Douglas Emmett Q1 Earnings Call Highlights

Key Points

• Leasing momentum strengthened sharply in Q1, with Douglas Emmett signing 218 office leases totaling 909,000 square feet, including a company-record 461,000 square feet of new leases. Management said it saw two straight quarters of positive absorption and improved lease rates, but stopped short of saying office demand has bottomed.
• Results were mixed financially: revenue was essentially flat at $251 million, while FFO and AFFO declined due to higher interest expense and lower interest income. The company kept its 2026 guidance unchanged, including FFO per share of $1.39 to $1.45.
• Douglas Emmett expanded its portfolio with the April acquisition of The Bedford Collection, a 246,000-square-foot medical office portfolio in Beverly Hills through a joint venture. Management also said major development and redevelopment projects in Brentwood, Westwood, and Burbank continue to progress.

Douglas Emmett NYSE: DEI executives said leasing momentum strengthened during the quarter, with management pointing to record new leasing volume, a widening signed-not-commenced pipeline and continued strength in multifamily operations, while cautioning that it is still too early to declare a bottom in office demand.

Chairman and CEO Jordan Kaplan said the company recorded about 100,000 square feet of positive absorption for the second consecutive quarter. Over the past six months, he said, Douglas Emmett delivered its best results since 2019, growing its lease rate by more than 1%.

“We understand that everyone is watching our leasing for signs of a sustained recovery,” Kaplan said. “While two quarters is not sufficient to call a bottom, we are becoming increasingly hopeful.”

Office Leasing Hits Record Levels

Stuart McElhinney, vice president of investor relations, said Douglas Emmett signed 218 office leases totaling 909,000 square feet during the first quarter. That included 461,000 square feet of new leases, which management described as a single-quarter record, and 448,000 square feet of renewal leases.

Kaplan said the company also posted record leasing to tenants taking more than 10,000 square feet. In response to an analyst question, McElhinney said the activity included “a number of deals” between 10,000 and 20,000 square feet and “a few deals” above 20,000 square feet, across industries including entertainment and legal services.

McElhinney said office demand was diversified, with legal, financial services, entertainment, real estate and accounting representing the top five industries for the quarter. Tenant retention remained consistent with the company’s historical average.

Leasing economics also improved on a straight-line basis. McElhinney said the straight-line value of new leases signed in the quarter increased 5.3%. Cash spreads were down 7.7%, which he attributed to the company’s fixed 3% to 5% annual rent increases embedded in expiring leases. Office leasing costs averaged $6.30 per square foot per year, which McElhinney said was below the benchmark average for other office REITs, though elevated for Douglas Emmett because of larger new leases requiring more tenant improvements.

Financial Results and Guidance

CFO Peter Seymour said revenue remained essentially flat at $251 million compared with the first quarter of 2025. Funds from operations fell to $0.37 per share, and adjusted funds from operations declined to $49 million. Seymour said the decrease reflected higher interest expense and lower interest income, partly offset by strong multifamily performance.

Same-property cash net operating income declined 1.4% for the quarter. Seymour also said general and administrative expense was approximately 5.4% of revenue, which he described as the lowest among the company’s benchmark group.

Douglas Emmett maintained its guidance, with Seymour saying the company still expects 2026 diluted net income per common share between a loss of $0.20 and a loss of $0.14. The company expects fully diluted FFO per share between $1.39 and $1.45. Seymour said FFO gains from the Bedford acquisition are expected to be largely offset by higher assumed interest expense, reflecting a flatter interest rate curve.

Bedford Collection Adds Beverly Hills Medical Office Portfolio

Kevin Crummy, chief investment officer, said a new joint venture managed by Douglas Emmett acquired The Bedford Collection in April. The five-building, 246,000-square-foot medical office portfolio is located in the Beverly Hills Golden Triangle. Kaplan said the $260 million transaction included premium medical office properties encompassing almost the entire 400 block of Bedford Drive.

Douglas Emmett holds a 13% stake in the joint venture’s $150 million of equity. The joint venture also borrowed $130 million through a non-recourse, interest-only first trust deed loan maturing in April 2031. Crummy said the loan bears interest at SOFR plus 170 basis points, effectively fixed at 5.26% per year through April 2030.

Kaplan declined to provide cap rates or return metrics, citing an agreement with the seller, but said the price was around $1,000 per square foot, in the “very high nines.” He said he had been trying to buy the portfolio since the 1990s and was “beyond pleased” with the acquisition.

McElhinney said the Bedford Collection will remain medical office. He added that Douglas Emmett already owns about 1 million square feet of medical office space and views the tenant base favorably because medical tenants are “very sticky” and invest significant money in their space.

Development Projects Continue

Crummy said the company’s three major development and redevelopment projects are progressing. In Brentwood, the multi-year redevelopment of the 712-unit Landmark Residences remains underway. At 10900 Wilshire in Westwood, Douglas Emmett expects to begin construction this year to convert the property into a 323-unit apartment community.

At Studio Plaza in Burbank, redevelopment has been completed and leasing is underway, with some tenants already taking occupancy. Kaplan said the building has attracted a broader mix of tenants after the departure of Warner Bros., which he said had initially caused concern because it occurred during a weak leasing environment. Management declined to provide a stabilization timeline, but Kaplan said the company would consider Studio Plaza stabilized when occupancy reaches the 90% range.

Management Sees Improving Demand, But Stops Short of Calling a Bottom

Analysts pressed management on whether the quarter marked a trough for occupancy. McElhinney said Douglas Emmett is not ready to call a bottom but is encouraged by recent leasing. He said the spread between leased and occupied space has widened to 3.5 percentage points, reflecting leases that have been signed but not yet commenced.

McElhinney said smaller tenants can often move in within a quarter or two, especially when using move-in-ready spec suites, while larger tenants may take longer depending on build-out requirements. He said the company expects steady move-ins through the rest of 2026, with some larger tenants moving in later.

On the broader Los Angeles market, Kaplan said the region “in many aspects” feels like it is coming back, citing leasing activity, policing and changing attitudes in the cities where the company operates. McElhinney said tour activity, calls and other pipeline metrics “all seem very healthy.”

Management also emphasized external growth opportunities. Crummy said Douglas Emmett is seeing significant acquisition activity, with more than half of potential opportunities coming off market. He said the company remains focused on office assets, while Kaplan said current pricing represents a rare opportunity to buy at a significant discount to long-term value.

About Douglas Emmett NYSE: DEI

Douglas Emmett, Inc is a publicly traded real estate investment trust headquartered in Santa Monica, California. The company specializes in the ownership, management and development of high‐quality office and multifamily properties, primarily concentrated in the coastal regions of Los Angeles County and the Greater Honolulu area. As a vertically integrated real estate platform, Douglas Emmett controls all aspects of property operations, leasing, capital improvements and tenant relations, positioning it to deliver stable, long‐term cash flows.

The company's office portfolio consists predominantly of Class A buildings located in prime business districts, featuring modern amenities, campus-like settings and environmentally conscious design elements.

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