifamily market, and Property and Portfolio Research for the Honolulu multifamily market.

Once we’ve reached the question and answer portion, we request those of you who will be participating limit yourself to one question and one follow-up per person. This is in consideration of the others who are waiting on the line.

Now, before I turn the call over to Jordan, I would like to announce that we will be hosting an Investor Day on Wednesday, October 6 in Santa Monica. A formal (inaudible) notice will be sent shortly with more detail. Jordan, please proceed.

Jordan Kaplan

Thanks, Mary. During the second quarter, Douglas Emmett achieved several important goals and set in motion other initiatives that we expect will produce meaningful results. In terms of our fund, we reached our goal of attending at $500 million in equity commitments, including our original $150 million investment.

On June 30, we closed the subscription period with total equity commitments of $549 million. This includes a $41 million increased investment from the company.

With the subscription period closed, the company’s ownership interest in the six existing fund-owned properties is now fixed at 49%. These properties totaled roughly 1.4 million square feet. The majority of which is in Beverly Hills.

Currently, $267 million in equity commitments remain available for acquisition opportunities with the company having a 20% direct investment in the fund’s future acquisitions. In addition and as previously described, the company receives some fees and generally participates in the upside in excess of an 8% IRR to fund investors.

Also, during the second quarter, we were successful on acquiring Hawaii’s Largest Office Project, Bishop Square. It encompasses almost 1 million square feet of office space located at the center of Honolulu CBD, one of Douglas Emmett’s core submarkets and is widely viewed as the best business address in Honolulu.

We paid $232 million or approximately $240 per foot, a compelling price by historical standards for fee office projects in Honolulu. The possibility of new supply in Honolulu is theoretical due to the lack of building sites. But if development were possible, it would cost in excess of $650 per foot, over 2.5 times our cost basis in Bishop Square.

Bishop Square is an excellent acquisition on its own merits as well as achieving important strategic objectives for Douglas Emmett. It has leased to a little under 200 tenants averaging roughly 4,600 square feet, which fits perfectly with our small diversified tenant focus.

By increasing our market share of Class A office space within the Honolulu CBD to 37.1% from 15.4%, we are now in a position to complete the integration of our operating platform in Hawaii, which should pay dividends across our entire Honolulu portfolio.

In terms of additional acquisitions, the environment remains very competitive. However, we are making progress within our core Los Angeles markets to buy office properties at prices we believe represents tremendous long-term value. We expect these acquisitions will be made in our fund.

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