Douglas Emmett Inc Q1 FY2026 earnings call

• Operating results were exceptional with approximately 100,000 square feet of positive absorption for the second consecutive quarter, best results since 2019 with lease rate growth over 1%, over 450,000 square feet of new leases (best quarter ever for new leasing), record leasing to tenants over 10,000 square feet, and meaningful straight line rent rollout.
• Made two acquisitions, including the April acquisition of a portfolio of premium medical office properties in the Beverly Hills Golden Triangle.
• Three development projects progressing nicely: multi-year redevelopment of the 712-unit landmark residences in Brentwood continues; expected to commence construction this year to convert 10900 Wilshire in Westwood into a 323-unit apartment community; redevelopment of Studio Plaza in Burbank completed with leasing well underway and some tenants taking occupancy.
• In the first quarter, signed 218 office leases totaling 909,000 square feet, including a single quarter record of 461,000 square feet of new leases and 448,000 square feet of renewal leases. Tenant retention remains strong. Office demand diversified across many industries. Leasing spreads improved with overall straight-line value of new leases increasing by 5.3%. Residential portfolio cash, same property NOI up 4.2% compared to the first quarter of last year and over 99% leased.

Office: In the first quarter, signed 218 office leases totaling 909,000 square feet, including a single quarter record of 461,000 square feet of new leases and 448,000 square feet of renewal leases. Leasing was strong from new tenants over 10,000 square feet. Leasing spreads improved, with the overall straight-line value of new leases increasing by 5.3% and cash spreads lower by 7.7%. Office leasing costs average $6.30 per square foot per year. Residential: Cash, same property NOI up 4.2% compared to the first quarter of last year. Portfolio remains over 99% leased. Bedford Collection: In April, a new joint venture managed by Douglas Emmett acquired the Bedford Collection, a five-building, 246,000-square-foot medical office portfolio in the Beverly Hills Golden Triangle. Douglas Emmett holds a 13% stake in the joint venture's $150 million of equity. The joint venture borrowed $130 million with a non-recourse interest-only first trustee loan maturing in April 2031, bearing interest of SOFR plus 170 basis points effectively fixed at 5.26% per annum through April 2030. Revenue contribution details not explicitly provided in absolute terms and percentage for each segment but office and residential are key segments with the Bedford acquisition being a significant addition.

• Still expect 2026 diluted net income per common share to be between negative 20 and negative 14 cents.
• Expect fully diluted FFO per share to be between $1.39 and $1.45.
• 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.

Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. 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.

Q: Steve Sacqua with Evercore ISI asked about leasing volume, specifically larger leases over 10,000 square feet and additional valuation metrics on the Bedford transaction.

A: Stuart responded that there was a record amount of leasing in the over 10,000 category with a variety of industries, and Jordan mentioned they agreed with the seller not to give out certain valuation information but noted the price per foot was around high nines.

Q: Alexander Goldfarb with Piper Sandler asked about Jevons Paradox and entering new markets like South Bay.

A: Jordan said he couldn't say he's seen the exact Jevons Paradox effect in leasing but believes AI will lead to more hiring and opposite of past predictions about technology. Jordan expressed comfort in their traditional markets due to durable demand and extreme limit on supply compared to other markets where new construction could be an issue.

Q: Anthony Paulone with JPMorgan asked about thoughts on LA in general and Studio Plaza stabilization.

A: Jordan said LA in general is coming back with more tenant demand. On Studio Plaza, they'll call it stabilized when up in the 90s, tenants are moving in, and they're pleased with the tenant mix but won't give a specific timeline.

Q: Jana Gallen with Bank of America asked about the spread between leased and commenced occupancy and rough estimates for under 10,000 square foot tenants.

A: Stuart said the spread is 3.5 now, with under 10,000 foot tenants like 2,500 foot guys able to be moved in quickly (a few months) and larger tenants depending on build out, with some moving in next year.

Q: Seth Bergy with city asked about the sign-commenced spread and forward pipeline confidence.

A: Stuart said much of the spread is from under 10,000 foot tenants with steady move-ins expected throughout 2026 and good activity, tours, and pipeline giving confidence in improvement.

Q: Upul Rana with KeyBank Capital Markets asked about mark-to-market opportunity on the Bedford acquisition and additional external growth opportunities.

A: Jordan said there's a small mark-to-market opportunity but not stunning, and Kevin said they're seeing a lot of activity, more than half off market, and focused on office with good engagement but need to close the gap on pricing.

Q: John Kim with BMO Capital Markets asked about scale advantages from the Bedford collection's market control and if Bedford collection will stay medical office and about not calling the bottom on occupancy.

A: Kevin talked about operating synergies like lower operating expenses due to localized portfolio, better leasing ability to fit tenants into the portfolio, and that Bedford collection will stay medical office. Jordan said they're comfortable with the occupancy range as Q1 is typically a tough quarter for occupancy.

Q: Dylan Brzezinski with Green Street asked about sub-market trends and capital markets competition.

A: Jordan said no expectation of the Valley lagging behind the West Side as they're getting good activity there, and Kevin said there's a lot of 'office curious' capital but they have an edge due to operating platforms not being denuded like in other areas.

Q: Rich Anderson with Cantor Fitzgerald asked about shortcomings of the Douglas Emmett portfolio and the common thread in larger tenant leasing.

A: Jordan said his focus is on capital markets to finish off debt program and find acquisitions. Stuart said larger tenant leasing is due to sideline fatigue, people finally doing deals and not waiting, and broader economy driving the change in attitude.