United
States
 Securities
and Exchange Commission
 Washington,
D.C. 20549
  FORM 10-Q
  QUARTERLY
REPORT PURSUANT TO SECTION 13
  OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For
the quarterly period ended March 31, 2009
  Commission
file number 001-33106
  DOUGLAS
EMMETT, INC.
 (Exact
name of registrant as specified in its charter)
  MARYLAND
              20-3073047(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)
 
 808
      Wilshire Boulevard, Suite 200, Santa Monica, California
              90401(Address
      of principal executive offices)
              (Zip
      Code)
 
 (310) 255-7700
 (Registrant’s
telephone number, including area code)
  None
 (Former
name, former address and former fiscal year, if changed since last
report)
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
  Yes  x     Noo
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files).
  Yes  o     No  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
  Large
      accelerated filer  x
              Accelerated
      filer  oNon-accelerated
      filero(Do not
      check if a smaller reporting company)
              Smaller
      reporting company  o
 
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
  Yes  o     Nox
  Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
  Class
              
              Outstanding
      at April 30, 2009Common
      Shares of beneficial interest,
              
              121,299,341
      shares$0.01
      par value per share
 
 
  
  DOUGLAS
EMMETT, INC.
 FORM
10-Q
 TABLE
OF CONTENTS
 
 PAGE
      NO.PART
      I.
              FINANCIAL
      INFORMATION
              
              3Item 1.
              Financial
      Statements
              
              3Consolidated
      Balance Sheets as of March 31, 2009 and December 31, 2008
      (unaudited)
              
              3Consolidated
      Statements of Operations for the three months ended March 31, 2009 and
      2008 (unaudited)
              
              4Consolidated
      Statements of Cash Flows for the three months ended March 31, 2009 and
      2008 (unaudited)
              
              5Notes
      to Consolidated Financial Statements
              
              6Item 2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              24Item 3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              29Item 4.
              Controls
      and Procedures
              
              29PART
      II.
              OTHER
      INFORMATION
              
              30Item 1.
              Legal
      Proceedings
              
              30Item 1A.
              Risk
      Factors
              
              30Item 2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              30Item 3.
              Defaults
      Upon Senior Securities
              
              30Item 4.
              Submission
      of Matters to a Vote of Security Holders
              
              30Item 5.
              Other
      Information
              
              30Item 6.
              Exhibits
              
              31SIGNATURES
              
              32
 
  
  PART
I.  FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
 
 Douglas
Emmett, Inc.
 Consolidated
Balance Sheets
 (unaudited
and in thousands, except for share data)
 
 March
      31, 2009
                        
                        
                        December
      31, 2008AssetsInvestment
      in real estate:Land
                        
                        $
                        835,366
                        
                        $
                        900,213Buildings
      and improvements
                        
                        
                        5,011,643
                        
                        
                        5,528,567Tenant
      improvements and lease intangibles
                        
                        
                        506,386
                        
                        
                        552,5366,353,395
                        
                        
                        6,981,316Less:
      accumulated depreciation
                        
                        
                        (522,864)
                        
                        
                        (490,125)Net
      investment in real estate
                        
                        
                        5,830,531
                        
                        
                        6,491,191Cash
      and cash equivalents
                        
                        
                        29,827
                        
                        
                        8,655Tenant
      receivables, net
                        
                        
                        1,189
                        
                        
                        2,197Deferred
      rent receivables, net
                        
                        
                        33,436
                        
                        
                        33,039Interest
      rate contracts
                        
                        
                        165,311
                        
                        
                        176,255Acquired
      lease intangible assets, net
                        
                        
                        15,632
                        
                        
                        18,163Investment
      in unconsolidated real estate fund
                        
                        
                        100,775
                        
                        
                        ─Other
      assets
                        
                        
                        28,891
                        
                        
                        31,304Total
      assets
                        
                        $
                        6,205,592
                        
                        $
                        6,760,804LiabilitiesSecured
      notes payable, including loan premium
                        
                        $
                        3,277,256
                        
                        $
                        3,692,785Accounts
      payable and accrued expenses
                        
                        
                        71,298
                        
                        
                        69,215Security
      deposits
                        
                        
                        32,500
                        
                        
                        35,890Acquired
      lease intangible liabilities, net
                        
                        
                        165,649
                        
                        
                        195,036Interest
      rate contracts
                        
                        
                        359,360
                        
                        
                        407,492Dividends
      payable
                        
                        
                        12,150
                        
                        
                        22,856Other
      liabilities
                        
                        
                        ─
                        
                        
                        57,316Total
      liabilities
                        
                        
                        3,918,213
                        
                        
                        4,480,590EquityDouglas
      Emmett, Inc. stockholders’ equity:Common
      stock, $0.01 par value 750,000,000 authorized, 121,499,341 and 121,897,388
      outstanding at March 31, 2009 and December 31, 2008,
      respectively.
                        
                        
                        1,215
                        
                        
                        1,219Additional
      paid-in capital
                        
                        
                        2,284,999
                        
                        
                        2,284,429Accumulated
      other comprehensive income
                        
                        
                        (251,666)
                        
                        
                        (274,111)Accumulated
      deficit
                        
                        
                        (250,364)
                        
                        
                        (236,348)Total
      Douglas Emmett, Inc. stockholders’ equity
                        
                        
                        1,784,184
                        
                        
                        1,775,189Noncontrolling
      interests
                        
                        
                        503,195
                        
                        
                        505,025Total
      equity
                        
                        
                        2,287,379
                        
                        
                        2,280,214Total
      liabilities and equity
                        
                        $
                        6,205,592
                        
                        $
                        6,760,804
 
 See
notes to consolidated financial statements.
  3
  Douglas
Emmett, Inc.
 Consolidated
Statements of Operations
 (unaudited
and in thousands, except for share data)
 
 Three
      Months Ended March 31,2009
                            
                            2008RevenuesOffice
      rental:Rental
      revenues
                            $
                            108,546
                            $
                            99,016Tenant
      recoveries
                            
                            7,966
                            
                            6,009Parking
      and other income
                            
                            17,634
                            
                            16,576Total
      office revenues
                            
                            134,146
                            
                            121,601Multifamily
      rental:Rental
      revenues
                            
                            16,187
                            
                            17,224Parking
      and other income
                            
                            1,084
                            
                            983Total
      multifamily revenues
                            
                            17,271
                            
                            18,207Total
      revenues
                            
                            151,417
                            
                            139,808Operating
      expensesOffice
      expense
                            
                            40,312
                            
                            35,921Multifamily
      expense
                            
                            4,517
                            
                            4,300General
      and administrative
                            
                            6,351
                            
                            5,285Depreciation
      and amortization
                            
                            61,074
                            
                            56,749Total
      operating expenses
                            
                            112,254
                            
                            102,255Operating
      income
                            
                            39,163
                            
                            37,553Gain
      on disposition of interest in unconsolidated real estate
    fund
                            
                            5,573
                            
                            ─Interest
      and other income
                            
                            2,914
                            
                            409Loss, including
      depreciation, from unconsolidated real estate fund
                            
                            (678)
                            
                            ─Interest
      expense
                            
                            (49,222)
                            
                            (41,203)Net
      loss
                            
                            (2,250)
                            
                            (3,241)Less:
      Net loss attributable to noncontrolling interests
                            
                            383
                            
                            741Net
      loss attributable to common stockholders
                            $
                            (1,867)
                            $
                            (2,500)Net
      loss attributable to common stockholders per share – basic and
      diluted
                            $
                            (0.02)
                            $
                            (0.02)Dividends
      declared per common share
                            $
                            0.10
                            $
                            0.1875Weighted
      average shares of common stock outstanding – basic and
    diluted
                            
                            121,841,789
                            
                            118,283,579
 
 See
notes to consolidated financial statements.
  4
  Douglas
Emmett, Inc.
 Consolidated
Statements of Cash Flows
 (unaudited
and in thousands)
 
 Three
      Months Ended March 31,2009
                    
                    2008Operating
      ActivitiesNet
      loss
                    $
                    (2,250)
                    $
                    (3,241)Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Non-cash profit sharing allocation
      to consolidated fund
                    
                    660
                    
                    ─Loss, including depreciation,
      from unconsolidated real estate fund
                    
                    678
                    
                    ─Depreciation and
      amortization
                    
                    61,074
                    
                    56,749Net accretion of acquired lease
      intangibles
                    
                    (10,101)
                    
                    (10,198)Gain on disposition of interest in
      unconsolidated real estate fund
                    
                    (5,573)
                    
                    ─Amortization of deferred loan
      costs
                    
                    607
                    
                    362Amortization of loan
      premium
                    
                    (1,229)
                    
                    (1,160)Non-cash
      market value adjustments on interest rate contracts
                    
                    4,964
                    
                    1,800Non-cash amortization of
      stock-based compensation
                    
                    2,489
                    
                    3,291Change
      in working capital components:Tenant receivables
                    
                    864
                    
                    703Deferred rent
      receivables
                    
                    (2,003)
                    
                    (4,271)Accounts
      payable, accrued expenses and security deposits
                    
                    8,224
                    
                    3,282Other
                    
                    (3,492)
                    
                    6,726Net
      cash provided by operating activities
                    
                    54,912
                    
                    54,043Investing
      ActivitiesCapital
      expenditures and property acquisitions
                    
                    (11,101)
                    
                    (627,103)Deconsolidation
      of Douglas Emmett Fund X, LLC
                    
                    (6,625)
                    
                    ─Net
      cash used in investing activities
                    
                    (17,726)
                    
                    (627,103)Financing
      ActivitiesProceeds from long-term
      borrowings
                    
                    82,640
                    
                    833,850Deferred loan
costs
                    
                    (3)
                    
                    (2,010)Repayment of
      borrowings
                    
                    (106,665)
                    
                    (205,000)Net change in short-term
      borrowings
                    
                    (25,275)
                    
                    (4,000)Contributions by Douglas Emmett
      Fund X, LLC investors
                    
                    66,074
                    
                    ─Contributions
      by noncontrolling interests
                    
                    450
                    
                    100Distributions to noncontrolling
      interests
                    
                    (6,478)
                    
                    (8,251)Redemption of noncontrolling
      interests
                    
                    ─
                    
                    (23,758)Repurchase of common
      stock
                    
                    (3,901)
                    
                    ─Cash dividends
                    
                    (22,856)
                    
                    (19,221)Net
      cash (used in) provided by financing activities
                    
                    (16,014)
                    
                    571,710Increase
      (decrease) in cash and cash equivalents
                    
                    21,172
                    
                    (1,350)Cash
      and cash equivalents at beginning of period
                    
                    8,655
                    
                    5,843Cash
      and cash equivalents at end of period
                    $
                    29,827
                    $
                    4,493
 
 Noncash
      transactionsInvesting
      activity related to contribution of propertiesto
      unconsolidated real estate fund
                $
                476,852
                $
                ─Financing
      activity related to contribution of debt andnoncontrolling
      interest to unconsolidated real estate fund
                $
                (483,477)
                $
                ─
 
 
 
 See
notes to consolidated financial statements.
  5
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements
 (in
thousands, except shares and per share data)
 
 1.
Overview
 
 Organization
and Description of Business
 Douglas
Emmett, Inc., a Maryland corporation incorporated on June 28, 2005, is a
fully integrated, self-administered and self-managed Real Estate Investment
Trust (REIT).  Through our interest in Douglas Emmett Properties, LP
(our operating partnership) and our subsidiaries, we own, manage, lease, acquire
and develop real estate.  As of March 31, 2009, we owned a portfolio
of 49 office properties (including ancillary retail space) and nine multifamily
properties, as well as the fee interests in two parcels of land that we lease to
third parties. All properties are 100% owned except Honolulu Club (78,000 square
feet) which is owned by a joint venture in which we own a 66.7% interest. We
also own an interest in six additional properties totaling 1.4 million
square feet owned by an unconsolidated real estate fund, Douglas Emmett Fund X,
LLC (Fund X) in which we own an equity interest.  All of these
properties are located in Los Angeles County, California and Honolulu,
Hawaii.  We qualified as a REIT for federal income tax purposes
beginning with our initial taxable year ending December 31, 2006 and expect to
maintain such qualification.
 
 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.  Our presence in Los Angeles and Honolulu is the result of a
consistent and focused strategy of identifying submarkets that are supply
constrained, have high barriers to entry and typically exhibit strong economic
characteristics such as population and job growth and a diverse economic
base.  In our office portfolio, we focus primarily on owning and
acquiring a substantial share of top-tier office properties within submarkets
located near high-end executive housing and key lifestyle amenities. In our
multifamily portfolio, we focus primarily on owning and acquiring select
properties at premier locations within these same submarkets.  Our
properties are concentrated in nine premier Los Angeles County
submarkets—Brentwood, Olympic Corridor, Century City, Santa Monica, Beverly
Hills, Westwood, Sherman Oaks/Encino, Warner Center/Woodland Hills and
Burbank—as well as in Honolulu, Hawaii.
 
  6
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 Basis
of Presentation
 The
accompanying consolidated financial statements as of March 31, 2009 and December
31, 2008 and for the three months ended March 31, 2009 and 2008 are the
consolidated financial statements of Douglas Emmett, Inc. and our subsidiaries
including our operating partnership.  As described in Note 2 below,
the results of the six properties acquired in March 2008 were included in our
consolidated results until the end of February 2009, when we completed the
transaction to contribute these properties to Fund X in return for an equity
interest.  All significant intercompany balances and transactions have
been eliminated in our consolidated financial statements.  Certain
prior period amounts have been reclassified to conform with current period
presentation.
 
 The
accompanying unaudited interim financial statements have been prepared pursuant
to the rules and regulations of the U.S. Securities and Exchange Commission
(SEC). Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with accounting principles generally
accepted in the United States (GAAP) may have been condensed or omitted pursuant
to SEC rules and regulations, although we believe that the disclosures are
adequate to make their presentation not misleading.  The accompanying
unaudited financial statements include, in our opinion, all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial information set forth therein. The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for the year ended December 31, 2009.  The interim
financial statements should be read in conjunction with the consolidated
financial statements in our 2008 Annual Report on Form 10-K and notes
thereto.  Any reference to the number of properties and square footage
are unaudited and outside the scope of our independent registered public
accounting firm’s review of our financial statements in accordance with the
standards of the United States Public Company Accounting Oversight
Board.
 
 The
preparation of financial statements in conformity with GAAP requires us to make
certain estimates and assumptions, for example with respect to the allocation of
the purchase price of acquisitions among land, buildings, improvements,
equipment and any related intangible assets and liabilities.  These
estimates and assumptions are subjective and affect the reported amounts in the
consolidated financial statements and accompanying notes.  Actual
results could differ materially from those estimates.
 
  7
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 2.
Acquisitions, Dispositions and Other Transfers
 
 We did not make any acquisitions during
the quarter ended March 31, 2009.
 
 On
February 13, 2008, we acquired a two-thirds interest in a 78,298 square-foot
office building located in Honolulu, Hawaii.  As part of the same
transaction, we also acquired all of the assets of The Honolulu Club, a private
membership athletic and social club, which is located in the
building.  The aggregate contract price was approximately $18 million
and the purchase was made through a consolidated joint venture with our local
partner.  The joint venture financed the acquisition with an $18
million loan.  See Note 7 for a description of the debt.  On
May 1, 2008, the operations of the athletic club were sold to a third party for
a nominal cost.  Simultaneously, the acquirer leased from us the space
occupied by the athletic club.  The results of operations and loss on
sale of the assets of the athletic club were not material.
 
 On March
26, 2008, we acquired a 1.4 million square foot office portfolio consisting
of six Class A buildings all located in our core Los Angeles submarkets – Santa
Monica, Beverly Hills, Sherman Oaks/Encino and Warner Center/Woodland Hills –
for a contract price of approximately $610 million.  Subsequent to
acquiring the properties, we entered into a non-recourse $365 million term loan
secured by the six-property portfolio.  See Note 7 for a description
of the debt.  In October 2008, we completed the initial closing of
Fund X.
 
 In
connection with the initial closing of Fund X, (i) we contributed to Fund X the
portfolio of six Class A office properties that we acquired in March 2008 and
(ii) we transferred to Fund X the related 5-year, $365 million term
loan.  In exchange, we received an interest in the common equity of
Fund X.  As the net value of the contributed properties (as valued
under the Fund X operating agreement) exceeded our required capital
contribution, the Fund was obligated to distribute cash to us for the excess. We
received a partial cash distribution from Fund X in October 2008, shortly after
the initial closing.  At the end of February 2009, we received a
second cash distribution for the remainder of the excess, at which point Fund X
became an unconsolidated real estate fund in which we retained an equity
investment of $100,775 at March 31, 2009 and recognized a gain of $5,573 on the
disposition of the interest in Fund X we did not retain.
 
 The
results of operations for each of the acquired properties are included in our
consolidated statements of operations only from the date of each acquisition,
and in the case of the properties contributed to Fund X, only until the end of
February 2009, when the properties were deconsolidated from our financial
statements.
 
 
 
  8
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 3.
Segment Reporting
 
 Financial
Accounting Standard (FAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, established standards for disclosure
about operating segments and related disclosures about products and services,
geographic areas and major customers. Segment information is prepared on the
same basis that our management reviews information for operational
decision-making purposes. We operate in two business segments: (i) the
acquisition, redevelopment, ownership and management of office real estate and
(ii) the acquisition, redevelopment, ownership and management of multifamily
real estate.  The products for our office segment primarily include
rental of office space and other tenant services including parking and storage
space rental. The products for our multifamily segment include rental of
apartments and other tenant services including parking and storage space
rental.
 
 Asset
information by segment is not reported because we do not use this measure to
assess performance and make decisions to allocate
resources.  Therefore, depreciation and amortization expense is not
allocated among segments.  Interest and other income, management
services, general and administrative expenses, interest expense, depreciation
and amortization expense and net derivative gains and losses are not included in
rental revenues less rental expenses as our internal reporting addresses
these items on a corporate level.
 
 Rental
revenues less rental expenses is not a measure of operating results or cash
flows from operating activities as measured by GAAP, and it is not indicative of
cash available to fund cash needs and should not be considered an alternative to
cash flows as a measure of liquidity. Not all companies may calculate rental
revenues less rental expenses in the same manner. We consider rental revenues
less rental expenses to be an appropriate supplemental measure to net income
because it assists both investors and management in understanding the core
operations of our properties.
 
  9
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 The
following table represents operating activity within our reportable
segments:
 
 Three
      Months Ended March 31, 2009
                
                
                Three
      Months Ended March 31, 2008Office
                
                
                
                Multifamily
                
                
                
                Total
                
                
                
                Office
                
                
                
                Multifamily
                
                
                
                TotalRental
      revenues
                $
                134,146
                
                
                $
                17,271
                
                
                $
                151,417
                
                
                $
                121,601
                
                
                $
                18,207
                
                
                $
                139,808Percentage
      of total
                
                89
                %
                
                
                11
                %
                
                
                100
                %
                
                
                87
                %
                
                
                13
                %
                
                
                100
                %Rental
      expenses
                $
                40,312
                
                
                $
                4,517
                
                
                $
                44,829
                
                
                $
                35,921
                
                
                $
                4,300
                
                
                $
                40,221Percentage
      of total
                
                90
                %
                
                
                10
                %
                
                
                100
                %
                
                
                89
                %
                
                
                11
                %
                
                
                100
                %Rental
      revenues less rental expenses
                $
                93,834
                
                
                $
                12,754
                
                
                $
                106,588
                
                
                $
                85,680
                
                
                $
                13,907
                
                
                $
                99,587Percentage
      of total
                
                88
                %
                
                
                12
                %
                
                
                100
                %
                
                
                86
                %
                
                
                14
                %
                
                
                100
                %
 
 The
following is a reconciliation of rental revenues less rental expenses to net
loss:
  Three
      Months Ended March 31,2009
                          
                          2008Rental
      revenues less rental expenses
                          $
                          106,588
                          $
                          99,587General
      and administrative expenses
                          
                          (6,351)
                          
                          (5,285)Depreciation
      and amortization
                          
                          (61,074)
                          
                          (56,749)Gain
      on disposition of interest in unconsolidated real estate
    fund
                          
                          5,573
                          
                          ─Interest
      and other income
                          
                          2,914
                          
                          409Loss, including
      depreciation, from unconsolidated real estate fund
                          
                          (678)
                          
                          ─Interest
      expense
                          
                          (49,222)
                          
                          (41,203)Net
      loss
                          
                          (2,250)
                          
                          (3,241)Less:
      Net loss attributable to noncontrolling interests
                          
                          383
                          
                          741Net
      loss attributable to common stockholders
                          $
                          (1,867)
                          $
                          (2,500)
 10
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 4.
Other Assets
 
 Other
assets consist of the following at:
 
 March
      31,
                
                
                December
      31,2009
                
                
                2008Deferred
      loan costs, net of accumulated amortization of $3,578 and$3,336
      at March 31, 2009 and December 31, 2008, respectively
                $
                5,787
                
                $
                9,714Restricted
      cash
                
                2,937
                
                
                2,934Prepaid
      interest
                
                3,916
                
                
                4,360Prepaid
      expenses
                
                2,820
                
                
                3,845Interest
      receivable
                
                9,120
                
                
                5,938Other
      indefinite-lived intangible
                
                1,988
                
                
                1,988Other
                
                2,323
                
                
                2,525$
                28,891
                
                $
                31,304
 
 We
incurred deferred loan cost amortization expense of $607 and $362 for the three
months ended March 31, 2009 and 2008, respectively.  The deferred loan
cost amortization is included as a component of interest expense in the
consolidated statements of operations.
 
 5.
Accounts Payable and Accrued Expenses
 
 Accounts
payable and accrued expenses consist of the following as of:
 
 March
      31,
                
                December
      31,2009
                
                2008Accounts
      payable
                $
                30,799
                $
                30,199Accrued
      interest payable
                
                26,165
                
                22,982Deferred
      revenue
                
                14,334
                
                16,034$
                71,298
                $
                69,215
 
 6.
Acquired Lease Intangibles
 
 Our
acquired lease intangibles related to above/below-market leases is summarized as
of:
 
 March
      31,
                  2009
                
                December
      31,
                  2008Above-market
      tenant leases
                $
                32,770
                $
                34,227Accumulated
      amortization
                
                (20,149)
                
                (19,094)Below-market
      ground leases
                
                3,198
                
                3,198Accumulated
      amortization
                
                (187)
                
                (168)Acquired
      lease intangible assets, net
                $
                15,632
                $
                18,163Below-market
      tenant leases
                $
                261,523
                $
                288,437Accumulated
      accretion
                
                (109,373)
                
                (106,950)Above-market
      ground leases
                
                16,200
                
                16,200Accumulated
      accretion
                
                (2,701)
                
                (2,651)Acquired
      lease intangible liabilities, net
                $
                165,649
                $
                195,036
  11
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 7.
Secured Notes Payable
 
 The
following summarizes our secured notes payable at:
 Type
      of Debt
                                                
                                                Maturity
      Date(1)
                                                
                                                March
      31,2009
                                                
                                                December
      31, 2008
                                                
                                                Variable
      Rate
                                                
                                                Effective
      Annual Fixed
                                                  Rate(2)
                                                
                                                Swap
      Maturity Date(1)Variable
      Rate Swapped to Fixed Rate:Fannie
      Mae Loan I (3)
                                                
                                                06/01/12
                                                $
                                                293,000
                                                $
                                                293,000
                                                
                                                DMBS
      + 0.60%
                                                
                                                4.70%
                                                
                                                08/01/11Fannie
      Mae Loan II(3)
                                                
                                                06/01/12
                                                
                                                95,080
                                                
                                                95,080
                                                
                                                DMBS
      + 0.60%
                                                
                                                5.78
                                                
                                                08/01/11Modified
      Term Loan (4)(5)
                                                
                                                08/31/12
                                                
                                                2,300,000
                                                
                                                2,300,000
                                                
                                                LIBOR
      + 0.85%
                                                
                                                5.13
                                                
                                                08/01/10-08/01/12Term
      Loan (6)
                                                
                                                08/18/13
                                                
                                                ─
                                                
                                                365,000
                                                
                                                --
                                                
                                                --
                                                
                                                --Fannie
      Mae Loan III(3)
                                                
                                                02/01/15
                                                
                                                36,920
                                                
                                                36,920
                                                
                                                DMBS
      + 0.60%
                                                
                                                5.78
                                                
                                                08/01/11Fannie
      Mae Loan IV(3)
                                                
                                                02/01/15
                                                
                                                75,000
                                                
                                                75,000
                                                
                                                DMBS
      + 0.76%
                                                
                                                4.86
                                                
                                                08/01/11Term
      Loan (7)
                                                
                                                04/01/15
                                                
                                                340,000
                                                
                                                340,000
                                                
                                                LIBOR
      + 1.50%
                                                
                                                4.77
                                                
                                                01/02/13Fannie
      Mae Loan V(3)
                                                
                                                02/01/16
                                                
                                                82,000
                                                
                                                82,000
                                                
                                                LIBOR
      + 0.62%
                                                
                                                5.62
                                                
                                                03/01/12Fannie
      Mae Loan VI(3)
                                                
                                                06/01/17
                                                
                                                18,000
                                                
                                                18,000
                                                
                                                LIBOR
      + 0.62%
                                                
                                                5.82
                                                
                                                06/01/12Subtotal
                                                
                                                
                                                
                                                3,240,000
                                                
                                                3,605,000
                                                
                                                
                                                
                                                5.10%Variable
      Rate:Wells
      Fargo Loan(8)
                                                
                                                03/01/10(9)
                                                
                                                18,000
                                                
                                                18,000
                                                
                                                LIBOR
      + 1.25%
                                                
                                                --
                                                
                                                --Secured
      Revolving Credit Facility(10)
                                                
                                                10/30/09(11)
                                                
                                                ─
                                                
                                                49,300
                                                
                                                LIBOR
      / Fed Funds+(12)
                                                
                                                --
                                                
                                                --Subtotal
                                                
                                                
                                                
                                                3,258,000
                                                
                                                3,672,300Unamortized
      Loan Premium(13)
                                                
                                                
                                                
                                                19,256
                                                
                                                20,485Total
                                                
                                                
                                                $
                                                3,277,256
                                                $
                                                3,692,785
 
 (1)
              As
      of March 31, 2009, the weighted average remaining life of our total
      outstanding debt is 3.8 years, and the weighted average remaining life of
      the interest rate swaps is 2.1 years.(2)
              Includes
      the effect of interest rate contracts. Based on actual/360-day basis and
      excludes amortization of loan fees and unused fees on credit line. The
      total effective rate on an actual/365-day basis is 5.17% at March 31,
      2009.(3)
              Secured
      by four separate collateralized pools. Fannie Mae Discount Mortgage-Backed
      Security (DMBS) generally tracks 90-day LIBOR, although volatility may
      exist between the two rates, resulting in an immaterial amount of swap
      ineffectiveness.(4)
              Secured
      by seven separate collateralized pools. Requires monthly payments of
      interest only, with outstanding principal due upon
    maturity.(5)
              Includes
      $1.11 billion swapped to 4.89% until August 1, 2010; $545.0 million
      swapped to 5.75% until December 1, 2010; $322.5 million swapped to 4.98%
      until August 1, 2011; and $322.5 million swapped to 5.02% until August 1,
      2012. Each of these rates is based on actual/360-day
  basis.(6)
              This
      loan was transferred to an unconsolidated real estate fund, in which our
      operating partnership holds an equity interest. Secured by six properties
      in a collateralized pool. These properties were also transferred to the
      same unconsolidated real estate fund. Requires monthly payments of
      interest only, with outstanding principal due upon
    maturity.(7)
              Secured
      by four properties in a collateralized pool. Requires monthly payments of
      interest only, with outstanding principal due upon
    maturity.(8)
              This
      loan is held by a consolidated entity in which our operating partnership
      holds a two-thirds interest. The loan has a one-year extension
      option.(9)
              Represents
      maturity date of March 1, 2010 which we may extend to March 1,
      2011.(10)
              This
      $370 million secured revolving credit facility is secured by nine
      properties and has no borrowings outstanding. The facility has two
      one-year extension options available.(11)
              Represents
      maturity date of October 30, 2009 which we may extend to October 30,
      2011.(12)
              This
      revolver bears interest at either LIBOR +0.70% or Fed Funds +0.95% at our
      election. If the amount outstanding exceeds $262.5 million, the credit
      facility bears interest at either LIBOR +0.80% or Fed Funds +1.05% at our
      election.(13)
              Represents
      non-cash mark-to-market adjustment on variable rate debt associated with
      office properties.
 
  12
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 
 The
minimum future principal payments due on our secured notes payable, excluding
the non-cash loan premium amortization, at March 31, 2009 were as
follows:
  Twelve
      months ending March 31:2010
                $
                18,0002011
                
                ─2012
                
                ─2013
                
                2,688,0802014
                
                ─Thereafter
                
                551,920Total
      future principal payments
                $
                3,258,000
 
 Secured
Revolving Credit Facility
 We have a
revolving credit facility with a group of banks led by Bank of America, N.A. and
Banc of America Securities, LLC totaling $370 million.  At March 31,
2009, there were no borrowings outstanding, so the entire balance was available
to us under this credit facility.  It bears interest at a rate per
annum equal to either LIBOR plus 70 basis points or Federal Funds Rate plus 95
basis points if the amount outstanding is $262.5 million or
less.  However, if the amount outstanding is greater than $262.5
million, the credit facility bears interest at a rate per annum equal to either
LIBOR plus 80 basis points or Federal Funds Rate plus 105 basis
points.  The credit facility bears interest at 15 basis points on the
undrawn balance.  The credit facility expires during the fourth
quarter of 2009, with two one-year extensions at our option.
 
 8.
Interest Rate Contracts
 
 Risk
Management Objective of Using Derivatives
 We manage
our interest rate risk associated with borrowings by obtaining interest rate
swap and interest rate cap contracts.  The interest rate swap
agreements we utilize effectively modify our exposure to interest rate risk by
converting our floating-rate debt to a fixed-rate basis, thus reducing the
impact of interest-rate changes on future interest expense and cash
flows.  These agreements involve the receipt of floating-rate amounts
in exchange for fixed-rate interest payments over the life of the agreements
without an exchange of the underlying principal amount. We do not use any other
derivative instruments.
 
 Cash
Flow Hedges of Interest Rate Risk
 Our
objective in using derivatives is to add stability to interest expense and to
manage our exposure to interest rate movements or other identified
risks.  To accomplish this objective, we primarily use interest rate
swaps as part of our cash flow hedging strategy.  FAS No. 133, Accounting for Derivative and
Hedging Activities(FAS 133), as amended and interpreted establishes
accounting and reporting standards for derivative instruments. For derivatives
designated as cash flow hedges, the effective portion of changes in the fair
value of the derivative is initially reported in other comprehensive income
(outside of earnings) and subsequently reclassified to earnings when the hedged
transaction affects earnings.  The ineffective portion of changes in
the fair value of the derivative is recognized directly in
earnings.  During the three months ended March 31, 2009, we recorded a
$551 loss in earnings for hedge ineffectiveness attributable to a mismatch in
the underlying index of the hedged item and the derivative.  We assess
the effectiveness of each hedging relationship by comparing the changes in fair
value or cash flows of the derivative hedging instrument with the changes in
fair value or cash flows of the designated hedged item or transaction. For
derivatives not designated as hedges, changes in fair value are recognized in
earnings.  The fair value of these hedges is obtained through
independent third-party valuation sources that use conventional valuation
algorithms.
 
  13
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 Amounts
accumulated in other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on our
variable-rate debt. For derivatives designated as cash flow hedges, we estimate
an additional $126.3 million will be reclassified within the next 12 months
from accumulated other comprehensive income to interest expense as an increase
to interest expense.
 
 As of
March 31, 2009, approximately 99% of our outstanding debt had interest payments
designated as hedged transactions to receive-floating/pay-fixed interest rate
swap agreements, which qualify as highly effective cash flow hedges under FAS
133, as summarized below:
 
 Interest
      Rate Derivative
                                Number
      of Instruments (Actual)
                                NotionalInterest
      Rate Swaps
                                36
                                $3,240,000
 
 
 Non-designated
Hedges
 Derivatives
not designated as hedges are not speculative.  Our predecessor
originally entered into $2.2 billion notional of pay-fixed swaps at swap rates
ranging between 4.04% and 5.00%, as well as $600 million of purchased caps
to manage our exposure to interest rate movements and other identified
risks.  At the time of our IPO, we entered into offsetting $2.2
billion notional of receive-fixed swaps at swap rates ranging between 4.96% and
5.00%, as well as $600 million of sold caps, which were intended to largely
offset the future cash flows and future change in fair value of our
predecessor’s pay-fixed swaps and purchased caps to reduce the effect on our
reported earnings.  Accordingly, as of March 31, 2009, we had the
following outstanding interest rate derivatives that were not designated as
hedging instruments under FAS 133, but were used to economically hedge our
exposure to interest rate risk:
 
 Interest
      Rate Derivative
                  Number
      of Instruments (Actual)
                  NotionalPay-Fixed
      Swaps
                  25
                  $2,205,000Receive-Fixed
      Swaps
                  25
                  $2,205,000Purchased
      Caps
                  19
                  $600,000Sold
      Caps
                  15
                  $600,000
 
 None of
the swaps or caps in the preceding table were designated as hedges under FAS 133
and as such, the changes in fair value of these interest rate swaps have been
recognized in earnings for all periods.  The aggregate fair value of
these swaps decreased $4.4 million and $1.9 million for the three months ended
March 31, 2009 and 2008, respectively.  Included in the net
$1.9 million decrease is a $1.2 million increase related to the credit
value adjustment resulting from our initial application of FAS 157.
 
 
  14
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 Accounting
for Interest Rate Contracts
 As
required by FAS 133, we record all derivatives on the balance sheet at fair
value, using the framework for measuring fair value established in FAS
No. 157, Fair Value
Measurements(FAS 157).  Hedge accounting generally provides
for the timing of gain or loss recognition on the hedging instrument to match
the earnings effect of the hedged forecasted transactions in a cash flow
hedge.  All other changes in fair value measured in accordance with
FAS 157, with the exception of hedge ineffectiveness, are recorded in
accumulated other comprehensive income, which is a component of equity outside
of earnings.  Amounts reported in accumulated other comprehensive
income related to derivatives designated as hedges under FAS 133 will be
reclassified to interest expense as interest payments are made on our hedged
variable-rate debt.    We may enter into derivative
contracts that are intended to economically hedge certain risks, even though
hedge accounting does not apply, or for which we elect to not apply hedge
accounting under FAS 133.
 
 The
change in net unrealized gains and losses on cash flow hedges reflects a
reclassification from accumulated other comprehensive income to interest
expense, as an increase of $35.3 million to interest expense for the three
months ended March 31, 2009 and an increase of $9.2 million to interest
expense for the three months ended March 31, 2008, respectively.
 
 The
following table represents the fair values of derivative instruments as of March
31, 2009:
 
 Derivative
      fair values, disclosed as “Interest Rate Contracts”
                            
                            Assets
                            
                            LiabilitiesDerivatives
      designated as hedging instruments under FAS 133
                            $
                            —
                            $
                            232,510Derivatives
      not designated as hedging instruments under FAS 133
                            
                            165,311
                            
                            126,850Total
      derivatives
                            $
                            165,311
                            $
                            359,360
  15
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 The
following table represents the effect of derivative instruments on our
consolidated statements of operations for the three months ended March 31,
2009:
 
 Derivatives
      in FAS 133 Cash Flow Hedging Relationships:
                
                Interest
      Rate ContractsAmount
      of gain recognized in OCI on derivatives (effective
    portion)
                $
                18,445Amount
      of loss reclassified from accumulated OCI into earnings (effective
      portion)
                $
                35,298Location
      of loss reclassification from accumulated OCI into earnings (effective
      portion)
                
                Interest
      expenseAmount
      of loss recognized in earnings on derivatives (ineffective portion and
      amount excluded from effectiveness testing)
                $
                551Location
      of loss recognized in earnings on derivatives (ineffective portion and
      amount excluded from effectiveness testing)
                
                Interest
      expense
 
 
 Derivatives
      Not Designated as Cash Flow Hedges Under FAS 133:
                
                Interest
      Rate ContractsAmount
      of loss recognized in earnings on derivatives
                $
                4,413Location
      of loss recognized in earnings on derivatives
                
                Interest
      expense
 
 Credit-risk-related
Contingent Features
 
 We have
agreements with each of our derivative counterparties that contain a provision,
under which we could also be declared in default on our derivative obligations
if we default on any of our indebtedness, including default where
repayment of the indebtedness has not been accelerated by the
lender.  We have agreements with certain of our derivative
counterparties that contain a provision where if we fail to maintain a minimum
cash and cash equivalents balance of $1 million, then the derivative
counterparty would have the right to terminate the derivative.  There
have been no events of default on any of our derivatives.
 
 As of
March 31, 2009, the fair value of derivatives in a net liability position, which
includes accrued interest but excludes any adjustment for nonperformance risk
related to these agreements, was $209.1 million.
 
  16
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 Fair
Value Measurement
 FAS 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.  FAS 157 emphasizes
that fair value is a market-based measurement, not an entity-specific
measurement.  Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset
or liability.  As a basis for considering market participant
assumptions in fair value measurements, FAS 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the
hierarchy).  Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that we have the ability to
access. Level 2 inputs are inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly.  Level 2 inputs may include quoted prices for similar
assets and liabilities in active markets, as well as inputs that are observable
for the asset or liability (other than quoted prices), such as interest rates,
foreign exchange rates, and yield curves that are observable at commonly quoted
intervals.
 
 Currently,
we use interest rate swaps and capsto manage interest rate
risk resulting from variable interest payments on our floating rate
debt.  The valuation of these instruments is determined using widely
accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects the contractual
terms of the derivatives, including the period to maturity, and uses observable
market-based inputs, including interest rate curves and implied
volatilities.
 
 To comply
with the provisions of FAS 157, we incorporate credit valuation adjustments to
appropriately reflect both our own nonperformance risk and the respective
counterparty’s nonperformance risk in the fair value measurements.  In
adjusting the fair value of our derivative contracts for the effect of
nonperformance risk, we considered the impact of netting and any applicable
credit enhancements, such as collateral postings, thresholds, mutual puts and
guarantees.  We have determined that our derivative valuations in
their entirety are classified in Level 2 of the fair value
hierarchy.  We do not have any fair value measurements using
significant unobservable inputs (Level 3) as of March 31, 2009.
 
 The table
below presents the assets and liabilities measured at fair value as of March 31,
2009, aggregated by the level in the fair value hierarchy within which those
measurements fall:
 
 Quoted Prices in
                    Active
      Markets
                    for
      Identical
                    Assets
      and Liabilities (Level 1)
                  
                  Significant
                    Other
                    Observable
                    Inputs (Level 2)
                  
                  Significant
                    Unobservable
                    Inputs (Level 3)
                  
                  Balance
      at
                    March
      31,
                    2009AssetsInterest Rate
      Contracts
                  $
                  ─
                  $
                  165,311
                  $
                  ─
                  $
                  165,311LiabilitiesInterest Rate
      Contracts
                  $
                  ─
                  $
                  359,360
                  $
                  ─
                  $
                  359,360
 
  17
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 9.
Stockholders’ Equity
 
 Noncontrolling
Interests
 Noncontrolling
interests in our operating partnership relate to interests in that partnership
which are not owned by us.  Noncontrolling interests in our operating
partnership amounted to approximately 22% at March 31, 2009.  A unit
in our operating partnership and a share of our common stock have essentially
the same economic characteristics as they share equally in the total net income
or loss distributions of our operating partnership.  Investors who own
units in our operating partnership have the right to cause our operating
partnership to redeem any or all of their units in our operating partnership for
cash equal to the then-current market value of one share of common stock, or, at
our election, shares of our common stock on a one-for-one
basis.  Prior to the adoption of FAS No. 160,Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of Accounting Research Bulletin
No. 51(FAS 160), we calculated the book value of net assets allocable to
noncontrolling interests (formerly referred to as minority interests), and
adjusted the balance to reflect the calculated amount with a reclass to or from
the retained earnings (accumulated deficit) balance.
 
 Noncontrolling
interests also includes the interest of a minority partner in a joint venture
formed during the first quarter of 2008 to purchase an office building in
Honolulu, Hawaii.  The joint venture is two-thirds owned by our
operating partnership and is consolidated in our financial statements as of
March 31, 2009.
 
 The table
below represents the condensed consolidated statement of stockholders’
equity:
 TotalEquity
                
                Douglas
      Emmett, Inc. Stockholders’ Equity
                
                Noncontrolling
      InterestsBalance,
      January 1, 2009, as reported
                $
                2,280,214
                $
                1,775,189
                $
                505,025Comprehensive
      income:Net
      loss
                
                (2,250)
                
                (1,867)
                
                (383)Other
      comprehensive income
                
                16,853
                
                10,556
                
                6,297Comprehensive
      income
                
                14,603
                
                8,689
                
                5,914Contributions
                
                450
                
                ─
                
                450Dividends
      and distributions
                
                (18,562)
                
                (12,150)
                
                (6,412)Redemption
      of operating partnership units
                
                (3,901)
                
                (634)
                
                (3,267)Stock
      compensation
                
                2,675
                
                1,200
                
                1,475Deconsolidation
      of Douglas Emmett Fund X, LLC
                
                11,900
                
                11,890
                
                10Balance,
      March 31, 2009
                $
                2,287,379
                $
                1,784,184
                $
                503,195
 The table
below represents the consolidated statement of comprehensive
income:
 
 Three
      Months Ended March 31,2009
                    
                    2008Net
      loss
                    $
                    (2,250)
                    $
                    (3,241)Cash
      flow hedge adjustment
                    
                    18,920
                    
                    (90,846)Equity
      interest in other comprehensive income of unconsolidated real estate
      fund
                    
                    (2,067)
                    
                    ─Comprehensive
      income
                    
                    14,603
                    
                    (94,087)Less:
      Comprehensive income attributable to noncontrolling
    interests
                    
                    (5,914)
                    
                    741Comprehensive
      income attributable to common stockholders
                    $
                    8,689
                    $
                    (93,346)
 
 
  
 
  
  18
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 
 Dividends
 During
the first quarter of 2009 and 2008, we declared quarterly dividends of $0.10 and
$0.1875 per share, respectively, which equals an annualized rate of $0.40 and
$0.75 per share, respectively.
 
 Taxability
of Dividends
 Earnings
and profits, which determine the taxability of distributions to stockholders,
will differ from income reported for financial reporting purposes due to the
differences for federal income tax purposes in the treatment of loss on
extinguishment of debt, revenue recognition, compensation expense and in the
basis of depreciable assets and estimated useful lives used to compute
depreciation.
 
 Equity
Conversions and Repurchases
 During
the quarter ended March 31, 2009, investors converted approximately 220,000
operating partnership units to shares of common stock.  During the
quarter ended March 31, 2009, we repurchased approximately 620,000 share
equivalents in open market transactions for a total consideration of
approximately $3.9 million.  We may make additional purchases of
our share equivalents from time to time in private transactions or in the public
markets, but have no commitments to do so.
 
 The table
below represents the net income attributable to common stockholders and
transfers (to) from the noncontrolling interests:
 
 Three
      Months Ended March 31,2009
                
                2008Net
      loss attributable to common stockholders
                $
                (1,867)
                $
                (2,500)Transfers
      (to) from the noncontrolling interests:Increase
      in common stockholders paid-in capital for redemption of operating
      partnership units
                
                3,264
                
                187,125Change
      from net income attributable to common stockholders and transfers (to)
      from noncontrolling interests
                $
                1,397
                $
                184,625
   Stock-Based
Compensation
 The
Douglas Emmett, Inc. 2006 Omnibus Stock Incentive Plan, our stock incentive
plan, was adopted by our board of directors and approved by our stockholders
prior to the consummation of our IPO. Our stock incentive plan is
administered by the compensation committee of our board of directors.  All
full-time and part-time officers, employees, directors and other key persons
(including consultants and prospective employees) are eligible to participate in
our stock incentive plan.  For more information on our stock incentive
plan, please refer to the notes to the consolidated financial statements in our
2008 Annual Report on Form 10-K.
 
 During
the first quarter of 2009, we granted approximately 3.6 million long-term
incentive units and stock options with a total fair market value of $6.5
million.  Upon the vesting of equity awards, we recognized non-cash
compensation expense of $1.0 million and $1.2 million for the three months
ended March 31, 2009 and 2008, respectively.  An additional
$1.4 million of immediately-vested equity awards were granted during the
first quarter of 2009 to satisfy a portion of the bonuses accrued during
2008.
 
  19
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 10.
Future Minimum Lease Receipts and Payments
 
 Future
Minimum Lease Receipts
 We
have leased space to tenants primarily under noncancelable operating leases,
which generally contain provisions for a base rent plus reimbursement for
certain operating expenses. Operating expense reimbursements are reflected in
our consolidated statements of operations as tenant recoveries.
 
 We have
leased space to certain tenants under noncancelable leases, which provide for
percentage rents based upon tenant revenues. Percentage rental income for the
three months ended March 31, 2009 and 2008 totaled $197 and $244,
respectively.
 
 Future
minimum base rentals on non-cancelable office and ground operating leases at
March 31, 2009 were as follows:
 
 Twelve
months ending March 31:
 2010
                    $
                    352,2402011
                    
                    311,3152012
                    
                    261,9392013
                    
                    217,2132014
                    
                    161,365Thereafter
                    
                    433,921Total
      future minimum base rentals
                    $
                    1,737,993
 
 The above
future minimum lease payments exclude residential leases, which typically have a
term of one year or less, as well as tenant reimbursements, amortization of
deferred rent receivables and above/below-market lease intangibles. Some leases
are subject to termination options, generally upon payment of a termination fee.
The preceding table assumes that these options are not exercised.
 
 Future
Minimum Lease Payments
 We
currently lease portions of the land underlying two of our office
properties after acquiring, in December 2008, the fee title to a third
parcel of land that we leased during 2008 as more fully described in the
notes to consolidated financial statements contained in our 2008 Annual Report
on Form 10-K. We expensed ground lease payments in the amount of $513 and $786
for the three months ended March 31, 2009 and 2008, respectively.
 
 The
following is a schedule of minimum ground lease payments as of March 31,
2009:
 
 Twelve
      months ending March 31:2010
                    $
                    7332011
                    
                    7332012
                    
                    7332013
                    
                    7332014
                    
                    733Thereafter
                    
                    3,604Total
      future minimum lease payments
                    $
                    7,269
 
  20
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 11.
Commitments and Contingencies
 
 We are
subject to various legal proceedings and claims that arise in the ordinary
course of business. These matters are generally covered by
insurance.  We believe that the ultimate outcome of these actions will
not have a material adverse effect on our financial position and results of
operations or cash flows.
 
 Concentration
of Credit Risk
 Our
properties are located in premier submarkets within Los Angeles County,
California and Honolulu, Hawaii. The ability of the tenants to honor the terms
of their respective leases is dependent upon the economic, regulatory and social
factors affecting the markets in which the tenants operate.  We
perform ongoing credit evaluations of our tenants for potential credit
losses.  Financial instruments that subject us to credit risk consist
primarily of cash, accounts receivable, deferred rents receivable and interest
rate contracts. We maintain our cash and cash equivalents with high quality
financial institutions. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $250 under the increased limit that the U.S.
Congress has temporarily granted until December 31, 2009.  We have not
experienced any losses to date on our deposited cash.  All of our
deposits are maintained at banks with investment grade ratings as evaluated by
the predominant rating agencies.
 
 Asset
Retirement Obligations
 FASB
Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations—an interpretation of FASB Statement No. 143
clarifies that the term “conditional asset retirement obligation” as used in FAS
No. 143, Accounting for
Asset Retirement Obligations, represents a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement is
conditional on a future event that may or may not be within a company’s
control.  Under this standard, a liability for a conditional asset
retirement obligation must be recorded if the fair value of the obligation can
be reasonably estimated.  Environmental site assessments and
investigations have identified 23 properties in our portfolio containing
asbestos, which would have to be removed in compliance with applicable
environmental regulations if these properties undergo major renovations or are
demolished.  As of March 31, 2009, the obligations to remove the
asbestos from these properties have indeterminable settlement dates, and
therefore, we are unable to reasonably estimate the fair value of the associated
conditional asset retirement obligation.
 
 Tenant
Concentrations
 For the three months ended March 31,
2009 and 2008, no tenant accounted for more than 10% of our total rental revenue
and tenant recoveries.
 
 
  21
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 12.
Summary of Significant Accounting Policies
 
 Cash
and Cash Equivalents
 For
purposes of the consolidated statements of cash flows, we consider short-term
investments with maturities of three months or less when purchased to be cash
equivalents.
 
 Income
Taxes
 We elect
to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (IRC)
commencing with our initial taxable year ending December 31,
2006.  To qualify as a REIT, we are required to distribute at least
90% of our REIT taxable income to our stockholders and meet the various other
requirements imposed by the IRC relating to such matters as operating results,
asset holdings, distribution levels and diversity of stock ownership. Provided
we qualify for taxation as a REIT, we are generally not subject to
corporate-level income tax on the earnings distributed currently to our
stockholders that we derive from our REIT qualifying activities. We are subject
to corporate-level tax on the earnings we derive through our taxable REIT
subsidiary (TRS). If we fail to qualify as a REIT in any taxable year, and are
unable to avail ourselves of certain savings provisions set forth in the IRC,
all of our taxable income would be subject to federal income tax at regular
corporate rates, including any applicable alternative minimum
tax.
 
 In
addition, we are subject to taxation by various state and local (and potentially
foreign) jurisdictions, including those in which we transact business or
reside.  Our non-TRS subsidiaries, including the operating
partnership, are either partnerships or disregarded entities for federal income
tax purposes.  Under applicable federal and state income tax rules,
the allocated share of net income or loss from the limited partnerships and
S-Corporation is reportable in the income tax returns of the respective partners
and stockholders.  Accordingly, no income tax provision is included in
the accompanying consolidated financial statements.
 
 Earnings
Per Share (EPS)
 Basic EPS
is calculated by dividing the net income applicable to common stockholders for
the period by the weighted average of common shares outstanding during the
period.  Diluted EPS is calculated by dividing the net income
applicable to common stockholders for the period by the weighted average number
of common and dilutive instruments outstanding during the period using the
treasury stock method.  Since we were in a net loss position during
the three months ended March 31, 2009 and 2008, all potentially dilutive
instruments are anti-dilutive and have been excluded from our computation of
weighted average dilutive shares outstanding.
 
  22
  Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)
 
 
 Recently
Issued Accounting Literature
 
 On
January 1, 2009, we adopted FAS No. 141 (Revised 2007), Business Combinations (FAS
141R).  FAS 141R changes the accounting for business
combinations.  Under FAS 141R, an acquiring entity is required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions.  FAS 141R
requires transaction costs such as legal, accounting and advisory fees be
expensed.  FAS 141R also includes a substantial number of new
disclosure requirements.  The adoption of FAS 141R did not have a
material effect on our financial position or results of operations.
 
 On
January 1 2009, we adopted FAS 160 which establishes new accounting and
reporting standards for noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary.  Specifically, this statement
requires the recognition of a noncontrolling interest (minority interest) as
equity in the consolidated financial statements separate from the parent’s
equity.  The amount of net income attributable to the noncontrolling
interest is included in consolidated net income on the face of the income
statement.  FAS 160 clarifies that changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial
interest.  In addition, this statement requires that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated.  Such gain or loss will be measured using the fair
value of the noncontrolling equity investment on the deconsolidation
date.  FAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling
interests.  The adoption of FAS 160 did not have a material effect on
our financial position or results of operations, other than presentation
differences.
 
 On
January 1, 2009, we adopted FAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities(FAS 161), an amendment of
FAS 133, to expand disclosure requirements for an entity's derivative and
hedging activities.  Under FAS 161, entities are required to
provide enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FAS 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows.  In order to meet these
requirements, entities must include quantitative disclosures about derivative
fair values and gains/losses on derivative instruments, qualitative disclosures
about objectives and strategies for using derivatives, and disclosures about
credit-risk-related contingent features in derivative agreements.  The
adoption of FAS 161 did not have a material effect on our financial position or
results of operations as this statement only addresses
disclosures.
 
 On
January 1, 2009, we adopted FASB Staff Position  No. EITF 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (FSP EITF 03-6-1) which clarifies that unvested share-based
payment awards which contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities, and as
participating securities, they must be included in the computation of EPS
pursuant to the two-class method.  The adoption of FSP EITF 03-6-1 did
not have a material effect on our financial position or results of
operations.
 
 
  23
  Item
2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
 Forward
Looking Statements.
 This
Quarterly Report on Form 10-Q (Report) contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(the Exchange Act).  You can find many (but not all) of these
statements by looking for words such as “approximates,” “believes,” “expects,”
“anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar
expressions in this Report.  We claim the protection of the safe
harbor contained in the Private Securities Litigation Reform Act of
1995.  We caution investors that any forward-looking statements
presented in this Report, or those that we may make orally or in writing from
time to time, are based on the beliefs of, assumptions made by, and information
currently available to us.  Such statements are based on assumptions
and the actual outcome will be affected by known and unknown risks, trends,
uncertainties and factors that are beyond our control or ability to
predict.  Although we believe that our assumptions are reasonable, they are
not guarantees of future performance and some will inevitably prove to be
incorrect.  As a result, our actual future results can be expected to
differ from our expectations, and those differences may be
material.  Accordingly, investors should use caution in relying on
past forward-looking statements, which are based on known results and trends at
the time they are made, to anticipate future results or trends.
 
 Some
of the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by
forward-looking statements include the following: adverse economic or real
estate developments in Southern California and Honolulu; decreased rental rates
or increased tenant incentive and vacancy rates; defaults on, early termination
of, or non-renewal of leases by tenants; increased interest rates and operating
costs; failure to generate sufficient cash flows to service our outstanding
indebtedness; difficulties in identifying properties to acquire and completing
acquisitions; failure to successfully operate acquired properties and
operations; failure to maintain our status as a Real Estate Investment Trust
(REIT) under the Internal Revenue Code of 1986, as amended; possible adverse
changes in rent control laws and regulations; environmental uncertainties; risks
related to natural disasters; lack or insufficient amount of insurance;
inability to successfully expand into new markets and submarkets; risks
associated with property development; conflicts of interest with our officers;
changes in real estate zoning laws and increases in real property tax rates; and
the consequences of any possible future terrorist attacks. For further
discussion of these and other factors, see “Item 1A.  Risk Factors” in
our 2008 Annual Report on Form 10-K.
 
 This
Report and all subsequent written and oral forward-looking statements
attributable to us or any person acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section.  We do not undertake any obligation to release publicly any
revisions to our forward-looking statements to reflect events or circumstances
after the date of this Report.
 
 
 Critical
Accounting Policies
 
 Our
discussion and analysis of our historical financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with GAAP.  The preparation of these financial
statements in conformity with GAAP requires us to make estimates of certain
items and judgments as to certain future events, for example with respect to the
allocation of the purchase price of acquired property among land, buildings,
improvements, equipment, and any related intangible assets and liabilities, or
the effect of a property tax reassessment of our properties.  These
determinations, even though inherently subjective and prone to change, affect
the reported amounts of our assets, liabilities, revenues and
expenses.  While we believe that our estimates are based on reasonable
assumptions and judgments at the time they are made, some of our assumptions,
estimates and judgments will inevitably prove to be incorrect.  As a
result, actual outcomes will likely differ from our accruals, and those
differences—positive or negative—could be material.  Some of our
accruals are subject to adjustment, as we believe appropriate based on revised
estimates and reconciliation to the actual results when available.
 
 In
addition, we identified certain critical accounting policies that affect certain
of our more significant estimates and assumptions used in preparing our
consolidated financial statements in our 2008 Annual Report on Form
10-K.  We have not made any material changes to these policies during
the periods covered by this Report.
 
 24
 Historical Results of
Operations
 
 Overview
 Our results of operations for the three
months ended March 31, 2008 and 2009 consists of the rental operations for 48
office properties and nine multifamily properties that we owned during both
comparable periods as well as seven office properties that were owned for less
than both comparable periods as described in Note 2 to the consolidated
financial statements in Item 1 of this Report.  One of the seven
properties was acquired in February 2008.  The other six properties
were acquired in March 2008 and subsequently contributed to our Fund X, an
institutional real estate fund that we manage and in which we own an equity
interest.  The results of all seven properties are only included from
their respective dates of acquisition and the six contributed properties’
results are included only to the end of February 2009, when Fund X was
deconsolidated, and thereafter only as the equity income from our investment in
Fund X.
 
  Comparison of three months ended March 31, 2009 to
three months ended March 31, 2008
  
 Revenues
 
 Total Office
Revenue.  Total office revenue consists of rental revenue,
tenant recoveries and parking and other income.  For the reasons
described below, total office portfolio revenue increased by $12.5 million, or
10.3%, to $134.1 million for the three months ended March 31, 2009 compared to
$121.6 million for the three months ended March 31, 2008.
 
 Rental
Revenue.  Rental revenue includes rental revenues from our
office properties, percentage rent on the retail space contained within office
properties, and lease termination income.  Total office rental revenue
increased by $9.5 million, or 9.6%, to $108.5 million for the three months ended
March 31, 2009 compared to $99.0 million for the three months ended March 31,
2008.  The increase is primarily due to $7.6 million of incremental
rent from the seven properties we acquired subsequent to the beginning of the
first quarter of 2008.
 
 Tenant
Recoveries.  Total office tenant recoveries increased by $2.0
million, or 32.6%, to $8.0 million for the three months ended March 31, 2009
compared to $6.0 million for the three months ended March 31,
2008.  The increase is primarily due to incremental recoveries from
the seven properties we acquired subsequent to the beginning of the first
quarter of 2008, as well as an increase in recoverable expenses across our
existing portfolio.
 
 Parking and Other
Income.  Total office parking and other income increased by
$1.1 million, or 6.4%, to $17.6 million for the three months ended March 31,
2009 compared to $16.6 million for the three months ended March 31,
2008.  The increase is primarily due to incremental revenues of $1.1
million from the seven properties we acquired subsequent to the beginning of the
first quarter of 2008.
 
 Total Multifamily
Revenue.Total multifamily revenue consists of rent, parking
income and other income.  Total multifamily revenue decreased by $0.9
million, or 5.1%, to $17.3 million for the three months ended March 31, 2009,
compared to $18.2 million for the three months ended March 31,
2008.  The decrease is primarily due to lower amortization of
below-market leases for certain multifamily units initially recorded at the time
of our IPO, thus causing a decline when comparing the first quarter of 2008 to
2009.
 
 Operating
Expenses
 
 Office Rental
Expenses.  Total office rental expense increased by $4.4
million, or 12.2%, to $40.3 million for the three months ended March 31, 2009,
compared to $35.9 million for the three months ended March 31,
2008.  The increase was due primarily to $2.1 million of incremental
operating expenses and property taxes from the seven properties we acquired
subsequent to the beginning of the first quarter of 2008 and an increase in
operating expenses at our other properties, primarily due to property taxes and
utilities expense.
 
 General and Administrative
Expenses.  General and administrative expenses increased $1.1
million, or 20.2%, to $6.4 million for the three months ended March 31, 2009,
compared to $5.3 million for the three months ended March 31,
2008.  The increase is primarily due to an increase in full time
equivalent employees from approximately 490 at March 31, 2008 compared to
approximately 530 at March 31, 2009, reflecting the increased size of our
portfolio, and annual salary merit increases for the comparable
periods.
 
 25
 Depreciation and
Amortization.  Depreciation and amortization expense increased
$4.3 million, or 7.6%, to $61.1 million for the three months ended March 31,
2009, compared to $56.7 million for the three months ended March 31,
2008.  The increase is primarily due to incremental depreciation and
amortization from the seven properties we acquired subsequent to the beginning
of the first quarter of 2008.
 
 Non-Operating
Income and Expenses
 
 Gain on Disposition
of Interest in Unconsolidated Real Estate Fund.  In February
2009, we recorded a gain of $5.6 million related to the contribution of six
properties to Fund X as described in Note 2 to our consolidated financial
statements in Item 1 of this Report.
 
 Interest and Other
Income.  Interest and other income increased $2.5 million to
$2.9 million for the three months ended March 31, 2009, compared to $0.4 million
for the three months ended March 31, 2008.  The increase for the
comparable periods was attributable to $2.8 million of interest income relating
to the contribution of properties to Fund X.  See Note 2 to our
consolidated financial statements in Item 1 of this Report for a discussion
about the contribution to Fund X.
 
 Interest
Expense.  Interest expense increased $8.0 million, or 19.5%, to
$49.2 million for the three months ended March 31, 2009, compared to $41.2
million for the three months ended March 31, 2008.  The increase was
primarily due to an increase in borrowings for the comparable periods for the
acquisition of seven properties we acquired subsequent to the beginning of the
first quarter of 2008.  Additionally, interest expense increased as a
result of higher non-cash interest expense from the amortization of pre-IPO
interest rate swap contracts.
 
 
 Liquidity
and Capital Resources
 
 Available
Borrowings, Cash Balances and Capital Resources
 
 We had
total indebtedness of $3.3 billion at March 31, 2009, excluding a loan
premium representing the mark-to-market adjustment on variable rate debt assumed
from our predecessor.   See Note 7 to our consolidated financial
statements in Item 1 of this Report.
 
 We have a
revolving credit facility with a group of banks led by Bank of America, N.A. and
Banc of America Securities LLC totaling $370 million.  Historically,
we have used our revolving credit facility for general corporate purposes,
including acquisition funding, redevelopment and repositioning opportunities,
tenant improvements and capital expenditures, share equivalent repurchases,
recapitalizations and working capital.  At March 31, 2009, there were
no borrowings outstanding, so the entire balance was available to us under this
credit facility.  This revolving credit facility bears interest at a
rate per annum equal to either LIBOR plus 70 basis points or Federal Funds Rate
plus 95 basis points if the amount outstanding is $262.5 million or
less.  However, if the amount outstanding is greater than $262.5
million, the credit facility bears interest at a rate per annum equal to either
LIBOR plus 80 basis points or Federal Funds Rate plus 105 basis
points.  The facility is scheduled to mature on October 30, 2009 but
has two one-year extensions available to us.  However, it is possible
that we may not satisfy specified criteria, which could result in the reduction
of the availability under the facility upon extension.
 
 We have
typically financed our capital needs through short-term lines of credit and
long-term secured mortgages at floating rates.  To mitigate the impact
of fluctuations in short-term interest rates on our cash flow from operations,
we generally enter into interest rate swap or interest rate cap agreements with
respect to our long-term secured mortgages.  At March 31, 2009, 99% of
our debt was effectively fixed at an overall rate of 5.10% (on an actual /
360-day basis) by virtue of interest rate swap and interest rate cap agreements
in place at the end of the reporting period.  See Notes 7 and 8 to our
consolidated financial statements in Item 1 of this Report.
 
 None of
our term loans with swapped-to-fixed interest rates mature until
2012.  Our other loan obligations, which remain at variable rates, are
our $370 million revolving credit facility described above, whose maturity can
be extended, under certain conditions, by two years to October 30, 2011, and an
$18 million secured acquisition loan, whose maturity can be extended, under
certain conditions, by one year to March 1, 2011.
 
 26
 In
October 2008, we completed the initial closing of Fund X.  Fund X
contemplates a fund raising period until July 2009 and an investment period of
up to four years from the initial closing, followed by a ten-year value creation
period.  With limited exceptions, Fund X will be our exclusive
investment vehicle during its investment period, using the same underwriting and
leverage principles and focusing primarily on the same markets as we
have.
 
 At March
31, 2009, our total borrowings under secured loans, including the portion of
debt attributable to our equity interest in  Fund X, and excluding the
portion of consolidated debt attributable to our minority partner on the
Honolulu Club joint venture, represented 74.9% of our total market
capitalization of $4.6 billion.  Total market capitalization
includes our portion of the consolidated debt and the value of common stock and
operating partnership units each based on our common stock closing price at
March 31, 2009 on the New York Stock Exchange of $7.39 per share.
 
 The
nature of our business will cause us to have substantial liquidity needs over
both the short term and the long term.  We expect to meet our
short-term liquidity requirements generally through cash provided by operations
and, if necessary, by drawing upon our secured revolving credit
facility.  We anticipate that cash provided by operations and
borrowings under our secured revolving credit facility will be sufficient to
meet our liquidity requirements for at least the next 12 months.
 
 Our
long-term liquidity needs consist primarily of funds necessary to pay for
acquisitions, redevelopment and repositioning of properties, non-recurring
capital expenditures, and repayment of indebtedness at maturity. We will seek to
satisfy these needs through cash flow from operations, long-term secured and
unsecured indebtedness, the issuance of debt and equity securities, including
units in our operating partnership, property dispositions and joint venture
transactions.  The availability of liquidity over the long-term will
be impacted by the magnitude and duration of the current economic downturn and
unfavorable credit market conditions.  This could impact the
availability of capital in the future and could impact the interest rates and
other terms of borrowings or equity that we do obtain.
  27
  
 Contractual
Obligations
 
 During
the first quarter of 2009, there were no material changes outside the ordinary
course of business in the information regarding specified contractual
obligations contained in our 2008 Annual Report on Form 10-K.
 
 Off-Balance
Sheet Arrangements
 
 At March
31, 2009, we had an equity investment of $100.8 million in an unconsolidated
real estate fund (Fund X).  The total debt related to Fund X was equal
to approximately $365 million at March 31, 2009 as summarized in the following
table:
 
  Type
      of Debt
                                    
                                    Maturity
      Date
                                    
                                    As
      of
                                      March
      31,
                                      2009
                                    
                                    Variable
      Rate
                                    
                                    Effective
      Annual FixedRate(1)
                                    
                                    Swap
      Maturity DateVariable
      rate term loan(swapped
      to fixed rate)(2)
                                    
                                    08/18/13
                                    
                                    365,000
                                    
                                    LIBOR
      + 1.65%
                                    
                                    5.52%
                                    
                                    09/14/12
 
 (1)
              Includes
      the effect of interest rate contracts.  Based on actual/360-day
      basis and excludes amortization of loan fees.  The total
      effective rate on an actual/365-day basis is 5.59% at March 31,
      2009.(2)
              The
      loan is secured by six properties in a collateralized
      pool.  Requires monthly payments of interest only, with
      outstanding principal due upon
maturity.
 
 
 Cash
Flows
 
 Our cash flow from operations is primarily dependent upon the
occupancy level of our portfolio, the rental rates achieved on our leases, the
collectability of rent and recoveries from our tenants and the level of
operating expenses and other general and administrative costs. Net cash
provided by operating activities increased by $0.9 million to $54.9 million for
the three months ended March 31, 2009, compared to $54.0 million for the
three months ended March 31, 2008.  The increase reflects higher net
cash flow from existing properties and incremental cash flow from acquired
properties.
 
 Our net
cash used in investing activities is generally used to fund property
acquisitions, development and redevelopment projects and recurring and
non-recurring capital expenditures. Net cash used in investing activities
decreased $609.4 million to $17.7 million for the three months ended March 31,
2009 compared to $627.1 million for the three months ended March 31,
2008.  The decrease was attributable to property acquisitions that
occurred during the three months ended March 31, 2008 compared to no property
acquisitions that occurred during the three months ended March 31,
2009.  See Note 2 to our consolidated financial statements in Item 1
of this Report.
 
 Our net
cash for financing activities is generally impacted by our borrowings, capital
activities net of dividends and distributions paid to common stockholders and
noncontrolling interests. Net cash used in financing activities totaled
$16.0 million for the three months ended March 31, 2009 compared to net
cash provided by financing activities totaling $571.7 million for the three
months ended March 31, 2008.  The comparative difference was primarily
due to the increased level of borrowings associated with property acquisitions
in 2008, as described in Note 2 to our consolidated financial statements in Item
1 of this Report.
 
  28
  Item
3.  Quantitative and Qualitative Disclosures about Market
Risk
 
 At March
31, 2009, 99%, or $3.2 billion of our debt was hedged with derivative
instruments.  Based on the level of variable rate debt outstanding at
March 31, 2009, by virtue of the mitigating effect of our interest rate
contracts, a 50 basis point change in LIBOR would result in an annual impact to
earnings of approximately $90.
 
 By using
derivative instruments to hedge exposure to changes in interest rates, we expose
ourselves to credit risk and the potential inability of our counterparties to
perform under the terms of the agreements.  We attempt to minimize
this credit risk by contracting with high-quality bank financial
counterparties.
 
 
 Item
4.  Controls and Procedures
  We
maintain disclosure controls and procedures (as such term is defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act)  that are designed to
ensure that information required to be disclosed in our reports under the
Exchange Act is processed, recorded, summarized and reported within the time
periods specified in the SEC’s rules and regulations and that such information
is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
   As of
March 31, 2009, the end of the period covered by this Report, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, regarding the
effectiveness in design and operation of our disclosure controls and procedures
at the end of the period covered by this Report.  Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded, as
of that time, that our disclosure controls and procedures were effective in
ensuring that information required to be disclosed by us in reports filed or
submitted under the Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and
(ii) is accumulated and communicated to our management including our Chief
Executive Officer and our Chief Financial Officer, to allow timely decisions
regarding required disclosure.
   No
changes to our internal control over financial reporting were identified in
connection with the evaluation referenced above that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
   29
  PART
II.  OTHER INFORMATION
 
 Item
1.  Legal Proceedings
 
 We are subject to various legal
proceedings and claims that arise in the ordinary course of
business.  Most of these matters are generally covered by insurance
and we do not believe that the ultimate outcome of these actions will have a
material adverse effect on our financial position, results of operations or cash
flows.
 
 Item
1A.  Risk Factors
 
 There
have been no material changes to the risk factors included in Item 1A. “Risk
Factors” in our 2008 Annual Report on Form 10-K.
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
  Sales.  We did not
make any unregistered sales of our securities during the quarter ended March 31,
2009.
   Purchases.  We made
the following purchases of our share equivalents during the three months ended
March 31, 2009.
  ISSUER
      PURCHASES OF EQUITY SECURITIESPeriod
                (a)
      Total Number of Share Equivalents Purchased
                (b)
      Average Price Paid per Share (or Unit)January
      2009
                ─
                ─February
      2009
                ─
                ─March
      2009
                619,500
                $6.30Total
                619,500
                $6.30
  All
purchases were made in open market transactions,
and were not made pursuant to a publicly announced program.
 
 Item
3.  Defaults Upon Senior Securities
 
 None.
 
 Item
4.  Submission of Matters to a Vote of Security
Holders
 
 None.
 
 Item
5.  Other Information
  (a)                 Additional
Disclosures.None.
  (b)                 Stockholder
Nominations.There have been no material changes to the
procedures by which stockholders may recommend nominees to our board of
directors during the quarter ended March 31, 2009.  Please see the
discussion of our procedures in our most recent proxy statement.
  
  30
  Item
6.  Exhibits
 
 Exhibit
      Number
                  
                  Description31.1
                  
                  Certificate
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                  
                  Certificate
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                  
                  Certificate
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.(1)32.2
                  
                  Certificate
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.(1)
 
 
 (1)
              In
      accordance with SEC Release No. 33-8212, the following exhibit is being
      furnished, and is not being filed as part of this Report on Form 10-Q or
      as a separate disclosure document, and is not being incorporated by
      reference into any Securities Act of 1933 registration
      statement.
  31
  Signatures
  Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
  
 
 DOUGLAS
      EMMETT, INC.Date:  May
      8, 2009
              By:
              /s/
      JORDAN L. KAPLANJordan
      L. KaplanPresident
      and Chief Executive OfficerDate:  May
      8, 2009
              By:
              /s/
      WILLIAM KAMERWilliam
      KamerChief
      Financial Officer
 
 32