Douglas Emmett, Inc. 2026 Q2 Earnings Call

Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO, Kevin Crummy, 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 90 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. During 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. For 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. Thank you. I will now turn the call over to Jordan.

Good morning, and thank you for joining us. We had a very active quarter and made real progress on all four of our strategic priorities, which are leasing up our office portfolio, acquiring properties at attractive pricing, redeveloping properties to maximize value, and refinancing upcoming debt maturities. We signed 960,000 square feet of office leases with a good mix of new and renewal deals and achieved positive absorption of approximately 60,000 square feet. Healthy office rents and low concessions helped us sign new leases that were 3% more valuable than the expiring leases they replaced. Of course, most of the positive impact of this leasing will occur over the next 12 months. Our apartment portfolio remains fully leased with increasing rents. On the acquisition front, we and a few of our joint venture partners acquired an extremely well-leased block of prime Beverly Hills medical office properties.

Our redevelopment efforts are exceeding expectations. Studio Plaza in Burbank is now leased well over 50%, we have moved it from development to in-service. Our apartment redevelopment projects are on track to add over 1,000 new units. Finally, we refinanced over $800 million of debt this quarter. With that, I will turn the call over to Kevin.

Thanks, Jordan, and good morning. As Jordan mentioned, in April, we and our joint venture partners acquired The Bedford Collection, a 5-building, 246,000-square-foot medical office portfolio in the Beverly Hills Golden Triangle for $260 million. We manage the joint venture and hold a 13.3% equity stake. The entity was capitalized with $150 million of equity and $130 million of debt. In addition, during the quarter, we refinanced two office loans scheduled to mature later this year. In May, we refinanced a $400 million loan for four years and effectively fixed the interest at 6.15% until June 2029. In June, we refinanced a $415 million loan for four years and effectively fixed the interest at 6.18% until July 2029. With that, I will turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone. During the second quarter, we signed 234 office leases totaling just under 960,000 square feet, including 93 new leases totaling over 375,000 square feet and 141 renewal leases totaling over 584,000 square feet. That's a healthy leasing volume for us, and it builds on the momentum we've been seeing over the past few quarters. On rental rates, the straight line value of leases we executed in the quarter increased by 3.2% compared to the prior leases for the same space. With our typical 3%-5% annual fixed rent bumps continuing to more than offset the impact of lower beginning cash rents. As Jordan mentioned, we have now moved Studio Plaza to our in-service portfolio. Since the first-generation leases at Studio Plaza take longer to build out, this will have the effect of widening our leased to occupied spread for the next few quarters.

In addition, while the lease rate at Studio Plaza is now well over 50%, its inclusion will mean lower reported leased and occupied percentages for our office portfolio until occupancy at Studio Plaza equals or exceeds our average office occupancy. Our lease transaction costs average $5.35 per square foot per year, well below the benchmark for other office rates. Our residential portfolio continues to perform well, with cash same-property NOI of 2% compared to the second quarter of last year. Demand remains very strong across our markets, with our portfolio still over 99% leased. With that, I will turn the call over to Peter to discuss our financial results.

Thanks, Stuart. Good morning, everyone. Compared to the second quarter of 2025, revenue increased from $252 million-$257 million. FFO increased, but still rounded to $0.37 per share, and AFFO increased from $54 million-$56 million. Same property cash NOI decreased 1.2% for the quarter. At approximately 4.9% of revenue, our G&A remains the lowest among our benchmark group. We are now including Studio Plaza in our occupancy assumption for the full year. Despite being leased well over 50%, its occupancy has not yet reached the average for our portfolio. Solely as the result of including Studio Plaza for the full year, we are lowering our office occupancy guidance range to between 75%-77%. Our operating income expectations have improved from our prior projections, but we anticipate that this improvement will be more than offset by the impact of higher market interest rates.

We now expect our 2026 diluted net income per common share to be between -$0.20 and -$0.16, and our fully diluted FFO per share to be between $1.39-$1.43. 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.

We can both answer that.