Douglas Emmett Inc (DEI) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you, for standing by. Welcome to Douglas Emmett's quarterly earnings call to discuss its 2011 fourth quarter and year end financial results. 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. I will now turn the conference over to Mary Jensen, Vice President of Investor Relations for Douglas Emmett. Please proceed.

Thank you. Joining us today on the call are Jordan Kaplan, our President and Chief Executive Officer, and Ted Guth, our Chief Financial Officer. Please note that this call is being Webcast live on our website 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 has been filed on form 8-K with the SEC and both are also available on our website at douglasemmett.com.

During the course of this call, we 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. Therefore, our actual future results can be expected to differ from our expectations and those differences may be material. For a more detailed description on some potential risks, please refer to our press release and the current SEC filings which can be accessed on the Investor Relations section of our website.

Please note that the market data sources that may be referenced in our remarks are CB Richard Ellis for the Honolulu and Los Angeles office markets. [Reef] for the Los Angeles office market, M/PF Research for the Los Angeles multi-family market, and Property and Portfolio Research for the Honolulu multi-family market.

Once we reach the question and answer portion, we request that all participants limit themselves to one question and one follow-up per person. This is in consideration of the others who are waiting. I will now turn the call over to Jordan Kaplan, President and CEO of Douglas Emmett. Jordan?

Thank you, Mary. Good morning, everyone and thank you for joining us. As we noted in our press release, since our last call we have paid off all of our 2012 debt maturities and substantially reduced our overall leverage. We raised an additional $190 million through our ATM program, completing that program.

As previously announced, we recently closed a new $155 million, seven year term loan at an interest rate of 4% per annum. We then used the proceeds of those actions, together with cash on hand, to pay off all of the remaining $522 million of debt scheduled to mature in 2012. As of February 1, we no longer have any near term debt maturities.

We have reduced our aggregate consolidated debt by over 10%, or approximately $367 million, and we have lowered our consolidated loan to value to 47%. Following our debt reduction, we still have more than $150 million of cash on hand and continue to have significant positive cash flow.

Today, our balance sheet is the strongest it has been since we became a public company. We have no near term maturities and we have locked in very low interest rates for many years into the future. In addition, we have ample liquidity for acquisitions from our funds, our cash on hand, our growing positive operating cash flow, and our unencumbered properties.

In terms of fundamentals, I'm pleased to announce that we expect to report positive same property cash NOI for 2012. In our office portfolio, we also expect to see continued improvement in occupancy, as well as rental increases in a number of our submarkets. In our multi-family portfolio, rental rates are increasing in all of our markets.

Tourism and foreign trade had record years in Los Angeles during 2011, as did entertainment, media and technology -- entertainment, media, and technology, which continued to benefit from their industry's convergence. All of these industries provide good further support to our already robust legal, accounting, and financial service tenants.

We completed 2011 with over 106,000 square feet of positive absorption in our office portfolio. This is a dramatic turnaround from the almost 220,000 square feet of negative absorption we sustained in 2010. Given our significant liquidity, we hope that 2012 provides more acquisition opportunities than we saw in 2011.

Our first acquisition for 2012 will be to acquire an additional 16.3% interest in one of our institutional funds for approximately $33.4 million. That fund owns six properties totaling 1.4 million square feet of office space. I will now turn the call over to Ted.

Thanks, Jordan. Good morning or good afternoon. I'd like to begin with our 2011 annual and fourth quarter results after which I'll address our office and multi-family fundamentals and our recent leverage reduction.

I'll finish with some color on our 2012 guidance. Comparing the full year of 2011 to 2010, our FFO increased by 13.8% to $1.38 per diluted share, and our AFFO increased by 11.4% to $1 per diluted share. Compared to the same period in 2010, our fourth quarter 2011 FFO increased 90 basis points to $43.9 million, or $0.27 per diluted share, while our AFFO decreased 5.5% to $27.4 million, or $0.17 per diluted share.

As we've previously announced, in December 2011 we terminated a $322.5 million interest rate swap that had been scheduled to expire in August 2012. As a result, our FFO and our AFFO for the fourth quarter and for the full year of 2011 were both reduced by a one-time charge of $10.1 million, or $0.06 per diluted share.

This swap termination will not have any impact on either FFO or AFFO during 2012. Our 2011 G&A totaled approximately $29.3 million, or 5.1% of total revenues. For the fourth quarter of 2011, our G&A totaled $8 million, or 5.6% of total revenues. Comparing the results for our same properties in the fourth quarter of 2011 with the fourth quarter of 2010, revenue decreased 1.7% on a GAAP basis, and 1.6% on a cash basis.

Expenses decreased by 1.4%, both on a GAAP basis and on a cash basis. And, net operating income decreased 1.9% on a GAAP basis and 1.7% on a cash basis. We saw record leasing activity during the fourth quarter. Overall, we signed 190 new and renewal office leases totaling more than 906,000 square feet compared to 170 new and renewal leases totaling 641,000 square feet in the third quarter.

Our fourth quarter results included 81 new office leases, totaling 244,000 square feet, compared to 74 new office leases totaling 237,000 square feet in the third quarter. We signed 109 renewal leases in the fourth quarter, totaling 663,000 square feet, compared to 96 renewal leases totaling 404,000 square feet in the third quarter.

Our renewal leases during the fourth quarter included a 170,000 square foot renewal and expansion lease to William Morris Endeavor until 2027. The occupancy rate for our total office portfolio in the fourth quarter increased by 40 basis points from the third quarter to 87.5%, while our lease percentage I'm improved by 90 basis points to 89.3%.

Our average annualized tenant improvements, leasing commissions, and other capitalized leasing costs for our office portfolio in the fourth quarter decreased to $3.42 per square foot per year, from $3.84 in the third quarter. During the fourth quarter, the mark-to-market and rent roll metrics for our office portfolio showed continued improvement.

On a straight line basis, our average rent on new and renewal leases signed during the fourth quarter was 4.9% higher than the average rent on the expiring lease for the same space. Excluding the impact of the long-term William Morris Endeavor lease, our average rent was 2.4% lower than the average rent on the expiring lease for the same space.

On a mark-to-market basis our asking starting rents were 10.4% lower than our in-place cash rents. Excluding the impact of our built-in annual 3% to 5% rent escalations, our asking starting rents were between 4% and 5% lower than our in-place cash rents. On a cash basis, our beginning cash rent on new and renewal leases signed during the fourth quarter was 8.7% lower than the average ending rent on the expiring leases for the same space.

Rents on expiring leases include the impact of our annual 3% to 5% rent bumps over the entire term of the expiring lease. As we have said before, the negative effect of rent roll-downs on our office rental revenues, which affect approximately 11% to 14% of our office portfolio each year, are offset by the positive impact of the annual 3% to 5% rent bumps in our continuing in-place leases.

On the multi-family side, our nine communities aggregating over 2,800 units were 99.6% leased at December 31, 2011. During the fourth quarter of 2011, we continued to see strong rent increases. Our average rent on new leases to residential tenants was 4.2% higher than the rent for the same unit at the time it became vacant.

During 2011, we also made progress on our pre-1999 units. From 1979 to 1999, the Santa Monica rent control laws did not permit raising rents to market even following a vacancy. Consequently the rent for our units which have not been vacated since 1999 are significantly below market.

During 2011, we turned 19 of those units increasing rent by an average of over $2,100 per month. At the end of 2011, we had 264 pre-1999 units remaining. Capital expenditures for our apartment communities in 2011 averaged $502 per unit.

The next item I'd like to discuss is the deleveraging we accomplished last month. Since the beginning of 2012, we completed our ATM stock program by raising an additional $190 million after our last call. This brought our total sales for our ATM to approximately $13.2 million with aggregate gross proceeds of $250 million.

We attained a secured nonrecourse $155 million term loan which bears interest at fixed rate of 4% per annum and matures on February 1, 2019. We used the proceeds from this loan and from our ATM, as well as a portion of our cash on hand, to repay the remaining $522 million of our debt scheduled to mature in 2012.

By taking these actions, we reduced our outstanding consolidated debt to $3.26 billion from $3.62 billion on December 31, 2011. As Jordan said, we reduced the ratio of our consolidated debt to total capitalization to 47% as of February 1. We now have virtually no consolidated debt maturing until 2015.

Even after this paydown, we continue to have strong liquidity including over $150 million in cash and cash equivalents as of February 1, continued strong cash flow with a 2011 AFFO payout ratio of only 48.7%, and approximately $400 million of buying power through our institutional fund. In addition, we continue to explore a secured credit line and expect to replenish our ATM in the next month or two.

While we do not expect to issue equity for further deleveraging. Both facilities would provide additional sources of liquidity for future acquisitions. We are also considering another term loan to lock in current low interest rates and pay down existing shorter term debt. As Jordan mentioned, we have agreed to purchase a 16.3% interest in our institutional fund from a European investor that is rebalancing its portfolio.

The purchase price is approximately $33.4 million of equity. That fund owns six properties totaling over 1.4 million square feet of space in our core submarkets. The amount of this purchase could be reduced if other investors in the fund exercise their right of first refusal.

Finally, turning to guidance. We expect to increase FFO by about 4% to 8% in 2012 to between $230 million and $240 million. The increase reflects expected improvements in interest expense, cash NOI, and G&A, partly offset by continued decline in FAS 141 straight line income stemming from our IPO.

Because of the additional shares we issued to reduce our debt, this guidance translates into a range of $1.33 to $1.39 per diluted share. However, we expect to report greater AFFO per share for 2012 than for 2011, even after the dilution from the recently issued shares. Our guidance range reflects the following underlying assumptions for 2012.

We estimate that our same property cash NOI will be positive by between 1% and 1.5%. Individual quarters in 2012 may show a decline as same property cash NOI is very sensitive to the timing of expenses and other matters. We estimate that our office occupancy at the end of 2012 will be about 1% higher than at the end of 2011, while our multi-family portfolio will remain essentially fully leased.

We estimate that our total interest expense affecting AFF -- affecting FFO will range between $133 million and $135 million. We estimate that our G&A will range between $27.5 million and $28.5 million. We estimate that our FAS 141 income will range between $17 million and $18.5 million. We estimate that our straight line income will range between $4 million and $6 million.

We estimate that our weighted average diluted share count will range between 172 million shares and 173 million shares. We estimate that our recurring capital expenditures for our office portfolio will be approximately $0.25 per square foot. And, that recurring multifamily capital expenditures will range between $400 and $450 per unit.

Other than the purchase of the fund interest described earlier, our guidance excludes any impact from future acquisitions, dispositions, equity issuances or repurchases, debt financings or repayments, recapitalizations, or similar matters. With that, I will now turn the call over to the operator so we may take your questions.

(Operator Instructions)

Jordan Sadler.

[Malvin] here with Jordan. Could you give the timing on the ATM issuance? I know you said since 3Q. But, share count didn't really move that much in 4Q. Was it mainly in January?

That's correct.

And, do you have an average dollar amount for that?

The average over the entire ATM was almost exactly $19.

Now, you guys have more cash than you thought you were going to have. It sounds like last time you thought you were going to use most of the cash to pay down the term loan. So, you have $150 million plus left.

You guys are re-upping ATM, putting a revolver in place. Do you guys have -- is the acquisition pipeline growing, maybe on the wholly owned side, that you guys are gearing up to add additional liquidity beyond what's in the fund? Or is it just prudent liquidity management?

Well, I always hope that the acquisition pipeline is gearing up. And, I thought it was kind of lackluster last year. So, I'm hoping there's some reverb into this year and there's a little more that we're able to do. But, in general -- for sure putting the ATM in place is just prudent because we don't really have a use for that anymore in terms of deleveraging.

But, it's going to have there because I'd love it if we had enough good acquisitions come around or some larger deals that that was something that we thought we had to use. And, the credit line also is an inexpensive way to have liquidity. We may not -- it's not for sure that we will do the credit line but we're strongly considering it.

Great. Thank you.

Alex Goldfarb.

Good morning out there.

Good morning, Alex.

Hey, Alex.

Hey. Just quickly on fund, I want to call it Fund X but I guess it's Fund 10.

That's correct.

It's just our tenth fund. We did nine funds as a private company. This is our tenth fund.

Right, okay. So, what is the -- first of all, how is the valuation set? What is the -- what's your -- now that we're all well familiar with ROFO rights, what's the interest from your co-investors? And then, what does this imply about the IRR of the fund to date?

I don't know what it -- I mean, it's a negotiated purchase price with a seller that wanted to sell their interest for reasons that they said very clearly had nothing to do with the performance or the investments of the fund. We recommended to them that they not sell it. But, we were happy also to buy it.

And, beyond that, their other -- everybody has a right -- they wanted to get a transaction done relatively expeditiously. And so, we said well, we'll buy it and we'll make that offer to the rest of the investors in the fund that have a right to buy their interest. Remember, we're already a large owner in that fund. So, if a couple other investors want to take their position or percent interest they still have a right to do that.

Okay. And, but how -- I guess what evaluation metric, like how would we think about the price from either a cap rate? And then, also, what does this imply about the IRR of the fund so far?

I mean, I don't think it implies anything about the IRR of the fund. In terms of cap rate, I'm not sure that -- relative cap rates of buying a fund with cash and everything else aren't going to work out that well. If you want to try and put your hand on some type of value indicator for it, we paid around $400 a foot for that grouping of properties.

Okay. And then, second question is just -- is this European investor, would you say this is an isolated example? Or are you hearing from some of your other European contacts that investors, financial institutions, et cetera, are seeking to raise capital as quickly as they can?

You would have to be hearing that. We're hearing that everywhere.

You hear stuff but what you hear in the press versus what's actually happened can be two different things. That's why I'm curious.

Actually, there aren't a lot of European investors in these funds. I don't know that we have additional data points that would be useful to you beyond, as Jordan said, what we all hear in the press.

Okay. Thank you.

Joshua Attie.

Prepared remarks about rent escalations on in place leases offsetting the negative impact of negative spreads on new leases. That's the way we've been thinking about the portfolio. But, can you reconcile that with the 2.5% revenue decline on same store office in the quarter?

Yes. We have some of that -- there's a very small impact from average occupancy in the quarter. But, a lot of it has to do with both tenant recoveries, because we had lower expenses in the quarter.

And, therefore, our Cams tend to go down. And, in addition to that, we've had, as you probably know, long-term declines in our FAS 141 adjustments, because there was a significant amount of FAS 141 that came on when we did the IPO. And, as those leases are terminating, that amount of FAS 141 income has gone down.

And so, there's a significant -- so, the adjustments are all in the sort of non, what you would think of, as base rent rate. It's in things like FAS 141. It can be in straight line and --.

The cash number was down 2.5%.

About $1 million -- there's a fair amount of tenant recoveries that's down. The cash number's down primarily because of tenant recoveries.

Okay. Can you also talk about the Endeavor lease? Maybe just how much square footage was that of the 900,000 square feet. And, can you repeat what the impact was on the spreads?

Yes. The Endeavor lease is a total of 170,000 that's included in the leasing facility because it includes an expansion, some of the expansion pieces will come in over the course of the next couple of years.

And, if you exclude that from the mark rate, the average rent was 2.4% lower than the average rent on the expiring lease for the same space. So, still, it is down as it's been in prior quarters, but I think it's a significant improvement.

On a cash basis down 2.4%?

That's on a straight line basis. On a cash basis, I don't have that cash basis number.

It's not going to be meaningful because they renewed.

Yes.

So, it would be doing lease to lease, one moving out and the new one coming in on a renewal isn't going to make a lot of sense.

Okay. Thank you.

Ross Nussbaum.

Hi, guys. Good morning. Couple questions. If I look at the new leasing activity in the fourth quarter, looks like the average tenant size was somewhere around 3,000 feet. So, seems to be your bread and butter kind of tenants. Is that about right in terms of what you're seeing in terms of the new demand?

That's correct.

Okay. On the balance sheet front, I thought I heard in the guidance that you didn't include anything on the debt front but I want to be clear. You've got some swaps that are terminating in March and June of this year. It's not a lot. It's like $100 million. What's the game plan for those swaps?

I don't think that -- well, the assumption in the -- is that the swaps are not -- there's no new swaps on that. So, that debt would then float. That's the assumption. And, given the term on that remaining on that debt, I don't know that we would swap it out.

So, does the guidance assume already that those go from effectively fixed to floating?

Yes, yes it does, I'm sorry.

Just to be clear. And then, you've got a big swap expiring January of '13. I know that's a year away. But, it does impact the numbers meaningfully. Is there a game plan at this point for that swap?

I don't think at this point we have anything that we decided on that swap.

Okay. And then, lastly, I just want to make sure I heard correctly. You are planning on doing another term loan potentially to take out some floating rate debt here in the next couple months?

We may be doing that, yes.

But again, that's not in the guidance.

That is not in the guidance.

Got you, okay. Thank you.

Rob Stevenson.

Could you talk a little bit about which submarkets today you're seeing the greatest relative strength in? And, where you're still seeing pockets of weakness?

Well, I mean, clearly the best submarkets right now -- the best submarket is Santa Monica which, as we told you last quarter, has really been on fire. And, in addition to that, Beverly Hills has a lot of strength, particularly in the downtown section which is spreading out to the other sections. Sherman Oaks, Encino is doing really well as well.

We've -- Century City, we still have that -- if you look at our -- we generally talk about 95% being structurally full because of the timetable to replace tenants in our small tenant portfolio. So, that's also sitting at a very full rate there. Westwood, starting to come back from the sort of noise we had for a couple of quarters. And, clearly the one that will remain our development market is where we've got most of our vacancies out in Warner Center.

Any stirrings there in terms of whether or not it's in your portfolio or just in the market in general in terms of big lease signings out there that's driving that market these days?

There's activity out there. And, we're optimistic that we're going to be able to push our occupancy up. But, it's -- whenever you're dealing with a larger tenant market like that and you lose huge chunks of space when they move out, it's hard to feel the impact of that activity for a while. I think we're feeling like we're going to make some good progress there this year.

A couple of other things. We bought that market with the hope that it would convert over time to the small tenant market. And, I think we're still seeing that. But, that means that market's going to have some noise in it for a while.

The other thing I'd say about that is with Sherman Oaks, and I think we said this in the last call, with the strength coming in Sherman Oaks, Encino, we're hoping to be able to start to push some of the tenants out towards Warner Center and maybe see some of the strength improve in that market as well.

Okay. And then, given your comments about the big spread between people who have moved out of apartments in Santa Monica that had been there for a long period of time, what's the number of units that you guys still have that are subject to that far below market rents? And, do you guys have an active program to try to buy people out of their leases?

There's 264 units of pre-'99 units that remain. We've generally told you all that we expect, in any given year, to be seeing about 15 or 20 of those turn. We have, at times, had programs to try and induce people to move. But, that often just accelerates the people who were going to move in that year. And so, you pay a lot and don't get a lot back but we do think about that from time to time.

Okay. Thanks, guys.

Jamie Feldman.

Great. Thank you. I guess my first question is if I look at your occupancy as of the end of the quarter, and then I look at your percentage leased at the end of the quarter, looks like you're already getting the 100 basis points. If you look at the delta between the two. I'm looking at the same store.

So, you're at 88.4% occupied. 90% leased. And, I think the guidance said you're up 100 basis points between now and the end of the year. What are the ins and outs there that get you to actually a lower number than the percent leased? Or am I thinking about it wrong?

You lose some tenants and that causes your percent leased to come down. And, you lease to people that haven't started again. That spread moves constantly through the portfolio. You have to gain on it. If we just stopped -- if we stopped the date, the calendar, and only let the calendar progress in terms of people moving into their space, you would eat up that spread.

Each month those people in the signed lease but not occupied category move in and some new people with a signed lease move out. So, usually when you're gaining lease percent you're going to have that spread widen more and more, right. So, the more you lease, you're going to have a bigger spread from occupied to leased because you need those people to take -- that's a bigger group that needs to move in and start paying rent.

I mean, I get that. I guess what I'm trying to figure out is are there certain leases that would be big swings either way that may or may not change?

I don't think we have big swings this year.

We don't have any of our major tenants coming up for renewal. So, I don't see that. I also -- by the way, just as a suggestion, although we have done our same store as the REIT only properties as opposed to including Fund 10, and Partnership 10, you may want to -- to get better direction in our markets a lot of times focusing on the overall total portfolio is helpful because it can move around a little more in the individual things.

Okay. And then, what are you assuming for leasing spreads next year within that same store number?

I don't think we have a leasing spread calculation that we've done for our pro forma.

You don't have a general sense of whether you think on a cash basis, how much they'll be down?

Well, in general as leases roll off as -- you're looking five years back and today. Right, if you have an average five year long lease. So, as five years ago moves farther forward you move into time when leases were going down, right. You get out of -- later into 2007, into 2008. So, you would think that natural direction would be you'd still be fighting leasing spreads going into the end of this year and then you'd see it turn next year.

Going back to one of the reasons why we don't focus on that metric very much is two reasons, I guess. One is because, as we said, that change in lease rates doesn't really affect the bottom line very much because it's offset by the growth on the other leases in the portfolio. And, secondly, the roll-down is -- even in a flat market, that cash roll-down is actually built into our portfolio because of the bumps in the rent.

So, that you have over the five year -- if you have a five year lease, and again, part of the problem with calculating that statistic is you have to do it on a lease by lease basis and looking forward that's very hard to do. But, it's -- as you go through the lease term you actually have a built in growth that then falls off when you go down to the next lease.

Hopefully it doesn't fall off. You need rent to generally be growing more than 3% to 5% a year.

Right. Okay. And then, I know you had said that your AFFO should be higher this year than last year.

On a per share basis.

On a per share basis.

I thought that was impressive since we had all the dilution and we still -- the numbers that are -- we look at those numbers pretty carefully. It means we've overcome the dilution with ignoring, let's say, the non-cash accounting adjustments that get made, looking more at what the properties are making, what we're making as a company. We're even overcoming that on a per share basis which gives you some feeling for how strong the cash flow of the company is and the FFO. Which I saw some people wrote some notes about that.

We nearly overcame it in the FFO side.

Yes.

Okay. I guess what I'm wondering is, given that, what are your thoughts on the dividend, where it is today and room to grow it?

Well, we for sure have room to grow it, right, because you can do a quick calculation to see how we're covering it by a couple times. But, it's the same story as we've discussed before which is we don't want the dividend certainly to act as a drag on the stock price. We want to have a dividend that supports the stock price and the price going up. At the same time, cash is dear to us. And, we want to also have it available for acquisitions.

And, you also can also look at whether, if you just have pure cash flow, whether you want to further reduce your debt. Even though Ted said that we're not going to issue any equity to reduce debt, we still have cash flow and that can be used to reduce debt if we don't find good alternative uses for it for acquisitions. So, we still have those three things going on as well as the -- as well as wanting the dividend to be appropriately sized for the stock price.

Do you guys run into any taxable net income issues that would force it higher?

No. As a matter of fact, this 2011, our stock dividend had no taxable income associated with it.

Okay. All right. Thanks.

Brendan Maiorana.

Hi, Brendan.

Hi, guys, good morning out there. Jordan, I just wanted to follow up on Jamie's question maybe about the occupancy and the lease rate differential. Because even though your occupancy went up more quickly this quarter than your leased rate, so do you guys have a sense of what you think the net absorption for the portfolio is likely to be for 2012? Is that going to be in line with the 100 basis points of occupancy growth that you expect as well?

That's what that is. When we say 100 basis points, we're talking about occupancy absorption, not leased. For you guys doing your models, leased isn't really that meaningful, right, because you're trying to project FFO, AFFO, whatever other accounting statistics. So, what we give you is the occupancy rates.

We could actually have a bang-up leasing year, widen that gap a lot, so it looks like we're 92% leased. I'm making these numbers up. And, still only gain 100 basis points or 110 basis points of occupancy because it still takes time for them to move in and start paying which that's when it's reflected in the numbers that you guys see.

Right. So, I guess I'm just asking can you provide an outlook of what you think the lease rate does? I recognize that doesn't impact the FFO but it gives us directionality on how you're trending for leasing up the portfolio.

We're obviously feeling pretty good about leasing up the portfolio because it takes more than 100 basis points of leasing to pick up 100 basis points of occupancy. So, that gives you a good sign about how good we -- if you -- to cut to it, we're feeling pretty good about the fundamentals and the leasing fundamentals of our markets going into 2012.

I mean, I felt like we -- every year we want to do well on fundamentals. We also had a goal of doing this capital program. We got that done, frankly, quicker than even I expected. And, got our debt sort of rebalanced and now we have a real strong focus on fundamentals which we always have and on seeing if we can do some acquisitions.

Okay. That's helpful. And then, for the same store guidance, I think it was positive 1% to 1.5%. Is that -- can you break that out between multi-family and office?

I can't because I don't know those numbers -- I mean, I know the 1% and 1.5%. I don't know what comes from multi-family and what comes from office. Sorry. You might -- no, I don't have that.

Okay. Maybe we can follow up offline. And then, just a last one for Ted. You guys said you had $150 million -- or more than $150 million of cash on the balance sheet.

If I just think about your $407 million of cash at 12/31, raising $190 million via the ATM in January, $155 million on the term loan, and then paying off the $522 million, it seems like you'd be at around $225 million, $230 million of cash. Is there something else that I'm missing in that calculation?

You must be because we were $150 million. I can't think right now of any major thing on that but I'd have to run the numbers.

Okay. Maybe we can just follow up later. Thank you.

Rich Anderson.

Thank you, and good afternoon. So, just quickly, back to the dividend. You raised it 30% last May. Is that -- an increase like that off the table based on your comments about preserving cash?

Well, I wouldn't say anything's off the table but I would consider that raise to be less of a regular pattern raise and more of a corrective raise. So, I wouldn't expect regular 30% raises. But, we do have -- I would like to see us start moving the dividends on a real organized and careful way, in an upward direction, the types of numbers that people can rely on on a regular basis annually. Which 30% would not be that type of number.

Well, it could be if you're at 45% payout but I'm saying --.

I know it could be but it isn't my mind that type of number.

Okay. So, to the fund. Can you remind me now what the additional purchase interest, where your ownership stake is in that?

We had -- before this purchase we have about 48%, a little over 48% of Fund 10. So, if the entire 16.5% interest comes to us, we'll be right just shy of two-thirds.

So, the question is then is there a mechanism by which not just the other parties but third party, unrelated parties right now, that can come in and buy out your interest to bring it down or is that door closed? Is there no flexibility there?

That door is closed. It's a built-in option that people have by right, by being investors in the fund. And so, the remaining investors in the fund have a right to take their share relative to the share that we're willing to take, percent. So, they may take some. It wouldn't be a very large or meaningful number.

You already consolidate the fund, is that correct?

We do not and we will not be consolidating after this under the rules on consolidation. For better or for worse, it's not consolidated.

Okay. And, one last thing. If you want to hire me to get rid of that 264 people in the multi-family units, I'd be happy to help you out there.

Well, but you don't live in LA.

I could.

That may be better.

Thank you.

All right.

John Guinee.

Can you guys -- two questions. First, you never really talk much about your apartment business. I'm not sure, Jordan, if you guys have ever acquired an apartment since you've been a public company. Can you talk about of the quality of apartment projects that you would want to acquire in Southern California, what the pricing is and why?

And, also, the pricing in Honolulu. And then, I guess the other thing is can you just do the rest of the math and talk about the basis that this European investor has in the fund versus the $33 million and change you're paying?

I can't do the rest of the math for you because I don't know the basis they have in the fund. I can talk about the apartments. We would try and acquire apartment projects that would be similar to the ones that we already own, which is very hard to do because most of them are much smaller.

That's here in LA. There are larger projects in Honolulu. But, they're -- well, one big one that came up was on a ground lease and we're not in love with ground leases so that drove us away from that. But, there's some others that we're working on.

And, there's some that we're working on here where maybe we get a portfolio of apartments. But, you're right, your original thing that you said, which is that since we became public we haven't acquired an apartment building. In terms of what are the economics, apartments are being valued very high right now, although maybe appropriately so.

Probably appropriately so. I mean, we're seeing very dramatic rental increases in our apartment portfolio and we're not -- and it seems like those numbers still have a lot of running room. So, we try and work on portfolios where people have -- which we're working on, where people have other things pressuring them where maybe we can use OP units if they have a tax situation.

Or where maybe people need cash because of a debt situation, having been to aggressive developers at an earlier time. I still feel like we'll get some of those done. It's certainly a priority to try and expand that portfolio. But, we haven't done much of it yet. So, I'd say give us a poor grade at it up to now.

Got you. Okay. Thank you, very much.

Steve Sakwa.

Jordan, I was wondering if you could talk a little about the geographic footprint. I think when you went public you had said that you would potentially look at expanding both South and North. And, your local competitor has made a pretty big push up into San Francisco and Seattle. I'm just wondering how you're thinking about potential geographic expansion at this point.

I think they've done very well in doing that. And, to be candid, we felt like more would come available in these markets where we have a great edge. And, therefore, we stayed focused on these markets and obviously we didn't want to express our balance sheet coming out of this thing.

We wanted to keep a lot of liquidity for our acquisitions that could happen here. And, we've done that. We've got a very, very strong balance sheet and a lot of liquidity, and a fund, and cash, and all types of ways to raise money. But, so far we're all dressed up and no one's throwing the party.

Maybe it would have been wise for us to go North or South. But, that's not really the way we operate. We're a very focused group. So, going North to San Francisco or Seattle would be, hey, it's a good time to buy a building or two in Seattle. And then, as soon as the market runs up we'll sell it again. It's a much larger commitment for us.

And, we didn't want to make that commitment when we still thought there was opportunities here. We might end up being wrong. We might end up being right. It still needs to be played out. Did that answer your question or --? We lost on the call, okay.

Michael Knott.

Speaking of investment opportunities, I just was wondering if you could elaborate on what makes you more confident that 2012 might yield more opportunities for Douglas Emmett than 2011?

Well, for starters I said I hope in the script. I didn't say more confident. But, there's deals that I thought were going to come out in 2011. Then when things dipped down over that summer, and when you saw sort of a backup in value through second and third -- or through third and fourth quarter, that I still think are on the slate for a sale. And, I think they will come back this year. And, I feel like we will be able to be competitive and make those acquisitions.

Okay. And then, just in terms of Warner Center, you mentioned earlier you expect some progress there this year. What would be a good outcome a year from now compared to today's 81%? How quickly or not do you think that can move up?

I'd like it to move up 200 basis points or 300 basis points and maybe even more.

Okay. Thanks.

Nick [Uego].

Just a follow-up here. Do you have the full year same store cash NOI numbers? I've just seen the quarterly numbers in the supplemental.

I think that the full year was down 2.9%.

Okay. And then, on -- do you have the specific breakout on the office for the full year?

The office was down 3.8% and multi-family was up 3.2%.

Okay. That's all I had. Thanks.

(Operator Instructions)

And, there are no further questions from the phone lines at this time.

Okay. Well, thank you everybody for joining us today. And, we look forward to speaking with you next quarter and seeing many of you in Florida at the Citi conference in a month or so. Bye-bye.

This concludes today's conference call. Thanks for your participation. You may now disconnect.