This REIT Focus is on Douglas Emmett, Inc. (DEI), a publicly traded REIT that owns 59 Class A office buildings with 14.9 million sq. ft. and nine apartment properties with 2,868 units, all located in CA and HI. Major office building tenants include Time Warner, William Morris Endeavor and Bank of America. DEI owns an approximate 83% general partner interest in its UpReit general partnership, Douglas Emmett Properties, LP.
As of 3/31/13, the average occupancy and rent of its office portfolio was 89% and $35 per sq. ft. and for the apartment portfolio was 98% and $1,979 per month respectively. DEI was formed as a Maryland Corporation in 2005, is traded on the NYSE and is based in Santa Monica, CA. state.
DEI has 142.6 million common shares outstanding and a market capitalization of approximately $3.56 billion. DEI has an experienced management team that includes Dan A. Emmett, Chairman of the Board and Founder of the predecessor company to DEI in 1991 and Jordan L. Kaplan, President and CEO who joined a predecessor company of DEI in 1986.
Select financial data for DEI as of the 3/31/13 10Q and for the period 1/1-3/31/13 is as follows (in millions where applicable):
|Real Estate Assets, Gross||$6,962|
|Secured Notes Payable||$3,351|
|Net Income Per Share||$.08|
|Cash Flow from Operations||$72|
|Revolving Credit Facility (none)||$0|
|Gross Real Estate Assets||48%|
|Dividend and Yield ($.72/sh.)||2.9%|
|First Quarter Revenue Per Above Annualized||$580|
|Less: Operating Expenses Annualized (excluding depreciation, amortization & interest expense, plus G&A expenses and other income)||212|
|Annualized Net Operating Income 2013||$368|
|Projected Inflation Rate at 3.5%||x103.5%|
|Projected Forward NOI for Next Year||$381|
|Projected Cap Rate||7%|
|Projected Value of Real Estate Assets||$5,443|
|Add: Net Operating Working Capital||122|
|Add: Investment in Unconsolidated Real Estate Funds (at book value)||157|
|Total Projected Asset Value||$5,722|
|Less: Total Debt Per Above||(3,351)|
|Projected Net Asset Value||$2,371|
|Shares Outstanding 173.7M (common stock, 142.6M shares plus 31.1M partnership units and option shares )|
|Projected NAV Per Share||$14|
|Closing Market Price Per Share on 6/14/13||$25|
The gross real estate assets, net income and funds from operations for the years 2010 through 2012 are shown in the table below:
|Gross Real Estate Assets||$6,782||$6,843||$6,935|
|Funds from Operations||$194||$221||$235|
As shown above, our net asset value per share for DEI is $14 per share versus a market price of $25 per share. Current average cap rates for office properties in CA per CBRE are in the 5% to 8.5% range, depending on the tenancy, location and quality of the property and 3.75% to 7% for apartment properties depending on the location and quality of the property. We have used a blended cap rate of 7% due to DEI's portfolio being approximately 90% office and 10% multi-family.
DEI's strengths include; adequate leverage and solid management team. Weaknesses include; low office occupancy of 89%, portfolio is not diversified geographically, minimal asset growth during the last few years and low dividend yield of 2.9%. DEI does not have a revolving line of credit to tap for acquisitions and major renovations and is one of the only major REITs we're aware of without one.
We do not recommend the purchase of this stock at the current price of $25/sh. and would only buy at a significant discount to the current price. The stock is trading at a cap rate of approximately 5.5%, which we consider well below market cap rates.
A five year price chart of DEI is shown below: