Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Douglas Emmett Inc achieved a significant amount of office space leasing, totaling 1.2 million square feet, including a major renewal with WME.
- The company reported strong renewal rates indicating stable demand from existing tenants, particularly smaller tenants who form the core of their portfolio.
- Douglas Emmett Inc has maintained lower average leasing costs since the pandemic, which are below those of other office suites, enhancing competitive advantage.
- The residential portfolio remains nearly fully leased at 98.9%, continuing to generate healthy rent roll-ups.
- Despite a decrease in revenue, same property cash NOI increased by 0.7%, reflecting controlled lower expenses including property tax refunds.
Negative Points
- Revenue decreased by 2.9% compared to the first quarter of 2023, primarily due to lower office occupancy and tenant recoveries.
- FFO decreased by 8.7% to $0.45 per share, mainly due to higher interest expenses and lower revenues.
- AFFO also saw a decrease of 8.2% to $74.7 million.
- Office sale transactions remained slow in Douglas Emmett Inc's markets, indicating potential challenges in asset liquidity and valuation.
- The company faces ongoing challenges with new large tenant demand, which is not sufficient to drive positive absorption, impacting overall growth prospects.
Q & A Highlights
Q: Can you discuss the current marketplace and plans for retenanting the Warner Brothers known vacancy in the third quarter?
A: Jordan Kaplan, President and CEO of Douglas Emmett Inc, mentioned that they plan to potentially renovate the building and are currently showing it with the aim of leasing it to multiple tenants rather than a single large one. He expressed confidence in leasing it up due to its quality and location.
Q: Regarding the guidance provided, what is the expected quarterly run rate moving forward, considering the first quarter's performance?
A: Peter Seymour, CFO, explained that they do not provide quarterly guidance but highlighted factors like the move-out at Studio Plaza and higher expected interest expenses towards the year-end, which could impact financials.
Q: With the retention rates appearing stronger, can you provide insights on when occupancy might trough or if there's a more comfortable range within the provided guidance?
A: Jordan Kaplan indicated comfort with the middle of the provided range, suggesting that this year might mark the trough, although he remains cautious due to broader economic uncertainties affecting large tenant commitments.
Q: Can you comment on any capital markets activity or investment sales in your market, and your own capital deployment plans?
A: Kevin Crummy, CIO, noted limited activity in their direct markets but expressed interest in capital deployment, anticipating good buying opportunities due to the current disfavor towards office spaces in broader markets.
Q: What is the strategy regarding large space takers being hesitant to commit to leases? Are there plans to subdivide large spaces for smaller tenants?
A: Jordan Kaplan discussed their agility in subdividing and leasing out larger spaces quickly to smaller tenants, leveraging their operational strengths to maintain occupancy and mitigate the impact of larger tenants downsizing or exiting.
Q: Could you provide more details on the WME lease, particularly regarding concessions and the rationale behind offering an early termination?
A: Stuart McElhinney, Investor Relations Officer, noted that the concessions were reasonable and highlighted the lease's extension and retention of space, which supports stable long-term occupancy and revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
