United
States


Securities
and Exchange Commission


Washington,
D.C. 20549




FORM 10-Q




QUARTERLY
REPORT PURSUANT TO SECTION 13




OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
the quarterly period ended March 31, 2008




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
and zip code of principal executive offices)




(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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer  x
            Accelerated
      filer  oNon-accelerated
      filero(Do not
      check if a smaller reporting company)
            Smaller
      reporting company  o







Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).




Yes  o     Nox




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.




Class
            
            Outstanding
      at April 30, 2008Common
      Shares of beneficial interest,
            
            121,281,401
      shares$0.01
      par value per share











DOUGLAS
EMMETT, INC.


FORM
10-Q


TABLE
OF CONTENTS


PAGE
      NO.PART
      I.
                FINANCIAL
      INFORMATION
                
                
                3Item 1.
                Financial
      Statements
                
                
                3Consolidated
      Balance Sheets as of March 31, 2008 (unaudited) and December 31,
      2007
                
                
                3Consolidated
      Statements of Operations for the three months ended March 31, 2008
      and 2007 (unaudited)
                
                
                4Consolidated
      Statements of Cash Flows for the three months ended March 31, 2008 and
      2007 (unaudited)
                
                
                5Notes
      to Consolidated Financial Statements
                
                
                6Item 2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                
                19Item 3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                
                24Item 4.
                Controls
      and Procedures
                
                
                24PART
      II.
                OTHER
      INFORMATION
                
                
                25Item 1.
                Legal
      Proceedings
                
                
                25Item 1A.
                Risk
      Factors
                
                
                25Item 2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                
                25Item 3.
                Defaults
      Upon Senior Securities
                
                
                25Item 4.
                Submission
      of Matters to a Vote of Security Holders
                
                
                25Item 5.
                Other
      Information
                
                
                25Item 6.
                Exhibits
                
                
                26SIGNATURES
                
                
                27


- 2
-


Douglas
Emmett, Inc.


Consolidated
Balance Sheets


(in
thousands, except for share data)





March
      31, 2008
            
            
            December
      31, 2007(unaudited)AssetsInvestment
      in real estateLand
            
            $
            887,453
            
            
            $
            825,560Buildings
      and improvements
            
            
            5,475,767
            
            
            
            4,978,124Tenant
      improvements and lease intangibles
            
            
            531,315
            
            
            
            460,4866,894,535
            
            
            
            6,264,170Less:
      accumulated depreciation
            
            
            (298,863
            )
            
            
            (242,114
            )Net
      investment in real estate
            
            
            6,595,672
            
            
            
            6,022,056Cash
      and cash equivalents
            
            
            4,493
            
            
            
            5,843Tenant
      receivables, net
            
            
            252
            
            
            
            955Deferred
      rent receivables, net
            
            
            25,076
            
            
            
            20,805Interest
      rate contracts
            
            
            149,633
            
            
            
            84,600Acquired
      lease intangible assets, net
            
            
            22,210
            
            
            
            24,313Other
      assets
            
            
            27,037
            
            
            
            31,396Total
      assets
            
            $
            6,824,373
            
            
            $
            6,189,968LiabilitiesSecured
      notes payable, including loan premium
            
            $
            3,729,368
            
            
            $
            3,105,677Accounts
      payable and accrued expenses
            
            
            66,882
            
            
            
            62,704Security
      deposits
            
            
            34,278
            
            
            
            31,309Acquired
      lease intangible liabilities, net
            
            
            206,070
            
            
            
            218,371Interest
      rate contracts
            
            
            286,762
            
            
            
            129,083Dividends
      payable
            
            
            22,737
            
            
            
            19,221Total
      liabilities
            
            
            4,346,097
            
            
            
            3,566,365Minority
      interests
            
            
            556,125
            
            
            
            793,764Stockholders’
      EquityCommon
      stock, $0.01 par value 750,000,000 authorized, 121,263,847and
      109,833,903 outstanding at March 31, 2008 and December 31,
      2007,    respectively.
            
            
            1,213
            
            
            
            1,098Additional
      paid-in capital
            
            
            2,272,234
            
            
            
            2,019,716Accumulated
      other comprehensive income
            
            
            (192,009
            )
            
            
            (101,163
            )Accumulated
      deficit
            
            
            (159,287
            )
            
            
            (89,812
            )Total
      stockholders’ equity
            
            
            1,922,151
            
            
            
            1,829,839Total
      liabilities and stockholders’ equity
            
            $
            6,824,373
            
            
            $
            6,189,968





See
notes to consolidated financial statements.


- 3
-


Douglas
Emmett, Inc.


Consolidated
Statements of Operations


(unaudited
and in thousands, except for share data)





Three
      Months Ended March 31,2008
            
            
            2007RevenuesOffice
      rentalRental
      revenues
            
            $
            99,016
            
            
            $
            91,612Tenant
      recoveries
            
            
            5,368
            
            
            
            8,186Parking
      and other income
            
            
            12,660
            
            
            
            11,100Total
      office revenues
            
            
            117,044
            
            
            
            110,898Multifamily
      rentalRental
      revenues
            
            
            17,224
            
            
            
            16,514Parking
      and other income
            
            
            560
            
            
            
            491Total
      multifamily revenues
            
            
            17,784
            
            
            
            17,005Total
      revenues
            
            
            134,828
            
            
            
            127,903Operating
      expensesOffice
      expense
            
            
            31,364
            
            
            
            33,294Multifamily
      expense
            
            
            3,877
            
            
            
            4,923General
      and administrative
            
            
            5,285
            
            
            
            5,042Depreciation
      and amortization
            
            
            56,749
            
            
            
            51,121Total
      operating expenses
            
            
            97,275
            
            
            
            94,380Operating
      income
            
            
            37,553
            
            
            
            33,523Interest
      and other income
            
            
            409
            
            
            
            82Interest
      expense
            
            
            (41,203
            )
            
            
            (38,302
            )Loss
      before minority interests
            
            
            (3,241
            )
            
            
            (4,697
            )Minority
      interests
            
            
            741
            
            
            
            1,424Net
      loss
            
            $
            (2,500
            )
            
            $
            (3,273
            )Net
      loss per common share – basic and diluted
            
            $
            (0.02
            )
            
            $
            (0.03
            )Dividends
      declared per common share
            
            $
            0.1875
            
            
            $
            0.175Weighted
      average shares of common stock outstanding -basic and
    diluted
            
            
            118,283,579
            
            
            
            115,005,860





See
notes to consolidated financial statements.


- 4
-


Douglas
Emmett, Inc.


Consolidated
Statements of Cash Flows


(unaudited
and in thousands)





Three
      Months Ended March 31,2008
            
            
            2007Operating
      ActivitiesNet
      loss
            
            $
            (2,500
            )
            
            $
            (3,273
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Minority interests
            
            
            (741
            )
            
            
            (1,424
            )Depreciation and
      amortization
            
            
            56,749
            
            
            
            51,121Net accretion of acquired lease
      intangibles
            
            
            (10,198
            )
            
            
            (9,863
            )Amortization of deferred loan
      costs
            
            
            362
            
            
            
            249Amortization of loan
      premium
            
            
            (1,160
            )
            
            
            (1,095
            )Non-cash market value
      adjustments on interest ratecontracts
            
            
            1,800
            
            
            
            3,768Non-cash amortization of
      stock-based compensation
            
            
            3,291
            
            
            
            670Change
      in working capital componentsTenant receivables
            
            
            703
            
            
            
            245Deferred rent
      receivables
            
            
            (4,271
            )
            
            
            (4,505
            )Accounts payable, accrued expenses
      and securitydeposits
            
            
            3,282
            
            
            
            6,427Other
            
            
            6,726
            
            
            
            269Net
      cash provided by operating activities
            
            
            54,043
            
            
            
            42,589Investing
      ActivitiesCapital
      expenditures and property acquisitions
            
            
            (627,103
            )
            
            
            (13,471
            )Net
      cash used in investing activities
            
            
            (627,103
            )
            
            
            (13,471
            )Financing
      ActivitiesProceeds from
      borrowings
            
            
            833,850
            
            
            
            31,500Deferred loan
costs
            
            
            (2,010
            )
            
            
            -Repayment of
      borrowings
            
            
            (205,000
            )
            
            
            (41,500
            )Net change in short-term
      borrowings
            
            
            (4,000
            )
            
            
            -Issuance of minority interest in
      consolidated joint venture
            
            
            100
            
            
            
            -Distributions to minority
      interests
            
            
            (8,251
            )
            
            
            (6,003
            )Redemption of minority
      interests
            
            
            (23,758
            )
            
            
            -Cash dividends
            
            
            (19,221
            )
            
            
            (13,801
            )Net
      cash provided by (used in) financing activities
            
            
            571,710
            
            
            
            (29,804
            )Decrease
      in cash and cash equivalents
            
            
            (1,350
            )
            
            
            (686
            )Cash
      and cash equivalents at beginning of period
            
            
            5,843
            
            
            
            4,536Cash
      and cash equivalents at end of period
            
            $
            4,493
            
            
            $
            3,850





See
notes to consolidated financial statements for additional non-cash
items.


- 5
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements


(in
thousands, except shares and per share data)








1.
Organization and Description of Business





Douglas
Emmett, Inc, a Maryland corporation formed on June 28, 2005, is a fully
integrated, self-administered, and self-managed Real Estate Investment Trust
(REIT).  We did not have any meaningful operating activity until the
consummation of our initial public offering (IPO) and the related acquisition of
our predecessor and certain other entities on October 30,
2006.  Through our interest in Douglas Emmett Properties, LP (our
operating partnership) and its subsidiaries, we own, manage, lease, acquire and
develop real estate.  As of March 31, 2008, we owned a portfolio of 55
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 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.





2.
Summary of Significant Accounting Policies





Basis
of Presentation





The
accompanying consolidated financial statements as of March 31, 2008 and December
31, 2007 and for the three months ended March 31, 2008 and 2007 are the
consolidated financial statements of Douglas Emmett, Inc. and its subsidiaries
including our operating partnership.  All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements.  Certain prior period amounts have been reclassified to
conform with current period presentation.







Unaudited
Interim Financial Information






The accompanying unaudited interim
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States (GAAP) may
have been condensed or omitted pursuant to such rules and regulations, although
we believe that the disclosures are adequate to make the 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, 2008. The interim
financial statements should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2007 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 Public
Company Accounting Oversight Board (United States).







Use
of Estimates





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 from those
estimates.





- 6
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





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.





Interest
Rate Contracts





We manage our interest rate risk
associated with borrowings by obtaining interest rate swap and interest rate cap
contracts. No other derivative instruments were used.





Statement
of Financial Accounting Standards (FAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), as
amended and interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities.  As required by FAS 133,
we record all derivatives on the balance sheet at fair value.  The
accounting for changes in the fair value of derivatives depends on the intended
use of the derivative and the resulting designation. Derivatives used to hedge
the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, are considered fair value hedges.
Derivatives used to hedge the exposure to variability in expected future cash
flows, or other types of forecasted transactions, are considered cash flow
hedges.





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.  Interest rate swaps designated as
cash flow hedges involve the receipt of variable-rate amounts in exchange for
fixed-rate payments over the life of the agreements without exchange of the
underlying principal amount.  For derivatives designated as cash flow
hedges, the effective portion of changes in the fair value of the derivative is
initially reported in other comprehensive income (outside of earnings) and
subsequently reclassified to earnings when the hedged transaction affects
earnings.  The ineffective portion of changes in the fair value of the
derivative is recognized directly in earnings.  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.  See Note 8 for the accounting of our interest rate
hedges.




Income
Taxes




We
elected to be taxed as a REIT under the Internal Revenue Code (the “Code”)
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 Code related to such matters as operating results, asset
holdings, distribution levels and diversity of stock ownership. Provided we
qualify for taxation as a REIT, we generally will not be subject to
corporate-level income tax on the earnings distributed currently to our
stockholders that we derive from our REIT qualifying activities. We will be
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
Code, all of our taxable income would be subject to federal income tax at
regular corporate rates, including any applicable alternative minimum
tax.





- 7
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





In
addition, we will be subject to taxation by various state and local (and
potentially foreign) jurisdictions, including those in which we transact
business or reside.  Our predecessor was an S-Corporation and the
institutional funds it sponsored were limited partnerships. 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 other than the 1.5% tax due on
taxable income of S-Corporations in the State of California attributable to
periods prior to our formation transactions.




Earnings
Per Share (EPS)




Basic EPS
is calculated by dividing the net income applicable to common stockholders for
the period by the weighted average of common shares outstanding during the
period. Diluted EPS is calculated by dividing the net income applicable to
common stockholders for the period by the weighted average number of common and
dilutive instruments outstanding during the period using the treasury stock
method.  Since we were in a net loss position during the three months
ended March 31, 2007 and 2008, all potentially dilutive instruments are
anti-dilutive and have been excluded from our computation of weighted average
dilutive shares outstanding.




Recently
Issued Accounting Literature





In
February 2007, the Financial Accounting Standards Board (FASB) issued FAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115.  This standard permits entities to choose to
measure many financial instruments and certain other items at fair value and is
effective for the first fiscal year beginning after November 15, 2007, which for
us means 2008.  We did not elect the fair value measurement option for
any financial assets or liabilities during the first quarter of 2008, nor do we
currently expect to elect this option for any financial assets or liabilities in
the near future.





In
December 2007, the FASB issued FAS No. 160, Non-controlling Interests in
Consolidated Financial Statements-an Amendment of Accounting Research Bulletin
No. 51(FAS 160).  FAS 160 establishes new accounting and
reporting standards for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary.  Specifically, this statement
requires the recognition of a non-controlling interest (minority interest) as
equity in the consolidated financial statements separate from the parent’s
equity.  The amount of net income attributable to the non-controlling
interest will be 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 non-controlling equity investment on the deconsolidation
date.  FAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its non-controlling interest. FAS 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, which for us means 2009.  We
are currently evaluating the impact that FAS 160 will have on our financial
statements.





In
December 2007, the FASB issued FAS No. 141 (Revised 2007), Business Combinations (FAS
141R).  FAS 141R will significantly change the accounting for business
combinations.  Under FAS 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions.  FAS 141R
also includes a substantial number of new disclosure
requirements.  FAS 141R applies prospectively to business combinations
occurring in any reporting period beginning on or after December 15, 2008, which
for us means 2009.  We are currently evaluating the impact that FAS
141R will have on our financial statements.





- 8
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)







On
January 1, 2008, we adopted FAS No. 157, Fair Value Measurements(FAS
157). FAS 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements.  FAS 157 applies to
reported balances that are required or permitted to be measured at fair value
under existing accounting pronouncements; accordingly, the standard does not
require any new fair value measurements of reported balances.  FAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement.  Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset
or liability.  As a basis for considering market participant
assumptions in fair value measurements, FAS 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the
hierarchy).  Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that we have the ability to
access. Level 2 inputs are inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs may include quoted prices for similar assets and liabilities in
active markets, as well as inputs that are observable for the asset or liability
(other than quoted prices), such as interest rates, foreign exchange rates, and
yield curves that are observable at commonly quoted intervals.





Currently,
we use interest rate swaps and capsto manage interest rate
risk resulting from variable interest payments on our floating rate
debt.  The valuation of these instruments is determined using widely
accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects the contractual
terms of the derivatives, including the period to maturity, and uses observable
market-based inputs, including interest rate curves and implied
volatilities.





To comply
with the provisions of FAS 157, we incorporate credit valuation adjustments to
appropriately reflect both our own nonperformance risk and the respective
counterparty’s nonperformance risk in the fair value measurements.  In
adjusting the fair value of our derivative contracts for the effect of
nonperformance risk, we considered
the impact of netting and any applicable credit enhancements, such as collateral
postings, thresholds, mutual puts, and guarantees.  We have determined
that our derivative valuations in their entirety are classified in Level 2 of
the fair value hierarchy.  We do not have any fair value measurements
using significant unobservable inputs (Level 3) as of March 31,
2008.





The table
below presents the assets and liabilities measured at fair value on a recurring
basis as of March 31, 2008, aggregated by the level in the fair value
hierarchy within which those measurements fall.








Quoted Prices in
              Active
      Marketsfor
      Identical
              Assets
      and Liabilities (Level 1)
            
            SignificantOther
              Observable
              Inputs (Level 2)
            
            SignificantUnobservable
              Inputs (Level 3)
            
            Balance
      at
              March
      31,2008AssetsInterest Rate
      Contracts
            
            $  -
            
            $149,633
            
            $  -
            
            $149,633LiabilitiesInterest Rate
      Contracts
            
            $  -
            
            $286,762
            
            $  -
            
            $286,762





- 9
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





3.
Acquisitions




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.  An affiliate of the seller provided $380
million of first trust deed bridge financing at a floating rate of LIBOR plus
200 basis points for nine months.






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 in a consolidated joint
venture with our local partner.  The joint venture financed the
acquisition with an $18 million loan at a floating interest rate of LIBOR plus
125 basis points.  The loan has a term of two years with a one-year
extension.






The results of operations for the
acquired properties are included in our consolidated statement of operations for
the three months ended March 31, 2008 since the date of
acquisition.  We acquired these properties near the end of the
quarter, and as such, the following table represents our preliminary purchase
price allocation.  These amounts are likely to change based on a more
thorough calculation to be performed during the one-year purchase accounting
window provided under the relevant accounting standards.  We did not
acquire any properties during the first three months of 2007.







2008
      AcquisitionsInvestment
      in real estate:Land
            $
            61,870Buildings
      and improvements
            
            494,958Tenant
      improvements and other in-place lease assets
            
            61,870Tenant
      receivables and other assets
            
            2,386Accounts
      payable, accrued expenses and tenant security deposits
            
            (6,190)Acquired
      intangible assets other than leases
            
            658Net
      acquisition cost
            $
            615,552








Our
acquired lease intangibles related to above/below-market leases is summarized as
of:





March
      31, 2008
            
            
            December
      31, 2007Above-market
      tenant leases
            
            $
            32,770
            
            
            $
            32,770Accumulated
      amortization
            
            
            (13,648
            )
            
            
            (11,564
            )Below-market
      ground leases
            
            
            3,198
            
            
            
            3,198Accumulated
      amortization
            
            
            (110
            )
            
            
            (91
            )Acquired
      lease intangible assets, net
            
            $
            22,210
            
            
            $
            24,313Below-market
      tenant leases
            
            $
            261,260
            
            
            $
            261,260Accumulated
      accretion
            
            
            (69,006
            )
            
            
            (57,112
            )Above-market
      ground leases
            
            
            16,200
            
            
            
            16,200Accumulated
      accretion
            
            
            (2,384
            )
            
            
            (1,977
            )Acquired
      lease intangible liabilities, net
            
            $
            206,070
            
            
            $
            218,371





- 10
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)


4.
Other Assets





Other
assets consist of the following at:





March
      31,
            
            
            December
      31,2008
            
            
            2007Deferred
      loan costs, net of accumulated amortization of $1,666 and $1,304at
      March 31, 2008 and December 31, 2007, respectively
            
            $
            6,635
            
            
            $
            4,987Deposits
      in escrow
            
            
            -
            
            
            
            4,000Restricted
      cash
            
            
            2,833
            
            
            
            2,848Prepaid
      interest
            
            
            3,997
            
            
            
            7,944Prepaid
      expenses
            
            
            2,873
            
            
            
            3,095Interest
      receivable
            
            
            3,818
            
            
            
            3,229Other
      indefinite-lived intangible
            
            
            1,988
            
            
            
            1,988Other
            
            
            4,893
            
            
            
            3,305$
            27,037
            
            
            $
            31,396





We
incurred deferred loan cost amortization expense of $362 and $249 for the three
months ended March 31, 2008 and 2007, respectively.  The deferred
loan cost amortization is included as a component of interest expense in the
consolidated statements of operations.





5.
Minimum Future Lease Rentals





We
have leased space to tenants primarily under noncancelable operating leases,
which generally contain provisions for a base rent plus reimbursement for
certain operating expenses. Operating expense reimbursements are reflected in
our consolidated statements of operations as tenant recoveries.





We have
leased space to certain tenants under noncancelable leases, which provide for
percentage rents based upon tenant revenues. Percentage rental income for the
three months ended March 31, 2008 and 2007 totaled $244 and $264,
respectively.





Future
minimum base rentals on noncancelable office and ground operating leases at
March 31, 2008 are as follows:





April
      1, 2008 to December 31, 2008
            $
            383,1712009
            
            355,7052010
            
            305,9772011
            
            252,4242012
            
            202,993Thereafter
            
            529,343Total
      future minimum base rentals
            $
            2,029,613





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. In general, these leases provide for
termination payments should the termination options be exercised. The preceding
table is prepared assuming such options are not exercised.





- 11
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





6.
Accounts Payable and Accrued Expenses





Accounts
payable and accrued expenses consist of the following as of:





March
      31, 2008
            
            December
      31, 2007Accounts
      payable
            
            $
            45,298
            
            $
            43,449Accrued
      interest payable
            
            
            15,290
            
            
            13,963Deferred
      revenue
            
            
            6,294
            
            
            5,292$
            66,882
            
            $
            62,704








7.
Secured Notes Payable





During
the first quarter of 2008, we borrowed an additional $623 million of
long-term variable rate debt, as follows:





·
            We
      obtained a $380 million bridge loan from an affiliate of the seller
      in the March 2008 acquisitions described in Note 3.  This loan
      has an interest rate of LIBOR plus 200 basis points and a nine-month
      term.





·
            We
      obtained a non-recourse $340 million term loan secured by four of our
      previously unencumbered office properties.  This loan bears
      interest at a floating rate equal to LIBOR plus 150 basis points, but we
      have entered into interest rate swap contracts that effectively fix the
      interest rate at 4.84%, effective in the second quarter of 2008 until
      January 2, 2013.  This loan facility matures on April 1,
      2015.  Proceeds from this loan were utilized to repay our
      secured revolving credit facility and for general corporate
      purposes.  At March 31, 2008, $225 million was outstanding,
      leaving $115 million available to us under this loan.  See Note
      13.





·
            The
      joint venture, in which we have a two-thirds interest, obtained an $18
      million loan that financed the February 2008 acquisition described in Note
      3.  This loan has an interest rate of LIBOR plus 125 basis
      points and a two-year term with a one-year
  extension.





- 12
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





A summary
of our secured notes payable is as follows:





Type
      of Debt
            March 31,
      2008
            
            December 31,
      2007
            
            Fixed/Floating
      Rate
            
            Effective
      Annual Interest Rate(1)
            
            Maturity
      Date
            
            Swap
      Maturity DateVariable
      Rate Swapped to Fixed Rate:Modified
      Term Loan I(2)(3)
            $2,300,000
            
            $2,300,000
            
            LIBOR
      + 0.85%
            
            5.20%
            
            08/31/12
            
            08/01/10-08/01/12Term
      Loan II(4)(5)
            225,000
            
            -
            
            LIBOR
      + 1.50%
            
            --(5)
            
            04/01/15
            
            --Fannie
      Mae Loan I (6)
            293,000
            
            293,000
            
            DMBS
      + 0.60%
            
            4.76
            
            06/01/12
            
            08/01/11Fannie
      Mae Loan II(6)
            95,080
            
            95,080
            
            DMBS
      + 0.60%
            
            5.86
            
            06/01/12
            
            08/01/11Fannie
      Mae Loan III(6)
            36,920
            
            36,920
            
            DMBS
      + 0.60%
            
            5.86
            
            02/01/15
            
            08/01/11Fannie
      Mae Loan IV(6)
            75,000
            
            75,000
            
            DMBS
      + 0.76%
            
            4.93
            
            02/01/15
            
            08/01/11Fannie
      Mae Loan V(6)
            82,000
            
            82,000
            
            LIBOR
      + 0.62%
            
            5.70
            
            02/01/16
            
            03/01/12Fannie
      Mae Loan VI(6)
            18,000
            
            18,000
            
            LIBOR
      + 0.62%
            
            5.90
            
            06/01/17
            
            06/01/12Subtotal
            3,125,000
            (7)
            2,900,000
            
            
            
            5.20%Variable
      Rate:General
      Electric Bridge Loan
            380,000
            
            --
            
            LIBOR
      + 2.00%
            
            
            
            01/02/09
            
            --Wells
      Fargo Loan(8)
            18,000
            
            --
            
            LIBOR
      + 1.25%
            
            
            
            03/01/10
            
            --$370
      Million Senior Secured Revolving Credit Facility(9)
            182,300
            
            180,450
            
            LIBOR
      / Fed Funds+(10)
            
            
            
            10/30/09
            
            --Subtotal
            3,705,300
            
            3,080,450Unamortized
      Loan Premium(11)
            24,068
            
            25,227Total
            $3,729,368
            
            $3,105,677





(1)
            Includes
      the effect of interest rate contracts.  Based on actual/365-day
      basis and excludes amortization of loan fees and unused fees on credit
      line.


(2)
            Secured
      by seven separate cross collateralized pools.  Requires monthly
      payments of interest only, with outstanding principal due upon
      maturity.


(3)
            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.


(4)
            Represents
      a $340 million loan facility, of which $225 million was funded
      on March 18, 2008.  The remaining $115 million will be
      funded on May 1, 2008.  Secured by four properties in a separate
      cross-collateralized pool.  Requires monthly payments of
      interest only, with outstanding principal due upon
    maturity.


(5)
            During
      the first quarter, we entered into interest rate swap contracts that
      effectively fix the interest rate on this $340 million facility at 4.84%
      (or 4.77% on an actual/360-day basis) effective in the second quarter of
      2008.


(6)
            Secured
      by four separate collateralized pools.  Fannie Mae Discount
      Mortgage-Backed Security (DMBS) generally tracks 90-day
    LIBOR.


(7)
            As
      of March 31, 2008, the weighted average remaining life of our total
      outstanding debt is 4.3 years, and the weighted average remaining life of
      the interest rate swaps is 3.0 years.  Adjusting for the
      $340 million of swaps that take effect in the second quarter of 2008,
      the weighted average remaining life of the interest rate swaps is 3.2
      years.  These swaps lower the overall effective hedged rate of
      5.20% at March 31, 2008 to 5.18% (based on actual/365-day
      basis).


(8)
            This
      loan is carried by a consolidated joint venture formed in 2008, of which
      our Operating Partnership owns a two-thirds
  interest.


(9)
            This
      credit facility is secured by nine properties and has two-one year
      extension options available.


(10)
            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.


(11)
            Represents
      non-cash mark-to-market adjustment on variable rate debt associated with
      office properties.





- 13
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





The
minimum future principal payments due on our secured notes payable, excluding
the non-cash loan premium amortization, at March 31, 2008 are as
follows:




April
      1, 2008 to December 31, 2008
            $
            -2009
            
            562,3002010
            
            18,0002011
            
            -2012
            
            2,688,080Thereafter
            
            436,920Total
      future principal
            $
            3,705,300





Senior
Secured Revolving Credit Facility


We have a
$370 million revolving credit facility.  Our secured revolving credit
facility is with a group of banks led by Bank of America, NA and Banc of America
Securities, LLC, and 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 and at either LIBOR plus 80 basis points
or Federal Funds Rate plus 105 basis points if the amount outstanding is greater
than $262.5 million. Our secured revolving credit facility contains an accordion
feature that allows us to increase the availability by an additional $130
million, to $500 million, under specified circumstances.  The facility
bears interest at 15 basis points on the undrawn balance.  The
facility expires in 2009 with two one-year extensions at our
option.








8.
Interest Rate Contracts





We have
executed interest rate swaps with a notional amount of $3.2 billion to
protect against interest rate fluctuations on our existing variable-rate term
loan facilities, including $340 million executed in the first quarter of
2008.  These derivatives were designated and qualify as highly
effective cash flow hedges under FAS 133 and remove the variability from the
hedged cash flows.  An unrealized loss of $90.8 million and $11.9
million was recorded in accumulated other comprehensive income in our
consolidated balance sheets, representing the change in fair value of the cash
flow hedges for the three months ended March 31, 2008 and 2007,
respectively.  An immaterial amount of hedge ineffectiveness has also
been recorded in interest expense.







The
components of comprehensive income consist of the following:




Three
      Months Ended March 31,2008
            
            2007Net
      loss
            
            $
            (2,500
            )
            
            $
            (3,273
            )Cash
      flow hedge adjustment
            
            
            (90,846
            )
            
            
            (11,888
            )Comprehensive
      income
            
            $
            (93,346
            )
            
            $
            (15,161
            )





- 14
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





We also
have additional interest rate swaps that we acquired from our predecessor at the
time of our IPO.  Our predecessor had $2.21 billion notional of
pay-fixed interest rate swaps at swap rates ranging between 4.09% and
5.00%.  Concurrent with the completion of our IPO, we executed
receive-fixed swaps for the same notional amount at swap rates ranging between
4.96% and 5.00%, which were intended to largely offset the future cash flows and
future change in fair value of our predecessor’s pay-fixed swaps.  The
acquired pay-fixed swaps and the new receive-fixed swaps were not designated as
hedges under FAS 133 and as such, the changes in fair value of these interest
rate swaps have been recognized in earnings for all periods.  The fair
value of these swaps decreased $1.9 million for the three months ended
March 31, 2008.  Included in the net $1.9 million decrease is a
$1.2 million increase related to the credit value adjustment resulting from
our initial application of FAS 157 (see Note 2).  The fair value of
these swaps decreased $3.6 million for the three months ended March 31,
2007.





9.
Stockholders’ Equity and Minority Interests





Minority interests in our operating
partnership relate to interests in our operating partnership that are not owned
by us, which amounted to approximately 22% at March 31, 2008.  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.





During
the first quarter of 2008, we formed a joint venture to purchase an office
building in Honolulu, Hawaii.  The joint venture is two-thirds owned
by our operating partnership and is consolidated in our financial statements as
of March 31, 2008.





Dividends


During
2008 and 2007, we declared quarterly dividends of $0.1875 and $0.175 per share,
respectively, which equals an annual rate of $0.75 and $0.70 per share,
respectively.





Equity
Conversions and Repurchases


During
the first three months of 2008, investors converted 11.4 million units to shares
and we repurchased approximately 1.1 million share equivalents in private
transactions for a total consideration of approximately
$23.8 million.  We may make additional purchases of our share
equivalents from time to time in private transactions or in the public markets,
but do not have any commitments to do so.





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.





- 15
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





10.
Stock-Based Compensation





On
December 16, 2004, the FASB issued FAS No. 123 (revised 2004), Share-Based Payment(FAS
123R), which is a revision of FAS 123, Accounting for Stock-Based
Compensation.  Generally, the approach in FAS 123R is similar
to the approach described in FAS 123.  However, FAS 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair
values.





The
Douglas Emmett, Inc. 2006 Omnibus Stock Incentive Plan, our stock incentive
plan, was adopted by our board of directors and approved by our stockholders
prior to the consummation of our IPO. Our stock incentive plan is
administered by the compensation committee of our board of directors.  All
full-time and part-time officers, employees, directors and other key persons
(including consultants and prospective employees) are eligible to participate in
our stock incentive plan.  For more information on our stock incentive
plan, please refer to the notes to the consolidated financial statements in our
2007 Annual Report on Form 10-K.





During
the first quarter of 2008, we granted approximately 2.7 million long-term
incentive units and stock options with a total fair market value of $9.9
million.  For the three months ended March 31, 2008, we recognized
non-cash compensation expense of $1.2  million upon the vesting of such
equity awards, compared to $0.7 million for the three months ended March 31,
2007.  An additional $2.2 million of equity awards vested during
the three months ended March 31, 2008 to satisfy a portion of the bonus accrued
during 2007.





11.
Commitments and Contingencies





We are
subject to various legal proceedings and claims that arise in the ordinary
course of business. These matters are generally covered by insurance. We believe
that the ultimate outcome of these actions will not have a material adverse
effect on our financial position and results of operations or cash
flows.





Concentration
of Credit Risk


Our
properties are located in 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 $100, and to date, we have not experienced any losses on our deposited
cash.





Asset
Retirement Obligations


In
March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations—an interpretation of FASB Statement No. 143
(FIN 47).  FIN 47 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 18 properties
in our portfolio containing asbestos, which would have to be removed in
compliance with applicable environmental regulations if these properties undergo
major renovations or are demolished. As of March 31, 2008, 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.





- 16
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





Future
Minimum Lease Payments


We lease
portions of the land underlying three of our office properties as more fully
described in the notes to consolidated financial statements contained in our
2007 Annual Report on Form 10-K. We expensed ground lease payments in the amount
of $786 and $861 for the three months ended March 31, 2008 and 2007,
respectively.





The
following is a schedule of minimum ground lease payments as of March 31,
2008:





April
      1, 2008 to December 31, 2008
            $
            6332009
            
            7072010
            
            7332011
            
            7332012
            
            733Thereafter
            
            4,520$
            8,059





Tenant
Concentrations


For the three months ended March 31,
2008 and 2007, no tenant exceeded 10% of our total rental revenue and tenant
reimbursements.








12.
Segment Reporting





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 have operated 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 include
primarily 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 the internal reporting addresses these items on a corporate
level.





- 17
-


Douglas
Emmett, Inc.


Notes
to Consolidated Financial Statements--(continued)


(in
thousands, except shares and per share data)





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.




Three
      Months Ended March 31, 2008Office
            
            
            Multifamily
            
            
            TotalRental
      revenues
            
            $
            117,044
            
            
            $
            17,784
            
            
            $
            134,828Percentage
      of total
            
            
            87
            %
            
            
            13
            %
            
            
            100
            %Rental
      expenses
            
            $
            31,364
            
            
            $
            3,877
            
            
            $
            35,241Percentage
      of total
            
            
            89
            %
            
            
            11
            %
            
            
            100
            %Rental
      revenues less rental expenses
            
            $
            85,680
            
            
            $
            13,907
            
            
            $
            99,587Percentage
      of total
            
            
            86
            %
            
            
            14
            %
            
            
            100
            %


Three
      Months Ended March 31, 2007Office
              
              
              Multifamily
              
              
              TotalRental
      revenues
              
              $
              110,898
              
              
              $
              17,005
              
              
              $
              127,903Percentage
      of total
              
              
              87
              %
              
              
              13
              %
              
              
              100
              %Rental
      expenses
              
              $
              33,294
              
              
              $
              4,923
              
              
              $
              38,217Percentage
      of total
              
              
              87
              %
              
              
              13
              %
              
              
              100
              %Rental
      revenues less rental expenses
              
              $
              77,604
              
              
              $
              12,082
              
              
              $
              89,686Percentage
      of total
              
              
              87
              %
              
              
              13
              %
              
              
              100
              %


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


Three
      Months Ended March 31,2008
              
              
              2007Rental
      revenues less rental expenses
              
              $
              99,587
              
              
              $
              89,686Interest
      and other income
              
              
              409
              
              
              
              82General
      and administrative expenses
              
              
              (5,285
              )
              
              
              (5,042
              )Interest
      expense
              
              
              (41,203
              )
              
              
              (38,302
              )Depreciation
      and amortization
              
              
              (56,749
              )
              
              
              (51,121
              )Minority
      interests
              
              
              741
              
              
              
              1,424Net
      loss
              
              $
              (2,500
              )
              
              $
              (3,273
              )





13.
Subsequent Events





On May 1,
2008, the remaining $115 million of debt described in Note 7 was
funded.





As
described in Note 3, in February 2008, we acquired an office building in
Honolulu, Hawaii.  Located in this building is a private membership
athletic and social club known as The Honolulu Club.  We acquired the
net assets of the club as part of the transaction to acquire the
building.  Subsequent to the end of the first quarter, we entered into
an agreement to sell the net assets of The Honolulu Club to a third party, while
retaining a lease for the space they occupy in the office building that we now
own.  The total sales price was not material.





- 18
-


Item
2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations





Forward
Looking Statements.


This
Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange
Act).  You can find many (but not all) of these statements by looking
for words such as “approximates,” “believes,” “expects,” “anticipates,”
“estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in
this Report.  We claim the protection of the safe harbor contained in
the Private Securities Litigation Reform Act of 1995.  We caution
investors that any forward-looking statements presented in this Report, or those
that we may make orally or in writing from time to time, are based on the
beliefs of, assumptions made by, and information currently available to
us.  Such statements are based on assumptions and the actual outcome
will be affected by known and unknown risks, trends, uncertainties and factors
that are beyond our control or ability to predict.  Although we believe
that our assumptions are reasonable, they are not guarantees of future
performance and some will inevitably prove to be incorrect.  As a
result, our actual future results can be expected to differ from our
expectations, and those differences may be material.  Accordingly,
investors should use caution in relying on past forward-looking statements,
which are based on known results and trends at the time they are made, to
anticipate future results or trends.





Some
of the risks and uncertainties that may cause our actual results, performance or
achievements to differ materially from those expressed or implied by
forward-looking statements include the following: adverse economic or real
estate developments in Southern California and Honolulu; decreased rental rates
or increased tenant incentive and vacancy rates; defaults on, early termination
of, or non-renewal of leases by tenants; increased interest rates and operating
costs; failure to generate sufficient cash flows to service our outstanding
indebtedness; difficulties in identifying properties to acquire and completing
acquisitions; failure to successfully operate acquired properties and
operations; failure to maintain our status as a REIT under the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code); 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 future terrorist attacks. For further discussion of these
and other factors, see “Item 1A.  Risk Factors” in our 2007 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 in connection with
our IPO.  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 Annual Report on Form 10-K for the year
ended December 31, 2007.  We have not made any material changes to
these policies.





- 19
-




Historical Results of
Operations





Overview





We are a
fully integrated, self-administered and self-managed REIT and 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 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.





Significant
Transactions





Acquisitions.  During
the first quarter of 2008, we completed the following transactions (see
Note 3 to our consolidated financial statements included in this
Report):





·
            In
      March 2008, we acquired a 1.4 million square foot office portfolio
      consisting of six Class “A” buildings located in its core Los Angeles
      submarkets – Santa Monica, Beverly Hills, Sherman Oaks/Encino and Warner
      Center/Woodland Hills – for a contract price of approximately $610
      million.





·
            In
      February 2008, we acquired 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 in a consolidated joint venture with our local
      partner.





Financings.  During the first
quarter of 2008, we completed the following transactions (see Note 7 to our
consolidated financial statements included in this Report):





·
            We
      obtained a non-recourse $340 million term loan secured by four of our
      previously unencumbered office properties.  At March 31, 2008,
      $225 million was outstanding, and the remaining $115 million was
      funded on May 1, 2008.





·
            We
      obtained a $380 million bridge loan from an affiliate of the seller
      in the March 2008 acquisitions described
above.





·
            The
      joint venture, in which we have a two-thirds interest, obtained an $18
      million loan that financed the February 2008 acquisition described
      above.





- 20
-


Comparison
      of three months ended March 31, 2008 to three months ended March 31,
      2007





Revenue





Total Office
Revenue.  Total office revenue consists of rental revenue,
tenant recoveries and parking and other income.  Total office
portfolio revenue increased by $6.1 million, or 5.5 %, to $117.0 million for the
three months ended March 31, 2008 compared to $110.9 million for the three
months ended March 31, 2007 for the reasons described below.





Rental
Revenue.  Rental revenue includes rental revenues from our
office properties, percentage rent on the retail space contained within office
properties, and lease termination income.  Total office rental revenue
increased by $7.4 million, or 8.1%, to $99.0 million for the three months ended
March 31, 2008 compared to $91.6 million for the three months ended March 31,
2007.  Rent increased across our existing office portfolio due to
increases in average rental rates for new and renewal leases signed since April
1, 2007.  The increase is also due to $2.8  million of
incremental rent from the properties we acquired subsequent to April 1, 2007,
including the seven additional properties we acquired in the first quarter of
2008, as described above.





Tenant
Recoveries.  Total office tenant recoveries decreased by $2.8
million, or 34.4%, to $5.4 million for the three months ended March 31, 2008
compared to $8.2 million for the three months ended March 31,
2007.  This is primarily due to a reduction in the accrual of property
tax expenses based on our judgment of the ongoing reassessment process of
properties in connection with the IPO.  This was partially offset by
incremental recoverable operating expenses from the properties we acquired
subsequent to April 1, 2007, including the seven additional properties we
acquired in the first quarter of 2008, as described above.





Parking and Other
Income.  Total office parking and other income increased by
$1.6 million, or 14.0%, to $12.7 million for the three months ended March 31,
2008 compared to $11.1 million for the three months ended March 31, 2007,
primarily due to increases in parking rates implemented across the portfolio,
increases in ground rent income, and incremental revenues from the properties we
acquired subsequent to April 1, 2007, including the seven additional properties
we acquired in the first quarter of 2008, as described above.





Total Multifamily
Revenue.Total multifamily revenue consists of rent, parking
income and other income.  Total multifamily revenue increased by $0.8
million, or 4.6%, to $17.8 million for the three months ended March 31,
2008, compared to $17.0 million for the three months ended March 31,
2007.  The increase is primarily due to an increase in occupancy and
an increase in rents charged to both new and existing tenants, including
increases for select Santa Monica multifamily units.  These units were
under leases signed prior to a 1999 change in California Law that allows
landlords to reset rents to market rates when a tenant moves
out.  Therefore, a portion of the multifamily increase was due to the
rollover to market rents of several of these rent-controlled units, or “Pre-1999
Units”, since April 1, 2007.





Operating
Expenses





Office Rental
Expenses.  Total office rental expense decreased by $1.9
million, or 5.8%, to $31.4 million for the three months ended March 31, 2008,
compared to $33.3 million for the three months ended March 31,
2007.  This is primarily due to a reduction in the accrual of property
tax expenses based on our judgment of the ongoing reassessment process of
properties in connection with our IPO. The decrease was partially offset by
incremental operating expenses from the office properties we acquired subsequent
to April 1, 2007, including the seven additional properties we acquired in the
first quarter of 2008, as described above.





Multifamily RentalExpenses.  Total multifamily rental
expense decreased by $1.0 million, or 21.2%, to $3.9 million for the three
months ended March 31, 2008, compared to $4.9 million for the three months ended
March 31, 2007.  This is primarily due to a reduction in the accrual
of property tax expenses based on our judgment of the ongoing reassessment
process of properties in connection with our IPO.





- 21
-




Depreciation and
Amortization.  Depreciation and amortization expense increased
$5.6 million, or 11.0%, to $56.7 million for the three months ended March 31,
2008, compared to $51.1 million for the three months ended March 31,
2007.  The increase is primarily due to the finalization of the
purchase price allocation and related lives of real estate assets combined at
the time of our IPO and formation transactions, as well as incremental
depreciation from the office properties we acquired subsequent to April 1, 2007,
including the seven additional properties we acquired in the first quarter of
2008, as described above.





Non-Operating
Income and Expenses





Interest
Expense.  Interest expense increased $2.9 million, or 7.6%, to
$41.2 million for the three months ended March 31, 2008, compared to $38.3
million for the three months ended March 31, 2007.  The increase was
primarily due to incremental interest from the $150 million borrowed during the
second quarter of 2007, the increase in borrowings outstanding under our
corporate revolver, and the additional $623 million borrowed during the current
quarter to fund the purchase of our new acquisition properties.  These
increases were partially offset by the $1.2 million credit valuation
adjustment resulting from the initial application of FAS 157.





Liquidity
and Capital Resources





Available
Borrowings, Cash Balances and Capital Resources





We had
total indebtedness of $3.7 billion at March 31, 2008, excluding a loan
premium representing the mark-to-market adjustment on variable rate debt assumed
from our predecessor.  Our debt increased $625 million from
December 31, 2007 as a result of the $623 million of incremental borrowings and
approximately $2 million in additional borrowings under our revolving
credit facility.  Please see Note 7 to our consolidated financial
statements included in 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.  At March 31,
2008, there was approximately $188 million available to us under this
credit facility.  We have used our revolving credit facility for
general corporate purposes, including funding acquisitions, redevelopment and
repositioning opportunities, repurchases of our stock and operating partnership
units, tenant improvements and capital expenditures, recapitalizations and
providing working capital.





We have
historically 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.  At March 31, 2008, 78% of our debt was effectively
fixed at an overall rate of 5.20% by virtue of interest rate swap and interest
rate cap agreements in place at the end of the reporting
period.  During the first quarter of 2008, we obtained a new
$340 million loan facility, under which we borrowed $225 million on
March 18, 2008.  The remaining $115 million will be funded on May
1, 2008.  We entered into corresponding interest rate hedges during
the first quarter of 2008, which will fix the underlying interest rate of the
total $340 million facility at 4.84%, and raise total fixed rate debt to
85% beginning May 1, 2008.  See Notes 7 and 8 to our consolidated
financial statements included in this Report.





At March
31, 2008, our total borrowings under secured loans, excluding the portion of
consolidated debt attributable to our minority partner on the Honolulu Club
joint venture, represented 51.8% of our total market capitalization of
$7.1 billion.  Total market capitalization includes our
consolidated debt and the value of common stock and operating partnership units
each based on our common stock closing price at March 31, 2008 on the New York
Stock Exchange of $22.06 per share.





The
nature of our business, and the requirements imposed by REIT rules that we
distribute a substantial majority of our income on an annual basis, will cause
us to have substantial liquidity needs over both the short term and the long
term.




- 22
-




We expect
to meet our short-term liquidity requirements generally through cash provided by
operations and, if necessary, by drawing upon our senior secured revolving
credit facility.  During the first quarter of 2008, we successfully
secured $340 million of debt, of which $225 million was outstanding at
March 31, 2008 and the remaining $115 million was funded on May 1,
2008.  However, recent economic events have led to tighter and more
uncertain credit markets.  As a result, although we have been
successful in financings during the current quarter, disruptions in the credit
markets could impact the availability of credit in the future or could impact
the rates of any borrowings we do obtain.  Currently, we have
approximately $562 million of principal payments maturing by the end of
2009, consisting of the $380 million bridge financing borrowed in
connection with our March 2008 acquisitions and $182 million under our
revolving credit facility.  We anticipate repaying the bridge loan
from refinancing proceeds, available cash and borrowings under our credit
facility prior to maturity.  Our credit facility contains two renewal
options of one year each available to us.  We anticipate that cash
provided by operations and borrowings under our senior 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
do not expect that we will have sufficient funds on hand to cover all of these
long-term cash requirements.  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.  We
have historically financed our operations, acquisitions and development, through
the use of our revolving credit facility or other short-term acquisition lines
of credit, which we subsequently repay with long-term secured floating rate
mortgage debt.  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 at the time we enter into
term borrowings.





We are
also exploring raising capital for acquisitions through an institutional fund,
controlled by an entity affiliated with us, which would receive certain fees as
well as a carried interest in any distributions after the participating
institutional investors receive a return of their invested capital and a
preferred return.  If we close such a fund, it is likely that it would
be our exclusive vehicle for most (and perhaps all) cash acquisitions during the
investment period of the fund.  The exact terms of any such fund would
be based on negotiations and market conditions.  Any securities
offered in such a fund will not be registered under the Securities Act of 1933
and could not be offered or sold in the United States absent registration under
that act or an applicable exemption from those registration
requirements.  Nothing in the foregoing disclosure constitutes an
offer to sell any securities in such a fund, nor a solicitation of an offer to
purchase any such securities.





Contractual
Obligations





During
the first quarter of 2008, there were no material changes outside the ordinary
course of business in the information regarding specified contractual
obligations contained in our Annual Report on Form 10-K for the year ended
December 31, 2007.





Off-Balance
Sheet Arrangements





At March
31, 2008, we did not have any off balance sheet financing
arrangements.





Cash
Flows





Net cash provided by operating activities increased
$11.5 million to $54.0 million for the three months ended March 31,
2008, compared to $42.6 million for the three months ended March 31,
2007.  The increase reflects higher net cash flow from existing
properties that generated improved results, as well as incremental cash flow
from acquired properties.





Net cash
used in investing activities increased $613.6 million to $627.1 million for the
three months ended March 31, 2008 compared to $13.5 million for the three months
ended March 31, 2007.  The increase was primarily due to a higher
level of spending on property acquisitions in the 2008 period compared to the
2007 period.  See Note 3 to our consolidated financial statements
included in this Report.




- 23
-




Cash flow
related to financing activities increased from an outflow of $29.8 million in
the first three months of 2007 to an inflow of $571.7 million in the first three
months of 2008.   The net cash inflow represents borrowings in
excess of equity repurchases and payments of dividends and
distributions.




Item
3.  Quantitative and Qualitative Disclosures about Market
Risk





During
the first three months of 2008, there were no material changes in the
information regarding market risk contained in our Annual Report on Form 10-K
for the year ended December 31, 2007.








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 the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.






As of
March 31, 2008, 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 Securities and Exchange
Commission’s rules and forms and (ii) is accumulated and communicated to
our management including our principal executive officer and our principal
financial officer, to allow timely decisions regarding required
disclosure.






There
have been no significant changes that occurred during the quarter covered by
this Report in our internal control over financial reporting 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.




- 24
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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





We are
not aware of any material changes to the risk factors included in Item 1A, “Risk
Factors” in our 2007 Annual Report on Form 10-K.





Item
2.  Unregistered Sales of Securities and Use of
Proceeds




Sales.  We did not
make any unregistered sales of our securities during the quarter ended March 31,
2008.






Purchases.  We made
the following purchases of our share equivalents during the three months ended
March 31, 2008.




ISSUER
      PURCHASES OF EQUITY SECURITIESPeriod
            (a)
      Total Number of Share Equivalents Purchased
            (b)
      Average Price Paid per Share (or Unit)January
      2008
            -
            -February
      2008
            1,000,000
            $21.55March
      2008
            105,867
            $20.86Total
            1,105,867
            $21.48




All
purchases were made in private unsolicited
transactions, not pursuant to a publicly announced program.







Item
3.  Defaults Upon Senior Securities





None.





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





None.





Item
5.  Other Information







(a)                 Additional
Disclosures.None.






(b)                 Stockholder
Nominations.There have been no material changes to the
procedures by which stockholders may recommend nominees to our board of
directors during the quarter ended March 31, 2008.  Please see the
discussion of our procedures in our most recent proxy statement.







- 25
-


Item
6.  Exhibits





Exhibit
      Number
            
            Description31.1
            
            Certificate
      of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Certificate
      of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Certificate
      of Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.(1)32.2
            
            Certificate
      of Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.(1)10.1
            
            $18,000,000
      Loan Agreement dated as of February 12, 2008 among DEG III, LLC and Wells
      Fargo Bank, National Association.10.2
            
            $340,000,000
      Loan Agreement dated as of March 18, 2008 among Douglas Emmett 2007, LLC;
      Douglas Emmett Realty Fund 2002; Douglas Emmett 1995, LLC; the lenders
      party thereto, EuroHypo AG and ING Real Estate (USA),
  LLC.10.3
            
            $380,000,000
      Loan Agreement dated as of March 26, 2008 among Douglas Emmett 2008, LLC;
      the lenders party thereto and General Electric Capital
      Corporation.





(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.


- 26
-


Signatures




Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.










DOUGLAS
      EMMETT, INC.Date:  May
      8, 2008
            By:
            /s/
      Jordan L. KaplanJordan
      L. KaplanPresident
      and Chief Executive OfficerDate:
      May 8, 2008
            By:
            /s/
      William KamerWilliam
      KamerChief
      Financial Officer





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