Douglas Emmett, Inc. (NYSE:DEI) Q3 2022 Results Conference Call November 4, 2022 2:00 PM ET

Company Participants

Stuart McElhinney - Vice President of Investor Relations

Jordan Kaplan - President and CEO

Kevin Crummy - CIO

Peter Seymour - CFO

Conference Call Participants

Michael Griffin - Citi

Blaine Heck - Wells Fargo

Nick Yulico - Scotiabank

Steve Sakwa - Evercore

Alexander Goldfarb - Piper Sandler

Rich Anderson - SMBC

Dave Rogers - Baird

John Kim - BMO

Daniel Ismail - Green Street Advisors

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Douglas Emmett’s quarterly earnings call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. After managements’ prepared remarks, you will instructions for participating in the question-and-answer session.

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

Stuart McElhinney

Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO. This call is being webcast live from our Web site and will be available for replay during the next 90 days. You can find our earnings package at the Investor Relations section of our Web site. You can find reconciliations of non-GAAP financial measures discussed during today’s call in the earnings package. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although, we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences maybe material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our Web site. When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow-up. Thank you.

I will now turn the call over to Jordan.

Jordan Kaplan

Good morning, everyone. Thank you for joining us. We had another strong leasing quarter with total leasing exceeding 1 million square feet and new leases at very healthy 365,000 square feet. Despite this accomplishment, I feel like we've been on a treadmill for the past several quarters, considering our efforts have only produced a modest increase in net absorption and occupancy. Of course, this is partly due to our program of replacing nonpaying tenants with new paying tenants. As I mentioned last quarter, the expiration of commercial eviction moratoriums has finally allowed us to recapture space from nonpaying tenants, while still pursuing their outstanding balance. During the third quarter, we recovered about 50,000 square feet from nonpaying tenants. We expect to address a similar amount of space in the fourth quarter. With respect to occupancy, our leased to occupied spread improved slightly but remains more than twice our historical average. While we expected occupancy growth from a reduction in that spread, it has not happened yet. One reason is that an unusual number of tenants are expanding in our portfolio or simply relocating, which increases occupancy lead times. While we are concerned about a future economic slowdown, we firmly believe in the long term health of our markets. Our demand comes from numerous industries without any risk of material new supply. Having successfully managed through several prior cycles, our strategy and platform are designed to withstand downturns while staying positioned to act opportunistically.