Douglas Emmett, Inc. (DEI)

Douglas Emmett (DEI) is a fully integrated, self-administered and self-managed real estate investment trust (REIT) that owns and operates high-quality office and multifamily properties located in targeted submarkets in California and Hawaii. The company’s property portfolio consists of 46 office properties with approximately 11.6 million rentable square feet, nine multifamily properties with a total of 2,868 units, and interests in three land parcels.


The US office real estate industry was threatened on account of soaring oil prices in 2005 and 2006, yet the economy continued to grow through year-end 2006. The office industry fundamentals has been improving continuously owing to factors like increase in job growth rate and economic expansion that have driven national office vacancies down to around 13% in third quarter of 2006 from a high 18% in fourth quarter of 2003. Moreover, Los Angeles has witnessed lowest civilian unemployment rate for 2006 at 4.7% after reaching its peak of 10% during 1993. This bodes well with the company as it derives more than 90% of its annualized rentals from Los Angeles.


The company should largely benefit from its strategy to concentrate on supply constrained areas like Los Angeles and Honolulu. These markets are characterized by high entry barriers and exhibit favorable economic demographics such as increasing population and high job growth rate. Even its multifamily portfolio is primarily positioned in premier locations within these same submarkets.


It seems a long time concern for these markets to even out this demand/supply mismatch. Further, factors like gaining momentum in job growth rate, which is predicted to be around 1.2%, should supplement the office REIT industry and Douglas’ portfolio being concentrated in well-established markets should enable them to gain maximum out of this favorable environment.