What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-17 compared with 2022-02-18 · 266 added, 297 removed, 1187 unchanged (32% of the section changed)

44 unchanged sentences

Acquired Lease Intangibles

Investments in Unconsolidated Funds

Investments in Unconsolidated Fund

Secured Notes Payable & Revolving Credit Facility, Net

59 unchanged sentences

(File number 333-135082)

(6) Filed with Form 10-K on February 18, 2022 and incorporated herein by this reference.

(File number 001-33106)

(7) Filed with Form S-11 on June 16, 2006 and incorporated herein by this reference.

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(File number 001-33106)

(11) Filed with Form 10-K on February 18, 2022 and incorporated herein by this reference.

(File number 001-33106)

(12) Filed with Form 8-K on December 24, 2018 and incorporated herein by this reference.

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Feinberg Director

Leonard Director

/s/ VIRGINIA A.

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/s/ WILLIAM E.

/s/ JOHNESE M.

Spisso Director

/s/ SHIRLEY WANG

Shirley Wang Director

Report of Management on Internal Control over Financial Reporting

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Douglas Emmett, Inc.

To the Stockholders and the Board of Directors of Douglas Emmett, Inc.

Opinion on the Financial Statements

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Impairment of investment in real estate

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 separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Purchase price accounting

Description of the Matter

The Company’s net investment in real estate totaled $8.8 billion as of December 31, 2021.

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, environmental issues, physical damage, change in intended use or adverse changes in legal factors.

During the year ended December 31, 2022, the Company acquired 1221 Ocean Avenue, a multifamily apartment building in Santa Monica, through a new joint venture that the Company manages and owns a controlling 55% interest.

As explained in Note 3 to the consolidated financial statements, the 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.

The purchase price is allocated to land, buildings and improvements, and identifiable intangible assets such as in-place at-market leases and acquired below-market tenant leases liabilities, based upon the relative fair value of the acquired assets and liabilities.

The fair values 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 acquisition was complex due to the significant estimation required by management in determining the fair value assigned to the acquired land, buildings and improvements, 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 changes in the significant underlying assumptions.

The more significant assumptions utilized included comparable land sales, rental rates, revenue growth rates, discount 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 property acquisition, 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 review of the valuation models and the underlying assumptions used to develop such estimates.

For the Company’s property acquisition, we read the transaction agreement, and evaluated whether the Company had appropriately determined whether the transaction was accounted for as a business combination or asset acquisition.

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 on a sample basis and evaluated the property operating expenses for reasonableness.

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.

For example, our valuation specialists (i) used independently identified data sources to evaluate the appropriateness of management’s selected comparable land sales, and (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.

Impairment of investment in real estate

Description of the Matter The Company’s net investment in real estate totaled $9.0 billion as of December 31, 2022.

As discussed in Note 2 to the consolidated financial statements, the Company assesses on a periodic basis 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.

When indicators of impairment are present for a property, management calculates the future undiscounted cash flows expected to be generated by the property and compares it to the property’s carrying value to determine whether an impairment occurred.

Auditing the Company’s evaluation of whether its real estate assets are recoverable was complex and involved a high degree of subjectivity in evaluating management’s assumptions in estimating the future cash flows as they are based on assumptions about future market and economic conditions.

The estimation required in the undiscounted future cash flow assumptions includes management’s assumptions regarding future occupancy, rental revenues and operating costs.

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 estimating and evaluating the assumptions used in the future undiscounted cash flow projections for the properties where impairment indicators existed.

For properties with identified indicators of impairment, we performed audit procedures over the Company’s estimation of the properties’ undiscounted future cash flows.

For example, we compared the significant assumptions used to estimate future cash flows to the Company’s historical accounting records or to available market data.

We also tested the mathematical accuracy of management’s forecasted cash flows.

Additionally, for certain assumptions, we performed sensitivity analyses to evaluate the changes in the undiscounted cash flows of the properties that would result from changes in the assumptions.

/s/ Ernst & Young LLP

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Douglas Emmett, Inc.

To the Stockholders and the Board of Directors of Douglas Emmett, Inc.

Opinion on Internal Control over Financial Reporting

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Douglas Emmett, Inc.

as of December 31, 2021 and 2020, 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, 2021 and related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated February 18, 2022 expressed an unqualified opinion thereon.

as of December 31, 2022 and 2021, 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, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated February 17, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Additional paid-in capital 3,493,307 3,488,886

Accumulated other comprehensive loss ( 38,774 ) ( 148,035 )

Accumulated other comprehensive income (loss) 187,063 ( 38,774 )

Accumulated deficit ( 1,119,714 ) ( 1,035,798 )

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Other expenses ( 714 ) ( 937 ) ( 2,947 )

Income from unconsolidated Funds 946 430 6,923

Income from unconsolidated Fund 1,224 946 430

Interest expense ( 150,185 ) ( 147,496 ) ( 142,872 )

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

Gain from consolidation of JV — — 307,938

Net income 96,540 56,131 38,553

Net loss (income) attributable to noncontrolling interests 9,136 11,868 ( 54,985 )

Net loss attributable to noncontrolling interests 605 9,136 11,868

Net income attributable to common stockholders $ 97,145 $ 65,267 $ 50,421

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Consolidated Statements of Equity

(In thousands, except per share data)

(In thousands, except dividend per share data)

Year Ended December 31,

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Exchange of OP Units for common stock 281 65 94

Issuance of common stock — — 4,933

Ending balance 175,810 175,529 175,464

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Exchange of OP Units for common stock 3 — 1

Issuance of common stock — — 50

Ending balance $ 1,758 $ 1,755 $ 1,755

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Repurchase of OP Units with cash ( 176 ) ( 57 ) ( 4 )

Issuance of common stock, net — — 200,933

Ending balance $ 3,493,307 $ 3,488,886 $ 3,487,887

AOCI Beginning balance $ ( 148,035 ) $ ( 17,462 ) $ 53,944

Accumulated Other Comprehensive Income (Loss) Beginning balance $ ( 38,774 ) $ ( 148,035 ) $ ( 17,462 )

Cash flow hedge adjustments 225,837 109,261 ( 130,573 )

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Accumulated Deficit Beginning balance $ ( 1,035,798 ) $ ( 904,516 ) $ ( 758,576 )

ASU 2016-02 adoption — — ( 2,144 )

Net income attributable to common stockholders 97,145 65,267 50,421

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Noncontrolling Interests Beginning balance $ 1,570,484 $ 1,558,928 $ 1,658,862

ASU 2016-02 adoption — — ( 355 )

Net (loss) income attributable to noncontrolling interests ( 9,136 ) ( 11,868 ) 54,985

Net loss attributable to noncontrolling interests ( 605 ) ( 9,136 ) ( 11,868 )

Cash flow hedge adjustments 99,711 49,662 ( 52,948 )

Contributions 81,000 — —

Consolidation of JV — — 61,394

Distributions ( 58,969 ) ( 54,919 ) ( 60,392 )

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

Exchange of OP Units for common stock ( 4,600 ) ( 1,056 ) ( 1,536 )

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Ending balance $ 1,713,369 $ 1,570,484 $ 1,558,928

Statement continues on the following page.

Douglas Emmett, Inc.

Consolidated Statements of Equity

(In thousands, except per share data)

(In thousands, except dividend per share data)

Year Ended December 31,

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Total Equity Beginning balance $ 3,986,553 $ 3,996,019 $ 4,370,934

ASU 2016-02 adoption — — ( 2,499 )

Net income 96,540 56,131 38,553

Cash flow hedge adjustments 325,548 158,923 ( 183,521 )

Consolidation of JV — — 61,394

Issuance of common stock, net — — 200,983

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

Repurchase of OP Units with cash ( 337 ) ( 122 ) ( 7 )

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

Income from unconsolidated Funds ( 946 ) ( 430 ) ( 6,923 )

Income from unconsolidated Fund ( 1,224 ) ( 946 ) ( 430 )

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 )

Depreciation and amortization 372,798 371,289 385,248

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Amortization of stock-based compensation 21,025 20,887 21,365

Operating distributions from unconsolidated Funds 943 394 6,820

Operating distributions from unconsolidated Fund 1,224 943 394

Change in working capital components:

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Property acquisition ( 330,470 ) — —

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 )

Capital distributions from unconsolidated Funds 1,342 1,236 5,853

Acquisition of additional interests in unconsolidated Fund — — ( 6,591 )

Capital distributions from unconsolidated Fund 1,919 1,342 1,236

Net cash used in investing activities ( 560,953 ) ( 288,708 ) ( 265,175 )

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Loan cost payments ( 2,032 ) ( 12,397 ) ( 3,846 )

Purchase of interest rate caps ( 481 ) — —

Proceeds from sale of interest rate cap 444 — —

Contributions from noncontrolling interests in consolidated JVs 81,000 — —

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Repurchase of OP Units ( 337 ) ( 122 ) ( 7 )

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

Net cash provided by (used in) financing activities 5,246 ( 136,330 ) 187,538

Increase in cash and cash equivalents and restricted cash 163,489 18,713 7,456

Net cash (used in) provided by financing activities ( 3,003 ) 5,246 ( 136,330 )

(Decrease) increase in cash and cash equivalents and restricted cash ( 67,068 ) 163,489 18,713

Cash and cash equivalents and restricted cash - beginning balance 336,006 172,517 153,804

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2022 2021 2020

Cash and cash equivalents - ending balance $ 335,905 $ 172,385 $ 153,683

Restricted cash - ending balance 101 132 121

Cash and cash equivalents and restricted cash - ending balance $ 336,006 $ 172,517 $ 153,804

Cash and cash equivalents $ 268,837 $ 335,905 $ 172,385

Restricted cash 101 101 132

Cash and cash equivalents and restricted cash $ 268,938 $ 336,006 $ 172,517

Supplemental Cash Flows Information

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2022 2021 2020

Operating Activities

Cash paid for interest, net of capitalized interest $ 141,427 $ 136,999 $ 136,823

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Removal of fully accreted acquired lease intangible liabilities $ 11,900 $ 23,725 $ 20,649

Recognition of ground lease right-of-use asset - Adoption of ASU 2016-02 $ — $ — $ 10,885

Above-market ground lease intangible liability offset against right-of-use asset - Adoption of ASU 2016-02 $ — $ — $ 3,408

Recognition of ground lease liability - Adoption of ASU 2016-02 $ — $ — $ 10,885

Non-cash Financing Transactions

Gain (loss) recorded in AOCI - consolidated derivatives $ 326,396 $ 82,876 $ ( 232,652 )

Gain (loss) recorded in AOCI - unconsolidated Funds' derivatives (our share) $ 569 $ ( 410 ) $ ( 5,023 )

Accrual for deferred loan costs $ 150 $ 50 $ 1,416

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

Non-cash distributions to noncontrolling interests $ — $ — $ 12,444

Gain (loss) recorded in AOCI - unconsolidated Fund's derivatives (our share) $ 3,780 $ 569 $ ( 410 )

Dividends declared $ 181,061 $ 196,549 $ 196,361

Exchange of OP Units for common stock $ 4,600 $ 1,056 $ 1,536

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

See accompanying notes to the consolidated financial statements.

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At December 31, 2022, our Consolidated Portfolio consisted of (i) a 17.7 million square foot office portfolio, (ii) 5,013 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, 2021, owned an additional 0.4 million

square feet of office space.

We also manage and own an equity interest in an unconsolidated Fund which, at December 31, 2022, owned an additional 0.4 million square feet of office space.

We manage our unconsolidated Fund alongside our Consolidated Portfolio, and we therefore present the statistics for our office portfolio on a Total Portfolio basis.

As of December 31, 2021, 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):

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 Total Portfolio

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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.

The consolidated debt, excluding our consolidated JVs, was $ 3.41 billion and $ 3.19 billion, as of December 31, 2021 and December 31, 2020, respectively.

We also consolidate three JVs through our Operating Partnership ( 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).

We consolidate our Operating Partnership and our three JVs because they are VIEs and we or our Operating Partnership are the primary beneficiary for each.

The consolidated debt, excluding our consolidated JVs, was $ 3.41 billion, as of December 31, 2022 and December 31, 2021, respectively.

We also consolidate four JVs through our Operating Partnership.

See Note 3 for more information regarding our JV transactions.

We consolidate our Operating Partnership and our four JVs because they are VIEs and we or our Operating Partnership are the primary beneficiary for each.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2021, our consolidated VIE entities, excluding our Operating Partnership, had aggregate consolidated assets of $ 3.56 billion (of which $ 3.28 billion related to investment in real estate) and aggregate consolidated liabilities of $ 1.72 billion (of which $ 1.64 billion related to debt).

As of December 31, 2020, our consolidated VIE entities, excluding our Operating Partnership, had aggregate consolidated assets of $ 3.58 billion (of which $ 3.37 billion related to investment in real estate) and aggregate consolidated liabilities of $ 1.73 billion (of which $ 1.59 billion related to debt).

As of December 31, 2022, our consolidated VIE entities, excluding our Operating Partnership, had:

• aggregate consolidated assets of $ 3.94 billion (of which $ 3.54 billion related to investment in real estate), and

• aggregate consolidated liabilities of $ 1.89 billion (of which $ 1.81 billion related to debt).

As of December 31, 2021, our consolidated VIE entities, excluding our Operating Partnership, had:

• aggregate consolidated assets of $ 3.56 billion (of which $ 3.28 billion related to investment in real estate), and

• aggregate consolidated liabilities of $ 1.72 billion (of which $ 1.64 billion related to debt).

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC in conformity with US GAAP as established by the FASB in the ASC.

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Acquisitions and Initial Consolidation of VIEs

We account for property acquisitions as asset acquisitions, and include the acquired properties' results of operations in our results of operations from the respective acquisition date.

Acquisitions of properties generally do not meet the definition of a business and are accounted for as asset acquisitions, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

We include the acquired properties' results of operations in our results of operations from the respective acquisition date.

We allocate the purchase price for asset acquisitions, which includes the capitalized transaction costs, and for the properties upon the initial consolidation of VIEs not determined to be a business, on a relative fair value basis to:

(i) land, (ii) buildings and improvements, (iii) tenant improvements and identifiable intangible assets such as in-place at-market leases, (iv) acquired above- and below-market ground and tenant leases (including for renewal options), and if applicable (v) assumed debt and (vi) assumed interest rate swaps, based upon comparable sales for land, and the income approach using our estimates of expected future cash flows and other valuation techniques, which include but are not limited to, our estimates of rental rates, revenue growth rates, capitalization rates and discount rates, for other assets and liabilities.

The fair values are based upon comparable sales for land, and the income approach using our estimates of expected future cash flows and other valuation techniques, which include but are not limited to, our estimates of rental rates, revenue growth rates, capitalization rates and discount rates, for other assets and liabilities.

We estimate the relative fair values of the tangible assets on an ‘‘as-if-vacant’’ basis.

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We evaluate the time period over which we expect such occupancy level to be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance and utilities) incurred during the lease-up period.

Above- and below-market ground and tenant leases are recorded as an asset or liability based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid or received pursuant to the in-place ground or tenant leases, respectively, and our estimate of the fair market rental rates for the corresponding in-place leases, over the remaining non-cancelable term of the lease.

Above- and below-market ground and tenant leases are recorded as an asset or liability based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid or received pursuant to the in-place ground or tenant leases, respectively, and our estimate of the fair market rental rates for the corresponding in-place leases, over the remaining non-cancelable term of the lease.

Assumed debt is recorded at fair value based upon the present value of the expected future payments and current interest rates.

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Depreciation and Amortization

The assets and liabilities listed below are carried on our consolidated balance sheet net of the related accumulated depreciation or amortization/accretion, and any impairment charges.

The assets and liabilities listed below are carried on our consolidated balance sheets net of the related accumulated depreciation or amortization/accretion, and any impairment charges.

We accelerate depreciation for affected assets when we renovate our buildings or our buildings are impacted by new developments.

When assets are sold or retired, their cost and related accumulated depreciation or amortization are removed from our consolidated balance sheet with the resulting gains or losses, if any, reflected in our results of operations for the respective period.

When assets are sold or retired, their cost and related accumulated depreciation or amortization are removed from our consolidated balance sheets with the resulting gains or losses, if any, reflected in our results of operations for the respective period.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

• Buildings and improvements are depreciated on a straight-line basis using an estimated life of twenty-five to forty years for buildings and fifteen years for improvements.

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• Acquired in-place leases are amortized on a straight-line basis over the weighted average remaining term of the acquired in-place leases.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

• Acquired lease intangibles are amortized on a straight-line basis over the related lease term, with any remaining balance amortized in the period of any early lease termination.

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Real Estate Held for Sale

Properties are classified as held for sale in our consolidated balance sheets when they meet certain requirements, including the approval of the sale of the property, the marketing of the property for sale, and our expectation that the sale will likely occur within the next 12 months.

Properties are classified as held for sale on our consolidated balance sheets when they meet certain requirements, including the approval of the sale of the property, the marketing of the property for sale, and our expectation that the sale will likely occur within the next 12 months.

Properties classified as held for sale are carried at the lower of their carrying value or fair value less costs to sell, and we also cease to depreciate the property.

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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 Investment in real estate, gross, in our consolidated balance sheets.

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

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

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

Investment in Unconsolidated Fund

As of December 31, 2021 and 2020, we managed and owned an equity interest in one unconsolidated Fund.

Before November 21, 2019 we managed and owned equity interests in three unconsolidated Funds.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Investment in Unconsolidated Fund

As of December 31, 2022 and 2021, we managed and owned an equity interest in one unconsolidated Fund.

We account for our investment in our unconsolidated Fund using the equity method because we have significant influence but not control over the Fund.

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(i) our share of the Fund's net income or losses, (ii) our share of the Fund's other comprehensive income or losses, (iii) our cash contributions to the Fund and (iv) our distributions received from the Fund.

We will remove our investment in our unconsolidated Fund from our consolidated balance sheet when we sell our interest in the Fund or if the Fund qualifies for consolidation.

Our investment in our unconsolidated Fund is included in Investment in unconsolidated Fund in the consolidated balance sheets.

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

If we sell our interest in the Fund, or if the Fund qualifies for consolidation, we would remove our investment in our unconsolidated Fund from our consolidated balance sheets.

Our investment in our unconsolidated Fund is included in Investment in unconsolidated Fund on the consolidated balance sheets.

Our share of our Fund's accumulated other comprehensive income or losses is included in Accumulated other comprehensive income (loss) on our consolidated balance sheets.

As of December 31, 2022 and 2021, the total investment basis difference included in our investment balance in our unconsolidated Fund was $ 27.8 million and $ 28.7 million, respectively.

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

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

Our share of the net income or losses from our Fund is included in Income from unconsolidated Fund in our consolidated statements of operations.

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

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.

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We periodically assess whether there has been any impairment in the carrying value of our properties and whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable.

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.

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 not recoverable.

Recoverability of the carrying value of our properties is measured by a comparison of the carrying value to the undiscounted future cash flows expected to be generated by the property.

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We consider short-term investments with maturities of three months or less when purchased to be cash equivalents.

Revenue Recognition

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.

We account for our rental revenues and tenant recoveries in accordance with Topic 842.

We adopted a practical expedient which allows us to account for our rental revenues and tenant recoveries on a combined basis.

Rental revenues and tenant recoveries from tenant leases are included in Rental revenues and tenant recoveries in the consolidated statements of operations.

Rental revenues and tenant recoveries from tenant leases are included in Rental revenues and tenant recoveries in our consolidated statements of operations.

All of our tenant leases are classified as operating leases.

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

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.

Estimated tenant recoveries for real estate taxes, common area maintenance and other recoverable operating expenses, which are included in Rental revenues and tenant recoveries in our consolidated statements of operations, are recognized as revenue on a gross basis in the period that the recoverable expenses are incurred.

Subsequent to year-end, in accordance with our policy, 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.

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.

Lease Terminations

Lease termination fees, which are included in Rental revenues and tenant recoveries in the consolidated statements of operations, are recognized on a straight line basis over the new remaining lease term when the related lease is canceled.

We recognized lease termination revenue of $ 1.2 million, $ 1.0 million and $ 0.5 million during 2021, 2020 and 2019, respectively.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Lease Terminations

Lease termination fees, which are included in Rental revenues and tenant recoveries in our consolidated statements of operations, are recognized on a straight line basis over the new remaining lease term when the related lease is canceled.

We recognized lease termination revenue of $ 1.3 million, $ 1.2 million and $ 1.0 million during 2022, 2021 and 2020, respectively.

Tenant Improvements

Tenant improvements constructed, and owned by us, and reimbursed by tenants are recorded as our assets, and the related revenue, which are included in Rental revenues and tenant recoveries in the consolidated statements of operations, is recognized over the related lease term.

Tenant improvements constructed, and owned by us, and reimbursed by tenants are recorded as our assets, and the related revenue, which are included in Rental revenues and tenant recoveries in our consolidated statements of operations, is recognized over the related lease term.

We recognized revenue for reimbursement of tenant improvements of $ 4.8 million, $ 5.8 million and $ 5.9 million during 2022, 2021 and 2020, respectively.

Tenant Recoveries

Estimated tenant recoveries for real estate taxes, common area maintenance and other recoverable operating expenses, which are included in Rental revenues and tenant recoveries in the consolidated statements of operations, are recognized as revenue on a gross basis in the period that the recoverable expenses are incurred.

Collectibility

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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.

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

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 tenant receivables and deferred rent receivables, which were primarily due to the impact of the COVID-19 pandemic, reduced our office revenues by $ 3.0 million and $ 41.0 million in 2021 and 2020, 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 in 2022.

Lease Modifications

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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.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Office Parking Revenues

2 unchanged sentences

Office parking revenues were $ 84.9 million, $ 69.0 million and $ 76.1 million in 2022, 2021 and 2020, respectively.

Office parking receivables were $ 0.8 million and $ 0.6 million as of December 31, 2021 and 2020, respectively, and are included in Tenant receivables in our consolidated balance sheets.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Office parking receivables were $ 0.9 million and $ 0.8 million as of December 31, 2022 and 2021, respectively, and are included in Tenant receivables on our consolidated balance sheets.

Insurance Recoveries

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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.

We recorded $ 4.8 million and $ 3.9 million of business interruption revenues during 2021 and 2020, respectively, which is included in Multifamily rental - Parking and other income in the consolidated statements of operations.

In addition, we recorded a gain related to property damage of $ 13.1 million during 2020, which is included in Other income in the consolidated statements of operations.

We recorded $ 3.9 million, $ 4.8 million, and $ 3.9 million of business interruption revenues during 2022, 2021 and 2020, respectively, which is included in Multifamily rental - Parking and other income in our consolidated statements of operations.

In addition, we recorded a gain related to property damage of $ 13.1 million during 2020, which is included in Other income in our consolidated statements of operations.

Interest Income

Interest income from our short-term money market fund investments is recognized on an accrual basis.

Interest income is included in other income in the consolidated statements of operations.

Interest income is included in other income in our consolidated statements of operations.

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.

We account for our leasing costs in accordance with Topic 842.

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.

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If the old debt is determined to be modified then we (i) continue to defer and amortize any unamortized deferred loan costs associated with the old debt at the time of the modification over the new term of the modified debt, (ii) defer and amortize the lender costs incurred in connection with the modification over the new term of the modified debt, and (iii) expense all other costs associated with the modification.

If the old debt is determined to be extinguished then we (i) write off any unamortized deferred loan costs associated with the extinguished debt at the time of the extinguishment and remove the related cost and accumulated amortization from our balance sheet, (ii) expense all lender costs associated with the extinguishment, and (iii) defer and amortize all other costs incurred directly in connection with the extinguishment over the term of the new debt.

If the old debt is determined to be extinguished then we (i) write off any unamortized deferred loan costs associated with the extinguished debt at the time of the extinguishment and remove the related cost and accumulated amortization from our consolidated balance sheets, (ii) expense all lender costs associated with the extinguishment, and (iii) defer and amortize all other costs incurred directly in connection with the extinguishment over the term of the new debt.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

In circumstances where we modify or exchange our revolving credit facility with the same lender, we account for the loan costs based upon whether the borrowing capacity of the new arrangement is (a) equal to or greater than the borrowing capacity of the old arrangement, or (b) less than the borrowing capacity of the old arrangement (borrowing capacity is defined as the product of the remaining term and the maximum available credit).

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If the borrowing capacity of the new arrangement is less than the borrowing capacity of the old arrangement, then we (i) write off any unamortized deferred loan costs at the time of the transaction related to the old arrangement in proportion to the decrease in the borrowing capacity of the old arrangement and (ii) defer all lender and other costs incurred directly in connection with the new arrangement over the term of the new arrangement.

Deferred loan costs are presented on the balance sheet as a deduction from the carrying amount of our secured notes payable and revolving credit facility.

Deferred loan costs are presented on the consolidated balance sheets as a deduction from the carrying amount of our secured notes payable and revolving credit facility.

All loan costs expensed and deferred loan costs amortized are included in interest expense in our consolidated statements of operations.

See Note 8 for our loan cost disclosures.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Debt Discounts and Premiums

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Derivative Contracts

We make use of interest rate swap contracts to manage the risk associated with changes in interest rates on our floating-rate debt.

We make use of interest rate swap and cap contracts to manage the risk associated with changes in interest rates on our floating-rate debt and to satisfy certain lender requirements.

When we enter into a floating-rate term loan, we generally enter into an interest rate swap agreement for the equivalent principal amount, for a period covering the majority of the loan term, which effectively converts our floating-rate debt to a fixed-rate basis during that time.

We may enter into derivative contracts that are intended to hedge certain economics risks, even though hedge accounting does not apply or we elect to not apply hedge accounting.

We do not speculate in derivatives and we do not make use of any other derivative instruments.

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Changes in fair value of hedging instruments designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) (AOCI), which is a component of equity outside of earnings.

For our Funds' hedging instruments designated as cash flow hedges, we record our share of the changes in fair value of the hedging instrument in AOCI.

For our Fund's hedging instruments designated as cash flow hedges, we record our share of the changes in fair value of the hedging instrument in AOCI.

Amounts recorded in AOCI related to our designated hedges are reclassified to Interest expense as interest payments are made on the hedged floating rate debt.

Amounts reported in AOCI related to our Funds' hedges are reclassified to Income from unconsolidated Funds, as interest payments are made by our Funds on their hedged floating rate debt.

We present our derivatives on the balance sheet at fair value on a gross basis.

Our share of the fair value of our Funds' derivatives is included in our investment in unconsolidated Funds on our consolidated balance sheet.

Amounts reported in AOCI related to our Fund's hedges are reclassified to Income from unconsolidated Fund, as interest payments are made by our Fund on its hedged floating rate debt.

Our derivatives are presented on our consolidated balance sheets at fair value, on a gross basis, excluding accrued interest.

The accrued interest is included in Interest Payable, accounts payable and deferred revenue on our consolidated balance sheets.

Our share of the fair value of our Fund's derivatives is included in Investment in unconsolidated Fund on our consolidated balance sheets.

See Note 10 for our derivative disclosures.

Stock-Based Compensation

We account for stock-based compensation, which includes grants of LTIP Units, using the fair value method of accounting.

We account for stock-based compensation, which includes grants of LTIP Units to certain employees and non-employee directors, using the fair value method of accounting.

The estimated fair value of the awards is based upon the market value of our common stock on the grant date and a discount for post-vesting restrictions.

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

See Note 13 for our stock-based compensation disclosures.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

We calculate basic EPS by dividing the net income attributable to common stockholders for the period by the weighted average number of common shares outstanding during the respective period.

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See Note 15 for our segment disclosures.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

We have elected to be taxed as a REIT under the Code, commencing with our initial taxable year ended December 31, 2006.

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Provided that we qualify for taxation as a REIT, we are generally not subject to corporate-level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities.

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 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.

We had two TRSs in 2020 and 2019.

We had two TRSs in 2020.

Our TRSs did not have significant tax provisions or deferred income tax items for 2022, 2021 or 2020.

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We consider the applicability and impact of all ASUs.

We did not adopt any ASUs during 2021, and as of the date of this Report, the FASB has not issued any ASUs that we expect to be applicable and have a material impact on our future consolidated financial statements.

Other than the ASU 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.

Adoption of ASU 2022-06 (Topic 848 - "Reference Rate Reform")

In December 2022, the FASB issued ASU No.

2022-06 to defer the sunset date for ASU No.

2020-04, Topic 848 - "Reference Rate Reform" to December 31, 2024 from December 31, 2022.

ASU 2020-04 included practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

In the first quarter of 2020 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 adopted ASU 2022-06 in December 2022 and it did not impact our financial statements.

Douglas Emmett, Inc.

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(In thousands) December 31, 2022 December 31, 2021

Land $ 1,150,821 $ 1,150,821

$ 1,185,977 $ 1,150,821

Buildings and improvements (1)

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__________________________________________________________________________________

(1) During 2021, Property under development balances transferred to Building and improvements for real estate placed into service was $ 51.2 million.

2021 Property Acquisitions and Dispositions

During 2021, we did not purchase or sell any properties.

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

On June 7, 2019, we acquired The Glendon, a residential community in Westwood, and on June 28, 2019, we contributed the property to a consolidated JV that we manage and in which we own a 20 % capital interest.

(1) During 2022, Property under development balances transferred to Land and Building and improvements for real estate placed into service were $ 13.1 million and $ 360.4 million, respectively.

During 2021, Property under development balances transferred to Building and improvements for real estate placed into service were $ 51.2 million.

2022 Property Acquisition

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 accounted for the acquisition as an asset acquisition and the acquired property's operating results are included in our consolidated operating results from the date of acquisition.

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

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

(In thousands, except number of units) The Glendon

Submarket West Los Angeles

Acquisition date June 7, 2019

Contract price $ 365,100

Number of multifamily units 350

Retail square footage 50

The contract price and the purchase price allocation total in the table below differ due to acquisition costs, prorations and similar adjustments:

(In thousands) Purchase Price Allocation

Land $ 22,086

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Tenant improvements and lease intangibles 8,879

Acquired above- and below-market leases, net ( 2,114 )

Acquired below-market leases ( 18,542 )

Other liabilities assumed ( 1,619 )

Net assets and liabilities acquired $ 330,470

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Consolidation of JV

On November 21, 2019, we acquired an additional 16.3 % of the equity in one of our previously unconsolidated Funds, Fund X, in exchange for $ 76.9 million in cash and 332 thousand OP Units valued at $ 14.4 million, which increased our ownership in the Fund to 89.0 %.

In connection with this transaction, we restructured the Fund with one remaining institutional investor.

The new JV is a VIE, and as a result of the amended operating agreement, we became the primary beneficiary of the VIE and commenced consolidating the JV on November 21, 2019.

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).

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.

The gain was determined by taking the difference between:

(a) the fair value of Fund X’s assets less its liabilities and (b) the sum of the fair value of the noncontrolling interest, carrying value of our existing investment in Fund X, and the amounts paid to acquire other Fund investors’ interests.

We determined the fair value of Fund X’s assets and liabilities upon initial consolidation using our estimates of expected future cash flows and other valuation techniques.

We estimated the fair values of Fund X’s properties by using the income and sales comparison valuation approaches which included, but are not limited to, our estimates of rental rates, comparable sales, revenue growth rates, capitalization rates and discount rates.

Assumed debt was recorded at fair value based upon the present value of the expected future payments and current interest rates.

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

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.

The JV also owns an interest of 9.4 % in our remaining unconsolidated Fund, Partnership X, which owns two additional Class A office properties totaling 386,000 square feet in Beverly Hills and Brentwood.

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

(In thousands) JV Consolidation

Consolidation date November 21, 2019

Square footage 1,454

Land $ 52,272

Buildings and improvements 831,416

Tenant improvements and lease intangibles 40,890

Acquired above- and below-market leases, net ( 14,198 )

JV interest in unconsolidated Fund 28,783

Assumed debt ( 403,016 )

Assumed interest rate swaps ( 4,147 )

Other assets and liabilities, net 26,256

Net assets acquired and liabilities assumed $ 558,256

2020 Property Disposition

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.

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 the market rent at that time.

As of December 31, 2021, 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.

As of December 31, 2022, the ground lease right-of-use asset carrying value was $ 7.5 million, and the ground lease liability was $ 10.8 million.

Ground rent expense, which is included in Office expenses in our consolidated statements of operations, was $ 733 thousand during 2022, 2021 and 2020.

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(In thousands)

2023 $ 10,564

Thereafter ( 252 )

2 unchanged sentences

Notes to Consolidated Financial Statements (continued)

Investments in Unconsolidated Funds

Description of our Funds

Investment in Unconsolidated Fund

Description of our Fund

As of December 31, 2022 and 2021, 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 owned two office properties totaling 0.4 million square feet.

We purchased an additional interest of 3.6 % in Partnership X for $ 6.6 million during 2020.

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.

On November 21, 2019, we acquired additional interests of 16.3 % in Fund X and 1.5 % in Partnership X, and restructured Fund X which resulted in Fund X being treated as a consolidated JV from November 21, 2019.

See Note 3 for more information regarding the consolidation of the JV.

We also acquired all of the investors’ ownership interests in the Opportunity Fund (The Opportunity Fund’s only investment was an ownership interest in Fund X) and closed the Opportunity Fund.

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.

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.

Partnership X pays us fees and reimburses 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.

We also receive distributions based on invested capital and on any profits that exceed certain specified cash returns to the investors.

The table below presents cash distributions we received from our Funds:

The table below presents the cash distributions we received from Partnership X:

Year Ended December 31,

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Operating distributions received $ 1,224 $ 943 $ 394

$ 943 $ 394 $ 6,820

Capital distributions received 1,919 1,342 1,236

1,342 1,236 5,853

Total distributions received $ 3,143 $ 2,285 $ 1,630

$ 2,285 $ 1,630 $ 12,673

__________________________________________________________

(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, 2021.

Summarized Financial Information for our Funds

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 book value:

Summarized Financial Information for Partnership X

The tables below present selected financial information for Partnership X.

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

(In thousands) December 31, 2022 December 31, 2021

Total assets $ 147,853 $ 139,171

$ 139,171 $ 133,617

Total liabilities $ 119,038 $ 117,668

$ 117,668 $ 112,706

Total equity $ 28,815 $ 21,503

$ 21,503 $ 20,911

_______________________________________________

(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 $ 18,561 $ 17,185 $ 15,744

$ 17,185 $ 15,744 $ 75,952

Operating income $ 5,722 $ 4,921 $ 3,614

$ 4,921 $ 3,614 $ 22,269

Net income $ 3,158 $ 2,333 $ 887

$ 2,333 $ 887 $ 7,350

_________________________________________________

(In thousands) December 31, 2022 December 31, 2021

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Prepaid expenses 19,871 15,936

Other indefinite-lived intangibles 1,988 1,988

Indefinite-lived intangibles 1,988 1,988

Furniture, fixtures and equipment, net 7,144 2,499

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Term loan (3)

$ — $ 300,000

Term loan (4)

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

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

3.16 % 6/1/2022

Term loan (3)

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Term loan (3)

Term loan (4)

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

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2.12 % 6/1/2025

Term loan (3)(9)

4/26/2029 175,000 — SOFR + 1.25 %

3.90 % 5/1/2026

Fannie Mae loan (3)

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See further below for details of our loan costs and loan premiums.

(3) We paid off these loans during 2021.

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

The corresponding swaps do not include such a floor.

(5) The effective rate increased from 2.18 % to 2.31 % on July 1, 2021 due to the expiration of the prior swaps.

(6) We closed this loan during the second quarter of 2021.

(7) We closed this loan during the fourth quarter of 2021, and used the proceeds to pay off a loan secured by the same property.

The interest rate decreased to 2.66 % on January 1, 2022.

(8) Requires monthly payments of principal and interest.

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

If the loan is swap-fixed then the related swaps do not include such a floor.

(4) The swaps expired on June 1, 2022.

(5) The effective rate decreased from 3.42 % to 2.66 % on January 1, 2022 when a new swap replaced old swaps that expired.

(6) The loan requires monthly payments of principal and interest.

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

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

(7) $ 400.0 million revolving credit facility.

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The facility has a zero -percent LIBOR floor.

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

(11) We closed this loan during the third quarter of 2021.

(12) The table does not include our unconsolidated Fund's loan - see "Guarantees" in Note 17 for information about our Fund's loan.

(13) See Note 14 for our debt and derivative fair value disclosures.

(8) The effective rate decreased from 3.04 % to 2.26 % on July 1, 2022 when existing swaps were upsized to replace swaps that expired.

(9) We closed this loan during the second quarter of 2022 in connection with the acquisition of a residential property, see Note 3.

(10) The table does not include our unconsolidated Fund's loan - see Note 17.

See Note 14 for our debt fair value disclosures.

(11) Balances are net of accumulated amortization of $ 3.7 million and $ 3.2 million at December 31, 2022 and December 31, 2021, respectively.

(12) Balances are net of accumulated amortization of $ 54.1 million and $ 46.3 million at December 31, 2022 and December 31, 2021, respectively.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Debt Statistics

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2026 1,415,987

2027 1,001,033

Thereafter 1,963,775

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Total interest payable, accounts payable and deferred revenue $ 140,925 $ 145,460

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Derivative Contracts

Derivative Summary

As of December 31, 2021, all of our interest rate swaps, including our consolidated JVs' and our unconsolidated Fund's interest rate swaps, as summarized below, were designated as cash flow hedges:

The table below summarizes our derivative contracts as of December 31, 2022:

Number of Interest Rate Swaps Notional

(In thousands)

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

Derivatives Designated as Cash Flow Hedges:

Consolidated derivatives - swaps (1)(3)(5)

30 $ 4,642,400

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

Unconsolidated Fund's derivatives - swaps (2)(3)(5)

Derivatives Not Designated as Cash Flow Hedges:

Consolidated derivatives - caps (3)(4)(5)

5 $ 1,100,000

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

(2) The notional amount includes:

Two swaps with a combined initial notional amount of $ 50.0 million, which will increase to $ 450.0 million on July 1, 2022 to replace existing swaps when they expire, and

One swap with a notional amount of $ 300.0 million that will replace existing swaps when they expire on January 1, 2022.

___________________________________________________

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

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

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

(4) Includes four interest rate caps purchased with a notional amount of $ 550.0 million and one interest rate cap sold with a notional amount of $ 550.0 million.

(5) See Note 14 for our derivative fair value disclosures.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Credit-risk-related Contingent Features

Our swaps include credit-risk related contingent features.

Certain of our swaps include credit-risk related contingent features.

For example, we have agreements with certain of our interest rate swap counterparties that contain a provision under which we could be declared in default on our derivative obligations if repayment of the underlying indebtedness that we are hedging is accelerated by the lender due to our default on the indebtedness.

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Consolidated derivatives (1)(2)

$ 77,760 $ 225,166

Unconsolidated Fund's derivatives (3)

___________________________________________________

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

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

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

(2) We did not have any consolidated swaps in a liability position as of December 31, 2022.

(3) Our unconsolidated Fund did not have any swaps in a liability position for the periods presented.

For more information about our Fund, including our equity interest percentage, see Note 6.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Counterparty Credit Risk

We are subject to credit risk from the counterparties on our interest rate swap contract assets because we do not receive collateral.

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

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

We are subject to credit risk from the counterparties on our interest rate swap and cap contract assets because we do not receive collateral.

We seek to minimize that risk by entering into agreements with a variety of counterparties with investment grade ratings.

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

(In thousands) December 31, 2022 December 31, 2021

Consolidated derivatives (1)

$ 281,982 $ 14,927

Unconsolidated Fund's derivatives (2)

$ 12,863 $ 1,889

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

___________________________________________________

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

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

For more information about our Fund, including our equity interest percentage, see Note 6.

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

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

Impact of Hedges on AOCI and the Consolidated Statements of Operations

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$ 326,396 $ 82,876 $ ( 232,652 )

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

(Gains) losses reclassified from AOCI to Interest Expense (1)

$ ( 4,287 ) $ 75,358 $ 49,435

Interest Expense presented in the consolidated statements of operations $ ( 150,185 ) $ ( 147,496 ) $ ( 142,872 )

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

Unconsolidated Fund's derivatives (our share) (2) :

Gains (losses) recorded in AOCI before reclassifications (1)

$ 3,780 $ 569 $ ( 410 )

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

(Gains) losses reclassified from AOCI to Income from unconsolidated Fund (1)

$ ( 341 ) $ 120 $ 106

Income from unconsolidated Funds presented in the consolidated statements of operations $ 946 $ 430 $ 6,923

Income from unconsolidated Fund presented in the consolidated statements of operations $ 1,224 $ 946 $ 430

Derivatives Not Designated as Cash Flow Hedges:

Consolidated derivatives:

Loss recorded as interest expense $ 38 $ — $ —

__________________________________________________

(1) See Note 11 for our AOCI reconciliation.

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

For more information about our Funds, including our equity interest percentages, see Note 6.

Douglas Emmett, Inc.

Notes to Consolidated Financial Statements (continued)

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

For more information about our Fund, including our equity interest percentage, see Note 6.

Future Reclassifications from AOCI

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Consolidated derivatives:

Losses to be reclassified from AOCI to Interest Expense $ ( 50,746 )

Gains to be reclassified from AOCI to Interest Expense $ 132,805

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

Losses to be reclassified from AOCI to Income from unconsolidated Fund $ ( 148 )

Gains to be reclassified from AOCI to Income from unconsolidated Fund $ 1,535

______________________________________________

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• We acquired 281 thousand OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units.

• We acquired 4,051 OP Units for $ 122 thousand in cash.

• We acquired 10 thousand OP Units for $ 337 thousand in cash.

• We acquired a multifamily apartment building through a new consolidated JV that we manage and in which we own a 55 % interest.

See Note 3 for more information regarding the property we purchased.

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

• We acquired 65 thousand OP Units in exchange for issuing an equal number of shares of our common stock to the holders of the OP Units.

• We acquired 150 OP Units for $ 7 thousand in cash.

• We acquired 4 thousand OP Units for $ 122 thousand in cash.

• 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.

• We acquired 19 thousand OP Units and fully-vested LTIP Units for $ 734 thousand in cash.

• We issued 4.9 million shares of our common stock under our ATM program for net proceeds of $ 201.0 million.

• We purchased a property on June 7, 2019 for a contract price of $ 365.1 million, which we subsequently contributed to one of our consolidated JVs on June 28, 2019.

We manage and own a twenty percent capital interest in the JV.

The acquisition and related working capital was funded with (i) a secured, non-recourse $ 160.0 million interest-only loan scheduled to mature in June 2029, which was assumed by the consolidated JV to which we contributed the property, (ii) a $ 44.0 million capital contribution by us to the JV, and (iii) a $ 176.0 million capital contribution by Noncontrolling interests in the JV.

See Note 3 for more information regarding the property acquisition and Note 8 for more information regarding the loan.

• On November 21, 2019, we acquired an additional 16.3 % of the equity in one of our previously unconsolidated Funds, Fund X, in exchange for $ 76.9 million in cash and 332 thousand OP Units valued at $ 14.4 million, which increased our ownership in the Fund to 89.0 %.

See Note 3 for more information regarding the consolidation of the JV and note 6 for more information regarding our Funds.

• We acquired 150 OP Units for $ 7 thousand in cash.

Noncontrolling Interests

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(In thousands) 2022 2021 2020

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

Accumulated Other Comprehensive Loss - Beginning balance $ ( 38,774 ) $ ( 148,035 ) $ ( 17,462 )

Consolidated derivatives:

Other comprehensive income (loss) before reclassifications 326,396 82,876 ( 232,652 )

Reclassification of loss (income) from AOCI to Interest Expense 75,358 49,435 ( 24,298 )

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

Reclassification of (gains) losses from AOCI to Interest Expense ( 4,287 ) 75,358 49,435

Unconsolidated Fund's derivatives (our share) (2) :

Other comprehensive income (loss) before reclassifications 3,780 569 ( 410 )

Reclassification of loss (income) from AOCI to Income from unconsolidated Funds 120 106 ( 1,698 )

Reclassification of (gains) losses from AOCI to Income from unconsolidated Fund ( 341 ) 120 106

Net current period OCI 325,548 158,923 ( 183,521 )

1 unchanged sentence

OCI attributable to common stockholders 225,837 109,261 ( 130,573 )

Ending balance $ ( 38,774 ) $ ( 148,035 ) $ ( 17,462 )

Accumulated Other Comprehensive Income (Loss) - Ending balance $ 187,063 $ ( 38,774 ) $ ( 148,035 )

__________________________________________________

(1) See Note 10 for the details of our derivatives and Note 14 for our derivative fair value disclosures.

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

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

For more information about our Fund, including our equity interest percentage, see Note 6.

Douglas Emmett, Inc.

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Stock-Based Compensation

Stock Incentive Plans

Stock Incentive Plan

Plan description

The Douglas Emmett, Inc.

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For options exercised, our policy is to issue common stock on a net settlement basis - net of the exercise price and related taxes.

Until it expired in 2016, we made grants under our 2006 Omnibus Stock Incentive Plan (our "2006 Plan"), which was substantially similar to our 2016 Plan.

No further awards may be granted under our 2006 Plan, although awards granted under the 2006 Plan in the past and which are still outstanding will continue to be governed by the terms of our 2006 Plan.

Our 2016 and 2006 Plans (the "Plans") are administered by the compensation committee of our board of directors.

The compensation committee may interpret our Plans and make all determinations necessary or desirable for the administration of our Plans.

The committee has full power and authority to select the participants to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award and to determine the specific terms and conditions of each award, subject to the provisions of our Plans.

Plan administration

Our 2016 Plan is administered by the compensation committee of our board of directors.

The compensation committee may interpret our Plan and make all determinations necessary or desirable for the administration of our Plan.

All officers, employees, directors and other key personnel (including consultants and prospective employees) are eligible to participate in our 2016 Plan.

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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 1.1 million, 1.1 million, and 802 thousand LTIP Units to employees during 2021, 2020 and 2019, respectively.

In aggregate, we granted 2.2 million, 1.1 million, and 1.1 million LTIP Units to employees during 2022, 2021 and 2020, respectively.

Non-Employee Director Awards

4 unchanged sentences

Compensation Expense

See Note 2 regarding our accounting policy for stock based compensation.

At December 31, 2022, the total unrecognized stock-based compensation expense for unvested LTIP Unit awards was $ 19.2 million, which will be recognized over a weighted-average term of 2 years.

57 unchanged sentences

See Note 10 for the details of our derivatives.

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

We present our derivatives on our 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.

1 unchanged sentence

Our derivatives are not subject to master netting arrangements.

See Note 2 for our accounting policy for derivative instruments regarding the impact of the changes in fair value measurements on our financial statements.

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

2 unchanged sentences

Fair value - c onsolidated derivatives (1)

$ 270,234 $ 15,473

Fair value - unconsolidated Fund's derivatives (2)

$ 12,426 $ 1,963

Derivative Liabilities:

3 unchanged sentences

___________________________________________________________________________________

(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.

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

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

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

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

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

Our unconsolidated Fund did not have any derivatives in a liability position for the periods presented.

See Note 6 for more information about our Fund, including our equity interest percentage, and see "Guarantees" in Note 17 regarding our Fund's derivatives.

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Other expenses ( 714 ) ( 937 ) ( 2,947 )

Income from unconsolidated Funds 946 430 6,923

Income from unconsolidated Fund 1,224 946 430

Interest expense ( 150,185 ) ( 147,496 ) ( 142,872 )

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

Gain from consolidation of JV — — 307,938

Net income 96,540 56,131 38,553

Net loss (income) attributable to noncontrolling interests 9,136 11,868 ( 54,985 )

Net loss attributable to noncontrolling interests 605 9,136 11,868

Net income attributable to common stockholders $ 97,145 $ 65,267 $ 50,421

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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, 2022:

Year Ending December 31, (In thousands)

Year ending December 31:

(In thousands)

2023 $ 622,166

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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.

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.

All of our properties, including our consolidated JVs and our unconsolidated Fund's properties, 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.

Derivative Counterparty Credit Risk

We are subject to credit risk with respect to our derivative counterparties.

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

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

See Note 10 for the details of our derivative contracts.

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

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A liability for a conditional asset retirement obligation must be recorded if the fair value of the obligation can be reasonably estimated.

Environmental site assessments have identified thirty-two buildings in our Consolidated Portfolio which contain asbestos, and would have to be removed in compliance with applicable environmental regulations if these properties are demolished or undergo major renovations.

Environmental site assessments have identified thirty-three buildings in our Consolidated Portfolio which contain asbestos, and would have to be removed in compliance with applicable environmental regulations if these properties are demolished or undergo major renovations.

As of December 31, 2022, the obligations to remove the asbestos from properties which are currently undergoing major renovations, or that we plan to renovate in the future, are not material to our consolidated financial statements.

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Development Projects

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

In downtown Honolulu, we are converting a 25 story, 493,000 square foot office tower into approximately 493 apartments in phases over a number of years as the office space is vacated.

As of December 31, 2021, we had an aggregate remaining contractual commitment for these and other development projects of approximately $ 69.7 million.

As of December 31, 2022, we had an aggregate remaining contractual commitment for this development project and other development projects of approximately $ 42.5 million.

Other Contractual Commitments

As of December 31, 2022, we had an aggregate remaining contractual commitment for repositionings, capital expenditure projects and tenant improvements of approximately $ 26.5 million.

Partnership X Guarantees

Unconsolidated Fund Guarantees

Our unconsolidated Fund, Partnership X, has a $ 115.0 million floating-rate term loan that matures on September 14, 2028 .

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

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

The loan is secured by two properties held by Partnership X and is non-recourse.

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Partnership X has agreed to indemnify us for any amounts that we would be required to pay under these agreements.

As of December 31, 2021, assuming that LIBOR does not decrease below zero-percent, the maximum future interest payments for the swap were $ 4.7 million.

As of December 31, 2022, assuming that LIBOR does not decrease below zero-percent, the maximum future interest payments for the swaps were $ 3.7 million.

As of December 31, 2022, all of the obligations under the related loan and swap agreements have been performed in accordance with the terms of those agreements.

See Note 6 for more information about Partnership X.

See Note 6 for more information regarding Partnership X.

Douglas Emmett, Inc.

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555 Barrington 50,000 6,461 27,639 41,555 14,903 60,752 75,655 26,457 1989 1999

1221 Ocean Avenue 175,000 22,086 328,545 700 22,086 329,245 351,331 11,413 1971/2000 2022

Barrington Plaza 210,000 28,568 81,485 147,705 58,208 199,550 257,758 88,534 1963/1998 1998

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Moanalua Hillside Apartments 255,000 24,791 157,353 126,198 35,365 272,977 308,342 69,509 1968/2004/2019 2005

The Residences at Bishop Place — — — 86,256 — 86,256 86,256 3,031 2020-2021 N/A

The Residences at Bishop Place — — — 128,998 — 128,998 128,998 7,445 2020-2022 2004

Pacific Plaza 78,000 10,091 16,159 76,945 27,816 75,379 103,195 31,734 1963/1998 1999

The Glendon 160,000 32,773 335,925 2,890 32,775 338,813 371,588 33,951 2008 2019

The Landmark Los Angeles — 13,070 — 317,986 13,070 317,986 331,056 2,448 2018-2022 N/A

The Shores 212,000 20,809 74,191 204,885 60,555 239,330 299,885 100,194 1965-67/2002 1999

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The Residences at Bishop Place $ — $ — $ — $ 38,072 $ — $ 38,072 $ 38,072 N/A N/A

The Landmark Los Angeles — 13,070 — 305,041 13,070 305,041 318,111 N/A N/A

Other Developments 31,965 31,965 31,965 N/A N/A

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(5) See our depreciation and amortization policy in Note 2 to our consolidated financial statements.

(6) The property includes a parcel of land from which we receive rent under a ground lease.

The table below presents a reconciliation of our investment in real estate:

Year Ended December 31,

(In thousands) Year Ended December 31,

2022 2021 2020

2 unchanged sentences

Property acquisitions 350,631 — —

Consolidation of JV — — 924,578

Improvements and developments 223,315 297,764 297,558

11 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