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What changed in Douglas Emmett Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Douglas Emmett Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+243 added−236 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-17)

Top changes in Douglas Emmett Inc's 2023 10-K

243 paragraphs added · 236 removed · 180 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeSegments We operate two business segments, our office segment and our multifamily segment. Our segments include the acquisition, development, ownership and management of office and multifamily real estate. The services for our office segment include primarily the rental of office space and other tenant services, including parking and storage space rental.
Biggest changeOur segments include the acquisition, development, ownership and management of office and multifamily real estate. The services for our office segment include primarily the rental of office space and other tenant services, including parking and storage space rental. The services for our multifamily segment include primarily the rental of apartments and other tenant services, including parking and storage space rental.
In a few of our buildings where groundwater naturally seeps into our subterranean parking garages, we treat the water before pumping it back into the ground. • Controlling Waste, including hazardous waste and recycling Recycling: In partnership with our vendors and tenants, we have implemented business waste and e-waste recycling programs (we do not generate any production waste or packaging waste) at our properties.
In a few of our buildings where groundwater naturally seeps into our subterranean parking garages, we treat the water before pumping it back into the ground. 10 • Controlling Waste, including hazardous waste and recycling Recycling: In partnership with our vendors and tenants, we have implemented business waste and e-waste recycling programs (we do not generate any production waste or packaging waste) at our properties.
Furthermore, if we fail to distribute during each calendar year the sum of at least (i) 85% of our ordinary income for such year, (ii) 95% of our capital gains income for such year, and (iii) any undistributed taxable income from prior periods, we would be required to pay a 4% excise tax on the excess of such required distributions over the amounts actually distributed. 8 Table of Contents We own interests in various partnerships and limited liability companies.
Furthermore, if we fail to distribute during each calendar year the sum of at least (i) 85% of our ordinary income for such year, (ii) 95% of our capital gains income for such year, and (iii) any undistributed taxable income from prior periods, we would be required to pay a 4% excise tax on the excess of such required distributions over the amounts actually distributed. 8 We own interests in various partnerships and limited liability companies.
Our in-house leasing agents and legal specialists allow us to lease a large property portfolio with a diverse group of smaller tenants, closing an average of approximately four office leases each business day, and our in-house construction company allows us to compress the time required for building out many smaller spaces, resulting in reduced vacancy periods.
Our in-house leasing agents and legal specialists allow us to lease a large property portfolio with a diverse group of smaller tenants, closing an average of approximately three office leases each business day, and our in-house construction company allows us to compress the time required for building out many smaller spaces, resulting in reduced vacancy periods.
We estimate the percentage of renewable energy provided by our utility providers was approximately one-third in 2020 (the most recent available data). • Water Usage We have undertaken a number of initiatives to conserve water across our portfolio. Our buildings use low flow faucets and toilets, and we have also saved water by using waterless urinals.
We estimate the percentage of renewable energy provided by our utility providers was approximately one-third in 2021 (the most recent available data). • Water Usage We have undertaken a number of initiatives to conserve water across our portfolio. Our buildings use low flow faucets and toilets, and we have also saved water by using waterless urinals.
See Note 15 to our consolidated financial statements in Item 15 of this Report for more information regarding our segments. 7 Table of Contents Taxation We believe that we qualify, and we intend to continue to qualify, for taxation as a REIT under the Code, although we cannot provide assurance that this has happened or will happen.
See Note 15 to our consolidated financial statements in Item 15 of this Report for more information regarding our segments. 7 Taxation We believe that we qualify, and we intend to continue to qualify, for taxation as a REIT under the Code, although we cannot provide assurance that this has happened or will happen.
In addition, if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the five-year period beginning on the date on which we acquired the asset, then we generally will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of the excess of (i) the fair market value of the asset over (ii) our adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset.
In addition, if we acquire any asset from a corporation that is or has been a C corporation in certain transactions in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the five-year period beginning on the date on which we acquired the asset, then we generally will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of the excess of (i) the fair market value of the asset over (ii) our adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset.
Our submarkets are dominated by small, affluent tenants, whose rents are very small relative to their revenues and often not the paramount factor in their leasing decisions. At December 31, 2022, our office portfolio median size tenant was approximately 2,500 square feet.
Our submarkets are dominated by small, affluent tenants, whose rents are very small relative to their revenues and often not the paramount factor in their leasing decisions. At December 31, 2023, our office portfolio median size tenant was approximately 2,500 square feet.
JVs and Fund At December 31, 2022, in addition to fifty-three office properties and twelve residential properties wholly-owned by our Operating Partnership, we manage and own equity interests in: • four consolidated JVs, through which we and institutional investors own sixteen office properties in our core markets totaling 4.2 million square feet and two residential properties with 470 apartments, and in which we own a weighted average of 46% at December 31, 2022 based on square footage.
JVs and Fund At December 31, 2023, in addition to fifty-two office properties and twelve residential properties wholly-owned by our Operating Partnership, we manage and own equity interests in: • four consolidated JVs, through which we and institutional investors own sixteen office properties in our core markets totaling 4.2 million square feet and two residential properties with 470 apartments, and in which we own a weighted average of 46% at December 31, 2023 based on square footage.
Our large ownership share in many of these neighborhoods put us in a unique position to sometimes invest in outdoor enhancement projects that not only improve our properties but also provide a valuable amenity to the surrounding community.
Our large ownership share in many of these neighborhoods puts us in a unique position to sometimes invest in outdoor enhancement projects that not only improve our properties but also provide a valuable amenity to the surrounding community.
None of the information on or hyperlinked from our website is incorporated into this Report. For more information, please contact: Stuart McElhinney Vice President, Investor Relations 310-255-7751 smcelhinney@douglasemmett.com 12 Table of Contents
None of the information on or hyperlinked from our website is incorporated into this Report. For more information, please contact: Stuart McElhinney Vice President, Investor Relations 310-255-7751 smcelhinney@douglasemmett.com 12
Recruitment, hiring, placement, development, training, compensation and advancement may not be based on any of these factors, but should instead be based on factors such as qualifications, performance, skills and experience. 11 Table of Contents We know that the first step in hiring and retaining the best talent is to create safe and inspiring workplaces where people feel valued.
Recruitment, hiring, placement, development, training, compensation and advancement may not be based on any of these factors, but should instead be based on factors such as qualifications, performance, skills and experience. We know that the first step in hiring and retaining the best talent is to create safe and inspiring workplaces where people feel valued.
To minimize that waste, we attempt to construct tenant improvements that will be usable by future tenants, and to fit tenants into existing spaces without substantial refurbishment. 10 Table of Contents Hazardous Waste: Our operations only generate modest ancillary amounts of hazardous waste (mostly office supplies), which we dispose of in accordance with all applicable waste regulations.
To minimize that waste, we attempt to construct tenant improvements that will be usable by future tenants, and to fit tenants into existing spaces without substantial refurbishment. Hazardous Waste: Our operations only generate modest ancillary amounts of hazardous waste (mostly office supplies), which we dispose of in accordance with all applicable waste regulations.
As of December 31, 2022, we employed approximately 750 people. We promote a culture of openness, respect and trust and bring a sense of teamwork and inclusion to all we do. We recognize that having a range of experiences, backgrounds and perspectives allows us to find new ways of doing things.
As of December 31, 2023, we employed approximately 750 people. 11 We promote a culture of openness, respect and trust and bring a sense of teamwork and inclusion to all we do. We recognize that having a range of experiences, backgrounds and perspectives allows us to find new ways of doing things.
We are entitled to (i) distributions based on invested capital as well as additional distributions based on cash net operating income, (ii) fees for property management and other services and (iii) reimbursement of certain acquisition-related expenses and certain other costs. • one unconsolidated Fund through which we and institutional investors own two office properties in our core markets totaling 0.4 million square feet and in which we own 34% at December 31, 2022.
We are entitled to (i) distributions based on invested capital as well as additional distributions based on cash net operating income, (ii) fees for property management and other services and (iii) reimbursement of certain acquisition-related expenses and certain other costs. • one unconsolidated Fund, through which we and institutional investors own two office properties in our core markets totaling 0.4 million square feet, and in which we own 53.8% at December 31, 2023.
We also manage and own equity interests in our unconsolidated Fund which, at December 31, 2022, owned an additional 0.4 million square feet of office space. We manage our unconsolidated Fund alongside our Consolidated Portfolio, and we therefore present the statistics for our office portfolio on a Total Portfolio basis. For more information, see Item 2 “Properties” of this Report.
We also manage and own equity interests in our unconsolidated Fund which, at December 31, 2023, 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. For more information, see Item 2 "Properties" of this Report.
See Item 1A “Risk Factors” of this Report for the risks we face regarding insurance. Competition We compete with a number of developers, owners and operators of office and multifamily real estate, many of which own properties similar to ours in the same markets in which our properties are located.
See Item 1A "Risk Factors" of this Report for the risks we face regarding insurance. Competition We compete with a number of developers, owners and operators of office and multifamily real estate, many of which own properties similar to ours in the same markets in which our properties are located.
We also encourage sustainable transportation choices by our tenants: We have installed over 200 electric vehicle charging stations at our properties and have plans to add additional stations. All of our buildings provide ample bicycle parking. • Development Ground up development is a small but growing part of our business.
We also encourage sustainable transportation choices by our tenants: We have installed almost 400 electric vehicle charging stations at our properties and have plans to add additional stations. All of our buildings provide ample bicycle parking. • Development Ground up development is a small but growing part of our business.
As a result of our efforts, 89% of our stabilized eligible office space as of December 31, 2021 qualified for "ENERGY STAR Certification" by the EPA as having energy efficiency in the top 25% of buildings nationwide (our 2022 ENERGY STAR scores were not yet available as of the date of this Report).
As a result of our efforts, 92% of our stabilized eligible office space as of December 31, 2022 qualified for "ENERGY STAR Certification" by the EPA as having energy efficiency in the top 25% of buildings nationwide (our 2023 ENERGY STAR scores were not yet available as of the date of this Report).
We own an interest in a subsidiary that is intended to be treated as a QRS. The Code provides that a QRS will be ignored for federal income tax purposes and all assets, liabilities and items of income, deduction and credit of the QRS will be treated as our assets, liabilities and items of income.
We own an interest in a subsidiary that is intended to be treated as a QRS. The Code provides that a QRS will not be treated as a separate corporation for federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the QRS will be treated as our assets, liabilities and items of income.
As of December 31, 2022, our portfolio consisted of the following (including ancillary retail space and excluding two parcels of land from which we receive rent under ground leases): Consolidated Portfolio Total Portfolio Office Wholly-owned properties 53 53 Consolidated JV properties 16 16 Unconsolidated Fund properties — 2 Total 69 71 Multifamily Wholly-owned properties 12 12 Consolidated JV properties 2 2 Total 14 14 Total 83 85 Business Strategy We employ a focused business strategy that we have developed and implemented over the past four decades: • Concentration of High Quality Office and Multifamily Properties in Premier Submarkets.
As of December 31, 2023, our portfolio consisted of the following (including ancillary retail space and excluding two parcels of land from which we receive rent under ground leases): Consolidated Portfolio Total Portfolio Office Wholly-owned properties 52 52 Consolidated JV properties 16 16 Unconsolidated Fund properties — 2 Total 68 70 Multifamily Wholly-owned properties 12 12 Consolidated JV properties 2 2 Total 14 14 Total 82 84 Business Strategy We employ a focused business strategy that we have developed and implemented over the past four decades: • Concentration of High Quality Office and Multifamily Properties in Premier Submarkets.
See Item 2 of this Report for more information about our properties. See Item 1A “Risk Factors” of this Report for the risks we face regarding competition.
See Item 2 "Properties" of this Report for more information about our properties. See Item 1A "Risk Factors" of this Report for the risks we face regarding competition.
See Item 1A “Risk Factors” of this Report for the risks we face regarding laws and regulations. 9 Table of Contents Environmental Sustainability Our approach We actively manage our operations in an environmentally sustainable manner.
See Item 1A "Risk Factors" of this Report for the risks we face regarding laws and regulations. 9 Environmental Sustainability Our approach We actively manage our operations in an environmentally sustainable manner.
In 2022, we provided equity compensation to approximately half of our approximately 750 employees. The health and safety of our employees, tenants, and vendors is of the utmost importance to us. We adhere to leading health and safety standards across our portfolio, and each year, we require all our employees to complete safety training.
In 2023, we provided equity compensation to more than a quarter of our approximately 750 employees. The health and safety of our employees, tenants, and vendors is of the utmost importance to us. We adhere to leading health and safety standards across our portfolio, and each year, we require all our employees to complete safety training.
At December 31, 2022, we owned a Consolidated Portfolio consisting of (i) a 17.7 million square foot office portfolio, (ii) 5,013 multifamily apartment units and (iii) fee interests in two parcels of land from which we receive rent under ground leases.
At December 31, 2023, we owned a Consolidated Portfolio consisting of (i) a 17.6 million square foot office portfolio, (ii) 4,576 multifamily apartment units and (iii) fee interests in two parcels of land from which we receive rent under ground leases.
Most of the property data in this Report is presented for our Total Portfolio, which includes the properties owned by our JVs and our Fund, as we believe this presentation assists in understanding our business. See Note 3 to our consolidated financial statements in Item 15 of this Report for more information regarding our JV transactions.
Most of the property data in this Report is presented for our Total Portfolio, which includes the properties owned by our JVs and our Fund, as we believe this presentation assists in understanding our business. Segments We operate two business segments, our office segment and our multifamily segment.
Our office tenants operate in diverse industries, including among others legal, financial services, entertainment, real estate, accounting and consulting, health services, retail, technology and insurance, reducing our dependence on any one industry.
Our office tenants operate in diverse industries, including among others legal, financial services, entertainment, real estate, accounting and consulting, health services, retail, technology and insurance, reducing our dependence on any one industry. In 2021, 2022 and 2023, no tenant accounted for more than 10% of our total revenues. 6 • Disciplined Strategy of Acquiring Substantial Market Share In Each Submarket.
We hold certain of our properties through subsidiaries that have elected to be taxed as REITs. We also wholly own an interest in a corporation which has elected to be treated as a TRS.
We hold certain of our properties through subsidiaries that have elected to be taxed as REITs. Each such subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. We also wholly own a corporation which has elected to be treated as a TRS.
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In 2020, 2021 and 2022, no tenant accounted for more than 10% of our total revenues. 6 Table of Contents • Disciplined Strategy of Acquiring Substantial Market Share In Each Submarket.
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The services for our multifamily segment include primarily the rental of apartments and other tenant services, including parking and storage space rental.
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The COVID-19 pandemic had a significant impact on our human capital management during 2020, 2021 and 2022. We are deemed an essential business and we moved quickly to institute safety protocols and procedures to keep our properties open and to protect our tenants and employees who continued to work on site and at our headquarters.
Removed
These measures included enhanced cleaning/sanitization practices, maximizing fresh air ventilation, and upgrading air filter efficiencies. These ventilation and filtration measures will have longer-term beneficial impacts on our indoor air quality well past the pandemic. We also implemented employee training and workforce guidelines for preventing the spread of COVID-19 at our properties.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

61 edited+32 added−7 removed131 unchanged
Biggest changeOur properties in Los Angeles County are concentrated in certain submarkets, exposing us to risks associated with those specific areas. • Our operating performance is subject to risks associated with the real estate industry. • We have a substantial amount of debt, which exposes us to interest rate fluctuation risk and the risk of not being able to refinance our debt, which in turn could expose us to the risk of default under our debt obligations. • The rents we receive from new leases may be less than our asking rents, and we may experience rent roll-down from time to time. • In order to successfully compete against other properties, we need to maintain, repair, and renovate our properties, which reduces our cash flows. • We face intense competition, which could adversely impact the occupancy and rental rates of our properties. • Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance. • We may be unable to renew leases or lease vacant space. • Our business strategy for our office portfolio focuses on leasing to smaller-sized tenants which may present greater credit risks. • Real estate investments are generally illiquid. • We may incur significant costs to comply with laws, regulations and covenants. • Because we own real property, we are subject to extensive environmental regulations, which create uncertainty regarding future environmental expenditures and liabilities. • Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation. • Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants. • We may be unable to complete acquisitions that would grow our business, or successfully integrate and operate acquired properties. • We may be unable to successfully expand our operations into new markets and submarkets. • We are exposed to risks associated with property development. • We are exposed to certain risks when we enter into JVs or issue securities of our subsidiaries, including our Operating Partnership. • If we default on the ground lease to which one of our properties is subject, our business could be adversely affected. 13 Table of Contents • We may not have sufficient cash available for distribution to stockholders at expected levels in the future. • We face risks associated with contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control. • Terrorism and war could harm our business and operating results.
Biggest changeOur properties in Los Angeles County are concentrated in certain submarkets, exposing us to risks associated with those specific areas. • Our operating performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trends in the real estate industry. • We have a substantial amount of debt, which exposes us to interest rate fluctuation risk and the risk of not being able to refinance our debt, which in turn could expose us to the risk of default under our debt obligations. • The rents we receive from new leases may be less than our asking rents, and we may experience rent roll-down from time to time. • Although we have a diverse tenant base, a large portion of our tenants operate in a concentrated group of industries and downturns in these industries could adversely affect our financial condition, results of operations and cash flows. • In order to successfully compete against other properties, we need to maintain, repair, and renovate our properties, which reduces our cash flows. • We face intense competition, which could adversely impact the occupancy and rental rates of our properties. • Epidemics, pandemics or other outbreaks, and restrictions intended to prevent their spread, may adversely affect our business, financial position, results of operations, cash flows, our ability to service our debt, our ability to pay dividends to our stockholders, our REIT status, our ability to capitalize on business opportunities as they arise, our ability to raise capital, and/or the market price of our common stock. • Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance. • We may be unable to renew leases or lease vacant space. • Our business strategy for our office portfolio focuses on leasing to smaller-sized tenants which may present greater credit risks. • Real estate investments are generally illiquid. • We may incur significant costs to comply with laws, regulations and covenants. • Because we own real property, we are subject to extensive environmental regulations, which create uncertainty regarding future environmental expenditures and liabilities. • Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation. • Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants. • We may be unable to complete acquisitions that would grow our business, or successfully integrate and operate acquired properties. • We may be unable to successfully expand our operations into new markets and submarkets. • We are exposed to risks associated with property development. 13 • We are exposed to certain risks when we enter into JVs or issue securities of our subsidiaries, including our Operating Partnership. • If we default on the ground lease to which one of our properties is subject, our business could be adversely affected. • We may not have sufficient cash available for distribution to stockholders at expected levels in the future. • We face risks associated with contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control. • Terrorism and war could harm our business and operating results.
To the extent that we do so, we are subject to certain risks, including the following: • We may not complete a development or redevelopment project on schedule or within budgeted amounts (as a result of risks beyond our control, such as weather, labor conditions, permitting issues, material shortages and price increases); • We may be unable to lease the developed or redeveloped properties at budgeted rental rates or lease up the property within budgeted time frames; • We may devote time and expend funds on development or redevelopment of properties that we may not complete; • We may encounter delays or refusals in obtaining all necessary zoning, land use, and other required entitlements, and building, occupancy and other required governmental permits and authorizations, and our costs to comply with the conditions imposed by such permits and authorizations could increase; • We may encounter delays, refusals and unforeseen cost increases resulting from third-party litigation or objections; and • We may fail to obtain the financial results expected from properties we develop or redevelop; We are exposed to certain risks when we enter into JVs or issue securities of our subsidiaries, including our Operating Partnership.
To the extent that we do so, we are subject to certain risks, including the following: • We may not complete a development or redevelopment project on schedule or within budgeted amounts (as a result of risks beyond our control, such as weather, labor conditions, permitting issues, material shortages and price increases); • We may be unable to lease the developed or redeveloped properties at budgeted rental rates or lease up the property within budgeted time frames; 22 • We may devote time and expend funds on development or redevelopment of properties that we may not complete; • We may encounter delays or refusals in obtaining all necessary zoning, land use, and other required entitlements, and building, occupancy and other required governmental permits and authorizations, and our costs to comply with the conditions imposed by such permits and authorizations could increase; • We may encounter delays, refusals and unforeseen cost increases resulting from third-party litigation or objections; and • We may fail to obtain the financial results expected from properties we develop or redevelop; We are exposed to certain risks when we enter into JVs or issue securities of our subsidiaries, including our Operating Partnership.
Although we believe that the Operating Partnership and other subsidiary partnerships, limited liability companies, REIT subsidiaries, QRS and other subsidiaries (other than the TRS) in which we own a direct or indirect interest will be treated for tax purposes as a partnership, disregarded entity (e.g., in the case of a 100% owned limited liability company), REIT or QRS, as applicable, no assurance can be given that the IRS will not successfully challenge the tax classification of any such entity, or that a court would not sustain such a challenge.
Although we believe that the Operating Partnership and other subsidiary partnerships, limited liability companies, REIT subsidiaries, QRS and other subsidiaries (other than a TRS) in which we own a direct or indirect interest will be treated for tax purposes as a partnership, disregarded entity (e.g., in the case of a 100% owned limited liability company), REIT or QRS, as applicable, no assurance can be given that the IRS will not challenge the tax classification of any such entity, or that a court would not sustain such a challenge.
This may subject us to risks that may not be present with other methods of ownership, including for example the following: • We may not be able to exercise sole decision-making authority regarding the properties, partnership, JV or other entity, which would allow for impasses on decisions that could restrict our ability to sell or transfer our interests in such entity or such entity’s ability to transfer or sell its assets; • Partners or co-venturers may default on their obligations including those related to capital contributions, debt financing or interest rate swaps, which could delay acquisition, construction or development of a property or increase our financial commitment to the partnership or JV; • Conflicts of interests with our partners or co-venturers as result of matters such as different needs for liquidity, assessments of the market or tax objectives; ownership of competing interests in other properties; and other business interests, policies or objectives that are competitive or inconsistent with ours; • If any such jointly owned or managed entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may suffer significantly, including having to dispose of our interest in such entity (if that is possible) or even losing our status as a REIT; • Our assumptions regarding the tax impact of any structure or transaction could prove to be incorrect, and we could be exposed to significant taxable income, property tax reassessments or other liabilities, including any liability to third parties that we may assume as part of such transaction or otherwise; • Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses, affect our ability to develop or operate a property and/or prevent our officers and/or directors from focusing their time and effort on our business; • We may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers; and 22 Table of Contents • We may not be able to raise capital as needed from institutional investors or sovereign wealth funds, or on terms that are favorable.
This may subject us to risks that may not be present with other methods of ownership, including for example the following: • We may not be able to exercise sole decision-making authority regarding the properties, partnership, JV or other entity, which would allow for impasses on decisions that could restrict our ability to sell or transfer our interests in such entity or such entity’s ability to transfer or sell its assets; • Partners or co-venturers may default on their obligations including those related to capital contributions, debt financing or interest rate swaps, which could delay acquisition, construction or development of a property or increase our financial commitment to the partnership or JV; • Conflicts of interests with our partners or co-venturers as result of matters such as different needs for liquidity, assessments of the market or tax objectives; ownership of competing interests in other properties; and other business interests, policies or objectives that are competitive or inconsistent with ours; • If any such jointly owned or managed entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may suffer significantly, including having to dispose of our interest in such entity (if that is possible) or even losing our status as a REIT; • Our assumptions regarding the tax impact of any structure or transaction could prove to be incorrect, and we could be exposed to significant taxable income, property tax reassessments or other liabilities, including any liability to third parties that we may assume as part of such transaction or otherwise; • Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses, affect our ability to develop or operate a property and/or prevent our officers and/or directors from focusing their time and effort on our business; • We may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers; and • We may not be able to raise capital as needed from institutional investors or sovereign wealth funds, or on terms that are favorable.
Even when there is a favorable outcome, litigation may result in substantial expenses and significantly divert the attention of our management with a similar adverse effect on us. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results.
Even when there is a favorable outcome, litigation may result in substantial expenses and significantly divert the attention of our management with a similar adverse effect on us. 30 If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results.
If our available cash were to decline significantly below our taxable income, we could lose our REIT status unless we could borrow to make such distributions or make any required distributions in common stock. We face risks associated with contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control.
If our available cash were to decline significantly below our taxable income, we could lose our REIT status unless we could borrow to make such distributions or make any required distributions in common stock. 23 We face risks associated with contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control.
Additionally, any distributions we make to our non-U.S. stockholders that are attributable to gain from the sale of any USRPI will also generally be subject to FIRPTA tax and applicable withholdings, unless the recipient non-U.S. stockholder has not owned more than 10% of our common stock at any time during the year preceding the distribution and our common stock is treated as being “regularly traded”. 29 Table of Contents General Risks Security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our IT networks and related systems could harm our business.
Additionally, any distributions we make to our non-U.S. stockholders that are attributable to gain from the sale of any USRPI will also generally be subject to FIRPTA tax and applicable withholdings, unless the recipient non-U.S. stockholder has not owned more than 10% of our common stock at any time during the year preceding the distribution and our common stock is treated as being “regularly traded”. 29 General Risks Security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our IT networks and related systems could harm our business.
If we lose the services of any of our executive officers or key senior personnel our business could be adversely affected. Compensation awards to our management may not be tied to or correspond with improved financial results or the market price of our common stock.
If we lose the services of any of our executive officers or key senior personnel our business could be adversely affected. 24 Compensation awards to our management may not be tied to or correspond with improved financial results or the market price of our common stock.
Our ability to acquire properties on favorable terms and to successfully integrate and operate them is subject to significant risks, including the following: • we may be unable to acquire desired properties because of competition from other real estate investors, including other real estate operating companies, publicly-traded REITs and investment funds; • competition from other potential acquirers may significantly increase the purchase price of a desired property; • we may acquire properties that are not accretive to our results upon acquisition or we may not successfully manage and lease them up to meet our expectations; • we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity financing to consummate an acquisition or, if obtained, the financing may not be on favorable terms; • cash flows from the acquired properties may be insufficient to service the related debt financing; • we may need to spend more than we budgeted to make necessary improvements or renovations to acquired properties; • we may spend significant time and money on potential acquisitions that we do not close; • the process of acquiring or pursuing the acquisition of a property may divert the attention of our senior management team from our existing business operations; • we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations; • occupancy and rental rates of acquired properties may be less than expected; and • we may acquire properties without recourse, or with limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties. 21 Table of Contents We may be unable to successfully expand our operations into new markets and submarkets.
Our ability to acquire properties on favorable terms and to successfully integrate and operate them is subject to significant risks, including the following: • we may be unable to acquire desired properties because of competition from other real estate investors, including other real estate operating companies, publicly-traded REITs and investment funds; • competition from other potential acquirers may significantly increase the purchase price of a desired property; • we may acquire properties that are not accretive to our results upon acquisition or we may not successfully manage and lease them up to meet our expectations; • we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity financing to consummate an acquisition or, if obtained, the financing may not be on favorable terms; • cash flows from the acquired properties may be insufficient to service the related debt financing; • we may need to spend more than we budgeted to make necessary improvements or renovations to acquired properties; • we may spend significant time and money on potential acquisitions that we do not close; • the process of acquiring or pursuing the acquisition of a property may divert the attention of our senior management team from our existing business operations; • we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations; • occupancy and rental rates of acquired properties may be less than expected; and • we may acquire properties without recourse, or with limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
A security breach or other significant disruption involving our IT networks and related systems could have an adverse effect on our business, for example: • Disruption to our networks and systems and thus our operations and/or those of our tenants or vendors; • Misstated financial reports, violations of loan covenants, missed reporting deadlines and missed permitting deadlines; • Inability to comply with laws and regulations; • Unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could be used to compete against us or for disruptive, destructive or otherwise harmful purposes; • Rendering us unable to maintain the building systems relied upon by our tenants; • The requirement of significant management attention and resources to remedy any damages that result; • Claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; and • Damage to our reputation among our tenants, investors, or others.
A security breach or other significant disruption involving our IT networks and related systems could have an adverse effect on our business, for example: • Disruption to our networks and systems and thus our operations and/or those of our tenants or vendors; • Misstated financial reports, violations of loan covenants, missed reporting deadlines and missed permitting deadlines; • Inability to comply with laws and regulations; • Unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could be used to compete against us or for disruptive, destructive or otherwise harmful purposes; • Rendering us unable to maintain the building systems relied upon by our tenants; • The requirement of significant management attention and resources to restore our business and remedy any damages that result; • Claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; • Regulatory inquiries, investigations and fines or penalties; and • Damage to our reputation among our tenants, investors, or others.
Risks Related to Taxes and Our Status as a REIT • Our property taxes could increase due to property tax rate changes, reassessments or changes in property tax laws, which would adversely impact our cash flows. • Failure to qualify as a REIT would result in higher taxes and reduced cash available for distributions. • If the Operating Partnership, or any of its subsidiaries, were treated as a regular corporation for federal income tax purposes, we could cease to qualify as a REIT. • Even if we qualify as a REIT, we will be required to pay some taxes which would reduce cash available for distributions. • REIT distribution requirements could adversely affect our liquidity and cause us to forego otherwise attractive opportunities. • REIT stockholders can receive taxable income without cash distributions. • If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis . • Legislative or other actions affecting REITs could have a negative effect on our investors or us, including our ability to maintain our qualification as a REIT or the federal income tax consequences of such qualification. • Non-U.S. investors may be subject to FIRPTA, which would impose tax on certain distributions and on the sale of common stock if we are unable to qualify as a “domestically controlled” REIT or if our stock is not considered to be regularly traded on an established securities market.
Risks Related to Taxes and Our Status as a REIT • Our property taxes could increase due to property tax rate changes, reassessments or changes in property tax laws, which would adversely impact our cash flows. • Failure to qualify as a REIT would subject us to corporate taxation and potentially reduce cash available for distributions. • If the Operating Partnership, or any of its subsidiaries (other than any TRS), were treated as a regular corporation for federal income tax purposes, we could cease to qualify as a REIT. • Even if we qualify as a REIT, we will be required to pay some taxes which would reduce cash available for distributions. • REIT distribution requirements could adversely affect our liquidity and cause us to forego otherwise attractive opportunities. • REIT stockholders can receive taxable income without cash distributions. • If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis . • Legislative or other actions affecting REITs could have a negative effect on our investors or us, including our ability to maintain our qualification as a REIT or the federal income tax consequences of such qualification. • Non-U.S. investors may be subject to FIRPTA, which would impose tax on certain distributions and on the sale of common stock if we are unable to qualify as a “domestically controlled” REIT or if our stock is not considered to be regularly traded on an established securities market.
There can be no assurances that any such expenditures would result in higher occupancy or rental rates, or deter existing tenants from relocating to properties owned by our competitors. 17 Table of Contents We face intense competition, which could adversely impact the occupancy and rental rates of our properties.
There can be no assurances that any such expenditures would result in higher occupancy or rental rates, or deter existing tenants from relocating to properties owned by our competitors. We face intense competition, which could adversely impact the occupancy and rental rates of our properties.
Not all of the impacts of the pandemic are known at this time, however, some of the potential impacts from the pandemic could include: • Government actions, including but not limited to lease enforcement moratoriums, that reduce or otherwise hinder our ability to collect rent promptly or at all, adversely affect tenant demand, increase our costs or otherwise reduce our collections; • Supply chain, governmental or other disruptions that adversely affect construction or our operations and/or those of our tenants; • Economic pressure on our tenants, which could lead to lower collections or defaults; • Reduced or different tenant demand, leading to lower occupancy and/or rental rates in our buildings; • Reduced attendance in our buildings, resulting in lower parking revenues; • Increases in expenses and/or capital investments or decreases in tenant demand as a result of safety concerns; • Increased risks of IT disruptions and/or cyber attacks as a result of our employees or tenants working remotely; • Disruption of our operations as a result of the illness or social distancing of our employees or tenants; • Impact on the labor market, which could lead to higher employee turnover and increased labor costs; • Changes in the financial markets, the value of our properties and/or our cash flows which adversely affect our stock price and/or our tenants' access to needed debt or equity capital on reasonable or any terms; and/or • Increases in the cost or availability, or changes to the terms, of insurance.
Some of the potential impacts from an outbreak could include: • Government actions, including but not limited to lease enforcement moratoriums, that reduce or otherwise hinder our ability to collect rent promptly or at all, adversely affect tenant demand, increase our costs or otherwise reduce our collections; 18 • Supply chain, governmental or other disruptions that adversely affect construction or our operations and/or those of our tenants; • Economic pressure on our tenants, which could lead to lower collections or defaults; • Reduced or different tenant demand, leading to lower occupancy and/or rental rates in our buildings; • Reduced attendance in our buildings, resulting in lower parking revenues; • Increases in expenses and/or capital investments or decreases in tenant demand as a result of safety concerns; • Increased risks of IT disruptions and/or cyber attacks as a result of our employees or tenants working remotely; • Disruption of our operations as a result of the illness or social distancing of our employees or tenants; • Impact on the labor market, which could lead to higher employee turnover and increased labor costs; • Changes in the financial markets, the value of our properties and/or our cash flows which adversely affect our stock price and/or our tenants' access to needed debt or equity capital on reasonable or any terms; and/or • Increases in the cost or availability, or changes to the terms, of insurance.
As a result, the requirement to distribute a substantial portion of our taxable income could cause us to sell assets in adverse market conditions, borrow on unfavorable terms, make a taxable distribution of our stock as part of a distribution in which stockholders may elect to receive our stock or (subject to a limit measured as a percentage of the total distribution) cash, distribute amounts that could otherwise be used to fund our operations, capital expenditures, acquisitions or repayment of debt, or cause us to forego otherwise attractive opportunities.
As a result, the requirement to distribute a substantial portion of our taxable income could cause us to sell assets in adverse market conditions, borrow on unfavorable terms, make a taxable distribution of our stock as part of a distribution in which stockholders may elect to receive our stock or (subject to a limit measured as a percentage of the total distribution) cash, distribute amounts that could otherwise be used to fund our operations, capital expenditures, acquisitions or repayment of debt, or cause us to forego otherwise attractive opportunities. 28 REIT stockholders can receive taxable income without cash distributions .
New regulations in the submarkets in which we operate could require us to make safety improvements to our buildings, for example requiring us to retrofit our buildings to better withstand earthquakes, and we could incur significant costs complying with those regulations. 18 Table of Contents We may be unable to renew leases or lease vacant space.
New regulations in the submarkets in which we operate could require us to make safety improvements to our buildings, for example requiring us to retrofit our buildings to better withstand earthquakes, and we could incur significant costs complying with those regulations. 19 We may be unable to renew leases or lease vacant space.
These events include, but are not limited to: • adverse changes in international, national or local economic conditions; • inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options; • adverse changes in financial conditions of actual or potential investors, buyers, sellers or tenants; • inability to collect rent from tenants; • competition from other real estate investors, including other real estate operating companies, publicly-traded REITs and institutional investment funds; • reduced tenant demand for office space and residential units from matters such as: (i) trends in space utilization, (ii) changes in the relative popularity of our properties, (iii) the type of space we lease, (iv) purchasing versus leasing, (v) increasing crime or homelessness in our submarkets or (vi) economic recessions; • reduced demand for parking space due to matters such as: (i) reduced attendance in our buildings, (ii) the impact of technology such as self-driving cars, or (iii) the increasing popularity of car ride sharing services; • increases in the supply of office space and residential units; • fluctuations in interest rates and the availability of credit, which could adversely affect our ability to obtain financing on favorable terms or at all; • increases in operating costs (or our reduced ability to recover operating costs from our tenants), including: (i) insurance costs, (ii) labor costs (such as the unionization of our employees or the employees of any parties with whom we contract for services to our buildings), (iii) energy prices, (iv) real estate assessments and other taxes, and (v) costs of compliance with laws, regulations and governmental policies; • utility disruptions; • the effects of rent controls, stabilization laws and other laws or covenants regulating rental rates; • changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the ADA; • legislative uncertainty related to federal and state spending and tax policy; • difficulty in operating properties effectively; • acquiring undesirable properties; and • inability to dispose of properties at appropriate times or at favorable prices.
These events include, but are not limited to: • adverse changes in international, national or local economic conditions; • inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options; • adverse changes in financial conditions of actual or potential investors, buyers, sellers or tenants; • inability to collect rent from tenants; • competition from other real estate investors, including other real estate operating companies, publicly-traded REITs and institutional investment funds; • reduced tenant demand for office space and residential units from matters such as: (i) trends in space utilization, including remote working arrangements, (ii) changes in the relative popularity of our properties, (iii) the type of space we lease, (iv) purchasing versus leasing, (v) increasing crime or homelessness in our submarkets, (vi) changing submarket demographics or (vii) economic recessions; • reduced demand for parking space due to matters such as: (i) reduced attendance in our buildings, (ii) the impact of technology such as self-driving cars, or (iii) the increasing popularity of car ride sharing services; • increases in the supply of office space and residential units; • fluctuations in interest rates and the availability of credit, which could adversely affect our ability to obtain financing on favorable terms or at all; • increases in operating costs (or our reduced ability to recover operating costs from our tenants), including: (i) insurance costs, (ii) labor costs (such as the unionization of our employees or the employees of any parties with whom we contract for services to our buildings), (iii) energy prices, (iv) real estate assessments and other taxes, and (v) costs of compliance with laws, regulations and governmental policies; • utility disruptions; • the effects of rent controls, stabilization laws and other laws or covenants regulating rental rates; • changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the ADA; • legislative uncertainty related to federal and state spending and tax policy; • difficulty in operating properties effectively; 16 • declines in real estate valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing; • property damage resulting from seismic activity or other natural disasters; • acquiring undesirable properties; and • inability to dispose of properties at appropriate times or at favorable prices.
Litigation could have an adverse effect on our business. From time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. An unfavorable resolution of litigation could adversely affect us.
From time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. An unfavorable resolution of litigation could adversely affect us.
Holding most of our assets through our Operating Partnership further complicates the application of the REIT requirements and a technical or inadvertent mistake could jeopardize our REIT status.
Holding substantially all of our assets through our Operating Partnership further complicates the application of the REIT requirements and a technical or inadvertent mistake could jeopardize our REIT status.
From time to time, we have significant cash balances that we invest in a variety of short-term money market fund investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income.
We face risks associated with short-term liquid investments. From time to time, we have significant cash balances that we invest in a variety of short-term money market fund investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income.
At December 31, 2022, our executive officers owned 4% of our outstanding common stock, but they would own 16% if all of their outstanding LTIPs and OP Units were converted into common stock.
At December 31, 2023, our executive officers owned 4% of our outstanding common stock, but they would own 17% if all of their outstanding LTIPs and OP Units were converted into common stock.
Our fiduciary duties as the sole stockholder of the general partner of our Operating Partnership could create conflicts of interest. As the sole stockholder of the general partner of our Operating Partnership, we have fiduciary duties to the other limited partners in our Operating Partnership, the discharge of which may conflict with the interests of our stockholders.
As the sole stockholder of the general partner of our Operating Partnership, we have fiduciary duties to the other limited partners in our Operating Partnership, the discharge of which may conflict with the interests of our stockholders.
As of December 31, 2022, 0.6% of the units in our multifamily portfolio were available for lease, and substantially all of the leases in our multifamily portfolio must be renewed within the next year. For more information see Item 2 “Properties” of this Report.
As of December 31, 2023, 1.5% of the units in our multifamily portfolio were available for lease, and substantially all of the leases in our multifamily portfolio must be renewed within the next year. For more information see Item 2 “Properties” of this Report.
Any potential change of control transaction may be further limited as a result of provisions of the partnership unit designation for certain LTIP Units, which require us to preserve the rights of LTIP unit holders and may restrict us from amending the partnership agreement for our Operating Partnership in a manner that would have an adverse effect on the rights of LTIP unit holders. 25 Table of Contents (iv) Certain provisions of Maryland law could inhibit changes in control.
Any potential change of control transaction may be further limited as a result of provisions of the partnership unit designation for certain LTIP Units, which require us to preserve the rights of LTIP unit holders and may restrict us from amending the partnership agreement for our Operating Partnership in a manner that would have an adverse effect on the rights of LTIP unit holders.
As a result of various factors, such as competitive pricing pressure in our submarkets, adverse conditions in the Los Angeles County or Honolulu real estate market, general economic downturns, or the desirability of our properties compared to other properties in our submarkets, the rents we receive on new leases could be less than our in-place rents.
As a result of various factors, such as competitive pricing pressure in our submarkets, adverse conditions in the Los Angeles County or Honolulu real estate market, general economic downturns, or the desirability of our properties compared to other properties in our submarkets, the rents we receive on new leases could be less than our in-place rents, which could adversely affect our operating results, cash flows, and financial position.
To the extent that we do not distribute all of our net long-term capital gains or at least 90% of our REIT taxable income, we will be required to pay tax thereon at the regular corporate tax rate.
To qualify as a REIT, we generally must distribute annually at least 90% of our REIT taxable income, excluding any net capital gains. To the extent that we do not distribute all of our net long-term capital gains or all of our REIT taxable income, we will be required to pay tax thereon at the regular corporate tax rate.
If the opportunity arises, we may explore acquisitions of properties in new markets. The risks applicable to our ability to acquire, integrate and operate properties in our current markets are also applicable to our ability to acquire, integrate and operate properties in new markets.
We may be unable to successfully expand our operations into new markets and submarkets. If the opportunity arises, we may explore acquisitions of properties in new markets. The risks applicable to our ability to acquire, integrate and operate properties in our current markets are also applicable to our ability to acquire, integrate and operate properties in new markets.
Our charter, bylaws, our Operating Partnership agreement and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
Our charter, bylaws, our Operating Partnership agreement and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. 26 Our fiduciary duties as the sole stockholder of the general partner of our Operating Partnership could create conflicts of interest.
If the IRS were successful in treating the Operating Partnership or other subsidiaries as entities taxable as a corporation (including a “publicly traded partnership” taxed as a corporation) for federal income tax purposes, we would likely fail to qualify as a REIT and it would significantly reduce the amount of cash available for distribution by such subsidiaries to us. 27 Table of Contents Even if we qualify as a REIT, we will be required to pay some taxes which would reduce cash available for distributions.
If the IRS were successful in treating the Operating Partnership or other subsidiaries (other than a TRS) as entities taxable as a corporation (including a “publicly traded partnership” taxed as a corporation) for federal income tax purposes, we would likely fail to qualify as a REIT and it would significantly reduce the amount of cash available for distribution by such subsidiaries to us.
If Proposition 13 no longer limited the assessed value of our California properties, the assessed values and property taxes for those properties could increase substantially, which could have a material impact on our results of operations, cash flows and financial condition. 26 Table of Contents Failure to qualify as a REIT would result in higher taxes and reduced cash available for distributions.
If Proposition 13 no longer limited the assessed value of our California properties, the assessed values and property taxes for those properties could increase substantially, which could have a material impact on our results of operations, cash flows and financial condition. Failure to qualify as a REIT would subject us to corporate taxation and potentially reduce cash available for distributions.
See "Off-Balance Sheet Arrangements" in Item 7 of this Report for more detail regarding our unconsolidated debt. 16 Table of Contents Our substantial indebtedness, and the limitations and other constraints imposed on us by our debt agreements, especially during economic downturns when credit is harder to obtain, could adversely affect us, including the following: • periods of rising and high interest rates would adversely affect: (i) our results of operations, (ii) our ability to pay dividends and distributions, (iii) the market price of our common stock, and (iv) our ability to borrow or to borrow on favorable terms; • our cash flows may be insufficient to meet our required principal and interest payments; • servicing our borrowings may leave us with insufficient cash to operate our properties or to pay the distributions necessary to maintain our REIT qualification; • we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities; • we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our existing indebtedness; • we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms; • we may violate any restrictive covenants in our loan documents, which could entitle the lenders to accelerate our debt obligations; • we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under our hedge agreements, the hedge agreements may not effectively hedge the interest rate fluctuation risk, and, upon the expiration of any hedge agreements we do have, we will be exposed to the then-existing market rates of interest and future interest rate volatility with respect to debt that is currently hedged; we could also be declared in default on our hedge agreements if we default on the underlying debt that we are hedging; • we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases; • our default under any of our indebtedness with cross default provisions could result in a default on other indebtedness; • any foreclosure on our properties could also create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the REIT distribution requirements imposed by the Code; and • most of our floating rate debt and related hedges are indexed to USD-LIBOR, any regulatory changes which impact the USD-LIBOR benchmark, such as the transition to SOFR (see Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in this Report) or other indexes, could impact our borrowing costs or the effectiveness of our hedges.
Our substantial indebtedness, and the limitations and other constraints imposed on us by our debt agreements, especially during economic downturns when credit is harder to obtain, could adversely affect us, including the following: • periods of rising and high interest rates would adversely affect: (i) our results of operations, (ii) our ability to pay dividends and distributions, (iii) the market price of our common stock, (iv) our ability to borrow or to borrow on favorable terms and (v) our ability to refinance existing debt on commercially reasonable terms or at all; • our cash flows may be insufficient to meet our required principal and interest payments; • servicing our borrowings may leave us with insufficient cash to operate our properties or to pay the distributions necessary to maintain our REIT qualification; • we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon acquisition opportunities; • we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our existing indebtedness; • we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms; • we may violate any restrictive covenants in our loan documents, which could entitle the lenders to accelerate our debt obligations; • we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under our hedge agreements, the hedge agreements may not effectively hedge the interest rate fluctuation risk, and, upon the expiration of any hedge agreements we do have, we will be exposed to the then-existing market rates of interest and future interest rate volatility with respect to debt that is currently hedged; we could also be declared in default on our hedge agreements if we default on the underlying debt that we are hedging; • we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases; • our default under any of our indebtedness with cross default provisions could result in a default on other indebtedness; and • any foreclosure on our properties could also create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the REIT distribution requirements imposed by the Code. 17 The rents we receive from new leases may be less than our asking rents, and we may experience rent roll-down from time to time.
Our access to third-party sources of capital depends on many factors, some of which include: • general market conditions; • the market’s perception of our growth potential; • our current debt levels; • our current and expected future earnings; • our cash flows and cash dividends; and • the market price per share of our common stock. 24 Table of Contents We face risks associated with short-term liquid investments.
Our access to third-party sources of capital depends on many factors, some of which include: • general market conditions; • the market’s perception of our growth potential; • our current debt levels; • our current and expected future earnings; • our cash flows and cash dividends; and • the market price per share of our common stock.
The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, is expected to increase as the number, intensity and sophistication of attacks and intrusions from around the world is escalating.
Failure to maintain effective internal controls could cause us to not meet our reporting obligations, which could affect our ability to remain listed with the NYSE or result in SEC enforcement actions, and could cause investors to lose confidence in our reported financial information. 30 Table of Contents New accounting pronouncements could adversely affect our operating results or the reported financial performance of our tenants.
Failure to maintain effective internal controls could cause us to not meet our reporting obligations, which could affect our ability to remain listed with the NYSE or result in SEC enforcement actions, and could cause investors to lose confidence in our reported financial information.
As of December 31, 2022, 12.9% of the square footage in our total office portfolio was available for lease and 13.8% was scheduled to expire in 2023.
As of December 31, 2023, 16.7% of the square footage in our total office portfolio was available for lease and 15.9% was scheduled to expire in 2024.
Moreover, as we have not conducted a comprehensive audit or investigation of all of our properties to determine our compliance with applicable laws and regulations, we may be liable for investigation and remediation costs, penalties, and/or damages, which could be substantial and could adversely affect our ability to sell or rent our property or to borrow using such property as collateral. 19 Table of Contents Because we own real property, we are subject to extensive environmental regulations, which create uncertainty regarding future environmental expenditures and liabilities.
Moreover, as we have not conducted a comprehensive audit or investigation of all of our properties to determine our compliance with applicable laws and regulations, we may be liable for investigation and remediation costs, penalties, and/or damages, which could be substantial and could adversely affect our ability to sell or rent our property or to borrow using such property as collateral.
General Risks • Security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our IT networks and related systems could harm our business. • Litigation could have an adverse effect on our business. • If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. • New accounting pronouncements could adversely affect our operating results or the reported financial performance of our tenants. 14 Table of Contents Risks Related to Our Properties and Our Business The COVID-19 global pandemic has and could continue to adversely affect our business, financial position, results of operations, cash flows, our ability to service our debt, our ability to pay dividends to our stockholders, our REIT status, our ability to capitalize on business opportunities as they arise, our ability to raise capital, and/or the market price of our common stock.
General Risks • Security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our IT networks and related systems could harm our business. • Litigation could have an adverse effect on our business. • If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. • New accounting pronouncements could adversely affect our operating results or the reported financial performance of our tenants. 14 Risks Related to Our Properties and Our Business Sustained or further increases in inflation could adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock.
As a result, our executive officers, to the extent that they vote their shares in a similar manner, will have significant influence over our affairs and could exercise such influence in a manner that is not in the best interests of our other stockholders, including by attempting to delay, defer or prevent a change of control transaction that might otherwise be in the best interests of our stockholders. 23 Table of Contents Under their employment agreements, certain of our executive officers will receive severance if they are terminated without cause or resign for good reason.
As a result, our executive officers, to the extent that they vote their shares in a similar manner, will have significant influence over our affairs and could exercise such influence in a manner that is not in the best interests of our other stockholders, including by attempting to delay, defer or prevent a change of control transaction that might otherwise be in the best interests of our stockholders.
If we were to avail ourselves of that option, our stockholders could be required to pay taxes on such stock distributions without the benefit of cash distributions to pay the resulting taxes. 28 Table of Contents If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis .
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis .
We have a substantial amount of debt and we may incur significant additional debt for various purposes, including, without limitation, to fund future property acquisitions and development activities, reposition properties and to fund our operations. See Note 8 to our consolidated financial statements in Item 15 of this Report for more detail regarding our consolidated debt.
We have a substantial amount of debt and we may incur significant additional debt for various purposes, including, without limitation, to fund future property acquisitions and development activities, reposition properties and to fund our operations.
Under current California law we are able to increase rents to market rates once a tenant vacates a rent-controlled unit; however, increases in rental rates for renewing tenants are limited by California, Los Angeles and Santa Monica rent control regulations.
Under current California law we are able to increase rents to market rates once a tenant vacates a rent-controlled unit; however, increases in rental rates for renewing tenants are limited by California, Los Angeles and Santa Monica rent control regulations. 21 Hawaii does not have state mandated rent control, however portions of the Honolulu multifamily market are subject to low- and moderate-income housing regulations.
Even as the pandemic subsides, we may continue to experience significant impacts to our business as a result of its global economic impact, including any resulting economic recession.
We may experience significant impacts to our business as a result of any economic impact of an outbreak, including any resulting economic recession.
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization and other significant disruptions of our IT networks and related systems.
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware (including ransomware), computer viruses, social engineering and phishing e-mails, exploitation of vulnerabilities in software used in our business, malfeasance by insiders or persons with access to systems inside our organization, human or technological error, and other significant disruptions of our IT networks and related systems.
Below is a summary of our risk factors: Risks Related to Our Properties and Our Business • The COVID-19 global pandemic has and could continue to adversely affect our business, financial position, results of operations, cash flows, our ability to service our debt, our ability to pay dividends to our stockholders, our REIT status, our ability to capitalize on business opportunities as they arise, our ability to raise capital, and/or the market price of our common stock. • Persistent higher inflation could adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock. • All of our properties are located in Los Angeles County, California, and Honolulu, Hawaii, and we are therefore exposed to greater risk than if we owned a more geographically diverse portfolio.
Below is a summary of our risk factors: Risks Related to Our Properties and Our Business • S ustained or further increases in inflation could adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock. • Economic and political changes could adversely affect our business, operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock. • All of our properties are located in Los Angeles County, California, and Honolulu, Hawaii, and we are therefore exposed to greater risk than if we owned a more geographically diverse portfolio.
If we default on the ground lease to which one of our properties is subject, our business could be adversely affected. Some of our properties may be subject to a ground lease. If we default under the terms of such a lease, we may be liable for damages and could lose our ownership interest in the property.
If we default on the ground lease to which one of our properties is subject, our business could be adversely affected. Some of our properties may be subject to a ground lease.
The failure of any such entities to qualify as a REIT could have similar consequences to the REIT subsidiary and could also cause us to fail to qualify as a REIT. If the Operating Partnership, or any of its subsidiaries, were treated as a regular corporation for federal income tax purposes, we could cease to qualify as a REIT.
If the Operating Partnership, or any of its subsidiaries (other than any TRS), were treated as a regular corporation for federal income tax purposes, we could cease to qualify as a REIT.
Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limit. The ownership limit contained in our charter may delay or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
The ownership limit contained in our charter may delay or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. 25 (ii) Our board of directors may create and issue a class or series of preferred stock without stockholder approval.
Hawaii does not have state mandated rent control, however portions of the Honolulu multifamily market are subject to low- and moderate-income housing regulations. We have agreed to rent specified percentages of the units at some of our Honolulu multifamily properties to persons with income below specified levels in exchange for certain tax benefits.
We have agreed to rent specified percentages of the units at some of our Honolulu multifamily properties to persons with income below specified levels in exchange for certain tax benefits.
As a result of the above factors, our failure to qualify as a REIT could impair our ability to raise capital and expand our business, substantially reduce distributions to stockholders, result in us incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes, and adversely affect the market price of our common stock.
If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the relief provisions under the Code in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure. 27 As a result of the above factors, our failure to qualify as a REIT could impair our ability to raise capital and expand our business, substantially reduce distributions to stockholders, result in us incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes, and adversely affect the market price of our common stock.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.
New accounting pronouncements could adversely affect our operating results or the reported financial performance of our tenants. Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.
We may not have sufficient cash available for distribution to stockholders at expected levels in the future. Our distributions could exceed our cash generated from operations. If necessary, we may fund the difference from our existing cash balances or additional borrowings.
Our distributions could exceed our cash generated from operations. If necessary, we may fund the difference from our existing cash balances or additional borrowings.
Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent that we distribute less than 100% of our REIT taxable income (including capital gains).
For example, we will be subject to income tax to the extent that we distribute less than 100% of our REIT taxable income (including capital gains).
In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury is alleged to have occurred. 20 Table of Contents Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.
In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury is alleged to have occurred.
The extent to which the pandemic ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of each variant, its severity, the actions taken to contain the virus, the emergence and impact of future virus variants, and how quickly and to what extent normal economic and operating conditions resume.
The extent to which an outbreak could impact our business will depend on factors such as the duration and spread, its severity, the actions taken to contain the virus, the emergence and impact of future virus variants, and how quickly and to what extent normal economic and operating conditions resume.
Some of the potential adverse impacts of higher inflation on our business could include: • an increase in our rental operating costs and our general and administrative costs; • we may be unable to increase rental rates at the same rate as inflation; • if we are able to increase rental rates at the same rate as inflation, it could reduce tenant demand for our properties; • we may be unable to recover higher rental operating costs from our office tenants; • higher operating costs billed to our office tenants could reduce tenant demand for our office properties; • higher inflation is usually accompanied by higher interest rates, which could: (i) increase our borrowing costs, (ii) adversely impact our property valuations, and (iii) cause an economic recession which would adversely affect our business; • an increase in recurring capital expenditures to maintain our properties; • an increase in construction costs, which would increase the cost of development and respositioning projects; • reduced cash flows would adversely impact our ability to pay dividends and distributions. 15 Table of Contents All of our properties are located in Los Angeles County, California, and Honolulu, Hawaii, and we are therefore exposed to greater risk than if we owned a more geographically diverse portfolio.
A sustained or further increase in inflation could have adverse impacts on our business, including: • an increase in our rental operating costs and our general and administrative costs; • our inability to increase rental rates at the same rate as inflation; • reduction in tenant demand for our properties if we are able to increase rental rates at the same rate as inflation; • our inability to recover higher rental operating costs from our office tenants; • higher operating costs billed to our office tenants, which could reduce tenant demand for our office properties; • higher interest rates, which could: (i) increase our borrowing costs, (ii) adversely impact our property valuations, and (iii) cause an economic recession which would adversely affect our business; • an increase in recurring capital expenditures to maintain our properties; • an increase in construction costs, which would increase the cost of development and respositioning projects and adversely impact our investments in real estate assets and expected yields on our development and repositioning projects, which could make investment opportunities less profitable to us; • reduced cash flows, which would adversely impact our ability to pay dividends and distributions.
In order to successfully compete against other properties, we need to maintain, repair, and renovate our properties, which reduces our cash flows. If our properties are not as attractive to current and prospective tenants in terms of rent, services, condition, or location as properties owned by our competitors, we could lose tenants or suffer lower rental rates.
If our properties are not as attractive to current and prospective tenants in terms of rent, services, condition, or location as properties owned by our competitors, we could lose tenants or suffer lower rental rates. As a result, we may from time to time be required to incur significant capital expenditures to maintain the competitiveness of our properties.
Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not be detected and, in fact, may not be detected.
Our information, networks, systems and facilities remain vulnerable because the techniques used by attackers are constantly evolving (including their use of tools like artificial intelligence) and generally are not recognized until launched against a target, and in some cases are designed not be detected and, in fact, may not be detected.
Crummy, which provide each executive with severance if they are terminated without cause or resign for good reason (including following a change of control), based on two or three times (depending on the officer) his annual total of salary, bonus and incentive compensation such as LTIP Units, options or outperformance grants.
Panzer, which provide each executive with severance if they are terminated without cause or resign for good reason (including following a change of control). The severance is based upon three times the average of the respective executives annual compensation (base salary and annual bonus) during the last three full calendar years ending prior to the termination date.
Persistent higher inflation could adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock.
Economic and political changes could adversely affect our business, operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock. Our business may be adversely affected by global market, economic and geopolitical conditions, including general global economic and political uncertainty and dislocations in the credit markets.
REIT stockholders can receive taxable income without cash distributions . Under certain circumstances, REITs are permitted to pay required dividends in shares of their stock rather than in cash.
Under certain circumstances, REITs are permitted to pay a portion of the required dividends in shares of their stock rather than in cash. If we were to avail ourselves of that option, our stockholders could be required to pay taxes on such stock distributions without the benefit of cash distributions to pay the resulting taxes.
California is also regarded as being more litigious, regulated and taxed than many other states. Our operating performance is subject to risks associated with the real estate industry. Real estate investments are subject to various risks, fluctuations and cycles in value and demand, many of which are beyond our control.
Real estate investments are subject to various risks, fluctuations and cycles in value and demand, many of which are beyond our control and could adversely affect our operating results, cash flows, and financial position.
Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our efforts will be effective in preventing attempted security breaches or disruptions.
There can be no assurance that our security measures, or those of third parties on whom we rely, will effectively protect the confidentiality, integrity and availability of our networks, systems and data from security breaches or disruptions.
Removed
The COVID-19 global pandemic has led to severe disruption to general economic activities as governments and businesses take actions to mitigate the public health crisis.
Added
Since the COVID-19 pandemic, the consumer price index has increased substantially. Federal policies and recent global events may exacerbate increases in the consumer price index.
Removed
The rents we receive from new leases may be less than our asking rents, and we may experience rent roll-down from time to time.
Added
In addition, historically, during periods of increasing interest rates, real estate valuations have generally decreased as a result of rising capitalization rates, which tend to be positively correlated with interest rates.
Removed
As a result, we may from time to time be required to incur significant capital expenditures to maintain the competitiveness of our properties.
Added
Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our real estate portfolio and result in a decline of the market price of our common stock and market capitalization, as well as lower sales proceeds from future property dispositions.
Removed
We have employment agreements with Jordan L. Kaplan, Kenneth M. Panzer and Kevin A.
Added
If these conditions become more volatile or worsen, our business, results of operations, liquidity and financial condition and those of our tenants may be adversely affected as a result of the following consequences, among others: • tenant defaults under leases or tenants not renewing their leases, or renewing under less favorable terms, if the financial condition of our tenants is adversely impacted; • reduced leasing to new tenants or at less favorable terms; • decreased demand for our office space if businesses, including our tenants, lay off employees; • decreased commercial real estate occupancy and rental rates resulting in decreased property values; • limitations in our ability to obtain financing on terms and conditions that we find acceptable, or at all, which could reduce our ability to refinance existing debt and obtain new debt to pursue acquisition and development opportunities; and • reduced values of our properties, which may limit our ability to obtain new debt financing secured by our properties or limit our ability to refinance our existing debt secured by our properties. 15 All of our properties are located in Los Angeles County, California, and Honolulu, Hawaii, and we are therefore exposed to greater risk than if we owned a more geographically diverse portfolio.
Removed
(ii) Our board of directors may create and issue a class or series of preferred stock without stockholder approval.
Added
California is also regarded as being more litigious, regulated and taxed than many other states.
Removed
If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the relief provisions under the Code in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.
Added
Any adverse developments in the economy or real estate market in Los Angeles County or Honolulu or the surrounding regions, or any decrease in demand for office space resulting from the Los Angeles County or Honolulu regulatory or business environment could impact our ability to generate revenues sufficient to meet our operating expenses or other obligations, which would adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock.
Removed
To qualify as a REIT, we generally must distribute annually at least 90% of our REIT taxable income, excluding any net capital gains.
Added
Our operating performance and the market value of our common stock are subject to risks associated with our investments in real estate and with trends in the real estate industry.
Added
Our economic performance and the value of our real estate and, consequently the market price of our common stock, are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations.
Added
As of December 31, 2023, we had approximately $5.6 billion of debt outstanding, of which $1.7 billion is floating rate debt, which exposes us to interest rate fluctuation risk. See Note 8 to our consolidated financial statements in Item 15 of this Report for more detail regarding our consolidated debt.
Added
See "Off-Balance Sheet Arrangements" in Item 7 of this Report for more detail regarding our unconsolidated debt. Our ability to service and refinance our debt and to fund our operations, working capital, and capital expenditures, depends on our ability to generate cash flow in the future.
Added
Our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory, environmental and other factors, many of which are beyond our control.
Added
Although we have a diverse tenant base, a large portion of our tenants operate in a concentrated group of industries and downturns in these industries could adversely affect our financial condition, results of operations and cash flows.

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Item 2. Properties

Properties — owned and leased real estate

14 edited+2 added−2 removed2 unchanged
Biggest changeOffice Industry Diversification as of December 31, 2022 Industry Number of Leases Annualized Rent as a Percent of Total Legal 578 18.4 % Financial Services 366 15.6 Entertainment 173 14.5 Real Estate 317 12.3 Accounting & Consulting 294 9.5 Health Services 372 8.3 Technology 91 4.3 Retail 162 4.8 Insurance 94 3.8 Educational Services 47 2.6 Public Administration 76 2.4 Manufacturing & Distribution 50 1.2 Advertising 38 1.0 Other 55 1.3 Total 2,713 100.0 % 34 Table of Contents Office Lease Expirations as of December 31, 2022 (assuming non-exercise of renewal options and early termination rights) Year of Lease Expiration Number of Leases Rentable Square Feet Expiring Square Feet as a Percent of Total Annualized Rent at December 31, 2022 Annualized Rent as a Percent of Total Annualized Rent Per Leased Square Foot (1) Annualized Rent Per Leased Square Foot at Expiration (2) Short Term Leases 90 346,608 1.9 % $ 12,892,329 1.8 % $ 37.20 $ 37.21 2023 647 2,491,715 13.8 112,973,008 16.0 45.34 45.72 2024 540 2,982,209 16.5 141,332,159 20.0 47.39 49.23 2025 478 2,246,320 12.4 102,529,281 14.5 45.64 49.40 2026 324 1,780,115 9.9 84,561,041 12.0 47.50 52.94 2027 270 1,941,468 10.7 96,798,669 13.7 49.86 57.31 2028 148 1,006,021 5.6 51,271,967 7.2 50.97 58.25 2029 63 434,813 2.4 21,231,469 3.0 48.83 59.61 2030 52 589,002 3.3 30,448,670 4.3 51.70 63.96 2031 40 323,138 1.8 17,025,341 2.4 52.69 66.50 2032 27 208,182 1.1 9,800,526 1.4 47.08 62.80 Thereafter 34 560,177 3.1 25,941,580 3.7 46.31 65.07 Subtotal/weighted average 2,713 14,909,768 82.5 706,806,040 100.0 47.41 52.54 Signed leases not commenced 600,540 3.3 Available 2,338,608 12.9 Building management use 114,226 0.7 BOMA adjustment (3) 104,083 0.6 Total/Weighted Average 2,713 18,067,225 100.0 % $ 706,806,040 100.0 % $ 47.41 $ 52.54 _____________________________________________________ (1) Represents annualized rent at December 31, 2022 divided by leased square feet.
Biggest changeOffice Industry Diversification as of December 31, 2023 Industry Number of Leases Annualized Rent as a Percent of Total Legal 576 18.2 % Financial Services 364 15.5 Entertainment 150 14.1 Real Estate 315 12.7 Health Services 387 9.2 Accounting & Consulting 298 8.9 Technology 101 4.9 Retail 154 4.9 Insurance 91 3.2 Educational Services 46 2.8 Public Administration 73 2.3 Advertising 33 1.0 Other 45 1.1 Manufacturing & Distribution 53 1.2 Total 2,686 100.0 % 35 Office Lease Expirations as of December 31, 2023 (assuming non-exercise of renewal options and early termination rights) Year of Lease Expiration Number of Leases Rentable Square Feet Expiring Square Feet as a Percent of Total Annualized Rent at December 31, 2023 Annualized Rent as a Percent of Total Annualized Rent Per Leased Square Foot (1) Annualized Rent Per Leased Square Foot at Expiration (2) Short Term Leases 92 305,460 1.7 % $ 12,085,729 1.8 % $ 39.57 $ 39.45 2024 594 2,864,277 15.9 137,113,780 20.1 47.87 47.42 2025 578 2,482,316 13.8 116,721,428 17.1 47.02 49.11 2026 465 2,157,587 12.0 98,549,202 14.4 45.68 49.55 2027 314 2,004,294 11.2 101,142,084 14.8 50.46 56.37 2028 270 1,452,991 8.1 67,433,092 9.9 46.41 53.31 2029 137 847,123 4.7 40,414,711 5.9 47.71 54.71 2030 76 714,311 4.0 35,791,173 5.2 50.11 61.09 2031 57 405,546 2.2 19,316,010 2.8 47.63 59.90 2032 33 321,974 1.8 16,063,724 2.4 49.89 64.81 2033 52 348,144 1.9 17,324,494 2.5 49.76 68.47 Thereafter 28 476,289 2.7 21,396,537 3.1 44.92 63.09 Subtotal/weighted average 2,696 14,380,312 80.0 683,351,964 100.0 47.52 52.58 Signed leases not commenced 417,287 2.3 Available 3,002,047 16.7 Building management use 106,908 0.6 BOMA adjustment (3) 74,109 0.4 Total/Weighted Average 2,696 17,980,663 100.0 % $ 683,351,964 100.0 % $ 47.52 $ 52.58 _____________________________________________________ (1) Represents annualized rent at December 31, 2023 divided by leased square feet.
Our multifamily portfolio includes a large number of units that, due to Santa Monica rent control laws, have had only modest rent increases since 1979. During 2022, when a tenant vacated one of these units, we incurred on average $65 thousand per unit to bring the unit up to our standards. We classify these capital expenditures as non-recurring.
Our multifamily portfolio includes a large number of units that, due to Santa Monica rent control laws, have had only modest rent increases since 1979. During 2023, when a tenant vacated one of these units, we incurred on average $63 thousand per unit to bring the unit up to our standards. We classify these capital expenditures as non-recurring.
Tenant improvements are based on signed leases, or, for leases in which a tenant improvement allowance was not specified, the amount budgeted at the time the lease commenced.
(2) Tenant improvements and leasing commissions are reported in the period in which the lease is signed. Tenant improvements are based on signed leases, or, for leases in which a tenant improvement allowance was not specified, the amount budgeted at the time the lease commenced.
Multifamily Recurring Capital Expenditures Year Ended December 31, 2022 2021 2020 Recurring Capital Expenditures (1)(2) $ 3,092,613 $ 2,821,969 $ 2,666,273 Total units (1)(2) 3,925 3,449 3,230 Recurring Capital Expenditures per unit (1)(2) $ 807 $ 818 $ 832 ____________________________________________________ (1) Recurring Capital Expenditures include costs associated with the turnover of units.
Multifamily Recurring Capital Expenditures Year Ended December 31, 2023 2022 2021 Recurring Capital Expenditures (1)(2) $ 2,978,083 $ 3,092,613 $ 2,821,969 Total units (1)(2) 4,013 3,925 3,449 Recurring Capital Expenditures per unit (1)(2) $ 747 $ 807 $ 818 ____________________________________________________ (1) Recurring Capital Expenditures include costs associated with the turnover of units.
Tenant has options to terminate 15,000 square feet in 2024; and 51,000 square feet in 2025. (4) Square footage (rounded) expires as follows: 1,000 square feet in 2023; and 211,000 square feet in 2027. (5) Square footage (rounded) expires as follows: 26,000 square feet in 2025; and 86,000 square feet in 2027; and 30,000 square feet in 2028.
Tenant has options to terminate 51,000 square feet in 2025. (5) Square footage (rounded) expires as follows: 26,000 square feet in 2025; 88,000 square feet in 2027 and 30,000 square feet in 2028.
(2) Our market share is calculated by dividing our Rentable Square Feet by the applicable Region's Rentable Square Feet, weighted in the case of averages based on the square feet of exposure in our total portfolio to each submarket as follows: Region Submarket Number of Properties Our Rentable Square Feet Our Market Share (2) Westside Brentwood 15 2,085,745 60.3 % Westwood 7 2,191,444 43.6 Olympic Corridor 5 1,142,885 29.5 Beverly Hills (3) 11 2,196,067 27.8 Santa Monica 11 1,425,374 14.4 Century City 3 957,269 9.0 Valley Sherman Oaks/Encino 12 3,488,995 53.6 Warner Center/Woodland Hills 3 2,845,577 37.5 Burbank 1 456,205 6.0 Honolulu Honolulu (3) 3 1,277,664 24.7 Total / Weighted Average 71 18,067,225 37.4 % ________________________________________________ (3) In calculating market share, we adjusted the rentable square footage by (i) removing approximately 406,000 rentable square feet of vacant space at an office building in Honolulu that we are converting to residential apartments, from both our rentable square footage and that of the submarket and (ii) removing a 218,000 square foot property located just outside the Beverly Hills city limits from both the numerator and the denominator. 32 Table of Contents Office Portfolio Percentage Leased and In-place Rents as of December 31, 2022 Region (1) Percent Leased Annualized Rent (2) Annualized Rent Per Leased Square Foot (2) Monthly Rent Per Leased Square Foot (2) Los Angeles Westside 87.1 % $ 465,109,266 $ 56.75 $ 4.73 Valley 86.2 203,666,873 36.34 3.03 Honolulu 91.3 38,029,901 34.28 2.86 Total / Weighted Average 87.0 % $ 706,806,040 $ 47.41 $ 3.95 _____________________________________________ (1) Regional data reflects the following underlying submarket data: Region Submarket Percent Leased Monthly Rent Per Leased Square Foot (2) Westside Beverly Hills 94.9 % $ 4.76 Brentwood 83.0 4.01 Century City 91.6 4.50 Olympic Corridor 80.2 3.40 Santa Monica 92.5 7.00 Westwood 81.2 4.54 Valley Burbank 100.0 4.83 Sherman Oaks/Encino 88.9 3.09 Warner Center/Woodland Hills 80.7 2.58 Honolulu Honolulu 91.3 2.86 Weighted Average 87.0 % $ 3.95 ____________________________________ (2) Does not include signed leases not yet commenced, which are included in percent leased but excluded from annualized rent.
(2) Our market share is calculated by dividing our Rentable Square Feet by the applicable Region's Rentable Square Feet, weighted in the case of averages based on the square feet of exposure in our total portfolio to each submarket as follows: Region Submarket Number of Properties Our Rentable Square Feet Our Market Share (2) Westside Brentwood 15 2,085,745 60.3 % Westwood 7 2,191,711 43.6 Olympic Corridor 5 1,142,885 28.1 Beverly Hills (3) 11 2,196,067 27.6 Santa Monica 11 1,425,374 14.3 Century City 3 957,269 9.0 Valley Sherman Oaks/Encino 12 3,488,995 55.1 Warner Center/Woodland Hills 3 2,845,577 37.4 Burbank 1 456,205 5.3 Honolulu Honolulu (3) 2 1,190,835 22.6 Total / Weighted Average 70 17,980,663 37.4 % ________________________________________________ (3) In calculating market share, we adjusted the rentable square footage by: (i) removing a 218,000 square foot property located just outside the Beverly Hills city limits from both the numerator and the denominator, and (ii) removing 77,000 rentable square feet of vacant space at an office building in Honolulu that we are converting to residential apartments from both our rentable square footage and that of the submarket. 33 Office Portfolio Percentage Leased and In-place Rents as of December 31, 2023 Region (1) Percent Leased Annualized Rent (2) Annualized Rent Per Leased Square Foot (2) Monthly Rent Per Leased Square Foot (2) Los Angeles Westside 82.1 % $ 449,123,019 $ 57.01 $ 4.75 Valley 83.8 197,159,698 36.04 3.00 Honolulu 90.4 37,069,247 35.93 2.99 Total / Weighted Average 83.3 % $ 683,351,964 $ 47.52 $ 3.96 _____________________________________________ (1) Regional data reflects the following underlying submarket data: Region Submarket Percent Leased Monthly Rent Per Leased Square Foot (2) Westside Beverly Hills 85.7 % $ 4.92 Brentwood 79.9 4.01 Century City 86.3 4.69 Olympic Corridor 76.1 3.33 Santa Monica 81.2 6.95 Westwood 82.6 4.54 Valley Burbank 100.0 5.01 Sherman Oaks/Encino 87.1 3.01 Warner Center/Woodland Hills 77.1 2.57 Honolulu Honolulu 90.4 2.99 Weighted Average 83.3 % $ 3.96 ____________________________________ (2) Does not include signed leases not yet commenced, which are included in percent leased but excluded from annualized rent.
(3) Square footage (rounded) expires as follows: 8 leases totaling 59,000 square feet in 2023; 2 leases totaling 11,000 square feet in 2024; 4 leases totaling 89,000 square feet in 2025; 5 leases totaling 32,000 square feet in 2026; and 3 leases totaling 71,000 square feet in 2027.
(4) Square footage (rounded) expires as follows: 1 lease totaling 1,000 square feet in 2023; 3 leases totaling 37,000 square feet in 2024; 4 leases totaling 89,000 square feet in 2025; 5 leases totaling 32,000 square feet in 2026; 1 lease totaling 51,000 square feet in 2027; 1 lease totaling 8,000 square feet in 2028; 1 lease totaling 15,000 square feet in 2029; and 2 leases totaling 14,000 square feet in 2033.
(3) Represents the square footage adjustments for leases that do not reflect BOMA remeasurement. 35 Table of Contents Office Tenant Improvements and Leasing Commissions Year Ended December 31, 2022 2021 2020 Renewal leases Number of leases 571 557 438 Square feet 2,416,521 2,553,056 1,990,974 Tenant improvement costs per square foot (1) $ 11.06 $ 8.59 $ 8.98 Leasing commission costs per square foot (1) 5.86 5.88 6.99 Total costs per square foot (1) $ 16.92 $ 14.47 $ 15.97 New leases Number of leases 343 351 228 Square feet 1,225,024 1,105,297 700,509 Tenant improvement costs per square foot (1) $ 27.68 $ 27.43 $ 25.46 Leasing commission costs per square foot (1) 9.26 9.81 9.41 Total costs per square foot (1) $ 36.94 $ 37.24 $ 34.87 Total leases Number of leases 914 908 666 Square feet 3,641,545 3,658,353 2,691,483 Tenant improvement costs per square foot (1) $ 16.65 $ 14.28 $ 13.27 Leasing commission costs per square foot (1) 7.01 7.07 7.62 Total costs per square foot (1) $ 23.66 $ 21.35 $ 20.89 ______________________________________________________ (1) Tenant improvements and leasing commissions are reported in the period in which the lease is signed.
(3) Represents the square footage adjustments for leases that do not reflect BOMA remeasurement. 36 Office Tenant Improvements and Leasing Commissions Year Ended December 31, 2023 2022 2021 Renewal leases (1) Number of leases 576 571 557 Square feet 2,359,780 2,416,521 2,553,056 Tenant improvement costs per square foot (2) $ 11.15 $ 11.06 $ 8.59 Leasing commission costs per square foot (2) 5.98 5.86 5.88 Total costs per square foot (2) $ 17.13 $ 16.92 $ 14.47 New leases (1) Number of leases 289 343 351 Square feet 792,716 1,225,024 1,105,297 Tenant improvement costs per square foot (2) $ 21.69 $ 27.68 $ 27.43 Leasing commission costs per square foot (2) 7.39 9.26 9.81 Total costs per square foot (2) $ 29.08 $ 36.94 $ 37.24 Total leases (1) Number of leases 865 914 908 Square feet 3,152,496 3,641,545 3,658,353 Tenant improvement costs per square foot (2) $ 13.80 $ 16.65 $ 14.28 Leasing commission costs per square foot (2) 6.34 7.01 7.07 Total costs per square foot (2) $ 20.14 $ 23.66 $ 21.35 ______________________________________________________ (1) Excludes square feet for ancillary retail space.
(2) We excluded the following properties in accordance with our definition of Recurring Capital Expenditures: • For 2022, we excluded two properties with an aggregate 1088 units. • For 2021, we excluded two properties with an aggregate 939 units. • For 2020, we excluded four properties with an aggregate 1057 units. 37 Table of Contents
(2) We excluded the following properties in accordance with our definition of Recurring Capital Expenditures: • For 2023, we excluded two properties with an aggregate 563 units. • For 2022, we excluded two properties with an aggregate 1,088 units. • For 2021, we excluded two properties with an aggregate 939 units. 38
Tenant has options to terminate 32,000 square feet in 2024. (6) Square footage (rounded) expires as follows: 34,000 square feet in 2029; 46,000 square feet in 2035, 31,000 square feet in 2037, and 74,000 square feet in 2038. (7) Square footage (rounded) expires as follows: 27,000 square feet in 2023, and 55,000 square feet in 2028.
(6) Square footage (rounded) expires as follows: 34,000 square feet in 2029; 46,000 square feet in 2035; 31,000 square feet in 2037 and 74,000 square feet in 2038.
Office Portfolio Summary as of December 31, 2022 Region Number of Properties Our Rentable Square Feet Region Rentable Square Feet (1) Our Average Market Share (2) Los Angeles Westside (3) 52 9,998,784 40,042,780 34.7 % Valley 16 6,790,777 21,755,737 43.6 Honolulu (3) 3 1,277,664 5,172,139 24.7 Total / Average 71 18,067,225 66,970,656 37.4 % ________________________________________________ (1) The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2022 fourth quarter CBRE Marketview report for our submarkets in that region.
Office Portfolio Summary as of December 31, 2023 Region Number of Properties Our Rentable Square Feet Region Rentable Square Feet (1) Our Average Market Share (2) Los Angeles Westside (3) 52 9,999,051 40,401,665 34.4 % Valley 16 6,790,777 22,485,019 44.4 Honolulu (3) 2 1,190,835 5,267,268 22.6 Total / Average 70 17,980,663 68,153,952 37.4 % ________________________________________________ (1) The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2023 fourth quarter CBRE Marketview report for our submarkets in that region.
Office Recurring Capital Expenditures (consolidated office portfolio) Year Ended December 31, 2022 2021 2020 Recurring Capital Expenditures (1) $ 4,224,496 $ 3,838,453 $ 3,887,091 Total square feet (1) 14,851,378 14,851,378 14,851,378 Recurring Capital Expenditures per square foot (1) $ 0.28 $ 0.26 $ 0.26 ____________________________________________________ (1) We excluded the following properties in accordance with our definition of Recurring Capital Expenditures: • For 2022, we excluded eleven properties with an aggregate 2.8 million square feet. • For 2021, we excluded eleven properties with an aggregate 2.9 million square feet. • For 2020, we excluded eleven properties with an aggregate 3.0 million square feet. 36 Table of Contents Multifamily Portfolio as of December 31, 2022 Submarket Number of Properties Number of Units Units as a Percent of Total Los Angeles Santa Monica 3 940 19 % West Los Angeles 7 1,676 33 Honolulu 4 2,397 48 Total 14 5,013 100 % Submarket Percent Leased Annualized Rent (1) Monthly Rent Per Leased Unit Los Angeles Santa Monica 99.0 % $ 48,792,756 $ 4,372 West Los Angeles (2) 99.0 44,809,560 3,133 Honolulu 99.8 61,607,256 2,151 Total / Weighted Average 99.4 % $ 155,209,572 $ 2,869 _______________________________________________________ (1) The multifamily portfolio also includes 10,495 square feet of ancillary retail space generating annualized rent of $449,224, which is not included in multifamily annualized rent.
Office Recurring Capital Expenditures (consolidated office portfolio) Year Ended December 31, 2023 2022 2021 Recurring Capital Expenditures (1) $ 3,279,814 $ 4,224,496 $ 3,838,453 Total square feet (1) 14,851,645 14,851,378 14,851,378 Recurring Capital Expenditures per square foot (1) $ 0.22 $ 0.28 $ 0.26 ____________________________________________________ (1) We excluded the following properties in accordance with our definition of Recurring Capital Expenditures: • For 2023, we excluded ten properties with an aggregate 2.7 million square feet. • For 2022, we excluded eleven properties with an aggregate 2.8 million square feet. • For 2021, we excluded eleven properties with an aggregate 2.9 million square feet. 37 Multifamily Portfolio as of December 31, 2023 Submarket Number of Properties Number of Units Units as a Percent of Total Los Angeles Santa Monica 3 940 21 % West Los Angeles (1) 7 1,151 25 Honolulu 4 2,485 54 Total 14 4,576 100 % Submarket Percent Leased Annualized Rent (2) Monthly Rent Per Leased Unit Los Angeles Santa Monica 98.2 % $ 48,562,584 $ 4,394 West Los Angeles (3) 97.4 52,768,992 4,754 Honolulu 99.1 67,367,508 2,286 Total / Weighted Average 98.5 % $ 168,699,084 $ 3,268 _______________________________________________________ (1) Excludes units vacated as part of removing Barrington Plaza from the rental market.
Discovery (2) 4 3 2023-2024 483,412 2.7 % $ 27,477,617 3.9 % UCLA (3) 22 10 2023-2027 261,179 1.4 14,209,652 2.0 William Morris Endeavor (4) 3 1 2023-2027 219,364 1.2 13,953,542 2.0 Morgan Stanley (5) 5 5 2025-2028 142,020 0.8 10,273,231 1.4 Equinox Fitness (6) 6 5 2029-2038 185,236 1.0 10,142,330 1.4 Macerich (7) 2 1 2023-2028 82,368 0.5 7,501,247 1.1 Total 42 25 1,373,579 7.6 % $ 83,557,619 11.8 % ______________________________________________________ (1) Expiration dates are per lease (expiration dates do not reflect storage and similar leases).
Discovery (2) 1 1 2024 456,205 2.5 % $ 27,435,217 4.0 % William Morris Endeavor (3) 2 1 2027 247,768 1.4 16,189,523 2.4 UCLA (4) 18 10 2023-2033 247,183 1.4 13,482,083 2.0 Morgan Stanley (5) 5 5 2025-2028 144,688 0.8 10,661,157 1.5 Equinox Fitness (6) 6 5 2029-2038 185,236 1.0 10,407,103 1.5 Total 32 22 1,281,080 7.1 % $ 78,175,083 11.4 % ______________________________________________________ (1) Expiration dates are per lease (expiration dates do not reflect storage and similar leases).
Office Lease Diversification as of December 31, 2022 Portfolio Tenant Size Median Average Square feet 2,500 5,500 Office Leases Rentable Square Feet Annualized Rent Square Feet Under Lease Number Percent Amount Percent Amount Percent 2,500 or less 1,345 49.6 % 1,935,678 13.0 % $ 84,814,085 12.0 % 2,501-10,000 1,034 38.1 5,056,569 33.9 232,673,212 32.9 10,001-20,000 210 7.7 2,905,325 19.5 137,034,451 19.4 20,001-40,000 91 3.4 2,453,302 16.5 117,019,233 16.6 40,001-100,000 30 1.1 1,745,925 11.7 90,760,299 12.8 Greater than 100,000 3 0.1 812,969 5.4 44,504,760 6.3 Total for all leases 2,713 100.0 % 14,909,768 100.0 % $ 706,806,040 100.0 % 33 Table of Contents Largest Office Tenants as of December 31, 2022 The table below presents tenants paying 1% or more of our aggregate Annualized Rent: Tenant Number of Leases Number of Properties Lease Expiration (1) Total Leased Square Feet Percent of Rentable Square Feet Annualized Rent Percent of Annualized Rent Warner Bros.
Office Lease Diversification as of December 31, 2023 Portfolio Tenant Size Median Average Square feet 2,500 5,300 Office Leases Rentable Square Feet Annualized Rent Square Feet Under Lease Number Percent Amount Percent Amount Percent 2,500 or less 1,356 50.3 % 1,956,517 13.6 % $ 86,409,633 12.6 % 2,501-10,000 1,019 37.8 4,951,267 34.4 227,624,126 33.3 10,001-20,000 209 7.8 2,879,834 20.0 138,727,510 20.3 20,001-40,000 81 3.0 2,206,570 15.4 101,150,861 14.8 40,001-100,000 29 1.0 1,682,300 11.7 85,820,710 12.6 Greater than 100,000 2 0.1 703,824 4.9 43,619,124 6.4 Total for all leases 2,696 100.0 % 14,380,312 100.0 % $ 683,351,964 100.0 % 34 Largest Office Tenants as of December 31, 2023 The table below presents tenants paying 1% or more of our aggregate Annualized Rent: Tenant Number of Leases Number of Properties Lease Expiration (1) Total Leased Square Feet Percent of Rentable Square Feet Annualized Rent Percent of Annualized Rent Warner Bros.
Removed
(2) Square footage (rounded) expires as follows: 27,000 square feet in 2023; and 456,000 square feet in 2024.
Added
(2) Square footage (rounded) expires as follows: 456,000 square feet in 2024. (3) Table reflects lease terms as of December 31, 2023. Subsequent to quarter end, the lease term was extended through 2037. Tenant has the option to terminate 248,000 square feet in 2033.
Removed
(2) Calculations exclude 94 units temporarily unoccupied as a result of a fire and 376 units at a newly constructed property undergoing lease up.
Added
(2) The multifamily portfolio also includes 83,018 square feet and annualized rent of $2,992,297 consisting of ancillary retail space at three properties and remaining office space at a building undergoing conversion from office to residential, which are not included in this table. (3) Excludes impact of Barrington Plaza.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeExcluding ordinary, routine litigation incidental to our business, we are not currently a party to any legal proceedings that we believe would reasonably be expected to have a materially adverse effect on our business, financial condition or results of operations.
Biggest changeExcluding ordinary, routine litigation incidental to our business, we are not currently a party to any legal proceedings that we believe would reasonably be expected to have a materially adverse effect on our business, financial condition or results of operations. See "Legal Proceedings" in Note 17 to our consolidated financial statements in Item 15 of this Report.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 DEI 100.00 85.46 112.77 77.97 92.59 45.48 S&P 500 100.00 95.62 125.72 148.85 191.58 156.88 NAREIT Equity (1) 100.00 95.38 120.17 110.56 158.36 119.77 Peer group (2) 100.00 85.50 106.60 72.66 88.27 50.01 _____________________________________________ (1) FTSE NAREIT Equity REITs index. (2) Consists of Boston Properties, Inc.
Biggest changePeriod Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 DEI 100.00 131.96 91.24 108.35 53.21 52.22 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 NAREIT Equity (1) 100.00 126.00 115.92 166.04 125.58 142.83 Peer group (2) 100.00 124.68 84.99 103.24 58.49 69.54 _____________________________________________ (1) FTSE NAREIT Equity REITs index. (2) Consists of Boston Properties, Inc.
Repurchases of Equity Securities None. 38 Table of Contents Performance Graph The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.
Repurchases of Equity Securities None. 39 Performance Graph The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.
Many of the shares of our common stock are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. Sales of Unregistered Securities None.
Most of the shares of our common stock are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. Sales of Unregistered Securities None.
The graph below compares the cumulative total return on our common stock from December 31, 2017 to December 31, 2022 to the cumulative total return of the S&P 500, NAREIT Equity and an appropriate “peer group” index (assuming a $100 investment in our common stock and in each of the indexes on December 31, 2017, and that all dividends were reinvested into additional shares of common stock at the frequency with which dividends are paid on the common stock during the applicable fiscal year).
The graph below compares the cumulative total return on our common stock from December 31, 2018 to December 31, 2023 to the cumulative total return of the S&P 500, NAREIT Equity and an appropriate “peer group” index (assuming a $100 investment in our common stock and in each of the indexes on December 31, 2018, and that all dividends were reinvested into additional shares of common stock at the frequency with which dividends are paid on the common stock during the applicable fiscal year).
The table below presents the dividends declared for our common stock as reported by the NYSE: First Quarter Second Quarter Third Quarter Fourth Quarter 2022 Dividend declared $ 0.28 $ 0.28 $ 0.28 $ 0.19 2021 Dividend declared $ 0.28 $ 0.28 $ 0.28 $ 0.28 Holders of Record We had 11 holders of record of our common stock on February 10, 2023.
The table below presents the dividends declared for our common stock as reported by the NYSE: First Quarter Second Quarter Third Quarter Fourth Quarter 2023 Dividend declared $ 0.19 $ 0.19 $ 0.19 $ 0.19 2022 Dividend declared $ 0.28 $ 0.28 $ 0.28 $ 0.19 Holders of Record We had 7 holders of record of our common stock on February 9, 2024.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Common Stock; Dividends Our common stock is traded on the NYSE under the symbol “DEI”. On December 30, 2022, the closing price of our common stock was $15.68.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Common Stock; Dividends Our common stock is traded on the NYSE under the symbol “DEI”. On December 29, 2023, the closing price of our common stock was $14.50.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeMultifamily NOI 80,055 73,785 6,270 8.5 % Total NOI $ 614,486 $ 592,257 $ 22,229 3.8 % 49 Table of Contents Reconciliation to GAAP The table below presents a reconciliation of our Same Property NOI to net income attributable to common stockholders (the most directly comparable GAAP measure): Year Ended December 31, (In thousands) 2022 2021 Same Property NOI $ 614,486 $ 592,257 Non-comparable office revenues 10,489 10,136 Non-comparable office expenses (4,869) (7,114) Non-comparable multifamily revenues 54,391 25,784 Non-comparable multifamily expenses (14,666) (6,067) NOI 659,831 614,996 General and administrative expenses (45,405) (42,554) Depreciation and amortization (372,798) (371,289) Other income 4,587 2,465 Other expenses (714) (937) Income from unconsolidated Fund 1,224 946 Interest expense (150,185) (147,496) Net income 96,540 56,131 Net loss attributable to noncontrolling interests 605 9,136 Net income attributable to common stockholders $ 97,145 $ 65,267 Comparison of 2021 to 2020 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022 for a comparison of our same property NOI for 2021 compared to 2020. 50 Table of Contents Liquidity and Capital Resources Short-term liquidity Our short-term liquidity needs consist primarily of funds necessary for our operating activities, development, repositioning projects and dividends and distributions.
Biggest changeMultifamily NOI 82,400 80,055 2,345 2.9 % Total NOI $ 608,645 $ 614,486 $ (5,841) (1.0) % 49 Reconciliation to GAAP The table below presents a reconciliation of Net (loss) income attributable to common stockholders (the most directly comparable GAAP measure) to Same Property NOI: Year Ended December 31, (In thousands) 2023 2022 Net (loss) income attributable to common stockholders $ (42,706) $ 97,145 Net loss attributable to noncontrolling interests (33,134) (605) Net (loss) income (75,840) 96,540 General and administrative expenses 49,236 45,405 Depreciation and amortization 459,949 372,798 Other income (19,633) (4,587) Other expenses 1,032 714 Loss (income) from unconsolidated Fund 34,643 (1,224) Interest expense 209,468 150,185 NOI $ 658,855 $ 659,831 Same Property NOI by Segment Same property office revenues $ 819,931 $ 814,084 Same property office expenses (293,686) (279,653) Same Property Office NOI 526,245 534,431 Same property multifamily revenues 119,718 114,688 Same property multifamily expenses (37,318) (34,633) Same Property Multifamily NOI 82,400 80,055 Same Property NOI 608,645 614,486 Non-comparable office revenues 10,014 10,489 Non-comparable office expenses (624) (4,869) Non-comparable multifamily revenues 70,825 54,391 Non-comparable multifamily expenses (30,005) (14,666) NOI $ 658,855 $ 659,831 Comparison of 2022 to 2021 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023 for a comparison of our same property NOI for 2022 compared to 2021. 50 Liquidity and Capital Resources Short-term liquidity Our short-term liquidity needs consist primarily of funds necessary for our operating activities, development, repositioning projects, dividends, distributions, and discretionary share repurchases.
Many investors use Same Property NOI to evaluate our operating performance and to compare our operating performance with other REITs, because it can reduce the impact of investing transactions on operating trends. Same Property NOI is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure.
Many investors use Same Property NOI to evaluate our operating performance and to compare our operating performance with other REITs, because it can reduce the impact of investing transactions on operating trends. Same Property NOI is a non-GAAP financial measure for which we believe that net income (loss) is the most directly comparable GAAP financial measure.
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. During 2022, 2021 and 2020, our results of operations were materially impacted by the COVID-19 pandemic.
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. During 2022 and 2021, our results of operations were materially impacted by the COVID-19 pandemic.
Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to the FFO of other REITs. See "Results of Operations" above for a discussion of the items that impacted our net income.
Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to the FFO of other REITs. See "Results of Operations" above for a discussion of the items that impacted our net income (loss).
Partnership X has agreed to indemnify us for any amounts that we would be required to pay under these agreements. As of December 31, 2022, all of the obligations under the respective loan and swap agreements have been performed in accordance with the terms of those agreements.
Partnership X has agreed to indemnify us for any amounts that we would be required to pay under these agreements. As of December 31, 2023, all of the obligations under the respective loan and swap agreements have been performed in accordance with the terms of those agreements.
FFO is a non-GAAP financial measure for which we believe that net income is the most directly comparable GAAP financial measure.
FFO is a non-GAAP financial measure for which we believe that net income (loss) is the most directly comparable GAAP financial measure.
Certain Contractual Obligations See the following notes to our consolidated financial statements in Item 15 of this Report for information regarding our contractual commitments: • Note 4 - minimum future ground lease payments; • Note 8 - minimum future principal payments for our secured notes payable and revolving credit facility, and the interest rates that determine our future periodic interest payments; and • Note 17 - contractual commitments.
Certain Contractual Obligations See the following notes to our consolidated financial statements in Item 15 of this Report for information regarding our contractual commitments: • Note 4 - minimum future ground lease payments; • Note 8 - minimum future principal payments for our secured notes payable, and the interest rates that determine our future periodic interest payments; and • Note 17 - contractual commitments.
If we subsequently collect amounts that were previously written off then the amounts collected are recorded as an increase to our rental revenues and tenant recoveries. Our assessment of the collectibility of lease payments requires judgment and could have a material impact on our results of operations.
If we subsequently collect amounts that were previously written off then the amounts collected are recorded as an increase to our rental revenues and tenant recoveries in the period they are collected. Our assessment of the collectibility of lease payments requires judgment and could have a material impact on our results of operations.
Comparison of 2021 to 2020 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022 for a comparison of our results of operations for 2021 compared to 2020. 47 Table of Contents Non-GAAP Supplemental Financial Measure: FFO Usefulness to Investors We report FFO because it is a widely reported measure of the performance of equity REITs, and is also used by some investors to identify the impact of trends in occupancy rates, rental rates and operating costs from year to year, excluding the impacts from changes in the value of our real estate, and to compare our performance with other REITs.
Comparison of 2022 to 2021 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023 for a comparison of our results of operations for 2022 compared to 2021. 47 Non-GAAP Supplemental Financial Measure: FFO Usefulness to Investors We report FFO because it is a widely reported measure of the performance of equity REITs, and is also used by some investors to identify the impact of trends in occupancy rates, rental rates and operating costs from year to year, excluding the impacts from changes in the value of our real estate, and to compare our performance with other REITs.
Comparison of 2021 to 2020 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022 for a comparison of our cash flows for 2021 compared to 2020. 52 Table of Contents Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP, which requires us to make estimates of certain items which affect the reported amounts of our assets, liabilities, revenues and expenses.
Comparison of 2022 to 2021 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023 for a comparison of our cash flows for 2022 compared to 2021. 52 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP, which requires us to make estimates of certain items which affect the reported amounts of our assets, liabilities, revenues and expenses.
We restored accrual basis accounting for certain office tenants that were previously determined to be uncollectible and accounted for on a cash basis of accounting, which increased our office revenues by $3.6 million in 2022.
We restored accrual basis accounting for certain office tenants that were previously determined to be uncollectible and accounted for on a cash basis of accounting, which increased our office revenues by $4.4 million and $3.6 million in 2023 and 2022, respectively.
The table below presents the average annual rental rate per leased square foot and the annualized lease transaction costs per leased square foot for leases executed in our total office portfolio during the respective periods: Year Ended December 31, 2022 2021 2020 2019 2018 Average straight-line rental rate (1)(2) $46.78 $44.99 $45.26 $49.65 $48.77 Annualized lease transaction costs (3) $5.85 $4.77 $5.11 $6.02 $5.80 ___________________________________________________ (1) These average rental rates are not directly comparable from year to year because the averages are significantly affected from period to period by factors such as the buildings, submarkets, and types of space and terms involved in the leases executed during the respective reporting period.
Rental Rate Trends - Total Portfolio Office Rental Rates The table below presents the average annual rental rate per leased square foot and the annualized lease transaction costs per leased square foot for leases executed in our total office portfolio during the respective periods: Year Ended December 31, 2023 2022 2021 2020 2019 Average straight-line rental rate (1)(2)(4) $42.97 $46.78 $44.99 $45.26 $49.65 Annualized lease transaction costs (3)(4) $5.53 $5.85 $4.77 $5.11 $6.02 ___________________________________________________ (1) These average rental rates are not directly comparable from year to year because the averages are significantly affected from period to period by factors such as the buildings, submarkets, and types of space and terms involved in the leases executed during the respective reporting period.
If our assessment of collectibility changes after the commencement date, we record the difference between the lease income that would have been recognized on a straight-line basis and cash basis as a current-period adjustment to lease income. We adopted the Topic 842 complete impairment model.
If our assessment of collectibility changes after the commencement date, we record the difference between the lease income that would have been recognized on a straight-line basis and cash basis as a current-period adjustment to rental revenues and tenant recoveries. We adopted the Topic 842 complete impairment model.
Comparison of 2022 to 2021: Our Same Properties for 2022 included 67 office properties, aggregating 17.6 million Rentable Square Feet, and 10 multifamily properties with an aggregate 3,449 units. The amounts presented below reflect 100% (not our pro-rata share). Our Same Property results for 2022 and 2021 were adversely impacted by the COVID-19 pandemic.
Comparison of 2023 to 2022: Our Same Properties for 2023 included 67 office properties, aggregating 17.6 million Rentable Square Feet, and 10 multifamily properties with an aggregate 3,449 units. The amounts presented below reflect 100% (not our pro-rata share). Our Same Property results were adversely impacted by the effects of inflation during 2023 and by the COVID-19 pandemic during 2022.
For example: (i) In 2019, the average was impacted by our acquisition of The Glendon where rental rates were higher than the average in our portfolio, (ii) In 2020, the average was impacted by the addition of a significant number of units at our Bishop Place development in Honolulu, where the rental rates were higher than the average in our portfolio, and (iii) In 2022, the average was impacted by the acquisition of 1221 Ocean Avenue, where the rental rates were higher than the average in our portfolio.
For example: (i) During 2020, the average was impacted by the addition of a significant number of units at our Bishop Place development in Honolulu, where the rental rates were higher than the average in our portfolio, and (ii) During 2022, the average was impacted by the acquisition of 1221 Ocean Avenue, where the rental rates were higher than the average in our portfolio.
We estimate the relative fair values of the tangible assets on an ‘‘as-if-vacant’’ basis. The estimated relative fair value of acquired in-place at-market leases are the estimated costs to lease the property to the occupancy level at the date of acquisition, including the fair value of leasing commissions and legal costs.
We estimate the relative fair values of the tangible assets on an "as-if-vacant" basis. The estimated relative fair value of acquired in-place at-market leases are the estimated costs to lease the property to the occupancy level at the date of acquisition, including the fair value of leasing commissions and legal costs.
The impact of changing our current year tenant recovery billings by 5% would result in a change to our tenant recovery revenues and net income of $2.2 million, $2.4 million and $2.6 million during 2022, 2021 and 2020, respectively. 54 Table of Contents Stock-Based Compensation We award stock-based compensation to certain employees and non-employee directors in the form of LTIP Units.
The impact of changing our current year tenant recovery billings by 5% would result in a change to our tenant recovery revenues and net income of $2.6 million, $2.2 million and $2.4 million during 2023, 2022 and 2021, respectively. Stock-Based Compensation We award stock-based compensation to certain employees and non-employee directors in the form of LTIP Units.
Through our subsidiaries, we wholly-own 53 office properties totaling 13.5 million square feet and 12 residential properties with 4,543 apartments. Through four consolidated JVs, we partially own an additional 16 office properties totaling 4.2 million square feet and two residential properties with 470 apartments.
Through our subsidiaries, we wholly-own 52 office properties totaling 13.4 million square feet and 12 residential properties with 4,106 apartments. Through four consolidated JVs, we partially own an additional 16 office properties totaling 4.2 million square feet and two residential properties with 470 apartments.
Stock-based compensation expense was $21.0 million, $20.9 million and $21.4 million for 2022, 2021 and 2020, respectively. The impact of changing the discount rate by 5% would result in a change to our stock-based compensation expense and net income of $1.1 million, $1.0 million and $1.1 million during 2022, 2021 and 2020, respectively.
Stock-based compensation expense was $19.8 million, $21.0 million and $20.9 million for 2023, 2022 and 2021, respectively. The impact of changing the discount rate by 5% would result in a change to our stock-based compensation expense and net income of $1.0 million, $1.1 million and $1.0 million during 2023, 2022 and 2021, respectively. 54
This project is helping to address the severe shortage of rental housing in Honolulu and revitalize the central business district, where we own a significant portion of the Class A office space. As of December 31, 2022, we had delivered seventy-two percent of the planned units and leased all of the units delivered.
This project is helping to address the severe shortage of rental housing in Honolulu and revitalize the central business district, where we own a significant portion of the Class A office space. As of December 31, 2023, we had delivered ninety-percent of the planned units and leased ninety-seven-percent of the units delivered.
See "Guarantees" in Note 17 to our consolidated financial statements in Item 15 of this Report for more information about our Fund's debt and swaps, and the respective guarantees. 51 Table of Contents Cash Flows Comparison of 2022 to 2021 Our operating cash flows in both periods were adversely impacted by the COVID-19 pandemic, and in 2022 by the effects of inflation.
See "Guarantees" in Note 17 to our consolidated financial statements in Item 15 of this Report for more information about our Fund's debt and swaps, and the respective guarantees. 51 Cash Flows Comparison of 2023 to 2022 Our operating cash flows were adversely impacted by the effects of inflation and higher interest rates during 2023 and by the COVID-19 pandemic during 2022.
As of December 31, 2022, our portfolio consisted of the following (including ancillary retail space and excluding two parcels of land from which we receive rent under ground leases): Consolidated Portfolio (1) Total Portfolio (2) Office Class A Properties 69 71 Rentable Square Feet (in thousands) (3) 17,681 18,067 Leased rate 87.1% 87.0% Occupancy rate 83.7% 83.7% Multifamily Properties 14 14 Units 5,013 5,013 Leased rate (4) 99.4% 99.4% Occupancy rate (4) 98.1% 98.1% _____________________________________________________________________ (1) Our Consolidated Portfolio includes the properties in our consolidated results.
As of December 31, 2023, our portfolio consisted of the following (including ancillary retail space and excluding two parcels of land from which we receive rent under ground leases): Consolidated Portfolio (1) Total Portfolio (2) Office Class A Properties 68 70 Rentable Square Feet (in thousands) (3) 17,595 17,981 Leased rate 83.3% 83.3% Occupancy rate 80.9% 81.0% Multifamily Properties 14 14 Units (4) 4,576 4,576 Leased rate (4) 98.5% 98.5% Occupancy rate (4) 96.7% 96.7% _____________________________________________________________________ (1) Our Consolidated Portfolio includes the properties in our consolidated results.
Long-term liquidity Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, development and debt refinancings. We do not expect to have sufficient funds on hand to cover these long-term cash requirements due to REIT federal tax rules which require that we distribute at least 90% of our income on an annual basis.
We do not expect to have sufficient funds on hand to cover these long-term cash requirements due to REIT federal tax rules which require that we distribute at least 90% of our income on an annual basis.
The decrease in cash from investing activities of $272.2 million was primarily due to a property acquisition of $330.5 million and an increase in capital expenditures for improvements to real estate of $53.9 million, partly offset by a decrease in capital expenditures for developments of $108.8 million.
The increase in cash from investing activities of $327.4 million was primarily due to $330.5 million for a property acquisition during 2022 and a decrease in capital expenditures for developments of $34.3 million, partly offset by an increase in capital expenditures for improvements to real estate of $26.8 million.
The increase in NOI from our multifamily portfolio was primarily due to: (i) our acquisition of the 1221 Ocean Avenue property in Santa Monica in the second quarter of 2022, (ii) higher rental rates, (iii) new units at our Landmark Los Angeles development project and our Bishop Place conversion project, and (iv) better collections.
The increase in NOI from our multifamily portfolio was primarily due to: (i) new units from our development projects , (ii) our acquisition of the 1221 Ocean Avenue property in Santa Monica in the second quarter of 2022, and (iii) higher rental rates at our other multifamily properties.
See Note 6 to our consolidated financial statements in Item 15 of this Report for more information about Partnership X. (3) As of December 31, 2022, we removed approximately 406,000 Rentable Square Feet of vacant space at an office building that we are converting to residential apartments. See "Acquisitions, Financings, Developments and Repositionings" further below.
See Note 6 to our consolidated financial statements in Item 15 of this Report for more information about Partnership X. (3) As of December 31, 2023, we removed approximately 77,000 Rentable Square Feet for an office building we are converting to apartments. See "Development" further below.
The tables below present the occupancy rates for our total office portfolio and multifamily portfolio: December 31, Occupancy Rates (1) as of: 2022 2021 2020 2019 2018 Office portfolio 83.7 % 84.9 % 87.4 % 91.4 % 90.3 % Multifamily portfolio (2) 98.1 % 98.0 % 94.2 % 95.2 % 97.0 % Year Ended December 31, Average Occupancy Rates (1)(3) : 2022 2021 2020 2019 2018 Office portfolio 84.2 % 85.7 % 89.5 % 90.7 % 89.4 % Multifamily portfolio (2) 97.9 % 96.8 % 94.2 % 96.5 % 96.6 % ___________________________________________________ (1) Occupancy rates include the impact of property acquisitions, most of whose occupancy rates at the time of acquisition were below that of our existing portfolio.
Multifamily Rent Roll The rent on leases subject to rent change during 2023 (new tenants and existing tenants undergoing annual rent review) was 2.1% higher on average than the prior rent on the same unit. 44 Occupancy Rates - Total Portfolio The tables below present the occupancy rates for our total office portfolio and multifamily portfolio: December 31, Occupancy Rates (1) as of: 2023 2022 2021 2020 2019 Office portfolio (2) 81.0 % 83.7 % 84.9 % 87.4 % 91.4 % Multifamily portfolio (3)(5) 96.7 % 98.1 % 98.0 % 94.2 % 95.2 % Year Ended December 31, Average Occupancy Rates (1)(4) : 2023 2022 2021 2020 2019 Office portfolio (2) 82.6 % 84.2 % 85.7 % 89.5 % 90.7 % Multifamily portfolio (3)(5) 96.9 % 97.9 % 96.8 % 94.2 % 96.5 % ___________________________________________________ (1) Occupancy rates include the impact of property acquisitions, most of whose occupancy rates at the time of acquisition were below that of our existing portfolio.
Acquisitions are included in the prior year average commencing in the quarter after the acquisition. 45 Table of Contents Results of Operations Comparison of 2022 to 2021 Our results of operations for 2022 and 2021 were adversely impacted by the COVID-19 pandemic.
Acquisitions are included in the prior year average commencing in the quarter after the acquisition. 45 Results of Operations Comparison of 2023 to 2022 Our operating results were adversely impacted by the effects of inflation and higher interest rates during 2023 , and by the COVID-19 pandemic during 2022 .
(3) Average occupancy rates are calculated by averaging the occupancy rates at the end of each of the quarters in the period and at the end of the quarter immediately prior to the start of the period. 44 Table of Contents Office Lease Expirations As of December 31, 2022, assuming non-exercise of renewal options and early termination rights, we expect to see expiring square footage in our total office portfolio as follows: ______________________________________________________ (1) Average of the percentage of leases at December 31, 2019, 2020, and 2021 with the same remaining duration as the leases for the labeled year had at December 31, 2022.
Office Lease Expirations As of December 31, 2023, assuming non-exercise of renewal options and early termination rights, we expect to see expiring square footage in our total office portfolio as follows: _______________________________________________________________ (1) Average of the percentage of leases at December 31, 2020, 2021, and 2022 with the same remaining duration as the leases for the labeled year had at December 31, 2023.
Multifamily revenue $ 169,079 $ 131,527 $ 37,552 28.6 % The increase was primarily due to: (i) revenues from our 1221 Ocean Avenue property in Santa Monica which we purchased in the second quarter of 2022, (ii) higher rental rates, (iii) new units at our Landmark Los Angeles development project and our Bishop Place conversion project, and (iv) better collections.
Multifamily revenue $ 190,543 $ 169,079 $ 21,464 12.7 % The increase was primarily due to: (i) an increase in revenues from new units at our Landmark Los Angeles development project and our Residences at Bishop Place conversion project, (ii) an increase in revenues from our 1221 Ocean Avenue property in Santa Monica that we purchased in the second quarter of 2022 and (iii) higher rental rates at our other multifamily properties.
Under this model, we no longer maintain a general reserve related to our receivables, and instead analyze, on a lease-by-lease basis, whether amounts due under the operating lease are deemed probable for collection. We write off tenant and deferred rent receivables as a charge against rental revenue in the period we determine the lease payments are not probable for collection.
Under this model, we no longer maintain a general reserve related to our receivables, and instead analyze, on a lease-by-lease basis, whether amounts due under the operating lease are deemed probable for collection.
We capitalized development costs of $59.7 million, $185.4 million and $186.4 million during 2022, 2021 and 2020, respectively. 53 Table of Contents Impairment of Long-Lived Assets We assess our investment in real estate for impairment on a periodic basis, and whenever events or changes in circumstances indicate that the carrying value of our investments in real estate may not be recoverable.
Impairment of Long-Lived Assets We assess our investment in real estate for impairment on a periodic basis, and whenever events or changes in circumstances indicate that the carrying value of our investments in real estate may not be recoverable.
The increase in cash from operating activities of $49.9 million was primarily due to an increase in NOI from our multifamily and office portfolios, partly offset by higher interest expense and an increase in general and administrative expenses.
The decrease in cash from operating activities of $69.9 million was primarily due to: (i) higher interest expense, (ii) cash used to fund working capital, (iii) an increase in general and administrative cash expenses, and (iv) a decrease in NOI from our office portfolio, partly offset by higher interest income and an increase in NOI from our multifamily portfolio.
Revenue Recognition - Collectibility of lease payments from office tenants In accordance with Topic 842, if collectibility of lease payments is not probable at the commencement date, then we limit the lease income to the lesser of the income recognized on a straight-line basis or cash basis.
Based upon such periodic assessments we did not record any impairment losses for our long-lived assets during 2023, 2022 or 2021. 53 Revenue Recognition - Collectibility of lease payments from office tenants In accordance with Topic 842, if collectibility of lease payments is not probable at the commencement date, then we limit the lease income to the lesser of the income recognized on a straight-line basis or cash basis.
Occupancy Rates - Total Portfolio Our office occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022. Our multifamily occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, but recovered during 2021 and 2022.
(2) Our multifamily rental rates were adversely impacted by the COVID-19 pandemic in 2020 but improved in 2021 and 2022.
(2) Our office rent roll can fluctuate from period to period as a result of changes in our submarkets, buildings and term of the expiring leases, making these metrics difficult to predict. 43 Table of Contents Multifamily Rental Rates Our multifamily rental rates were adversely impacted by the COVID-19 pandemic in 2020, but improved in 2021 and 2022.
(2) Our office rent roll can fluctuate from period to period as a result of changes in our submarkets, buildings and term of the expiring leases, making these metrics difficult to predict.
Multifamily rental expenses $ 49,299 $ 38,025 $ (11,274) (29.6) % The increase was primarily due to: (i) rental expenses from our 1221 Ocean Avenue property in Santa Monica which we purchased in the second quarter of 2022, (ii) rental expenses from new units at our Bishop Place conversion project and Landmark Los Angeles development project, and (iii) an increase in utility and personnel expenses.
Multifamily rental expenses $ 67,323 $ 49,299 $ (18,024) (36.6) % The increase was primarily due to: (i) an increase in rental expenses from new units at our development projects, (ii) an increase in rental expenses from our 1221 Ocean Avenue property in Santa Monica that we purchased in the second quarter of 2022, and (iii) an increase in property taxes, security and personnel expenses at our other multifamily properties.
Comparison of 2021 to 2020 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022 for a comparison of our FFO for 2021 compared to 2020.
Comparison of 2022 to 2021 See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023 for a comparison of our FFO for 2022 compared to 2021. 48 Non-GAAP Supplemental Financial Measure: Same Property NOI Usefulness to Investors We report Same Property NOI to facilitate a comparison of our operations between reported periods.
See "Impact of the COVID-19 Pandemic on our Business". Charges for uncollectible amounts related to tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our rental revenues and tenant recoveries by $0.6 million, $3.0 million, and $41.0 million in 2022, 2021 and 2020, respectively.
Charges for uncollectible amounts related to tenant receivables and deferred rent receivables reduced our rental revenues and tenant recoveries by $0.8 million, $0.6 million, and $3.0 million in 2023, 2022 and 2021, respectively.
Year Ended December 31, Increase (Decrease) In Cash % 2022 2021 (In thousands) Net cash provided by operating activities (1) $ 496,888 $ 446,951 $ 49,937 11.2 % Net cash used in investing activities (2) $ (560,953) $ (288,708) $ (272,245) (94.3) % Cash (used in) provided by financing activities (3) $ (3,003) $ 5,246 $ (8,249) (157.2) % ___________________________________________________ (1) Our cash flows from operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectibility of tenant receivables, the level of our operating and general and administrative expenses, and interest expense.
Year Ended December 31, Increase (Decrease) In Cash % 2023 2022 (In thousands) Net cash provided by operating activities (1) $ 426,964 $ 496,888 $ (69,924) (14.1) % Net cash used in investing activities (2) $ (233,590) $ (560,953) $ 327,363 58.4 % Cash provided by (used in) financing activities (3) $ 60,871 $ (3,003) $ 63,874 (2,127.0) % ___________________________________________________ (1) Our cash flows from operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectibility of tenant receivables, the level of our operating and general and administrative expenses, and interest expense.
The table below presents the rent roll for new and renewed leases per leased square foot executed in our total office portfolio: Year Ended December 31, 2022 Rent Roll (1)(2) Expiring Rate (2) New/Renewal Rate (2) Percentage Change Cash Rent $49.19 $45.66 (7.2)% Straight-line Rent $44.21 $46.78 5.8% ___________________________________________________ (1) Represents the average annual initial stabilized cash and straight-line rents per square foot on new and renewed leases signed during the year compared to the prior leases for the same space.
(4) Our office rental rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022, although the lower rental rates for the respective periods were partly offset by lower tenant improvement costs. 43 Office Rent Roll The table below presents the rent roll for new and renewed leases per leased square foot executed in our total office portfolio: Year Ended December 31, 2023 Rent Roll (1)(2) Expiring Rate (2) New/Renewal Rate (2) Percentage Change Cash Rent $45.25 $41.80 (7.6)% Straight-line Rent $41.17 $42.97 4.4% ___________________________________________________ (1) Represents the average annual initial stabilized cash and straight-line rents per square foot on new and renewed leases signed during the year compared to the prior leases for the same space.
The decrease in cash from financing activities of $8.2 million was primarily due to a decrease in net borrowings of $95.0 million and higher distributions paid to noncontrolling interests of $4.1 million, partly offset by contributions from noncontrolling interests in our consolidated JVs of $81.0 million and a decrease in loan cost payments of $10.4 million.
The increase in cash from financing activities of $63.9 million was primarily due to: (i) an increase in net borrowings of $175.0 million, (ii) a decrease in dividends paid to common stockholders of $66.9 million, and (iii) lower distributions paid to noncontrolling interests of $18.4 million, partly offset by cash paid to repurchase common stock of $109.2 million and a decrease in contributions from noncontrolling interests in our consolidated JVs of $80.9 million.
During 2022, our results of operations were impacted by the COVID-19 pandemic, inflation and capital transactions - see "Impact of the COVID-19 Pandemic on our Business" and "Acquisitions, Financings, Developments and Repositionings" further below. Overview Douglas Emmett, Inc. is a fully integrated, self-administered and self-managed REIT.
During 2023, our results of operations were impacted by various transactions - see "Debt and Equity Transactions, Development and Repositioning Projects, and Other Transactions" further below. Overview Douglas Emmett, Inc. is a fully integrated, self-administered and self-managed REIT.
The increase was partly offset by a decrease in rental revenues due to a decrease in occupancy and lower accretion from below-market leases. Office expenses (279,653) (258,262) (21,391) (8.3) % The increase was primarily due to an increase in utility, janitorial, personnel, insurance and parking expenses. The increase was partly offset by lower advocacy expenses.
The lower rental revenues were primarily due to lower occupancy, lower collections and lower accretion from below-market leases, partly offset by higher lease termination revenues. Office expenses (293,686) (279,653) (14,033) (5.0) % The increase was primarily due to an increase in utility, security, janitorial and insurance expenses. The increase was partly offset by lower property taxes.
Office NOI 534,431 518,472 15,959 3.1 % Multifamily revenues 114,688 105,743 8,945 8.5 % The increase was primarily due to an increase in rental revenues due to higher rental rates and better collections. Multifamily expenses (34,633) (31,958) (2,675) (8.4) % The increase was primarily due to an increase in utility and personnel expenses.
Office NOI 526,245 534,431 (8,186) (1.5) % Multifamily revenues 119,718 114,688 5,030 4.4 % The increase was primarily due to an increase in rental revenues due to higher rental rates. Multifamily expenses (37,318) (34,633) (2,685) (7.8) % The increase was primarily due to an increase in property taxes, security, and personnel expenses.
These swap agreements generally expire two years before the maturity date of the related loan, during which time we can refinance the loan without any interest penalty. See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and derivative contracts, respectively. See Item 7A.
We also enter into interest rate cap agreements from time to time to cap the interest rates on our floating rate loans. See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and derivative contracts, respectively. See Item 7A.
We plan to meet our long-term liquidity needs through long-term secured non-recourse debt, the issuance of equity securities, including common stock and OP Units, as well as property dispositions and JV transactions. We have an ATM program which would allow us, subject to market conditions, to sell up to $400.0 million of shares of common stock.
We plan to meet our long-term liquidity needs through long-term secured non-recourse debt, the issuance of equity securities, including common stock and OP Units, as well as property dispositions and JV transactions. We only use non-recourse debt, secured by our properties. As of the date of this report, approximately 45% of our total office portfolio was unencumbered.
Reconciliation to GAAP The table below reconciles our FFO (the FFO attributable to our common stockholders and noncontrolling interests in our Operating Partnership - which includes our share of our consolidated JVs and our unconsolidated Fund's FFO) to net income attributable to common stockholders (the most directly comparable GAAP measure): Year Ended December 31, (In thousands) 2022 2021 Net income attributable to common stockholders $ 97,145 $ 65,267 Depreciation and amortization of real estate assets 372,798 371,289 Net loss attributable to noncontrolling interests (605) (9,136) Adjustments attributable to unconsolidated Fund (1) 2,848 2,796 Adjustments attributable to consolidated JVs (2) (52,503) (46,760) FFO $ 419,683 $ 383,456 ___________________________________________________ (1) Adjusts for our share of Partnership X's depreciation and amortization of real estate assets.
Year Ended December 31, (In thousands) 2023 2022 Net (loss) income attributable to common stockholders (1) $ (42,706) $ 97,145 Depreciation and amortization of real estate assets 459,949 372,798 Net loss attributable to noncontrolling interests (33,134) (605) Adjustments attributable to unconsolidated Fund (1)(2) 39,194 2,848 Adjustments attributable to consolidated JVs (3) (46,012) (52,503) FFO $ 377,291 $ 419,683 ___________________________________________________ (1) Our net loss for the year ended December 31, 2023 includes a $36.2 million impairment charge related to our investment in our unconsolidated Fund.
Operating expenses Office rental expenses $ 284,522 $ 265,376 $ (19,146) (7.2) % The increase was primarily due to an increase in utility, janitorial, personnel, insurance and parking expenses. The increase was partly offset by a decrease in rental expenses at our Bishop Place conversion project and lower advocacy expenses.
The increase was partly offset by a decrease in rental expenses from our office to residential conversion project at Bishop Place and lower property taxes.
The table below presents the average annual rental rate per leased unit for new tenants: Year Ended December 31, 2022 2021 2020 2019 2018 Average annual rental rate - new tenants (1)(2) $ 31,763 $ 29,837 $ 28,416 $ 28,350 $ 27,542 _____________________________________________________ (1) Calculations exclude 376 units at a newly constructed property undergoing lease up.
Multifamily Rental Rates The table below presents the average annual rental rate per leased unit for new tenants: Year Ended December 31, 2023 2022 2021 2020 2019 Average annual rental rate - new tenants (1)(2) $ 36,070 $ 31,763 $ 29,837 $ 28,416 $ 28,350 _____________________________________________________ (1) These average rental rates are not directly comparable from year to year because of changes in the properties and units included.
See Note 8 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt. Excluding acquisitions and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand, cash generated by operations and our revolving credit facility.
Excluding acquisitions and debt refinancings, we expect to meet our short-term liquidity requirements through cash on hand and cash generated by operations. Long-term liquidity Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, development and debt refinancings.
The increase in NOI from our office portfolio was primarily due to: (i) better collections and (ii) an increase in parking income. For both portfolios, these improvements were partially offset by increases in expenses. (2) Our cash flows from investing activities is generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures.
(2) Our cash flows from investing activities is generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures.
Interest expense $ (150,185) $ (147,496) $ (2,689) (1.8) % The increase was primarily due to higher debt and interest rates, partly offset by a decrease in loan costs.
The decrease was primarily due to higher interest expense and a decrease in NOI from our office portfolio, partly offset by higher interest income and an increase in NOI from our multifamily portfolio.
(2) Our Occupancy Rates may not be directly comparable from year to year, as they can be impacted by acquisitions, dispositions, development and redevelopment projects. Multifamily calculations exclude units temporarily unoccupied as a result of a fire at one property and all units at a newly constructed property undergoing lease up.
(2) Our office occupancy rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022. (3) Our Occupancy Rates may not be directly comparable from year to year, as they can be impacted by acquisitions, dispositions, development and redevelopment projects.
During 2022, we generated cash from operations of $496.9 million. As of December 31, 2022, we had $268.8 million of cash and cash equivalents, and we had no balance outstanding on our $400.0 million revolving credit facility. Our earliest term loan maturity is December 2024.
During 2023, we generated cash from operations of $427.0 million. As of December 31, 2023, we had $523.1 million of cash and cash equivalents. Our earliest term loan maturity is December 2024. See Note 8 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt.
The increase in NOI from our multifamily portfolio was primarily due to: (i) our acquisition of the 1221 Ocean Avenue property in Santa Monica in the second quarter of 2022, (ii) higher rental rates, (iii) new units at our Landmark Los Angeles development project and our Bishop Place conversion project, and (iv) better collections.
The decrease in NOI from our office portfolio was primarily due to: (i) lower occupancy, (ii) lower collections, (iii) lower accretion from below-market leases, (iv) our office to residential conversion project at Bishop Place and (v) higher rental expenses. The increase in interest income was primarily due to higher interest rates and higher cash and cash equivalents balances.
Year Ended December 31, Favorable (Unfavorable) 2022 2021 Change % Commentary (In thousands) Revenues Office rental revenue and tenant recoveries $ 724,131 $ 704,946 $ 19,185 2.7 % The increase was primarily due to better collections, lower write-offs of uncollectible receivables, and restoring certain tenants to accrual basis accounting.
Year Ended December 31, Favorable (Unfavorable) 2023 2022 Change % Commentary (In thousands) Office revenues $ 819,931 $ 814,084 $ 5,847 0.7 % The increase was primarily due to an increase in parking income and tenant recoveries, partly offset by lower rental revenues.
We only use non-recourse debt, secured by our properties. As of December 31, 2022, approximately 46% of our total office portfolio was unencumbered. To mitigate the impact of changing interest rates on our cash flows from operations, we generally enter into interest rate swap agreements with respect to our loans with floating interest rates.
To mitigate the impact of changing interest rates on our cash flows from operations, we generally enter into interest rate swap agreements with respect to our loans with floating interest rates. These swap agreements generally expire two years before the maturity date of the related loan, during which time we can refinance the loan without any interest penalty.
The tower was built on a site that is directly adjacent to a 394 thousand square foot office building, a one acre park, and a 712 unit residential property, all of which we own. • 1132 Bishop Street, Honolulu, Hawaii - "The Residences at Bishop Place" In downtown Honolulu, we are converting a 25-story, 493 thousand square foot office tower into 493 rental apartments.
See Notes 6, 8, 10 and 11 to our consolidated financial statements in Item 15 of this Report for more information regarding our unconsolidated Fund, debt, derivatives and equity, respectively. 42 Development • 1132 Bishop Street, Honolulu, Hawaii - "The Residences at Bishop Place" In downtown Honolulu, we are converting a 25-story, 493 thousand square foot office tower into 493 rental apartments.
Office Rent Roll Our office rent roll continued to be adversely impacted by the COVID-19 pandemic during 2022.
Our FFO was adversely impacted by the effects of inflation and higher interest rates during 2023 , and by the COVID-19 pandemic during 2022 .
(2) Adjusts for the net income (loss) and depreciation and amortization of real estate assets that is attributable to the noncontrolling interests in our consolidated JVs. 48 Table of Contents Non-GAAP Supplemental Financial Measure: Same Property NOI Usefulness to Investors We report Same Property NOI to facilitate a comparison of our operations between reported periods.
(3) Adjusts for the net income (loss) and depreciation and amortization of real estate assets that is attributable to the noncontrolling interests in our consolidated JVs. Comparison of 2023 to 2022 During 2023, FFO decreased by $42.4 million, or 10.1%, to $377.3 million, compared to $419.7 million for 2022.
The increase was partly offset by a decrease in property taxes.
The decrease was partly offset by higher rental rates, higher lease termination revenues and an increase in tenant recoveries.
The increase was partly offset by a decrease in property taxes. 46 Table of Contents Year Ended December 31, Favorable (Unfavorable) 2022 2021 Change % Commentary (In thousands) General and administrative expenses $ 45,405 $ 42,554 $ (2,851) (6.7) % The increase was primarily due to an increase in advocacy and leasing expenses.
General and administrative expenses $ 49,236 $ 45,405 $ (3,831) (8.4) % The increase was primarily due to higher legal expenses, partly offset by a decrease in advocacy expenses.
During the repositioning, the affected property may display depressed rental revenue and occupancy levels that impact our results and, therefore, comparisons of our performance from period to period. 42 Table of Contents Rental Rate Trends - Total Portfolio Office Rental Rates Our office rental rates were adversely impacted by the COVID-19 pandemic during 2020, 2021 and 2022, although the lower rental rates for the respective periods were partly offset by lower tenant improvement costs.
During the repositioning, the affected property may display depressed rental revenue and occupancy levels that impact our results and, therefore, comparisons of our performance from period to period. Property to be Removed from Service During the second quarter of 2023, we removed our Barrington Plaza Apartments property in Los Angeles from the rental market.
Impairment losses would reduce our net income and could be material. Based upon such periodic assessments we did not record any impairment losses for our long-lived assets and Fund during 2022, 2021 or 2020.
Impairment losses would reduce our net income and could be material.
Removed
(4) Calculations exclude 94 units temporarily unoccupied as a result of a fire and 376 units at a newly constructed property undergoing lease up.
Added
(4) Unit totals exclude units vacated as part of removing Barrington Plaza from the rental market. The leased and occupancy rates exclude the impact of Barrington Plaza. See "Property to be Removed from Service" further below.
Removed
Revenues by Segment and Location During 2022, revenues from our Consolidated Portfolio were derived as follows: _____ _ 40 Table of Contents Impact of the COVID-19 Pandemic on our Business Our buildings have remained open and available to our tenants throughout the pandemic.
Added
Revenues by Segment and Location During 2023, revenues from our Consolidated Portfolio were derived as follows: ____ 41 Debt and Equity Transactions, Development and Repositioning Projects, and Other Transactions Debt and Equity Transactions During the first quarter of 2023 : • Interest rate swaps, which fixed the interest rate on a $400.0 million interest-only, floating-rate term loan that matures in December 2024 for one of our consolidated JVs, expired on January 1, 2023, and the interest rate on the respective loan is now floating. • Interest rate swaps, which fixed the interest rate on a $335.0 million interest-only, floating-rate term loan that matures in March 2025 for one of our wholly-owned subsidiaries, expired on March 1, 2023, and the interest rate on the respective loan is now floating. • An interest rate swap that fixed the interest rate on a $102.4 million interest-only, floating-rate term loan that matures in April 2025 for one of our wholly-owned subsidiaries, expired on March 1, 2023, and the interest rate on the respective loan is now floating. • We repurchased 1.4 million shares of common stock for $16.5 million in cash, excluding transaction costs, in open market transactions.
Removed
The governmental authorities in the jurisdictions in which we primarily operate, California, Los Angeles, Beverly Hills and Santa Monica, passed COVID-19 pandemic relief ordinances of varying duration and scope (residential, retail, and office), and with varying exemptions, that generally prohibit evictions, late fees and interest and allow rent deferral over certain periods.
Added
The average purchase price was $11.50 per share. • We acquired 5 thousand OP Units for $89 thousand in cash. During the second quarter of 2023: • We repurchased 7.6 million shares of common stock for $92.6 million in cash , excluding transaction costs, in open market transactions.
Removed
While improving, our rent collections continue to be negatively impacted by the remaining impact of these ordinances and the pandemic. Our results of operations since 2020 have been adversely impacted by the COVID-19 pandemic.
Added
The average purchase price was $12.13 per share. • We acquired 20 thousand OP Units for $232 thousand in cash. During the third quarter of 2023: • We closed a new $350.0 million secured, non-recourse interest-only term loan that matures in August 2033.
Removed
Our results of operations for 2022 generally compare favorably with 2021, primarily due to: (i) the gradual recovery, (ii) better collections from our tenants, (iii) lower write-offs of uncollectible tenant receivables, (iv) restoring certain office tenants to accrual basis accounting, (v) higher office parking income, (vi) a multifamily property we acquired in the second quarter of 2022, (vii) new units from our multifamily development projects, and (viii) higher rental rates for our multifamily portfolio.
Added
The loan accrues intere st at SOFR plus 1.37% and is secured by our Landmark Los Angeles and Bishop Place properties. The interest rate is capped with lender-required out-of-the-money interest rate caps at 7.84% until August 2026 .
Removed
The favorable impacts were partly offset by the impact of inflation on our rental expenses. The pandemic had a significant impact on our collections, although they improved in 2021 and 2022.
Added
We used part of the proceeds to pay off the balance on our revolving credit facility, which expired in August 2023. • We purchased three lender-required out-of-the-money interest rate caps with an aggregate notional amount of $472.0 million to hedge $472.0 million of a $550.0 million loan.
Removed
Charges for uncollectible office tenant receivables and deferred rent receivables, which were primarily due to the COVID-19 pandemic, reduced our office revenues by $0.6 million and $3.0 million for 2022 and 2021, respectively.
Added
The interest rate is capped at a weighted average of 8.99% until July 2026. • We converted our LIBOR loans and swaps to SOFR. See Item 7A in Part II for our SOFR transition disclosures. • In connection with the Barrington Plaza loan, Barrington Plaza Apartments have been removed from the rental market.
Removed
We restored accrual basis accounting for certain office tenants that were previously determined to be uncollectible and accounted for on a cash basis of accounting, which increased our office revenues by $3.6 million for 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSee Note 8 to our consolidated financial statements in Item 15 of this Report for the future swap expirations with a total notional amount of $837.4 million in the first quarter of 2023. Higher interest rates would cause an increase in our future interest expense, which would reduce our future net income and cash flows from operations.
Biggest changeHigher interest rates would cause an increase in our future interest expense on our floating-rate debt, which would reduce our future net income, cash flows from operations and FFO. See Note 8 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and our future swap and cap expirations.
Our use of these instruments exposes us to credit risk from the potential inability of our counterparties to perform under the terms of those agreements. We attempt to minimize this credit risk by contracting with a variety of financial counterparties with investment grade ratings.
Our use of interest rate swaps and caps exposes us to credit risk from the potential inability of our counterparties to perform under the terms of those agreements. We attempt to minimize this credit risk by contracting with a variety of financial counterparties with investment grade ratings.
As of December 31, 2022, the interest expense for our floating rate borrowings that are not hedged would increase by $5.6 million per year for every one hundred basis point increase in the related benchmark interest rate.
Unhedged Floating-Rate Borrowings As of December 31, 2023, the interest rates for 16% of our consolidated borrowings were floating. As of December 31, 2023, the interest expense for our floating-rate borrowings that are not hedged would increase by $9.3 million per year for every one hundred basis point increase in the related benchmark interest rate.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Hedging our Floating Rate Borrowings As of December 31, 2022, the interest rates for 89% of our consolidated borrowings were fixed or swap-fixed with interest rate swaps.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Fixed-Rate Borrowings and Hedged Borrowings As of December 31, 2023, the interest rates for 69% of our consolidated borrowings were fixed or swap-fixed with interest rate swaps, and 15% were capped with interest rate caps.
In that case, the risks associated with the transition to SOFR will be accelerated and potentially magnified. See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and interest rate swaps.
See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and derivatives, respectively.
Removed
Market Transition to SOFR from USD-LIBOR On March 5, 2021, the FCA announced that USD-LIBOR would no longer be published after June 30, 2023.
Added
As of December 31, 2023, the maximum amount the interest expense on our capped-rate borrowings could increase is $14.3 million per year. Higher interest rates would cause an increase in our future interest expense on our capped-rate debt, which would reduce our future net income, cash flows from operations and FFO.
Removed
This announcement has several implications, including setting the type of SOFR to which LIBOR is converted (e.g., Term SOFR, Daily Simple SOFR or Daily Compounded SOFR) and agreeing on a spread that may be applied when converting contracts from USD-LIBOR to SOFR.
Added
See Note 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our swaps and caps. Market Transition to SOFR from LIBOR During the third quarter of 2023, we converted all of our LIBOR loans and swaps to SOFR.
Removed
As of December 31, 2022, most of our floating rate borrowings and interest rate swaps are indexed to USD-LIBOR, and we currently expect that all of these loans and interest rate swaps will be converted to SOFR by July 1, 2023.
Added
The LIBOR loans converted to SOFR include a small SOFR adjustment (an increase to the SOFR rate) to calculate the interest payable to the lender. The SOFR conversion did not change the swap-fixed interest rates for our swap-fixed loans.
Removed
We are evaluating issues relating to transitioning contracts to SOFR - which include, among other issues, the calculation of: (i) loan interest payments, (ii) swap interest payments, and (iii) the value of, and accounting for, loans and swaps.
Removed
While we currently expect USD-LIBOR to be available in substantially its current form until at least June 30, 2023, it is possible that USD-LIBOR will become unavailable prior to that time. This could occur if, for example, sufficient banks decline to make submissions to the LIBOR administrator.

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