Douglas Emmett, Inc.

Good day, everyone, and welcome to the Douglas Emmett Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star then one. Please note that this event is being recorded. I would now like to turn the conference over to Stuart McElhenney. Please go ahead, sir.

Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO, Kevin Crummey, 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 the course of 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. I will now turn the call over to Jordan.

Good morning, everyone. Thank you for joining us. During the second quarter, we signed a record 253 office leases, covering an all-time high of 1.3 million square feet. That included our second highest quarter of new leasing since becoming a public company and a substantial increase in the average tenant size. As expected, even record leasing was not enough to completely offset our abnormally high lease expirations during the quarter, so we still had a slight decline in our lease rate. In addition, as it takes time for new tenants to move in, our lease-to-occupied spread is at its highest point in many years. Happily, we are once again recording straight-line rent roll-up and are continuing to see substantial savings in our retenanting costs. While our leasing pipeline remains healthy, we still face headwinds from our local government's response to the pandemic. Los Angeles has extended its lease enforcement moratorium until September 30th and has returned to a mask mandate. despite our sub-market's vaccination rate of approximately 80% for people over 16 and over 65% for teens. Even with the moratorium extension, we have made additional progress collecting past due balances, still without giving any meaningful rent forgiveness. Our aggregate rent collections for the five quarters affected by the pandemic is now 95%. including 96% of our residential rent, 96% of our office rent, and 63% of our retail rent. The next few quarters may be choppy, depending on the course of the pandemic and the timing of the expiration of the moratoriums. As I have said, we expect to collect much of our remaining unpaid rent once the moratoriums expire, although those collections will be spread over a number of quarters. In addition, some tenants who have not been paying rent during the moratoriums will move out once we can enforce their leases, though we do not expect the impact on our occupancy to be meaningful. Once the turbulence moves out, I'm excited about our future. We are emerging from this downturn as a stronger and more efficient company. For example, I am confident that our new seamless leasing platform as well as the diversity and strength of our markets resulted in this quarter's record leasing volume. I'll now turn the call over to Kevin, who will give you an update on our development efforts and recent balance sheet activity. Kevin? Thanks, Jordan, and good morning, everyone. Our two multifamily development projects continue to progress nicely. We have leased all of the 174 apartments we completed at 1132 Bishop, our 493-unit downtown Honolulu office-to-residential conversion. Our Brentwood apartment tower is ahead of schedule, as we now expect to deliver our first units in fourth quarter 2021. We plan to begin pre-leasing units in the coming months. During the quarter, we closed a new secured non-recourse $300 million interest-only term loan that matures in May 2028. The loan bears interest at LIBOR plus 140, which we have effectively fixed at 2.21% until June 2026. The loan is secured by three previously unencumbered office properties. We used $175 million of the proceeds to pay off our revolving credit facility balance. This new loan lowered our weighted average fixed interest rate to only 2.94%. We still have no debt maturities before 2023. and 46% of our office portfolio remains unencumbered. Given the current attractive interest rates, we continue to pursue opportunities to lower our average rate and further ladder out our debt maturities. As I've discussed in prior quarters, although property sales in our markets remain slow, we have ample liquidity for acquisitions as they become available. I will now turn the call over to Stuart.