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OFFON

DOUGLAS EMMETT, INC.

(DEI)
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DOUGLAS EMMETT INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/08/2021 | 06:06am EST
The following discussion should be read in conjunction with our Forward Looking
Statements disclaimer, and our consolidated financial statements and related
notes in Part I, Item 1 of this Report. During the nine months ended
September 30, 2021, our results of operations were impacted by the COVID-19
pandemic and transactions - see "Impacts of the COVID-19 Pandemic on our
Business" and "Financings, Developments and Repositionings" further below.

Business Description


Douglas Emmett, Inc. is a fully integrated, self-administered and self-managed
REIT. Through our interest in our Operating Partnership and its subsidiaries,
our consolidated JVs and our unconsolidated Fund, we are one of the largest
owners and operators of high-quality office and multifamily properties in Los
Angeles County, California and in Honolulu, Hawaii. We focus on owning,
acquiring, developing and managing a substantial market share of top-tier office
properties and premier multifamily communities in neighborhoods that possess
significant supply constraints, high-end executive housing and key lifestyle
amenities. As of September 30, 2021, our portfolio consisted of the following
(including ancillary retail space):
                                         Consolidated Portfolio(1)       Total Portfolio(2)
                  Office
    Class A Properties                              69                           71
    Rentable Square Feet (in
    thousands)(3)                                 17,803                       18,189
    Leased rate                                    87.6%                       87.6%
    Occupancy rate                                 85.1%                       85.0%

               Multifamily
    Properties                                      12                           12
    Units                                          4,355                       4,355
    Leased rate                                    99.3%                       99.3%
    Occupied rate                                  97.8%                       97.8%

______________________________________________________________________

(1) Our Consolidated Portfolio includes the properties in our consolidated
results. Through our subsidiaries, we wholly-own 53 office properties totaling
13.6 million square feet and 11 residential properties with 4,005 apartments.
Through three consolidated JVs, we partially own 16 office properties totaling
4.2 million square feet and one residential property with 350 apartments. Our
Consolidated Portfolio also includes two wholly-owned land parcels from which we
receive ground rent from ground leases to the owners of a Class A office
building and a hotel (the land parcels are not included in the number of Class A
Properties).
(2) Our Total Portfolio includes our Consolidated Portfolio as well as two
properties totaling 0.4 million square feet owned by our unconsolidated Fund,
Partnership X. See Note 6 to our consolidated financial statements in Item 1 of
this Report for more information about Partnership X.
(3) As of September 30, 2021, we removed approximately 281,000 Rentable Square
Feet of vacant space at an office building that we are converting to residential
apartments. See "Financings, Developments and Repositionings" further below.

Revenues by Segment and Location


During the nine months ended September 30, 2021, revenues from our Consolidated
Portfolio were derived as follows:
[[Image Removed: nysedei-20210930_g2.jpg]]____[[Image Removed: nysedei-20210930_g3.jpg]]
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Impacts of the COVID-19 Pandemic on our Business


Our buildings have remained open and available to our tenants throughout the
pandemic. While improving, our rent collections continue to be negatively
impacted by the pandemic and our markets' very tenant-oriented lease enforcement
moratoriums, portions of which have been extended and generally prohibit
landlords not only from evicting tenants but also allow tenants to pay back the
deferred rent over a certain period. These protections remain considerably out
of sync with other gateway markets.

Our results of operations for the three and nine months ended September 30, 2021
generally compare favorably with the three and nine months ended September 30,
2020, respectively, due to the gradual recovery, an increase in tenant
recoveries, and better collections and lower write-offs of uncollectible
receivables. Charges for uncollectible tenant receivables and deferred rent
receivables, which were primarily due to the COVID-19 pandemic, reduced our
rental revenues and tenant recoveries by:
•$0.3 million and $3.5 million for the three months ended September 30, 2021 and
2020, respectively, and
•$2.8 million and $38.5 million for the nine months ended September 30, 2021 and
2020, respectively.
If we subsequently collect amounts that were previously written off, then the
amounts collected will be recorded as an increase to our rental revenues and
tenant recoveries. See "Revenue Recognition" in Note 2 to our consolidated
financial statements in Item 1 of this Report. It is unclear how the COVID-19
pandemic will impact our future collections.

During the third quarter, we signed 242 office leases for approximately 819,000
square feet. Our office leased rate increased by 30 basis points to 87.6%, and
our office occupancy rate increased by 20 basis points to 85.0%. Comparing the
office leases we signed during the third quarter to the expiring leases for the
same space, straight-line rents increased by 3.9% and cash rents decreased by
6.1%. Our multifamily portfolio remains essentially fully leased at 99.3%.

Other considerations that could impact our future leasing, rent collections, and revenue include:


•How long the pandemic continues.
•Whether the local governments that have authorized rent deferrals in our
markets modify or extend the deferral terms, or alternatively allow them to
expire as written.
•Whether more tenants stop paying rent if the impact to their business worsens.
•How attendance in our buildings changes and impacts parking revenue or rent
collection.
•How leasing activity and occupancy will evolve, including any long-term trends
after the pandemic ends.

On the capital front, construction is continuing on our two large multifamily development projects. See "Developments" further below.


Overall, we expect the COVID-19 pandemic to continue to adversely impact many
parts of our business, and those impacts have been, and will continue, to be
material. For more information about the risks to our business, please see Part
I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2020.













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Financings, Developments and Repositionings

Financings


During the first quarter of 2021:
•We paid down the principal balance of our unconsolidated Fund's term loan by
$5.25 million from $110.0 million to $104.75 million. The loan was subsequently
paid off in the third quarter of 2021 - see below.
•Interest rate swaps which hedged a $580.0 million interest-only term loan for
one of our consolidated JV's expired and were replaced by forward swaps executed
in 2020. This reduced the term-loan swap-fixed interest rate from 2.37% to
2.17%. The loan was subsequently paid off in the third quarter of 2021 - see
below.

During the second quarter of 2021:
•We closed a secured, non-recourse $300.0 million interest-only term loan
scheduled to mature in May 2028. The loan bears interest at LIBOR + 1.40% (with
a zero-percent LIBOR floor), which has been effectively fixed at 2.21% until
June 2026 with interest rate swaps (which do not have zero-percent LIBOR
floors). The loan is secured by three of our wholly-owned office properties that
were previously unencumbered. We used $175.0 million of the proceeds to pay off
our revolving credit facility balance.

During the third quarter of 2021:
•We closed a secured, non-recourse $625.0 million interest-only term loan for
one of our consolidated JVs. The loan is scheduled to mature in August 2028. The
loan bears interest at LIBOR + 1.35% (with a zero-percent LIBOR floor), which
has been effectively fixed at 2.12% until June 2025 with interest rate swaps
(which do not have zero-percent LIBOR floors). The loan is secured by the JV's
four properties. We used $580.0 million of the proceeds to pay off a loan that
was secured by the same properties.
•We closed a secured, non-recourse $115.0 million interest-only term loan for
our unconsolidated Fund. The loan is scheduled to mature in September 2028.
Starting on October 1, 2021, the loan bears interest at LIBOR + 1.35% (with a
zero-percent LIBOR floor), which has been effectively fixed at 2.19% until
October 2026 with interest rate swaps (which do not have zero-percent LIBOR
floors). The loan is secured by the Fund's two properties. We used $104.75
million of the proceeds to pay off the Fund's term loan that was secured by the
same properties. We have made certain guarantees related to the loan and the
swaps - see "Guarantees" in Note 16 to our consolidated financial statements in
Item 1 of this Report.

See Notes 8 and 10 to our consolidated financial statements in Item 1 of this Report for more information regarding our debt and derivatives, respectively.

Developments


•Residential High-Rise Tower, Brentwood, California - "The Landmark"
In West Los Angeles, we are nearing completion of a 34-story high-rise apartment
building with 376 apartments. The tower is being built on a site that is
directly adjacent to a 394 thousand square foot office building, a one acre
park, and a 712 unit residential property, all of which we own.
•1132 Bishop Street, Honolulu, Hawaii - "The Residences at Bishop Place"
In downtown Honolulu, we are converting a 25-story, 490 thousand square foot
office tower into 493 rental apartments. This project is helping to address the
severe shortage of rental housing in Honolulu and revitalize the central
business district, where we own a significant portion of the Class A office
space.
As of September 30, 2021, we had delivered and leased approximately
forty-percent of the planned units. The conversion will continue in phases
through 2025 as the remaining office space is vacated, therefore, the expected
timing of the remaining spending is uncertain. In select cases, we may relocate
tenants to our other office buildings in Honolulu, although we do not have
enough vacancy to accommodate all of them.
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Repositionings


We often strategically purchase properties with large vacancies or expected
near-term lease roll-over and use our knowledge of the property and submarket to
reposition the property for the optimal use and tenant mix. In addition, we may
reposition properties already in our portfolio. The work we undertake to
reposition a building typically takes months or even years, and could involve a
range of improvements from a complete structural renovation to a targeted
remodeling of selected spaces. During the repositioning, the affected property
may display depressed rental revenue and occupancy levels that impact our
results and, therefore, comparisons of our performance from period to period.

Rental Rate Trends - Total Portfolio

Office Rental Rates


Our office rental rates for 2020 and the nine months ended September 30, 2021
were adversely impacted by the COVID-19 pandemic, although these declines were
partly offset by lower tenant improvements.

The table below presents the average annual rental rate per leased square foot
and the annualized lease transaction costs per leased square foot for leases
executed in our total office portfolio during the respective periods:
                                Nine Months Ended                        Year Ended December 31,
                                September 30, 2021       2020                2019               2018        2017

   Average straight-line
   rental rate(1)(2)                  $44.47$45.26$49.65$48.77$44.48
   Annualized lease
   transaction costs(3)               $4.79$5.11$6.02$5.80$5.68

___________________________________________________

(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 during the full term 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 at the landlord's
request.

Office Rent Roll

The table below presents the rent roll for new and renewed leases per leased square foot executed in our total office portfolio:

                                              Nine Months Ended September 30, 2021

                         Expiring
   Rent Roll(1)(2)        Rate(2)                 New/Renewal Rate(2)                Percentage Change

   Cash Rent              $46.25$42.95                             (7.1)%
   Straight-line Rent     $42.15$44.47                              5.5%

___________________________________________________

(1)Represents the average annual initial stabilized cash and straight-line rents
per square foot on new and renewed leases signed during the period compared to
the prior leases for the same space. Excludes leases with a term of twelve
months or less, leases where the prior lease was terminated more than a year
before signing of the new lease, leases for tenants relocated at the landlord's
request, leases in acquired buildings where we believe the information about the
prior agreement is incomplete or where we believe the base rent reflects other
off-market inducements to the tenant, and other non-comparable leases.
(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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Multifamily Rental Rates


Our multifamily rental rates in 2020 and the nine months ended September 30,
2021 were impacted by the COVID-19 pandemic.
The table below presents the average annual rental rate per leased unit for new
tenants:
                         Nine Months Ended                           Year Ended December 31,
                         September 30, 2021        2020                 2019                 2018          2017

   Average annual
   rental rate - new
   tenants(1)                 $29,912$28,416$28,350$27,542$28,501

_____________________________________________________

(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, (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, and (iii) the average for the nine months ended
September 30, 2021 increased from 2020 because we added a significant number of
units at our Bishop Place development in Honolulu, where the rental rates are
higher than the average in our portfolio.

Multifamily Rent Roll

The rent on leases subject to rent change during the nine months ended September 30, 2021 (new tenants and existing tenants undergoing annual rent review) was 0.9% higher on average than the prior rent on the same unit.

Occupancy Rates - Total Portfolio

Our office occupancy rates for 2020 and the nine months ended September 30, 2021 were adversely impacted by the COVID-19 pandemic. Our multifamily occupancy rates for 2020 were adversely impacted by the COVID-19 pandemic but have improved in the nine months ended September 30, 2021.


The tables below present the occupancy rates for our total office portfolio and
multifamily portfolio:

                                                                                December 31,
        Occupancy Rates(1) as of:       September 30, 2021      2020          2019          2018       2017

        Office portfolio                      85.0%             87.4%         91.4%         90.3%      89.8%
        Multifamily portfolio(2)              97.8%             94.2%         95.2%         97.0%      96.4%



                                   Nine Months Ended                      Year Ended December 31,
   Average Occupancy
   Rates(1)(3):                    September 30, 2021       2020               2019              2018       2017

   Office portfolio                      85.9%              89.5%              90.7%             89.4%      89.5%
   Multifamily portfolio(2)              96.5%              94.2%              96.5%             96.6%      97.2%

___________________________________________________

(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 our
acquisition of The Glendon property in 2019, and new units at our Moanalua
Hillside Apartments development in Honolulu in 2019 and 2018.
(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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Office Lease Expirations


As of September 30, 2021, assuming non-exercise of renewal options and early
termination rights, we expect to see expiring square footage in our total office
portfolio as follows:

                   [[Image Removed: nysedei-20210930_g4.jpg]]

____________________________________________________

(1) Average of the percentage of leases at September 30, 2018, 2019, and 2020 with the same remaining duration as the leases for the labeled year had at September 30, 2021. Acquisitions are included in the prior year average commencing in the quarter after the acquisition.

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Results of Operations


Comparison of three months ended September 30, 2021 to three months ended
September 30, 2020
Our results in both periods were adversely affected by the COVID-19 pandemic.
The current period generally compares favorably with the comparable period due
to the gradual recovery, an increase in tenant recoveries, and better
collections and lower write-offs of uncollectible receivables.
                           Three Months Ended
                              September 30,              Favorable (Unfavorable)
                           2021           2020             Change             %                Commentary

                                       (In thousands)
   Revenues

                                                                                       The increase was primarily
                                                                                       due to: (i) an increase in
                                                                                       tenant recoveries, and (ii)
                                                                                       better collections and a
   Office rental                                                                       decrease in write-offs of

revenue and $ 181,455$ 169,571$ 11,884

7.0 % uncollectible receivables.

   tenant                                                                              This was partly offset by:
   recoveries                                                                          (i) a decrease in rental
                                                                                       revenues due to a decrease
                                                                                       in occupancy and (ii) lower
                                                                                       accretion from below-market
                                                                                       leases.
                                                                                       The increase was primarily
   Office parking                                                                      due to an increase in
   and other income    $   22,401$  19,324$        3,077        15.9  %    parking income, due to an
                                                                                       increase in parking
                                                                                       activity.
                                                                                       The increase was primarily
                                                                                       due to an increase in
                                                                                       rental revenues due to: (i)

Multifamily $ 34,388$ 28,092$ 6,296 22.4 % an increase in occupancy

   revenue                                                                             and better collections, and
                                                                                       (ii) new units at our
                                                                                       Bishop Place development
                                                                                       project in Hawaii.

   Operating expenses

                                                                                       The increase was primarily
                                                                                       due to an increase in
   Office rental                                                                       insurance expense,
   expenses            $   70,026$  68,956$       (1,070)
(1.6) %    janitorial expenses and
                                                                                       property taxes, partly
                                                                                       offset by a decrease in
                                                                                       advocacy expenses.

                                                                                       The increase was primarily
                                                                                       due to an increase in
                                                                                       utility expenses, insurance

Multifamily $ 9,666$ 9,313 $ (353) (3.8) % expense, and rental

   rental expenses                                                                     expenses from our new units
                                                                                       at our Bishop Place
                                                                                       development project in
                                                                                       Hawaii.
                                                                                       The increase was primarily
   General and                                                                         due to an increase in legal

administrative $ 11,435$ 9,469$ (1,966) (20.8) % expenses, partly offset by

   expenses                                                                            a decrease in personnel
                                                                                       expenses.

                                                                                       The decrease was due to
                                                                                       accelerated depreciation in
   Depreciation and    $   93,104$  94,952$        1,848

1.9 % the comparable period for

   amortization                                                                        our Bishop Place
                                                                                       development project in
                                                                                       Hawaii.

   Non-Operating Income and Expenses

                                                                                       The decrease was primarily
                                                                                       due to revenues during the
                                                                                       comparable period from a
   Other income        $      498$     654      $         (156)      (23.9) %    health club in Honolulu
                                                                                       that we closed permanently
                                                                                       in the fourth quarter of
                                                                                       2020.
                                                                                       The decrease was primarily
                                                                                       due to expenses during the
                                                                                       comparable period from a
   Other expenses      $     (147)$    (788)     $          641        81.3  %    health club in Honolulu
                                                                                       that we closed permanently
                                                                                       in the fourth quarter of
                                                                                       2020.
                                                                                       The increase was due to an
                                                                                       increase in the net income
   Income from                                                                         of Partnership X, which was
   unconsolidated      $      260$     145      $          115        79.3  %    primarily due to an
   Fund                                                                                increase in tenant
                                                                                       recoveries and parking
                                                                                       income.
                                                                                       The increase was primarily
   Interest expense    $  (38,878)$ (36,167)$       (2,711)       (7.5) %    due to an increase in debt
                                                                                       and loan costs.


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Comparison of nine months ended September 30, 2021 to nine months ended September 30, 2020


Our results in both periods were adversely impacted by the COVID-19 pandemic.
The current period generally compares favorably with the comparable period due
to the gradual recovery, an increase in tenant recoveries, better collections
and lower write-offs of uncollectible receivables. The first three months of the
comparable period results were largely unaffected by the COVID-19 pandemic.

                       Nine Months Ended September
                                   30,                   Favorable (Unfavorable)
                           2021           2020             Change             %                Commentary

                                        (In thousands)
   Revenues

                                                                                       The increase was primarily
                                                                                       due to: (i) better
                                                                                       collections and a decrease
                                                                                       in write-offs of
                                                                                       uncollectible receivables,
                                                                                       and (ii) an increase in
                                                                                       tenant recoveries. This was
                                                                                       partly offset by: (i) a
   Office rental                                                                       decrease in rental revenues
   revenue and                                                                         due to a decrease in
   tenant              $  523,391$ 514,211$        9,180

1.8 % occupancy, (ii) lower

   recoveries                                                                          accretion from below-market
                                                                                       leases, (iii) lower
                                                                                       revenues at our Bishop
                                                                                       Place development project
                                                                                       in Hawaii, which is being
                                                                                       converted to residential
                                                                                       and (iv) lower revenues due
                                                                                       to an office building we
                                                                                       sold in Hawaii in the
                                                                                       fourth quarter of 2020.
                                                                                       The decrease was primarily
   Office parking                                                                      due to a decrease in
   and other income    $   59,034$  71,562$      (12,528)      (17.5) %    parking income, due to a
                                                                                       decrease in parking
                                                                                       activity.
                                                                                       The increase was primarily
                                                                                       due to rental revenues from
                                                                                       new units at our Bishop
   Multifamily         $   97,120$  90,360$        6,760

7.5 % Place development project

   revenue                                                                             in Hawaii and higher
                                                                                       occupancy and better
                                                                                       collections at our other
                                                                                       properties.

   Operating expenses

                                                                                       The decrease was primarily
                                                                                       due to: (i) a decrease in
                                                                                       parking, janitorial and
                                                                                       utility expenses, which
                                                                                       were all due to lower
                                                                                       tenant utilization, (ii) a
                                                                                       decrease in personnel and
   Office rental       $  195,745$ 198,921$        3,176

1.6 % advocacy expenses, and

   expenses                                                                            (iii) lower expenses due to
                                                                                       an office building we sold
                                                                                       in Hawaii in the fourth
                                                                                       quarter of 2020. The
                                                                                       decrease in those expenses
                                                                                       was partly offset by an
                                                                                       increase in insurance
                                                                                       expense and property taxes.

                                                                                       The increase was primarily
                                                                                       due to: (i) an increase in
                                                                                       insurance expense, property
                                                                                       taxes and utility expenses
                                                                                       and (ii) rental expenses
                                                                                       from our new units at our
   Multifamily                                                                         Bishop Place development
   rental expenses     $   28,228$  27,525      $         (703)       (2.6) %    project in Hawaii. The
                                                                                       increase in those expenses
                                                                                       was partly offset by a
                                                                                       decrease in personnel
                                                                                       expenses, repairs and
                                                                                       maintenance expenses and
                                                                                       scheduled services
                                                                                       expenses.
                                                                                       The increase was primarily
   General and                                                                         due to an increase in legal

administrative $ 30,564$ 29,667 $ (897) (3.0) % expenses, partly offset by

   expenses                                                                            a decrease in personnel
                                                                                       expenses.
                                                                                       The decrease was due to
                                                                                       accelerated depreciation in
   Depreciation and    $  279,801$ 291,494$       11,693

4.0 % the comparable period for

   amortization                                                                        our Bishop Place
                                                                                       development project in
                                                                                       Hawaii.


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                        Nine Months Ended September 30,         Favorable (Unfavorable)
                              2021               2020             Change             %             Commentary

                                           (In thousands)

   Non-Operating Income and Expenses

                                                                                              The decrease was
                                                                                              primarily due to
                                                                                              revenues in the
                                                                                              comparable period
                                                                                              from a health club in
   Other income        $          2,178      $    2,968      $         (790)      (26.6) %    Honolulu that we
                                                                                              closed permanently in
                                                                                              the fourth quarter of
                                                                                              2020, partly offset
                                                                                              by recoveries of
                                                                                              transaction fees.

                                                                                              The decrease was
                                                                                              primarily due to
                                                                                              expenses during the
                                                                                              comparable period for
   Other expenses      $           (764)     $   (2,662)$        1,898        71.3  %    the health club in
                                                                                              Honolulu that we
                                                                                              closed, partly offset
                                                                                              by higher transaction
                                                                                              expenses in the
                                                                                              current period.
                                                                                              The increase was due
                                                                                              to an increase in the
                                                                                              net income of
   Income from                                                                                Partnership X, which
   unconsolidated      $            713      $      328      $          385       117.4  %    was primarily due to
   Fund                                                                                       better collections
                                                                                              and lower write-offs
                                                                                              of uncollectible
                                                                                              receivables.
                                                                                              The increase was
                                                                                              primarily due to: (i)
                                                                                              an increase in debt,
                                                                                              (ii) higher loan
                                                                                              costs and (iii) lower
   Interest expense    $       (110,018)$ (106,777)$       (3,241)       (3.0) %    debt premium
                                                                                              accretion, partly
                                                                                              offset by an increase
                                                                                              in interest
                                                                                              capitalized related
                                                                                              to development
                                                                                              activity.


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Non-GAAP Supplemental Financial Measure: FFO

Usefulness to Investors


We report FFO because it is a widely reported measure of the performance of
equity REITs, and is also used by some investors to identify the impact of
trends in occupancy rates, rental rates and operating costs from year to year,
excluding impacts from changes in the value of our real estate, and to compare
our performance with other REITs. FFO is a non-GAAP financial measure for which
we believe that net income (loss) is the most directly comparable GAAP financial
measure. FFO has limitations as a measure of our performance because it excludes
depreciation and amortization of real estate, and captures neither the changes
in the value of our properties that result from use or market conditions, nor
the level of capital expenditures, tenant improvements and leasing commissions
necessary to maintain the operating performance of our properties, all of which
have real economic effect and could materially impact our results from
operations. FFO should be considered only as a supplement to net income (loss)
as a measure of our performance and should not be used as a measure of our
liquidity or cash flow, nor is it indicative of funds available to fund our cash
needs, including our ability to pay dividends. Other REITs may not calculate FFO
in accordance with the NAREIT definition and, accordingly, our FFO may not be
comparable to the FFO of other REITs. See "Results of Operations" above for a
discussion of the items that impacted our net income.

Comparison of three months ended September 30, 2021 to three months ended September 30, 2020


For the three months ended September 30, 2021, FFO increased by $15.8 million,
or 19.0%, to $98.5 million, compared to $82.8 million for the three months ended
September 30, 2020. The increase was primarily due to (i) an increase in
revenues from our office portfolio due to better collections and lower
write-offs of uncollectible receivables and an increase in tenant recoveries,
and (ii) an increase in revenues from our multifamily portfolio due to higher
occupancy and better collections.

Comparison of nine months ended September 30, 2021 to nine months ended September 30, 2020


For the nine months ended September 30, 2021, FFO increased by $5.9 million, or
2.1%, to $285.0 million, compared to $279.0 million for the nine months ended
September 30, 2020. The increase was primarily due to an increase in revenues
from our multifamily portfolio due to higher occupancy and better collections.

Reconciliation to GAAP


The table below reconciles our FFO (the FFO attributable to our common
stockholders and noncontrolling interests in our Operating Partnership - which
includes our share of our consolidated JVs and our unconsolidated Fund's FFO) to
net income attributable to common stockholders (the most directly comparable
GAAP measure):
                                    Three Months Ended September 30,     

Nine Months Ended September 30,

            (In thousands)                 2021              2020              2021              2020

   Net income attributable to
   common stockholders              $     18,141$  3,773$      45,939$  32,726
   Depreciation and amortization of
   real estate assets                     93,104            94,952            279,801           291,494
   Net loss attributable to
   noncontrolling interests               (2,395)           (5,632)            (8,623)          (10,343)
   Adjustments attributable to
   unconsolidated Fund(1)                    695               690              2,095             2,040
   Adjustments attributable to
   consolidated JVs(2)                   (11,029)          (11,030)           (34,246)          (36,874)

   FFO                              $     98,516$ 82,753$     284,966$ 279,043

_______________________________________________

(1)Adjusts for our share of Partnership X's depreciation and amortization of
real estate assets.
(2)Adjusts for the net income (loss) and depreciation and amortization of real
estate assets that is attributable to the noncontrolling interests in our
consolidated JVs.
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Non-GAAP Supplemental Financial Measure: Same Property NOI

Usefulness to Investors


We report Same Property NOI to facilitate a comparison of our operations between
reported periods. Many investors use Same Property NOI to evaluate our operating
performance and to compare our operating performance with other REITs, because
it can reduce the impact of investing transactions on operating trends. Same
Property NOI is a non-GAAP financial measure for which we believe that net
income (loss) is the most directly comparable GAAP financial measure. We report
Same Property NOI because it is a widely recognized measure of the performance
of equity REITs, and is used by some investors to identify trends in occupancy
rates, rental rates and operating costs and to compare our operating performance
with that of other REITs.  Same Property NOI has limitations as a measure of our
performance because it excludes depreciation and amortization expense, and
captures neither the changes in the value of our properties that result from use
or market conditions, nor the level of capital expenditures, tenant improvements
and leasing commissions necessary to maintain the operating performance of our
properties, all of which have real economic effect and could materially impact
our results from operations. Other REITs may not calculate Same Property NOI in
the same manner. As a result, our Same Property NOI may not be comparable to the
Same Property NOI of other REITs. Same Property NOI should be considered only as
a supplement to net income (loss) as a measure of our performance and should not
be used as a measure of our liquidity or cash flow, nor is it indicative of
funds available to fund our cash needs, including our ability to pay dividends.

Comparison of three months ended September 30, 2021 to three months ended September 30, 2020


Our Same Properties for 2021 included 67 office properties, aggregating 17.6
million Rentable Square Feet, and 10 multifamily properties with an aggregate
3,449 units. The amounts presented reflect 100% (not our pro-rata share).

Our Same Property results in both periods were adversely affected by the COVID-19 pandemic. The current period generally compares favorably with the comparable period due to the gradual recovery, an increase in tenant recoveries, better collections and lower write-offs of uncollectible receivables.


                               Three Months Ended
                                  September 30,             Favorable (Unfavorable)
                               2021           2020             Change            %             Commentary
                                           (In thousands)

                                                                                          The increase was
                                                                                          primarily due to: (i)
                                                                                          an increase in tenant
                                                                                          recoveries, (ii)
                                                                                          better collections
                                                                                          and a decrease in
                                                                                          write-offs of
                                                                                          uncollectible
                                                                                          receivables, and
   Office revenues         $  201,030$ 185,521$       15,509        8.4  %    (iii) an increase in
                                                                                          parking income due to
                                                                                          an increase in
                                                                                          parking activity.
                                                                                          This was partly
                                                                                          offset by a decrease
                                                                                          in rental revenues
                                                                                          due to a decrease in
                                                                                          occupancy and lower
                                                                                          accretion from
                                                                                          below-market leases.
                                                                                          The increase was
                                                                                          primarily due to an
                                                                                          increase in insurance
   Office expenses            (68,153)       (66,901)             (1,252)      (1.9) %    expense, property
                                                                                          taxes and janitorial
                                                                                          expenses, partly
                                                                                          offset by a decrease
                                                                                          in advocacy expenses.
   Office NOI                 132,877        118,620              14,257       12.0  %

                                                                                          The increase was
                                                                                          primarily due to an
                                                                                          increase in rental
   Multifamily revenues        27,246         24,368               2,878       11.8  %    revenues due to an
                                                                                          increase in occupancy
                                                                                          and better
                                                                                          collections.
                                                                                          The increase was
                                                                                          primarily due to an
   Multifamily expenses        (8,190)        (7,776)               (414)      (5.3) %    increase in utility
                                                                                          expenses, insurance
                                                                                          expense and property
                                                                                          taxes.
   Multifamily NOI             19,056         16,592               2,464       14.9  %

   Total NOI               $  151,933$ 135,212$       16,721       12.4  %


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Reconciliation to GAAP


The table below presents a reconciliation of our Same Property NOI to net income
attributable to common stockholders (the most directly comparable GAAP measure):

                                                        Three Months Ended September 30,
                    (In thousands)                            2021                   2020

    Same Property NOI                              $         151,933              $ 135,212
    Non-comparable office revenues                             2,826                  3,374
    Non-comparable office expenses                            (1,873)                (2,055)
    Non-comparable multifamily revenues                        7,142                  3,724
    Non-comparable multifamily expenses                       (1,476)                (1,537)
    NOI                                                      158,552                138,718
    General and administrative expenses                      (11,435)                (9,469)
    Depreciation and amortization                            (93,104)               (94,952)
    Other income                                                 498                    654
    Other expenses                                              (147)                  (788)
    Income from unconsolidated Fund                              260                    145
    Interest expense                                         (38,878)               (36,167)

    Net income (loss)                                         15,746                 (1,859)
    Less: Net loss attributable to noncontrolling
    interests                                                  2,395                  5,632
    Net income attributable to common stockholders $          18,141              $   3,773





























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Comparison of nine months ended September 30, 2021 to nine months ended September 30, 2020


Our Same Properties for 2021 included 67 office properties, aggregating 17.6
million Rentable Square Feet, and 10 multifamily properties with an aggregate
3,449 units. The amounts presented include 100% (not our pro-rata share).
Our Same Property results in both periods were adversely affected by the
COVID-19 pandemic. The current period generally compares favorably with the
comparable period due to the gradual recovery, an increase in tenant recoveries,
better collections and lower write-offs of uncollectible receivables. The first
three months of the comparable period results were largely unaffected by the
COVID-19 pandemic.

                            Nine Months Ended September
                                        30,                   Favorable (Unfavorable)
                                2021           2020              Change             %            Commentary
                                             (In thousands)

                                                                                             The increase was
                                                                                             primarily due to:
                                                                                             (i) better
                                                                                             collections and a
                                                                                             decrease in
                                                                                             write-offs of
                                                                                             uncollectible
                                                                                             receivables, and
                                                                                             (ii) an increase
                                                                                             in tenant
                                                                                             recoveries. This
    Office revenues         $  575,151$ 574,452      $            699        0.1%      was partly offset
                                                                                             by: (i) a decrease
                                                                                             in parking income
                                                                                             due to lower
                                                                                             parking activity,
                                                                                             (ii) a decrease in
                                                                                             rental revenues
                                                                                             due to a decrease
                                                                                             in occupancy and
                                                                                             (iii) lower
                                                                                             accretion from
                                                                                             below-market
                                                                                             leases.
                                                                                             The decrease was
                                                                                             primarily due to:
                                                                                             (i) a decrease in
                                                                                             parking,
                                                                                             janitorial and
                                                                                             utility expenses,
                                                                                             which were all due
                                                                                             to lower tenant
                                                                                             utilization, and
    Office expenses           (190,292)      (192,722)                2,430        1.3%      (ii) a decrease in
                                                                                             personnel and
                                                                                             advocacy expenses.
                                                                                             The decrease in
                                                                                             those expenses was
                                                                                             partly offset by
                                                                                             an increase in
                                                                                             insurance expense
                                                                                             and property
                                                                                             taxes.
    Office NOI                 384,859        381,730                 3,129        0.8%

                                                                                             The increase was
                                                                                             primarily due to
                                                                                             an increase in
    Multifamily revenues        77,847         75,781                 2,066        2.7%      rental revenues
                                                                                             due to an increase
                                                                                             in occupancy and
                                                                                             better
                                                                                             collections.
                                                                                             The increase was
                                                                                             primarily due to
                                                                                             an increase in
                                                                                             insurance expense,
                                                                                             property taxes and
                                                                                             utility expenses.
                                                                                             The increase in
    Multifamily expenses       (23,755)       (23,075)                 (680)      (2.9)%     those expenses was
                                                                                             partly offset by a
                                                                                             decrease in
                                                                                             repairs and
                                                                                             maintenance
                                                                                             expenses, legal
                                                                                             expenses and
                                                                                             scheduled services
                                                                                             expenses.
    Multifamily NOI             54,092         52,706                 1,386        2.6%

    Total NOI               $  438,951$ 434,436      $          4,515        1.0%



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Reconciliation to GAAP


The table below presents a reconciliation of our Same Property NOI to net income
attributable to common stockholders (the most directly comparable GAAP measure):

                                                         Nine Months Ended September 30,
                     (In thousands)                            2021                  2020
    Same Property NOI                                $        438,951$ 434,436
    Non-comparable office revenues                              7,274                11,321
    Non-comparable office expenses                             (5,453)               (6,199)
    Non-comparable multifamily revenues                        19,273                14,579
    Non-comparable multifamily expenses                        (4,473)               (4,450)
    NOI                                                       455,572               449,687
    General and administrative expenses                       (30,564)              (29,667)
    Depreciation and amortization                            (279,801)             (291,494)
    Other income                                                2,178                 2,968
    Other expenses                                               (764)               (2,662)
    Income from unconsolidated Fund                               713                   328
    Interest expense                                         (110,018)             (106,777)

    Net income                                                 37,316                22,383
    Less: Net loss attributable to noncontrolling
    interests                                                   8,623                10,343
    Net income attributable to common stockholders   $         45,939             $  32,726

Liquidity and Capital Resources

Short-term liquidity


During the nine months ended September 30, 2021, we generated cash from
operations of $339.6 million. As of September 30, 2021, we had $350.5 million of
cash and cash equivalents, and we had no balance outstanding on our
$400.0 million revolving credit facility. Our earliest term loan maturity is
January 2024. Excluding acquisitions, development projects and debt
refinancings, we expect to meet our short-term liquidity requirements through
cash on hand, cash generated by operations and our revolving credit facility.
See Note 8 to our consolidated financial statements in Item 1 of this Report for
more information regarding our debt.

Long-term liquidity


Our long-term liquidity needs consist primarily of funds necessary to pay for
acquisitions, development projects and debt refinancings. We do not expect to
have sufficient funds on hand to cover these long-term cash requirements due to
the requirement to distribute at least 90% of our income on an annual basis
imposed by REIT federal tax rules. We plan to meet our long-term liquidity needs
through long-term secured non-recourse debt, the issuance of equity securities,
including common stock and OP Units, as well as property dispositions and JV
transactions. We have an ATM program which would allow us, subject to market
conditions, to sell up to $400.0 million of shares of common stock.

We only use property level, non-recourse debt. As of September 30, 2021,
approximately 46% of our total office portfolio was unencumbered. To mitigate
the impact of changing interest rates on our cash flows from operations, we
generally enter into interest rate swap agreements with respect to our loans
with floating interest rates. These swap agreements generally expire between one
to two years before the maturity date of the related loan, during which time we
can refinance the loan without any interest penalty. See Notes 8 and 10 to our
consolidated financial statements in Item 1 of this Report for more information
regarding our debt and derivative contracts, respectively.
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Certain Contractual Obligations

See the following notes to our consolidated financial statements in Item 1 of this Report for information regarding our contractual commitments:


•Note 4 - minimum future ground lease payments;
•Note 8 - minimum future principal payments for our secured notes payable and
revolving credit facility, and the interest rates that determine our future
periodic interest payments; and
•Note 16 - contractual commitments.


Off-Balance Sheet Arrangements

Debt


Our Fund, Partnership X, has its own secured non-recourse debt and interest rate
swaps. We have made certain environmental and other limited indemnities and
guarantees covering customary non-recourse carve-outs related to that loan, and
we have also guaranteed the interest rate swaps. Partnership X has agreed to
indemnify us for any amounts that we would be required to pay under these
agreements. As of September 30, 2021, all of the obligations under the
respective loan and swap agreements have been performed in accordance with the
terms of those agreements. See "Guarantees" in Note 16 to our consolidated
financial statements in Item 1 of this Report for more information about our
Fund's debt and swaps, and the respective guarantees.


Cash Flows

Comparison of nine months ended September 30, 2021 to nine months ended September 30, 2020


Our operating cash flows in both periods were adversely impacted by the COVID-19
pandemic. Despite a gradual recovery and better collections during the current
nine month period, the operating cash flows during the first three months of the
comparable period were largely unaffected by the COVID-19 pandemic.

                                    Nine Months Ended September 30,            Increase
                                          2021                2020        (Decrease) In Cash        %
                                                        (In thousands)

    Net cash provided by
    operating activities(1)       $        339,582$  356,729$        (17,147)       (4.8) %
    Net cash used in investing
    activities(2)                 $       (232,393)$ (201,294)$        (31,099)      (15.4) %
    Net cash provided by (used
    in) financing activities(3)   $         70,889        $ (106,879)$        177,768       166.3  %

________________________________________________________________________

(1)  Our cash flows from operating activities are primarily dependent upon the
occupancy and rental rates of our portfolio, the collectibility of tenant
receivables, the level of our operating and general and administrative expenses,
and interest expense. The decrease in cash from operating activities was
primarily due to the decrease in the operating income from our office portfolio
(office revenues less office rental expenses). The decrease in the operating
income from our office portfolio was primarily due to a decrease in parking
income due to a decrease in parking activity as a result of the COVID-19
pandemic.
(2)  Our cash flows from investing activities is generally used to fund property
acquisitions, developments and redevelopment projects, and Recurring and
non-Recurring Capital Expenditures. The decrease in cash from investing
activities was primarily due to an increase in capital expenditures for
developments of $58.2 million, partly offset by a decrease in capital
expenditures for improvements to real estate of $21.7 million and the
acquisition of an additional interest in our Fund in 2020 for $6.6 million.
(3)  Our cash flows from 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
in cash from financing activities was primarily due to an increase in net
borrowings of $180.0 million.
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Critical Accounting Policies


We have not made any changes to our critical accounting policies disclosed in
our 2020 Annual Report on Form 10-K. Our discussion and analysis of our
financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with US GAAP, and
which requires us to make estimates of certain items, which affect the reported
amounts of our assets, liabilities, revenues and expenses. While we believe that
our estimates are based upon reasonable assumptions and judgments at the time
that they are made, some of our estimates could prove to be incorrect, and those
differences could be material. Some of our estimates are subject to adjustment
as we believe appropriate, based on revised estimates, and reconciliation to
actual results when available.

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