Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Douglas Emmett, Inc. (NYSE:DEI)

March 05, 2013 11:30 am ET

Executives

Jordan L. Kaplan - Chief Executive Officer, President and Director

Theodore E. Guth - Chief Financial Officer and Principal Accounting Officer

Unknown Analyst

Welcome to day 2 of Citi's Global Property CEO Conference. We're here at the 11:30 session. If there's any media on the line, or other individuals, please just disconnect now. We're extraordinarily pleased to have with us Douglas Emmett, Jordan Kaplan, Ted Guth and Stuart McElhinney. This is great to have Douglas Emmett here because they don't NAREIT because we told them their G&A was going to be too high, so they don't want to pay. So Jordan, thank you very much for attending. And I'll turn it over to you for some opening comments, and then we'll go to Q&A.

Jordan L. Kaplan

I don't know if this thing's working.

Unknown Analyst

Oh, it's live.

Jordan L. Kaplan

It is? Okay. Well, I appreciate that introduction with NAREIT and all in there. So we're going to go over a bunch of things with you today. The one thing I really don't want to talk about is same-store NOI. So no questions on same-store NOI.

Unknown Analyst

How about the model?

Jordan L. Kaplan

Well, I'll say this, the sell-side analysts are more sensitive to me talking about models than my wife is. Let me -- I was sitting at lunch yesterday, and Mike Pasotelli [ph] came up to me and he did one of those, like, Pasotelli [ph] bear hugs where you don't know how to get free and he said, "I got a new job. I'm going to be your public conference call consultant because I've done 3 of them so I can help you out, seeing that you're kind of tripping a little bit." All right, enough of the jokes.

Unknown Analyst

I like that.

Jordan L. Kaplan

So obviously the same-store NOI is something that I want to talk about and probably -- might like to try and reset the clock a little bit on. So I'm going to answer both questions in your mind. So first of all, you're thinking, which you might be -- if you're polite, you'll probably ask, which is can you better make me understand how you have that anemic same-store 50 basis point NOI comparison in light of the fact that you had all that great absorption in 2012? That's the polite question. And I'm also going to ask the impolite question, like, how did you lose control of your conference call and come out looking like an idiot, right? So hopefully I get them both dealt with in this description. So going into the call, obviously we sit down and we're looking at a lot of numbers and we had all the numbers for 2012, which we were about to tell you guys some very good year-end numbers, right? Great absorption, absorption at Warner Center, a market that we've been asked about continuously, right? All kinds of good stats, leasing, AIG, great look in 2013 we were projecting numbers that were above where people expected for FFO. I mean, we felt like I had a lot of good numbers that I want to focus on and, of course, we see this 50-basis-point same-store NOI number. We look at that number and I'm like, "You know what? It's one number in a sea of numbers and it's complicated to explain. It's going to be distracting." Now to his credit, Ted says, "You know what, that's a real important number to them. We should explain that number." I said, "No. Here's the plan. We focus on these other numbers. That's a complicated number, so what I'm going to do, is I'm going to say, 'Hey, we don't like this number either. We feel it's very conservative. We beat on the number last year. Let's give it a little time. We'll readdress it in a quarter, hopefully we can give you a better explanation about what's going on there.'" That's going to be it. Then they won't really notice the number and they'll move on and focus on the numbers we want them to focus on. That was a good strategy for totally effing up our entire call and I followed that strategy, all right?

So we go into the call. I'm doing my section and the stock's going up. And then Ted starts doing his section and the stock's going down, right? So we're sitting there, we see the same stuff you guys are seeing, right? We see that Ted's talking, stock's going down; I'm talking, all good. But we're not in a situation to say, "Hey, everybody out there in the conference land, we're going to put you on hold because we're going do a little confab here and reorganize our plan." Okay?

So the first caller -- I don't -- gladly don't even remember who the first caller was. The Grim Reaper gets on the phone and says, "Hey, I got a question for you. Same-store NOI." All right? Being a good player, I look in the playbook, it says, here's your answer, "Hey, we think it's a very conservative number. We're planning to give you some more information in a quarter. We don't like that number either." Second caller, same-store NOI. Third caller, same-store NOI. All right? Pretty soon, I sound like an idiot, the model made me do it, I jumped off the bridge, the model is too good-looking to resist. Whatever types of thing you like that was said to me, that's all coming out, right? And we're getting buried like that guy in the house, where he dropped into the sink hole, right? Okay.

So 2 things came out of that process. I totally, successfully, made myself look like an idiot and we lost our message completely in terms of all the good stuff that happened. And to make things worse, because we weren't actually giving you the answer of the bridge from same-store NOI, anemic NOI compared to the absorption that people were looking for, which I am going to give, all right, analysts start getting on the call and making their own guesses, right? So I got, like, these guesses. I'm not necessarily refuting the guesses, but I got -- I'm all of a sudden being accused, "Hey, you know what, you've been sand-bagging all the time. You're not getting the 3% bumps in your leases. They're not really there." Another guy gets on, "Hey, we've worried about this the whole time. Your rent roll down, it's finally -- the cows have come home to roost, you're paying the piper, whatever you want to say. Now, it's going to bomb you in 2013, the whole world, you're getting your comeuppance." Right? So I have those 2 things happening, I'm not giving them the answer. All around, not my best day, okay?

All right. Now I'm going to go back and I'm going to explain exactly what did happen, right? First of all, those 2 guesses couldn't be farther from the truth, right? Not only are we getting the bumps but, as rents are rising, we have an opportunity, I don't know that we'll take it, but we have an opportunity to increase the bumps, right? Rising rents means rising economics. We can increase base rate, we can reduce concessions, we can raise the bumps. That mix of things is happening and those are on the list. Number 2, rent roll down is diminishing and, in fact, as it was a headwind in 2012, it's less of a headwind in 2013. Right? And as I look at our deal flow, right, and I look at all the deals that are coming up, I see more and more on that list with roll up but I still see a substantial amount with roll down. It's hard to tell when, on net, that number is going to turn. But it certainly improved for 2013 versus 2012.

So those aren't the answer. There are 2 things that are the answer, okay? The first has to do with free rent. Fourth quarter of 2012, as you'll remember, one of the statistics we wanted you to focus on that got lost was that we did 140 basis points of absorption, right? In that absorption was also some large leases. And in fact also, separately, we then went on to announce that we had done the AIG deal. All good news, all real good news. People have been asking us about AIG for 2 years, right? The odd thing about what happened there is because those tenants, or those leases at least, began their life in 2012, the absorption was in 2012, but it was the end of 2012. They lived the first year of their life in 2013. Now while free rent is reducing in our markets and, on average, including large tenants, the free rent in our market -- in our deals is approximately 1/2 of a month per year. So that is to say that a 5-year lease you would typically think is going to see about 2.5 months of free rent, right? But when things consolidate like that at the end, with so much absorption and then adding to it the fact that we did the AIG lease and larger tenants are able to really push their free rent to the front of their lease, we ended up with an abnormal large chunk of free rent in 2013. So where 2012 was a strong year and 2013, on an absorption basis, was very strong in terms of occupancy, the revenue line items, it was a tough comparison. AIG in 2012 is paying full rent. 2013, the majority of their free rent occurs, right? So while you're plotting, you signed up AIG on a cash-to-cash comparison, from '12 to '13, it's a weaker comparison. And that's exacerbated by the 140 basis points that we also leased at the end of the year. So reason #1, and maybe there's 2 primary reasons, but even a little bigger reason, this free rent issue played a large role in the anemic same-store comparison on NOI.

Unknown Analyst

And that's -- how much of that 0.5 would go to...

Jordan L. Kaplan

Call it 100 basis points. But it's a real round number, right?

Unknown Analyst

Do you calculate same-store on a GAAP and a cash basis?

Jordan L. Kaplan

I'm giving you cash.

Unknown Analyst

Right. But do you calculate it GAAP?

Jordan L. Kaplan

We haven't given it on GAAP. I don't even know that we calculate it on GAAP because GAAP has a lot of other things going on. It's certainly -- by giving the GAAP same-store analysis, you wouldn't get to the -- you're thinking to yourself, "Hey, straight line rents fix that problem." Right? But there's so much more going on.

Unknown Analyst

Right. But you give FFO guidance, not FAD or AFFO guidance. So you're mixing apples and oranges, right? Because you're giving 1 number with it and you're not giving us the other number. You see what I'm saying?

Jordan L. Kaplan

One number with it? Let me finish my explanation and then come back and you can hit all the questions because you got to hear the other side, right? Let me give you the second one, all right? Here's the second one. So I've explained the revenue side, how the revenue is diminished, although a great year, diminished as a result of free rent. Now on the expense side, here's what happened. Going into 2012, we were clearly going into a recovering year. We had just come out of 4-plus years of recession, right, where we had focused on not only holding expenses down but reducing expenses. And we had very successful done that. If you followed us, you know that we've done that, right? So of course when we were budgeting 2012, a recovery year, it was very reasonable to expect that expenses were going to start to rise again because, as things improve, we get more rent, our expenses go up at the same time. So we had budgeted for 2012 2% to 3% expense growth. In fact, our experience for 2012 was 1% expense growth. Applause all the way around the table for our operating group, they did a great job of keeping the portfolio looking AAA class and keeping a lid on expenses. Now when we do the budget for 2013, that is done in, let's call it, August, okay? So they've got about 2/3 of the year of experience under their belt in order to build sort of the base that the next budget was coming off of for 2013. Now at that time, everybody knew we were doing a good job of holding onto expenses. And in fact, we did a number of things in the recession that have to do with technology and reporting that I think will be expense savings that will last forever. I mean, there were parts of that, that made us better at our game and improvements and investments we made, as I said, in technology that have reduced, on the reporting side staff and some of those costs, okay? That's a permanent save. But you should expect, also, that as the economy recovers, people want to get paid more, they want better bonuses, whatever the case may be. So when they were doing the budget for 2013, first of all, they were saying 2013, another recovering year, reasonable to pro forma 2% to 3% growth in expenses.

Secondly, they were budgeting coming off of a 2012 expected base that turned out to be higher than it actually was, right? You're 2/3 in, you might be on a pace of 1% but figure, "Hey, when we're all said and done we'll be at 1.5% or 1.75%." Right? When in fact it came out at 1%. As a result of those 2 things we ended up with a budget on expenses that actually was in excess of 3%, reasonably in excess of 3%. Now I got it that the way we got there and the way we budgeted that process was very reasonable and it's reasonable to conservatively budget expenses. But at the same time, I've never seen my company's expenses move faster than 3% and 3% is even a high number for us. So when we went into the call and you heard me say, "I don't like this number either. I feel like this number is conservative." It's because I didn't like the number and I didn't buy off on, "Hey, I think we're going to have 3-plus-plus percent expense growth from 1 year to the next." Even though I understand how you can extremely reasonably end up pro forma-ing that with what had happened.

Unknown Analyst

You're saying that the original budget was August. It doesn't get updated for finals or tweaked?

Jordan L. Kaplan

Well, the budget is obviously something that -- when the budget is set, you can't keep changing operating [indiscernible] people. Now we can do topside adjustments to the budget, right? And we do. And you see, throughout the year, that we adjust, for you guys, expectations because we made topside adjustments to our -- I don't even want to mention the word of model. And therefore it allows us to better predict what's going on as information comes in. And also maybe there are parts of the budget, which is a part of the model, right, that we feel like, historically, they're a little too conservative on that, this, that and the other.

On this particular number, it's not like we didn't have discussions on it. I cannot by fiat say, "You know what, I got it. You've explained it to me that this thing is going to be 3 point blank, blank, blank percent, but here's the news, it's down. It's got to go lower. You got to get buy in from everybody because it's not just an adjustment at the top and I don't want to be wrong either, right? And you heard me say in the call, "I'd like to revisit this in a quarter." Obviously, I wasn't going to be given that time but, I mean, my idea was a bad idea, granted. Okay? We did a

[Audio Gap]

"Hey, we'll get that budget trimmed back or find out it can't be trimmed back to a point where it'll be more in line with my expectations and with what everybody has thought into doing." We didn't get there, okay? So as a result, we had this budget -- the expense situation on the budget, comparing to an actual that was only 1% growth from the previous year. We had the free rent balled up all in 2013, like, an abnormal amount of free rent in 2013. So what ended up happening is those 2 items gave us a very anemic same-store NOI comparison, although all for good reason. If we were to stabilize those numbers, go to like a little bit more normal situation, more normal expense growth, what I might expect to see and more normal, kind of, free rent as you would normally see it just occur in a year, I believe we would have been giving you guys a range of 150, 250, something more up in the territory than you might expect with the absorption that we had already announced. That is my explanation.

Now I have more I could talk to you about the company but I will pause here, right, so you could -- so we can hopefully give a dead horse a couple more good shots in the head. So now, bring on the questions, Michael or Josh. Maybe that was such a great -- good explanation, I need to move on.

Unknown Analyst

Such a great explanation.

Unknown Analyst

So most of the free rent is going to burn off in the first half and expense growth is going to -- you're going to have a better handle on it so, as we get towards third quarter earnings, we should expect that same-store number to increase considerably?

Jordan L. Kaplan

Well, I mean, obviously, for a large lease like AIG, we have free rent through the 2013 year, right? Others, maybe burning off a little faster. I mean, I don't have predictions for the individual quarters. To a question that has been asked to us in the meetings has been, "Hey, if that's the case, are you going to have some type of insane NOI growth from '13 to '14?" Right? And our answer has been, well, here's the situation. There's a lot of things that drive NOI growth. Obviously, you could have the super oddity that we have another, like, huge fourth quarter and another chunk of free rent lands there. I'm not betting on that, right? But there's a lot of stuff that drives it. If you want to narrow things down to just these 2 issues, for sure, these 2 issues will act as a tailwind, not a headwind, going from '13 to '14. But there's a lot of other things happening in terms of your same-store NOI growth from year-to-year.

Unknown Analyst

But it just sounds like the expenses, that the expenses are too high that's in budget. And that 0.5, the expenses are too high.

Jordan L. Kaplan

I hope they

[Audio Gap]

but it's not so often that we were willing to make a topside adjustment and just deal with it prior to that call. And so we're still working on it. So we're not here announcing that "Hey, here's the real good news, we're going to beat on expenses."

Theodore E. Guth

Let me just say one other thing, too. The real important thing for us on the expense side is not to have the lowest possible expenses, it's to make sure that the assets are run and operated and maintained in pristine condition. So what we have to do, which is a more complex process than simply saying we're going to tell everybody cut your budget, we're going to sequester the funds and tell everybody we're going to cut it back by 2%...

Jordan L. Kaplan

I was thinking about sequestering.

Theodore E. Guth

Yes, he was.

Jordan L. Kaplan

Don't think I wasn't willing to do that.

Theodore E. Guth

But the real process is to go through and make sure that the reasons for the budgeting is in fact what we've observed from the topside and that takes time that we haven't had to do. We will have a chance to do that before the first quarter but we'll have to see how that plays out.

Unknown Analyst

Jordan, we've been asking every company to lead off these sessions about talking about a -- the most value-creating opportunity that you have within the company today that you don't think the market is giving you much credit for or doesn't appreciate. Put the same-store aside, we've killed that dead horse.

Jordan L. Kaplan

Whenever -- okay, I have other stuff I was going to talk about in my prepared text but to answer your question, I think -- let me mention that usually I listen to, like, Ranado [ph] and Boston Properties so I can hear what your question is going to be so I'm a little more prepared. But because I was having such an exciting time answering NOI on every meeting that we had, I never had a chance. So I didn't know what the question was going to be. But it's an easy one. It's our operating platform. I believe that people -- if you're not in L.A. and you don't understand L.A. and...

Unknown Analyst

It's not the modeling group. We know that.

Jordan L. Kaplan

Our modeling group is very good. I felt bad because there is a lady, named Amy Lee [ph], who is in charge of our modeling and she is like sitting right there while I'm talking. And you could see her kind of sliding under the table as I kept going the model, the model, the model. And she's, like, great at modeling, right? I mean, she does a great job, and you guys know, for the last few years, we've hit our numbers extremely well and we've given you guidance that's been pretty much on the nose. But I gave her a horrific beating in that call. Anyway, our operating platform, what people don't get about it is that there's not another even, like, ghost version of our operating platform in our market right now. And the truth is, while you'll see some big trades, you saw that -- the Wilshire Courtyard trade, which has some giant tenants in it, trading for okay-sized numbers, USD 420 a foot or whatever it may be. Most of the trades in the end of the day that are going to come out in our markets are going to be trades that are just like the portfolio you see that we own, right? 300,000 foot to 400,000 foot buildings, multi-tenant buildings, where's it's much more, in L.A., of a flow business, right? And that gives us a huge competitive edge. Not only in terms of knowledge and being able to manage those buildings but being able to manage those buildings to their best value and confidence in bidding, which is why, historically, when it isn't a situation with one large tenant, we tend to be the winning bid. And that's how we've added and built this portfolio over the years. And while we always say operating platform, operating platform, operating platform, you don't see a lot of notes about operating platform, right? I mean here is like some NAV thing or like here's what we think that such and such growth of FFO or AFFO. But it's that operating platform that's the backbone that we rely on in order to achieve these goals, and it's been a huge boon for us as other companies have, through the recession, essentially dismantled their operating platforms. So it should give us a lot more options to take advantage of this recovery.

Unknown Analyst

If I could just ask 1 question on the same-store to close the loop. If you were to normalize the expenses and also normalize for a reasonable amount of free rent because there probably is some in every year, so just normalizing for the excess, what would the same-store have been?

Jordan L. Kaplan

150 to 250 is the range that we've been saying. It's very hard -- when you say normalize, that's very hard. I got to look at free rent '12, I got to return

[Audio Gap]

150 to 250.

Unknown Analyst

Okay. And that's just taking out the excess free rent not all of it?

Jordan L. Kaplan

Just those 2 items are creating what we believe is that amount of drag on the number. I mean we can't do anything about the free rent, that's like signed in the deals.

Unknown Analyst

And just I guess -- Not on same store but on your operating platform, can you spend some time talking about the Blackstone portfolio and what kind of cost savings does your operating platform allow you to get and what kind of synergies, if you can quantify it, versus other buyers in the market when you're looking at something like Blackstone?

Jordan L. Kaplan

Well, for instance, in all of the markets we're trying to buy in, whether it be a Blackstone's portfolio or other people's portfolio, typically we'll own a building, literally, that might share a lot-line with the building we're trying to buy, right? So when we did the deal in Beverly Hills, on

[Audio Gap]

cover that building. So there's huge expense savings. Obviously having a machine that's as big as ours on the operating side, we can absorb buildings very easily, right? We have a very deep bench at, like, every level that you need to have a deep bench for adding properties, particularly office and residential properties in our markets, right? And on the other side of the coin, as I said earlier, because we have so much property surrounding the properties we're after, we have as close to perfect information as you can have, including, before they give us their rent roll we usually know their rent roll. We know which tenants are coming, going, staying, which ones are like, saying they're moving to another building in our portfolio, right? So when you buy buildings in the same market and you've already -- I don't know what we are [indiscernible], 1/4 or so of these markets, right, 22%, 23%, you start getting in situations where yes, they're in so and so's building next door but here's where the space is, that building and our building. You're in a better situation just, let's say, support rental rate and rental rate growth as a market number in that market. We're seeing -- on the expense side, we're seeing that in spades in Honolulu. I mean, we've changed the cost structure of operating those buildings in Honolulu. Now we've seen, for instance, in some micro markets in L.A. and even some broader markets, the impact of controlling all this -- enough of this space so a tenant's alternatives are still in another one of our buildings. You got to remember, because we're so focused in our markets, that -- we're not -- who do I want to choose to beat up on? But we're not Bank of America, right? Where this guy is trying to do a deal with a client over here, this guy is trying to deal with the same client over there and the 2 of them don't even know each other and don't know what's going on. This information extremely quickly through the systems reporting and people, right, reports through. So if someone talks to our broker on a deal in one building on San Vicente and then they also are talking to one of our people in Beverly Hills, instantly, we know that, that same tenant now is at those 2 spaces, right? And so we can capture, and we get to visit with everybody that comes through the market and also, we have more information about their alternatives than anybody else has. That's extremely useful, right? Add to that the fact that our platform gives us the ability to respond to brokers, to make brokers' lives easier, right? We have such a good flow of business that we're able to set standards in terms of, let's say, lease terms, speed at which people go in, et cetera. So brokers know when they come to us and when we get to a deal, that deal, they can put it on autopilot. I mean, our system will generate the lease, there will be a couple of alternatives in lease terms, they'll be able to say to their client, yes, everybody does it, choose whichever one you like. I've done 10 other deals where they took this clause, 5 other where they took this clause and the deal gets done very quickly. We track our time, between signing the LOI and getting the tenant into the space. If you were to go to one of the larger companies and say, "Okay, you got an LOI. You finally got it beaten down and you got an LOI. Now you got to put it, it has to go through the lawyers, you go to get a lease signed and you got the space build out and blah, blah, blah. Okay. How long do you think that's going to be?" They would say to you, "I don't know, 3 to 6 months, whatever, all the time that it takes to do that, okay?" We track that number in days. We squeeze that number down to 3 weeks, all right? It's a dramatic difference. We are pushing -- our operating platform is pushing the office business in our markets to better reflect essentially a residence. To get people in and out, to get -- to have have spaces that have similar characteristics, standard characteristics, where there's a smaller and smaller number of changes that they want to make. We are pushing in terms of our cost of moving them in and out. We're getting our carpet -- if you buy an enormous amount of carpet, do an enormous amount of painting, right? And we do it as a flow business. We push that number down constantly. And we get the speed at which we can do -- make those changes done faster and faster. That all makes a huge difference in terms of getting the tenants in and in terms of the size of the spaces that we have. All of those things give us a huge edge on operating platform.

Theodore E. Guth

It's not just -- so the operating expense side, I think there's a lot of savings that we've wrung out of things and can but, as Jordan is saying, really, the main thing is the revenue side. So if you just simply say, which I think we've said for a long time, that in general, over a lot of years, we have 200 to 300 basis points of additional occupancy in our buildings and submarkets. And that in bad times, for example a couple years ago, that may widen out to 500 basis points of additional occupancy. That revenue is enormous to us and that's -- yes, lower operating -- by the way I prefer the bills to the wonk [ph] this morning. That additional revenue is the real value in addition to whatever expense savings, which can be significant.

Jordan L. Kaplan

I know we're running out of time and I have one other thing I wanted to mention. So I know that a lot of the messages we wanted to get across on our last call didn't come across. We ended up stuck, like in this meeting, on NOI as the story for a little while. But the reason I went in to that last call, so -- because I didn't get to finish my sort of prepared thing, excited about our markets, and I just want to lay this out, and you can go and look back, is that as the markets are improving and as we're saying to you all rental rates are moving up, what we're looking at, which is making me excited is, part is essentially what Ted just said. In a down market, we will end up beating the market in our portfolio by as much as 500 basis points, which is great. I mean, and it's a testament to the platform. But you can -- we're not an island, you can't push rents if you're at 90 and everyone else is at 85, okay? As you look over the last couple of years and as we move into 2013, that number is squeezing together, right? We're at like 91 now, they're at 88, the rest of the market. As the market tightens up to us, that's a great sign because that's when rents can start moving. We can't be at 95 with an 85 market and move rents. But we can be at 92 with an 89 market and move rents. So that world seems to really be coming our way. And at the end of the day, when you look at real estate, you look at the future value of real estate, the biggest lever in that is what's happening with rents going forward. So I am -- my feeling is people are going to start -- as they start focusing on rents, we're going to, hopefully, I hope I'm right, we're going to be able to start showing you some really more significant rental increases over the next couple of years.

Unknown Analyst

On the third quarter conference call, you gave a number where you did an analysis of the leases done in your portfolio to meet market rents up 5% to 10% and, I guess, that was July, August, September. Have you updated that number since?

Theodore E. Guth

Again, this is excluding Warner Center and -- I'd still think it's a noisy number because while we have all the numbers, it depends a lot on lease. But I would still say that we're seeing annual rent growth of 5% to 10%.

Unknown Analyst

Are there any questions from the audience?

Question-and-Answer Session

Unknown Analyst

Jordan, how -- I mean it sounds like you guys are driving your portfolio hard and very efficiently, et cetera. But if you look at acquisitions in the market, how inefficient are the other buildings, the other owners, the other operators of the real estate? I mean, how much -- what's that spread that you could drive, I don't know, 5 tad [ph] building to if you purchase at that level?

Jordan L. Kaplan

Well, there's a huge spread there, right? I mean, some guys -- you could have a guy that owns a building and he's not even a real estate guy. He happens to own his building and

[Audio Gap]

buildings, the upside for us in terms of having, let's say, a best-in-class operating platform varies dramatically based on who the previous owner is. The stuff you see coming out as sort of the one-off buildings that's coming out, that come out, a lot of time we have a lot of opportunity on those because maybe the guy only owns 1 or 2 buildings. So they may not have as much sort of cutting edge market knowledge in terms of how that building can be run to get the most income out of it. But our market has consolidated a lot. We're probably one of the primary criminals in that process of consolidating real estate into institutional hands. Now institutional players have varying levels of sophistication in operations but they don't tend to be very weak in terms of capital markets and choosing their timing of capital markets and pushing for, like, a good bid and execution on the sale. So that part of it with them is typically going to be a little -- you're going to have less room in what's going on and, a less sophisticated guy, you're going to have more room. In general though, as the years move on, I would expect the trades in our markets to be more chunky just because there's more portfolios out there that are slated to trade.

Unknown Analyst

We have 3 rapid fire questions, you're going to love the first one. What will same-store NOI growth be for the office sector, okay, in 2014?

Jordan L. Kaplan

As I've said -- let me say this, I am for sure not in the business of projecting my same-store NOI growth for '13 to '14 considering the spectacular job I did of it from '12 to '13. So that question you just got to put down as a pass on.

Unknown Analyst

If you had to, what property sector other than your own would you personally invest in right now?

Jordan L. Kaplan

It's shifting. There was a time a year ago when we were sitting around -- because you know we're always looking at apartments and I said, "You know what, insanely, condos are trading for less than apartments. We should be just scraping up condos." And I said to a bunch of friends, "You know, it's not my business but go out and buy yourself some condos and rent them because it's a good -- you'll get a good write out of it and you'll get some income because of the way loans work and interest rates." So that's what I would have done if you were like -- if I was making that recommendation to my sister, for instance. If you have to move in on a larger scale, that's a tougher answer. I mean, I have a general inclination that I love residential, but residential -- multifamily residential is priced very dear at the moment.

Unknown Analyst

So you wouldn't buy multifamily?

Jordan L. Kaplan

Well, I'll make the recommendation I made to my sister. Why? Is Citibank looking for recommendation that you need for larger scale or...

Unknown Analyst

Do you expect to see more or less

[Audio Gap]

in the office sector 1 year from today?

Jordan L. Kaplan

Where's Paul? Does he have an answer to that?

Unknown Analyst

He's not allowed to be in here.

Jordan L. Kaplan

I think there is a, at least for my properties, the properties where I know values and where I know I'm bidding, I think there is a significant spread between where, like, sort of the public market on a stock base is valuing the buildings and where I myself see it. I'm going to have to pay and I'm having to pay to buy buildings that may not even be at the midpoint of my portfolio. I don't know for sure whether that drives things [indiscernible]. How that drives things. There's a lot of capital coming into the market. My guess is you'll get some -- you'll get some privates and you'll get some go publics and you won't see a dramatic change.

Unknown Analyst

Great. Thank you very much.

Jordan L. Kaplan

Thanks.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Douglas Emmett Inc Presents at 2013 Citi Global Property CEO Conference, Mar-05-2013 11:30 AM

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts