$5.52
$20.14
bear $5.52
base $10.45
bull $20.14
margin of safety $5.50
market price* $9.76
WHAT THE BUSINESS IS Douglas Emmett is a real estate investment trust that owns 70 office buildings (about 18.0 million square feet) and 15 apartment communities (5,445 units) concentrated in a handful of supply-constrained neighborhoods of Los Angeles County (Santa Monica, Brentwood, Westwood, Beverly Hills, Sherman Oaks/Encino, Warner Center, Burbank) and Honolulu. Office is the larger business: 2025 revenue of $1,004.0 million split $805.5 million office and $198.5 million apartments. By annualized rent, roughly 86% comes from Los Angeles County and 14% from Honolulu. The company holds about a 39% share of the office space in its chosen submarkets. OWNER EARNINGS AND HOW WE MEASURED THEM We measure the cash the business produces for its owners: operating cash flow, less working-capital swings, stock compensation and the capital spending needed to keep the buildings leased (tenant improvements, leasing costs and building upgrades). Spending on new or rebuilt apartments and office-to-residential conversions is treated as growth investment and excluded, because it adds new rentable units. Two ownership adjustments matter here. First, institutional partners own part of several consolidated joint ventures; their share (about 11-13% of cash earnings in recent years) belongs to them, not to shareholders, so we remove it. Second, 38.2 million operating partnership units share distributions one-for-one with the 167.5 million common shares, so all values are per unit of that combined 205.6 million count. On that basis owner earnings per share were: 2016 $1.20, 2017 $1.25, 2018 $1.07, 2019 $1.25, 2020 $1.16, 2021 $1.40, 2022 $1.35, 2023 $1.01, 2024 $0.95, 2025 $0.64. Two things drove the decline since 2022. Office occupancy fell every year, from 84.9% at the end of 2021 to 78.0% at the end of 2025 (80.4% leased), and cash interest paid rose from $137.0 million in 2021 to $237.4 million in 2025 as low-rate debt and hedges rolled off. Apartment performance, by contrast, has been steady: 99.5% leased, with rents on renewing and new leases up 2.6% in 2025. We treat 2023-2025 as the business as it exists today (higher interest costs, lower office occupancy, and The Landmark Residences taken out of service), a window whose median is $0.95. But the most recent results are below that: 2025 fell 33% to $0.64, and the first half of 2026 was weaker again, with operating cash before working-capital changes about $18 million lower and building capital spending about $14.5 million higher than a year earlier. With six quarters pointing the same way, our base case starts from about $0.52 per share in the first year rather than the $0.95 median, a decline smaller than 2025's actual 33% drop. WHAT DRIVES THE CASES Named positives: continued apartment rent growth on a near-full portfolio; the re-leasing of Studio Plaza in Burbank (456,000 square feet being converted from a single tenant to multi-tenant after the previous tenant left in 2024); the rebuild of The Landmark Residences in West Los Angeles (formerly Barrington Plaza, 712 apartments plus 34,000 square feet of retail, financed by a $375 million construction loan closed in December 2025); and a planned 323-unit apartment conversion at 10900 Wilshire in Westwood, owned through a joint venture in which the company holds 30%. Named negatives: office leases that renewed or re-leased in 2025 did so at cash rents 11.9% below the expiring rents; $5.59 billion of secured debt, of which $1.18 billion comes due in 2026 (counting extension options); and $4.01 billion of fixed or swapped debt averaging 4.39% with only 2.9 years of fixed-rate period left, while recent refinancings were done at 4.80% (apartments) and 5.60% (office). Every point of office occupancy is worth roughly $8 million of annual rent. Bear case ($5.52 per share): office occupancy keeps sliding at its 2021-2025 pace toward about 70%, cash rent roll-downs continue, and maturing debt resets about a percentage point higher. Owner earnings fall from about $0.50 to a trough near $0.28 by year five, then creep back toward $0.32 on apartment rent growth, and stay there. The apartments and the better-located office buildings keep producing cash, so value does not go to zero, but high debt leaves little cushion.
Base case ($10.45): office occupancy stabilizes near today's level, apartment rents keep growing about as they have, Studio Plaza leases up gradually, The Landmark Residences returns to service around the end of the decade, and higher refinancing costs absorb much of that growth. Owner earnings go from about $0.52 to $0.66 over ten years and hold there, with no growth assumed afterwards.
Bull case ($20.14): Studio Plaza and the vacant space lease up, office occupancy recovers to about 83% (still below its 2021 level), The Landmark Residences delivers on schedule at West Los Angeles rents, and debt refinances near the 4.8-5.6% levels already achieved. Owner earnings reach about $1.09 by year ten, back near the 2018-2020 range, and then grow about 1.5% a year, in line with the portfolio's record of apartment rent growth. All cases are discounted at 6%. Debt is not subtracted separately because owner earnings are already after interest; the debt load shows up in the weakness of the bear case. OTHER POINTS The company is appealing a Santa Monica trial court ruling that the state Ellis Act was not the proper way to remove tenants from The Landmark Residences; management says it does not expect the ruling to change the project's timing, cost or plans. Current dividends (about $0.76 per share) exceed 2025 owner earnings, so part of the payout and all development spending is being funded with borrowing and cash on hand. First-half 2026 figures come from summary financial data because the full quarterly report text was not available, and the working-capital detail for that period could not be fully reconciled. WHAT THE SHARES APPEAR TO BE WORTH We estimate about $10.45 per share, in a range of $5.52 to $20.14. Because the downside comes from real leverage, a shrinking office business and costs that are still rising, the estimate calls for a large margin of safety, and the margin-of-safety price is around $5.50, close to the bear-case value. From that price the base case implies strong returns if the office portfolio merely stabilizes, while the apartments and the best Westside office buildings carry most of the downside protection. We would be wrong if office demand in these submarkets keeps eroding past our bear case, or if refinancing costs rise well beyond the levels the company has recently achieved.