Douglas Emmett Inc - Annual Report: 2019 (Form 10-K)

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•	adverse economic or real estate developments affecting Southern California or Honolulu, Hawaii;

•	competition from other real estate investors in our markets;

•	decreasing rental rates or increasing tenant incentive and vacancy rates;

•	defaults on, early terminations of, or non-renewal of leases by tenants;

•	increases in interest rates or operating costs;

•	insufficient cash flows to service our outstanding debt or pay rent on ground leases;

•	difficulties in raising capital;

•	inability to liquidate real estate or other investments quickly;

•	adverse changes to rent control laws and regulations;

•	environmental uncertainties;

•	natural disasters;

•	insufficient insurance, or increases in insurance costs;

•	inability to successfully expand into new markets and submarkets;

•	difficulties in identifying properties to acquire and failure to complete acquisitions successfully;

•	failure to successfully operate acquired properties;

•	risks associated with property development;

•	risks associated with JVs;

•	conflicts of interest with our officers and reliance on key personnel;

•	changes in zoning and other land use laws;

•	adverse results of litigation or governmental proceedings;

•	failure to comply with laws, regulations and covenants that are applicable to our business;

•	possible terrorist attacks or wars;

•	possible cyber attacks or intrusions;

•	adverse changes to accounting rules;

•	weaknesses in our internal controls over financial reporting;

•	failure to maintain our REIT status under federal tax laws; and

•	adverse changes to tax laws, including those related to property taxes.

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•	Concentration of High Quality Office and Multifamily Properties in Premier Submarkets.

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•	Disciplined Strategy of Acquiring Substantial Market Share.

•	Proactive Asset and Property Management.

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four consolidated JVs, through which we and institutional investors own seventeen office properties in our core markets totaling 4.3 million square feet and one residential property with 350 apartments, and in which we own a weighted average of 46% at December 31, 2019 based on square footage. We are entitled to (i) distributions based on invested capital as well as (in the case of three of the JVs) 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.

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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 30% at December 31, 2019.  We are entitled to (i) priority distributions, (ii) distributions based on invested capital, (iii) a carried interest if the investors’ distributions exceed a hurdle rate, (iv) fees for property management and other services and (v) reimbursement of certain costs.

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i.	at least 75% of our gross income (excluding gross income from “prohibited transactions” as defined below and qualifying hedges) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property or from certain types of temporary investment income, and

ii.

at least 95% of our gross income (excluding gross income from “prohibited transactions” and qualifying hedges) for each taxable year must be derived from income that qualifies under the 75% test or from other dividends, interest or gain from the sale or other disposition of stock or securities. In general, a “prohibited transaction” is a sale or other disposition of property (other than foreclosure property) held primarily for sale to customers in the ordinary course of business.

i.

at least 75% of the value of our total assets must be represented by real estate assets including shares of stock of other REITs, debt instruments of publicly offered REITs, certain other stock or debt instruments purchased with the proceeds of a stock offering or long-term public debt offering by us (but only for the one-year period after such offering), cash, cash items and government securities,

ii.	not more than 25% of our total assets may be represented by securities other than those in the 75% asset class,

iii.

of the assets included in the 25% asset class, the value of any one issuer’s securities owned by us may not exceed 5% of the value of our total assets and we may not own more than 10% of the vote or value of the securities of any one issuer, in each case other than securities included under the 75% asset test above and interests in TRS or QRS, each as defined below, and in the case of the 10% value test, subject to certain other exceptions,

iv.	not more than 20% of the value of our total assets may be represented by securities of one or more TRS, and

v.	not more than 25% of the value of our total assets may be represented by nonqualified publicly offered REIT debt instruments.

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•	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) changes in space utilization, (ii) changes in the relative popularity of our properties, (iii) the type of space we provide or (iv) purchasing versus leasing;

•	reduced demand for parking space due to the impact of technology such as self driving cars, and 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 expenses (or our reduced ability to recover expenses from our tenants), including insurance costs, labor costs (such as the unionization of our employees or the employees of any parties with whom we contract for services to our buildings), energy prices, real estate assessments and other taxes, as well as 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.

•	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;

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•	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;

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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.

•	our floating rate debt and related hedges are indexed to USD-LIBOR, any regulatory changes which impact the USD-LIBOR benchmark, such as the potential transition to the Secured Overnight Financing Rate (see Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" below), could impact our borrowing costs or the effectiveness of our hedges.

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•	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;

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•	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.

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•	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;

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•	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.

•	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, 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;

•	We may encounter delays, refusals and unforeseen cost increases resulting from third-party litigation or objections;

•	We may fail to obtain the financial results expected from properties we develop or redevelop; and

•	We have developed and redeveloped properties in the past, however only in a limited manner in recent years, which could adversely affect our ability to develop or redevelop properties or to achieve our expected returns.

•	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;

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•	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.

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•	general market conditions;

•	the market’s perception of our growth potential;

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•	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.

•	redemption rights of qualifying parties;

•	transfer restrictions on our OP Units;

•	the ability of the general partner in some cases to amend the partnership agreement without the consent of the limited partners; and

•	the right of the limited partners to consent to transfers of the general partnership interest and mergers under specified circumstances.

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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on these combinations; and

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“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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(i)	permanently reducing the generally applicable corporate tax rate,

(ii)	generally reducing the tax rate applicable to individuals and other non-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026,

(v)	imposes new limitations on the deduction of net operating losses, which may result in us having to make additional taxable distributions to our stockholders in order to comply with REIT distribution requirements or avoid taxes on retained income and gains.

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(1)	The rentable square feet in each region is based on the Rentable Square Feet as reported in the 2019 fourth quarter CBRE Marketview report for our submarkets in that region.

(2)	Our market share is calculated by dividing Rentable Square Feet by the applicable 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:

(3)

In calculating market share, we adjusted the rentable square footage by (i) removing approximately 202,000 rentable square feet of vacant space at an office building in Honolulu, which 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.

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(1)	Regional data reflects the following underlying submarket data:

(2)	Does not include signed leases not yet commenced, which are included in percent leased but excluded from annualized rent.

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(1)	Expiration dates are per lease (expiration dates do not reflect storage and similar leases).

(2)	Square footage expires as follows: 2,000 square feet in 2020, 10,000 square feet in 2023, and 456,000 square feet in 2024.

(3)	Square footage expires as follows: 36,000 square feet in 2020, 72,000 square feet in 2021, 55,000 square feet in 2022, 46,000 square feet in 2023, 10,000 square feet in 2024, 49,000 square feet in 2025, and 67,000 square feet in 2027. Tenant has options to terminate 31,000 square feet in 2020, 16,000 square feet in 2023, and 51,000 square feet in 2025.

(4)	Square footage expires as follows: 1,000 square feet in 2022 and 213,000 square feet in 2027. Tenant has an option to terminate 2,000 square feet in 2020 and 212,000 square feet in 2022.

(5)	Square footage expires as follows: 16,000 square feet in 2022, 30,000 square feet in 2023, 26,000 square feet in 2025, and 74,000 square feet in 2027. Tenant has options to terminate 30,000 square feet in 2021, 26,000 square feet in 2022, and 32,000 square feet in 2024.

(6)	Square footage expires as follows: 34,000 square feet in 2024, 31,000 square feet in 2027, 44,000 square feet in 2028, 42,000 square feet in 2030, and 30,000 square feet in 2033.

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(1)	Represents annualized rent at December 31, 2019 divided by leased square feet.

(2)	Represents annualized rent at expiration divided by leased square feet.

(3)	Represents the square footage adjustments for leases that do not reflect BOMA remeasurement.

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(1)	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.

(1)	For 2019, we excluded eleven properties with an aggregate 3.2 million square feet. For 2018 and 2017, we excluded ten properties with an aggregate 2.8 million square feet.

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(1)	Includes newly developed units just made available for rent.

(2)	The multifamily portfolio also includes 10,495 square feet of ancillary retail space generating annualized rent of $408,077, which is not included in multifamily annualized rent.

(1)

Recurring capital expenditures are costs associated with the turnover of units. 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 2019, when a tenant vacated one of these units, we incurred on average $55 thousand per unit to bring the unit up to our standards. We classify these capital expenditures as non-recurring.

(2)	For 2019, we excluded two properties, one that we acquired in 2019 and another with newly developed units, with an aggregate 837 apartments.

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(1)	FTSE NAREIT Equity REITs index.

(2)	Consists of Boston Properties, Inc. (BXP), Kilroy Realty Corporation (KRC), SL Green Realty Corp. (SLG), Vornado Trust (VNO) and Hudson Pacific Properties, Inc (HPP).

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(1)	Excludes properties owned by our unconsolidated Fund(s).

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(1)

Our Consolidated Portfolio includes the properties in our consolidated results. Through our subsidiaries, we own 100% of these properties, except for seventeen office properties totaling 4.3 million square feet and one residential property with 350 apartments, which we own through four consolidated JVs. Our Consolidated Portfolio also includes two land parcels from which we receive ground rent from ground leases to the owners of a Class A office building and a hotel.

(2)	Our Total Portfolio includes our Consolidated Portfolio as well as two properties totaling 0.4 million square feet owned by our unconsolidated Fund. See Note 6 to our consolidated financial statements in Item 15 of this Report for more information about our unconsolidated Fund.

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•	During the first quarter of 2019:

◦	In March 2019, we renewed our $400.0 million revolving credit facility, releasing two previously encumbered properties, lowering the borrowing rate and unused facility fees, and extending the maturity date. The renewed facility bears interest at LIBOR + 1.15% and matures on August 21, 2023.

•	During the second quarter of 2019:

◦	We closed a secured, non-recourse $255.0 million interest-only loan scheduled to mature in June 2029. The loan bears interest at LIBOR + 0.98%, which we have effectively fixed through an interest rate swap at 3.26% until June 2027. We used the proceeds to pay off a $145.0 million loan that was scheduled to mature in October 2019.

◦	We closed a secured, non-recourse $125.0 million interest-only loan scheduled to mature in June 2029. The loan bears interest at LIBOR + 0.98%, which we have effectively fixed through interest rate swaps at 2.55% until December 2020, which then increases to 3.25% until June 2027. We used the proceeds to pay off a $115.0 million loan that was scheduled to mature in December 2025.

◦

We closed a secured, non-recourse $160.0 million interest-only loan scheduled to mature in June 2029. The loan bears interest at LIBOR + 0.98%, which we have effectively fixed through an interest rate swap at 3.25% until July 2027. We used the proceeds to partially fund the acquisition of The Glendon property. This loan has been assumed by the consolidated JV to which we contributed The Glendon property.

◦

We entered into a forward interest rate swap to extend the fixed-rate period for a term loan with a principal balance of $102.4 million, scheduled to mature in April 2025, for three years. We also entered into forward interest rate swaps with an initial notional amount of $75.0 million, effective as of September 2019 and scheduled to mature in August 2025, fixing one-month LIBOR at 1.97%, to hedge the $415.0 million term-loan we closed in the third quarter - see third quarter financing transactions below.

◦	We issued 4.9 million shares of our common stock under our ATM program for net proceeds of $201.0 million. We used a portion of the funds to partially fund the acquisition of The Glendon property, and a portion of the funds to pay off a $220.0 million loan in the third quarter - see third quarter financing transactions below.

◦	Other investors in the consolidated JV to which we contributed The Glendon property contributed $176.0 million to the JV to fund the acquisition of the property, and we contributed $44.0 million to the JV.

•	During the third quarter of 2019:

◦	We paid off a $220.0 million loan scheduled to mature in December 2023 and terminated the related interest rate swaps.

◦	We closed a secured, non-recourse $415.0 million interest-only loan scheduled to mature in August 2026. The loan bears interest at LIBOR + 1.10%, which we have effectively fixed through interest rate swaps at 2.58% until

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◦	We closed a secured, non-recourse $400.0 million interest-only loan scheduled to mature in September 2026. The loan bears interest at LIBOR + 1.15%, which we have effectively fixed through interest rate swaps at 2.44% until September 2024. The proceeds were used to pay-off a $400.0 million loan scheduled to mature in November 2022.

◦	We closed a secured, non-recourse $200.0 million interest-only loan scheduled to mature in September 2026. The loan bears interest at LIBOR + 1.20%, which we have effectively fixed through interest rate swaps at 2.77% until July 2020, which then decreases to 2.36% until October 2024. Part of the proceeds were used to pay off a $180.0 million loan scheduled to mature in July 2022.

•	During the fourth quarter of 2019

◦	We closed a secured, non-recourse $400.0 million interest-only loan scheduled to mature in November 2026. The loan bears interest at LIBOR + 1.15%, which we have effectively fixed through interest rate swaps at 2.18% until July 2021, which increases to 2.31% until October 2024. Part of the proceeds were used to pay off a $360.0 million loan scheduled to mature in June 2023.

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In West Los Angeles, we are building a 34 story high-rise apartment building with 376 apartments. The tower is being built on a site that is directly adjacent to an existing office building and a 712 unit residential property, both of which we own. We expect the cost of the development to be approximately $180 million to $200 million, which does not include the cost of the land which we have owned since 1997. As part of the project, we are investing additional capital to build a one-acre park on Wilshire Boulevard that will be available to the public and provide a valuable amenity to our surrounding properties and community. We expect construction to take about three years.

•	At our Moanalua Hillside Apartments in Honolulu, we completed the construction of an additional 491 new apartments on 28 acres which now join our existing 680 apartments. We also invested additional capital to upgrade the existing buildings, improve the parking and landscaping, build a new leasing and management office, and construct a new fitness center and two pools.

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In downtown Honolulu, we are converting a 25 story, 490 thousand square foot office tower into approximately 500 apartments. We expect the conversion to occur in phases over a number of years as the office space is vacated. We currently estimate the construction costs to be approximately $80 million to $100.0 million, although the inherent uncertainties of development are compounded by the multi-year and phased nature of the conversion. Assuming timely city approvals, we expect the first units to be delivered in 2020. This project will help address the severe shortage of rental housing in Honolulu, and revitalize the central business district.

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(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. Because straight-line rent takes into account the full economic value of each lease, including rent concessions and escalations, we believe that it may provide a better comparison than ending cash rents, which include the impact of the annual escalations over the entire term of the lease.

(2)	Reflects the weighted average straight-line Annualized Rent.

(3)	Reflects the weighted average leasing commissions and tenant improvement allowances divided by the weighted average number of years for the leases. Excludes leases substantially negotiated by the seller in the case of acquired properties and leases for tenants relocated from space being taken out of service.

(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. Excludes Short Term Leases, leases where the prior lease was terminated more than a year before signing of the new lease, leases for tenants relocated from space being taken out of service, and leases in acquired buildings where we believe the information about the prior agreement is incomplete or where we believe base rent reflects other off-market inducements to the tenant that are not reflected in the prior lease document.

(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.

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(1)

These average rental rates are not directly comparable from year to year because of changes in the properties and units included. For example: (i) the average for 2018 decreased from 2017 because we added a significant number of units at our Moanalua Hillside Apartments development in Honolulu, where the rental rates are lower than the average in our portfolio, and (ii) the average for 2019 increased from 2018 because we acquired The Glendon where higher rental rates offset the effect of adding additional units at our Moanalua Hillside Apartments development.

(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.

(2)	The Occupancy Rate for our multifamily portfolio was impacted by an acquisition in 2019 and by new units at our Moanalua Hillside Apartments development in Honolulu in 2019 and 2018 - see "Acquisitions, Financings, Developments and Repositionings" above.

(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.

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(1)	Adjusts for our share of our unconsolidated Funds depreciation and amortization of real estate assets.

(2)	Adjusts for the net income and depreciation and amortization of real estate assets that is attributable to the noncontrolling interests in our consolidated JVs.

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(1)	Reflects the future principal payments due on our consolidated secured notes payable and revolving credit facility, excluding any maturity extension options. See Note 8 to our consolidated financial statements in Item 15 of this Report.

(2)

Reflects the future interest payments due on our consolidated secured notes payable and revolving credit facility, excluding any maturity extension options. The interest payments include the effect of interest rate swaps when relevant, and are based on the USD one-month LIBOR rate as of December 31, 2019 when floating. Future interest payments on our revolving credit facility are based on the balance as of December 31, 2019. See Note 8 to our consolidated financial statements in Item 15 of this Report.

(3)	Reflects the future minimum ground lease payments. See Note 4 to our consolidated financial statements in Item 15 of this Report.

(4)	See "Acquisitions, Financings, Developments and Repositionings" for a discussion of our developments.

(5)	Reflects the aggregate remaining contractual commitment for capital expenditure projects and repositionings, as well as tenant improvements. See "Acquisitions, Financings, Developments and Repositionings" for a discussion of our repositionings.

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(1)

Our cash flows provided by operating activities are primarily dependent upon the occupancy and rental rates of our portfolio, the collectability of rent and recoveries from our tenants, and the level of our operating expenses and general and administrative expenses, and interest expense.  The increase was primarily due to: (i) an increase in operating income from our office portfolio due to an increase in occupancy and rental rates, and operating income from retail space at The Glendon residential community we acquired in June 2019, and (ii) an increase in operating income from our residential portfolio due to operating income from apartments at The Glendon residential community and leasing of new units at our Moanalua Hillside Apartments development.

(2)

Our cash flows used in investing activities are generally used to fund property acquisitions, developments and redevelopment projects, and Recurring and non-Recurring Capital Expenditures. The increase is primarily due to $365.9 million paid for The Glendon residential community in 2019 and an increase of $81.4 million paid for additional interests in unconsolidated Funds in 2019, partially offset by $39.2 million of cash assumed from the consolidation of a JV.

(3)

Our cash flows provided by financing activities are generally impacted by our borrowings and capital activities, as well as dividends and distributions paid to common stockholders and noncontrolling interests, respectively.  The increase is primarily due to (i) $201.0 million of net proceeds from the issuance of common stock, (ii) $163.6 million of contributions from noncontrolling interests in consolidated JVs, and (iii) an increase of $77.6 million in net borrowings, partially offset by (a) an increase in loan cost payments of $18.4 million, (b) an increase in distributions to noncontrolling interests of $12.4 million, and (c) an increase in dividends paid to common stockholders of $9.8 million.

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•	estimating the recoverable expenses;

•	estimating the impact of changes to expense and occupancy during the year;

•	estimating the fixed and variable components of operating expenses for each building;

•	conforming recoverable expense pools to those used in the base year for the underlying lease; and

•	judging whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease.

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(1)	For a description of our 2016 Omnibus Stock Incentive Plan, see Note 13 to our consolidated financial statements in Item 15 of this Report. We did not have any other stock-based compensation plans as of December 31, 2019.

(2)	Consists of 0.8 million vested and 0.9 million unvested LTIP Units.

(3)	We have no outstanding options. There are no exercise prices for LTIP Units.

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(1)	We issued OP Units to the seller in connection with the acquisition of 9401 Wilshire. See Note 11 for more information.

(2)	We assumed a loan from the seller in connection with the acquisition of 9401 Wilshire. At the date of acquisition, the loan had a fair value of $36.5 million and a principal balance of $32.3 million. See Note 8 for more information.

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(1)	Recorded as a net increase to office and multifamily rental revenues.

(2)	Recorded as a decrease to office parking and other income.

(3)	Recorded as a decrease to office expense. Upon adoption of ASU 2016-02 on January 1, 2019 we adjusted the ground lease right-of-use asset carrying value with the carrying value of the above-market ground lease - see Notes 2 and 4.

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(1)	The balances reflect the combined balances for Partnership X, Fund X and the Opportunity Fund through November 20, 2019 and the balances for Partnership X from November 21, 2019 through December 31, 2019.

(1)	The balances reflect the combined balances for Partnership X, Fund X and the Opportunity Fund through November 20, 2019 and the balances for Partnership X from November 21, 2019 through December 31, 2019.

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(1)	Maturity dates include the effect of extension options.

(2)	Includes the effect of interest rate swaps and excludes the effect of prepaid loan fees. See Note 10 for details of our interest rate swaps. See below for details of our loan costs.

(3)	At December 31, 2019, these loans have been paid off.

(4)	Loan agreement includes a zero-percent LIBOR floor. The corresponding swaps do not include such a floor.

(5)	The effective rate will decrease to 2.76% on March 2, 2020.

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(6)	These loans were closed during the twelve months ended December 31, 2019.

(7)	Effective rate will increase to 3.07% on April 1, 2020.

(8)	Effective rate will decrease to 2.36% on July 1, 2020.

(9)	Effective rate will increase to 2.31% on July 1, 2021.

(10)	Effective rate will increase to 3.25% on December 1, 2020.

(11)	Requires monthly payments of principal and interest. Principal amortization is based upon a 30-year amortization schedule.

(12)	In March 2019, we renewed our $400.0 million revolving credit facility, releasing two previously encumbered properties, lowering the borrowing rate and unused facility fees, and extending the maturity date. Unused commitment fees range from 0.10% to 0.15% . The loan agreement includes a zero-percent LIBOR floor.

(13)	A previously unconsolidated Fund is now treated as a consolidated JV. See Note 3.

(14)	The table does not include our unconsolidated Funds' loans - see Note 17. See Note 14 for our fair value disclosures.

(1)	Some of our loan agreements require that we meet certain minimum financial thresholds to be able to extend the loan maturity.

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

(2)	Includes forward swaps with a total notional of $502.4 million.

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

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

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

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

(2)	Our unconsolidated Fund did not have any derivatives in a liability position.

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

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

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(1)	See Note 11 for our AOCI reconciliation.

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

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

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

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(1)

There were no outstanding options during the year ended December 31, 2019. Outstanding OP Units and vested LTIP Units are not included in the denominator in calculating diluted EPS, even though they may be exchanged under certain conditions for common stock on a one-for-one basis, because their associated net income (equal on a per unit basis to the Net income per common share - diluted) was already deducted in calculating Net income attributable to common stockholders. Accordingly, any exchange would not have any effect on diluted EPS. The following table presents the OP Units and vested LTIP Units outstanding for the respective periods:

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(1)	Consolidated derivatives, which include 100%, not our pro-rata share, of our consolidated JVs' derivatives, are included in interest rate contracts in our consolidated balance sheets. The fair values exclude accrued interest which is included in interest payable in the consolidated balance sheets.

(2)

Reflects 100%, not our pro-rata share, of our unconsolidated Funds' derivatives. Our pro-rata share of the amounts related to the unconsolidated Funds' derivatives is included in our Investment in unconsolidated Funds in our consolidated balance sheets. See Note 17 regarding our unconsolidated Funds debt and derivatives. Our unconsolidated Funds' did not have any derivatives in a liability position for the periods presented.

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(1)

Does not include (i) residential leases, which typically have a term of one year or less, (ii) holdover rent, (ii) other types of rent such as storage and antenna rent, (iv) tenant reimbursements, (v) straight line rent, (vi) amortization/accretion of acquired above/below-market lease intangibles and (vii) percentage rents.  The amounts assume that early termination options held by tenants are not exercised.

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(1)	See Note 6 for more information regarding our unconsolidated Fund.

(2)	Floating rate term loan, swapped to fixed, which is secured by two properties and requires monthly payments of interest only, with the outstanding principal due upon maturity. As of December 31, 2019, assuming a zero-percent LIBOR interest rate during the remaining life of the swap, the maximum future payments under the swap agreement were $1.2 million.

(3)	Loan agreement includes a zero-percent LIBOR floor. The corresponding swap does not include such a floor.

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(1)	These properties are encumbered by our revolving credit facility, which had a zero balance as of December 31, 2019.

(2)	Includes tenant improvements and lease intangibles.

(3)	Net of fully depreciated and amortized tenant improvements and lease intangibles removed from our books.

(4)	A previously unconsolidated Fund is now treated as a consolidated JV.

(5)	At December 31, 2019, the aggregate federal income tax cost basis for consolidated real estate was $7.91 billion (unaudited).