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 June 30, 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 July 31, 2009Common
      Shares of beneficial interest,
            
            121,484,341
      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 June 30, 2009 and December 31, 2008
      (unaudited)
            
            3Consolidated
      Statements of Operations for the three and six months ended June 30, 2009
      and 2008 (unaudited)
            
            4Consolidated
      Statements of Cash Flows for the six months ended June 30, 2009 and 2008
      (unaudited)
            
            5Notes
      to Consolidated Financial Statements
            
            6Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            26Item 3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            32Item 4.
            Controls
      and Procedures
            
            32PART
      II.
            OTHER
      INFORMATION
            
            33Item 1.
            Legal
      Proceedings
            
            33Item 1A.
            Risk
      Factors
            
            33Item 2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            33Item 3.
            Defaults
      Upon Senior Securities
            
            33Item 4.
            Submission
      of Matters to a Vote of Security Holders
            
            34Item 5.
            Other
      Information
            
            34Item 6.
            Exhibits
            
            35SIGNATURES
            
            36








PART
I.  FINANCIAL INFORMATION





Item
1.  Financial Statements





Douglas
Emmett, Inc.


Consolidated
Balance Sheets


(unaudited
and in thousands, except for share data)


June
      30,
                                                  2009
                                                
                                                
                                                December
      31,
                                                  2008AssetsInvestment
      in real estate:Land
                                                $
                                                835,407
                                                
                                                $
                                                900,213Buildings
      and improvements
                                                
                                                5,013,389
                                                
                                                
                                                5,528,567Tenant
      improvements and lease intangibles
                                                
                                                513,836
                                                
                                                
                                                552,5366,362,632
                                                
                                                
                                                6,981,316Less:
      accumulated depreciation
                                                
                                                (578,594)
                                                
                                                
                                                (490,125)Net
      investment in real estate
                                                
                                                5,784,038
                                                
                                                
                                                6,491,191Cash
      and cash equivalents
                                                
                                                43,261
                                                
                                                
                                                8,655Tenant
      receivables, net
                                                
                                                1,215
                                                
                                                
                                                2,427Deferred
      rent receivables, net
                                                
                                                35,858
                                                
                                                
                                                33,039Interest
      rate contracts
                                                
                                                139,015
                                                
                                                
                                                176,255Acquired
      lease intangible assets, net
                                                
                                                14,240
                                                
                                                
                                                18,163Investment
      in unconsolidated real estate fund
                                                
                                                102,168
                                                
                                                
                                                -Other
      assets
                                                
                                                26,034
                                                
                                                
                                                31,304Total
      assets
                                                $
                                                6,145,829
                                                
                                                $
                                                6,761,034LiabilitiesSecured
      notes payable, including loan premium
                                                $
                                                3,276,009
                                                
                                                $
                                                3,692,785Accounts
      payable and accrued expenses
                                                
                                                65,420
                                                
                                                
                                                69,445Security
      deposits
                                                
                                                31,928
                                                
                                                
                                                35,890Acquired
      lease intangible liabilities, net
                                                
                                                156,418
                                                
                                                
                                                195,036Interest
      rate contracts
                                                
                                                297,152
                                                
                                                
                                                407,492Dividends
      payable
                                                
                                                12,140
                                                
                                                
                                                22,856Other
      liabilities
                                                
                                                -
                                                
                                                
                                                57,316Total
      liabilities
                                                
                                                3,839,067
                                                
                                                
                                                4,480,820EquityDouglas
      Emmett, Inc. stockholders' equity:Common
      stock, $0.01 par value 750,000,000 authorized, 121,399,341 and 121,897,388
      outstanding at June 30, 2009 and December 31, 2008,
      respectively.
                                                
                                                1,214
                                                
                                                
                                                1,219Additional
      paid-in capital
                                                
                                                2,285,551
                                                
                                                
                                                2,284,429Accumulated
      other comprehensive income (loss)
                                                
                                                (216,874)
                                                
                                                
                                                (274,111)Accumulated
      deficit
                                                
                                                (269,987)
                                                
                                                
                                                (236,348)Total
      Douglas Emmett, Inc. stockholders' equity
                                                
                                                1,799,904
                                                
                                                
                                                1,775,189Noncontrolling
      interests
                                                
                                                506,858
                                                
                                                
                                                505,025Total
      equity
                                                
                                                2,306,762
                                                
                                                
                                                2,280,214Total
      liabilities and equity
                                                $
                                                6,145,829
                                                
                                                $
                                                6,761,034








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 June 30,
                        
                        
                        Six
      Months Ended June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Revenues:Office
      rentalRental
      revenues
                        $
                        99,210
                        
                        $
                        111,213
                        
                        $
                        207,756
                        
                        $
                        210,229Tenant
      recoveries
                        
                        7,134
                        
                        
                        8,179
                        
                        
                        15,100
                        
                        
                        14,188Parking
      and other income
                        
                        16,404
                        
                        
                        18,229
                        
                        
                        34,038
                        
                        
                        34,805Total
      office revenues
                        
                        122,748
                        
                        
                        137,621
                        
                        
                        256,894
                        
                        
                        259,222Multifamily
      rentalRental
      revenues
                        
                        16,007
                        
                        
                        16,423
                        
                        
                        32,194
                        
                        
                        33,647Parking
      and other income
                        
                        1,040
                        
                        
                        1,019
                        
                        
                        2,124
                        
                        
                        2,002Total
      multifamily revenues
                        
                        17,047
                        
                        
                        17,442
                        
                        
                        34,318
                        
                        
                        35,649Total
      revenues
                        
                        139,795
                        
                        
                        155,063
                        
                        
                        291,212
                        
                        
                        294,871Operating
      ExpensesOffice
      expense
                        
                        36,665
                        
                        
                        41,802
                        
                        
                        76,977
                        
                        
                        77,723Multifamily
      expense
                        
                        4,286
                        
                        
                        4,219
                        
                        
                        8,803
                        
                        
                        8,519General
      and administrative
                        
                        5,959
                        
                        
                        5,729
                        
                        
                        12,310
                        
                        
                        11,014Depreciation
      and amortization
                        
                        55,729
                        
                        
                        63,858
                        
                        
                        116,803
                        
                        
                        120,607Total
      operating expenses
                        
                        102,639
                        
                        
                        115,608
                        
                        
                        214,893
                        
                        
                        217,863Operating
      income
                        
                        37,156
                        
                        
                        39,455
                        
                        
                        76,319
                        
                        
                        77,008Gain
      on disposition of interest in unconsolidated   real estate
      fund
                        
                        -
                        
                        
                        -
                        
                        
                        5,573
                        
                        
                        -Interest
      and other income
                        
                        60
                        
                        
                        123
                        
                        
                        2,974
                        
                        
                        532Loss,
      including depreciation, from unconsolidated real estate
    fund
                        
                        (2,128)
                        
                        
                        -
                        
                        
                        (2,806)
                        
                        
                        -Interest
      expense
                        
                        (44,606)
                        
                        
                        (51,791)
                        
                        
                        (93,828)
                        
                        
                        (92,994)Net
      loss
                        
                        (9,518)
                        
                        
                        (12,213)
                        
                        
                        (11,768)
                        
                        
                        (15,454)Less:  Net
      loss attributable to noncontrolling interests
                        
                        2,036
                        
                        
                        2,785
                        
                        
                        2,419
                        
                        
                        3,526Net
      loss attributable to common stockholders
                        $
                        (7,482)
                        
                        $
                        (9,428)
                        
                        $
                        (9,349)
                        
                        $
                        (11,928)Net
      loss attributable to common  stockholdersper
      share – basic and diluted
                        $
                        (0.06)
                        
                        $
                        (0.08)
                        
                        $
                        (0.08)
                        
                        $
                        (0.10)Dividends
      declared per common share
                        $
                        0.1000
                        
                        $
                        0.1875
                        
                        $
                        0.2000
                        
                        $
                        0.3750Weighted
      average shares of common stockoutstanding
      – basic and diluted
                        
                        121,319,121
                        
                        
                        121,313,515
                        
                        
                        121,579,011
                        
                        
                        119,798,547


See
notes to consolidated financial statements.


4


Douglas
Emmett, Inc.


Consolidated
Statements of Cash Flows


(unaudited
and in thousands)





Six
      Months Ended June 30,2009
                                  
                                  
                                  2008Operating
      ActivitiesNet
      loss
                                  $
                                  (11,768)
                                  
                                  $
                                  (15,454)Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Non-cash
      profit sharing allocation to consolidated real estate fund
                                  
                                  660
                                  
                                  
                                  ─Loss,
      including depreciation, from unconsolidated real estate
    fund
                                  
                                  2,806
                                  
                                  
                                  ─Depreciation
      and amortization
                                  
                                  116,803
                                  
                                  
                                  120,607Net
      accretion of acquired lease intangibles
                                  
                                  (17,940)
                                  
                                  
                                  (21,690)Gain
      on disposition of interest in unconsolidated real estate
    fund
                                  
                                  (5,573)
                                  
                                  
                                  ─Amortization
      of deferred loan costs
                                  
                                  1,090
                                  
                                  
                                  840Amortization
      of loan premium
                                  
                                  (2,476)
                                  
                                  
                                  (2,336)Non-cash
      market value adjustments on interest rate contracts
                                  
                                  9,989
                                  
                                  
                                  7,339Non-cash
      amortization of stock-based compensation
                                  
                                  2,333
                                  
                                  
                                  2,144Change
      in working capital components:Tenant
      receivables
                                  
                                  1,068
                                  
                                  
                                  402Deferred
      rent receivables
                                  
                                  (4,425)
                                  
                                  
                                  (7,642)Accounts
      payable, accrued expenses and security deposits
                                  
                                  4,076
                                  
                                  
                                  (1,576)Other
      assets
                                  
                                  (979)
                                  
                                  
                                  8,145Net
      cash provided by operating activities
                                  
                                  95,664
                                  
                                  
                                  90,779Investing
      ActivitiesCapital
      expenditures and property acquisitions
                                  
                                  (21,339)
                                  
                                  
                                  (642,750)Deconsolidation
      of Douglas Emmett Fund X, LLC
                                  
                                  (6,625)
                                  
                                  
                                  ─Net
      cash used in investing activities
                                  
                                  (27,964)
                                  
                                  
                                  (642,750)Financing
      ActivitiesProceeds
      from long-term borrowings
                                  
                                  82,640
                                  
                                  
                                  1,052,700Deferred
      loan costs
                                  
                                  (18)
                                  
                                  
                                  (3,225)Repayment
      of borrowings
                                  
                                  (106,665)
                                  
                                  
                                  (383,600)Net
      change in short-term borrowings
                                  
                                  (25,275)
                                  
                                  
                                  (37,500)Contributions
      by Douglas Emmett Fund X, LLC investors
                                  
                                  66,074
                                  
                                  
                                  ─Contributions
      by noncontrolling interests
                                  
                                  450
                                  
                                  
                                  319Distributions
      to noncontrolling interests
                                  
                                  (9,957)
                                  
                                  
                                  (14,753)Redemption
      of noncontrolling interests
                                  
                                  ─
                                  
                                  
                                  (23,758)Issuance
      of common stock
                                  
                                  ─
                                  
                                  
                                  667Repurchase
      of common stock
                                  
                                  (5,338)
                                  
                                  
                                  ─Cash
      dividends
                                  
                                  (35,005)
                                  
                                  
                                  (41,958)Net
      cash (used in) provided by financing activities
                                  
                                  (33,094)
                                  
                                  
                                  548,892Increase
      (decrease) in cash and cash equivalents
                                  
                                  34,606
                                  
                                  
                                  (3,079)Cash
      and cash equivalents at beginning of period
                                  
                                  8,655
                                  
                                  
                                  5,843Cash
      and cash equivalents at end of period
                                  $
                                  43,261
                                  
                                  $
                                  2,764Noncash
      transactions:Investing
      activity related to contribution of properties to
      unconsolidatedreal
      estate fund
                                  $
                                  476,852
                                  
                                  $
                                  ─Financing
      activity related to contribution of debt and noncontrolling
      interestto
      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 June 30, 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 of our 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 June 30, 2009 and December
31, 2008 and for the three and six months ended June 30, 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 disclosures 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 six months ended June 30, 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.





In
connection with the initial closing of Fund X in October 2008, (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 $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 part of the cash in October 2008 and the remainder at the end of
February 2009, at which point Fund X became an unconsolidated real estate fund
in which we retained an equity investment 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 June 30, 2009
                                
                                
                                
                                Three
      Months Ended June 30, 2008Office
                                
                                
                                Multifamily
                                
                                
                                Total
                                
                                
                                
                                Office
                                
                                
                                Multifamily
                                
                                
                                TotalRental
      revenues
                                $
                                122,748
                                
                                $
                                17,047
                                
                                $
                                139,795
                                
                                
                                $
                                137,621
                                
                                $
                                17,442
                                
                                $
                                155,063Percentage
      of total
                                
                                88
                                %
                                
                                12
                                %
                                
                                100
                                %
                                
                                
                                89
                                %
                                
                                11
                                %
                                
                                100
                                %Rental
      expenses
                                $
                                36,665
                                
                                $
                                4,286
                                
                                $
                                40,951
                                
                                
                                $
                                41,802
                                
                                $
                                4,219
                                
                                $
                                46,021Percentage
      of total
                                
                                90
                                %
                                
                                10
                                %
                                
                                100
                                %
                                
                                
                                91
                                %
                                
                                9
                                %
                                
                                100
                                %Rental
      revenues
                                  less
      rental expenses
                                $
                                86,083
                                
                                $
                                12,761
                                
                                $
                                98,844
                                
                                
                                $
                                95,819
                                
                                $
                                13,223
                                
                                $
                                109,042Percentage
      of total
                                
                                87
                                %
                                
                                13
                                %
                                
                                100
                                %
                                
                                
                                88
                                %
                                
                                12
                                %
                                
                                100
                                %Six
      Months Ended June 30, 2009
                                
                                
                                
                                Six
      Months Ended June 30, 2008Office
                                
                                
                                Multifamily
                                
                                
                                Total
                                
                                
                                
                                Office
                                
                                
                                Multifamily
                                
                                
                                TotalRental
      revenues
                                $
                                256,894
                                
                                $
                                34,318
                                
                                $
                                291,212
                                
                                
                                $
                                259,222
                                
                                $
                                35,649
                                
                                $
                                294,871Percentage
      of total
                                
                                88
                                %
                                
                                12
                                %
                                
                                100
                                %
                                
                                
                                88
                                %
                                
                                12
                                %
                                
                                100
                                %Rental
      expenses
                                $
                                76,977
                                
                                $
                                8,803
                                
                                $
                                85,780
                                
                                
                                $
                                77,723
                                
                                $
                                8,519
                                
                                $
                                86,242Percentage
      of total
                                
                                90
                                %
                                
                                10
                                %
                                
                                100
                                %
                                
                                
                                90
                                %
                                
                                10
                                %
                                
                                100
                                %Rental
      revenues
                                  less
      rental expenses
                                $
                                179,917
                                
                                $
                                25,515
                                
                                $
                                205,432
                                
                                
                                $
                                181,499
                                
                                $
                                27,130
                                
                                $
                                208,629Percentage
      of total
                                
                                88
                                %
                                
                                12
                                %
                                
                                100
                                %
                                
                                
                                87
                                %
                                
                                13
                                %
                                
                                100
                                %





The
following is a reconciliation of rental revenues less rental expenses to net
loss:





Three
      Months Ended June 30,
                        
                        
                        Six
      Months Ended June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Rental
      revenues less rental expenses
                        $
                        98,844
                        
                        $
                        109,042
                        
                        $
                        205,432
                        
                        $
                        208,629General
      and administrative expenses
                        
                        (5,959)
                        
                        
                        (5,729)
                        
                        
                        (12,310)
                        
                        
                        (11,014)Depreciation
      and amortization
                        
                        (55,729)
                        
                        
                        (63,858)
                        
                        
                        (116,803)
                        
                        
                        (120,607)Gain
      on disposition of interest inunconsolidated
      real estate fund
                        
                        -
                        
                        
                        -
                        
                        
                        5,573
                        
                        
                        -Interest
      and other income
                        
                        60
                        
                        
                        123
                        
                        
                        2,974
                        
                        
                        532Loss,
      including depreciation, from unconsolidatedreal
      estate fund
                        
                        (2,128)
                        
                        
                        -
                        
                        
                        (2,806)
                        
                        
                        -Interest
      expense
                        
                        (44,606)
                        
                        
                        (51,791)
                        
                        
                        (93,828)
                        
                        
                        (92,994)Net
      loss
                        
                        (9,518)
                        
                        
                        (12,213)
                        
                        
                        (11,768)
                        
                        
                        (15,454)Less:
      Net loss attributable to
      noncontrolling   interests
                        
                        2,036
                        
                        
                        2,785
                        
                        
                        2,419
                        
                        
                        3,526Net
      loss attributable to common stockholders
                        $
                        (7,482)
                        
                        $
                        (9,428)
                        
                        $
                        (9,349)
                        
                        $
                        (11,928)


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:


June
      30,
                    2009
                  
                  
                  December
      31,
                    2008Deferred
      loan costs, net of accumulated amortization of $4,061
      and  $3,336 at June 30, 2009 and December 31, 2008,
      respectively
                  $
                  5,319
                  
                  $
                  9,714Restricted
      cash
                  
                  2,939
                  
                  
                  2,934Prepaid
      interest
                  
                  670
                  
                  
                  4,360Prepaid
      expenses
                  
                  1,109
                  
                  
                  3,845Interest
      receivable
                  
                  9,587
                  
                  
                  5,938Other
      indefinite-lived intangible
                  
                  1,988
                  
                  
                  1,988Other
                  
                  4,422
                  
                  
                  2,525Total
      other assets
                  $
                  26,034
                  
                  $
                  31,304





We
incurred deferred loan cost amortization expense of $483 and $478 for the three
months ended June 30, 2009 and 2008, and $1,090 and $840 for the six months
ended June 30, 2009 and 2008, respectively.  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:





June
      30,
                      2009
                    
                    
                    December
      31,
                      2008Accounts
      payable
                    $
                    26,420
                    
                    $
                    30,429Accrued
      interest payable
                    
                    26,088
                    
                    
                    22,982Deferred
      revenue
                    
                    12,912
                    
                    
                    16,034Total
      accounts payable and accrued expenses
                    $
                    65,420
                    
                    $
                    69,445





6.
Acquired Lease Intangibles





The
following summarizes our acquired lease intangibles related to
above/below-market leases as of:





June
      30,
                          2009
                        
                        
                        December
      31,
                          2008Above-market
      tenant leases
                        $
                        32,770
                        
                        $
                        34,227Accumulated
      amortization
                        
                        (21,522)
                        
                        
                        (19,094)Below-market
      ground leases
                        
                        3,198
                        
                        
                        3,198Accumulated
      amortization
                        
                        (206)
                        
                        
                        (168)Acquired
      lease intangible assets, net
                        $
                        14,240
                        
                        $
                        18,163Below-market
      tenant leases
                        $
                        261,523
                        
                        $
                        288,437Accumulated
      accretion
                        
                        (118,554)
                        
                        
                        (106,950)Above-market
      ground leases
                        
                        16,200
                        
                        
                        16,200Accumulated
      accretion
                        
                        (2,751)
                        
                        
                        (2,651)Acquired
      lease intangible liabilities, net
                        $
                        156,418
                        
                        $
                        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)
                
                
                June
      30,
                  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
                
                10/30/09(11)
                
                
                -
                
                
                49,300
                
                LIBOR
      / Fed Funds+(12)
                
                --
                
                --Subtotal
                
                
                
                
                3,258,000
                
                
                3,672,300Unamortized
      Loan Premium (13)
                
                
                
                
                18,009
                
                
                20,485Total
                
                
                
                $
                3,276,009
                
                $
                3,692,785








(1)
            As
      of June 30, 2009, the weighted average remaining life of our total
      outstanding debt is 3.6 years, and the weighted average remaining life of
      the interest rate swaps is 1.9 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 June 30, 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.(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 at June 30,
2009, excluding the non-cash loan premium amortization were as
follows:


Twelve
      months ending June 30:2010
              $
              18,0002011
              
              ─2012
              
              388,0802013
              
              2,300,0002014
              
              ─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 June 30,
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
(loss) (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.  The ineffectiveness attributable to a mismatch in the
underlying rate indices of the hedged item and the related derivative resulted
in our recording a gain of $271 and $32 for the three months ended June 30, 2009
and 2008, respectively, and recording a loss of $280 and a gain of $86 for the
six months ended June 30, 2009 and 2008, respectively.  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 (loss) 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 $132.3 million will be reclassified within the next 12 months
from accumulated other comprehensive income (loss) to interest expense as an
increase to interest expense.





As of
June 30, 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 June 30, 2009, we had the
following outstanding interest rate derivatives that were not designated as
hedging instruments under FAS 133, but were used to hedge our economic 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 was designated as hedges under FAS 133
and as a result, the changes in fair value of these interest rate swaps have
been recognized in earnings for all periods.  The aggregate net asset
fair value of these swaps decreased $5.3 million and $5.5 million for the three
months ended June 30, 2009 and 2008, and $9.7 million and $7.4 million for the
six months ended June 30, 2009 and 2008, respectively.  The decrease
in net asset fair value was recorded as additional interest expense. Included in
the net $7.4 million decrease is a $1.2 million increase related to the credit
value adjustment resulting from our initial application of FAS No. 157,
Fair Value Measurements(FAS 157) in the first quarter of 2008.








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
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
(loss), which is a component of equity outside of earnings.  Amounts
reported in accumulated other comprehensive income (loss) 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 hedge certain economic
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 (loss) to interest
expense, which increased interest expense by $35.0 million and $17.0 million for
the three months ended June 30, 2009 and 2008, respectively and $70.3 million
and $26.2 million for the six months ended June 30, 2009 and 2008,
respectively.





The
following table represents the fair values of derivative instruments as of June
30, 2009:





Derivative
      fair values, disclosed as “Interest Rate Contracts”:
              
              Assets
              
              LiabilitiesDerivatives
      designated as hedging instruments under FAS 133
              $
              ─
              $
              191,302Derivatives
      not designated as hedging instruments under FAS 133
              
              139,015
              
              105,850Total
      derivatives
              $
              139,015
              $
              297,152





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 and six months ended June
30, 2009:


Interest
      Rate ContractsDerivatives
      in FAS 133 Cash Flow Hedging Relationships:
                    
                    Three
      months ended
                      June
      30, 2009
                    
                    
                    Six
      months ended
                      June
      30, 2009Amount
      of gain (loss) recognized in OCI on derivatives (effective
      portion)
                    $
                    (9,492)
                    
                    $
                    8,953Amount
      of gain (loss) reclassified from accumulated OCI into earnings (effective
      portion)
                    $
                    (35,017)
                    
                    $
                    (70,315)Location
      of gain (loss) reclassification from accumulated OCI into earnings
      (effective portion)
                    
                    Interest
      expense
                    
                    
                    Interest
      expenseAmount
      of gain (loss) recognized in earnings on derivatives (ineffective portion
      and amount excluded from effectiveness testing)
                    $
                    271
                    
                    $
                    (280)Location
      of gain (loss) recognized in earnings on derivatives (ineffective portion
      and amount excluded from effectiveness testing)
                    
                    Interest
      expense
                    
                    
                    Interest
      expenseInterest
      Rate ContractsDerivatives
      Not Designated as Cash Flow Hedges Under FAS 133:
                    
                    Three
      months ended
                      June
      30, 2009
                    
                    
                    Six
      months ended
                      June
      30, 2009Amount
      of gain (loss) recognized in earnings on derivatives
                    $
                    (5,297)
                    
                    $
                    (9,710)Location
      of gain (loss) recognized in earnings on derivatives
                    
                    Interest
      expense
                    
                    
                    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 any 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 under which, 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
June 30, 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 $173.4 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 June 30, 2009.





The table
below presents the derivative assets and liabilities, presented in our financial
statements on a gross basis without reflecting any net settlement positions with
the same counterparty.  The derivatives shown below are measured at
fair value as of June 30, 2009 and 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
                June
      30,
                2009AssetsInterest Rate
      Contracts
              $
              ─
              $
              139,015
              $
              ─
              $
              139,015LiabilitiesInterest Rate
      Contracts
              $
              ─
              $
              297,152
              $
              ─
              $
              297,152





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 June 30, 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 June
30, 2009.





The table
below represents our condensed consolidated statement of stockholders’
equity:





Total
      Equity
                          
                          
                          Douglas
      Emmett, Inc. Stockholders' Equity
                          
                          
                          Noncontrolling
      InterestsBalance,
      January 1, 2009, as reported
                          $
                          2,280,214
                          
                          $
                          1,775,189
                          
                          $
                          505,025Comprehensive
      income (loss):Net
      loss
                          
                          (11,768)
                          
                          
                          (9,349)
                          
                          
                          (2,419)Other
      comprehensive income (loss)
                          
                          61,362
                          
                          
                          45,347
                          
                          
                          16,015Comprehensive
      income (loss)
                          
                          49,594
                          
                          
                          35,998
                          
                          
                          13,596Contributions
                          
                          450
                          
                          
                          -
                          
                          
                          450Dividends
      and distributions
                          
                          (34,108)
                          
                          
                          (24,290)
                          
                          
                          (9,818)Redemption
      of operating partnership units
                          
                          (5,338)
                          
                          
                          (597)
                          
                          
                          (4,741)Stock
      compensation
                          
                          4,050
                          
                          
                          1,714
                          
                          
                          2,336Deconsolidation
      of Douglas Emmett Fund X, LLC
                          
                          11,900
                          
                          
                          11,890
                          
                          
                          10Balance,
      June 30, 2009
                          $
                          2,306,762
                          
                          $
                          1,799,904
                          
                          $
                          506,858





The table
below represents our consolidated statements of comprehensive income
(loss):





Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      loss
              $
              (9,518)
              
              $
              (12,213)
              
              $
              (11,768)
              
              $
              (15,454)Cash
      flow hedge adjustment
              
              40,938
              
              
              103,831
              
              
              59,858
              
              
              12,985Equity
      interest in other comprehensive income (loss)of
      unconsolidated real estate fund
              
              3,571
              
              
              -
              
              
              1,504
              
              
              -Comprehensive
      income (loss)
              
              34,991
              
              
              91,618
              
              
              49,594
              
              
              (2,469)Less:
      Comprehensive income (loss) attributable tononcontrolling
      interests
              
              (7,682)
              
              
              2,785
              
              
              (13,596)
              
              
              3,526Comprehensive
      income (loss) attributable tocommon
      stockholders
              $
              27,309
              
              $
              94,403
              
              $
              35,998
              
              $
              1,057





18





Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)











Dividends


During
the first six months 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 six months ended June 30, 2009, investors converted
approximately 320,000 operating partnership units to shares of common
stock.  During the six months ended June 30, 2009, we repurchased
approximately 820,000 share equivalents in open market transactions for a total
consideration of approximately $5.3 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 June 30,
              
              
              Six
      Months Ended June 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      loss attributable to common stockholders
              $
              (7,482)
              
              $
              (9,428)
              
              $
              (9,349)
              
              $
              (11,928)Transfers
      from the noncontrolling interests:Increase
      in common stockholders paid-in capital  for redemption of
      operating partnership units
              
              1,473
              
              
              1,498
              
              
              4,737
              
              
              188,623Change
      from net income attributable to common stockholders and transfers from
      noncontrolling interests
              $
              (6,009)
              
              $
              (7,930)
              
              $
              (4,612)
              
              $
              176,695





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, and was amended in 2009 to increase the
maximum number of shares of our stock available for issuance under that plan by
24,080,163 shares and to make certain other amendments.  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 and our proxy
statement, which was filed with the SEC on April 30, 2009.





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. No additional grants were made during the first six months of
2009. Upon the vesting of equity awards, we recognized non-cash
compensation expense of $1.2 million and $1.0 million for the three months ended
June 30, 2009 and 2008, respectively, and $2.2 million and $2.1 million for the
six months ended June 30, 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
and an additional $2.2 million of immediately-vested equity awards were
granted during the first quarter of 2008 to satisfy a portion of the bonuses
accrued during 2007.


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
lease space to tenants primarily under noncancelable operating leases that
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 lease
space to certain tenants under noncancelable leases that provide for percentage
rents based upon tenant revenues. Percentage rental income for the three months
ended June 30, 2009 and 2008 totaled $112 and $185, respectively, and $309 and
$429 for the six months ended June 30, 2009 and 2008, respectively.





Future
minimum base rentals on our non-cancelable office and ground operating leases at
June 30, 2009 were as follows:





Twelve
months ending June 30:


2010
                $
                353,1412011
                
                310,1792012
                
                261,7182013
                
                217,2002014
                
                156,741Thereafter
                
                417,205Total
      future minimum base rentals
                $
                1,716,184





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 $543 and $805 for the three
months ended June 30, 2009 and 2008, respectively, and $1,056 and $1,591 for the
six months ended June 30, 2009 and 2008, respectively.





The
following is a schedule of our minimum ground lease payments as of June 30,
2009:





Twelve
      months ending June 30:2010
                $
                7332011
                
                7332012
                
                7332013
                
                7332014
                
                733Thereafter
                
                3,421Total
      future minimum lease payments
                $
                7,086





20


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)








11.
Fair Value of Financial Instruments





FAS
No. 107, Disclosures about Fair Value of Financial Instruments (FAS 107),
requires us to disclose fair value information about all financial instruments,
whether or not recognized in the balance sheets, for which it is practicable to
estimate fair value.





Our
estimates of the fair value of financial instruments at June 30, 2009 were
determined using available market information and appropriate valuation methods.
Considerable judgment is necessary to interpret market data and develop
estimated fair value. The use of different market assumptions or estimation
methods may have a material effect on the estimated fair value
amounts.





The
carrying amounts for cash and cash equivalents, restricted cash, rents and other
receivables, due from affiliates, accounts payable and other liabilities
approximate fair value because of the short-term nature of these
instruments.  We calculate the fair value of our secured notes payable
based on a currently available market rate; assuming the loans are outstanding
through maturity and considering the collateral.  At June 30, 2009,
the aggregate fair value of our secured notes payable and secured revolving
credit facility is estimated to be approximately $3.2 billion, based on a
credit-adjusted present value of the principal and interest payments which are
at floating rates.





Currently,
we use interest rate swaps and caps to manage interest rate risk resulting from
variable interest payments on our floating rate debt.  These financial
instruments are carried on our balance sheet at fair value as determined under
FAS157, based on the assumptions that market participants would use in pricing
the asset or liability.  See Note 8.








12.
Related Party Transactions





On March
26, 2008, we acquired a 1.4 million square foot office portfolio consisting
of six Class A buildings.  Subsequent to acquiring the properties, we
entered into a 5-year non-recourse $365 million interest-only floating rate term
loan secured by the six-property portfolio. At the time we entered into the
loan, we entered into an interest rate swap agreement to mitigate interest rate
risk by converting the floating-rate debt to a fixed-rate basis, thus reducing
the impact of interest-rate changes on future interest expense and cash
flows.  The swap agreement involves 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.





In
October 2008, we contributed these six properties and the related $365 million
term loan, and the benefits and burdens of the related swap agreement to Fund X
in exchange for an interest in the common equity of Fund X as well as certain
cash and the right to further cash. We received the balance of the cash in
February 2009, at which point Fund X became an unconsolidated real estate fund
in which we retained an equity investment.




In
addition, if Fund X fails to perform any obligations under the related swap
agreement, we remain liable to the swap counterparties.  The maximum
future payments under the swap agreements was approximately $45.5 million as of
June 30, 2009. As of June 30, 2009, all obligations under the swap agreements
have been performed by Fund X in accordance with the terms of the
agreements.


21


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





13.
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


Financial
Accounting Standards Board (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 June 30, 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 six months ended June 30, 2009
and 2008, no tenant accounted for more than 10% of our total rental revenue and
tenant recoveries.








22


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





14.
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 have
elected 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 and six months ended June 30, 2009 and 2008, all potentially dilutive
instruments are anti-dilutive and have been excluded from our computation of
weighted average dilutive shares outstanding.











23


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 method of 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 that 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 (FSP) 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.





On April
1, 2009, we adopted FSP 107-1, Interim Disclosures about Fair Value
of Financial Instruments(FSP 107-1).  FSP 107-1 amends
FAS 107 which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly-traded companies as well
as in annual financial statements.  The adoption of FSP 107-1 did not
have a material effect on our financial position or results of operations as
this statement only addresses disclosures.





On April
1, 2009, we adopted FAS No. 165, Subsequent Events(FAS
165).  This standard establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  The
adoption of FAS 165 did not have a material effect on our financial position or
results of operations as this statement only addresses
disclosures.  See Note 15 for subsequent events
disclosure.





24




Douglas
Emmett, Inc.
 Notes
to Consolidated Financial Statements--(continued)
 (in
thousands, except shares and per share data)





In June
2009, the FASB issued FAS No. 167, Amendments to FASB Interpretation
No. 46(R) (FAS 167).  This standard requires an enterprise to
perform an analysis to determine whether an enterprise’s variable interest or
interests give it a controlling financial interest in a variable interest
entity.  Additionally, an enterprise is required to assess whether it
has an implicit financial responsibility to ensure that a variable interest
entity operates as designed when determining whether it has the power to direct
the activities of the variable interest entity that most significantly impact
the entity’s economic performance. FAS 167 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after November 15,
2009, which for us means January 1, 2010.  We are currently evaluating
the impact that FAS 167 will have on our financial statements.


In June
2009, the FASB issued FAS No. 168, TheFASB Accounting Standards
Codificationand the
Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162(FAS 168).  The FASB Accounting Standards
Codification (Codification) will become the single source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date of
this statement, the Codification will supersede all then-existing non-SEC
accounting and reporting standards.  Any other accounting literature
issued by an entity other than the SEC will become non-authoritative.  
This statement is effective for financial statements issued for interim and
annual periods ending after September 15, 2009, which for us means July 1,
2009.  We do not believe adoption of FAS 168 will have a material
effect on our financial position or results of operations as this
statement only addresses the hierarchy of GAAP, and the manner in which we
refer to and disclose the accounting principles used.





15.
Subsequent Events





We
evaluated subsequent events through August 6, 2009, the date on which these
financial statements were issued, and were not aware of any which were
material.






25




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 our beliefs and assumptions.  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 previously reported forward-looking
statements, which are based on 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.


26


Historical Results of
Operations





Overview


Our results of operations for the three
and six months ended June 30, 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 Douglas Emmett Fund
X, LLC (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 following their respective dates of acquisition and the six
contributed properties’ results are included only through the end of February
2009, when Fund X was deconsolidated, and thereafter only as equity income from
our investment in Fund X.






Comparison
of three months ended June 30, 2009 to three months ended June 30,
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 revenue decreased by $14.9 million, or 10.8%, to
$122.7 million for the three months ended June 30, 2009 compared to $137.6
million for the three months ended June 30, 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
decreased by $12.0 million, or 10.8%, to $99.2 million for the three months
ended June 30, 2009 compared to $111.2 million for the three months ended June
30, 2008.  The decrease is primarily due to $12.2 million of rent
reflected in the 2008 consolidated results from the six properties we
contributed to an unconsolidated real estate fund during the first quarter of
2009.





Tenant
Recoveries.  Total office tenant recoveries decreased by $1.0
million, or 12.8%, to $7.1 million for the three months ended June 30, 2009
compared to $8.2 million for the three months ended June 30,
2008.  The decrease is primarily due to $0.7 million in recoveries
reflected in the 2008 consolidated results from the six properties we
contributed to an unconsolidated real estate fund during the first quarter of
2009.





Parking and Other
Income.  Total office parking and other income decreased by
$1.8 million, or 10.0%, to $16.4 million for the three months ended June 30,
2009 compared to $18.2 million for the three months ended June 30,
2008.  The decrease is primarily due to parking of $1.7 million
reflected in the 2008 consolidated results from the six properties we
contributed to an unconsolidated real estate fund during the first quarter of
2009.





Total Multifamily
Revenue.Total multifamily revenue consists of rent, parking
income and other income.  Total multifamily revenue decreased by $0.4
million, 2.3%, to $17.0 million for the three months ended June 30, 2009,
compared to $17.4 million for the three months ended June 30,
2008.  The decrease is primarily due to a decline in rental income
attributable to a slight decline in occupancy levels and rates for the
comparable periods.





Operating
Expenses





Office Rental
Expenses.  Total office rental expense decreased by $5.1
million, or 12.3%, to $36.7 million for the three months ended June 30, 2009,
compared to $41.8 million for the three months ended June 30,
2008.  The decrease is primarily due to $5.1 million of operating
expenses and property taxes reflected in the 2008 consolidated results from the
six properties we contributed to an unconsolidated real estate fund during the
first quarter of 2009.





Depreciation and
Amortization.  Depreciation and amortization expense decreased
$8.1 million, or 12.7%, to $55.7 million for the three months ended June 30,
2009, compared to $63.9 million for the three months ended June 30,
2008.  The decrease is primarily due to $8.0 million of depreciation
and amortization reflected in the 2008 consolidated results from the six
properties we contributed to an unconsolidated real estate fund during the first
quarter of 2009.






27





Non-Operating
Income and Expenses





Loss, including Depreciation, from
Unconsolidated Real Estate Fund.  The loss, including
depreciation, from unconsolidated real estate fund totaled $2.1 million for the
three months ended June 30, 2009.  The loss represents our equity
interest in the net income from the six properties owned by Fund X, including
the operating income net of historical cost-basis
depreciation.  During the second quarter of 2008, these six properties
were contained in our consolidated results, so there was no comparable amount
recorded in this line until the properties were deconsolidated at the end of
February 2009.





Interest
Expense.  Interest expense decreased $7.2 million, or 13.9%, to
$44.6 million for the three months ended June 30, 2009, compared to $51.8
million for the three months ended June 30, 2008.  This decrease is
primarily due to lower levels of outstanding debt during the second quarter of
2009 in comparison to the prior year, including our revolving credit facility,
which had no outstanding borrowings as of June 30, 2009, and the deconsolidation
of debt associated with the six properties contributed to an unconsolidated real
estate fund in the first quarter of 2009.




Comparison
of six months ended June 30, 2009 to six months ended June 30,
2008


Revenues





Total Office
Revenue.  Total office revenue decreased by $2.3 million, or
0.9%, to $256.9 million for the six months ended June 30, 2009 compared to
$259.2 million for the six months ended June 30, 2008.  The decrease
is primarily due to $5.9 million in rent reflected in the 2008 consolidated
results related to the six properties we contributed to an unconsolidated real
estate fund during the first quarter of 2009 offset by increases totaling $3.4
million in rental revenues for the remainder of our portfolio. The increase of
$3.4 million is a result of rate increases for new and renewal tenants offset by
lower occupancy.





Total Multifamily
Revenue.Total multifamily revenue consists of rent, parking
income and other income.  Total multifamily revenue decreased by $1.3
million, 3.7%, to $34.3 million for the six months ended June 30, 2009, compared
to $35.6 million for the six months ended June 30, 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 2009 to 2008.





Operating
Expenses





Office Rental
Expenses.  Total office rental expense decreased by $0.7
million, or 1.0%, to $77.0 million for the six months ended June 30, 2009,
compared to $77.7 million for the six months ended June 30, 2008.  The
decrease is primarily due to $3.3 million in office rental expenses reflected in
the 2008 consolidated results to the six properties we contributed to an
unconsolidated real estate fund during the first quarter of 2009 offset by an
increase in office rental expenses in our portfolio.  Total office
expenses increased in our portfolio by $2.6 million primarily as a result of
lower comparable property tax accruals in the prior period, partially offset by
lower janitorial costs in the current period.





General and Administrative
Expenses.  General and administrative expenses increased $1.3
million, or 11.8%, to $12.3 million for the six months ended June 30, 2009,
compared to $11.0 million for the six months ended June 30, 2008.  The
increase is primarily due to various expenses, including higher legal fees and
equity awards that are expensed over the multi-year vesting period.





Depreciation and
Amortization.  Depreciation and amortization expense decreased
$3.8 million, or 3.2%, to $116.8 million for the six months ended June 30, 2009,
compared to $120.6 million for the six months ended June 30,
2008.  The decrease is primarily due to $3.1 million in depreciation
and amortization reflected in the 2008 consolidated results related to the six
properties we contributed to an unconsolidated real estate fund during the first
quarter of 2009.








28


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 $2.4 million to
$3.0 million for the six months ended June 30, 2009, compared to $0.5 million
for the six months ended June 30, 2008.  The increase for the
comparable periods was attributable to $2.8 million of interest income relating
to the contribution of properties to an unconsolidated real estate fund in the
first quarter of 2009.  See Note 2 to our consolidated financial
statements in Item 1 of this Report for a discussion about the contribution to
Fund X.





Loss, including Depreciation, from
Unconsolidated Real Estate Fund.  The loss, including
depreciation, from unconsolidated real estate fund totaled $2.8 million for the
six months ended June 30, 2009.  The loss represents our equity
interest in the net income from the six properties owned by Fund X, including
the operating income net of historical cost-basis
depreciation.  During the first six months of 2008, subsequent to
acquiring the six properties, the operating results from the properties were
contained in our consolidated results, so there was no comparable amount
recorded in this line until the properties were deconsolidated at the end of
February 2009.





Interest
Expense.  Interest expense increased $0.8 million, or 0.9%, to
$93.8 million for the six months ended June 30, 2009, compared to $93.0 million
for the six months ended June 30, 2008.  The increase for the
comparable period is attributable to higher interest expense related to the
change in the net asset fair value of our derivatives not designated as cash
flow hedges under FAS 133.  This increase was partially offset by
lower interest expense from the decrease in borrowings on our revolving credit
facility, which had no outstanding borrowings as of June 30, 2009.





Liquidity
and Capital Resources





Available
Borrowings, Cash Balances and Capital Resources





We had
total indebtedness of $3.3 billion at June 30, 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 June 30, 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
we have 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 June 30, 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.






29




In
October 2008, we completed the initial closing of Fund X.  Fund X
initially contemplated a fund raising period through July 2009, which has now
been extended until later this year.  The Fund will have 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 June
30, 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 71.1% of our total market capitalization of
$4.8 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 June 30, 2009 on the New
York Stock Exchange of $8.99 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, among other things.  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, which could
materially and adversely effect our liquidity, capital resources, and results of
operations.


30





Contractual
Obligations





During
the first six months 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 June
30, 2009, we had an equity investment of $102.2 million in Fund X, an
unconsolidated real estate fund to which we contributed six
properties.  Fund X has debt outstanding, which is secured by the six
properties we contributed, totaling $365 million at June 30, 2009 as summarized
in the following table:




Type
      of Debt
              
              Maturity
      Date
              
              Variable
      Rate
              
              Effective
      Annual FixedRate(1)
              
              Swap
      Maturity DateVariable
      rate term loan(swapped
      to fixed rate)(2)
              
              08/18/13
              
              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 June 30,
      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 operating activities 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 $4.9 million to $95.7 million
for the six months ended June 30, 2009, compared to $90.8 million for the
six months ended June 30, 2008.  The increase reflects higher net cash
flow from existing properties that generated improved results.





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 $614.8 million to $28.0 million for the six months ended June 30, 2009
compared to $642.8 million for the six months ended June 30,
2008.  The decrease was attributable to the absence of any property
acquisitions during the six months ended June 30, 2009 in comparison to the
seven properties acquired during the comparable period of 2008.  See
Note 2 to our consolidated financial statements in Item 1 of this
Report.





Our net
cash related to 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 $33.1 million for the six months ended June 30, 2009 compared to
net cash provided by financing activities totaling $548.9 million for the
six months ended June 30, 2008.  The comparative difference was
primarily due to the increased level of borrowings associated with property
acquisitions in 2008.  See Note 2 to our consolidated financial
statements in Item 1 of this Report.





31


Item
3.  Quantitative and Qualitative Disclosures about Market
Risk





At June
30, 2009, 99%, or $3.2 billion of our debt was hedged with derivative
instruments.  Based on the level of variable rate debt outstanding at
June 30, 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.  We calculate interest sensitivity by
computing the amount of floating rate debt not mitigated by interest rate
contracts by the respective change in rate.  The sensitivity analysis
does not take into consideration possible changes in the balances of fair value
of our floating rate debt.





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
June 30, 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.




32


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 June 30,
2009.






Purchases.  We made
the following purchases of our share equivalents during the three months ended
June 30, 2009.




ISSUER
      PURCHASES OF EQUITY SECURITIESPeriod
              (a)
      Total Number of Share Equivalents Purchased
              (b)
      Average Price Paid per Share (or Unit)April
      2009
              200,000
              7.18May
      2009
              ─
              ─June
      2009
              ─
              ─Total
              200,000
              7.18





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.








33


Item
4.  Submission of Matters to a Vote of Security
Holders





Our
annual meeting of stockholders was held on June 11,
2009.  Approximately 87% of the eligible shares were
voted.  A detailed description of the matters voted upon at the
meeting is contained in our proxy statement, which was filed with the SEC on
April 30, 2009.  The voting results for each of the proposals are
as follows:






Proposal
              For
              
              Withheld/
                Against
              
              Abstain
              
              Broker Non-Votes1. 
      Election of directors:Dan
      A.
      Emmett
              104,928,209
              
              781,504Jordan
      L.
      Kaplan
              105,188,956
              
              520,757Kenneth
      M.
      Panzer
              105,038,956
              
              670,757Leslie
      E.
      Bider
              102,668,322
              
              3,041,391Victor
      J.
      Coleman
              102,171,048
              
              3,538,665Ghebre
      Selassie Mehreteab
              104,661,168
              
              1,048,545Thomas
      E.
      O’Hern
              104,661,268
              
              1,048,445Dr.
      Andrea
      Rich
              102,665,668
              
              3,044,045William
      Wilson
      III
              105,194,461
              
              515,2522. 
      Ratification of Ernst & Young LLP as independent registered public
      accounting firm:
              104,653,813
              
              1,045,511
              
              10,387
              
              ─3. 
      To approve amendments to the Company’s 2006 Omnibus Stock Incentive
      Plan:
              79,712,455
              
              16,817,560
              
              187,171
              
              8,988,385










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 June 30, 2009.  Please see the
discussion of our procedures in our most recent proxy statement.







34


Item
6.  Exhibits





Exhibit
      Number
            
            Description10.1
            
            Amendment
      #1 to the Douglas Emmett, Inc. 2006 Omnibus Stock Incentive Plan. (+)31.1
            
            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.(+)
            Denotes
      management contract or compensatory plan, contract or
      arrangement.




35


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:  August
      6, 2009
            By:
            /s/
      JORDAN L. KAPLANJordan
      L. KaplanPresident
      and Chief Executive OfficerDate:  August
      6, 2009
            By:
            /s/
      WILLIAM KAMERWilliam
      KamerChief
      Financial Officer





36