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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 001-33106
nysedei-20210930_g1.jpg

Douglas Emmett, Inc.
(Exact name of registrant as specified in its charter)
Maryland20-3073047
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1299 Ocean Avenue, Suite 1000, Santa Monica, California
90401
(Address of principal executive offices)(Zip Code)

(310) 255-7700
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $0.01 par value per shareDEINew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class Outstanding atOctober 29, 2021
Common Stock, $0.01 par value per share 175,485,780shares
1



DOUGLAS EMMETT, INC.
FORM 10-Q
Table of Contents
Page
 
 
 
 
 
     Overview
     Other Assets
     Equity
     EPS
 

2

Abbreviations used in this Report:

AOCIAccumulated Other Comprehensive Income (Loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
ATMAt-the-Market
BOMABuilding Owners and Managers Association
CEOChief Executive Officer
CFOChief Financial Officer
CodeInternal Revenue Code of 1986, as amended
COVID-19Coronavirus Disease 2019
DEIDouglas Emmett, Inc.
EPSEarnings Per Share
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
FFOFunds From Operations
Fund XDouglas Emmett Fund X, LLC
FundUnconsolidated Institutional Real Estate Fund
GAAPGenerally Accepted Accounting Principles (United States)
JVJoint Venture
LIBORLondon Interbank Offered Rate
LTIP UnitsLong-Term Incentive Plan Units
NAREITNational Association of Real Estate Investment Trusts
OCIOther Comprehensive Income (Loss)
OP UnitsOperating Partnership Units
Operating PartnershipDouglas Emmett Properties, LP
Opportunity FundFund X Opportunity Fund, LLC
Partnership XDouglas Emmett Partnership X, LP
PCAOBPublic Company Accounting Oversight Board (United States)
REITReal Estate Investment Trust
ReportQuarterly Report on Form 10-Q
SECSecurities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
TRSTaxable REIT Subsidiary(ies)
USUnited States
USDUnited States Dollar
VIEVariable Interest Entity(ies)

3

Defined terms used in this Report:

Annualized RentAnnualized cash base rent (excludes tenant reimbursements, parking and other revenue) before abatements under leases commenced as of the reporting date and expiring after the reporting date. Annualized Rent for our triple net office properties (in Honolulu and one single tenant building in Los Angeles) is calculated by adding expense reimbursements and estimates of normal building expenses paid by tenants to base rent. Annualized Rent does not include lost rent recovered from insurance and rent for building management use. Annualized Rent includes rent for our corporate headquarters in Santa Monica. We report Annualized Rent because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine tenant demand and to compare our performance and value with other REITs. We use Annualized Rent to manage and monitor the performance of our office and multifamily portfolios.
Consolidated PortfolioIncludes all of the properties included in our consolidated results, including our consolidated JVs.
Funds From Operations (FFO)
We calculate FFO in accordance with the standards established by NAREIT by excluding gains (or losses) on sales of investments in real estate, gains (or losses) from changes in control of investments in real estate, real estate depreciation and amortization (other than amortization of right-of-use assets for which we are the lessee and amortization of deferred loan costs), and impairment write-downs of real estate from our net income (loss) (including adjusting for the effect of such items attributable to our consolidated JVs and our unconsolidated Fund, but not for noncontrolling interests included in our Operating Partnership). FFO is a non-GAAP supplemental financial measure that we report because we believe it is useful to our investors. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report for a discussion of FFO.
Leased RateThe percentage leased as of the reporting date. Management space is considered leased. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating percentage leased. We report Leased Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Leased Rate to manage and monitor the performance of our office and multifamily portfolios.
Net Operating Income (NOI)
We calculate NOI as revenue less operating expenses attributable to the properties that we own and operate. NOI is calculated by excluding the following from our net income (loss): general and administrative expense, depreciation and amortization expense, other income, other expenses, income from unconsolidated Fund, interest expense, gains (or losses) on sales of investments in real estate and net income (loss) attributable to noncontrolling interests. NOI is a non-GAAP supplemental financial measure that we report because we believe it is useful to our investors. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of this Report for a discussion of our Same Property NOI.
Occupancy RateWe calculate the Occupancy Rate by excluding signed leases not yet commenced from the Leased Rate. Management space is considered occupied. Space taken out of service during a repositioning or which is vacant as a result of a fire or other damage is excluded from both the numerator and denominator for calculating Occupancy Rate. We report Occupancy Rate because it is a widely reported measure of the performance of equity REITs, and is also used by some investors as a means to determine tenant demand and to compare our performance with other REITs. We use Occupancy Rate to manage and monitor the performance of our office and multifamily portfolios.
Recurring Capital ExpendituresBuilding improvements required to maintain revenues once a property has been stabilized, and excludes capital expenditures for (i) acquired buildings being stabilized, (ii) newly developed space, (iii) upgrades to improve revenues or operating expenses or significantly change the use of the space, (iv) casualty damage and (v) bringing the property into compliance with governmental or lender requirements. We report Recurring Capital Expenditures because it is a widely reported measure of the performance of equity REITs, and is used by some investors as a means to determine our cash flow requirements and to compare our performance with other REITs. We use Recurring Capital Expenditures to manage and monitor the performance of our office and multifamily portfolios.
4

Rentable Square Feet
Based on the BOMA remeasurement and consists of leased square feet (including square feet with respect to signed leases not commenced as of the reporting date), available square feet, building management use square feet and square feet of the BOMA adjustment on leased space. We report Rentable Square Feet because it is a widely reported measure of the performance and value of equity REITs, and is also used by some investors to compare our performance and value with other REITs. We use Rentable Square Feet to manage and monitor the performance of our office portfolio.
Rental RateWe present two forms of Rental Rates - Cash Rental Rates and Straight-Line Rental Rates. Cash Rental Rate is calculated by dividing the rent paid by the Rentable Square Feet. Straight-Line Rental Rate is calculated by dividing the average rent over the lease term by the Rentable Square Feet.
Same Properties
Our consolidated properties that have been owned and operated by us in a consistent manner, and reported in our consolidated results during the entire span of both periods being compared. We exclude from our same property subset any properties that during the comparable periods were: (i) acquired, (ii) sold, held for sale, contributed or otherwise removed from our consolidated financial statements, (iii) that underwent a major repositioning project or were impacted by development activity, or suffered significant casualty loss that we believed significantly affected the properties' operating results. We also exclude rent received from ground leases.
Short-Term LeasesRepresents leases that expired on or before the reporting date or had a term of less than one year, including hold over tenancies, month to month leases and other short-term occupancies.
Total PortfolioIncludes our Consolidated Portfolio plus the properties owned by our Fund.
5

Forward Looking Statements


This Report contains forward-looking statements within the meaning of the Section 27A of the Securities Act and Section 21E of the Exchange Act. You can find many (but not all) of these statements by looking for words such as “believe”, “expect”, “anticipate”, “estimate”, “approximate”, “intend”, “plan”, “would”, “could”, “may”, “future” or other similar expressions in this Report. We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements used in this Report, or those that we make orally or in writing from time to time, are based on our beliefs and assumptions, as well as information currently available to us. Actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors 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 inevitably prove to be incorrect. As a result, our future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution when relying on previously reported forward-looking statements, which were based on results and trends at the time they were made, to anticipate future results or trends. Some of the risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:

adverse developments related to the COVID-19 pandemic;
adverse economic or real estate developments affecting Southern California or Honolulu, Hawaii;
competition from other real estate investors in our markets;
decreasing rental rates or increasing tenant incentive and vacancy rates;
defaults on, early terminations of, or non-renewal of leases by tenants;
increases in interest rates or operating costs;
insufficient cash flows to service our outstanding debt or pay rent on ground leases;
difficulties in raising capital;
inability to liquidate real estate or other investments quickly;
adverse changes to rent control laws and regulations;
environmental uncertainties;
natural disasters;
fire and other property damage;
insufficient insurance, or increases in insurance costs;
inability to successfully expand into new markets and submarkets;
difficulties in identifying properties to acquire and failure to complete acquisitions successfully;
failure to successfully operate acquired properties;
risks associated with property development;
risks associated with JVs;
conflicts of interest with our officers and reliance on key personnel;    
changes in zoning and other land use laws;
adverse results of litigation or governmental proceedings;
failure to comply with laws, regulations and covenants that are applicable to our business;
possible terrorist attacks or wars;
possible cyber attacks or intrusions;
adverse changes to accounting rules;
weaknesses in our internal controls over financial reporting;
failure to maintain our REIT status under federal tax laws; and
adverse changes to tax laws, including those related to property taxes.

For further discussion of these and other risk factors see Item 1A. "Risk Factors” in our 2020 Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and Item 1A. "Risk Factors" in this Report. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Report.

6

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Emmett, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 September 30, 2021December 31, 2020
UnauditedAudited
Assets  
Investment in real estate, gross$11,845,398 $11,678,638 
Less: accumulated depreciation and amortization(3,034,696)(2,816,193)
Investment in real estate, net8,810,702 8,862,445 
Ground lease right-of-use asset7,467 7,472 
Cash and cash equivalents350,494 172,385 
Tenant receivables12,986 18,226 
Deferred rent receivables116,416 116,199 
Acquired lease intangible assets, net4,389 5,141 
Interest rate contract assets1,157  
Investment in unconsolidated Fund46,745 47,374 
Other assets32,531 21,583 
Total Assets$9,382,887 $9,250,825 
Liabilities  
Secured notes payable and revolving credit facility, net$5,012,291 $4,744,967 
Ground lease liability10,864 10,871 
Interest payable, accounts payable and deferred revenue161,287 144,344 
Security deposits53,827 56,247 
Acquired lease intangible liabilities, net26,803 35,223 
Interest rate contract liabilities113,976 214,016 
Dividends payable49,145 49,138 
Total liabilities5,428,193 5,254,806 
Equity  
Douglas Emmett, Inc. stockholders' equity:  
Common Stock, $0.01 par value, 750,000,000 authorized, 175,485,780 and 175,463,887 outstanding at September 30, 2021 and December 31, 2020, respectively
1,755 1,755 
Additional paid-in capital3,488,188 3,487,887 
Accumulated other comprehensive loss(79,539)(148,035)
Accumulated deficit(1,005,977)(904,516)
Total Douglas Emmett, Inc. stockholders' equity2,404,427 2,437,091 
Noncontrolling interests1,550,267 1,558,928 
Total equity3,954,694 3,996,019 
Total Liabilities and Equity$9,382,887 $9,250,825 

See accompanying notes to the consolidated financial statements.
7

Douglas Emmett, Inc.
Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)




 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Revenues    
Office rental    
Rental revenues and tenant recoveries$181,455 $169,571 $523,391 $514,211 
Parking and other income22,401 19,324 59,034 71,562 
Total office revenues203,856 188,895 582,425 585,773 
Multifamily rental    
Rental revenues29,878 25,727 84,933 80,685 
Parking and other income4,510 2,365 12,187 9,675 
Total multifamily revenues34,388 28,092 97,120 90,360 
Total revenues238,244 216,987 679,545 676,133 
Operating Expenses    
Office expenses70,026 68,956 195,745 198,921 
Multifamily expenses9,666 9,313 28,228 27,525 
General and administrative expenses11,435 9,469 30,564 29,667 
Depreciation and amortization93,104 94,952 279,801 291,494 
Total operating expenses184,231 182,690 534,338 547,607 
Other income498 654 2,178 2,968 
Other expenses(147)(788)(764)(2,662)
Income from unconsolidated Fund260 145 713 328 
Interest expense(38,878)(36,167)(110,018)(106,777)
Net income (loss)15,746 (1,859)37,316 22,383 
Less: Net loss attributable to noncontrolling interests2,395 5,632 8,623 10,343 
Net income attributable to common stockholders$18,141 $3,773 $45,939 $32,726 
Net income per common share – basic and diluted$0.10 $0.02 $0.26 $0.18 
 
See accompanying notes to the consolidated financial statements.
8

Douglas Emmett, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited and in thousands)



 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net income (loss)$15,746 $(1,859)$37,316 $22,383 
Other comprehensive income (loss): cash flow hedges19,585 17,060 100,451 (211,194)
Comprehensive income (loss)35,331 15,201 137,767 (188,811)
Less: Comprehensive (income) loss attributable to noncontrolling interests(3,384)452 (23,332)71,408 
Comprehensive income (loss) attributable to common stockholders$31,947 $15,653 $114,435 $(117,403)
 

See accompanying notes to the consolidated financial statements.


9

Douglas Emmett, Inc.
Consolidated Statements of Equity
(Unaudited; in thousands, except per share data)

 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Shares of Common StockBeginning balance175,471 175,375 175,464 175,370 
Exchange of OP Units for common stock15 — 22 5 
Ending balance175,486 175,375 175,486 175,375 
Common StockBeginning balance$1,755 $1,754 $1,755 $1,754 
Ending balance$1,755 $1,754 $1,755 $1,754 
Additional Paid-in CapitalBeginning balance$3,487,950 $3,486,442 $3,487,887 $3,486,356 
Exchange of OP Units for common stock243 — 354 90 
Repurchase of OP Units with cash(5)— (53)(4)
Ending balance$3,488,188 $3,486,442 $3,488,188 $3,486,442 
AOCIBeginning balance$(93,345)$(179,471)$(148,035)$(17,462)
Cash flow hedge adjustments13,806 11,880 68,496 (150,129)
Ending balance$(79,539)$(167,591)$(79,539)$(167,591)
Accumulated DeficitBeginning balance$(974,982)$(827,748)$(904,516)$(758,576)
Net income attributable to common stockholders18,141 3,773 45,939 32,726 
Dividends(49,136)(49,105)(147,400)(147,230)
Ending balance$(1,005,977)$(873,080)$(1,005,977)$(873,080)
Noncontrolling InterestsBeginning balance$1,557,754 $1,563,362 $1,558,928 $1,658,862 
Net loss attributable to noncontrolling interests(2,395)(5,632)(8,623)(10,343)
Cash flow hedge adjustments5,779 5,180 31,955 (61,065)
Distributions(13,719)(13,430)(41,188)(45,244)
Exchange of OP Units for common stock(243)— (354)(90)
Repurchase of OP Units with cash(5)— (62)(3)
Stock-based compensation3,096 3,363 9,611 10,726 
Ending balance$1,550,267 $1,552,843 $1,550,267 $1,552,843 
  
Total EquityBeginning balance$3,979,132 $4,044,339 $3,996,019 $4,370,934 
Net income (loss)15,746 (1,859)37,316 22,383 
Cash flow hedge adjustments19,585 17,060 100,451 (211,194)
Repurchase of OP Units with cash(10)— (115)(7)
Dividends(49,136)(49,105)(147,400)(147,230)
Distributions(13,719)(13,430)(41,188)(45,244)
Stock-based compensation3,096 3,363 9,611 10,726 
Ending balance$3,954,694 $4,000,368 $3,954,694 $4,000,368 
Dividends declared per common share$0.28 $0.28 $0.84 $0.84 

See accompanying notes to the consolidated financial statements.
10

Douglas Emmett, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)


    
 Nine Months Ended September 30,
20212020
Operating Activities  
Net income$37,316 $22,383 
Adjustments to reconcile net income to net cash provided by operating activities:  
Income from unconsolidated Fund(713)(328)
Depreciation and amortization279,801 291,494 
Net accretion of acquired lease intangibles(7,668)(12,536)
Straight-line rent(217)18,061 
Loan premium amortized and written off(344)(2,158)
Deferred loan costs amortized and written off8,131 5,813 
Amortization of stock-based compensation7,358 8,364 
Operating distributions from unconsolidated Fund709 394 
Change in working capital components:  
Tenant receivables5,240 (12,180)
Interest payable, accounts payable and deferred revenue23,810 37,360 
Security deposits(2,420)(3,555)
Other assets(11,421)3,617 
Net cash provided by operating activities339,582 356,729 
Investing Activities  
Capital expenditures for improvements to real estate(83,863)(105,583)
Capital expenditures for developments(152,204)(94,019)
Insurance recoveries for damage to real estate2,895 4,015 
Acquisition of additional interests in unconsolidated Fund (6,591)
Capital distributions from unconsolidated Fund779 884 
Net cash used in investing activities(232,393)(201,294)
Financing Activities  
Proceeds from borrowings1,045,000 589,000 
Repayment of borrowings(775,587)(499,561)
Loan cost payments(9,828)(3,839)
Distributions paid to noncontrolling interests(41,188)(45,244)
Dividends paid to common stockholders(147,393)(147,228)
Repurchase of OP Units(115)(7)
Net cash provided by (used in) financing activities70,889 (106,879)
Increase in cash and cash equivalents and restricted cash178,078 48,556 
Cash and cash equivalents and restricted cash - beginning balance172,517 153,804 
Cash and cash equivalents and restricted cash - ending balance$350,595 $202,360 
11

Douglas Emmett, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)

Reconciliation of Ending Cash Balance
Nine Months Ended September 30,
20212020
Cash and cash equivalents - ending balance$350,494 $202,166 
Restricted cash - ending balance101 194 
Cash and cash equivalents and restricted cash - ending balance$350,595 $202,360 


Supplemental Cash Flows Information

 Nine Months Ended September 30,
 20212020
Operating Activities
Cash paid for interest, net of capitalized interest$102,152 $103,117 
Capitalized interest paid$6,177 $3,256 
Non-cash Investing Transactions
Accrual for real estate and development capital expenditures$27,718 $46,428 
Capitalized stock-based compensation for improvements to real estate and developments$2,253 $2,362 
Removal of fully depreciated and amortized tenant improvements and lease intangibles$61,304 $48,208 
Removal of fully amortized acquired lease intangible assets$200 $271 
Removal of fully accreted acquired lease intangible liabilities$19,443 $6,659 
Non-cash Financing Transactions
Gain (loss) recorded in AOCI - consolidated derivatives$44,262 $(242,115)
Gain (loss) recorded in AOCI - unconsolidated Fund's derivatives (our share)$192 $(407)
Dividends declared$147,400 $147,230 
Exchange of OP Units for common stock$354 $90 

See accompanying notes to the consolidated financial statements.

12

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited)



1. Overview

Organization and Business Description

Douglas Emmett, Inc. is a fully integrated, self-administered and self-managed REIT. We are one of the largest owners and operators of high-quality office and multifamily properties in Los Angeles County, California and Honolulu, Hawaii. Through our interest in our Operating Partnership and its subsidiaries, consolidated JVs and unconsolidated Fund, we focus on owning, acquiring, developing and managing a substantial market share of top-tier office properties and premier multifamily communities in neighborhoods that possess significant supply constraints, high-end executive housing and key lifestyle amenities. The terms "us," "we" and "our" as used in the consolidated financial statements refer to Douglas Emmett, Inc. and its subsidiaries on a consolidated basis.
At September 30, 2021, our Consolidated Portfolio consisted of (i) a 17.8 million square foot office portfolio, (ii) 4,355 multifamily apartment units and (iii) fee interests in two parcels of land from which we receive rent under ground leases. We also manage and own an equity interest in an unconsolidated Fund which, at September 30, 2021, owned an additional 0.4 million square feet of office space. We manage our unconsolidated Fund alongside our Consolidated Portfolio, and we therefore present the statistics for our office portfolio on a Total Portfolio basis. As of September 30, 2021, our portfolio (not including two parcels of land from which we receive rent under ground leases), consisted of the following properties (including ancillary retail space):
 Consolidated PortfolioTotal
Portfolio
Office
Wholly-owned properties5353
Consolidated JV properties1616
Unconsolidated Fund properties2
6971
Multifamily
Wholly-owned properties1111
Consolidated JV properties11
1212
Total8183

Basis of Presentation

The accompanying consolidated financial statements are the consolidated financial statements of Douglas Emmett, Inc. and its subsidiaries, including our Operating Partnership and our consolidated JVs.  All significant intercompany balances and transactions have been eliminated in our consolidated financial statements.

We consolidate entities in which we are considered to be the primary beneficiary of a VIE or have a majority of the voting interest of the entity. We are deemed to be the primary beneficiary of a VIE when we have (i) the power to direct the activities of that VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We do not consolidate entities in which the other parties have substantive kick-out rights to remove our power to direct the activities, most significantly impacting the economic performance, of that VIE. In determining whether we are the primary beneficiary, we consider factors such as ownership interest, management representation, authority to control decisions, and contractual and substantive participating rights of each party.

We consolidate our Operating Partnership through which we conduct substantially all of our business, and own, directly and through subsidiaries, substantially all of our assets, and are obligated to repay substantially all of our liabilities, including $3.41 billion of consolidated debt. See Note 8. We also consolidate three JVs. As of September 30, 2021, these consolidated entities had aggregate total consolidated assets of $9.38 billion (of which $8.81 billion related to investment in real estate), aggregate total consolidated liabilities of $5.43 billion (of which $5.01 billion related to debt), and aggregate total consolidated equity of $3.95 billion (of which $1.55 billion related to noncontrolling interests).
13

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited) (continued)
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC in conformity with US GAAP as established by the FASB in the ASC. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in conformity with US GAAP may have been condensed or omitted pursuant to SEC rules and regulations, although we believe that the disclosures are adequate to make their presentation not misleading. The accompanying unaudited interim consolidated financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth therein. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements in our 2020 Annual Report on Form 10-K and the notes thereto. Any references to the number or class of properties, square footage, per square footage amounts, apartment units and geography, are outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the PCAOB.

2. Summary of Significant Accounting Policies

We have not made any changes to our significant accounting policies disclosed in our 2020 Annual Report on Form 10-K.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make certain estimates that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Revenue Recognition

Rental revenues and tenant recoveries

We account for our rental revenues and tenant recoveries in accordance with Topic 842 "Leases". Rental revenues and tenant recoveries are included in: (i) Rental revenues and tenant recoveries under Office rental, and (ii) Rental revenues under Multifamily rental, in our consolidated statements of operations.

In accordance with Topic 842, we perform an assessment as to whether or not substantially all of the amounts due under a tenant’s lease agreement is deemed probable of collection. This assessment involves using a methodology that requires judgment and estimates about matters that are uncertain at the time the estimates are made, including tenant specific factors, specific industry conditions, and general economic trends and conditions.

For leases where we have concluded it is probable that we will collect substantially all the lease payments due under those leases, we continue to record lease income on a straight-line basis over the lease term. For leases where we have concluded that it is not probable that we will collect substantially all the lease payments due under those leases, we limit the lease income to the lesser of the income recognized on a straight-line basis or cash basis. If our conclusion of collectibility changes, we will record the difference between the lease income that would have been recognized on a straight-line basis and cash basis as a current-period adjustment to rental revenues and tenant recoveries. We write-off tenant receivables and deferred rent receivables as a charge against rental revenues and tenant recoveries in the period we conclude that substantially all of the lease payments are not probable of collection. If we subsequently collect amounts that were previously written off then the amounts collected are recorded as an increase to our rental revenues and tenant recoveries.

Charges for uncollectible tenant receivables and deferred rent receivables, which were primarily due to the impact of the COVID-19 pandemic, reduced our office revenues by:
$0.3 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively, and
$2.8 million and $38.5 million for the nine months ended September 30, 2021 and 2020, respectively.

14

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited) (continued)
Office parking revenues

We account for our office parking revenues in accordance with ASC 606 "Revenue from Contracts with Customers". Office parking revenues are included in Parking and other income under Office rental in our consolidated statements of operations. Our lease contracts generally make a specified number of parking spaces available to the tenant, and we bill and recognize parking revenues on a monthly basis in accordance with the lease agreements, generally using the monthly parking rates in effect at the time of billing.

Office parking revenues were:
$19.0 million and $15.6 million for the three months ended September 30, 2021, and 2020, respectively, and
$50.1 million and $60.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Office parking receivables, which are included in Tenant receivables in our consolidated balance sheets, were:
$0.8 million as of September 30, 2021, and
$0.6 million as of December 31, 2020.


Income Taxes

We have elected to be taxed as a REIT under the Code. Provided that we qualify for taxation as a REIT, we are generally not subject to corporate-level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities. We are subject to corporate-level tax on the earnings that we derive through our TRS.

New Accounting Pronouncements

Changes to US GAAP are implemented by the FASB in the form of ASUs.  We consider the applicability and impact of all ASUs. As of the date of this Report, the FASB has not issued any ASUs that we expect to be applicable and have a material impact on our consolidated financial statements.


3. Investment in Real Estate

The table below summarizes our investment in real estate:

(In thousands)September 30, 2021December 31, 2020
Land$1,150,821$1,150,821
Buildings and improvements9,404,4349,344,653
Tenant improvements and lease intangibles934,333928,867
Property under development355,810254,297
Investment in real estate, gross$11,845,398$11,678,638


Acquisitions and Dispositions

During the nine months ended September 30, 2021, we did not purchase or sell any properties.
15

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited) (continued)
4. Ground Lease

We pay rent under a ground lease located in Honolulu, Hawaii, which expires on December 31, 2086. The rent is fixed at $733 thousand per year until February 28, 2029, after which it will reset to the greater of the existing ground rent or the market rent at the time.

As of September 30, 2021, the ground lease right-of-use asset carrying value was $7.5 million and the ground lease liability was $10.9 million.

Ground rent expense, which is included in Office expenses in our consolidated statements of operations, was:
$183 thousand for each of the three month periods ended September 30, 2021 and 2020, and
$548 thousand for each of the the nine month periods ended September 30, 2021 and 2020.

The table below, which assumes that the ground rent payments will continue to be $733 thousand per year after February 28, 2029, presents the future minimum ground lease payments as of September 30, 2021:
Twelve months ending September 30:(In thousands)
2022$733 
2023733 
2024733 
2025733 
2026733 
Thereafter44,162 
Total future minimum lease payments$47,827 

16

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited) (continued)
5. Acquired Lease Intangibles

Summary of our Acquired Lease Intangibles

 (In thousands)September 30, 2021December 31, 2020
Above-market tenant leases$6,649 $6,848 
Above-market tenant leases - accumulated amortization(3,158)(2,618)
Above-market ground lease where we are the lessor1,152 1,152 
Above-market ground lease - accumulated amortization(254)(241)
Acquired lease intangible assets, net$4,389 $5,141 
Below-market tenant leases$62,490 $81,934 
Below-market tenant leases - accumulated accretion(35,687)(46,711)
Acquired lease intangible liabilities, net$26,803 $35,223 

    
Impact on the Consolidated Statements of Operations

The table below summarizes the net amortization/accretion related to our above- and below-market leases:

 Three Months Ended September 30,Nine Months Ended September 30,
 (In thousands)2021202020212020
Net accretion of above- and below-market tenant lease assets and liabilities(1)
$2,168 $3,970 $7,681 $12,549 
Amortization of an above-market ground lease asset(2)
(5)(5)(13)(13)
Total$2,163 $3,965 $7,668 $12,536 
______________________________________________
(1)    Recorded as a net increase to office and multifamily rental revenues.
(2)    Recorded as a decrease to office parking and other income.


17

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited) (continued)
6. Investment in Unconsolidated Fund

Description of our Fund

As of September 30, 2021 and 2020, we managed and owned an equity interest of 33.5% in an unconsolidated Fund, Partnership X, through which we and other investors in the Fund owned two office properties totaling 0.4 million square feet. We purchased an additional interest of 3.6% in Partnership X for $6.6 million during the nine months ended September 30, 2020.
Partnership X pays us fees and reimburses us for certain expenses related to property management and other services we provide, which are included in Other income in our consolidated statements of operations. We also receive distributions based on invested capital and on any profits that exceed certain specified cash returns to the investors. The table below presents cash distributions we received from Partnership X:
Nine Months Ended September 30,
 (In thousands)20212020
Operating distributions received$709 $394 
Capital distributions received779 884 
Total distributions received$1,488 $1,278 


Summarized Financial Information for Partnership X

The tables below present selected financial information for Partnership X.  The amounts presented reflect 100% (not our pro-rata share) of amounts related to Partnership X, and are based upon historical acquired book value:

 (In thousands)September 30, 2021December 31, 2020
Total assets$138,457 $133,617 
Total liabilities$117,274 $112,706 
Total equity$21,183 $20,911 


 Nine Months Ended September 30,
 (In thousands)20212020
Total revenues$12,643 $11,681 
Operating income$3,508 $2,724 
Net income$1,801 $701 


7. Other Assets

 (In thousands)September 30, 2021December 31, 2020
Restricted cash$101 $132 
Prepaid expenses24,715 13,774 
Other indefinite-lived intangibles1,988 1,988 
Furniture, fixtures and equipment, net2,214 2,358 
Other3,513 3,331 
Total other assets$32,531 $21,583 
18

Douglas Emmett, Inc.
Notes to Consolidated Financial Statements (unaudited) (continued)
8. Secured Notes Payable and Revolving Credit Facility, Net
Description
Maturity
Date(1)
Principal Balance as of September 30, 2021Principal Balance as of December 31, 2020Variable Interest Rate
Fixed Interest
Rate(2)
Swap Maturity Date
(In thousands)
Consolidated Wholly Owned Subsidiaries
Term loan(3)
1/1/2024$300,000 $300,000 
LIBOR + 1.55%
3.46%1/1/2022
Term loan(3)
3/3/2025335,000 335,000 
LIBOR + 1.30%
3.84%3/1/2023
Fannie Mae loan(3)
4/1/2025102,400 102,400 
LIBOR + 1.25%
2.76%3/1/2023
Term loan(3)
8/15/2026415,000 415,000 
LIBOR + 1.10%
3.07%8/1/2025
Term loan(3)
9/19/2026400,000 400,000 
LIBOR + 1.15%
2.44%9/1/2024
Term loan(3)
9/26/2026200,000 200,000 
LIBOR + 1.20%
2.36%