Douglas Emmett unveils $200M–$250M Westwood overhaul as leasing gains traction

Key Highlights from Douglas Emmett, Inc.'s Q2 2025 Earnings Call

During the recent earnings call, Douglas Emmett, Inc. (DEI) provided a detailed overview of its performance and future strategies. CEO Jordan L. Kaplan emphasized the company's strong leasing results across both office and residential segments. He noted that the company leased 973,000 square feet of office space, including over 300,000 square feet of new leases. This marks three consecutive quarters of positive absorption in the total portfolio.

Kaplan also highlighted full occupancy and increasing rents in the multifamily segment, with same-property cash NOI growth exceeding 10%. The company is focusing on four key growth strategies, one of which involves converting the recently acquired 10900 Wilshire office property into 320 apartments in Westwood. This conversion is expected to enhance the value of the property and reduce office vacancy in the submarket.

CIO Kevin Andrew Crummy outlined the financial details of the 10900 Wilshire conversion. He mentioned that the total project cost, including acquisition, conversion, and construction, is estimated to be between $200 million and $250 million. The first apartments are expected to be delivered within the next 18 months, with the development proceeding in phases.

CFO Peter D. Seymour reported that revenue increased by 2.7% year-over-year, while FFO decreased to $0.37 per share and AFFO to $54.5 million. Same-property cash NOI declined by 1.1%, primarily due to a large property tax refund in the prior year. Seymour provided updated 2025 guidance, projecting net income per share diluted between $0.07 and $0.11, with FFO per fully diluted share between $1.43 and $1.47.

Outlook for 2025

The company has revised its 2025 guidance, with net income per common share diluted expected to range between $0.07 and $0.11. FFO per fully diluted share is projected to be between $1.43 and $1.47. Seymour noted that this guidance does not include potential impacts from future property acquisitions, dispositions, stock sales or repurchases, financings, insurance recoveries, impairment charges, or other capital market activities.

Management highlighted a narrowing of the FFO per share guidance range compared to the previous quarter. They remain focused on refinancing 2026 maturities at competitive rates.

Financial Results Overview

Revenue increased by 2.7% year-over-year. FFO was reported at $0.37 per share, and AFFO at $54.5 million. Same-property cash NOI declined by 1.1% due to the prior year’s property tax refund. General and administrative expenses represented approximately 4.9% of revenue. Leasing costs averaged $6.06 per square foot per year, which is significantly lower than the average for other office REITs in their benchmark group.

Q&A Session Insights

Analysts raised several questions during the Q&A session. John P. Kim from BMO Capital Markets inquired about high leasing activity relative to occupancy and lease rates. Kaplan explained that there is a 270 basis point gap between leased and occupied space, which he sees as a positive sign due to an increase in larger deals that take longer to move in but indicate momentum.

Blaine Matthew Heck from Wells Fargo asked about Studio Plaza leasing rates and NOI timing. McElhinney noted that the company does not provide leasing stats on individual buildings but expressed satisfaction with the leasing velocity. NOI contributions from new leases are expected to ramp up over time as larger tenants take occupancy.

Anthony Paolone from JPMorgan questioned the occupancy guidance. McElhinney affirmed confidence in the full-year average occupancy guidance of 78% to 80%, expecting some absorption in the second half but without specific half-year targets.

Alexander David Goldfarb from Piper Sandler inquired about demand in the Los Angeles market. Kaplan indicated that the company's Westside residential assets remain strong, with units receiving positive feedback. He noted that apartments are performing extremely well.

Nicholas Philip Yulico from Scotiabank asked about the impact of removing 10900 Wilshire from the office market. Kaplan stated that efforts are being made to move tenants into other properties but acknowledged that it is always helpful to remove product from the market.

Sentiment Analysis

Analysts sought clarity on leasing metrics, occupancy rates, project costs, and market demand, with a generally neutral to slightly positive tone. Questions frequently focused on timing, guidance, and the impact of strategic conversions.

Management maintained a confident and optimistic posture, particularly regarding leasing momentum and residential strength. Kaplan expressed optimism about the company's direction and emphasized successful leasing strategies and project execution. The tone remained consistent with the prior quarter, with a slight increase in focus on execution and project delivery.

Quarter-over-Quarter Comparison

The current quarter saw the announcement of a major new residential conversion at 10900 Wilshire, with a projected cost escalation from the previously discussed $150–$200 million to $200–$250 million. Management narrowed FFO guidance and reaffirmed occupancy targets. Leasing activity remained robust, with continued emphasis on signing larger deals and positive absorption. Analyst questions shifted towards timing and execution of new projects, while management’s confidence in the multifamily segment increased.

Risks and Concerns

Management acknowledged macroeconomic uncertainty but reported no impact on leasing. The gap between leased and occupied space was identified as a metric to monitor future leasing health. Challenges include potential NOI drag from office-to-residential conversions, rising redevelopment costs, and lag in NOI contribution from new leases. The company is focused on refinancing debt maturities and managing project costs as contract details become clearer.

Final Takeaway

Douglas Emmett underscored robust leasing momentum and a strategic pivot toward residential conversions, highlighted by the $200 million to $250 million Westwood project. Management reaffirmed confidence in multifamily and office portfolios, emphasized execution on key redevelopment initiatives, and maintained guidance despite macro uncertainty. The company remains focused on enhancing portfolio value while controlling costs and addressing upcoming debt maturities.