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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 109 added, 104 removed, 291 unchanged (42% of the section changed)

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The following discussion should be read in conjunction with our Forward Looking Statements disclaimer and our consolidated financial statements and related notes in Item 15 of this Report.

During 2021, our results of operations were impacted by the COVID-19 pandemic and capital transactions - see "Impact of the COVID-19 Pandemic on our Business" and "Financings, Developments and Repositionings" further below.

During 2022, our results of operations were impacted by the COVID-19 pandemic, inflation and capital transactions - see "Impact of the COVID-19 Pandemic on our Business" and "Acquisitions, Financings, Developments and Repositionings" further below.

Douglas Emmett, Inc.

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We focus on owning, acquiring, developing and managing a substantial market share of top-tier office properties and premier multifamily communities in neighborhoods that possess significant supply constraints, high-end executive housing and key lifestyle amenities.

As of December 31, 2021, our portfolio consisted of the following (including ancillary retail space):

As of December 31, 2022, our portfolio consisted of the following (including ancillary retail space and excluding two parcels of land from which we receive rent under ground leases):

Consolidated Portfolio (1)

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Through our subsidiaries, we wholly-own 53 office properties totaling 13.5 million square feet and 12 residential properties with 4,543 apartments.

Through three consolidated JVs, we partially own an additional 16 office properties totaling 4.2 million square feet and one residential property with 350 apartments.

Our Consolidated Portfolio also includes two wholly-owned land parcels from which we receive ground rent from ground leases to the owners of a Class A office building and a hotel (the land parcels are not included in the number of Class A Properties).

Through four consolidated JVs, we partially own an additional 16 office properties totaling 4.2 million square feet and two residential properties with 470 apartments.

Our Consolidated Portfolio excludes two wholly-owned land parcels from which we receive ground rent from ground leases to the owners of a Class A office building and a hotel.

(2) Our Total Portfolio includes our Consolidated Portfolio as well as two properties totaling 0.4 million square feet owned by our unconsolidated Fund, Partnership X.

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(3) As of December 31, 2022, we removed approximately 406,000 Rentable Square Feet of vacant space at an office building that we are converting to residential apartments.

See "Financings, Developments and Repositionings" further below.

See "Acquisitions, Financings, Developments and Repositionings" further below.

(4) Calculations exclude 94 units temporarily unoccupied as a result of a fire and 376 units at a newly constructed property undergoing lease up.

Revenues by Segment and Location

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While improving, our rent collections continue to be negatively impacted by the remaining impact of these ordinances and the pandemic.

Our results of operations for 2021 generally compare favorably with 2020, due to the gradual recovery, better collections and lower write-offs of uncollectible receivables, and an increase in tenant recoveries.

Charges for uncollectible tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our rental revenues and tenant recoveries by $3.0 million and $41.0 million for 2021 and 2020, respectively.

If we subsequently collect amounts that were previously written off, then the amounts collected will be recorded as an increase to our rental revenues and tenant recoveries.

See "Rental Revenues and Tenant Recoveries" in Note 2 to our consolidated financial statements in Item 15 of this Report regarding our accounting policy.

Our results of operations since 2020 have been adversely impacted by the COVID-19 pandemic.

Our results of operations for 2022 generally compare favorably with 2021, primarily due to:

(i) the gradual recovery, (ii) better collections from our tenants, (iii) lower write-offs of uncollectible tenant receivables, (iv) restoring certain office tenants to accrual basis accounting, (v) higher office parking income, (vi) a multifamily property we acquired in the second quarter of 2022, (vii) new units from our multifamily development projects, and (viii) higher rental rates for our multifamily portfolio.

The favorable impacts were partly offset by the impact of inflation on our rental expenses.

The pandemic had a significant impact on our collections, although they improved in 2021 and 2022.

Charges for uncollectible office tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our office revenues by $0.6 million and $3.0 million for 2022 and 2021, respectively.

We restored accrual basis accounting for certain office tenants that were previously determined to be uncollectible and accounted for on a cash basis of accounting, which increased our office revenues by $3.6 million for 2022.

See "Collectibility" in our revenue recognition accounting policy in Note 2 to our consolidated financial statements in Item 15 of this Report regarding our accounting policy for collections.

It is unclear how the pandemic will impact our future collections.

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of this Report.

Financings, Developments and Repositionings

Acquisitions, Financings, Developments and Repositionings

Acquisition of 1221 Ocean Avenue

On April 26, 2022, we paid $330.0 million, excluding acquisition costs, to acquire a luxury multifamily apartment building with 120 units, located at 1221 Ocean Avenue in Santa Monica.

We acquired the property through a new consolidated JV that we manage and in which we own a 55% interest.

We contributed $99.0 million to the JV and an outside investor contributed $81.0 million to the JV.

The JV partly financed the acquisition with a $175.0 million secured, non-recourse interest-only term loan that matures in April 2029.

We swap-fixed the interest rate on the loan at 3.90% using interest rate swaps, which expire in May 2026.

The acquired property's results of operations are included in our consolidated operating results from the date of acquisition.

See Note 3 to our consolidated financial statements in Item 15 of this Report for the purchase price allocation.

During the first quarter of 2022 :

• We paid down the principal balance of our unconsolidated Fund's term loan by $5.25 million from $110.0 million to $104.75 million.

The loan was subsequently paid off in the third quarter of 2021 - see below.

• Interest rate swaps which hedged a $580.0 million interest-only term loan for one of our consolidated JV's expired and were replaced by forward swaps executed in 2020.

This reduced the term-loan swap-fixed interest rate from 2.37% to 2.17%.

The loan was subsequently paid off in the third quarter of 2021 - see below.

• Interest rate swaps which hedged a $300.0 million interest-only term loan for one of our consolidated wholly- owned subsidiaries expired, and were replaced with an interest rate swap that reduced the term-loan swap-fixed interest rate to 2.66% from 3.42%.

During the second quarter of 2022 :

• We closed a secured, non-recourse $300.0 million interest-only term loan scheduled to mature in May 2028.

The loan bears interest at LIBOR + 1.40% (with a zero-percent LIBOR floor), which has been effectively fixed at 2.21% until June 2026 with interest rate swaps (which do not have zero-percent LIBOR floors).

The loan is secured by three of our wholly-owned office properties that were previously unencumbered.

We used $175.0 million of the proceeds to pay off our revolving credit facility balance.

• A new consolidated JV that we manage and in which we own a fifty-five percent interest partly financed the purchase of a residential property with a new term loan, see "Acquisitions" above.

• Interest rate swaps that hedged a $550.0 million floating-rate term loan that matures in June 2027 expired on June 1, 2022, so that the interest on that loan is currently floating.

During the third quarter of 2022 :

• We closed a secured, non-recourse $625.0 million interest-only term loan for one of our consolidated JVs.

The loan matures in August 2028.

The loan bears interest at LIBOR + 1.35% (with a zero-percent LIBOR floor), which has been effectively fixed at 2.12% until June 2025 with interest rate swaps (which do not have zero-percent LIBOR floors).

The loan is secured by the JV's four properties.

We used $580.0 million of the proceeds to pay off a loan that was secured by the same properties.

• We closed a secured, non-recourse $115.0 million interest-only term loan for our unconsolidated Fund.

The loan matures in September 2028.

Starting on October 1, 2021, the loan bears interest at LIBOR + 1.35% (with a zero-percent LIBOR floor), which has been effectively fixed at 2.19% until October 2026 with interest rate swaps (which do not have zero-percent LIBOR floors).

The loan is secured by the Fund's two properties.

We used $104.75 million of the proceeds to pay off the Fund's term loan that was secured by the same properties.

We have made certain guarantees related to the loan and the swaps - see "Guarantees" in Note 17 to our consolidated financial statements in Item 15 of this Report.

• Interest rate swaps which hedged a $450.0 million interest-only term loan for one of our consolidated JV's expired, and were replaced with existing interest rate swaps that were upsized.

This reduced the term-loan swap-fixed interest rate to 2.26% from 3.04%.

During the fourth quarter of 2022 :

• We closed a secured, non-recourse $300.0 million interest-only term loan for one of our consolidated wholly-owned subsidiaries.

The loan matures in January 2029 and bears interest at SOFR + 1.56% (with a zero-percent SOFR floor).

The loan was effectively fixed with an interest rate swap (which does not have a zero-percent SOFR floor) at 3.42% until December 31, 2021, and 2.66% thereafter until January 2027.

We used the proceeds from the new loan to pay off a $300.0 million loan secured by the same property.

See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and derivatives, respectively.

• We did not have any financing transactions during the fourth quarter of 2022.

See Notes 3, 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our acquisitions, debt and derivatives, respectively.

• Residential High-Rise Tower, Brentwood, California - "The Landmark Los Angeles"

In West Los Angeles, we completed the construction of a 34-story high-rise apartment building with 376 apartments, and we expect to place the building into service during the first quarter of 2022.

In West Los Angeles, we completed the construction of a 34-story high-rise apartment building with 376 apartments and placed it in service in 2022.

The tower was built on a site that is directly adjacent to a 394 thousand square foot office building, a one acre park, and a 712 unit residential property, all of which we own.

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In downtown Honolulu, we are converting a 25-story, 493 thousand square foot office tower into 493 rental apartments.

As of December 31, 2021, we had delivered and leased approximately fifty-percent of the planned units.

This project is helping to address the severe shortage of rental housing in Honolulu and revitalize the central business district, where we own a significant portion of the Class A office space.

As of December 31, 2022, we had delivered seventy-two percent of the planned units and leased all of the units delivered.

The conversion will continue in phases through 2025 as the remaining office space is vacated, therefore, the expected timing of the remaining spending is uncertain.

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Office Rental Rates

Our office rental rates for 2021 and 2020 were adversely impacted by the COVID-19 pandemic, although these declines were partly offset by lower tenant improvement costs.

Our office rental rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022, although the lower rental rates for the respective periods were partly offset by lower tenant improvement costs.

The table below presents the average annual rental rate per leased square foot and the annualized lease transaction costs per leased square foot for leases executed in our total office portfolio during the respective periods:

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Office Rent Roll

Our office rent roll continued to be adversely impacted by the COVID-19 pandemic during 2022.

The table below presents the rent roll for new and renewed leases per leased square foot executed in our total office portfolio:

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Multifamily Rental Rates

Our multifamily rental rates for 2021 and 2020 were adversely impacted by the COVID-19 pandemic.

Our multifamily rental rates were adversely impacted by the COVID-19 pandemic in 2020, but improved in 2021 and 2022.

The table below presents the average annual rental rate per leased unit for new tenants:

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(1) Calculations exclude 376 units at a newly constructed property undergoing lease up.

(2) These average rental rates are not directly comparable from year to year because of changes in the properties and units included.

(i) the average for 2018 decreased from 2017 because we added a significant number of units at our Moanalua Hillside Apartments development in Honolulu, where the rental rates are lower than the average in our portfolio, (ii) the average for 2019 increased from 2018 because we acquired The Glendon where higher rental rates offset the effect of adding additional units at our Moanalua Hillside Apartments development, and (iii) the average for 2020 increased from 2019 because we added a significant number of units at our Bishop Place development in Honolulu, where the rental rates are higher than the average in our portfolio.

(i) In 2019, the average was impacted by our acquisition of The Glendon where rental rates were higher than the average in our portfolio,

(ii) In 2020, the average was impacted by the addition of a significant number of units at our Bishop Place development in Honolulu, where the rental rates were higher than the average in our portfolio, and

(iii) In 2022, the average was impacted by the acquisition of 1221 Ocean Avenue, where the rental rates were higher than the average in our portfolio.

See "Acquisitions, Financings, Developments and Repositionings" for more information regarding this acquisition.

Multifamily Rent Roll

The rent on leases subject to rent change during 2022 (new tenants and existing tenants undergoing annual rent review) was 6.4% higher on average than the prior rent on the same unit.

This excludes leasing at a newly constructed property undergoing lease up.

Occupancy Rates - Total Portfolio

Our office occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022.

Our multifamily occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, but have improved during 2021.

Our multifamily occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, but recovered during 2021 and 2022.

The tables below present the occupancy rates for our total office portfolio and multifamily portfolio:

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(1) Occupancy rates include the impact of property acquisitions, most of whose occupancy rates at the time of acquisition were below that of our existing portfolio.

(2) The Occupancy Rate for our multifamily portfolio was impacted by our acquisition of The Glendon property in 2019 and new units at our Moanalua Hillside Apartments development in Honolulu in 2019 and 2018.

(2) Our Occupancy Rates may not be directly comparable from year to year, as they can be impacted by acquisitions, dispositions, development and redevelopment projects.

Multifamily calculations exclude units temporarily unoccupied as a result of a fire at one property and all units at a newly constructed property undergoing lease up.

(3) Average occupancy rates are calculated by averaging the occupancy rates at the end of each of the quarters in the period and at the end of the quarter immediately prior to the start of the period.

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Comparison of 2022 to 2021

Our results in both periods were adversely impacted by the COVID-19 pandemic.

The first three months of the comparable period results were largely unaffected by the COVID-19 pandemic.

The current period generally compares favorably with the comparable period due to the gradual recovery, better collections and lower write-offs of uncollectible receivables, and an increase in tenant recoveries.

Our results of operations for 2022 and 2021 were adversely impacted by the COVID-19 pandemic.

Our results of operations for 2022 generally compare favorably with 2021 primarily due to:

(i) the gradual recovery from the pandemic, (ii) better collections from our tenants, (iii) lower write-offs of uncollectible tenant receivables, (iv) restoring certain office tenants to accrual basis accounting, (v) higher office parking income, (vi) a multifamily property we acquired in the second quarter of 2022, (vii) new units from our multifamily development projects, and (viii) higher rental rates for our multifamily portfolio.

The favorable impacts were partly offset by the impact of inflation on our rental expenses.

Year Ended December 31, Favorable (Unfavorable)

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(In thousands)

Office rental revenue and tenant recoveries $ 704,946 $ 680,359 $ 24,587 3.6 % The increase was primarily due to:

(i) better collections and a decrease in write-offs of uncollectible receivables, and (ii) an increase in tenant recoveries.

This was partly offset by a decrease in rental revenues due to:

(i) a decrease in occupancy and (ii) lower accretion from below-market leases.

Office parking and other income $ 81,924 $ 90,810 $ (8,886) (9.8) % The decrease was primarily due to a decrease in parking income due to lower parking activity.

Multifamily revenue $ 131,527 $ 120,354 $ 11,173 9.3 % The increase was primarily due to higher rental revenues due to:

(i) higher occupancy and better collections, and (iii) the new units at our Bishop Place development project in Hawaii.

Office rental revenue and tenant recoveries $ 724,131 $ 704,946 $ 19,185 2.7 % The increase was primarily due to better collections, lower write-offs of uncollectible receivables, and restoring certain tenants to accrual basis accounting.

The increase was partly offset by a decrease in rental revenues due to a decrease in occupancy and lower accretion from below-market leases.

Office parking and other income $ 100,442 $ 81,924 $ 18,518 22.6 % The increase was primarily due to an increase in parking income due to an increase in parking activity.

Multifamily revenue $ 169,079 $ 131,527 $ 37,552 28.6 % The increase was primarily due to:

(i) revenues from our 1221 Ocean Avenue property in Santa Monica which we purchased in the second quarter of 2022, (ii) higher rental rates, (iii) new units at our Landmark Los Angeles development project and our Bishop Place conversion project, and (iv) better collections.

Operating expenses

Office rental expenses $ 265,376 $ 268,259 $ 2,883 1.1 % The decrease was primarily due to:

(i) a decrease in advocacy expenses, (ii) a decrease in parking and janitorial expenses due to lower tenant utilization, and (iii) a decrease in personnel expenses.

The decrease in those expenses was partly offset by an increase in insurance expense and property taxes.

Office rental expenses $ 284,522 $ 265,376 $ (19,146) (7.2) % The increase was primarily due to an increase in utility, janitorial, personnel, insurance and parking expenses.

The increase was partly offset by a decrease in rental expenses at our Bishop Place conversion project and lower advocacy expenses.

Multifamily rental expenses $ 49,299 $ 38,025 $ (11,274) (29.6) % The increase was primarily due to:

(i) an increase in insurance and utility expenses, and (ii) the new units at our Bishop Place development project in Hawaii.

The increase in those expenses was partly offset by a decrease in personnel expenses, repairs and maintenance expenses, scheduled services expenses and legal expenses.

General and administrative expenses $ 42,554 $ 39,601 $ (2,953) (7.5) % The increase was primarily due to an increase in legal and advocacy expenses.

Depreciation and amortization $ 371,289 $ 385,248 $ 13,959 3.6 % The decrease was due to higher accelerated depreciation in the comparable period for our Bishop Place development project in Hawaii.

Non-Operating Income and Expenses

Other income $ 2,465 $ 16,288 $ (13,823) (84.9) % The decrease was primarily due to:

(i) higher insurance recoveries in the comparable period related to property damage to a building impacted by a fire, and (ii) revenues in the comparable period from a health club in Honolulu that we closed permanently in the fourth quarter of 2020.

Other expenses $ (937) $ (2,947) $ 2,010 68.2 % The decrease was primarily due to expenses in the comparable period for the health club in Honolulu that we closed.

(i) rental expenses from our 1221 Ocean Avenue property in Santa Monica which we purchased in the second quarter of 2022, (ii) rental expenses from new units at our Bishop Place conversion project and Landmark Los Angeles development project, and (iii) an increase in utility and personnel expenses.

The increase was partly offset by a decrease in property taxes.

Year Ended December 31, Favorable (Unfavorable)

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(In thousands)

Income from unconsolidated Funds $ 946 $ 430 $ 516 120.0 % The increase was due to an increase in the net income of Partnership X, which was primarily due to better collections and lower write-offs of uncollectible receivables.

Interest expense $ (147,496) $ (142,872) $ (4,624) (3.2) % The increase was primarily due to:

(i) an increase in debt, (ii) higher loan costs and (iii) lower debt premium accretion, partly offset by an increase in interest capitalized related to development activity.

Gain on sale of investment in real estate $ — $ 6,393 $ (6,393) (100.0) % We did not sell any properties in 2021.

In 2020, we sold an 80,000 square foot office property in Honolulu.

General and administrative expenses $ 45,405 $ 42,554 $ (2,851) (6.7) % The increase was primarily due to an increase in advocacy and leasing expenses.

The increase was partly offset by a decrease in legal expenses and stock-based compensation expense.

Depreciation and amortization $ 372,798 $ 371,289 $ (1,509) (0.4) % The increase was primarily due to depreciation from the property we purchased in the second quarter, and depreciation from the Landmark Los Angeles development project.

The increase was partly offset by a decrease in depreciation from our Bishop Place conversion project and a decrease in depreciation for our other properties.

Non-Operating Income and Expenses

Other income $ 4,587 $ 2,465 $ 2,122 86.1 % The increase was primarily due to an increase in interest income, partly offset by the recovery of transaction fees in 2021.

Other expenses $ (714) $ (937) $ 223 23.8 % The decrease was primarily due to transaction expenses in 2021, partly offset by an increase in expenses related to services we provide to our unconsolidated fund, Partnership X.

Income from unconsolidated Fund $ 1,224 $ 946 $ 278 29.4 % The increase was due to an increase in the net income of our unconsolidated fund, Partnership X, which was primarily due to:

(i) an increase in rental revenues due to higher rental rates and (ii) an increase in parking income due to higher parking activity.

Interest expense $ (150,185) $ (147,496) $ (2,689) (1.8) % The increase was primarily due to higher debt and interest rates, partly offset by a decrease in loan costs.

Comparison of 2021 to 2020

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During 2022, FFO increased by $36.2 million, or 9.4%, to $419.7 million, compared to $383.5 million for 2021.

The increase was primarily due to:

(i) an increase in revenues from our office portfolio due to better collections and lower write-offs of uncollectible receivables and an increase in tenant recoveries, and (ii) an increase in revenues from our multifamily portfolio due to higher occupancy, better collections and new units at our Bishop Place development project in Hawaii.

The increase was primarily due to an increase in NOI from our multifamily and office portfolios, partly offset by an increase in general and administrative expenses and higher interest expense.

The increase in NOI from our multifamily portfolio was primarily due to:

(i) our acquisition of the 1221 Ocean Avenue property in Santa Monica in the second quarter of 2022, (ii) higher rental rates, (iii) new units at our Landmark Los Angeles development project and our Bishop Place conversion project, and (iv) better collections.

The increase in NOI from our office portfolio was primarily due to:

(i) better collections, lower write-offs of uncollectible receivables, and restoring certain tenants to accrual basis accounting, and (ii) an increase in parking income.

Comparison of 2021 to 2020

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(52,503) (46,760)

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

FFO $ 419,683 $ 383,456

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The amounts presented below reflect 100% (not our pro-rata share).

Our Same Property results in both periods were adversely affected by the COVID-19 pandemic.

The first three months of the comparable period results were largely unaffected by the COVID-19 pandemic.

Our Same Property results for 2022 and 2021 were adversely impacted by the COVID-19 pandemic.

The Same Property results for 2022 generally compare favorably with 2021 due to:

These favorable impacts were partly offset by the impact of inflation on our rental expenses.

Year Ended December 31, Favorable

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Office revenues $ 814,084 $ 776,734 $ 37,350 4.8 % The increase was primarily due to:

(i) better collections and a decrease in write-offs of uncollectible receivables, and (ii) an increase in tenant recoveries.

This was partly offset by:

(i) a decrease in rental revenues due to a decrease in occupancy, (ii) lower accretion from below-market leases, and (iii) a decrease in parking income due to lower parking activity.

Office expenses (258,263) (260,102) 1,839 0.7 % The decrease was primarily due to:

(i) a decrease in advocacy expenses, (ii) a decrease in parking and janitorial expenses due to lower tenant utilization, and (iii) a decrease in personnel expenses.

The decrease in those expenses was partly offset by an increase in insurance expense and property taxes.

(i) better collections, a decrease in write-offs of uncollectible receivables, and restoring certain tenants to accrual basis accounting, and (ii) an increase in parking income.

The increase was partly offset by a decrease in rental revenues due to a decrease in occupancy and lower accretion from below-market leases.

Office expenses (279,653) (258,262) (21,391) (8.3) % The increase was primarily due to an increase in utility, janitorial, personnel, insurance and parking expenses.

The increase was partly offset by lower advocacy expenses.

Office NOI 534,431 518,472 15,959 3.1 %

Multifamily revenues 105,743 100,293 5,450 5.4 % The increase was primarily due to an increase in rental revenues due to an increase in occupancy and better collections.

Multifamily expenses (31,958) (31,028) (930) (3.0) % The increase was primarily due to an increase in insurance and utility expenses.

The increase in those expenses was partly offset by a decrease in repairs and maintenance, legal and scheduled services expenses.

Multifamily revenues 114,688 105,743 8,945 8.5 % The increase was primarily due to an increase in rental revenues due to higher rental rates and better collections.

Multifamily expenses (34,633) (31,958) (2,675) (8.4) % The increase was primarily due to an increase in utility and personnel expenses.

The increase was partly offset by a decrease in property taxes.

Multifamily NOI 80,055 73,785 6,270 8.5 %

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Interest expense (150,185) (147,496)

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

Net income 96,540 56,131

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Short-term liquidity

Our short-term liquidity needs consist primarily of funds necessary for our operating activities, development, repositioning projects and dividends and distributions.

During 2022, we generated cash from operations of $496.9 million.

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Our earliest term loan maturity is December 2024.

Excluding acquisitions and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand, cash generated by operations and our revolving credit facility.

See Note 8 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt.

Excluding acquisitions and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand, cash generated by operations and our revolving credit facility.

Long-term liquidity

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions and debt refinancings.

We do not expect to have sufficient funds on hand to cover these long-term cash requirements due to the requirement to distribute at least 90% of our income on an annual basis imposed by REIT federal tax rules.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, development and debt refinancings.

We do not expect to have sufficient funds on hand to cover these long-term cash requirements due to REIT federal tax rules which require that we distribute at least 90% of our income on an annual basis.

We plan to meet our long-term liquidity needs through long-term secured non-recourse debt, the issuance of equity securities, including common stock and OP Units, as well as property dispositions and JV transactions.

We have an ATM program which would allow us, subject to market conditions, to sell up to $400.0 million of shares of common stock.

We only use property level, non-recourse debt.

We only use non-recourse debt, secured by our properties.

As of December 31, 2022, approximately 46% of our total office portfolio was unencumbered.

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See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and derivative contracts, respectively.

"Quantitative and Qualitative Disclosures about Market Risk" of this Report regarding the impact of interest rate increases on our future operating results and cash flows.

Certain Contractual Obligations

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Off-Balance Sheet Arrangements

Partnership X Debt

Unconsolidated Fund Debt

Our Fund, Partnership X, has its own secured non-recourse debt and interest rate swaps.

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Comparison of 2022 to 2021

Our operating cash flows in both periods were adversely impacted by the COVID-19 pandemic.

The first three months of 2020 were largely unaffected by the COVID-19 pandemic.

Our operating cash flows in both periods were adversely impacted by the COVID-19 pandemic, and in 2022 by the effects of inflation.

Year Ended December 31, Increase (Decrease)

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$ (560,953) $ (288,708) $ (272,245) (94.3) %

Cash provided by (used in) financing activities (3)

Cash (used in) provided by financing activities (3)

$ (3,003) $ 5,246 $ (8,249) (157.2) %

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(1) Our cash flows from operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectibility of tenant receivables, the level of our operating and general and administrative expenses, and interest expense.

The increase in cash from operating activities was primarily due to:

(i) an increase in revenues from our office portfolio due to better collections and an increase in tenant recoveries, and (ii) an increase in revenues from our multifamily portfolio due to higher occupancy, better collections and new units at our Bishop Place development project in Hawaii.

(2) Our cash flows used in investing activities are generally used to fund property acquisitions, developments and repositioning projects, and Recurring and non-Recurring Capital Expenditures.

The decrease in cash was primarily due to:

(i) an increase in capital expenditures for developments of $30.4 million, (ii) proceeds from the sale of a property in the comparable period of $20.7 million, and (iii) a decrease in insurance recoveries for property damage of $14.1 million, which was partly offset by:

(a) a decrease in capital expenditures for improvements to real estate of $34.9 million, and (b) the acquisition of additional interests in our Fund in the comparable period of $6.6 million.

(3) Our cash flows provided by financing activities are generally impacted by our borrowings and capital activities, as well as dividends and distributions paid to common stockholders and noncontrolling interests, respectively.

The increase in cash was primarily due to an increase in net borrowing of $145.0 million.

The increase in cash from operating activities of $49.9 million was primarily due to an increase in NOI from our multifamily and office portfolios, partly offset by higher interest expense and an increase in general and administrative expenses.

The increase in NOI from our multifamily portfolio was primarily due to:

The increase in NOI from our office portfolio was primarily due to:

(i) better collections and (ii) an increase in parking income.

For both portfolios, these improvements were partially offset by increases in expenses.

(2) Our cash flows from investing activities is generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures.

The decrease in cash from investing activities of $272.2 million was primarily due to a property acquisition of $330.5 million and an increase in capital expenditures for improvements to real estate of $53.9 million, partly offset by a decrease in capital expenditures for developments of $108.8 million.

(3) Our cash flows from financing activities are generally impacted by our borrowings and capital activities, as well as dividends and distributions paid to common stockholders and noncontrolling interests, respectively.

The decrease in cash from financing activities of $8.2 million was primarily due to a decrease in net borrowings of $95.0 million and higher distributions paid to noncontrolling interests of $4.1 million, partly offset by contributions from noncontrolling interests in our consolidated JVs of $81.0 million and a decrease in loan cost payments of $10.4 million.

Comparison of 2021 to 2020

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If the undiscounted future cash flows expected to be generated by the asset are less than the carrying value of the asset, and our evaluation indicates that we may be unable to recover the carrying value, then we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset.

Our estimates of future cash flows are based in part upon assumptions regarding future occupancy, rental rates and operating costs, and could differ materially from actual results.

Our estimates of future cash flows are based in part upon assumptions regarding future occupancy, rental revenues and operating costs, and could differ materially from actual results.

We record real estate held for sale at the lower of carrying value or estimated fair value, less costs to sell, and similarly recognize impairment losses if we believe that we cannot recover the carrying value.

1 unchanged sentence

Impairment losses would reduce our net income and could be material.

Based upon such periodic assessments we did not record any impairment losses for our long-lived assets and Funds during 2021, 2020 or 2019.

Based upon such periodic assessments we did not record any impairment losses for our long-lived assets and Fund during 2022, 2021 or 2020.

Revenue Recognition - Collectibility of lease payments from office tenants

1 unchanged sentence

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 adopted the complete impairment model guidance within Topic 842.

We adopted the Topic 842 complete impairment model.

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.

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.

Our assessment of the collectibility of lease payments requires judgment and could have a material impact on our results of operations.

2 unchanged sentences

See "Impact of the COVID-19 Pandemic on our Business".

Charges for uncollectible amounts related to tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our rental revenues and tenant recoveries by $3.0 million and $41.0 million in 2021 and 2020, respectively.

Charges for uncollectible amounts related to tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our rental revenues and tenant recoveries by $0.6 million, $3.0 million, and $41.0 million in 2022, 2021 and 2020, respectively.

Revenue Recognition for Tenant Recoveries

20 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 7. Management’s Discussion and Analysis