What Douglas Emmett (DEI) Said on Its Q3 Earnings Call

Key Points

• Office occupancy improved: Douglas Emmett signed 224 leases covering nearly 1 million square feet, and occupancy rose to 76.7%—its largest quarterly gain since 2012. Most signed but uncommenced leases are expected to begin within the next few quarters, supporting further gains.
• Higher interest costs are pressuring FFO: Third-quarter revenue and FFO increased year over year, but adjusted FFO fell to $47 million and same-property cash NOI declined 3.1%. The company maintained 2026 FFO guidance of $1.39–$1.43 per share; its average debt cost has risen from 3% to 5% since 2019.
• Residential projects offer another growth source: The residential portfolio was more than 99% leased, with same-property cash NOI up 4.4%. Redevelopment projects are expected to add more than 1,000 units over the next few years.

Douglas Emmett NYSE: DEI reported a fourth consecutive quarter of positive office absorption, with occupancy rising by more than one percentage point as leases signed over the past year began to take effect.

The company signed 224 office leases totaling nearly 1 million square feet in the third quarter. Its office occupancy rose to 76.7%, while its leased rate reached 80.4%, including Studio Plaza, Vice President of Investor Relations Stuart McElhinney said.

Chairman and CEO Jordan Kaplan called the occupancy increase the company’s largest quarterly gain since 2012. He said the leasing pipeline remained healthy, though higher interest costs continue to weigh on funds from operations, or FFO.

Leasing backlog supports occupancy outlook

Third-quarter office leasing included 142 renewals covering more than 724,000 square feet and 82 new leases covering nearly 272,000 square feet, McElhinney said. The 3.7-percentage-point gap between leased and occupied space remained unusually wide for the company.

McElhinney said essentially all signed but uncommenced leases should begin over the next four quarters, with the majority expected in the next one or two quarters. He later said most of the space not yet occupied should move in over the next three quarters.

Kaplan said the company is seeing more large deals across its portfolio, including at Studio Plaza. Larger leases can fill space in bigger increments, he said, but they can also involve higher tenant improvement costs and slower move-ins.

Asked about Studio Plaza’s lease-up, Kaplan said he expected the property to be in a “very good position” within four quarters and potentially within two, though income could take longer to materialize as larger tenants move in.

The straight-line value of leases signed during the quarter was 1.8% higher than the prior leases for the same space, McElhinney said. Lower starting cash rents were more than offset by typical annual fixed rent increases of 3% to 5%.

McElhinney said cash leasing spreads remained negative, in part because expiring leases had accumulated years of rent increases. The company is prioritizing occupancy, he said, and rents could follow once the leased rate moves into the mid-80% range.

Revenue and FFO rise as interest costs remain a concern

Third-quarter revenue increased to $261 million from $251 million a year earlier, while FFO rose to $69.6 million from $68.5 million, Chief Financial Officer Peter Seymour said. Adjusted FFO fell to $47 million from $52 million, and same-property cash net operating income declined 3.1%.

Douglas Emmett maintained its 2026 guidance for a diluted net loss of $0.20 to $0.16 per common share and fully diluted FFO of $1.39 to $1.43 per share. Seymour said the guidance excludes potential future acquisitions, dispositions, financings and other capital-markets activity.

Kaplan said the company’s average debt cost had risen from 3% to 5%, increasing annual interest expense by more than $135 million compared with 2019. He said that increase accounts for nearly all of the decline in FFO from its 2019 high, despite lower office occupancy.

Even if interest rates do not decline, Kaplan said, he believes rising occupancy and residential projects already under construction can return FFO to its 2019 level and beyond. That outlook excludes potential contributions from additional residential development and acquisitions.

Residential projects and acquisitions

The residential portfolio was more than 99% leased, and its same-property cash net operating income rose 4.4% from a year earlier, McElhinney said.

Chief Investment Officer Kevin Crummy said apartment redevelopment projects remain on track to add more than 1,000 units over the next few years, including 712 units at Landmark Residences in Brentwood and up to 323 units at 10900 Wilshire in Westwood. Kaplan said Douglas Emmett is doing preliminary planning and architectural work on two other sites but does not intend to start them until much of the current work is completed.

On the acquisition front, Kaplan said the company is pursuing large, high-quality office buildings in Los Angeles at discounts to prices seen over the past decade or longer. He said Douglas Emmett does not plan to buy apartments because it believes it can develop them at more attractive costs.

Crummy said joint venture partners have historically been the company’s preferred capital source for larger transactions. Kaplan said potential partners are ready to invest, but the company still needs to secure deals.

In August, Douglas Emmett refinanced a $366 million office loan with a four-year, non-recourse loan at an effective fixed interest rate of 6.24% through September 2029, Crummy said. The transaction brought debt refinanced during the year to more than $1.2 billion. Kaplan said the company is already discussing an upcoming loan refinancing and is comfortable with its ability to complete it, although he expects the rate to rise.

About Douglas Emmett (NYSE:DEI)

Douglas Emmett, Inc NYSE: DEI is a self-administered and self-managed real estate investment trust (REIT) that owns, acquires, develops, redevelops and manages office and multifamily apartment properties. The company focuses on high-quality assets in supply-constrained markets with strong employment and housing demand.

Douglas Emmett's portfolio is concentrated in Southern California and Honolulu. Its office properties are primarily located in prominent Los Angeles submarkets, including Century City, Brentwood, Westwood, Santa Monica, Warner Center and the Wilshire Corridor.

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