What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-22 compared with 2020-02-14 · 402 added, 493 removed, 1120 unchanged (44% of the section changed)

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The following table presents information with respect to shares of our common stock that may be issued under our existing stock incentive plan as of December 31, 2020:

Plan Category

Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights

(In thousands)

Weighted-average exercise price of outstanding options, warrants and rights

Number of shares of common stock remaining available for future issuance under stock-based compensation plans (excluding shares reflected in column (a))

Plan Category Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights

(In thousands) Weighted-average exercise price of outstanding options, warrants and rights Number of shares of common stock remaining available for future issuance under stock-based compensation plans (excluding shares reflected in column (a))

(In thousands)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Equity

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Commitments, Contingencies and Guarantees

Quarterly Financial Information (unaudited)

Subsequent Events

Schedule III - Consolidated Real Estate and Accumulated Depreciation

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(a)(3) exhibits

Equity Distribution Agreement, dated August 4, 2017, by and among Douglas Emmett, Inc., Douglas Emmett Management, Inc., Douglas Emmett Properties, LP, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P.

Morgan Securities LLC.

Supplement No.

1 to Equity Distribution Agreement, dated November 20, 2017, by and among Douglas Emmett, Inc., Douglas Emmett Management, Inc., Douglas Emmett Properties, LP, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner, & Smith Incorporated and J.P.

Morgan Securities LLC.

Number Description Footnote

1.1 Equity Distribution Agreement, dated October 9, 2020, by and among Douglas Emmett, Inc., Douglas Emmett Management, Inc., Douglas Emmett Properties, LP, Wells Fargo Securities, LLC, J.P.

Morgan Securities LLC, and Jefferies LLC.

3.1 Articles of Amendment and Restatement of Douglas Emmett, Inc.

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32.2 Certificate of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.*

Inline XBRL Taxonomy Extension Schema Document.*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.*

Inline XBRL Taxonomy Extension Definition Linkbase Document.*

Inline XBRL Taxonomy Extension Label Linkbase Document.*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.*

101.INS Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.*

101.SCH Inline XBRL Taxonomy Extension Schema Document.*

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.*

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)*

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+ Denotes management contract or compensatory plan, contract or arrangement.

Filed with Form 8-K on August 7, 2017 and incorporated herein by this reference.

(File number 001-33106)

Douglas Emmett, Inc.

Exhibits (continued)

Filed with Form 8-K on November 22, 2017 and incorporated herein by this reference.

(1) Filed with Form 8-K on October 13, 2020 and incorporated herein by this reference.

(File number 001-33106)

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(File number 001-33106)

Douglas Emmett, Inc.

Exhibits (continued)

(4) Filed with Form 8-K on October 30, 2006 and incorporated herein by this reference.

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(File number 333-135082)

Filed with Form 8-K on June 3, 2016 and incorporated herein by this reference.

(9) Filed with Definitive Proxy Statement on April 17, 2020 and incorporated herein by this reference.

(File number 001-33106)

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/s/ JORDAN L.

February 14, 2020

February 19, 2021 Jordan L.

President and CEO

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the persons below, in their respective capacities, on behalf of the registrant as of February 19, 2021.

Signature Title

/s/ JORDAN L.

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/s/ LESLIE E.

Feinberg Director

/s/ VIRGINIA A.

McFerran Director

/s/ THOMAS E.

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/s/ JOHNESE SPISSO

Johnese Spisso

Johnese Spisso Director

Report of Management on Internal Control over Financial Reporting

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We have audited the accompanying consolidated balance sheets of Douglas Emmett, Inc.

(the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2019 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Consolidation of Douglas Emmett Fund X, LLC

Description of the Matter

As explained in Note 3 to the consolidated financial statements, the Company and the remaining non-controlling interest holder purchased additional interests in Douglas Emmett Fund X, LLC ("Fund X").

Upon completing the transaction including amending the operating agreement, Fund X was determined to be a variable interest entity (“VIE”) and the Company was determined to be its primary beneficiary.

Accordingly, the Company began consolidating the VIE and recorded a $307.9 million gain on revaluing Fund X's assets and liabilities upon consolidation.

Auditing management’s application of the variable interest entity consolidation model to this transaction, and the resulting gain upon consolidation, was complex and required significant judgment.

In particular, significant judgment was required in determining the fair value of each of Fund X’s six properties which utilized a combination of market and income valuation approaches.

The significant assumptions for the market approach included assumptions of transactions of comparable size and location.

The significant assumptions for the income approach related to the assumptions underlying the cash flow projections and included market rental rates, market growth rates and market discount rates.

Changes in these assumptions may have materially affected the Company’s determination of the fair value of Fund X’s net assets which, in turn, would have impacted the gain on consolidation.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s accounting for the consolidation of Fund X, including controls over management’s review of the significant assumptions mentioned above that were used to estimate fair value.

This included management’s consideration of corroborative and contrary evidence from current industry and economic trends, prevailing market conditions, internally available information and other relevant factors.

To evaluate the Company’s consolidation analysis of the transaction, we performed audit procedures that included, among others, reviewing the amended and restated Fund X operating agreement and testing the fair value of Fund X’s assets and liabilities.

Our audit procedures in testing the fair value of Fund X’s assets and liabilities included, among others, (i) evaluating the methods and significant assumptions used in the valuation of Fund X’s assets, (ii) assessing the reasonableness of the resulting fair values utilizing comparable market transactions, (iii) testing the completeness and accuracy of the valuation model and underlying data supporting the significant assumptions and estimates, and (iv) comparing the fair value of Fund X’s resulting net assets to the price paid by the Company and the unrelated non-managing member to acquire the other Fund X non-managing member interests.

We also involved a valuation specialist to assist in the assessment of the methodology utilized by the Company, and to test the significant assumptions mentioned above in the cash flow projections.

Purchase price accounting

Description of the Matter

During the year ended December 31, 2019, the Company acquired The Glendon, a residential property in Westwood consisting of apartments and retail space, for $365.9 million and consolidated a previously owned equity method accounted for investment in Douglas Emmett Fund X, LLC (“Fund X”) on a relative fair value basis.

As explained in Note 3 to the consolidated financial statements, the Glendon transaction was accounted for as an asset acquisition, and as such, is recorded at the price to acquire the real estate property, including acquisition costs.

In addition, as discussed in Note 3 to the consolidated financial statements, the Company consolidated Fund X’s six office properties and related identifiable assets and liabilities on a relative fair value basis.

For both of these transactions, the purchase price/consideration are allocated to land, building and intangible lease assets and liabilities based upon the relative fair value of the acquired assets and liabilities.

The fair value of the acquired assets and liabilities were determined by the Company utilizing the sales comparison approach as it relates to land and the income approach which utilized discounted cash flows as it relates the other acquired assets and liabilities.

Both approaches used market information available to the Company as inputs.

Auditing the Company’s accounting for its Glendon acquisition and Fund X consolidation was complex due to the significant estimation required by management in determining the fair value assigned to the acquired land, building and intangible lease assets and liabilities.

The significant estimation was primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of the assets and liabilities as well as the sensitivity of the respective fair values to the significant underlying assumptions.

The Company utilized the sales comparison approach to measure the fair value of the acquired land and the discounted cash flow method to measure the fair value of the remaining acquired assets and liabilities.

The more significant assumptions utilized included comparable land sales, revenue growth rates, discount rates, market rental rates and capitalization rates.

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s accounting for the Glendon property acquisition and Fund X consolidation, including controls over the Company’s review of the assumptions underlying the purchase price allocation, the cash flow projections and the accuracy of the underlying data used.

For example, we tested controls over the determination of the fair value of the land, building and intangible lease assets and liabilities, including the controls over the review of the valuation models and the underlying assumptions used to develop such estimates.

For the Company’s Glendon property acquisition and Fund X consolidation, we read the respective transaction agreements, and evaluated whether the Company had appropriately determined whether the transactions were accounted for as business combinations or asset acquisitions.

For both transactions, we also evaluated the significant assumptions and methods used in developing the fair value estimates of the tangible assets and intangible lease assets and liabilities.

To test the estimated fair value of the land, building and intangible lease assets and liabilities, we performed audit procedures that included, among other procedures, evaluating the Company’s use of the sales comparison and income approaches and testing the significant assumptions used in the discounted cash flow model, and testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

For example, we agreed the contractual rents used in the cash flow projections to in-place tenant leases and compared certain property operating expenses, such as real estate property taxes, to historical operating results adjusted for the transaction.

We involved our valuation specialists to assist in evaluating the methodologies utilized by the Company as compared to standard valuation practices, performing procedures to corroborate the reasonableness of the significant assumptions utilized in developing the fair value estimates of the acquired land, building, and intangible lease assets and liabilities, and performing corroborative calculations to assess the reasonableness of the acquired building asset.

For example, our valuation specialists (i) used independently identified data sources to evaluate the appropriateness of management’s selected comparable land sales, (ii) obtained market specific information (i.e.

revenue growth rates, discount rates, market rental rates and capitalization rates) and compared it to the market information utilized by the Company, and (iii) for a sample of properties, performed comparative calculations using the cost approach to validate the amount allocated to the building asset.

Real Estate Investments - Impairment Assessment of 1132 Bishop Street

Description of the Matter

As explained in Note 2 to the consolidated financial statements, the Company finalized plans to convert 1132 Bishop Street, a commercial office property located in Honolulu, Hawaii into a residential property.

Due to the change in planned use of the property, the Company assessed whether the property was potentially impaired by comparing 1132 Bishop Street’s expected cash flows on an undiscounted basis to the property’s net book value plus expected development costs.

Auditing the Company's accounting for potential impairment and its tests for recoverability involved a high degree of subjectivity as estimates underlying the determination of the undiscounted cash flows were based on assumptions about future market rental rates, operating expenses and capitalization rates.

These assumptions are forward-looking and could be affected by future economic and market conditions, and are dependent, in part, on the completion of the planned redevelopment.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's processes to determine indicators of impairment and to conduct tests for recoverability if indicators of impairment are present.

This included controls over management's review of the significant assumptions underlying the undiscounted cash flows.

Our testing of the Company's impairment assessment included, among other procedures, evaluating the significant assumptions and operating data used to estimate the property’s undiscounted cash flows.

For example, we compared the significant assumptions, namely market rental rates, operating expenses and capitalization rates, used to estimate future cash flows to current market rental rates and capitalization rates for similar properties published in multiple third-party market studies.

We also performed a sensitivity analysis on the Company’s inputs, namely expected net operating income, capitalization rates and expected construction costs to assess whether changes to certain assumptions would result in a materially different outcome.

We also recalculated management's undiscounted cash flows.

Collectability of lease payments due from office tenants

Description of the Matter During 2020, the Company recognized office rental revenues and tenant recoveries of $680.4 million and recorded tenant receivables of $18.2 million and deferred rent receivables of $116.2 million at December 31, 2020.

As described in Note 2 to the consolidated financial statements, under ASC 842 the Company performs an assessment as to whether or not substantially all of the amounts due under the tenant’s lease agreement is deemed probable of collection.

Subsequently, for leases where the Company has concluded that it is not probable that it will collect substantially all the lease payments due under those leases, the Company limits the lease income to the lesser of the income recognized on a straight-line basis or cash basis.

Auditing the Company's collectability assessment is complex due to the judgment involved in the Company’s determination of the collectability of remaining lease payments due from its tenants.

The determination involves consideration of tenant specific factors, specific industry conditions, and general economic trends and conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over office rental revenues and tenant recoveries, including controls over management’s assessment of the collectability of future lease payments.

For example, we tested controls over management’s consideration of the factors mentioned above used in assessing collectability and controls over the completeness and accuracy of the data used in management’s analyses.

To test the office rental revenues and tenant recoveries recognized, we performed audit procedures that included, among others, evaluating the data and assumptions used in determining whether collection of substantially all of the lease payments was probable based on the factors mentioned above.

In addition, we tested the completeness and accuracy of the data that was used in management’s collectability analyses.

Impairment of investment in real estate

Description of the Matter The Company’s net investment in real estate totaled $8.9 billion as of December 31, 2020.

As discussed in Note 2 to the consolidated financial statements, the Company periodically assesses whether there has been any impairment in the carrying value of its properties and whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable.

Impairment is recognized on real estate assets held for investment when indicators of impairment are present and the future undiscounted cash flows for a real estate asset are less than its carrying amount, at which time the real estate asset is written down to its estimated fair value.

Auditing the Company's impairment assessment for real estate assets was challenging because of the high degree of subjective auditor judgment necessary in evaluating management’s identification of indicators of potential impairment.

Our evaluation of management’s identification of indicators of impairment included our related assessment of the severity of such indicators, either individually or in combination, in determining whether a triggering event has occurred that requires the Company to evaluate the recoverability of the real estate asset.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s real estate asset impairment assessment process.

For example, we tested controls over management’s process for identifying and evaluating potential impairment indicators.

Our testing of the Company’s impairment assessment included, among other procedures, evaluating significant judgments applied in determining whether indicators of impairment existed for the Company’s real estate assets.

Our procedures included obtaining evidence to corroborate such judgments and searching for evidence contrary to such judgments.

For example, we searched for any tenants or groups of tenants with significant write offs or upcoming lease expirations that occupy a substantial portion of a real estate asset.

We also searched for any significant declines in operating results of a real estate asset due to occupancy changes, tenant bankruptcies, environmental issues, physical damage, change in intended use or adverse changes in legal factors.

/s/ Ernst & Young LLP

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(In thousands, except share data)

December 31, 2019

December 31, 2018

Investment in real estate:

Buildings and improvements

Tenant improvements and lease intangibles

Property under development

December 31, 2020 December 31, 2019

Investment in real estate, gross $ 11,678,638 $ 11,478,633

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Interest rate contract assets — 22,381

Investment in unconsolidated Funds

Investment in unconsolidated Fund 47,374 42,442

Other assets 21,583 16,421

Total Assets $ 9,250,825 $ 9,349,301

Secured notes payable and revolving credit facility, net $ 4,744,967 $ 4,619,058

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Additional paid-in capital 3,487,887 3,486,356

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss ( 148,035 ) ( 17,462 )

Accumulated deficit ( 904,516 ) ( 758,576 )

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Noncontrolling interests 1,558,928 1,658,862

Total equity 3,996,019 4,370,934

Total Liabilities and Equity $ 9,250,825 $ 9,349,301

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Year Ended December 31,

2020 2019 2018

Office rental

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Total operating expenses 730,262 693,974 629,372

Operating income

Other income 16,288 11,653 11,414

Other expenses ( 2,947 ) ( 7,216 ) ( 7,744 )

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Interest expense ( 142,872 ) ( 143,308 ) ( 133,402 )

Gain on sale of investment in real estate 6,393 — —

Gain from consolidation of JV — 307,938 —

Net income attributable to noncontrolling interests

Net income 38,553 418,698 128,612

Net loss (income) attributable to noncontrolling interests 11,868 ( 54,985 ) ( 12,526 )

Net income attributable to common stockholders $ 50,421 $ 363,713 $ 116,086

Net income per common share – basic

Net income per common share – diluted

Net income per common share – basic and diluted $ 0.28 $ 2.09 $ 0.68

See accompanying notes to the consolidated financial statements.

Douglas Emmett, Inc.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Year Ended December 31,

2020 2019 2018

Net income $ 38,553 $ 418,698 $ 128,612

Other comprehensive (loss) income:

cash flow hedges ( 183,521 ) ( 107,292 ) 15,070

Comprehensive income

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to common stockholders

Comprehensive (loss) income ( 144,968 ) 311,406 143,682

Comprehensive loss (income) attributable to noncontrolling interests 64,816 ( 19,099 ) ( 16,751 )

Comprehensive (loss) income attributable to common stockholders $ ( 80,152 ) $ 292,307 $ 126,931

See accompanying notes to the consolidated financial statements.

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Year Ended December 31,

Shares of Common Stock

Beginning balance

2020 2019 2018

Shares of Common Stock Beginning balance 175,370 170,215 169,565

Exchange of OP Units for common stock 94 222 629

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Ending balance 175,464 175,370 170,215

Beginning balance

Common Stock Beginning balance $ 1,754 $ 1,702 $ 1,696

Exchange of OP Units for common stock 1 2 6

Issuance of common stock — 50 —

Exercise of stock options

Ending balance $ 1,755 $ 1,754 $ 1,702

Additional Paid-in Capital

Beginning balance

Additional Paid-in Capital Beginning balance $ 3,486,356 $ 3,282,316 $ 3,272,539

Exchange of OP Units for common stock 1,535 3,538 10,286

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Ending balance $ 3,487,887 $ 3,486,356 $ 3,282,316

Beginning balance

AOCI Beginning balance $ ( 17,462 ) $ 53,944 $ 43,099

ASU 2017-12 adoption — — 211

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Ending balance $ ( 148,035 ) $ ( 17,462 ) $ 53,944

Accumulated Deficit

Beginning balance

Accumulated Deficit Beginning balance $ ( 758,576 ) $ ( 935,630 ) $ ( 879,810 )

ASU 2016-02 adoption — ( 2,144 ) —

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Net income attributable to common stockholders 50,421 363,713 116,086

Dividends ( 196,361 ) ( 184,515 ) ( 171,695 )

Ending balance $ ( 904,516 ) $ ( 758,576 ) $ ( 935,630 )

Noncontrolling Interests

Beginning balance

Noncontrolling Interests Beginning balance $ 1,658,862 $ 1,446,098 $ 1,464,525

ASU 2016-02 adoption — ( 355 ) —

Net income attributable to noncontrolling interests

Net (loss) income attributable to noncontrolling interests ( 11,868 ) 54,985 12,526

Cash flow hedge adjustments ( 52,948 ) ( 35,886 ) 4,225

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Issuance of OP Units for acquisition of additional interest in unconsolidated Fund — 14,390 —

Issuance of OP Units for acquisition of real estate

Exchange of OP Units for common stock ( 1,536 ) ( 3,540 ) ( 10,292 )

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Year Ended December 31,

Beginning balance

2020 2019 2018

Total Equity Beginning balance $ 4,370,934 $ 3,848,430 $ 3,902,049

ASU 2016-02 adoption — ( 2,499 ) —

Net income 38,553 418,698 128,612

Cash flow hedge adjustments ( 183,521 ) ( 107,292 ) 14,859

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Issuance of OP Units for acquisition of additional interest in unconsolidated Fund — 14,390 —

Issuance of OP Units for acquisition of real estate

Repurchase of OP Units with cash ( 7 ) ( 734 ) ( 108 )

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Contributions — 176,000 —

Dividends ( 196,361 ) ( 184,515 ) ( 171,695 )

Distributions ( 60,392 ) ( 76,978 ) ( 52,142 )

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Year Ended December 31,

2020 2019 2018

Operating Activities

Net income $ 38,553 $ 418,698 $ 128,612

Adjustments to reconcile net income to net cash provided by operating activities:

Income from unconsolidated Funds ( 430 ) ( 6,923 ) ( 6,400 )

Gain from insurance recoveries for damage to real estate ( 13,105 ) — —

Gain on sale of investment in real estate ( 6,393 ) — —

Gain from consolidation of JV — ( 307,938 ) —

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Straight-line rent 18,733 ( 10,134 ) ( 18,813 )

Write-off of uncollectible amounts

Loan premium amortized and written off ( 2,274 ) ( 261 ) ( 205 )

Deferred loan costs amortized and written off 7,832 14,314 8,292

Amortization of loan premium

Derivative non-cash adjustments

Amortization of stock-based compensation 21,365 18,359 22,299

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Security deposits ( 4,676 ) 1,919 319

Other assets ( 3,063 ) 706 4,654

Net cash provided by operating activities 420,218 469,586 432,982

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Capital expenditures for developments ( 154,153 ) ( 61,660 ) ( 68,459 )

Property acquisitions

Insurance recoveries for damage to real estate 17,120 — —

Property acquisition — ( 365,885 ) —

Cash assumed from consolidation of JV — 39,226 —

Proceeds from sale of investment in real estate, net 20,658 — —

Acquisition of additional interests in unconsolidated Funds ( 6,591 ) ( 90,754 ) ( 9,379 )

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Proceeds from issuance of common stock, net — 200,983 —

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities ( 136,330 ) 187,538 ( 213,849 )

Increase (decrease) in cash and cash equivalents and restricted cash 18,713 7,456 ( 30,418 )

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Cash and cash equivalents and restricted cash - ending balance $ 172,517 $ 153,804 $ 146,348

Reconciliation of Ending Cash Balance

Year Ended December 31,

2020 2019 2018

Cash and cash equivalents - ending balance $ 172,385 $ 153,683 $ 146,227

Restricted cash - ending balance 132 121 121

Cash and cash equivalents and restricted cash - ending balance $ 172,517 $ 153,804 $ 146,348

Supplemental Cash Flows Information

Year Ended December 31,

2020 2019 2018

Operating Activities

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Accrual for deferred loan costs $ 50 $ 1,416 $ —

Assumption of term loan for acquisition of real estate

Non-cash contributions from noncontrolling interests in consolidated JVs $ — $ 12,444 $ —

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Exchange of OP Units for common stock $ 1,536 $ 3,540 $ 10,292

Issuance of OP Units for acquisition of real estate

OP Units issued for acquisition of additional interest in unconsolidated Fund $ — $ 14,390 $ —

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and its subsidiaries on a consolidated basis.

At December 31, 2019 , our Consolidated Portfolio consisted 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, our Consolidated Portfolio consisted 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 an equity interest an 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 (not including two parcels of land from which we receive rent under ground leases), consisted of the following properties (including ancillary retail space):

Consolidated Portfolio

Total Portfolio

Consolidated Portfolio Total Portfolio

Wholly-owned properties 53 53

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We consolidate our Operating Partnership through which we conduct substantially all of our business, and own, directly and through subsidiaries, substantially all of our assets, and are obligated to repay substantially all of our liabilities, including $ 3.19 billion of consolidated debt.

We also consolidate four JVs.

We also consolidate three JVs ( four JVs before December 31, 2020 - see "2020 Property Disposition" in Note 3 for more information regarding the dissolution of one of our JVs before December 31, 2020).

As of December 31, 2020, these consolidated entities had aggregate total consolidated assets of $ 9.25 billion (of which $ 8.86 billion related to investment in real estate), aggregate total consolidated liabilities of $ 5.25 billion (of which $ 4.74 billion related to debt), and aggregate total consolidated equity of $ 4.00 billion (of which $ 1.56 billion related to noncontrolling interests).

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Any references to the number or class of properties, square footage, per square footage amounts, apartment units and geography, are unaudited and outside the scope of our independent registered public accounting firm’s audit of our consolidated financial statements in accordance with the standards of the PCAOB.

During the current reporting period, we reported our demolition expenses as part of Other expenses in our consolidated statements of operations and we reclassified the comparable periods to conform to the current period presentation.

Commencing with the third quarter of 2020, we moved the disclosure of our investment in real estate cost categories (land, buildings and improvements, tenant improvements and lease intangibles, and property under development) from the consolidated balance sheets to our investment in real estate footnote for all periods presented.

Summary of Significant Accounting Policies

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The gain or loss recorded is measured as the difference between the sales price, less costs to sell, and the carrying value of the real estate when we sell it.

See Note 3 for our property disposition disclosures.

Cost capitalization

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We also cease capitalization when activities necessary to prepare the property for its intended use have been suspended.

Capitalized costs are included in Property under development in our consolidated balance sheets.

Once major construction activity has ceased and the development or redevelopment property is in the lease-up phase, the capitalized costs are transferred to (i) Land, (ii) Building and improvements and (iii) Tenant improvements and lease intangibles on our consolidated balance sheets as the historical cost of the property.

Capitalized costs are included in Investment in real estate, gross, in our consolidated balance sheets.

Demolition expenses and repairs and maintenance are recorded as expense when incurred.

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Ground Leases

We account for our ground lease, for which we are the lessee, in accordance with Topic 842 "Leases", which we adopted on January 1, 2019 on a prospective basis, see New Accounting Pronouncements further below.

We account for our ground lease, for which we are the lessee, in accordance with Topic 842 "Leases", which we adopted on January 1, 2019 on a prospective basis.

Upon adoption of the ASU, we continued to classify the lease as an operating lease, and we recognized a right-of-use asset for the land and a lease liability for the future lease payments of $ 10.9 million.

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We remove our investment in unconsolidated Funds from our consolidated balance sheet when we sell our interest in the Funds or the Funds qualify for consolidation.

Our investment in unconsolidated Funds is included in Investment in unconsolidated Funds in the consolidated balance sheet and our share of net income or losses from the Funds is included in Income from unconsolidated Funds in the consolidated statements of operations.

Our share of the Funds accumulated other comprehensive income or losses is included in Accumulated other comprehensive income (loss) in our consolidated balance sheet.

Our investment in unconsolidated Funds is included in Investment in unconsolidated Funds in the consolidated balance sheets and our share of net income or losses from the Funds is included in Income from unconsolidated Funds in the consolidated statements of operations.

Our share of the Funds accumulated other comprehensive income or losses is included in Accumulated other comprehensive income (loss) in our consolidated balance sheets.

As of December 31, 2020 and 2019, the total investment basis difference included in our investment balance in unconsolidated Funds was $ 29.6 million and $ 27.8 million, respectively.

See Note 6 for our Fund disclosures.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

We periodically assess whether there has been any impairment that is other than temporary in our investment in unconsolidated funds.

An impairment charge would be recorded if events or changes in circumstances indicate that a decline in the fair value below the carrying value has occurred and the decline is other-than-temporary.

Based upon such periodic assessments, no impairments occurred during 2020, 2019 or 2018.

See Note 6 for our Fund disclosures.

Impairment of Long-Lived Assets

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If the carrying value exceeds the estimated undiscounted future cash flows, an impairment loss is recorded equal to the difference between the property's carrying value and its fair value based on the estimated discounted future cash flows.

We also perform a similar periodic assessment for our investments in our Funds.

Based upon such periodic assessments, no impairments occurred during 2020, 2019 or 2018.

In downtown Honolulu, at 1132 Bishop Street, we are converting a 25 story, 490,000 square foot office tower into approximately 500 apartments.

We expect the conversion to occur in phases over a number of years as the office space is vacated.

Due to the change in planned use of the property, we performed an impairment assessment by comparing the property's expected undiscounted cash flows to the property's carrying value plus the expected development costs and concluded that there was no impairment as of December 31, 2019.

In downtown Honolulu, we are converting a 25 story, 490,000 square foot office tower into approximately 500 apartments in phases over a number of years as the office space is vacated.

Due to the significant change in planned use of the property, we performed annual impairment assessment in 2019 by comparing the property's expected undiscounted cash flows to the property's carrying value plus the expected development costs and concluded that there was no impairment loss.

We determined the undiscounted cash flows using our estimates of the expected future cash flows which included, but were not limited to, our estimates of property's net operating income, and capitalization rates.

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Rental Revenues and Tenant Recoveries

We account for our rental revenues and tenant recoveries in accordance with Topic 842 "Leases", which we adopted on January 1, 2019 on a modified retrospective basis, see New Accounting Pronouncements further below.

We account for our rental revenues and tenant recoveries in accordance with Topic 842 "Leases", which we adopted on January 1, 2019 on a modified retrospective basis.

Topic 842 did not significantly change our accounting policy for recognizing rental revenues and tenant recoveries, and we adopted a practical expedient which allows us to account for our rental revenues and tenant recoveries on a combined basis.

2 unchanged sentences

For lease terms exceeding one year, rental income is recognized on a straight-line basis over the lease term.

Deferred rent receivables represent rental revenue recognized on a straight-line basis in excess of billed rents.

If a lease is canceled then the deferred rent is recognized over the new remaining lease term.

We recognized straight line rent of $ 10.1 million , $ 18.8 million and $ 12.9 million during 2019 , 2018 and 2017 , respectively.

Tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses, property taxes, and other costs recoverable from tenants.

Deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds the cumulative cash rents billed to date under the lease agreement.

Rental revenue from month-to-month leases or leases with no scheduled rent increases or other adjustments is recognized on a monthly basis when earned.

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Subsequent to year-end, we perform reconciliations on a lease-by-lease basis and bill or credit each tenant for any differences between the estimated expenses we billed to the tenant and the actual expenses incurred.

In accordance with Topic 842, if collectibility of the lease payments is not probable at the commencement date, then we limit the lease income to the lesser of the income recognized on a straight-line basis or cash basis.

If our assessment of collectibility changes after the commencement date, we record the difference between the lease income that would have been recognized on a straight-line basis and cash basis as a current-period adjustment to lease income.

We elected to adopt the complete impairment model guidance within Topic 842.

Under this model, commencing on January 1, 2019, we no longer maintain a general reserve related to our receivables, and instead analyze, on a lease-by-lease basis, whether amounts due under the operating lease are deemed probable for collection.

We write off tenant and deferred rent receivables as a charge against rental revenue in the period we determine the lease payments are not probable for collection.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

In accordance with Topic 842, we perform an assessment as to whether or not substantially all of the amounts due under a tenant’s lease agreement is deemed probable of collection.

This assessment involves using a methodology that requires judgment and estimates about matters that are uncertain at the time the estimates are made, including tenant specific factors, specific industry conditions, and general economic trends and conditions.

For leases where we have concluded it is probable that we will collect substantially all the lease payments due under those leases, we continue to record lease income on a straight-line basis over the lease term.

For leases where we have concluded that it is not probable that we will collect substantially all the lease payments due under those leases, we limit the lease income to the lesser of the income recognized on a straight-line basis or cash basis.

If our conclusion of collectibility changes, we will record the difference between the lease income that would have been recognized on a straight-line basis and cash basis as a current-period adjustment to rental revenues and tenant recoveries.

We write-off tenant receivables and deferred rent receivables as a charge against rental revenues and tenant recoveries in the period we conclude that substantially all of the lease payments are not probable of collection.

If we subsequently collect amounts that were previously written off then the amounts collected are recorded as an increase to our rental revenues and tenant recoveries in the period they are collected.

Charges for uncollectible amounts, related to tenant receivables and deferred rent receivables, which for the year ended December 31, 2020 were primarily due to the impact of the COVID-19 pandemic, reduced our office revenues by $ 41.0 million and $ 2.6 million for the years ended December 31, 2020 and 2019, respectively.

Before the adoption of Topic 842, we presented our tenant receivables and deferred rent receivables net of allowances on our consolidated balance sheets.

Tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses, property taxes, and other costs recoverable from tenants.

Deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds the cumulative cash rents billed to date under the lease agreement.

We considered many factors when evaluating the level of allowances necessary, including evaluations of individual tenant receivables, historical loss activity, current economic conditions and other relevant factors.

We generally obtain letters of credit or security deposits from our tenants.

The table below presents our allowances and security obtained from our tenants before we adopted Topic 842:

(In thousands)

December 31, 2018

Allowance for tenant receivables

Allowance for deferred rent receivables

Letters of credit from our tenants

Cash security deposits from our tenants

The table below presents the impact of the changes in our allowances on our results of operations:

Year Ended December 31,

(In thousands)

Tenant receivables allowance - decrease in net income

Deferred rent receivables allowance - increase in net income

Tenant receivable allowances reduced our rental revenues and tenant recoveries by $ 2.2 million for the year ended December 31, 2018, and deferred rent receivable allowances increased our rental revenues and tenant recoveries by $ 0.6 million for the year ended December 31, 2018.

Office Parking Revenues

Office parking revenues, which are included in office Parking and other income in our consolidated statements of operations, are within the scope of Topic 606 "Revenue from Contracts with Customers", which we adopted on January 1, 2018 on a modified retrospective basis.

Topic 606 did not significantly change our accounting policy for parking revenues.

Office parking revenues, which are included in office Parking and other income in our consolidated statements of operations, are within the scope of Topic 606 "Revenue from Contracts with Customers".

Our lease contracts generally make a specified number of parking spaces available to the tenant, and we bill and recognize parking revenues on a monthly basis in accordance with the lease agreements, generally using the monthly parking rates in effect at the time of billing.

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Insurance Recoveries

Insurance recoveries related to property damage are recorded as other income when payment is either received or receipt is determined to be probable.

The amount by which insurance recoveries related to property damage exceeds any losses recognized from that damage are recorded as other income when payment has been received or confirmation of the amount of proceeds has been received.

In January 2020, there was a fire in one of our residential property buildings.

We carry comprehensive liability and property insurance covering all of the properties in our portfolio under blanket insurance policies to cover these kinds of losses.

During the year ended December 31, 2020 we recorded $ 3.9 million of business interruption revenues, which is included in Multifamily rental - Parking and other income in the consolidated statements of operations, and a gain related to property damage of $ 13.1 million, which is included in Other income in the consolidated statements of operations.

Interest Income

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Leasing Costs

We account for our leasing costs in accordance with Topic 842 "Leases", which we adopted on January 1, 2019 on a modified retrospective basis, see New Accounting Pronouncements further below.

We account for our leasing costs in accordance with Topic 842 "Leases", which we adopted on January 1, 2019 on a modified retrospective basis.

In accordance with Topic 842, we capitalize initial direct costs of a lease, which are costs that would not have been incurred had the lease not been executed.

Costs to negotiate a lease that would have been incurred regardless of whether the lease was executed, such as employee salaries, are not considered to be initial direct costs, and are expensed.

Costs to negotiate a lease that would have been incurred regardless of whether the lease was executed, such as employee salaries, are not considered to be initial direct costs, and are expensed as incurred.

Prior to January 1, 2019, we capitalized most of our leasing costs.

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Loan costs incurred directly with the issuance of secured notes payable and revolving credit facilities are deferred and amortized to interest expense over the respective loan or credit facility term.

Any unamortized amounts are written off upon early repayment of the secured notes payable, and the related cost and accumulated amortization are removed from our balance sheet.

Any unamortized amounts are written off upon early repayment of the secured notes payable, and the related cost and accumulated amortization are removed from our consolidate balance sheets.

To the extent that a refinancing is considered an exchange of debt with the same lender, we account for loan costs based upon whether the old debt is determined to be modified or extinguished for accounting purposes.

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We account for stock-based compensation, including stock options and LTIP Units, using the fair value method of accounting.

The estimated fair value of stock options and LTIP Units is amortized over the vesting period, which is based upon service.

The estimated fair value of stock options and LTIP Units, net of estimated forfeitures, is amortized over the vesting period, which is based upon service.

See Note 13 for our stock-based compensation disclosures.

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If we fail to qualify as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at the regular corporate rate, including any applicable alternative minimum tax for taxable years prior to 2018.

We have elected to treat several of our subsidiaries as TRSs, which generally may engage in any business, including the provision of customary or non-customary services to our tenants.

We have elected to treat one of our subsidiaries as a TRS, which generally may engage in any business, including the provision of customary or non-customary services to our tenants.

A TRS is treated as a regular corporation and is subject to federal income tax and applicable state income and franchise taxes at regular corporate rates.

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We consider the applicability and impact of all ASUs.

Other than the ASUs discussed below, the FASB has not issued any other ASUs during we expect to be applicable and have a material impact on our consolidated financial statements.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

During 2019 we adopted the ASU listed below:

ASU 2016-02 (Topic 842 - "Leases")

In February 2016, the FASB issued ASU No.

2016-02, (Topic 842 - "Leases").

The primary impact of the ASU is the recognition of lease assets and liabilities on the balance sheet by lessees for leases classified as operating leases.

The accounting applied by lessors is largely unchanged.

For example, the vast majority of operating leases remain classified as operating leases, and lessors continue to recognize lease payments for those leases on a straight-line basis over the lease term.

We adopted the ASU on January 1, 2019 using the modified retrospective transition method.

We recorded cumulative adjustments of $ 2.1 million and $ 0.4 million to the opening balances of accumulated deficit and noncontrolling interests, respectively, for leasing expenses related to leases that were entered into before the adoption date but commenced after the adoption date.

The ASU provides a practical expedient package, which we elected to use, that allows entities (a) not to reassess whether any expired or existing contracts as of the adoption date are considered or contain leases;

(b) not to reassess the lease classification for any expired or existing leases as of the adoption date;

and (c) not to reassess initial direct costs for any existing leases as of the adoption date.

All leases entered into on or after the adoption date were accounted for under the ASU.

We lease space to tenants at our office and multifamily properties.

Under the ASU, all of our tenant leases continue to be classified as operating leases.

The ASU continues to require that lease payments for operating leases be recognized over the lease term on a straight-line basis unless another systematic and rational basis is more representative of the pattern in which benefit is expected to be derived from the use of the underlying asset.

If collectibility of the lease payments is not probable at the commencement date, then the lease income should be limited to the lesser of the income recognized on a straight-line basis or cash basis.

If the assessment of collectibility changes after the commencement date, any difference between the lease income that would have been recognized on a straight-line basis and cash basis must be recognized as a current-period adjustment to lease income.

We elected to adopt the complete impairment model guidance within ASC 842.

Under this model we no longer maintain a general reserve related to our receivables, and instead analyze, on a lease-by-lease basis, whether amounts due under the operating lease are deemed probable for collection.

We write off tenant and deferred rent receivables as a charge against rental revenue in the period we determine the lease payments are not probable for collection.

The ASU requires separation of the lease from the non-lease components (for example, maintenance services or other activities that transfer a good or service to the customer) in a contract.

Only the lease components are accounted for in accordance with the ASU.

The consideration in the contract is allocated to the lease and non-lease components on a relative standalone selling price basis and the non-lease component would be accounted for in accordance with ASC 606 ("Revenue from Contracts with Customers").

In July 2018, the FASB issued ASU No.

2018-11 which includes an optional practical expedient for lessors to elect, by class of underlying asset, to not separate the lease from the non-lease components if certain criteria are met.

Our office tenant leases include a lease component for the rental income and a non-lease component for the related tenant recoveries.

We determined that our office tenant leases qualify for the single component presentation and we adopted the practical expedient.

We account for the combined components under the ASU.

Rental revenues and tenant recoveries from our office tenant leases is included in Rental revenues and tenant recoveries under Office rental in our consolidated statements of operations.

Rental revenues from our multifamily tenant leases is included in multifamily Rental revenues in our consolidated statements of operations.

Rental revenue recognized on a straight-line basis in excess of billed rents is included in Deferred rent receivables in our consolidated balance sheets.

See Note 16 for more information regarding the future lease rental receipts from our operating leases.

The ASU defines initial direct costs of a lease, which may be capitalized, as costs that would not have been incurred had the lease not been executed.

We historically capitalized most of our leasing costs.

We expensed $ 4.2 million during the year ended December 31, 2019 , of leasing costs related to our tenant leases that did not qualify as initial direct costs of a lease, which are included in General and administrative expenses in our consolidated statements of operations.

Other than the ASUs discussed below, the FASB has not issued any other ASUs that we expect to be applicable and have a material impact on our consolidated financial statements.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

We pay rent under a ground lease which expires on December 31, 2086 .

We calculated the carrying value of the right-of-use asset and lease liability by discounting the future lease payments using our incremental borrowing rate.

We adjusted the right-of-use asset carrying value for a related above-market ground lease liability of $ 3.4 million , which reduced the carrying value of the asset to $ 7.5 million .

We continued to recognize the lease payments as expense, which is included in Office expenses in our consolidated statements of operations.

See Note 4 for more information regarding this ground lease.

See Note 14 for the fair value disclosures related to the ground lease liability.

In December 2018, the FASB issued ASU 2018-20, an update to ASU 2016-02, which provides guidance on accounting for sales and other similar taxes collected from lessees, certain lessor costs, and recognition of variable payments for contracts with lease and nonlease components.

We adopted the ASU and it did not have a material impact on our consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, an update to ASU 2016-02, which provides guidance on transition disclosures related to Topic 250 "Accounting Changes and Error Corrections" and other technical updates.

We adopted the ASU and it did not have a material impact on our consolidated financial statements.

ASUs Not Yet Adopted

ASU 2016-13 (Topic 326 - "Financial Instruments-Credit Losses")

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The ASU provides guidance for measuring credit losses on financial instruments.

The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those years, which for us would be the first quarter of 2020, and early adoption is permitted.

The amendments in this ASU should be applied retrospectively.

The ASU would impact our measurement of credit losses for our Office parking receivables, which were $ 1.3 million and $ 1.1 million as of December 31, 2019 and 2018 , respectively, and are included in Tenant receivables in our consolidated balance sheets.

We expect to adopt the ASU in the first quarter of 2020 and we do not expect the ASU to have a material impact on our consolidated financial statements.

The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those years, which for us was the first quarter of 2020.

The amendments in the ASU should be applied on a modified-retrospective basis.

The ASU impacts our measurement of credit losses for our Office parking receivables, which were $ 0.6 million and $ 1.3 million as of December 31, 2020 and December 31, 2019, respectively, and are included in Tenant receivables in our consolidated balance sheets.

We adopted the ASU in the first quarter of 2020 and it did not have a material impact on our consolidated financial statements.

ASU 2020-04 (Topic 848 - "Reference Rate Reform")

In March 2020, the FASB issued ASU No.

2020-04, "Reference Rate Reform", which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The practical expedients are optional and may be elected over time as reference rate reform activities occur.

We elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Application of these expedients maintains the presentation of derivatives consistent with past presentation.

We will continue to evaluate the impact of the ASU and may apply other elections, as applicable, as additional changes in the market occur.

Our election to apply the hedge accounting expedients in the first quarter of 2020 did not have a material impact on our consolidated financial statements.

Other Pronouncements

FASB COVID-19 Lease Modification Accounting Relief

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic.

Under the existing lease accounting guidance, we would be required to determine on a lease-by-lease basis if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework).

The Lease Modification Q&A allows us, if certain criteria are met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances.

We have availed ourselves of the election to avoid performing a lease-by-lease analysis and we have elected to apply the lease modification accounting framework for the lease concessions that meet the criteria.

FASB COVID-19 Cash Flow Hedge Accounting Relief

In April 2020, the FASB staff issued a question and answer document (the “Cash Flow Hedge Accounting Q&A”) on the application of cash flow hedge accounting guidance to cash flow hedges impacted by the COVID-19 pandemic.

The Cash Flow Hedge Accounting Q&A clarifies that:

(i) when cash flow hedge accounting has been discontinued, the delays in the timing of the forecasted transactions related to the impact of the COVID-19 pandemic may be considered rare cases caused by extenuating circumstances outside the control or influence of an entity, thereby allowing amounts deferred in AOCI to remain in AOCI until the forecasted transaction affects earnings, and (ii) missed forecasts, related to the effects of the COVID-19 pandemic, do not need to be considered when determining whether the entity has exhibited a pattern of missing forecasts that would call into question the entity’s ability to accurately predict forecasted transactions and the propriety of using cash flow hedge accounting in the future for similar transactions.

The Cash Flow Hedge Accounting Q&A did not have a material impact on our consolidated financial statements.

Douglas Emmett, Inc.

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Investment in Real Estate

We account for our property acquisitions as asset acquisitions.

The acquired property's results of operations are included in our results of operations from the respective acquisition dates.

2019 Acquisition and JV consolidation

The table below summarizes our investment in real estate:

(In thousands) December 31, 2020 December 31, 2019

Land $ 1,150,821 $ 1,152,684

Buildings and improvements 9,344,653 9,308,481

Tenant improvements and lease intangibles 928,867 905,753

Property under development 254,297 111,715

Investment in real estate, gross $ 11,678,638 $ 11,478,633

2020 Property Disposition

In December 2020, we closed on the sale of an 80,000 square foot office property in Honolulu for a contract price of $ 21.0 million in cash, resulting in a gain of $ 6.4 million after transaction costs.

The property sold was held by one of our consolidated JVs in which we owned a two-thirds capital interest.

The JV was subsequently dissolved prior to December 31, 2020.

2019 Property Acquisition and JV consolidation

Acquisition of The Glendon

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The table below summarizes the purchase price allocation for the acquisition.

See Note 14 for our fair value disclosures.

The contract and purchase prices differ due to prorations and similar adjustments:

(In thousands, except number of units)

West Los Angeles

Acquisition date

(In thousands, except number of units) The Glendon

Submarket West Los Angeles

Acquisition date June 7, 2019

Contract price $ 365,100

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Retail square footage 50

Land $ 32,773

Buildings and improvements 333,624

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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).

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

The consolidation of the JV required us to recognize the JVs identifiable assets and liabilities at fair value in our consolidated financial statements, along with the fair value of the non-controlling interest of $ 61.4 million.

We recognized a gain of $ 307.9 million to adjust the carrying value of our existing investment in the JV to its estimated fair value upon consolidation.

See Note 14 for our fair value disclosures.

The gain was determined by taking the difference between:

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Other acquired assets, including cash and assumed liabilities were recorded at cost due to the short-term nature of the balances.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

The JV owns six Class A office properties totaling 1.5 million square feet in the Los Angeles submarkets of Beverly Hills, Santa Monica, Sherman Oaks/Encino and Warner Center.

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The table below summarizes the purchase price allocation for the initial consolidation of the JV:

(In thousands)

JV Consolidation

Consolidation date

November 21, 2019

(In thousands) JV Consolidation

Consolidation date November 21, 2019

Square footage 1,454

Land $ 52,272

Buildings and improvements 831,416

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JV interest in unconsolidated Fund 28,783

Assumed debt ( 403,016 )

Assumed interest rate swaps ( 4,147 )

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Net assets acquired and liabilities assumed $ 558,256

2018 Acquisitions

During 2018, we did not purchase any properties.

2017 Acquisitions

During 2017, (i) a consolidated JV that we manage and in which we own an equity interest acquired three Class A office properties (1299 Ocean Avenue, 429 Santa Monica Boulevard and 9665 Wilshire Boulevard), for which investors contributed $ 284.0 million directly to the JV, and (ii) we acquired one wholly-owned Class A office property (9401 Wilshire Boulevard).

The table below summarizes the purchase price allocations for the acquisitions.

The contract and purchase prices differ due to prorations and similar matters.

(In thousands)

429 Santa Monica

9665 Wilshire

9401 Wilshire (1)

Beverly Hills

Acquisition date

Contract price

Building square footage

Investment in real estate:

Buildings and improvements

Tenant improvements and lease intangibles

Acquired above- and below-market leases, net

Assumed debt (2)

Net assets and liabilities acquired

_____________________________________________________

We issued OP Units to the seller in connection with the acquisition of 9401 Wilshire.

See Note 11 for more information.

We assumed a loan from the seller in connection with the acquisition of 9401 Wilshire.

At the date of acquisition, the loan had a fair value of $ 36.5 million and a principal balance of $ 32.3 million .

See Note 8 for more information.

2018 Property Acquisitions and Dispositions

During 2018, we did not purchase or sell any properties.

Douglas Emmett, Inc.

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The rent is fixed at $ 733 thousand per year until February 28, 2029, after which it will reset to the greater of the existing ground rent or market.

As of December 31, 2019 , the right-of-use asset carrying value of this ground lease was $ 7.5 million and the ground lease liability was $ 10.9 million .

As of December 31, 2020, the ground lease right-of-use asset carrying value of this ground lease was $ 7.5 million and the ground lease liability was $ 10.9 million.

We incurred ground rent expense of $ 733 thousand during 2020, 2019 and 2018, which is included in Office expenses in our consolidated statements of operations.

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(In thousands)

Thereafter 44,712

Total future minimum lease payments $ 48,377

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Summary of our Acquired Lease Intangibles

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Above-market tenant leases $ 6,848 $ 7,220

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Below-market tenant leases - accumulated accretion ( 46,711 ) ( 50,216 )

Above-market ground lease where we are the tenant (1)

Above-market ground lease - accumulated accretion (1)

Acquired lease intangible liabilities, net $ 35,223 $ 52,367

___________________________________________________

(1) Upon adoption of ASU 2016-02 on January 1, 2019 we adjusted the ground lease right-of-use asset carrying value with the carrying value of the above-market ground lease - see Notes 2 and 4 .

Impact on the Consolidated Statements of Operations

3 unchanged sentences

Net accretion of above- and below-market tenant lease assets and liabilities (1)

$ 15,895 $ 16,282 $ 21,992

Amortization of an above-market ground lease asset (2)

( 17 ) ( 18 ) ( 17 )

Accretion of an above-market ground lease liability (3)

Total $ 15,878 $ 16,264 $ 22,025

_______________________________________________________________________________________

7 unchanged sentences

(In thousands)

Thereafter 3,323

Total $ 30,082

Douglas Emmett, Inc.

2 unchanged sentences

Description of our Funds

As of December 31, 2019 , we manage and own an equity interest of 29.9 % in an unconsolidated Fund, Partnership X, through which we and other investors in the Fund own two office properties totaling 0.4 million square feet.

As of December 31, 2020, we managed and owned an equity interest of 33.5 % in an unconsolidated Fund, Partnership X, through which we and other investors in the Fund own two office properties totaling 0.4 million square feet.

During the year ended December 31, 2020 we purchased additional interests of 3.6 % in Partnership X for $ 6.6 million.

As of December 31, 2019, we owned a 29.9 % equity interest in Partnership X.

Before November 21, 2019, we managed and owned equity interests in three unconsolidated Funds, consisting of 6.2 % of the Opportunity Fund, 72.7 % of Fund X and 28.4 % of Partnership X, through which we and other investors in the Funds owned eight office properties totaling 1.8 million square feet.

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During the period January 1, 2019 to November 20, 2019 we purchased additional interests of 1.4 % in Fund X and 3.9 % in Partnership X.

As of December 31, 2018, we owned equity interests of 24.5 % in Partnership X, 6.2 % in the Opportunity Fund, and 71.3 % in Fund X.

During the year ended December 31, 2018 we purchased an additional 1.9 % interest in Fund X.

Our Funds pay us fees and reimburse us for certain expenses related to property management and other services we provide, which are included in Other income in our consolidated statements of operations.

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Operating distributions received (1)

$ 394 $ 6,820 $ 6,400

Capital distributions received (1)

1,236 5,853 7,349

Total distributions received (1)

$ 1,630 $ 12,673 $ 13,749

__________________________________________________________

(1) The balances reflect the combined balances for Partnership X, Fund X and the Opportunity Fund through November 20, 2019 and the balances for Partnership X from November 21, 2019 through December 31, 2020.

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The tables below present selected financial information for the Funds.

The amounts presented reflect 100 % (not our pro-rata share) of amounts related to the Funds, and are based upon historical acquired book value:

(In thousands)

December 31, 2019

December 31, 2018

The amounts presented reflect 100 % (not our pro-rata share) of amounts related to the Funds, and are based upon historical book value:

(In thousands) December 31, 2020 December 31, 2019

Total assets (1)

$ 133,617 $ 136,479

Total liabilities (1)

$ 112,706 $ 113,330

Total equity (1)

$ 20,911 $ 23,149

(1) The balances as of December 31, 2019 reflect the balances for Partnership X.

The balances as of December 31, 2018 reflect the combined balances for Partnership X, Fund X and the Opportunity Fund.

_______________________________________________

(1) The balances for both periods reflect the balances for Partnership X.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Year Ended December 31,

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Total revenues (1)

$ 15,744 $ 75,952 $ 79,590

Operating income (1)

$ 3,614 $ 22,269 $ 22,959

Net income (1)

$ 887 $ 7,350 $ 6,260

_________________________________________________

(1) The results of operations are not directly comparable to the prior periods;

the balances reflect the combined balances for Partnership X, Fund X and the Opportunity Fund through November 20, 2019 and the balances for Partnership X from November 21, 2019 through December 31, 2020.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Restricted cash $ 132 $ 121

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Furniture, fixtures and equipment, net 2,358 2,368

Other 3,331 3,233

Total other assets $ 21,583 $ 16,421

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Secured Notes Payable and Revolving Credit Facility, Net

Principal Balance as of December 31, 2019

Principal Balance as of December 31, 2018

Variable Interest Rate

Fixed Interest

Principal Balance as of December 31, 2020 Principal Balance as of December 31, 2019 Variable Interest Rate Fixed Interest

Swap Maturity Date

(In thousands)

Wholly-Owned Subsidiaries

Fannie Mae loan (3)

Term loan (3)

Consolidated Wholly-Owned Subsidiaries

Term loan (3)

1/1/2024 $ 300,000 $ 300,000 LIBOR + 1.55 %

3.46 % 1/1/2022

Term loan (3)

3/3/2025 335,000 335,000 LIBOR + 1.30 %

3.84 % 3/1/2023

Fannie Mae loan (3)

4/1/2025 102,400 102,400 LIBOR + 1.25 %

2.76 % 3/1/2023

Term loan (3)

8/15/2026 415,000 415,000 LIBOR + 1.10 %

3.07 % 8/1/2025

Term loan (3)

9/19/2026 400,000 400,000 LIBOR + 1.15 %

2.44 % 9/1/2024

Term loan (3)

9/26/2026 200,000 200,000 LIBOR + 1.20 %

2.36 % 10/1/2024

Term loan (3)(4)

11/1/2026 400,000 400,000 LIBOR + 1.15 %

2.18 % 10/1/2024

Fannie Mae loan (3)

6/1/2027 550,000 550,000 LIBOR + 1.37 %

3.16 % 6/1/2022

Fannie Mae loan (3)

6/1/2029 255,000 255,000 LIBOR + 0.98 %

3.26 % 6/1/2027

Fannie Mae loan (3)

6/1/2029 125,000 125,000 LIBOR + 0.98 %

3.25 % 6/1/2027

Term loan (5)

6/1/2038 30,112 30,864 N/A 4.55 % N/A

Revolving credit facility (6)

3 unchanged sentences

Term loan (7)

— — 400,000 — — —

Term loan (3)

2/28/2023 580,000 580,000 LIBOR + 1.40 %

2.37 % 3/1/2021

Term loan (3)

12/19/2024 400,000 400,000 LIBOR + 1.30 %

3.47 % 1/1/2023

Term loan (3)(8)

5/15/2027 450,000 — LIBOR + 1.35 %

3.04 % 4/1/2025

Term loan (3)

6/1/2029 160,000 160,000 LIBOR + 0.98 %

3.25 % 7/1/2027

Total Consolidated Debt (9)

4,777,512 4,653,264

Unamortized loan premium, net (10)

Unamortized deferred loan costs, net (11)

( 37,012 ) ( 40,947 )

Total Consolidated Debt, net $ 4,744,967 $ 4,619,058

_____________________________________________________

Except as noted below, each loan (including our revolving credit facility) is non-recourse and secured by one or more separate collateral pools consisting of one or more properties, and requires monthly payments of interest only with the outstanding principal due upon maturity.

Certain of our loans require us to pay down the loan if necessary for the properties involved to meet minimum financial thresholds, although we have never had to make such a payment.

Except as noted below, our loans and revolving credit facility:

(i) are non-recourse, (ii) are secured by separate collateral pools consisting of one or more properties, (iii) require interest-only monthly payments with the outstanding principal due upon maturity, and (iv) contain certain financial covenants which could require us to deposit excess cash flow with the lender under certain circumstances unless we (at our option) either provide a guarantee or additional collateral or pay down the loan within certain parameters set forth in the loan documents.

Certain loans with maturity date extensions require us to meet minimum financial thresholds in order to exercise those extensions.

(1) Maturity dates include the effect of extension options.

(2) Effective rate as of December 31, 2020.

Includes the effect of interest rate swaps and excludes the effect of prepaid loan fees.

1 unchanged sentence

See below for details of our loan costs.

At December 31, 2019 , these loans have been paid off.

Loan agreement includes a zero -percent LIBOR floor.

(3) The loan agreement includes a zero -percent LIBOR floor.

The corresponding swaps do not include such a floor.

The effective rate will decrease to 2.76 % on March 2, 2020 .

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

These loans were closed during the twelve months ended December 31, 2019 .

Effective rate will increase to 3.07 % on April 1, 2020 .

Effective rate will decrease to 2.36 % on July 1, 2020 .

(4) Effective rate will increase to 2.31 % on July 1, 2021.

Effective rate will increase to 3.25 % on December 1, 2020 .

(5) Requires monthly payments of principal and interest.

Principal amortization is based upon a 30 -year amortization schedule.

In March 2019, we renewed our $ 400.0 million revolving credit facility, releasing two previously encumbered properties, lowering the borrowing rate and unused facility fees, and extending the maturity date.

(6) $ 400.0 million revolving credit facility.

Unused commitment fees range from 0.10 % to 0.15 %.

The loan agreement includes a zero-percent LIBOR floor.

A previously unconsolidated Fund is now treated as a consolidated JV.

The table does not include our unconsolidated Funds' loans - see Note 17 .

The facility has a zero-percent LIBOR floor.

(7) We paid this loan off during the second quarter of 2020.

(8) We closed this loan during the second quarter of 2020.

The effective rate will decrease to 2.26 % on July 1, 2022.

(9) The table does not include our unconsolidated Funds' loan - see Note 17.

See Note 14 for our fair value disclosures.

(10) Balances are net of accumulated amortization of $ 2.7 million and $ 0.5 million at December 31, 2020 and December 31, 2019, respectively.

(11) Balances are net of accumulated amortization of $ 38.3 million and $ 30.7 million at December 31, 2020 and December 31, 2019, respectively.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Debt Statistics

The following table summarizes our consolidated fixed and floating rate debt:

(In thousands)

Principal Balance as of December 31, 2019

Principal Balance as of December 31, 2018

The table below summarizes our consolidated fixed and floating rate debt:

(In thousands) Principal Balance as of December 31, 2020 Principal Balance as of December 31, 2019

Aggregate swapped to fixed rate loans $ 4,672,400 $ 4,622,400

1 unchanged sentence

Aggregate floating rate loans 75,000 —

The following table summarizes certain consolidated debt statistics as of December 31, 2019 :

Total Debt $ 4,777,512 $ 4,653,264

The table below summarizes certain consolidated debt statistics as of December 31, 2020:

Statistics for consolidated loans with interest fixed under the terms of the loan or a swap

Principal balance (in billions) $ 4.70

Weighted average remaining life (including extension options)

Weighted average remaining fixed interest period

Weighted average remaining life (including extension options) 5.3 years

Weighted average remaining fixed interest period 3.1 years

Weighted average annual interest rate 3.02 %

2 unchanged sentences

Year ending December 31:

Excluding Maturity Extension Options

Including Maturity Extension Options (1)

(In thousands)

Thereafter 2,980,795

Total future principal payments $ 4,777,512

1 unchanged sentence

(1) Some of our loan agreements require that we meet certain minimum financial thresholds to be able to extend the loan maturity.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Deferred loan costs are net of accumulated amortization of $ 30.7 million and $ 24.2 million at December 31, 2019 and December 31, 2018 , respectively.

The table below presents loan costs, which are included in interest expense in our consolidated statements of operations:

Loan Premium and Loan Costs

The table below presents loan premium and loan costs, which are included in Interest expense in our consolidated statements of operations:

Year Ended December 31,

(In thousands) 2020 2019 2018

Loan premium amortized and written off $ ( 2,274 ) $ ( 261 ) $ ( 205 )

Deferred loan costs amortized and written off 7,832 14,314 8,234

Loan costs expensed 1,008 1,318 58

Deferred loan costs written off

Deferred loan cost amortization

Total $ 6,566 $ 15,371 $ 8,087

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Interest Payable, Accounts Payable and Deferred Revenue

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Interest payable $ 12,199 $ 11,707

2 unchanged sentences

Total interest payable, accounts payable and deferred revenue $ 144,344 $ 131,410

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Derivative Contracts

1 unchanged sentence

As of December 31, 2020, all of our interest rate swaps, which include the interest rate swaps of our consolidated JVs and our unconsolidated Fund, were designated as cash flow hedges:

Number of Interest Rate Swaps

Notional (In thousands)

Number of Interest Rate Swaps Notional (In thousands)

Consolidated derivatives (1)(2)(4)(5)

39 $ 5,117,400

Unconsolidated Fund's derivative (3)(4)(5)

1 unchanged sentence

(1) The notional amount reflects 100 %, not our pro-rata share, of our consolidated JVs' derivatives.

Includes forward swaps with a total notional of $ 502.4 million .

The notional amount reflects 100 % , not our pro-rata share, of our unconsolidated Fund's derivatives.

(2) The notional amount includes:

Five swaps with a combined initial notional amount of $ 135.0 million, which will increase to $ 1.08 billion in the future to replace existing swaps as they expire, and

Two forward swaps (swaps effective after December 31, 2020) with a combined notional of $ 400.0 million, which will replace existing swaps as they expire.

(3) The notional amount reflects 100 %, not our pro-rata share, of our unconsolidated Fund's derivative.

(4) Our derivative contracts do not provide for right of offset between derivative contracts.

6 unchanged sentences

The fair value of our interest rate swap contract liabilities, including accrued interest and excluding credit risk adjustments, was as follows:

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Consolidated derivatives (1)

Unconsolidated Fund's derivatives (2)

$ 225,166 $ 56,896

Unconsolidated Fund's derivative $ 208 $ —

___________________________________________________

(1) Includes 100 %, not our pro-rata share, of our consolidated JVs' derivatives.

Our unconsolidate d Fund did not have any derivatives in a liability position.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Counterparty Credit Risk

2 unchanged sentences

The fair value of our interest rate swap contract assets, including accrued interest and excluding credit risk adjustments, was as follows:

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Consolidated derivatives (1)(3)

3 unchanged sentences

(2) The amounts reflect 100 %, not our pro-rata share, of our unconsolidated Fund's derivative.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

(3) We did not have any interest rate swap contract asset balances as of December 31, 2020.

Impact of Hedges on AOCI and the Consolidated Statements of Operations

The table below presents the effect of our derivatives on our AOCI and the consolidated statements of operations:

(In thousands)

Year Ended December 31,

(In thousands) Year Ended December 31,

2020 2019 2018

Derivatives Designated as Cash Flow Hedges:

1 unchanged sentence

Gain recorded in AOCI - adoption of ASU 2017-12 (1)

(Loss) gain recorded in AOCI before reclassifications (1)

(Gain) loss reclassified from AOCI to Interest Expense (1)

$ — $ — $ 211

(Losses) gains recorded in AOCI before reclassifications (1)

$ ( 232,652 ) $ ( 76,273 ) $ 22,723

Losses (gains) reclassified from AOCI to Interest Expense (1)

$ 49,435 $ ( 24,298 ) $ ( 10,103 )

Interest Expense presented in the consolidated statements of operations $ ( 142,872 ) $ ( 143,308 ) $ ( 133,402 )

Loss (gain) related to ineffectiveness recorded in Interest Expense

Unconsolidated Funds' derivatives (our share) (2) :

(Loss) gain recorded in AOCI before reclassifications (1)

(Gain) loss reclassified from AOCI to Income from unconsolidated Funds (1)

(Losses) gains recorded in AOCI before reclassifications (1)

$ ( 410 ) $ ( 5,023 ) $ 3,052

Losses (gains) reclassified from AOCI to Income from unconsolidated Funds (1)

$ 106 $ ( 1,698 ) $ ( 813 )

Income from unconsolidated Funds presented in the consolidated statements of operations $ 430 $ 6,923 $ 6,400

7 unchanged sentences

Losses to be reclassified from AOCI to Interest Expense $ ( 72,495 )

Unconsolidated Fund's derivatives (our share):

Gains to be reclassified from AOCI to Income from unconsolidated Funds

Unconsolidated Fund's derivative (our share) (1) :

Losses to be reclassified from AOCI to Income from unconsolidated Funds $ ( 46 )

______________________________________________

(1) We calculate our share by multiplying the total amount for our Fund by our equity interest in the Fund .

Douglas Emmett, Inc.

1 unchanged sentence

2020 Transactions

During the year ended December 31, 2020, (i) we acquired 94 thousand OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units, and (ii) we acquired 150 OP Units for $ 7 thousand in cash.

2019 Transactions

During the year ended December 31, 2019, (i) we acquired 222 thousand OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units, (ii) we acquired 19 thousand OP Units and fully-vested LTIP Units for $ 734 thousand in cash, and (iii) we issued 4.9 million shares of our common stock under our ATM program for net proceeds of $ 201.0 million.

6 unchanged sentences

2018 Transactions

During 2018 , we (i) acquired 629 thousand OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units, (ii) acquired 3 thousand OP Units for $ 108 thousand in cash and (iii) issued 21 thousand shares of our common stock for the exercise of 49 thousand stock options on a net settlement basis (net of the exercise price and related taxes).

2017 Transactions

During 2017 , we or our Operating Partnership, (i) acquired 1.1 million OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units, (ii) issued 1.3 million shares of our common stock for the exercise of 3.9 million stock options on a net settlement basis (net of the exercise price and related taxes), (iii) issued 15.7 million shares of our common stock under our ATM program for net proceeds of $ 593.3 million , and (iv) issued 2.6 million OP Units valued at $ 105.7 million in connection with the acquisition of the 9401 Wilshire office property, of which we subsequently acquired 248 thousand OP Units for $ 10.1 million in cash.

One of our JVs acquired three office properties, 1299 Ocean Avenue, 429 Santa Monica and 9665 Wilshire, for which investors contributed $ 284.0 million directly to the JV.

During the year ended December 31, 2018, we (i) acquired 629 thousand OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units, (ii) acquired 3 thousand OP Units for $ 108 thousand in cash and (iii) issued 21 thousand shares of our common stock for the exercise of 49 thousand stock options on a net settlement basis (net of the exercise price and related taxes).

Noncontrolling Interests

25 unchanged sentences

Other comprehensive (loss) gain before reclassifications ( 232,652 ) ( 76,273 ) 22,723

Reclassification of (gain) loss from AOCI to Interest Expense

Reclassification of loss (gain) from AOCI to Interest Expense 49,435 ( 24,298 ) ( 10,103 )

Unconsolidated Funds' derivatives (our share) (2) :

Other comprehensive (loss) gain before reclassifications ( 410 ) ( 5,023 ) 3,052

Reclassification of (gain) loss from AOCI to Income from unconsolidated Funds

Reclassification of loss (gain) from AOCI to Income from unconsolidated Funds 106 ( 1,698 ) ( 813 )

Net current period OCI ( 183,521 ) ( 107,292 ) 15,070

9 unchanged sentences

Our common stock dividends paid during 2020 are classified for federal income tax purposes as follows:

Dividend Per Share

Ordinary Income %

Capital Gain %

Return of Capital %

Section 199A Dividend %

Record Date Paid Date Dividend Per Share Ordinary Income % Capital Gain % Return of Capital % Section 199A Dividend %

12/31/2019 1/15/2020 $ 0.28 49.8 % — % 50.2 % 49.8 %

3/31/2020 4/15/2020 0.28 49.8 % — % 50.2 % 49.8 %

6/30/2020 7/15/2020 0.28 49.8 % — % 50.2 % 49.8 %

9/30/2020 10/15/2020 0.28 49.8 % — % 50.2 % 49.8 %

Total / Weighted Average $ 1.12 49.8 % — % 50.2 % 49.8 %

1 unchanged sentence

Year Ended December 31,

2020 2019 2018

Numerator (In thousands):

11 unchanged sentences

____________________________________________________

There were no outstanding options during the year ended December 31, 2019 .

(1) Outstanding OP Units and vested LTIP Units are not included in the denominator in calculating diluted EPS, even though they may be exchanged under certain conditions for common stock on a one -for-one basis, because their associated net income (equal on a per unit basis to the Net income per common share - diluted) was already deducted in calculating Net income attributable to common stockholders.

Accordingly, any exchange would not have any effect on diluted EPS.

The following table presents the OP Units and vested LTIP Units outstanding for the respective periods:

The table below presents the weighted average OP Units and vested LTIP Units outstanding for the respective periods:

Year Ended December 31,

(In thousands) 2020 2019 2018

OP Units 28,288 26,465 26,661

Vested LTIP Units 815 1,652 813

2 unchanged sentences

Stock-Based Compensation

2016 Omnibus Stock Incentive Plan

Stock Incentive Plans

The Douglas Emmett, Inc.

2016 Omnibus Stock Incentive Plan, our stock incentive plan (our "2016 Plan"), permits us to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, dividend equivalent rights and other stock-based awards.

2016 Omnibus Stock Incentive Plan, as amended, our stock incentive plan (our "2016 Plan"), permits us to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, dividend equivalent rights and other stock-based awards.

On May 28, 2020, our stockholders approved an amendment to the 2016 Plan to, among other things, increase the number of common shares for future awards by 9.5 million.

We had an aggregate of 9.1 million shares available for grant as of December 31, 2020.

17 unchanged sentences

We have also made long-term grants in the form of LTIP Units to certain employees, which generally vest in equal annual installments over four to five calendar years following the grant date, and some of these grants include a portion which vests at the date of grant.

In aggregate, we granted 802 thousand , 898 thousand and 800 thousand LTIP Units to employees during 2019 , 2018 and 2017 , respectively.

In aggregate, we granted 1.1 million, 802 thousand, and 898 thousand LTIP Units to employees during 2020, 2019 and 2018, respectively.

Non-Employee Director Awards

14 unchanged sentences

Fully Vested Stock Options:

Number of Stock Options (Thousands)

Weighted Average Exercise Price

Weighted Average

Remaining Contract Life (Months)

Intrinsic Value (Thousands)

Intrinsic Value of Options Exercised (Thousands)

Outstanding at December 31, 2016

Number of Stock Options (Thousands) Weighted Average Exercise Price Weighted Average

Remaining Contract Life (Months) Total

Intrinsic Value (Thousands) Intrinsic Value of Options Exercised (Thousands)

Outstanding at December 31, 2017 49 $ 12.66 16 $ 1,375

Exercised ( 49 ) $ 12.66 $ 1,196

Outstanding at December 31, 2018 — $ — 0 $ —

_________________________________________________

(1) There were no outstanding options during the year ended December 31, 2019

(1) There were no options outstanding during the years ended December 31, 2020 and 2019.

The table below presents our unvested LTIP Units activity:

Unvested LTIP Units:

Number of Units (Thousands)

Weighted Average Grant Date Fair Value

Grant Date Fair Value (Thousands)

Number of Units (Thousands) Weighted Average Grant Date Fair Value Grant Date Fair Value (Thousands)

Outstanding at December 31, 2017 1,056 $ 26.98

Granted 935 $ 27.01 $ 25,247

Vested ( 1,036 ) $ 25.82 $ 26,740

Forfeited ( 10 ) $ 34.18 $ 333

Outstanding at December 31, 2018 945 $ 28.20

Granted 840 $ 31.92 $ 26,821

Vested ( 826 ) $ 29.13 $ 24,061

Forfeited ( 35 ) $ 35.41 $ 1,234

Outstanding at December 31, 2019 924 $ 30.48

Granted 1,190 $ 21.12 $ 25,175

Vested ( 1,073 ) $ 24.58 $ 26,369

Forfeited ( 57 ) $ 28.20 $ 1,623

Outstanding at December 31, 2020 984 $ 25.71

17 unchanged sentences

We estimate the fair value of our consolidated secured notes payable by calculating the credit-adjusted present value of the principal and interest payments for each secured note payable.

The calculation incorporates observable market interest rates which we consider to be Level 2 inputs, assumes that the loans will be outstanding through maturity, and excludes any maturity extension options.

The calculation incorporates observable market interest rates which we consider to be Level 2 inputs, assumes that the loans will be outstanding through maturity, and includes any maturity extension options.

The table below presents the estimated fair value and carrying value of our secured notes payable (excluding our revolving credit facility), the carrying value includes unamortized loan premium and excludes unamortized deferred loan fees:

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Fair value $ 4,719,462 $ 4,682,305

Carrying value $ 4,706,979 $ 4,660,005

4 unchanged sentences

The table below presents the estimated fair value and carrying value of our ground lease liability:

(In thousands)

December 31, 2019

(In thousands) December 31, 2020 December 31, 2019

Fair value $ 11,865 $ 12,218

Carrying value $ 10,871 $ 10,882

4 unchanged sentences

See Note 10 for the details of our derivatives.

We present our derivatives on the balance sheet at fair value, on a gross basis, excluding accrued interest.

We present our derivatives in the consolidated balance sheets at fair value, on a gross basis, excluding accrued interest.

We estimate the fair value of our derivative instruments by calculating the credit-adjusted present value of the expected future cash flows of each derivative.

2 unchanged sentences

The table below presents the estimated fair value of our derivatives:

(In thousands)

December 31, 2019

December 31, 2018

(In thousands) December 31, 2020 December 31, 2019

Derivative Assets:

Fair value - c onsolidated derivatives (1)

Fair value - unconsolidated Funds' derivatives (2)

Fair value - unconsolidated Fund's derivative (2)

Derivative Liabilities:

Fair value - c onsolidated derivatives (1)

Fair value - unconsolidated Funds' derivatives (2)

$ 214,016 $ 54,616

Fair value - unconsolidated Fund's derivative (2)

___________________________________________________________________________________

(1) Consolidated derivatives, which include 100 %, not our pro-rata share, of our consolidated JVs' derivatives, are included in interest rate contracts in our consolidated balance sheets.

The fair values exclude accrued interest which is included in interest payable in the consolidated balance sheets.

Reflects 100 % , not our pro-rata share, of our unconsolidated Funds' derivatives.

Our pro-rata share of the amounts related to the unconsolidated Funds' derivatives is included in our Investment in unconsolidated Funds in our consolidated balance sheets.

See Note 17 regarding our unconsolidated Funds debt and derivatives.

Our unconsolidate d Funds' did not have any derivatives in a liability position for the periods presented.

(2) The amounts reflect 100 %, not our pro-rata share, of our unconsolidated Fund's derivative.

Our pro-rata share of the amounts related to the unconsolidated Fund's derivative is included in our Investment in unconsolidated Funds in our consolidated balance sheets.

See "Guarantees" in Note 17 regarding our unconsolidated Fund's debt and derivative.

Douglas Emmett, Inc.

10 unchanged sentences

The table below presents the operating activity of our reportable segments:

(In thousands)

Year Ended December 31,

(In thousands) Year Ended December 31,

2020 2019 2018

Office Segment

8 unchanged sentences

The table below presents a reconciliation of the total profit from all segments to net income attributable to common stockholders:

(In thousands)

Year Ended December 31,

(In thousands) Year Ended December 31,

2020 2019 2018

Total profit from all segments $ 586,110 $ 638,519 $ 600,449

1 unchanged sentence

Depreciation and amortization ( 385,248 ) ( 357,743 ) ( 309,864 )

Other income 16,288 11,653 11,414

Other expenses ( 2,947 ) ( 7,216 ) ( 7,744 )

1 unchanged sentence

Interest expense ( 142,872 ) ( 143,308 ) ( 133,402 )

Gain on sale of investment in real estate 6,393 — —

Gain from consolidation of JV — 307,938 —

Net income attributable to noncontrolling interests

Net income 38,553 418,698 128,612

Net loss (income) attributable to noncontrolling interests 11,868 ( 54,985 ) ( 12,526 )

Net income attributable to common stockholders $ 50,421 $ 363,713 $ 116,086

3 unchanged sentences

We lease space to tenants primarily under non-cancelable operating leases that generally contain provisions for a base rent plus reimbursement of certain operating expenses, and we own fee interests in two parcels of land from which we receive rent under ground leases.

The table below presents the future minimum base rentals on our non-cancelable office tenant and ground leases at December 31, 2019 :

Year Ending December 31,

(In thousands)

The table below presents the future minimum base rentals on our non-cancelable office tenant and ground leases for our consolidated properties at December 31, 2020:

Year Ending December 31, (In thousands)

2021 $ 635,956

Thereafter 629,410

Total future minimum base rentals (1)

_____________________________________________________

Does not include (i) residential leases, which typically have a term of one year or less, (ii) holdover rent, (ii) other types of rent such as storage and antenna rent, (iv) tenant reimbursements, (v) straight line rent, (vi) amortization/accretion of acquired above/below-market lease intangibles and (vii) percentage rents.

(1) Does not include (i) residential leases, which typically have a term of one year or less, (ii) holdover rent, (iii) other types of rent such as storage and antenna rent, (iv) tenant reimbursements, (v) straight line rent, (vi) amortization/accretion of acquired above/below-market lease intangibles, and (vii) percentage rents.

The amounts assume that early termination options held by tenants are not exercised.

4 unchanged sentences

Concentration of Risk

Tenant Receivables

We are subject to credit risk with respect to our tenant receivables and deferred rent receivables related to our tenant leases.

Our tenants' ability to honor the terms of their respective leases remains dependent upon economic, regulatory and social factors.

We seek to minimize our credit risk from our tenant leases by (i) targeting smaller, more affluent tenants, from a diverse mix of industries, (ii) performing credit evaluations of prospective tenants, and (iii) obtaining security deposits or letters of credit from our tenants.

In 2019 , 2018 and 2017 , no tenant accounted for more than 10% of our total revenues.

See Note 2 for the details of our allowances for tenant receivables and deferred rent receivables.

We seek to minimize our credit risk from our tenant leases by:

(i) targeting smaller, more affluent tenants, from a diverse mix of industries, (ii) performing credit evaluations of prospective tenants, and (iii) obtaining security deposits or letters of credit from our tenants.

During the years ended December 31, 2020, 2019 and 2018, no tenant accounted for more than 10% of our total revenues.

See Note 2 for the details of our charges to revenue for uncollectible amounts and allowances for tenant receivables and deferred rent receivables.

Geographic Risk

All of our properties, including the properties of our consolidated JVs and our unconsolidated Fund, are located in Los Angeles County, California and Honolulu, Hawaii, and we are therefore susceptible to adverse economic and regulatory developments, as well as natural disasters, in those markets.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Swap Counterparty Credit Risk

We are subject to credit risk with respect to our interest rate swap counterparties that we use to manage the risk associated with our floating rate debt.

We do not post or receive collateral with respect to our swap transactions.

Our swap contracts do not provide for right of offset between derivative contracts.

See Note 10 for the details of our interest rate contracts.

We seek to minimize our credit risk by entering into agreements with a variety of high quality counterparties with investment grade ratings.

Cash Balances

We have significant cash balances invested in a variety of short-term money market funds that are intended to preserve principal value and maintain a high degree of liquidity while providing current income.

3 unchanged sentences

banking institution are insured by the FDIC up to $250 thousand.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Asset Retirement Obligations

6 unchanged sentences

In West Los Angeles, we are building a high-rise apartment building with 376 apartments.

We expect construction to take about three years .

In downtown Honolulu, at 1132 Bishop Street, we are converting a 25 story, 490,000 square foot office tower into approximately 500 apartments.

We expect the conversion to occur in phases over a number of years as the office space is vacated.

As of December 31, 2019 , we had an aggregate remaining contractual commitment for these development projects of approximately $ 233.3 million .

In downtown Honolulu, we are converting a 25 story, 490,000 square foot office tower into approximately 500 apartments in phases over a number of years as the office space is vacated.

As of December 31, 2020, we had an aggregate remaining contractual commitment for these and other development projects of approximately $ 148.2 million.

As of December 31, 2020, we had an aggregate remaining contractual commitment for repositionings, capital expenditure projects and tenant improvements of approximately $ 23.2 million.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

We have made certain environmental and other limited indemnities and guarantees covering customary non-recourse carve- outs for our unconsolidated Fund's debt.

3 unchanged sentences

The table below summarizes our Fund's debt as of December 31, 2020.

The amounts represent 100 % (not our pro-rata share) of the amounts related to our Funds:

Loan Maturity Date

Principal Balance

(In thousands)

Variable Interest Rate

Swap Fixed Interest Rate

Swap Maturity Date

The amounts represent 100 % (not our pro-rata share) of the amounts related to our Fund:

Loan Maturity Date Principal Balance

(In thousands) Variable Interest Rate Swap Fixed Interest Rate Swap Maturity Date

Partnership X (2)(3)

1 unchanged sentence

2.30 % 3/1/2021

___________________________________________________

(1) See Note 6 for more information regarding our unconsolidated Fund.

4 unchanged sentences

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Quarterly Financial Information (unaudited)

The tables below present selected quarterly information for 2019 and 2018 :

Three Months Ended

(In thousands, except per share amounts)

June 30, 2019

September 30, 2019

December 31, 2019

Total revenue

Net income before noncontrolling interests

Net income attributable to common stockholders

Net income per common share - basic

Net income per common share - diluted

Weighted average shares of common stock outstanding - basic

Weighted average shares of common stock and common stock equivalents outstanding - diluted

Three Months Ended

(In thousands, except per share amounts)

June 30, 2018

September 30, 2018

December 31, 2018

Total revenue

Net income before noncontrolling interests

Net income attributable to common stockholders

Net income per common share - basic

Net income per common share - diluted

Weighted average shares of common stock outstanding - basic

Weighted average shares of common stock and common stock equivalents outstanding - diluted

Subsequent Events

In January 2020, there was a fire in one of our buildings at our Barrington Plaza apartment property.

We carry comprehensive liability and property insurance covering all of the properties in our portfolio under blanket insurance policies and we do not currently expect the event to have a material impact on our financial position and results of operations.

Douglas Emmett, Inc.

Schedule III - Consolidated Real Estate and Accumulated Depreciation and Amortization

1 unchanged sentence

(In thousands)

Cost Capitalized Subsequent to Acquisition

Gross Carrying Amount

Property Name

Encumb-rances

Building & Improve-ments (2)

Initial Cost Cost Capitalized Subsequent to Acquisition Gross Carrying Amount

Property Name Encumb-rances Land Building & Improve-ments (2)

Improve-ments (2)(3)

Building & Improve-ments (2)

Accumulated Depreciation & Amortization

Year Built / Renovated

Year Acquired

Land Building & Improve-ments (2)

Accumulated Depreciation & Amortization Year Built / Renovated Year Acquired

Office Properties

1968/2002/2019

1975/2008-2009

1981/2000/2019

100 Wilshire $ 252,033 $ 12,769 $ 78,447 $ 152,439 $ 27,108 $ 216,547 $ 243,655 $ 78,996 1968/2002/2019 1999

233 Wilshire 62,961 9,263 130,426 3,572 9,263 133,998 143,261 18,080 1975/2008-2009 2016

401 Wilshire — 9,989 29,187 133,958 21,787 151,347 173,134 52,475 1981/2000/2020 1996

429 Santa Monica 33,691 4,949 72,534 2,994 4,949 75,528 80,477 9,421 1982/2016 2017

1132 Bishop Street

1980/2006/2019

1132 Bishop Place — 8,317 105,651 51,794 8,833 156,929 165,762 114,736 1992 2004

1299 Ocean 124,699 22,748 265,198 15,765 22,748 280,963 303,711 30,555 1980/2006/2020 2017

1901 Avenue of the Stars — 18,514 131,752 112,572 26,163 236,675 262,838 91,455 1968/2001 2001

7 unchanged sentences

10880 Wilshire 198,794 29,995 437,514 33,635 29,988 471,156 501,144 68,095 1970/2009/2020 2016

1970/2009/2019

10960 Wilshire 201,893 45,844 429,769 30,124 45,852 459,885 505,737 68,382 1971/2006 2016

16 unchanged sentences

Century Park Plaza 173,000 10,275 70,761 135,178 16,153 200,061 216,214 67,506 1972/1987/2020 1999

1972/1987/2019

Century Park West(1) 4,072 3,717 29,099 244 3,667 29,393 33,060 10,964 1971 2007

Columbus Center — 2,096 10,396 9,426 2,333 19,585 21,918 7,915 1987 2001

Coral Plaza — 4,028 15,019 18,832 5,366 32,513 37,879 12,864 1981 1998

Cornerstone Plaza(1) 9,928 8,245 80,633 6,016 8,263 86,631 94,894 31,950 1986 2007

Encino Gateway — 8,475 48,525 55,830 15,653 97,177 112,830 38,892 1974/1998 2000

Encino Plaza — 5,293 23,125 47,159 6,165 69,412 75,577 27,886 1971/1992 2000

Encino Terrace 105,565 12,535 59,554 102,884 15,533 159,440 174,973 58,012 1986 1999

4 unchanged sentences

(In thousands)

Cost Capitalized Subsequent to Acquisition

Gross Carrying Amount

Property Name

Encumb-rances

Building & Improve-ments (2)

Accumulated Depreciation & Amortization

Year Built / Renovated

Year Acquired

Initial Cost Cost Capitalized Subsequent to Acquisition Gross Carrying Amount

Property Name Encumb-rances Land Building & Improve-ments (2)

Land Building & Improve-ments (2)

Accumulated Depreciation & Amortization Year Built / Renovated Year Acquired

Office Properties (continued)

1 unchanged sentence

Gateway Los Angeles — 2,376 15,302 48,928 5,119 61,487 66,606 24,206 1987 1994

Honolulu Club

Harbor Court — 51 41,001 49,704 12,060 78,696 90,756 26,323 1994 2004

Landmark II — 6,086 109,259 67,603 13,070 169,878 182,948 66,413 1989 1997

Lincoln/Wilshire — 3,833 12,484 25,947 7,475 34,789 42,264 11,725 1996 2000

MB Plaza — 4,533 22,024 33,640 7,503 52,694 60,197 20,441 1971/1996 1998

Olympic Center 52,000 5,473 22,850 35,110 8,247 55,186 63,433 21,262 1985/1996 1997

6 unchanged sentences

Sherman Oaks Galleria 300,000 33,213 17,820 415,540 48,328 418,245 466,573 161,123 1981/2002 1997

Studio Plaza — 9,347 73,358 122,033 15,015 189,723 204,738 74,404 1988/2004 1995

The Tower 65,969 9,643 160,602 4,628 9,643 165,230 174,873 25,697 1988/1998 2016

The Trillium(1) 18,300 20,688 143,263 81,855 21,989 223,817 245,806 85,272 1988 2005

1 unchanged sentence

Valley Office Plaza — 5,731 24,329 47,285 8,957 68,388 77,345 26,985 1966/2002 1998

Verona — 2,574 7,111 15,396 5,111 19,970 25,081 7,788 1991 1997

Village on Canon 61,745 5,933 11,389 50,309 13,303 54,328 67,631 20,858 1989/1995 1994

Warner Center Towers 335,000 43,110 292,147 425,283 59,418 701,122 760,540 274,820 1982-1993/2004 2002

1982-1993/2004

Warner Corporate Center 34,671 11,035 65,799 1,011 11,035 66,810 77,845 3,332 1988/2015 2008

6 unchanged sentences

Barrington/Kiowa 13,940 5,720 10,052 731 5,720 10,783 16,503 4,226 1974 2006

Barry 11,370 6,426 8,179 550 6,426 8,729 15,155 3,526 1973 2006

Kiowa 5,470 2,605 3,263 469 2,605 3,732 6,337 1,485 1972 2006

Moanalua Hillside Apartments 255,000 24,791 157,353 121,051 35,365 267,830 303,195 54,824 1968/2004/2019 2005

1968/2004/2019

Residences at Bishop Place — — — 35,025 — 35,025 35,025 449 2020 N/A

Pacific Plaza 78,000 10,091 16,159 74,232 27,816 72,666 100,482 27,494 1963/1998 1999

The Glendon 160,000 32,773 335,925 1,257 32,775 337,180 369,955 15,307 2008 2019

The Shores 212,000 20,809 74,191 199,738 60,555 234,183 294,738 88,257 1965-67/2002 1999

Villas at Royal Kunia 94,220 42,887 71,376 15,231 35,163 94,331 129,494 41,691 1990/1995 2006

Waena Apartments 102,400 26,864 119,273 1,843 26,864 121,116 147,980 20,055 1970/2009-2014 2014

1970/2009-2014

Douglas Emmett, Inc.

2 unchanged sentences

(In thousands)

Cost Capitalized Subsequent to Acquisition

Gross Carrying Amount

Property Name

Encumb-rances

Building & Improve-ments (2)

Accumulated Depreciation & Amortization

Year Built / Renovated

Year Acquired

Owensmouth/Warner (1)

Initial Cost Cost Capitalized Subsequent to Acquisition Gross Carrying Amount

Property Name Encumb-rances Land Building & Improve-ments (2)

Land Building & Improve-ments (2)

Accumulated Depreciation & Amortization Year Built / Renovated Year Acquired

Owensmouth/Warner — 23,848 — — 23,848 — 23,848 — N/A 2006

Total Operating Properties $ 4,777,512 $ 876,614 $ 6,593,840 $ 3,953,887 $ 1,150,821 $ 10,273,520 $ 11,424,341 $ 2,816,193

Property Under Development

1132 Bishop Street Conversion

Landmark II Development

Other Developments

1132 Bishop Place Conversion $ — $ — $ — $ 50,704 $ — $ 50,704 $ 50,704 N/A N/A

Landmark II Development — 13,070 — 173,409 13,070 173,409 186,479 N/A N/A

Other Developments 17,114 17,114 17,114 N/A N/A

Total Property Under Development $ — $ 13,070 $ — $ 241,227 $ 13,070 $ 241,227 $ 254,297 $ —

Total $ 4,777,512 $ 889,684 $ 6,593,840 $ 4,195,114 $ 1,163,891 $ 10,514,747 $ 11,678,638 $ 2,816,193

_____________________________________________________

These properties are encumbered by our revolving credit facility, which had a zero balance as of December 31, 2019 .

(1) These properties are encumbered by our revolving credit facility, which had a $ 75.0 million balance as of December 31, 2020.

(2) Includes tenant improvements and lease intangibles.

(3) Net of fully depreciated and amortized tenant improvements and lease intangibles removed from our books.

A previously unconsolidated Fund is now treated as a consolidated JV.

(4) At December 31, 2020, the aggregate federal income tax cost basis for consolidated real estate was $ 7.96 billion (unaudited).

1 unchanged sentence

Year Ended December 31,

2020 2019 2018

Investment in real estate, gross

3 unchanged sentences

Improvements and developments 297,558 242,854 277,229

Properties sold ( 24,508 ) — —

Removal of fully depreciated and amortized tenant improvements and lease intangibles ( 73,045 ) ( 88,205 ) ( 75,729 )

3 unchanged sentences

Depreciation and amortization ( 385,248 ) ( 357,743 ) ( 309,864 )

Properties sold 10,002 — —

Other accumulated depreciation and amortization 4,423 ( 1,990 ) —

3 unchanged sentences

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 9A. Controls and Procedures