Douglas Emmett, Inc Stock

Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded. [Operator Instructions]

I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.

Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO.

This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website.

You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict.

Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material.

For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow-up.

Thank you. I will now turn the call over to Jordan.

Good morning, and thank you for joining us. We had a very active quarter and made real progress on all 4 of our strategic priorities, which are leasing up our office portfolio, acquiring properties at attractive pricing, redeveloping properties to maximize value, and refinancing upcoming debt maturities.

We signed 960,000 square feet of office leases with a good mix of new and renewal deals and achieved positive absorption of approximately 60,000 square feet. Healthy office rents and low concessions helped us sign new leases that were 3% more valuable than the expiring leases they replaced. Of course, most of the positive impact of this leasing will occur over the next 12 months.

Our apartment portfolio remains fully leased with increasing rents. On the acquisition front, we, and a few of our joint venture partners, acquired an extremely well-leased block of prime Beverly Hills medical office properties.

Our redevelopment efforts are exceeding expectations. Studio Plaza in Burbank is now leased well over 50%. So we have moved it from development to in-service. Our apartment redevelopment projects are on track to add over 1,000 new units. Finally, we refinanced over $800 million of debt this quarter.

So with that, I will turn the call over to Kevin.

Thanks, Jordan, and good morning. As Jordan mentioned, in April, we and our joint venture partners acquired the Bedford Collection, a 5-building, 246,000 square foot medical office portfolio in the Beverly Hills Golden Triangle for $260 million.

We managed the joint venture and hold a 13.3% equity stake. The entity was capitalized with $150 million of equity and $130 million of debt. In addition, during the quarter, we refinanced 2 office loans scheduled to mature later this year.

In May, we refinanced a $400 million loan for 4 years and effectively fixed the interest at 6.15% until June 2029. And in June, we refinanced a $415 million loan for 4 years and effectively fixed the interest at 6.18% until July 2029.

With that, I will turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone. During the second quarter, we signed 234 office leases totaling just under 960,000 square feet, including 93 new leases totaling over 375,000 square feet and 141 renewal leases totaling over 584,000 square feet. That's a healthy leasing volume for us, and it builds on the momentum we've been seeing over the past few quarters.

On rental rates, the straight-line value of leases we executed in the quarter increased by 3.2% compared to the prior leases for the same space, with our typical 3% to 5% annual fixed rent bumps continuing to more than offset the impact of lower beginning cash rents.

As Jordan mentioned, we have now moved Studio Plaza to our In-Service Portfolio. Since the first-generation leases at Studio Plaza take longer to build out, this will have the effect of widening our lease-to-occupied spread for the next few quarters.

In addition, while the lease rate at Studio Plaza is now well over 50%, its inclusion will mean lower reported leased and occupied percentages for our office portfolio until occupancy at Studio Plaza equals or exceeds our average office occupancy. Our lease transaction costs averaged $5.35 per square foot per year, well below the benchmark for other office REITs.

Our residential portfolio continues to perform well with cash same-property NOI up 2% compared to the second quarter of last year. Demand remains very strong across our markets with our portfolio still over 99% leased.

With that, I will turn the call over to Peter to discuss our financial results.

Thanks, Stuart. Good morning, everyone. Compared to the second quarter of 2025, revenue increased from $252 million to $257 million. FFO increased but still rounded to $0.37 per share, and AFFO increased from $54 million to $56 million.

Same-property cash NOI decreased 1.2% for the quarter. At approximately 4.9% of revenue, our G&A remains the lowest among our benchmark group. We are now including Studio Plaza in our occupancy assumption for the full year.

Despite being leased well over 50%, its occupancy has not yet reached the average for our portfolio. Solely as the result of including Studio Plaza for the full year, we are lowering our office occupancy guidance range to between 75% and 77%.

Our operating income expectations have improved from our prior projections, but we anticipate that this improvement will be more than offset by the impact of higher market interest rates. Therefore, we now expect our 2026 diluted net income per common share to be between negative $0.20 and negative $0.16 and our fully diluted FFO per share to be between $1.39 and $1.43.

For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities.

I will now turn the call over to the operator so we can take your questions.

[Operator Instructions] Our first question comes from Steve Sakwa with Evercore.

Maybe, Jordan or Stuart, could you maybe just comment a little bit more on the leasing activity? You've obviously now had 2 pretty solid quarters on the new lease side. And I'm just curious if there's any sort of larger deals that may be influencing that trend? And kind of what is your expectation for new leasing volume moving into the back half of the year?

I think we can both answer that.

Look, I'll jump in. I'd say we've had 3 really good quarters actually, if you go back to -- 3 pretty good quarters in a row. We're building on the momentum here. So we're excited about what's going on in the leasing, another great quarter with 960,000 feet.

I think the Q1, if you look at Q1 with the record new leasing we did last quarter, that was chunkier, as we talked a little bit about that last quarter, with some larger deals. This quarter was less so. Just, we had pretty typical activity from that larger group that we call over 10,000 feet this quarter, so not super chunky. And I think we're very optimistic that we're going to have good momentum continue through the second half of the year.

And I agree with all that. I'm very happy with what our leasing group is doing. And I hope that we're getting a little wind in our back, and we're going to continue, and it feels that way. But like I keep saying, I don't know if the proof is in 1 quarter, 2 quarters, 3 quarters, 4 quarters. But when I look at what we've done, I feel very good.

Okay. And then maybe just on the debt. I know you've got a couple of swap maturities coming up over the next kind of 12 months or so. Just kind of remind us your plans for those swaps. And is there anything you can do to sort of help mitigate or offset some of that higher interest expense or kind of it is what it is?

I don't want to say it is what it is. That's for sure. When -- look, we don't choose to live in a world where we have a lot floating, right? So when you see something go to floating, it's probably during the last bit of the term of that loan, which means we're going to refi that loan.

We've started working on refiing that loan, and it can get refied at the beginning of that time or later in that time. We have a window to do it. I don't think we're going to stay floating. I'm not thrilled with where interest rates are.

But we were just talking about that. And I mean, I'm really trying to think of a good way to deal with those interest rates because the rest of the company, the rest of what's going on is so good that I feel that the changes in the increased cost of interest, we were low leverage. None of our buildings are jeopardized.

None of the ownership is jeopardized. But it's really kind of clouding our performance, and it bothers me as much as it bothers you guys, and we're really thinking about solutions to that.

[Operator Instructions] Our next question comes from Jamie Feldman with Wells Fargo.

I'm sitting in for Blaine today. So interesting portfolio transaction in Beverly Hills. Can you just talk more about any other interesting opportunities you're working on or that might be out there, whether unique asset types or larger portfolio transactions?

And then with the transaction market improving and investor expectations, investors maybe get more aggressive, how have return requirements changed, both in terms of what you're willing to get and what your investors are looking for?

Well, I've got to tell you because it's funny we're looking at -- to me, we had a great quarter. I was surprised the stock was off because we were talking about them, like, it's the best time to be in real estate. We're working on a bunch of acquisitions.

I will tell you that. Will we make them? I don't know that, but there are definitely some large ones, and it's getting a ton of our focus. And we've gone through very long periods where we've been accused of some, early on after 2009, we only buy, we don't develop. Then as we got later in the term, we were only developing, we never buy anything.

Now we're back to buying, which we are developing residential, but I love buying deals at good pricing. And I think the opportunity is extremely good right now. This is like a great time to be -- other than interest rates are probably playing a part in the opportunity that's created, this is a great time to be in real estate because I believe in the markets, I believe in the real estate.

And pricing has conspired in the way it hasn't since the early '90s to create opportunities to buy fantastic buildings. So we've been after forever, and we're super-focused. It's what's driving most of my travel.

Okay. So I guess the second part of the question was just return expectations. How are yours changing given maybe markets are improving? And then how are your investors changing or what they're looking for changing?

Well, everybody is looking for better returns, driven by where interest rates are and the lack of equity and debt that's generally available in the market, which is probably what's creating the opportunity. And at the same time, it means we're not always in agreement with the seller.

But we're obviously making deals. You're watching us do it. And we are making these deals in a good part, a very good part with our JV partners who seem pretty happy with what's going on because they're continuing to ask what's next. So we have to get what's next and get it organized and get it in front of them correctly because there's definitely an appetite now, which you're seeing even for office in our markets.

Okay. And then I guess for my follow-up, it looks like there were some adjustments in the UCLA tenancy this quarter. You have 2 more leases with them, and you won additional property and some expirations were shifted. Can you give us a general idea of how your conversations with them are going and how committed to their space in your portfolio they seem to be?

And then can you also comment on the 77,000 square foot Morgan Stanley expiration in '27?

Sure. Yes. Sure, Jamie. So I think we're in good conversations with UCLA about the remaining expirations this year. We feel good about that. They don't act like a single large tenant. They have a bunch of leases with us.

And literally, we've had it in one quarter where they've given back space and leased space in the same quarter because they have a bunch of different departments that are kind of acting independently. But we feel good about the space that's coming up. Same with Morgan Stanley next year, I think there's productive conversations happening. We're feeling good about the expirations that are next year for Morgan Stanley.

Okay. Do you have a sense of when you might have an answer on Morgan Stanley, like, how early they tend to lock things in?

Well, generally, we're not in the business of giving you guys details on individual tenants. I know they're on our big tenant list, so I understand why you're asking. I'll also mention that, that's more than one lease with Morgan Stanley. That's not one large lease. They also have multiple leases with us, which is multiple leases in that 77,000 feet.

Our next question comes from Alexander Goldfarb with Piper Sandler.

Jordan, on your debt comment and where interest rates are, as you think about the company, clearly, you guys run it on a pretty lowly levered overall perspective. But if you think about the individual asset financing that you do and the JV structures, are you thinking that you and your partners would run the buildings with lower leverage?

So meaning as loans are maturing, you guys would either pay them off entirely or refinance them at lower LTVs, and that way, you can't do anything about interest rates, but you can do something about where the loan balances are. I'm just trying to think if you're thinking along those lines.

It's a little more complicated than that. But you're right, there might be ways, especially with the fact that we're buying at the same time and bringing in partners to reduce our exposure to the fluctuations in interest rate or into this higher level interest.

We don't really have high-level debt. I mean, I think unlike many, many of my peers, especially ones that have non-recourse debt, we haven't been in a position of giving anything back. We have equity across the board. We're in good shape there.

But obviously, interest has moved against us, and it's a cost that's hitting us now. I mean, it's funny because the great news is interest rates will go up and they'll go down. When they're dropping, it's going to be great because if you really look at our NOI, the way we've maintained our NOI and cash flow coming off the properties before interest, it's been outstanding.

I mean, beyond outstanding. And so as the properties lease up, you're looking at a lot of NOI and a lot of income. But interest, obviously, has been taking the cream off of that. And then the question is, do we want to do, like, some more permanent things and try and really just reduce our exposure to it?

Or do we go, hey, it's a moment in time. We're making acquisitions. It's helping us get those done at great pricing, and it won't always sit this way. So we'll, like, take something -- it's better than buying a building at a super high price, which you live with for the rest of your life, right?

And so just thinking through all of that. I think it's really getting in the way of people realizing how well our markets and how well the company is doing operationally.

Okay. And then the second question is, if you look at what's going on with Paramount and the state attorney general on that debate and whether maybe they do relocate or not. Is there any concern in L.A. that maybe the environment there isn't even as amenable to corporate Hollywood staying? And maybe that, that industry will start to morph to other markets?

Or is the view that, no, this is just headline noise, nothing is going to change and therefore, all the Hollywood -- all the office users, there's no disruption to that market? I'm just trying to think about how this plays out and obviously, the saber rattling that's going on.

Well, I think the deal is going to close. I'll admit I'm at a little bit of a loss why our state government is against 2 California companies being here merging. But putting that to the side, I think overall, it's healthy for the people here.

I think you've seen stuff from whether it be David or his father, they're pretty committed to California. The talent is here. The directors are here. Frankly, they have giant capital commitments to facilities here.

So I think it's been running at a low. Now you're starting to see big movies come out. I'm not sure what's going on there, unfortunately or fortunately, ever really impacts us a lot because the tenants we have are definitely living here, like, literally in our neighborhood, and they're renting from us because they're living here.

Now when you talk about the studios, we don't own any of that. And so I want California to do well, and I want all the industry to be able to be here, but I'm not sure it impacts us that much, though I do hope that the state gets out of the way and lets them merge because I think that the new company is going to be -- produce even more. And I think they're going to lean into those big movies.

Our next question comes from Rich Anderson with Cantor Fitzgerald.

So on Studio Plaza moving into the operating portfolio, what -- besides it making the marquee of your occupancy guidance now going forward, what was the impact from that on guidance, if anything? Is there a cap interest burn off as a result? Like, what besides higher interest expense that you point out, what role did Studio Plaza play in the guidance, if any?

So if Studio Plaza had debt, it would have been included already, but it doesn't have any debt. So start with that. And most of the stats for Studio Plaza have been included forever.

It's only the leasing or maybe some type of same-store stats that -- so I mean, we really said it. I mean, the impact is on leasing. I mean, it had a slightly negative impact on leasing simply because it's obviously not leased as well as the rest of the portfolio.

But it's been extremely well-leased in what I think has been a pretty -- we did the building and have leased it up to this point in what I think has been a pretty rapid fashion, and it's moving along at a good clip. We were asked to include it. People don't like it being on the outside, so we included it.

Yes. I think that part of the operational improvement we mentioned is seeing is offsetting some of the interest is -- includes Studio Plaza. It's going well there, and that's part of that.

Okay. Outside of Studio Plaza redev being among your 4 priorities, you were once upon a time making 30% on your money on sort of repositioning activities around the portfolio. Can you talk about and provide some color about that business, again, outside of Studio Plaza, where it's happening, if you can provide that, and what types of returns you're seeing today?

Sure. I think we -- I don't know, 30% or whatever percent, but we have done a very good job over time. You know there's a market where they don't really let you build new office buildings, and it's extremely difficult to build apartment buildings. Now we're talking about repositioning, not new. We're doing a lot -- putting a lot of capital into building new apartments.

But in terms of repositioning, there's repositioning being done on our resi portfolio. And there's also always repositioning or work done and we're always doing a certain number of lobbies. We're always doing a certain number of elevators because we want all our buildings to stay at the top of the market, in terms of perception, like, a top 10%, 20% of the market.

And there's a huge ranking process for that. And so we're constantly doing work. I mean, if you follow the portfolio for a while, things that people don't even expect, like, [ 12424 ], it's got a whole new skin now, right? We redid the lobby at 100 Wilshire, which was -- I mean, all these buildings were getting great rents before, too, by the way.

But it keeps the building at the top of the market and you get even more out of it because it takes what's at our bottom and moves it back up. And so we've been spending that capital for probably mine and Ken's whole career, although I will admit we amped it up over the last 5, 6, 7 years, something in that range, and it has paid very good dividends for us to push up into that top, like I keep saying, 20% range.

Our next question comes from Upal Rana with KeyBanc Capital Markets.

Jordan, you talked about solid leasing activity over the past 3 quarters. Could you comment on where some of that tenant demand has changed the most over the past few quarters? Any industries that may have surprised you either positively or negatively?

Surprise would not be the word. Now I am happy that the larger tenants have come back, and they came back probably even a little more than 3 quarters ago, but you've really seen it reflected in our numbers.

The small tenants were always kind of rolling along at a good clip, but it was still back -- like, when a large guy doesn't renew, it takes many small tenants to fill in the space. And so now that we're getting, like, a good dose of large guys and small guys, we're not being left with such kind of visible holes that we have to plug.

But -- so I won't say I'm surprised because as I've said many times, I believe in the market, but I'm really happy that that's moving along much better now than it certainly did during COVID and then it kind of had another little drag -- start recovering, then had a little drag down when the Fed came out and said, okay, inflation is real, and we're going to start raising rates.

And now it feels like we saw a 2020 -- late '24, early '25 bottom, and it feels like we're on a good clip right now. You want to take that? Go ahead.

Yes. Just on the industries, Upal, if you look at our pie chart of our industries, those top 6 categories that are probably largest have all had very good demand. It's remained very diverse across those industries, legal, financial services, real estate, still all good and active. And entertainment has been very strong despite the headlines, we've been doing good entertainment leasing as well.

Yes. And I've got to say we keep getting asked about entertainment, I guess, vis-a-vis studios, but we're actually doing a lot of leasing in entertainment. I mean, that was the solid tailwind between where Studio Plaza is today. But I mean, I realize that probably they're not using as much studio space.

That was helpful. And then you mentioned the benefit from this quarter's leasing won't be realized until the next 12 months. Your leased but occupied spread is now almost sitting at 500 basis points.

So maybe you can quantify how much of the annualized NOI is embedded in these leases? And have these already been signed, but are you just -- I'm just kind of curious how we should be thinking about this as we roll into 2027?

I'll let -- maybe Peter has some kind of idea.

Look, you've got a sense of our average lease rate and you know how much space it is. And if it moves in over the course of 12 months, you can kind of do that math. It's a very meaningful number, and we're very pleased with that trajectory and expect to continue to add that as we continue to maintain high leasing volume over the next few quarters.

I have to say I saw that 450 basis point spread over...

470.

470, yes. And I mean, you can't get better news than that. I would tell you, when that spread is wide, we're leasing a lot. And when that spread narrows to below 200, you go, well, there's not a lot of leasing going on because fast and aggressive leasing creates the spread.

And so almost more than the fact that we're reporting a very meaningful positive absorption is that spread gapping out that wide, which might be one of the widest I've ever seen, is an extremely good sign.

Our next question comes from Dylan Burzinski with Green Street.

Maybe, Jordan, just going back to your comments around the team being sort of active on working on a number of acquisitions. Have you sort of seen pricing change at all in the last, call it, 6 to 9 months? And I guess as you guys are sort of underwriting opportunities, are you able to share sort of the yield on cost that you guys are sort of targeting?

So we're able to get deals done now. I think pricing is down from, we'll call it, whatever, 2017, '18, '19, okay, and probably even '20, '21, '22. So pricing is down from that.

What -- and it's one I'll say, I mean, in my life of this is my 40th year, I've only seen a guy selling buildings for less than they bought it for twice and one was in the early '90s, and this is the second time. So that by itself, if you stand back and you go this incredible opportunity.

Now separately, what's creating more of an opportunity is the fact that it's kind of whatever the beating has been long enough, rates have been high for long enough, whatever you want to call it, they're starting to be a meeting, but we're getting some people to trade and numbers that work for us, our investor and them and they're like, fine, I'm out, okay?

And that is the biggest thing, right? Because we lived through that 2008, '09, '10, it was hard to buy stuff because rates were very low and people were just weren't willing to meet, let's say, the pricing that a bunch of grave dancers were sitting around and expecting in terms of equity yields. So not a lot of buildings traded.

No, what traded was debt pieces, okay? Now I actually think some really high-quality real estate is going to trade. You're actually seeing it happen because we're doing it. We've already done 2 deals. And so I'm thinking this is a very good opportunity because separate from, like, getting someone to do something kind of out of whack with what the market is doing, there's a real meaning at a good price point, a good cost per foot and with a good yield.

And so I go, okay, that's everything good. So don't waste this, and we're out working to make sure we don't.

And when you say good yield, are you able to sort of share what you guys are sort of underwriting to, at all?

Well, I think our all-cash IRRs on a 10-year look are probably coming in 10% or better. That's -- we haven't seen that for a long time. I mean, it has a big impact. So the real yields are obviously different.

Right. That's helpful. And maybe just one last one. Any update at all on sort of some of the insurance stuff going on at Barrington Plaza?

Well, I don't have an update you guys would care about. There's an awful lot of paper movement. I could tell you that. I mean, everyone is asking for more to more and more and more [Technical Difficulty] getting a lot of attention now.

The next question comes from John Kim with BMO Capital Markets.

Just given the opportunities you're seeing in office on the acquisition side, are you putting some of the residential developments, 8,000 to 10,000 units sort of in the back burner for now? And in particular, I wanted to ask about 10900 Wilshire, which is one of the redevelopment projects.

I think you said last quarter that was going to start this year. And I'm not sure that's still in the works. I wanted to get an update on that redevelopment as well.

I still think it's possible for it to start this year. I'll tell you, we -- honestly, we purposely slowed it down because we've got some indications that the office -- there's some real interest from some large -- look, one way or another, that thing will have residential, okay? But I don't want to walk away from an opportunity to have a mixed-use project and the office can be more profitable, especially if some big tenants say, I'm going to take this for a while.

So I don't want -- so we need to give a little time, let it mature. So I said, slow it down, let's just make sure we're not, like, doing something that we lose our ability to accommodate some larger leases that could be in there and then we would have resi and large leases.

People a lot of time -- we saw this in Hawaii that as people start seeing what we're going to do and the amenities are like, why don't I have my office building in that because look at these crazy amenities, whether it be gym and a club on the top and a pool and whatnot.

So we have to let that play out a little bit. It's not that we're not ready. All the money funded. Everything is good to go on it. We just want to watch a little bit for a while. That's why we kind of slowed down our language on it.

Okay. And given the opportunities you're seeing for investments and banks no longer redlining office as an asset class, have you thought about reestablishing a credit facility? I realize you have $355 million of cash on the balance sheet, but just to give you some additional flexibility.

I do think about that, but I'm going to tell you something. Every time I think about doing that -- and so we have a lot of buildings that don't even have loans on them, right? So I always have to compare borrowing cash on a credit line to just borrowing the money and then, like, arbitraging it into an interest-bearing account until I need it and looking at that cost.

And for better or probably it's worse, but for whatever, that calculation does not tell you to have a credit line. That calculation just says borrow the money and arbit into an interest-bearing account because it's a lower cost.

Banks and people that are lending are still charging a lot for unused fees and a lot of fees around that because they really want their -- they want to have outstandings. And just click it off, Ken. Sorry. Well, that was actually my phone. And I forgot to turn it off for this call. So tell Ken to shut it off.

Okay. So I just -- it's just a calculation. And if we wanted more capital, we would be better off just borrowing it at the moment because of where the credit line market is.

Our next question comes from Seth Bergey with Citi.

I guess just going back to some of the acquisition commentary, you mentioned it's a good time to be in real estate. And your last acquisition was kind of outpatient medical. Are we thinking about that all as office? Or is there anything interesting in residential or other asset classes that you're focused on?

And then just on the office piece, how many high-quality buildings are kind of out there that cater to those smaller tenants similar to how your office portfolio is currently constructed?

I think there's going to be meaningfully-sized real opportunities coming up or they're coming up right now. And I want to have the -- so first of all, okay, we've been looking for office. I always love medical office and that medical office came up, and we did it, okay?

We also did a large office building, which had an opportunity to be both resi and office. Actually, Plan A was office, and then we said we'll flip to resi because we had them both built into our analysis.

There are some fully leased office buildings that we're really chasing hard. And it's a sizable -- they're sizable. They're big. It's us, JV partners, real money. I would not say you should expect us to buy. Apartments are still trading relative to the rest of the real estate in the world at very low cap rates at pretty good pricing.

Now there's a lot of new stuff trading because they might have financed it with construction loans that were relying on very low cap rates that now they can't get out of their construction debt, so it's selling. But in terms of, like, making their hurdles in terms of like rental rate or you see it in our portfolio.

I mean, the rents have gone kind of where and better where people thought they'd go. And in general, things are extremely well leased up. [Technical Difficulty] you just look at the deal, like, we would buy because we don't use a lot of debt, you'd go, well, the pricing is not necessarily that diluted compared to what it was even in 2019, '18, '20, whatever.

So I just don't feel acquisition is as good an opportunity. Office, like I said, I think a guy that bought an office building in '17, '18, '19, he's selling it today. If he does for less, he's gotten used to the fact that where rates are, where yields are. And therefore, I go, great deal. But we're not seeing that in apartments.

And then just a quick follow-up on some of your return comments. Does that include kind of the economics of doing that in the JV structure?

No. That was a simple question, a simple answer. You have anything else? All right. Move on.

The next question comes from Jana Galan with Bank of America.

Maybe following up on the apartments and your multifamily portfolio specifically. Can you talk to rent growth expectations for the second half of the year given your high occupancies?

So I don't know if you remember, if you go back and rents and our revenue was moving at a clip that I said every quarter, this is unsustainable. We've never seen anything like this. It's unsustainable.

The long-term trend has been significantly less than what you saw in the last couple of years. I would expect to go to the long-term trend. And that trend is a trend that you can calculate 100 different ways going all the way back to, like, the 1990s in terms of growth of apartment rents.

And I don't know why we will be so dramatically off-track of -- well, I do know why, but we've been very off-track in terms of growth the last couple of years, which has been much higher than normal. And I would always expect it to go to normal.

This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.

Well, thank you, everybody, for joining us, and we look forward to speaking with you again soon. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. [Operator Instructions]

I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.

During this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website.

When we reach the question and portion, in consideration of others, please limit yourself to one question and one follow-up. Thank you.

I will now turn the call over to Jordan.

Good morning, and thank you for joining us. Our operating results were once again exceptional. First, we recorded approximately 100,000 square feet of positive absorption for the second consecutive quarter. In the last 6 months, we delivered our best results since 2019, growing our lease rate by over 1%. Second, we executed over 450,000 square feet of new leases, our best quarter ever for new leasing. Third, we posted record leasing to tenants over 10,000 square feet. And fourth, we did all this while realizing meaningful straight-line rent roll-up. We understand that everyone is watching our leasing for signs of a sustained recovery. While 2 quarters is not sufficient to call a bottom, we are becoming increasingly hopeful.

We believe that this part of the cycle presents a rare opportunity to expand our portfolio at a significant discount to long-term value. Thus far, we have made 2 acquisitions, including an April acquisition in which we and our joint venture partners paid $260 million for a portfolio of premium medical office properties located in the Beverly Hills Golden Triangle, encompassing almost the entire 400 block of Bedford Drive. I am proud of the outstanding job done by our operations team and our Capital Markets group. These results reflect their sustained hard work.

As we have discussed, we remain hyper-focused on growing earnings through leasing, acquisitions and the redevelopment of Studio Plaza, the Landmark Residences and 10900 Wilshire. We have also been successful at extending our debt at lower rates than are available to the broader market. Before I finish, I can't help but mention recent referrals in the media to Jevons Paradox, which compares the impact of AI adoption on job growth and office demand to past transformative technologies such as personal computers, the Internet and cloud computing.

With that, I will turn the call over to Kevin.

Thanks, Jordan, and good morning. This April, a new joint venture managed by us, acquired the Bedford Collection, a 5-building 246,000 square foot medical office portfolio located in the Beverly Hills Goldman Triangle. We hold a 13% stake in the joint venture's $150 million of equity. The joint venture also borrowed $130 million secured by a non-recourse interest-only first trust deed loan maturing in April 2031. The loan bears interest of SOFR plus 170 basis points, which we have effectively fixed at 5.26% per annum through April 2030. The 3 development projects that Jordan mentioned are progressing nicely. In Brentwood, our multiyear redevelopment of the 712-unit landmark residences continues in full swing. At 10900 Wilshire in Westwood, we expect to commence construction this year to convert the property into a 323-unit apartment community. At Studio Plaza in Burbank, the redevelopment is completed and leasing is well underway, with some tenants already taking occupancy.

With that, I will turn the call over to Stuart.

Thanks, Kevin, and good morning, everyone. During the first quarter, we signed 218 of leases totaling 909,000 square feet, including a single quarter record of 461,000 square feet of new leases. We signed 448,000 square feet of renewal leases. And as Jordan mentioned, leasing was particularly strong from new tenants over 10,000 square feet. Tenant retention remained strong, consistent with our historical average. Our first quarter office demand was diversified across many industries with legal, financial services, entertainment, real estate and accounting representing the top 5.

Our leasing spreads also improved in the first quarter as we continue to sign new leases that are more valuable than the expiring lease for the same space. The overall straight-line value of new leases we signed in the quarter increased by 5.3%. Cash spreads are lower by 7.7% as a result of our very healthy fixed 3% to 5% annual rent increases over the life of the expiring lease. First quarter office leasing costs averaged $6.30 per square foot per year, significantly below the benchmark average for other office REITs, though slightly elevated for us due to exceptional new and larger leasing, which typically require more tenant improvement costs. Our residential portfolio continues to perform well, with cash same-property NOI, up 4.2% compared to the first quarter of last year. Demand remains very strong across our markets, and our portfolio remains over 99% leased.

With that, I'll turn the call over to Peter to discuss our financial results.

Thanks, Stuart. Good morning, everyone. Compared to the first quarter of 2025, revenue remained essentially flat at $251 million. FFO decreased to $0.37 per share, and AFFO decreased to $49 million, reflecting higher interest expense and lower interest income, partly offset by strong multifamily performance. Same property cash NOI decreased 1.4% for the quarter. At approximately 5.4% of revenue, our G&A remains the lowest among our benchmark group. In terms of guidance, we still expect our 2026 diluted net income per common share to be between negative $0.20 and negative $0.14. And our fully diluted FFO per share to be between $1.39 and $1.45. We expect the FFO gains from the Bedford acquisition to be largely offset by higher assumed interest expense, reflecting the flattening interest rate curve.

For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities.

I will now turn the call over to the operator so we can take your questions.

[Operator Instructions] Our first question comes from Steve Sakwa with Evercore ISI.

I don't know, Jordan or maybe Stuart, could you guys maybe just expand a little bit on the leasing volume? Obviously, the new leasing was quite strong, and we're just trying to get our arms around whether there were any larger leases that might have kind of skewed the quarterly volume here, if you could provide any -- maybe insight on how many over 10,000s got done this quarter versus historically done, just to kind of gauge the breadth of the leasing activity.

Yes, Steve, it's Stuart. Yes, as we said, it was a record amount of leasing in that over 10,000 category, the most we've ever had. So really strong. There were a number of deals between 10,000 and 20,000 feet, and there were a few deals over 20,000 feet that were in. So very strong, a bunch of industries, entertainment, legal, so it was a wide variety of industries in that larger category, but it's the strongest leasing we've had of that size ever.

Okay. And then maybe a follow-up, Jordan. Can you provide any just additional, I guess, valuation metrics, kind of yield, return on equity, stabilized yield on the Bedford transaction. Obviously, we can back into a price per foot. But any kind of going in cap rates or return on equity that you could share for Douglas Emmett would be helpful.

Well, we agreed with the seller not to give that information, although you ended up the backing the price per foot. I think we gave it to you. Isn't it around $1,000 a foot, 9, very high 9s. It's a portfolio that is also going to sound I've been trying to buy since the '90s. And I'm beyond pleased with the deal. I think that we're particularly lucky that it came up at a time when it was a good time to buy almost anything. So I'm very, very pleased with the deal. Steve, next time you're out here, we'll walk you around it, and you will, I think, be surprised by amount of control we have. Anything else?

Those were my two questions. Thanks.

Our next question comes from Alexander Goldfarb with Piper Sandler.

Sure. Jordan, you mentioned Jevons Paradox. So I had to Google that to look what that is. But are you seeing that? Were you just making that comment on its own, or are you -- do you have real anecdotes that you're seeing in the marketplace of people saying, hey, because of AI and all the innovations going on, we actually need to hire more? I'm just sort of curious if it was just a comment that you threw out, or you're actually seeing it in leasing discussions?

Our leasing is really picking up, as you saw. I cannot say I've seen that exact thing happening. But the reason I was just so thrilled to read about that is that I feel like I've been saying it now for a year or 2 years about AI. I mean, as AI empowers people to be more efficient and effective, I just think the result will be people want to hire more people that can do that. Now there are some people, if they don't embrace it, they're going to feel left behind. And I'm sure that will happen.

But if you said to me the number of people employed or the more direct statement is that like your office buildings are going to be empty because no one needs to hire anybody. I don't believe that one bit. And if you look back at all the technologies in the past, that have made that same prediction that people were going to either stay home or whatever the case might be, and the exact opposite has happened. So -- and I just felt like I was so surprised to see it show up from a guy from the 1800s who was talking about coal, and as things became more efficient, he thought less coal be used, but in fact, more got used. But there's many examples since then.

Okay. And the second question is, and I know I've asked you before about the South Bay, like El Segundo in those markets south of LAX, but just hearing recently about more demand for aerospace and defense and that's sort of that community's long history. Do you guys, as you think about acquisitions, especially you've shown -- you still have a lot of JV capital that launched into the market, would you reassess and possibly consider entering some of those markets if you feel like the aerospace defense has renewed legs over this cycle? Or your view or maybe Kevin's view is there's enough acquisition demand in your traditional markets and maybe you're not so sure how long the aerospace demand is that you're going to stick where you are versus possibly entering some new submarkets?

I think the problem with those other markets that you're mentioning is that people can still build. And if aerospace really picks up down there, they're going to build more facilities for them. And that always worries me in a market because you don't have to just be good at about getting in, you got to be really careful to get out at the right time. I'm much more comfortable here where even in a period like COVID, real estate recession, et cetera, we have throughout it all, and I know we've lost a lease rate over the last, whatever it is, 6 years for the most part, due to COVID.

There's such a durable demand here and such an extreme limit on supply that I'm just very comfortable buying here. I look at all the other factors that the wealthier homes, the people that are working here, the other drivers like the universities, the places, the industries that have focused their research here, especially on like medical and research and tech research. I just have a lot more comfort here than making kind of moving further out. And as you said, I do feel there are more deals. And we're saying that to our JV partners and so on, everyone is focused on it.

The next question will come from Anthony Paolone with JPMorgan.

Jordan, you talked about just find bottom here, but can you maybe step back just give us your thoughts on L.A in general, and how that's playing into tenant behavior or desire to sign leases? Just a little bit more on the ground in terms of what the feedback has been from prospective tenants?

So When you say, L.A. in general, I don't know if you're saying as opposed to another one of the gateway markets. But L.A. in general, in many aspects just generally feels like it's coming back. I mean, you see it in the leasing. We see it in the differences of policing and attitudes in the cities that we're operating in. The way things are kind of -- people are done with the kind of permissiveness that was incubated by COVID. And -- so we see a lot of ways where things are coming back. And of course, we're just seeing a lot more tenant demand. I hope it holds up.

Okay. And then Studio Plaza, you said it sounds like tenants start to take some space there. When should we think about that just being put to bed in terms of stabilized and up and running?

Well, we'll call it stabilize when we get up into the 90s, and we're working our way towards that. The tenants are moving in. And separately, I'm very pleased with the mix of tenants. I felt like while it was definitely great to have a single tenant there that stayed for 30 years, it was always sort of a risk hanging out in our future. And when Warner Bros moved out. I will -- I was frightened. I was talking to Ken about it. And I'm so happy now to see like a real good mix of tenants, good demand for the building, leasing it up and a good mix of some tenants or provide amenity to building. Just the whole thing is working extremely well and the way we redid the building. So it's one of my greatest happiness and relief to see how it's moving now.

I mean, do you think it's another year to get to 90 plus or 2 years out, a timeline?

Tony, we're not going to give [indiscernible] out there. We're pleased with the pace so far like when it stabilized, we'll move back into the in-service portfolio, but we don't like to have individual building data. We don't want to put a timeline on ourselves.

Our next question comes from Jana Galan with Bank of America.

Congrats on the strong start to the year. The spread between the leased and commenced occupancy continues to widen. When you think about the expected commencements, the forward pipeline and then the expiration schedule, does it seem like this quarter has been kind of the trough in the occupancy number?

As Jordan said in his remarks, we're not ready to call a bottom. We're certainly pleased with the pace of leasing in the last few quarters and hope to continue. We're really pleased to see that lease to occupied spread widen out. It's 3.5 now. That means we've been doing a lot of leasing. Of course, those folks will need to move in, which will happen over the next few quarters. With the larger leases that we're signing, that takes a little longer than our typical tenant. So the commencement dates are out a little further than the typical 2,500-foot guy that we can get in very quickly. But hopefully, that spread stays wide. We need to do a lot of leasing. And when that spread is wide, that means that we've done a lot of leasing and those folks need to move in.

And can you give us maybe like just rough estimates for the under 10,000, that would be maybe like a 2-quarter lag? And then maybe the larger or any kind of rule of thumb for us to think about in modeling?

Yes. So the typical, the 2,500-foot guy, we can get them in very quickly. I mean we build a lot of move-in ready spec suites. That's a program that we're very aggressive about. We try to have all of our buildings have a couple of those suites ready to go. Those can be in extremely fast. But a more typical average for that smaller tenant is a few months, so they can be moved in within a quarter or 2 of when we sign a lease. And then for the larger guys, it really depends on the level of build out. Studio Plaza has some significant build-outs going on. So some of those folks will be moving in next year. So that is really deal-specific.

Our next question comes from Seth Bergey with Citi.

I guess just to follow up on some of those comments on the signed not commenced spread. How much of that 350 basis points is smaller tenants that you can kind of get in quickly versus skewed by some of the larger leases that will take a bit longer to those tenants moved in?

I don't have the breakdown between small and large in that singed not commenced. I know a lot of it is still are under 10,000 feet guys. So I suspect we'll have steady move-ins throughout the rest of 2026. And then some of the larger guys are going to take a little longer, like I said.

Great. And then just as a follow-up, I know you're not ready to kind of call a bottom here, but what are you seeing in terms of tour activity or kind of the forward pipeline that gives you confidence that things will kind of improve over the coming quarters?

It's the good activity that we've been seeing these last 6 months, that's continued. The pipeline is good, healthy activity, tours, calls, all the metrics we look at, all seem very healthy.

Our next question comes from Upal Rana with KeyBanc Capital Markets.

On the Bedford acquisition, is there any kind of mark to market opportunity...

Upal, we can barely -- we couldn't hear you.

Yes, you're cutting out.

Can you hear me now?

Yes.

Yes.

On the Bedford collection, is there a mark-to-market opportunity there or any kind of expected rent growth that you can achieve there?

I think there's always a small mark-to-market opportunity in everything we've been doing. But not a stunning one like with -- sometimes you buy a building with a bank or something in it where the rent's like less than half, and it's an old lease. That's not there.

Upal, we own a lot of medical offices. This isn't kind of our first foray into that product type. We own probably about 1 million feet of medical office. It's a fantastic product. We love the tenants. They're very sticky. They invest a lot of their own money in the space. So we're very pleased to add to that.

Okay. Great. That was helpful. And then could you maybe talk a little bit on the potential to do additional external growth opportunities that you're seeing in the market? I know you've talked about developing resi and trying to buy a stabilized office which you've doing, but just curious what kinds of opportunities you're seeing and the depth that you're seeing out in your markets?

So, it's Kevin. We're seeing a lot of activity. And more than half of it is off-market, where somebody reaches out. And so we're feeling pretty good about that about the engagement that we're having with people, we just need to close the gap and come up with pricing that makes sense. And as we've said, we're focused on office.

Up next, we have John Kim with BMO Capital Markets.

With the Bedford collection, you announced that you have 1/3 of the Class A office space in Beverly Hills. And I'm wondering if you could talk about what kind of scale advantages or pricing power that provides you?

There are several advantages we get on the market control we have across our portfolio. On the operating side, there's tremendous synergies. We've looked at like the last 10 or 11 acquisitions we've made, we're able to lower operating expenses on average about 20%. So it's meaningful savings. We do that because we're so localized. We have such concentrations of buildings close to each other that we can have expensive people shared across properties. We don't have to have a manager at every single building or a very expensive engineer at every single building. We also negotiate very large contracts across our portfolio, so that gets us better pricing.

Even more important than the operating side is on the leasing side, gives us the ability to offer space to any tenant to fit them into our portfolio. If we've already got them in the portfolio and they're growing or they're shrinking, we can then maybe about the street in one of our other buildings that has space that will for them.

And generally, with the small tenants that we have, our goal is not to rip out the space every time spend $200 a foot rebuilding it. The spaces are built out pretty standardized, and we want to move tenants into a space that already works for them, the configuration with the conference room and the offices the way they like it, and spend a little bit of TIs, new paint, new carpet, whatever that is, get them in quickly and not spend a lot of capital. That's why you see our leasing costs on average are so much lower than the other office REITs you'll look at. And having the concentration in those markets allows us to do that because if we own 30% of the space in Beverly Hills, we're going to have an opportunity to take any requirement in that market and show them several options that should work for the amount of space they need.

So is your intention to keep this portfolio of medical office, or are you indifferent and kind of lease it to any tenant that wants the space?

If you're speaking about the Bedford collection, it will stay medical office. Is that your question?

Yes.

Yes. Bedford will stay medical. We own several medical office properties in Beverly Hills, like I said, it's a fantastic product. But my comments about the synergies work across medical and just regular office.

Got it. Okay. And then when you mentioned that you're not ready to call the bottom. Is that on occupancy or leasing. I'm just wondering at the midpoint of your occupancy guidance is achievable if there's the floor to come down even further?

Well, we definitely feel like it's achievable. That's why we left the range where it is. So we're comfortable with the range on occupancy. Q1 is typically a tough occupancy quarter for us because more than their fair share of leases expire on 12/31 for whatever reason. So then anybody that moves out that occupancy dip hits Q1. So it's not unusual for us to see a small decline in occupancy in Q1 and then ramp up throughout the rest of the year, which is what we expected in our own guide when we gave the range.

Our next question comes from Dylan Burzinski with Green Street.

Just maybe touching on the various submarkets. We noticed that net absorption or leased percentage increase in the Westside and Honolulu decline in the Valley. Any sort of discernible trends from that? And should we expect the Valley to maybe a lag in its recovery versus the Westside?

No, I wouldn't expect that. I think we did some good leasing in the Valley. It's just pockets here and there, and it depends on whatever leases got signed in that quarter. But we would expect the Valley to increase along with the Westside. We're getting good activity there. Sherman Oaks, Encino has had a lot of activity, Warner Center, which has typically been our laggard market out there. Also good tourist, good activity. So no, I wouldn't expect the Valley to continue to lag. We're working hard to increase the lease rate in all our submarkets. And we definitely think that's achievable.

And then just touching back on sort of the capital markets and transaction environment. Given that what appears to be just a recovering leasing backdrop, are you seeing any increased competition from other buyers that are getting in bidding tenants as you guys take a look at all these transactions that you guys have referenced?

So I think the term people are using is office curious. And so people are kicking the tires. There hasn't been a lot of the type of assets in our markets that we get super excited about like we did with Bedford. So as I believe, and you're seeing this up in San Francisco, and you're seeing this in New York, as these markets recover, more and more people start to pay attention to it. But right now, we're trying to buy as much as we can because the prices relative to the long-term values are at a significant discount.

I think that -- I remember this kind of thing happening in the '90s. I think that one of the things with office buildings when people have been exiting it for a while, the operating platforms get denuded. And so as they want to come back in, they're even more nervous because its operations and the income that people are focusing on more than ever now. And I think it's going to give us an edge for a little while because I've seen many operating platforms sort of dissolve and shifted third party, which means you don't really have the people and the information you need to understand and try and do deals. Now, the capital -- there's capital, but it doesn't mean they're super comfortable in terms of being aggressive on deals.

Our next question comes from Rich Anderson with Cantor Fitzgerald.

So Jordan, you said when Warner Bros left Studio Plaza, you described yourself as frightened. I don't remember you saying that at the time, but nonetheless, I get it. But I'm curious, when you think about the totality of your business today, obviously, things are looking great in terms of a possible bottoming. But where is work still left to be done? Like where are the shortcomings of the Douglas Emmett portfolio in your mind that still need your attention?

Well, first of all, I actually was frightened, but I wasn't frightened because I thought the building wouldn't lease up or be able to lease up, I was frightened for how long it would take to get tenants because it was right dead center at a time when leasing was at an incredible low. I mean, the press around entertainment was very bad. It turned out that neither of those was true with respect to this building, and the redo that was done by our operations group has been very well received and appealing. So if you have a chance to come out here and see it, it's extremely nice building. So it's attracting, tenants are kind of voting to be there regardless of what's going on around.

Today, I would say, I mean, you don't have a partner that runs operations, [ Kenneth Panzer ], so my area that I'm super focused on all the time is capital markets. Today, I'm focused on kind of finishing off our debt program. There's not a lot left to do to extend that out and rightsize and get all that correct. And then finding acquisitions and getting as much capital placed as we can, while what I consider to be, and you've heard everybody here say an opportunity that -- I know Ken and I haven't seen it for 30 years, and we talked about it all the time.

So that's kind of -- I want to debt finish. I think our guys are -- I think that's pretty much getting done. But I want to make sure it's done is done, that's nice and clean. And then I need to get out there and make sure we make good acquisitions and keep talking to our partners and trying to kind of shake some stuff loose. Because as Kevin said, a lot of the stuff become a relationship-oriented, and some of the last things we've been -- are doing and close on have been people just phoning me that I've known for a long time. So that's been an important part.

Okay. Second question. Stu, you said the larger tenant leasing is a mix of all different types of industries. So what would you say the common thread is to this happening for you guys? Because this is the second time or at least a second we're hearing some optimism around larger leases. What is the communication from those entities sort of saying about why they're willing to do? Is there any sort of theme around why you're seeing more in the way of larger lease activity?

I think that, as I've said on the last call, a lot of what we're seeing is sort of sideline fatigue. I mean they've been holding off, holding off, holding off, trying to wait to see where things are headed. You're able to make a lot of money in this market, and they finally have started breaking and saying, well, we're just going to do deals and start expanding because we're going to get left behind.

And I mean, the last time I looked at the stats, our expansions were way above our contractions. And our new tenants coming into the market are rushing to set up and have some type of new business that makes them think they need more people. So maybe they're just tired of waiting. Maybe the -- I mean, there was an article recently that said that people just become sort of indifferent towards the wild fluctuations, and they're going to just do business as usual and move forward. I don't know what mix of things that is because I think a lot of it's just driven by the broader economy. But there definitely has been a change in attitude.

This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.

Well, I'll look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to Day 2 of Citi's 2026 Global Property CEO Conference. I'm Seth Bergey with Citi Research, and I'm pleased to have with us Douglas Emmett and CEO, Jordan Kaplan. This session is for Citi clients only and disclosures have been made available at the corporate access desk. [Operator Instructions]

With that, Jordan, we'll turn it over to you to introduce your company and the team, provide any opening remarks and then tell the audience the top reasons that investors should buy your stock today, and then we can dive into some Q&A.

[indiscernible] Capital Markets team. Douglas Emmett is an office and for rent residential REIT. We're mostly focused on the high-end markets in Los Angeles and in Honolulu. Our portfolio is around 18 million square feet of office and 5,000 apartment units with a big apartment unit pipeline. And from there, I think most people know most of that. So I'll leave to start asking questions.

Sounds good. Maybe you kind of noticed -- noted on the fourth quarter call, just an uptick in interest. I think there had been some slowness kind of in the third quarter, what industries or tenant types are kind of driving that uptick? And your focus is obviously kind of on smaller tenants. So just within the context of L.A., what are you seeing in terms of leasing activity in the first quarter so far?

So we went up a bunch of quarters where we were like a little bit positive kind of felt like we were near -- at the bottom, then we had a negative quarter in the third quarter. Then we have had very positive quarter in the fourth quarter, and you're talking about net absorption, right? So fourth quarter was over 100,000 feet. So that was very positive. That's where we kind of need to get to, to really make substantial gains.

And now, I mean, we're in the middle of -- and I have told people, and I'll say again, the pipeline at this time looks just as strong as it looked in the fourth quarter. But in the end, we'll have our results at the end of the quarter, and we'll certainly publish them.

And then just as you think about the pipeline and to our activity, are you seeing kind of any uptick in terms of tours to conversions? Is that changing at all? And just any kind of different industries that are growing or shrinking? And then just as tenants kind of evaluate their space needs, are they expanding? Are they keeping their existing footprint on the renewal side? Just any comments you can make around that?

Okay. So first of all, in terms of the types of tenants that are coming in, it's pretty well distributed exactly like the pie chart we have in our thing. I mean, there's no one group that represents more than 20% of the growth. The renewal rate has actually been abnormally high. I think last quarter was over 80%. But it historically and very reliably zeros in on 69% to 70%. So that's what people should expect.

In terms of the understanding and knowing the pipeline, there are 2 things that we look at. One is like leases and like fully in negotiation, they're going to our -- that have gone to our lawyers. The other is showings, letters of intent, a bunch of other stuff, right?

And so when I say the pipeline looks strong, that's the stuff we're looking at to say to you, it looks strong like our results are going to be strong like they were less -- now that doesn't always mean that's going to happen, because it's a view of like an assembly line from literally the beginning of how many showings have been to the end of how much has been signed. But it's as good as an indicator as you can have during the quarter.

And then one of the topics with an office, at least with the headlines has been on AI, and your conversations with tenants, is that coming up at all as they kind of talk about needing space?

Well, to answer one part of your last question, then I guess I didn't get the answer. We track expansions over contractions and our expansions have been greater than our contractions, that might refer a little bit to this question. I don't have a lot of information about where tenants are saying to us, "We need more or less space because of AI". We do, as most people here do have experience with new technologies that I've been -- I actually started computers in 1986 and introduced the first microcomputers at UCLA and other places.

So I have not seen a new technology, especially a new technology that empowered individuals to be more productive that didn't result in more people being hired that are able to be productive that way. And another thing that strikes me is that this particular technology, not unlike websites, this particular technology allows a very small group of people, 3 to 5 to 10 to form a company, entrepreneurial, literally create apps, do all kinds of things they didn't use to be able to do without having the money to hire programmers and all the rest of it, and start a business.

And those -- the thing that Los Angeles is most known for is being a small company incubator market. So my expectation is that as a result of that empowerment, you will see more people in offices, just like you did with the Internet, microcomputers and all the rest of those things not less because when someone is very productive, you want more of them because you make more money with more of them. And I suspect that we'll have more small business formation because a small group of people have the ability to have greater outreach and use technology to create their own website or their own app without hiring a bunch of programmers. So we'll see them.

And then thinking about kind of the overall demand drivers for your market, it sounds like you're pretty positive on AI and business formation. How are you kind of thinking about kind of any effects for L.A. with some of the large media consolidation that's been in that line? And then just any kind of incremental demand from the Olympics in 2028?

Well. So obviously, the demand is up because we're leasing a lot lately, okay? I'm not sure the Olympics -- I don't know if the Olympics are going to create any kind of meaningful additional office demand to be perfectly frank. I think they're kind of putting their headquarters downtown for like all those people. I do believe that Olympics is going to have one very good impact on us, which is -- we're a primary owner in Westwood. UCLA is the Olympic Village for the athletes. And so the city, the state and the federal government are focused on putting our best foot forward in Westwood. So I think there's going to be a lot of capital to go in there to get Westwood -- the village in Westwood looking good, and that's the primary amenity for our buildings.

So we might have a little boost for a short time, not sure how meaningful it will be. I mean, I'm sure all our venues at our buildings will be full. But the only lasting effect, I think, will be that Westwood will be in much better shape after they leave because they're going to spend capital on it.

And then on the technology side, with some of the headlines around consolidation, do you think that changes anything with the office market in L.A.?

Well, my -- when you say technology, you mean the movie industry or technology -- you meant, right?

Yes. Media.

The merger of media? Yes. So that merger which now has been decided, which is going to be Paramount and Ellison family with Warner Bros. I think there's a few aspects to it. One is just going back, there's been some concern about that industry revolving around like, are they not making movies anymore in California? Are they making it in other places? I think that's been going on for a long time. And frankly, the tax structure and some other things, I think, make it kind of hard to make movies in California, right, and the employment laws and all the rest of it.

Now they aren't even necessarily staying in the United States on some of these things. They're looking for most favorable, literally countries where they can make some of this stuff. Now at the same time, kind of the heart of creativity for movies is in L.A., and it's actually in West L.A. And a lot of those people are powerful and they'll say, "Hey, yes, I got it. You save some money by sending me to Georgia, outside of Russia, but I don't feel living there for a year, and so you're going to make it here, okay?" That's happening a lot. And it's happening a lot with TV series and some movies and the rest of it, right?

So that's one thing. Another thing is the industry just slowed down in terms of content production, okay? I think that this merger is going to significantly increase content production. David Ellison has said, I'm going to make more movies. I think he will make more movies. He said when he bought Paramount, and I think he's going to even make more with the series and the control he has over some of the things that are at Warner Bros.

So I think him kind of winning this battle is going to be very, very good for L.A. and our market because I think he's going to produce a lot more product, okay? And I know people are talking about layoffs. And I am sure there will be layoffs because there's a lot of duplicated jobs. I think a lot of those layoffs not that -- not saying layoffs are good or I want to have them or anything, but I think they're going to happen on the studio lots.

They have -- a lot of those jobs are on the lots. They're not renting space for it anyway. And I think it will happen on the lots, and I don't know how they reuse those lots, whether it's for production or other uses, but I think it's going to happen on the lots, right? Because he has 2 full now big studios, not even to mention Skydown. So that's where I think that's going to happen.

And I also think, as a final thing, that the -- whether it be Netflix or otherwise, I think because David Ellison and that family is so committed to like literally the movie industry. It's not just the business of movies, it's a movie. I think that he's going to force a response from them, and I think they will respond by having to make more content, too. So I think that this merger will be good for L.A. and I think it will be very good for the industry.

And then on that, there's been some tax credits to kind of incentivize movie production and L.A. And then maybe just on the regulatory piece, I think in some of your G&A, you mentioned it's an upcoming election year. Can you just kind of walk us through kind of maybe any impact you're seeing from the tax credits for kind of studio production and movie production in L.A.? And then the other kind of ballot initiatives that you're focused on and think can impact demand, whether that's in L.A. specifically or just for California overall?

So we're not impacted by tax initiatives for making movies. We don't own any sound stages. We're not any like even close to that business. I just given commentary on it fortuitously because you asked. In terms of the politics in California and Los Angeles, we are extremely involved and extremely understates it. We're spending real money on it. We're engaging our partner companies and other REITs and other companies outside of the real estate industry in it, raising money for it, promoting candidates.

We just -- we're one of the large sponsors of a proposition that was just submitted last week called the Local Taxpayer Protection Act. It was submitted to the state so they could count our signatures. We collected enough signatures to have it on the ballot. So I hope you'll all see that there. You can read about it. It's not hard to learn about it effectively if it passed, it would wipe out all the transfer taxes in the state. And it does a couple of other things. We're involved in city council races. I mean, we're kind of across the board in the cities that we're in.

And how does -- maybe staying with the regulatory side, there's been some state municipal zoning changes that kind of incentivize or allow for additional multifamily development. Kind of what does that mean for Douglas Emmett and kind of the multifamily development opportunity?

Well, it has been incredible. I can't -- I mean that has to be the right word. We own most of the meaningful developable sites along Wilshire, all the way from Santa Monica all the way down to the end of Beverly Hills. And it's on corridors like that, that they were up zoned primarily by the state, but then secondarily, through a couple of different things that happen at the city level to force new housing, which has allowed sites that we had that I never thought we would be able to even build on because it would have been such a battle to be kind of buy right development sites.

We're right now in the process of building about -- we're in construction on about 1,000 units. 700-plus of them is in Landmark Residences which is at Barrington and Wilshire, which we've had to rebuild that whole thing due to a fire some years ago. And then there is another 300-plus in Westwood in an office tower that we're converting that we purchased with partners.

We also have sites all through the Westside where we can build an additional more than 1,000 units. We have a total across our portfolio of probably 8,000 to 10,000 units that the state action enabled including in some other key locations where we were going through the process of trying to get the entitlements, which now we have buy right construction.

Now it's expensive to build. And so it hasn't launched as much building as you might expect, it's so expensive. We happen to have sites that are so valuable that it's worthwhile for us. And therefore, we're focused on it. And I said on our last call, we're actually working on the architectural drawings for another 1,000 units. But they need to get control over the cost. They need to loosen up on rent regulations and things like that if they really want to launch off a lot more units.

And then just with that opportunity set, the 8,000 to 10,000, how much of your portfolio can kind of be multifamily kind of as you look out in the forward years just with that opportunity set?

Well, right now in revenue, we're about a 22-78 split, 22% multifamily. I -- I think that we obviously can build a lot. I don't have on our list of buying multifamily. I think we can build for much better cap rates, 8 plus, of course, I'm not including the value of the land, but we already own the land, then you can buy for multifamily, quality multifamily in our markets is still trading in the 4s, call it, mid 4, 4.5, something of that range, right? I know people are saying 5, but it's not trading there, it's trading around 4.5.

So we're much better off putting capital into building than we are to buy on multifamily. I think the opportunity is in office, but to buy office, they need a seller. And kind of the quality, the scarcity of new product, the quality of the tenants, the industries that are there, while I feel like we're always defending that it's a good market. It's going to come back. It's not lost on the owners and they know the value of what they have.

So it's very hard to get the remaining good quality office buildings to trade. There's probably some fatigue there. I mean we've been through COVID, we've been through a potential recession. There's a whole number of things that have happened, but they're also tough.

And so making a deal has not been particularly easy. I am seeing more off-market stuff than on market, which is a good sign. They're coming to us saying, "Well, maybe we'd make a deal here is kind of where we would be". But -- so that's a long-winded answer to your question because if I'm able to make a few big office deals then the ratio could flow back down to 20, right? And if most of our capital ends up in just building apartments, it's going to -- resi is going to float up to 30, right? So I don't know, it depends on how -- what comes available and what we're able to do.

And as you kind of think about the opportunity to kind of recycle maybe out of some office and purchase additional office. What kind of qualities would you look for in new acquisitions in terms of location or how old the asset is that you don't already have? And then if you look to kind of fund that through recycling some of your existing assets, can you talk a little bit about what the bid for that office is and pricing that you could potentially get?

Okay. So I think when I hear people talk about recycling, I think they're thinking about 1 or 2 things. One is like you built a building, maybe you leased it for 20 years to a credit company, and you go, well, I'm going to sell it because it's worth the most it's going to be worth, and I'm going to go do something else because now the return profile of there's going to be some fixed number, whatever it is.

We don't have a lot of single tenant buildings like that, so we don't have that. The other connotation of recycling is I'm taking some old and garbage, my empty aluminum cans, I'm turning to something [indiscernible] in like a pillow or whatever, right?

But we own the best buildings right now. So why would I sell the best building to buy maybe another building that maybe could be equal or less. So I'm probably not a guy that's running around trying to do a lot of "recycling", right? We're in the best markets and we dominate those markets with the buildings we have and we own the best buildings in those markets. I think it's literally undisputed, okay?

Now there are other buildings that would be in the top quartile of our portfolio that are office buildings. And I'd very much like to get them. But then those owners have their own opinion about that. So we already talked about that. What was the second part of your question?

I guess just you talked about maybe looking at some of those buildings that are in the top quartile. I guess how would you think about funding if it is with disposition?

The capital for it.

The capital for it.

Yes. Okay. So we have always -- and we've had this -- I tell you in this room, I've had these discussions many times where I've said, even when we were extremely flushed with cash, we were paying down debt. We had so much cash. We're building buildings through pure cash flow. I mean most of that -- all the construction from 1996 to the point where we're now doing that Landmark Residences project was done pure cash flow, no construction loan. My last construction loan was in 1996, okay?

Now our cash is tighter. We still have a lot of excess cash. You're able to see that because you can see it from our AFFO and what percent are dividends of our AFFO, but we don't have as much as we used to have. During that time when we even had like overwhelming amount of cash, and we were paying off buildings, remember, we went public with a loan on everything, and we went into COVID with a loan on roughly half the value of our apartment portfolio and half of our office buildings did not even have loans on them. And all of our debt is nonrecourse first trustee debt. We didn't even -- we just paid the buildings off, right?

Now -- and those have been held as reserve, they were just holding equity. We were just storing it in there, right? All that time, I was also doing deals with sovereign partners and building our sovereign equity platform. And I kept saying, people say to me, [ Bilerman ] said to me, "Hey, if it's such a good deal, why don't you take the whole thing?" And I said, because if I don't give them deals now of the stuff they want, they're not going to be there for me when like there's no capital in the market and you have to be very contrary in to do deals, they're not going to be there for me because they're going to say you're a cherry picker, right?

So that has played out to be extremely true, okay. So you know we're not big fans of issuing equity. We don't use public equity to really raise money. I don't like diluting ownership across our shareholder base or effectively selling pieces of our buildings. But also, I think any deal I do, any deal I do, right? You never know for sure market timing, if it's going to be a good deal. So it's always good to diversify your risk on the equity, especially when it's a very big check.

With all that said, they have been with us. And while today, we have less cash and have been forced to take a smaller piece of the deals, we used to take 30 plus. Now we're down 20% of the deals. They're there, they're doing deals with us. So we have enough equity with our partners to just continue buying. There's nothing that's out of our reach. So we're still able to be active when it's not super popular to, let's say, buy office buildings in West L.A. and that's an extremely valuable asset that doesn't get counted on your balance sheet, but it's an optionality that's very valuable.

And then would you -- how would you think about kind of the funding needs for some of the multi development that we talked on earlier. Would you kind of look to the similar kind of JV partners there or look to fund that in a different way?

So you saw the choice I made on Landmark Residences. We needed not a large amount of money for that project. It's extremely valuable project when it's done, like multiples of the loan. So we went and got a $375 million construction loan because my thought in the market today, the market moves around, oddly, I thought residential construction was strangely cheap, those loans. There's a lot of people that want to make it. We had a lot of bidding for that loan. So I went that construction loan route to build that. We already owned it, right? We had already spent a lot of money on getting it right. We already started construction.

And so it didn't take a lot left to finish it, and I don't want to stress our cash position on our balance sheet. If we were to take on some of our sites, a lot of new resi construction that was a drain, my guess is because I don't have a high tolerance for debt, my guess is I would move over and diversify that risk.

I don't think the one construction loan that I got is very risky considering the value of the project and where it's at today and the income coming off it. I mean, we can miss by 50%, still a good deal. So that's an easy one. But we're not big consumers of debt. So my guess is another big draw on capital will come with some partners.

And then at what stage and kind of the development process do you look to engage a JV partner just in the construction?

So if were to do that with the resi deal -- with the resi construction deal?

Yes.

We usually like to have it totally baked so that when they come in the deal, the kind of the only risk is maybe we screw up on construction, although we even have signed construction contracts or that maybe I got the rental rates wrong or something like that. But usually, we own buildings right there and the rental rate is pretty easy to see because we're already renting at that -- and we're doing those deals. So I'd like to make it as low risk project as possible so that the cost of the equity is not exorbitant because they feel there's a lot of risk associated with the construction project.

And then you mentioned being debt kind of adverse. Where do you think the right kind of leverage level is for the balance sheet as you think about kind of just over the long term?

The right leverage for our balance sheet?

Yes.

When we went public, we were running the company at around -- like in the 40s to low 40s. When we went into COVID, we were in the high 20s. Some of that was a function of just -- we had just like a lot of extra cash, and I need to put it somewhere, so paying off debt. Some of that was a function of how cheap debt was for a long time. But -- we're not very aggressive users of debt. I mean if I don't have something I really like to use the cash flow, my go-to move is to just pay down debt. And I did -- I've done that for most of the 20 years we've been public, and I did it when we started the company in '91, we had funds and we started making cash flow, we were just reducing our leverage in those funds. So that -- kind of that's the trajectory I tend to follow.

Great. And then one of the questions we're asking all the companies is, how does Douglas Emmett using AI. And we talked a little bit about the impact on company formation and office demand. But how are you guys specifically using it within your company? And are you looking to build anything proprietary with respect to leasing or just look to use it in the third-party manner?

We're not a creator of new software. We house it on the cloud. We try and use big SaaS companies. We have a number of programmers, but they're really like more focused on taking established software and the adjustments that they let you make for the type of reports we want to draw data out of that software, whether it be accounting software or we have some database software that's used -- does a lot of functions in the company.

I don't think it will create using AI, any kind of new softwares or not that I know. Now I do know that we're testing AI solutions for lease abstracting and a couple of other things. I think we hope to have the lease abstracting completely operating by the end of the year. But we're not innovators around software. I mean, we're users of established working products.

That makes sense. And then maybe just an overarching kind of question, we've talked a little bit about it. But why is kind of the multi-tenant -- smaller tenants base kind of been the right business strategy for Douglas Emmett over the years versus going over kind of larger tenant spaces?

Well, that's actually a good question, which I have an answer to, but that's a good question. So at its core, we're a small tenant market. So if we want to ignore small tenants, we probably should be buying buildings in West L.A. or in the markets that we're in. But it's come with this really great benefit, which is that it takes a very robust and encompassing platform to be effective with small tenants and to make it as effective as, let's say, a residential platform where the tenant doesn't expect to overly negotiate the lease or do big TIs or big commissions need to be involved.

And so because we've spent the money to train and build our platform, we get a lot more bang out of our -- out of small tenants than most companies get out of large tenants. We -- and we have these depicted and some of the stuff on our website. But our cost of leasing, our leasing costs, commissions, downtime, et cetera, are about 1/3, 1/3 less than our comp set.

I think most of that is because they're using large tenants who have a lot of leverage, and demand a lot of TIs and free rent and all the rest of it. And we don't tend to have to give that. We provide a more of a full-service structure, a tenant comes in. We can quickly say to them if you need this one wall changed, we'll do it. Don't worry about the cost because we have 100 people in our construction company, and we can take them to a design room with designers, and they will sit right there, and they'll go, here's carpet, paint, mullion colors that go together. You can choose them. You feel like cool colors, warm colors, et cetera, and we buy huge amounts of this stuff. And we also are able to control the build-out of our tenants because they're smaller and make them very useful for future tenants instead of something odd with like circular conference rooms in the middle and stuff like that.

So it's really brought down our re-leasing costs, and that's depicted in how much AFFO we tend to have, how much cash flow. We've used that cash flow, as I already mentioned, to pay down debt. We've used it to build new buildings. We've used it to take our position with joint venture partners to buy buildings and funds. So that's been a very valuable process. So having small tenants has been good in more than one way. All right.

Thank you so much.

Thank you.

Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmetts' quarterly earnings call. Today's call is being recorded. [Operator Instructions]. I will now turn the conference over to Stuart McElhinney, Vice President, Investor Relations of Douglas Emmett. Please go ahead.

Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO; Kevin Crummy, our CIO, and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.

During this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website.

When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow-up. Thank you. I will now turn the call over to Jordan.

Good morning, and thank you for joining us. During the fourth quarter, we had good new office demand and very high retention. As a result, we achieved 100,000 square feet of net positive office absorption while maintaining modest concessions and stable market rents.

On the multifamily side, our strong demand and increasing rents again led to full occupancy and an increase in same-property cash NOI of almost 5% compared to the prior year. You may recall that our Los Angeles residential assets are concentrated in the very high-end West side. I am also proud or the fact that by aggressively focusing on revenue growth and expense control, we achieved positive same-property cash NOI for the year. For the full year of 2025, we also made substantial progress on several key capital market objectives. We acquired 10900 Wilshire and are close to beginning construction, convert it into a high-end mixed-use residential and office building. We strengthened our relationships with our joint venture partners and as a result, we were substantially oversubscribed for our 10900 Wilshire acquisition.

We started construction at The Landmark Residences, our 712-unit redevelopment in Brentwood. In the Burbank Media District, we converted Studio Plaza into a multi-tenant office building and leasing is progressing nicely. And we successfully executed almost $2 billion in debt transactions at competitive rates, both extending our maturity profile and further fortifying our balance sheet.

Looking ahead, we have a straightforward strategic plan for 2026. Our primary focus remains office leasing, including re-tenanting Studio Plaza. Our first quarter always has somewhat higher seasonal move-outs, but our overall lease expirations during 2026 are relatively low. We will continue to refinance and extend maturities at advantageous rates. Construction of our new high-end residential units at The Landmark Residences and 10900 Wilshire will, of course, be a key focus. We have begun planning additional residential development sites on our land in the Westside. And we believe we can make more very high-quality office acquisitions in our markets where current valuations offer significant discount to long-term values.

2026 will surely present new challenges and opportunities. We feel well positioned for both. I remain confident in the long-term fundamentals of our markets, the high quality of our portfolio and balance sheet and our incredibly strong operating team, which has carried us through many other challenging periods. With that, I will turn the call over to Kevin.

Thanks, Jordan, and good morning. We're making progress with our development portfolio. At 10900 Wilshire and Westwood, we expect to commence construction in 2026 to convert the existing office tower into 200 apartments and to develop an additional 123 units and a new building at the site. Our very successful phased Honolulu conversion project demonstrated that full-floor office tenants and apartments coexist quite well.

At Studio Plaza and Burbank, we have completed extensive common area upgrades to transition this asset into a premier multi-tenant property. We are well in the lease-up with construction fully underway on the new tenant suites. In Brentwood, we have started construction on the transformative redevelopment of our 712-unit Landmark Residences. After refinancing over $1.6 billion of loans during the first 3 quarters of 2025, we had another productive quarter. In November, one of our consolidated JVs reduced its outstanding debt by $60 million and effectively fixed the interest on the remaining $565 million at 4.79% through November 2027. That loan matures in August 2028. In December, we closed a nonrecourse first trustee construction loan which will provide up to $375 million for the redevelopment of our Landmark Residences project in Brentwood.

As of December 31, we had drawn $49.5 million against this facility. The loan will mature in December 2030 with interest at SOFR plus 245 basis points. We entered into accreting swaps that mature in January 2030 to effectively fix the interest rate at 5.8% per annum on 75% of the increasing estimated balance outstanding under this loan. Looking ahead, we are well positioned to address our remaining 2026 loan maturities and capitalize on attractive acquisitions during this stage of the cycle.

With that, I will turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone. For all of 2025, we signed 896 office leases totaling 3.4 million square feet. During the fourth quarter, we signed 224 office leases, covering 9,600 square feet, including 274,000 square feet of new leases and 632,000 square feet of renewal leases. Office tenant demand continues to be spread across the multiple diversified tenant industries in our markets.

During the fourth quarter, financial services, legal, health services, education and real estate led the way, but no one segment provided more than 20% of tenant demand. As Jordan said, with the combination of good new demand and high retention, we achieved 104,000 square feet of positive net absorption for the quarter. We continue to sign higher value new leases, increasing the straight line value over the life of leases executed in the quarter by 2% as our 3% to 5% annual fixed rent bumps, more than offset the impact of beginning cash rent that was 10% lower than the prior leases ending-cash rent. At an average of only $5.76 per square foot per year, our office leasing costs during the fourth quarter remained well below the average of other office REITs in our benchmark group.

Our residential portfolio with cash same-property NOI up 5% compared to last year's fourth quarter, continues to enjoy strong demand and remains essentially fully leased. With that, I'll turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone. Compared to the fourth quarter of 2024, revenue increased 1.8% to $249 million, reflecting increases in both Office and Multifamily revenues. FFO decreased to $0.35 per share, and AFFO decreased to $53 million, reflecting increased interest expense and lower interest income, partly offset by strong Multifamily performance. Same-property cash NOI decreased 1.4% for the quarter, largely as a result of higher Office operating expenses, offset by Multifamily NOI growth.

At approximately 4.9% of revenue, our G&A remains low. Turning to guidance. We expect our 2026 net income per common share diluted to be between negative $0.20 and negative $0.14 and FFO per fully diluted share to be between $1.39 and $1.45. Our guidance primarily reflects the impact of increased interest expense. We have not assumed occupancy growth despite our fourth quarter results, though we will be watching it closely. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, and financings, property damage insurance recoveries, impairment charges or other possible capital markets activities.

I will now turn the call over to the operator so we can take your questions.

[Operator Instructions] Our first question today comes from Alexander Goldfarb with Piper Sandler.

Jordan, I guess maybe we'll just go to the stock first. You spoke -- I think Kevin spoke about doing acquisitions, but obviously, the stock has languished on our numbers, trading around a 9% cap. How do you -- as you know that you want to assemble more assets, but at the same time, the stock just seems to be incredibly attractive versus buying office directly. So given the persistent depressed value that the stock is trading, are you more inclined to dial back from acquisitions and focus more on stock buybacks? Or is your view that you still want to grow assets still there?

Okay. So when you talk about stock buyback at a time like this, one of the problems for it, which I like -- I mean I understand what you're saying because it does seem like quite an opportunity is that, for the company to buy back stock, mathematically in every other way, it means I'm increasing our leverage. And I'm just -- I'll say right now for everybody, I'm not working to increase our leverage much other than where I know it would really need to be judiciously used to protect the company.

We have -- we know we have leasing we have debt that we have to be very careful and monitor. It's in a good place. We have a lot of room on it, but I don't want to let it get away. Times like this is where it can get away from you, right? We have our development projects that have to get finished, right? And then we have our kind of growth platform that we want to build, right? So we're trying to watch all of them and moderate all of them. But for new stuff, the growth platform and buying is very forgiving because we're able to make deals with our joint venture partners. We've done a lot of work to make sure that we have them there, and we're able to get controlling great properties at great prices without stretching the balance sheet very hard because we just take a piece of those deals. And so us now that's the best way to go.

And I'm just not comfortable doing this kind of double whammy regardless of how great the price is of buying stock, which effectively I'm doing with leverage and in like two different ways. I'm increasing our loan value.

Okay. And then the second question is, the positive absorption, clearly a good thing you've had fits and starts before. Are you seeing a fundamental shift in market demand? Or was it just some year-end activity that drove the absorption? Just trying to understand if L.A. is finally healing? Or if there's still a long way to go, obviously, your guidance suggests some caution for the upcoming year.

Well, I mean one point doesn't create a line. But I mean, I'm obviously hopeful that, that's the case. Our pipeline today is equally as strong as it was last quarter. Now we need to perform well for many quarters in a row for us to say that, we're like solidly on the path to recovery. But I mean, I feel very good about what's going on, and I feel great about the way the last quarter rolled out and my hopes for this quarter.

And our next question comes from Stephen Sakwa at Evercore.

Jordan, maybe just a follow-up on Alex's question on kind of leasing we're obviously going through a bunch of kind of larger mergers within kind of the media business. And I realize the large tenants per se are not your kind of focal point for leasing, but there's obviously derivatives that kind of come off of those larger companies and probably would be in your portfolio. So I guess, what concerns, if any, do you have about kind of industry consolidation within kind of the media space right now?

Well, I'm not concerned that the consolidation will impact us if you're seeing concerns with respect to Douglas Emmett. I do think the consolidation will help to kind of rejuvenate the making of movies and all of that, because I think the guys that are buying those other platforms aren't buying them to shrink them. But whether it be Netflix or else -- I don't see. And the tenants we have probably at this time are growing and making money because of consolidation because they're all the service providers of those guys and the lawyers and all the rest of it. And I don't see them going down. Now of course, at the same time, we feel pretty good with how things are going in Studio Plaza. So maybe it's having a positive impact for us out there, I don't know, but we're certainly still leasing there.

Okay. And the second question -- I guess last quarter or this quarter, you've disclosed you have about 9,000 apartment units that you could develop, I think, primarily on either vacant land or parking garages. It really doesn't disrupt much of the income-producing assets that you have I'm just curious, how quickly are you able to kind of put those into service? Are most of those kind of entitled and ready to go? And it's just a question of designing buildings or what do you think the rollout of that pipeline looks like? And what are the yields that you can get on those assets if you were to start them today?

So I actually mentioned in the prepared remarks, there was like one little short sentence that we have already started on planning -- architectural planning on two more projects. And we got kind of first rounds on that, and that's now moving through the system, and that will represent -- that's another pretty good amount of units, similar to what we've got going on right now. So that's been started with the architects. That's on -- both on Westside sites. I'm excited about both of those because this part is fun, every other part is not fun after this. But those have gotten going. So to answer your question directly, we're actually already moving to another, I don't know, 500 or 1,000 units. And what was the second part of your question, what kind of yields would we get? I don't think...

What kind of yields on cost?

Yes. So I don't -- like obviously, we own the land, and you stated correctly, that's not very disruptive -- most of these sites are not very disruptive to the income-producing properties that are already on that land. And I just can't imagine we're going to do anything that's less than like when finished in a cap rate. And I hope better and historically, it has been better. But nothing is going to be below [indiscernible]. Of course, it's not including the cost of the land. So I'm not saying something that's so spectacular.

Our next question comes from Nick Yulico with Scotia Bank.

Kevin, I guess, first off, just I had a question on the guidance. Can you explain in terms of the straight-line rent this year is higher than it's been in prior years, kind of what's driving that? I wasn't sure if it was all related to Studio Plaza? And if you could also just tell us sort of what's assumed in terms of NOI benefit for Studio Plaza this year, if any?

Yes. Nick, it's Peter. So yes, our guidance for straight line is higher this year. It's an estimate of what we think it's going to be. Obviously, a lot goes into that Studio Plaza is a piece of it. You'll see the last year's straight line was higher than the year before. So it reflects the existing leases that we have. It reflects the new leasing that we do and the occupancy that takes place. And we're not ready at this point to give a breakout on NOI on Studio Plaza.

Okay. And then the second question is in terms of leasing and just thinking about kind of the bogey you guys have to hit each quarter. I mean it does feel like it's sort of in that 250,000 square feet of new leasing, which you got done above that, this quarter to kind of drive absorption versus your expiration. Is that kind of the right way to think about it in terms of the math of how you can keep up positive net absorption is hitting that type of new leasing number each quarter?

Nick, it's Stuart. I think better than a number like 250 or 300. Look at the percentage of leasing we're doing new versus renewal. We know pretty reliably that our retention rate is around 70%. So if we're doing 30% or more of our leasing as new leasing, when we look at those quarters that are generally positive quarters. That was true this quarter. It was about 30% new leasing overall new versus renewal. So sometimes we've had quarters that are positive, less than 250,000 square feet and sometimes do more than 250,000 square feet and it's still a negative quarter. But I think that kind of 30% is more reliable.

And our next question comes from Blaine Heck at Wells Fargo.

Hoping you can talk about UCLA. They obviously are still your largest expiration this year and have additional space expiring through 2033. Jordan, last quarter, you talked about some issues with government funding impacting them, but it looks like their total lease with you increased this quarter. So maybe talk about what happened there and whether you have any updated color to provide on your ability to retain them as their leases expire?

So when you look at UCLA, I know you're looking at like that largest tenant thing and all the leases together. They really do operate as completely separate groups. Leasing or not leasing based on the departmental or whether it be the medical center or whatever needs. And they're just many independent divisions that could be or not be leasing. I think that in general, I don't see them substantially trying to shrink anymore. But like I said, to make to make a global statement about the university and their desire for outside office space is a huge mistake. I mean, you got to look at whether individually the medical center or individually what's happening in the other departments that [indiscernible] MBA program or whatever that has space [indiscernible] admin divisions. But -- do you got something you want to say?

Yes, Blaine, I was just going to mention that the expirations this year, that's 5 leases. So they're not large leases. I mean they're around 12,000 feet on average. They're not very big.

So some might go out, some might stay, some might expand. You just don't...

That's helpful color. Second, I was hoping you could just provide a little color on any political initiatives that you guys are pursuing in '26? I guess, what specific regulations are you kind of targeting in that process? And how is that impacting G&A?

So over the last, I don't know, 6 years on the even years, which is when elections are we've seen politics having a meaningful impact on the operation of the company, and we realized we have to get engaged in that. And so when there are things going on that can impact Douglas Emmett, we have to get engaged in it, and we are. And therefore, we're running into these additional costs that run through G&A., in each of these periods, that I hope that will wane over time. But certainly, politics are a hot topic right now and it impacts real estate in California and in our city.

Yes, it's Peter. I'd also just point out, we've historically had lower G&A than our office peers, and we do expect that to continue even with a little bit of room for advocacy spending.

And our next question today comes from Seth Burke with Citi.

I just wanted to ask a little bit more on the additional residential development sites that you mentioned in your prepared remarks. What is kind of the size and scope of those projects? And how do you think about funding needs for those?

They range from 300 to 500 units for each of them, maybe as low as 250 but really more 300 to 500, that you might be able to build more, but it's probably kind of the type of sizing we would build. We typically fund all the early stages and then we look at the cost to do the construction. And then at the time we're doing that, we got to look at our equity, our cash positions and rest of things regarding the company, and we can bring in.

It's very -- those are the type of deals that very easy understates how easy it is to bring in partners on those deals. But also, they are pretty high-yielding deals because remember, I was asked before, and I said I think it's like an 8% cap and put a plus sign on that. So -- and because -- it doesn't take a huge amount of capital out of the gate, right? Because when you're doing construction, you're leaking -- you're leaking equity in over a couple of years as you're doing the work. Most many times, we can fund it ourselves. But then, of course, there could be a time when we have to bring in a partner.

That's helpful. And then I guess just on the leasing. I think you kind of said the pipeline size is kind of similar to last quarter. Are you seeing any of that change between the mix of new versus kind of renewal leases? And then just broadly, any kind of changes that you're seeing with tenant behavior, whether continuing to look for additional space or anything to call out with different industry groups there?

Seth, when we're talking about the pipeline, that's kind of only talking about new our renewals, like I said, very reliably going to be in that 70% range. Last quarter was a little higher, which was good. But typically, it's right around 70%. So the pipeline that Jordan referred to is on the new side. You asked about industries or you asked about expansions and contractions. Last quarter, our expansions outpaced our contractions. We look at that every quarter. It's generally been more expansions than contractions the last few quarters, which is also good to see.

Thank you and our next question today comes from Rich Anderson at Cantor Fitzgerald.

So I know you don't want to divulge too much on the process at Studio Plaza only to say that it's progressing nicely. But 450,000 square feet, obviously going multi-tenant. What do you -- do you think that the average tenant size at the end of the day will be still larger than your typical for the company? Or do you think it can get into that sort of 5,000 square foot average range? I'm just wondering what the end tenant might look like at the facility?

It's larger. My guess is we end up with like an average size of a full floor. So maybe even bigger.

What does that equate to?

For that like 25,000 feet or...

I think those floors are really bigger than that. But yes, it will start out larger and then over time probably shrink, but it's going to start out much larger than our typical building.

I don't -- we have a couple of floors that can -- it's broken up to the smaller tenants. I don't think we have a lot of that.

Okay. And then second question, sort of absent from the conversation a little bit lately has been Honolulu and just because of everything that's going on in L.A. I'm curious how you're feeling about the market today? You've got Bishop done, obviously. Is there anything on the priority list in Honolulu. Is it kind of running an autopilot right now? I'm just curious if you have any comment at all on the market as it stands today?

First of all, I've never met over 1 million feet that ran on autopilot, which is not Santa Fe as in Honolulu. Not to mention the -- what do we have 2,000 or 3,000 [indiscernible] 70, 70, 80 acres. But so it's definitely not on autopilot. If you're talking about like next capital step, next steps in capital side, not -- I mean, yes -- I mean in a sense, you got to love autopilot because it means your lease in the '90s, which is a bright star in the portfolio. But the next big move there very likely is we had started and even during COVID, Kevin on Zoom spoke to the City Council and got some special entitlements for us on with respect to residential towers. We have 12 acres trying to sit downtown. We have 30 acres that we've already built 500 units on in that Red Hiller and next to [indiscernible] Hospital. And then we also have 30 acres out in the Royal [indiscernible] area.

And so we have significant development sites there. And so the next step, as like costs and everything lines up there, and frankly, capacity and attention and all the rest, we need to move and start building out those additional units that work extremely well. They're putting the light rail in. It's very close to our projects. So there really will be a good way to get back -- not that downtown needs the help. Downtown is doing extremely well. But these projects are well suited to get back and forth to where the density and jobs are. So I mean, it's just great because we spent so many years explaining to you guys, we thought why I was going to come back. And so I don't see -- feel like I got my [indiscernible] I asked the question the same amount of times now that Hawaii is doing so well. But those are the next steps on capital.

Okay. Great. And if I could just sneak in one quick one. Last quarter, I asked about Olympics and whether there's any sort of forces that were positively and you pointed out the Olympic Village at UCLA, some other stuff going on in Santa Monica. Is there any update to -- is it just too short of a time, 3 months previous? Or is there any update to anything going on that's sort of tethered to the Olympics that you're getting yourselves involved in?

Well, we are seeing -- I have been in some meetings recently. There's a lot of tension now that's being focused on preparing the village for the Olympics. I've been in some meetings for it. And people are definitely now taking seriously the time we have left and the stuff that needs to be done and I see them working on it. But it's -- and it is coming out of the council, its coming out of UCLA. It's coming out of private ownership in a village, Everybody's having meetings and focused on it.

And our next question comes from Jana Galan with Bank of America.

And congrats on a nice fourth quarter. When thinking about your 2026 cash same-store NOI guidance. What are the assumptions for kind of cash re-leasing spreads? Is there a range there? Or you think we remain in this kind of low to mid per square foot? And then if you can maybe give a little color around which submarkets you think that may start to inflect positive?

Yes. I think you should assume the leasing spreads stay -- we've been in a pretty consistent range over the last couple of years. Our contractual rent bumps built into all our leases. We get between 3% and 5% increase every year on basically all our office leases. So our straight-line spreads have stayed positive. The overall value of the leases has been increasing. That's been nice. That increase in cash every year is really nice to get. It makes that cash lease -- re-leasing spread metric really hard to go positive, unless your market rents are really moving up at a good clip. But I would expect those metrics to stay pretty stable.

As far as submarkets, I don't want to make any predictions about submarkets and which ones inflect. I think we've got a lot of leasing to do with the exception of Hawaii kind of across the board. And all our markets had good positive momentum in Q4. So we'll hope that continues.

And then just following up on the residential development. When will this kind of first units at Landmark start delivering? And then maybe when is 10,900 Wilshire expected to start delivering units?

We got a couple of years on Landmark L.A. It's years out. Construction has started, but it's -- we're looking out 2, 3-plus years. And at 10900, it's a different type of conversion. So it's both building a building in the back and then converting floors, which, of course, we, at the same time, are also willing to have office tenants here.

So the first move that's going to probably happen there is the amenities. We try and get a [indiscernible] then we just start moving through full vacant floors building out and building out the apartments. Historically, once we get them built out, with construction, we expect to have start this year. Once we do it, the single floors tend to lease very fast. So my guess is -- my hope is that we'll get those forward, we're going to start that later this year, and those floors will be ready and start leasing. I'm not sure you'll see much of an impact of revenue actually as compared to our whole company in 2026, but pretty hopeful for 2027.

And our next question comes from Upal Rana with KeyBanc Capital Markets.

Jordan, going back to the first question on acquisitions versus buybacks. It sounds like you prefer acquisitions at the moment. Maybe you could talk a little bit about the transaction market in L.A.? And what kind of opportunities you're seeing out there and what kind of opportunities maybe would get you to transact today?

Well, I thought the way that Stuart drafted the first round of our script the way you said it, that was such a good way to say it. We probably repeated it three or four times. But the long and short of it is, -- you can never argue that value today, yes, value we're getting today is less than the value today. Value today is the value you sell for, that's the value today.

But what he said was, which is how we feel is, I think that the transactions we're doing today and that we can buy today will be -- are very good -- the pricing is very good compared to where we think the long-term value is for these properties. And that's a reason, and it's always hard in markets like this to do this. That's the reason, and I mentioned it with respect to our capital, our equity partners and the time we're spending with them. That's the reason to work double hard and make sure that even though you have a huge focus on whether it be refinancing your debt, huge focus, obviously, on leasing. You can't take your eye off the ball of an opportunity like this. So we're working very hard to make those happen. I am extremely confident that we will deliver more on the acquisition front to you in 2026, of deals, done that we really feel are good deals. I'm not telling you they're off market today. But one, I think they're very good deals for companies like ours to run over a period of time and you'll get an opportunity to see those. We are going to make those deals. I don't know how many, but we'll make some.

Okay. Great. That was helpful. And then could you spend some time talking about where LA stands in terms of the anti-rent [indiscernible] ordinance bill passed last year after the fires and what that could mean for future multifamily rent growth for the company this year?

That was very odd. I mean I don't -- where we stand -- actually it expires again in like 3 months or something. Is that...

Yes. I don't think it's been super impactful. I don't think it's material for what we're doing, for our existing tenants, the increases we weren't generally trying to go up huge amounts on...

We weren't trying to go up that amount.

And you saw our multifamily growth. It's been fantastic in 2025, but the anti-gouging thing really hasn't had a material impact.

I mean we're kind of fantastic 5s and 7s and stuff that's been kicked in at like 10. It's -- to me, sit the worst form of just like political grandstanding, but I'm not sure what it's doing to actually -- whether it's having any impact on any one. And by the way, the people -- I don't want to spend time on it. It's not doing anything.

And our next question today comes from Dylan Burzinski, at Green Street.

Maybe just touching on sort of -- or I guess, could you touch on any differences in depth of demand across the West side versus the Valley? Are you guys seeing any sort of outsized strength in the West side? And maybe you can kind of just talk about expectations for whether or not you see the same time on a recovery for those areas within the portfolio?

Yes. Well, I'll say that we did have positive -- the positive absorption we saw was across the board. The only market we actually had a dip a little bit in Q4 was Hawaii, which is our strongest market, and our pipeline there is very good. But every other market we're in, in L.A. moved up in the fourth quarter. So great to see that demand kind of across the board.

In past cycles, we've had markets that historically were Santa Monica and Beverly Hills for a long time were our strongest markets. I suspect for they've got unique aspects that drove certain tenants there, to those markets. I suspect that those markets over the long term will continue to be some of the best -- but our markets we're in our core markets for all the reasons we like, the supply constraints, the proximity to expensive housing, the amenities in these areas. So I expect them all to perform well over the long term.

And our next question today comes from John Kim of BMO Capital Markets.

I wanted to ask about how you see the occupancy trajectory during the year. Looking at your lease expirations, it is heavily weighted towards the fourth quarter. So I'm wondering if you envision occupancy kind of picking up during the year and until you get that headwind?

John, we mentioned a little bit on the call the seasonality of move-outs for whatever reason, more than their fair share of leases expire 12/31. So -- and those move-outs tend to impact the first quarter, but those expirations that are listed in Q4. It's a 12/31 expiration. So that's total seasonality for us. The overall move-outs for year are below kind of average, the rollouts, I should say, expirations not move-outs. So the expirations relative to kind of historical averages are low, which has us optimistic, and we do expect a little bit of seasonality always to happen for those 12/31 expirations.

And just wanted to ask on your views, Jordan, on the Hollywood union negotiations, which have started up again beginning with [indiscernible]. Has this impacted leasing demand at all in your portfolio or for assets like Studio Plaza. When I look at your 2023 leasing, that was sort of a light year and that's the year of the big Hollywood strikes. So I'm just wondering if you view that to be a potential issue this year?

I'm sure for some people will be an issue. For us, I don't view it as having any issue for us at all. I think we barely -- I mean even exposure, and I haven't -- other than knowing it's happening, I haven't been following it. And believe me, I follow a lot of other things that I am worried about, but that's not on the list.

But people you talk to business leaders, are they more concerned of a Hollywood strike?

I don't know. I actually -- I am surrounded by entertainment people, none of them have brought [indiscernible] going said, this is the disaster in the making. So I don't know if that's just that units have got used to do -- I really don't have an opinion on it. It hasn't been a subject even with the people in the entertainment business that I'm talking to.

And that concludes our question-and-answer session. I'd like to turn the conference back over to the company for any closing remarks.

Well, thank you all for joining us, and I'm sure we'll be seeing many of you during the quarter. Goodbye.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. [Operator Instructions] I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett.

Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO.

This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package.

During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict.

Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings which can be found in the Investor Relations section of our website.

[Operator Instructions] I will now turn the call over to Jordan.

Good morning, and thank you for joining us. Office leasing during the third quarter was obviously not what we had hoped. While July was strong with over 300,000 square feet leased, our typical August slowdown in new leasing was deeper than usual and lasted into September. Fortunately, renewals did better with tenant retention above our 70% long-term average. .

Fourth quarter office leasing is off to a good start, but we're now hesitant to be encouraging until we complete the quarter. We've seen that multifamily growth rates have slowed in other parts of the country and other markets in L.A. County, but we're not seeing that in our portfolio.

Our multifamily same-store cash NOI increased almost 7% compared to the prior year. Same-property cash NOI for the whole portfolio was up 3.5%, with office benefiting from higher property tax refunds. We expect property tax refunds to be impactful for the foreseeable future, though the timing remains unpredictable.

Our 2 multifamily development projects in Brentwood and Westwood will add over 1,000 premium units to our portfolio. In addition, recent changes to state municipal law allow us to build more multifamily units at a number of our existing locations. For example, we can now build a new 500-unit residential tower at the corner of Wilshire and Barrington in Brentwood.

During the third quarter, we refinanced almost $1.2 billion of debt at very competitive rates. We are also actively working on a number of off-market office opportunities with full engagement from our joint venture partners.

I will now turn the call over to Kevin.

Thanks, Jordan, and good morning. At 10900 Wilshire and Westwood, we are finalizing plans for converting the existing office tower to apartments and building a new ground-up apartment building. Construction should begin in 2026.

At The Landmark Residences in Brentwood, construction is in full swing. When we finish the project, it will meaningfully add to our in-service residential portfolio. Finally, we continue to make good progress leasing at Studio Plaza in Burbank.

During the quarter, we completed 3 financing transactions that extend our debt maturities at very competitive fixed interest rates. As we mentioned in our last call, in July, we refinanced a $200 million office term loan that was scheduled to mature in September 2026. The new nonrecourse interest-only term loan matures in July 2032, with interest effectively fixed at 5.6% through July 2030.

In August, we closed a package of new residential term loans. The new secured nonrecourse interest-only loans total approximately $941.5 million, bear interest at a fixed rate of 4.8% and mature in September 2030. They replaced loans aggregating $930 million that were scheduled to mature in 2027 and 2029.

We also repaid the debt that encumbered The Landmark Residences and added that property to our pool of unencumbered assets. We continue to work on refinancing our next loan maturities, now scheduled for late 2026, and to look for attractive acquisitions.

With that, I will turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone.

During the third quarter, we signed 215 office leases, covering 840,000 square feet in our in-service portfolio. This included roughly 200,000 square feet of new leases, which reflects the slowdown in the latter half of the quarter that Jordan mentioned. Office rental rates and concessions are steady. Looking ahead, our remaining office expirations in 2026 and 2027 are below our historical averages.

The overall straight-line value of new leases we signed in the quarter increased by 1.8%, with cash spreads down 11.4%. At an average of only $5.63 per square foot per year, our office leasing costs during the third quarter remained well below the average for other office REITs in our benchmark group. Our residential portfolio continues to enjoy strong demand and remained essentially fully leased.

With that, I'll turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone.

Compared to the third quarter of 2024, revenue was flat at $251 million. FFO decreased to $0.34 per share, and AFFO decreased to $52 million with increased interest expense outpacing higher contribution from operations. Same-property cash NOI increased 3.5%, reflecting a strong 6.8% increase from multifamily and a healthy 2.6% increase from office.

As Jordan mentioned, we continue to receive significant property tax refunds whose timing varies unpredictably from quarter-to-quarter. Excluding property tax refunds, our office same-property cash NOI growth would have been essentially flat. At approximately 4.3% of revenue, our G&A remains low.

Turning to guidance. We still expect our 2025 net income per common share diluted to be between $0.07 and $0.11, and our FFO per fully diluted share to be between $1.43 and $1.47. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package.

As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities.

I will now turn the call over to the operator so we can take your questions.

[Operator Instructions] The first question comes from Nick Yulico with Scotiabank.

I guess starting off with leasing. If we go back to last quarter in the call, you guys had some optimism on the leasing pipeline, you still had your occupancy guidance intact and then this quarter didn't play out as expected. I'm just hoping to get a little bit more detail on sort of what exactly did not materialize in the new leasing plan? There were certain markets, buildings, anything you could just sort of quantify a little bit more on that?

I would -- I don't -- do not have a great answer. I can't point to an industry, I can't point to a market, I can't point to a building. There was a slowdown. We actually still did a number of deals over 10,000 feet. All of that worked, it just slowed down. And if you ask the question, where are we now? Think -- it seems like the slowdown is temporary, and it looks like we're off on this quarter to a good start, but I don't want to make any predictions because we were so surprised by July.

From July to August, we were like, "Oh, this is going to be a great quarter." Then you had August and September, just kind of fell off or actually like later part of August. And maybe it will be timing, I'm not sure.

Okay. And I guess second question, Jordan, is you're a larger shareholder in the stock, I'm sure you're not happy with how the stock is done and some of that has to do with leasing and performance there. But are you starting to think about other alternatives? You mentioned some acquisitions, but I guess I'm wondering do you think about trying to prune the portfolio?

Do you think about stock buybacks? Are there other opportunities to do something sort of pivot here a little bit in terms of a strategy to sort of improve the stock performance outside of just the leasing focus that needs to be addressed?

I would say that -- well, first of all, I still feel very good about both our office and residential portfolios. We're growing our residential portfolio, and we're working on growing our office portfolio. I think the markets will be good. I actually think both of them will come back at a good clip. And when I look at kind of more macro things.

So there's obviously some stuff that's been in the way. I'd say locally, the only real thing that's been in the way has been politics. I think politics are kind of starting to move back into the right direction. And then there's been some national stuff, but I know some other markets are recovering. I'll still say: We have very good tenants, we have high renewal rates. I like our prospects in office. I'm working on buying more office, as Kevin said.

And we gave you a sense of how much more aggressive we're becoming on developing residential and our residential is performing extremely well. So more on the development side, we are moving on a number of things. There's a ton that we can do here in L.A. as a result of these changes in laws.

And I'm going to tell you, I still feel good about our office portfolio. I get it, the last quarter was more upsetting to me than anybody, but we're trying to continue -- we're continuing to do our best.

The next question comes from Steve Sakwa with Evercore ISI.

Stuart, you provided a little bit of comment on kind of the tax refunds and Peter did as well. But I'm just trying to make sure when we look at kind of the third quarter office expenses, is that $74 million kind of a good run rate? Or are there some kind of onetime true-up payments that sort of hit in the quarter that benefited Q3, but won't carry forward into Q4 and beyond?

Steve, it's Peter. Yes, I mean, whenever we have tax refunds, it's going to -- you're going to see it in the expense line. And as we said, it's -- we expect to continue to get property tax refunds, and we expect those to be impactful. It's just hard for us to predict quarter-to-quarter, year-to-year what the numbers are going to be.

No, I understand that, but is the $74 million kind of like the new base with which you grow from? Or were there like past refunds that were kind of onetime in nature that the run rate is higher than that?

It's kind of hard to pull it all apart, but there's a little bit of both. There's some of it that's onetime and there's some of it that you reset for a period of time.

I mean I don't think we have guidance for you on expenses for the next few years, but I can tell you this, Steve: We have been receiving rolling tax refunds for quite a while, and I think they are going to keep rolling forward because we -- they're just very slow, the money comes in very slow. We don't recognize the money until we receive it. I mean, but it's been coming in, and I think it's going to keep coming in, when I look at the amount we have in front of them.

Okay. And then maybe, Jordan, just going back to kind of leasing broadly, I mean, I did see that UCLA downsized kind of their footprint with you in the third quarter. But just any comments kind of around the industries that did lease in kind of the third quarter, maybe were you positively surprised that activity? And were there any industries that just are still kind of stuck and maybe underperforming your expectations?

I would say -- and I'm glad you reminded me of that. I was going to say the one area where I'm seeing weak -- it's not a lot of it in our portfolio with the exception of UCLA, but where we see weakness is government. Government is definitely having everything. They're having trouble bringing people back in, they're having budgetary problems, they're shrink -- they got it all going on.

Most of our other sectors seem to be okay. And every time we like get bonked, I'm always like, "Oh, great, UCLA got you." But I will also tell you, I think UCLA is going to bring people back. So it's hard to know where they're going to end up. They could end up being our growth engine going forward in terms of new leasing because they have been shrinking for a while and they really need to bring people back in, in a more robust way.

So I don't want to beat on them too much. They really are only -- they rely on the government, both the federal government and the state government. They're obviously part of the state government. I know the government has beaten the daylights out of downtown. So -- anyways, that's the only industry I can give you some feel for.

Next question comes from Alexander Goldfarb with Piper Sandler.

Thank you for keeping your conference call old school, not going the high-tech route, so I appreciate that. Jordan, your stock is trading at a 9 implied. I understand the enthusiasm for apartment development. It's been something long in the making over the past few decades, and it's great to see you guys be able to take advantage. You also mentioned potential more acquisitions. But from a funding perspective, you can't really issue equity, that makes no sense.

You're always hesitant to sell assets to gin up additional cash. So with everything that's on your plate and where the stock is, how would you think about funding new acquisitions if you have demands on your capital for the development projects?

Well, as I mentioned, we have extremely good engagement from our joint venture platform. You're right, we're not issuing stock. But historically, we have not issued stock to make acquisitions regardless of where the stock price was. We do have positive cash flow coming out of the company. We -- so we're generating cash flow, we're using it to do a number of things.

We have a lot of ability to do financing. I mean, I know we don't mention it that often, but huge -- we're all nonrecourse first-trustee debt. And a huge portion of our portfolio doesn't have any loans on it. And so we can actually use that to use financing. We can use our free cash flow to invest alongside our joint venture partners.

To date, most of what we've done is use some of our free cash flow and invested alongside our joint venture partners. And we've used some of our free cash flow to power the 2 development or at least -- yes, the 2 development projects we have, although one of them has a lot of joint venture partners in it, so it's not taking much.

Okay. But your point is that between the demands from -- to fund the current development pipeline, there's still excess cash that you're generating to fund JV acquisitions?

That's a 100% true.

Okay. Second question is just playing off of that. Again, given where the stock is trading and you guys haven't been huge issuers over time, why would the joint venture partners not be interested with you guys in just maybe taking the company private? I mean the public markets haven't rewarded what you guys have achieved, you certainly have a lot of growth ahead of you, but it would seem like an opportune moment to arbitrage the difference.

Well, we -- I mean, yes, they ask that a lot. I don't think it's a very good time to go private vis-à-vis my shareholders, of which I'm one, and a lot of us are because I think the stock is super undervalued, and I want to do a good job for the shareholders. But yes, I mean, you're right, they all lead with that.

No, I'm just saying you guys -- I mean there's a lot of good stuff that you guys are doing, but it's not reflected in the stock.

Yes, I know it's not. And that's a point in time. The stock kind of moves around vis-a-vis what's going on. And most of the time I'm wrong. It should be up, it's down. It's just like things slow down and it's up. But I think over the long haul, we're going to have a great opportunity to do a good job for our shareholders. I don't want to like crawl out with my tail between my legs. I want to do a good job for them.

The next question comes from Blaine Heck with Wells Fargo.

Great. Jordan, I appreciate the commentary. Can you just talk a little bit more about the size of the opportunity set within your portfolio to potentially do more office to residential conversions or ground-up residential development? And maybe where in the time line of getting the required permitting or zoning you are?

Is the opportunity you mentioned in prepared remarks something that you think could be shovel-ready in 2026? And are there any others that you think could be started in the next couple of years?

There are a number of extremely great locations that we now feel we can build meaningful additional resi. And Ken and I have been talking a lot about it. I mean his -- and I've said to you guys historically, really, the gating issue for us is like kind of growing our ability to do more projects, and we're talking about that.

The early stages of that, we are already doing. So we are working on like planning and looking at some of these sites, talking to architects about what can we do here, working on a lot of that. I mean if you ask me, do we have a lot of sites that could be ready to go at the end of '26? We probably do, but we ourselves have to finish building the stuff we're building to do a good job. And so we're kind of, I would say, we're tightening up that line of projects and getting them more than theoretically ready, but how fast will we roll them out, that's a little harder to answer.

Okay. Great. And just a follow-up. Similarly on the acquisition side, do you think you're close to closing on any other interesting opportunities? And maybe how have your return requirements evolved along with the changes in your cost of capital?

I believe we'll make some meaningful acquisitions in a reasonable time line. I'm extremely confident of that. What was the second part of your question? You want to know how my return metrics...

Just how your targeted yields return requirements...

I mean our return metrics are kind of best-in-class, but consistent with the world of returns that we live in right now. But we don't want to lose best-in-class deals and that's the stuff that seems to work the best for us and in terms of where we like to operate, which, I've said before, is in the top quartile of our portfolio.

I think that's more achievable now than ever. I'm telling you right now, I'm really confident that, that will happen. I think that as a result of that, we're not going to miss any of those. It's going to be -- the return metrics are better than they were in 2019, but I don't know if there'll be all the way to where you guys want them for us, I think we'll feel very good about them.

The next question comes from Seth Bergey with Citi.

It's Nick Joseph here with Seth. Maybe just following up on the transaction market. Are you feeling that there's more competition as you're bidding for assets? How are you seeing kind of the competition landscape changing?

I think that we're a little bit like [indiscernible] going to sound, there are so many markers that remind me of when Ken and I got into this business. So when we -- in the early '90s, we did a lot of buying -- all through the '90s, we did a lot of buying. And I remember looking at that time, at where -- like how much was broker transactions, how much was off market, getting people to come to us.

And I'm seeing that shift again, a lot more off-market, I mean like an amazingly higher percentage of off-market. We know you'll do it and close, which is great. It's great -- it's kind of a payback for decades of building that reputation. So that has given me confidence. We're seeing like real deals, and we are running at them and stuff that I've wanted for a long time.

And then just on -- a couple of questions have been on kind of the discount and ways to close it. And I understand where -- obviously, you're not happy where the stock price is and see a path to closing that discount. But is that -- you had mentioned kind of the LPs maybe having some interest. Is -- has that been a broader Board discussion or is that more just kind of your opinion on where the opportunity is to close that gap right now?

I didn't give that as an opportunity to close the gap. I said I wouldn't want to do that now. The stock price is too low. That's not doing a good job. I'm saying -- all I was saying is, of course, they ask me about it all the time. But why would I go with an incredibly low point in the stock and say, "Oh, now I'm going to go --" I mean you guys are looking at me like I'm an idiot. I believe the office and resi has huge upside, why wouldn't we deliver to our existing shareholders.

The next question comes from John Kim with BMO Capital Markets.

I wanted to ask a 2-part question on leasing. Jordan, you mentioned October, it seems like it picked up. I'm wondering what you attribute that to?

And secondly, is there anything that you can do to stimulate demand? We're seeing here in New York a lot of landlords really stepping up on amenities. And I know your portfolio doesn't really have the same footprint to do that, but I was wondering if any amenities would resonate in your market?

Where some amenities make a difference, we have done that kind of thing. We've been pretty successful in projects where we have a lot of leasing and making a deal with a gym or something like that, a commercial gym to be their high-end gyms and that becomes an amenity of the project, and obviously, we make money on those deals.

But our portfolio is in very amenity-rich areas. And I'm not just talking about like access to high-end housing, I'm talking about restaurants, the whole 9 yards. So we don't have like a ton of additional demand like that on that front.

In terms of stepping up demand, we are -- nobody is better than us, like getting out there and getting access to every deal that's out there and pushing and trying to get them done. I mean if you looked at the various tiers of our portfolio and the outreach and the aggression of showings and trying to turn those into -- every step of the way you go, we have an incredibly aggressive platform.

Yes, so I would -- that -- I have a lot of confidence in that. That's why you hear me saying I have a lot -- I got it that the pace of real estate and the recovery of the office portfolio is not consistent with the quarter-to-quarter analysis, and certainly, we had a quarter that didn't look great. But when I look at what's happening in general and our platform and its outreach and what's out there and what we're going after, I go, "No, I still feel good about this."

I'm confident we'll get there. I have to -- we just have to stay focused and keep playing hard, and we will. And I think we're going to do a great job for everybody.

Okay. And then my second question was on Barrington Landmark. Any update on the litigation progress? If you think we'll get some news on that in the next year-or-so? And you added a new development site there this quarter. Do you expect that to get off the ground before Landmark Residences?

We wouldn't build that before we have Landmark Residences built -- leased because they'll just compete directly with it. We already have 700 units there. So we would do all the work to get it ready, which is a good thing to do, and we're already doing that to marry it to the project. .

But as I said, we have to like play through what we're building right now, but it's probably also smart for us to do all the kind of -- some of the other work on many other sites, that's one site, but on a number of the other sites to go like this is kind of getting more and more ready to go with all that we need to know that when we do want to get to it, we can get right to it. And that's the early stuff that Ken and I have talked about doing and are doing, and we are doing it.

And then litigation?

The litigation, they're like training mountains of documents. I mean, obviously, we feel very good about it. But nothing like that is ever very fast, and it's certainly not going -- I mean the metabolism of the courts is extremely slow, like it's slow as a sloth. So just assume that's what we're dealing with.

Next question comes from Jana Galan with Bank of America.

When you talk about the slowdown experienced in August and September, was that more that touring and top of funnel activity slowed or the activity was there and then the decision-making just kind of got paused? And when you think about the improvement in October, is it more just a normal month or is it seeing that kind of delayed activity from the summer coming now into the fourth quarter?

I think it was probably a slowdown in like decision-making to close. And in terms of this quarter, I'm so nervous to make projections. I would like to have the proof in the pudding. Let us just deliver the answers. And I told you, things -- I mean, if you're looking at it, what's the problem? I mean, so let's just see closing and all the rest of it. Let's see how we do this quarter.

Great. And then just curious if you could kind of talk about the decision or the strategy to refinance the multifamily properties early and to unencumber The Landmark Residences?

Well, I would say Fannie Mae was a great partner there. They allowed us -- they left their loan intact and allowed us to really like basically empty the buildings, there's not a ton -- they're pro-housing, they want -- when they knew that we were going to build back and do the housing, they're pro-housing bunch, so they're like, "We don't want to get in the way of housing."

I said it would be hard on me. We could probably handle it, but it'd be hard on me if you told me I had to repay your loan at this exact moment, right? Once we had made it into the construction, they were saying, "Okay, well, we'll let you roll forward on that." That's great. I can't tell you how much I appreciate that because that makes a huge difference to adding this housing.

And -- but I also said, "When I see a good opportunity to get you back out of that because I know it's like -- it's whatever, it's an item on your list, we'll take it." And as those other resi deals have just matured and the cash flow just keeps increasing, we saw an opportunity to extend everything out at very good pricing, very good spread.

And we certainly had the room to, at that point, delever Barrington, take all the leverage off. So it didn't have to be on their watchlist. It's a great point with your lender when you can do something for them, and we did it.

Next question comes from Rich Anderson with Cantor Fitzgerald.

Perhaps a tough question to answer, but is there anything about the coming Olympics economic activity, you as a landlord of office and multifamily in the area that you see as an opportunity short term, long term, given what typically happens in front of and after an Olympic event. Anything you're thinking about at all or is it just nonevent for -- from the standpoint of Douglas Emmett.

There is one big primary thing, which is that the council member for that for [indiscernible] has a strong interest in making a lot of really positive changes. So UCLA is the Olympic athletic village, so all of the athletes stay in the dorms at UCLA and then their area is going to be that Westwood Village area.

And she's really leaning into like every type of funding, everything they can put together to get that area like really nice and showing well to the world, and she's come to a couple of large owners, of which obviously we're one of them, and said, "I want you to kind of lean into all this with us."

And we said we would, and we've joined her. In a very similar way that Santa Monica came to us, and they're doing something similar, not necessarily for the Olympics, but here in this downtown area, and we've joined them, too. And so I think if you're asking specifically about the Olympics, I think it's going to leave that area much better off.

And we see that the city and county and even state and all the rest want to show well there in that village. And those improvements to the village where we're a large owner in terms of like making more of like walking areas of streets, making the retail work, pushing the transportation to the outside. She focused on all those things. And I think they're going to get a bunch of them done. She wants to get it done.

Okay. Great. Not so bad question after all. And then the second question, you mentioned progress at Studio Plaza. Can you put a finer point on that in terms of anything around leasing activity, where you're at? I know you're hesitant typically do not get too specific, but I'm wondering if you could share anything about progress there.

Well, I think the big comments around Studio Plaza is, number one, I had a lot of fear there of reading the entertainment industry and what's going on. But we're doing tons of entertainment deals there, and it's leasing. And we're getting all sizes of tenants and some little larger multi-floor, we're getting single floor, we're getting all of it.

We got to close them, of course. A number of closed already, some -- I think we're already -- some are already paying. Well, we finished a project, the project shows incredibly well. And so like I would just say my blood pressure went down on it now that I'm seeing it perform. So that's the main thing.

And I have a lot of confidence there will be -- will finally -- well, it was great. It was great to own it. It was leased for 30 years to a mix of tenants. But ever since Warner Brothers took it over, it was just always a subject. And now it's going to be like a good robustly multi-office project that will take kind of the risk profile of those large single tenants off our plate, and it's just not something we enjoy, and it's getting done.

So I'm pretty happy about it, actually. And the redo of the building is a stunner. That's one also that has like a lot of amenities that an earlier question asked me about, got it set up with like great outdoor amenities, indoor amenities, the whole thing.

Yes. So when do you think you're kind of sort of done getting that back leased, do you have a time line in mind?

Yes. But if I give a time line, I'll blow it. So I don't want to do that.

The next question comes from Upal Rana with KeyBanc Capital Markets.

Great. Jordan, you mentioned doing more acquisitions. And I wanted to get your thoughts on the Beverly Hills office market. Some assets have traded there recently, including one of your peers buying Maple Plaza. So I just want to get your thoughts there. And maybe if you tell us if you were part of the bidding there as well?

Well, I saw the stuff they sold, and I saw what they bought and what I have for them is applause. I mean that was a great trade to move out of that other stuff and into that, I'm like well done. And I love the Beverly Hills market. I think it's a great market.

Okay. Great. And then could you talk about any of the larger tenants coming back to the market? You mentioned in the past that you're seeing an increase there, but just curious what your thoughts are today?

Stuart, go ahead. Do you want to answer?

Yes. I mean we have -- we saw, again, very typical good, healthy leasing over 10,000 feet in Q3. So that was good to see. It was a year, I think, more than a year ago now that we were really seeing that category underperform, and it's been pretty healthy last couple of quarters.

[Operator Instructions] The next question comes from Dylan Burzinski with Green Street.

Just a quick one for me. You mentioned the amount of acquisition opportunities that you guys are looking at on the office side. I guess presumably these are mostly sort of value-add type deals where Douglas Emmett can bring them into their operating platform and execute lease-up. But I guess how do you guys weigh that with the existing portfolio level of vacancy that you guys have in the office portfolio today?

So you saw us do a value-add deal, and maybe that's why you're saying that because we took that when we bought that 220,000 foot building with the development site and we're converting it. My main guiding principle is buy the best stuff that's in the market and keep control over the best stuff in the market because I still believe in the markets. So the best stuff could have some vacancy, it could not have vacancy.

But if you go, what's my -- the #1 criteria, it's not value-add, not value-add, whatever. It's -- we want to buy the best buildings in the markets that we think are long term great investments that have great supply constraints and a great kind of natural tenant base and amenities and good access to like high-end housing, all the stuff that seems like pablum that we put in the front of our original like S-11, but really has what's guided us.

This concludes our question-and-answer session. I would like to turn the conference back to Jordan Kaplan for any closing remarks.

Well, thank you for joining us, and we look forward to meeting with a number of you individually soon. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.