What changed in this filing

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Item 1. Business

2021-02-22 compared with 2020-02-14 · 33 added, 14 removed, 111 unchanged (30% of the section changed)

Business Overview

Business description

Douglas Emmett, Inc.

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and its subsidiaries on a consolidated basis.

At December 31, 2019 , we owned a Consolidated Portfolio consisting of (i) an 18.0 million square foot office portfolio, (ii) 4,161 multifamily apartment units and (iii) fee interests in two parcels of land from which we receive rent under ground leases.

At December 31, 2020, we owned a Consolidated Portfolio consisting of (i) a 17.8 million square foot office portfolio, (ii) 4,287 multifamily apartment units and (iii) fee interests in two parcels of land from which we receive rent under ground leases.

We also manage and own equity interests in our unconsolidated Fund which, at December 31, 2020, owned an additional 0.4 million square feet of office space.

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As of December 31, 2020, our portfolio consisted of the following (including ancillary retail space and excluding the two parcels of land from which we receive rent under ground leases):

Consolidated Portfolio

Consolidated Portfolio Total

Wholly-owned properties 53 53

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Unconsolidated Fund properties — 2

Rentable square feet (in thousands)

Wholly-owned properties 11 11

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In 2018, 2019 and 2020, no tenant accounted for more than 10% of our total revenues.

Disciplined Strategy of Acquiring Substantial Market Share.

• Disciplined Strategy of Acquiring Substantial Market Share In Each Submarket.

Once we select a submarket, we follow a disciplined strategy of gaining substantial market share to provide us with extensive local transactional market information, pricing power in lease and vendor negotiations and an enhanced ability to identify and negotiate investment opportunities.

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Our interest in our Operating Partnership entitles us to share in the profits and losses and cash distributions in proportion to our percentage ownership.

In addition to fifty-three office properties and ten residential properties wholly-owned by our Operating Partnership, we manage and own equity interests in:

four consolidated JVs, through which we and institutional investors own seventeen office properties in our core markets totaling 4.3 million square feet and one residential property with 350 apartments, and in which we own a weighted average of 46% at December 31, 2019 based on square footage.

We are entitled to (i) distributions based on invested capital as well as (in the case of three of the JVs) additional distributions based on cash net operating income, (ii) fees for property management and other services and (iii) reimbursement of certain acquisition-related expenses and certain other costs.

At December 31, 2020, in addition to fifty-three office properties and eleven residential properties wholly-owned by our Operating Partnership, we manage and own equity interests in:

• three consolidated JVs, through which we and institutional investors own sixteen office properties in our core markets totaling 4.2 million square feet and one residential property with 350 apartments, and in which we own a weighted average of 46% at December 31, 2020 based on square footage.

We are entitled to (i) distributions based on invested capital as well as additional distributions based on cash net operating income, (ii) fees for property management and other services and (iii) reimbursement of certain acquisition-related expenses and certain other costs.

• one unconsolidated Fund through which we and institutional investors own two office properties in our core markets totaling 0.4 million square feet and in which we own 34% at December 31, 2020.

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The results of the consolidated JV are included in our operating results from November 21, 2019 (before November 21, 2019, our share of the Fund's net income was included in our statements of operations in Income from unconsolidated Funds).

See Note 3 and Note 6 to our consolidated financial statement in Item 15 of this Report for more information regarding the consolidation of the JV and our unconsolidated Funds, respectively.

In December 2020, we sold an 80 thousand square foot office property in Honolulu, which was held by one of our consolidated JVs in which we owned a two-thirds capital interest.

The JV was subsequently dissolved before December 31, 2020 (and is therefore not included in the JV statistics disclosed above).

The results of the consolidated JV are included in our operating results until it was dissolved in December 2020.

See Note 3 and Note 6 to our consolidated financial statement in Item 15 of this Report for more information regarding these transactions.

Most of the property data in this Report is presented for our Total Portfolio, which includes the properties owned by our JVs and our Funds, as we believe this presentation assists in understanding our business.

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The distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year, if paid on or before the first regular dividend payment date after such declaration and if we so elect and specify the dollar amount in our tax return.

To the extent that we do not distribute all of our net long-term capital gains or distribute at least 90%, but less than 100%, of our REIT taxable income, we will be required to pay tax thereon at regular corporate tax rates.

Furthermore, if we fail to distribute during each calendar year the sum of at least (i) 85% of our ordinary income for such year, (ii) 95% of our capital gains income for such year, and (iii) any undistributed taxable income from prior periods, we would be required to pay a 4% excise tax on the excess of such required distributions over the amounts actually distributed.

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We hold certain of our properties through subsidiaries that have elected to be taxed as REITs.

We also own interests in certain corporations which have elected to be treated as TRSs.

We also wholly own an interest in a corporation which has elected to be treated as a TRS.

A REIT may own more than 10% of the voting stock and value of the securities of a corporation that jointly elects with the REIT to be a TRS, provided certain requirements are met.

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Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas, fire and safety requirements, various environmental laws, the ADA and rent control laws.

The governmental authorities in the jurisdictions in which we primarily operate, Los Angeles, Beverly Hills and Santa Monica, have passed COVID-19 pandemic relief ordinances prohibiting evictions and allowing rent deferral for residential, retail, and office tenants, regardless of financial distress.

The ordinances cover our residential, retail and office tenants (with some carve outs for large tenants) and generally prohibit landlords from evicting tenants and imposing late fees or interest, and allow tenants to pay back the deferred rent over a certain period.

See Item 1A “Risk Factors” of this Report for the risks we face regarding laws and regulations.

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In operating our buildings and running our business, we actively work to promote our operations in a sustainable and responsible manner.

Our sustainability initiatives include items such as lighting, retrofitting, energy management systems, variable frequency drives in our motors, electricity co-generation, energy efficiency, recycling and water conservation.

As a result of our efforts, 78% of our eligible office space is ENERGY STAR certified by the EPA as having energy efficiency in the top 25% of buildings nationwide.

Our sustainability initiatives include items such as lighting, retrofitting, energy management systems, variable frequency drives in our motors, energy efficiency, recycling and water conservation.

As a result of our efforts, 78% of our eligible office space in 2019 was ENERGY STAR certified by the EPA as having energy efficiency in the top 25% of buildings nationwide (our 2020 Energy Star scores are being reviewed to properly account for any impact from the COVID-19 pandemic).

We operate two business segments:

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See Note 15 to our consolidated financial statements in Item 15 of this Report for more information regarding our segments.

Human Capital

Central to our long-term strategy is attracting, developing and retaining the best talent with the right skills to drive our success.

Our ability to maintain our competitive position is largely dependent upon the skill and effort of our executive officers and key personnel, who have significant real estate industry experience, strong industry reputations and networks, and assist us in identifying acquisition, disposition, development and borrowing opportunities, negotiating with tenants and sellers of properties, and managing our development projects and the operations of our properties.

As of December 31, 2020, we employed approximately 700 people.

We promote an atmosphere of openness, respect and trust and bring a sense of teamwork and inclusion to all we do.

We recognize that having a range of experiences, backgrounds and perspectives allows us to find new ways of doing things.

We make sure to walk the talk in fostering a workplace culture that encourages and empowers all our employees to have a voice and fulfill their potential.

We value and advance the diversity and inclusion of the people with whom we work.

We are committed to equal opportunity in workplaces that are free from discrimination or harassment on the basis of race, sex, color, ancestry, citizenship, marital status, family status, national or social origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, political opinion or any other status protected by applicable law.

Recruitment, hiring, placement, development, training, compensation and advancement may not be based on any of these factors, but should instead be based on factors such as qualifications, performance, skills and experience.

We know that the first step in hiring and retaining the best talent is to create safe and inspiring workplaces where people feel valued.

We offer competitive compensation and benefits to all regular full-time employees, including but not limited to paid holiday, vacation, and sick time, retirement savings plans and medical, dental, and vision coverage.

We also offer a very generous equity compensation program that empowers our employees to act and feel like owners, not just employees.

In 2020, we provided equity compensation to approximately two-thirds, of our approximately 700 employees.

The health and safety of our employees, tenants, and vendors is of the utmost importance to us.

We adhere to leading health and safety standards across our portfolio, and each year, we require all our employees to complete safety training and also provide them seminars on various health topics free of charge.

The COVID-19 pandemic had a significant impact on our human capital management during 2020.

We are deemed an essential business and we moved quickly to institute safety protocols and procedures to keep our properties open and to protect our tenants and employees who continued to work on site and at our headquarters.

Principal Executive Offices

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business