Douglas Emmett Management Discusses Q3 2010 Results – Earnings Call Transcript
Douglas Emmett, Inc. (
)
Q3 2010 Earnings Call
November 3, 2010; 02:00 am ET
Executives
Jordan Kaplan - President & Chief Executive Officer
William Kamer - Chief Financial Officer
Mary Jensen - Vice President of Investor Relations
Analysts
Michael Bilerman - Citi
Alexander Goldfarb - Sandler O'Neill & Partners
James Feldman - Bank of America
Rob Stevenson - Macquarie
Chris Callan - Morgan Stanley
Brendan Maiorana – Wells Fargo
John Guinee – Stifel
Ross Nussbaum - UBS
Dave Aubuchon - Baird
Michael Knott - Green Street Advisors
Rich Anderson - BMO Capital Markets
Sri Nagarajan - FBR Capital Markets
Mitch Germain - JMP Securities
Steve Boyd - Cowen and Company
Presentation
Operator
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Ladies and gentlemen thank you for standing by. Welcome to Douglas Emmett 2010 third 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 the 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.
I’ll now turn the call over to Mr. Jordan Kaplan, President and CEO for Douglas Emmett. Jordan?
Jordan Kaplan
Thank you Mary and good morning everyone. Welcome to our third quarter earnings call. Happily, I have a lot of recent activity to share with you today. On the acquisition front, Douglas Emmett has been successful of buying in our markets throughout the economic downturn. To-date, we have added approximately 2.8 million square feet to our office portfolio since the beginning of the recession almost a 25% increase and we continue to pursue acquisition opportunities in our core submarkets.
As previously announced, we acquired a 100% ownership interest in Hawaii’s largest office project, Bishop Square on June 29. The third quarter was the first full quarter that Bishop Square contributed to our operating results. Transitioning this asset into the rest of our portfolio is going smoothly and we are very pleased with its performance.
On October 22, our fund acquired Wilshire Bundy Plaza, an office building totaling more than 310,000 square feet for a contract price of $111 million, or approximately $358 per square-foot. This project is located on Wilshire Boulevard in the Brentwood submarket; due to the fund structure, the company has approximately a 22% interest in this well located asset received some fees and has the opportunity to participate in the upside over an 8% IRR to the fund investors. This acquisition increases our market share within the Brentwood submarket to over 50% from 41%.
Our corporate headquarters was located in Wilshire Bundy Plaza for many years. So we have a very good understanding of the property. Our strategies to acquire well located Class A properties at a reasonable price due to vacancy or rehab opportunity, Wilshire Bundy is a perfect fit.
We also made progress toward achieving our financing goals. On September 30, we closed a $400 million floating rate seven year term loan that we swapped out at an effective fixed rate of 4.45% for approximately five years. We use this loan to repay the Bishop Square acquisition financing and the balance of the loan proceeds provides us with the significant amount of cash for future corporate opportunities.
We had multifamily term loans totaling approximately $388 million that were scheduled to mature on June 1, 2012. On Monday, we finalized the refinancing of those loans with 10-year loans maturing November 02, 2020. The new loans bear interest at a floating rate equal to LIBOR plus 165 basis points. We have entered into swap contracts that effectively fix the all-in rate to approximately 3.65% for seven years expiring on November 01, 2017.
As we continue to take advantage of the favorable interest rate environment, we hope to be making a series of refinancing announcements in the coming months. With that, I will now turn the call over to Bill Kamer, who will provide additional details on our third quarter activities. Bill?
Bill Kamer
Thanks Jordan. In the third quarter, the company reported FFO of $55.9 million or $0.36 per diluted share. AFFO for the quarter was $40.6 million or $0.26 per diluted share. This compares favorably to our results from a year ago of $47.8 million or $0.31 per diluted share and $35.7 million or $0.23 per diluted share respectively.
Same property net operating income in the third quarter of 2010 decreased 2.3% on a GAAP basis and 1% on a cash basis when compared to the third quarter of 2009. Same property total revenues in the third quarter of 2010 decreased 0.7% on a GAAP basis and increased 0.2% on a cash basis when compared to the third quarter of 2009.
The trend in our leasing fundamentals that we have seen in recent quarters is continuing. The third quarter was our sixth consecutive quarter of robust office leasing activity. We signed 190 new and renewal leases totaling roughly 681,000 square feet of office space compared to 167 new and renewal leases totaling 733,000 square feet last quarter. Our leasing volume included 70 new leases, new tenant leases, signed during the quarter totaling approximately 204,000 square feet.
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