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Brookfield DTLA Fund Office Trust Investor Inc. (DTLAP)·Q1 2018 Earnings Summary

Executive Summary

  • Q1 2018 revenue was $75.21M, down 1% year over year (Q1 2017: $75.92M); net loss improved modestly to $(9.78)M from $(10.11)M YoY as depreciation and interest trended slightly lower .
  • Portfolio leased rate was 85.9% and annualized rent per RSF was $25.19, up vs. Q3 2017 (85.0%, $24.93) and roughly flat vs. Q2 2017 (85.8%, $24.71), indicating stable-to-improving occupancy mix in the LACBD portfolio .
  • Liquidity actions were the focal point: the company refinanced EY Plaza (new $265.0M mortgage/mezzanine; net proceeds $263.6M) and Figueroa at 7th ($58.5M fixed-rate; net proceeds $58.0M), while $470M of 2018 maturities remain (777 Tower $220M; Wells Fargo Center–South Tower $250M); management intends to extend/refinance, though 777 Tower did not meet extension criteria as of 3/31/18 .
  • For DTLAP preferred holders: no dividends were declared; cumulative unpaid Series A preferred dividends reached $152.8M at 3/31/18 and $154.3M at 4/30/18, with the Series A recorded at redemption value (par plus accrued) .
  • No Q1 2018 earnings press release or call transcript was filed; trend analysis comes from the 10-Q. S&P Global consensus estimates were unavailable for Q1 2018 (request limit); no comparison to Street possible.

What Went Well and What Went Wrong

What Went Well

  • Occupancy and pricing stable-to-improving: portfolio 85.9% leased with $25.19 annualized rent/RSF, up vs. Q3’17 $24.93, suggesting resilient rent roll in LACBD despite mixed leasing backdrop .
  • Executed refinancing to term out debt and raise liquidity: EY Plaza ($230M mortgage swapped at 3.90% effective; $35M mezz at L+4.55%), and Figueroa at 7th ($58.5M at 3.88% fixed) with proceeds used to repay prior loans and for corporate purposes .
  • Operating expenses and non-cash charges moderated YoY: depreciation and amortization declined by $1.0M YoY; interest expense fell $0.4M YoY in Q1, aiding a slight improvement in bottom-line loss .

What Went Wrong

  • Core top line contracted slightly: total revenue fell 1% YoY as tenant reimbursements declined $1.5M on lower occupancy; “negative cash burn” persisted with operating cash flow of $(12.7)M in the quarter vs. $(7.2)M in Q1’17 .
  • Near-term refinancing overhangs remain: $470M maturity stack in 2018 (777 Tower and WFC–South Tower); as of 3/31, company did not meet criteria to extend 777 Tower and lacked a refinance commitment, elevating execution risk .
  • Series A preferred dividends remain unpaid and accruing, with cumulative arrears growing to $152.8M at 3/31/18 and $154.3M at 4/30/18; this continues to increase the liquidation preference senior to common .

Financial Results

Income Statement Summary (USD $000s)

MetricQ1 2017Q2 2017Q3 2017Q1 2018
Rental income40,068 40,147 40,628 41,029
Tenant reimbursements23,620 24,150 24,368 22,105
Parking9,212 9,357 9,216 9,137
Interest and other3,015 2,416 2,855 2,940
Total revenue75,915 76,070 77,067 75,211
Total expenses86,021 84,571 86,204 84,990
Net loss(10,106) (8,501) (9,137) (9,779)
Net loss available to common(9,888) (10,061) (10,689) (11,560)
Net loss margin %(13.3%)* (11.2%)* (11.9%)* (13.0%)*

Note: Net loss margin % computed from reported revenue and net loss (citations denote source figures).

Occupancy and Rent KPIs

KPIQ2 2017Q3 2017Q1 2018
Leased % (portfolio)85.8% 85.0% 85.9%
Annualized rent $/RSF$24.71 $24.93 $25.19

Property-Level Snapshot (as of March 31, 2018)

PropertyLeased %Annualized Rents ($)Annualized Rent $/RSF
BOA Plaza91.5%32,915,714 25.60
Wells Fargo Center–North Tower84.6%30,808,704 25.99
Gas Company Tower90.2%29,954,307 24.70
EY Plaza89.2%26,927,156 24.64
Wells Fargo Center–South Tower75.7%21,304,766 25.03
777 Tower81.4%20,845,736 24.98
Total85.9%162,756,383 25.19

Capital Structure and Maturities

MetricAmount/Detail
Total debt (principal)$2,113,500
Fixed-rate debt$908,500 (42.99%), WA rate 4.19%, WA maturity 5 yrs
Variable swapped to fixed$230,000 (10.88%), 3.90%, 3 yrs
Variable-rate debt$975,000 (46.13%), 4.81%, 1 yr
2018 maturities$470,000 (777 Tower $220,000; WFC–South Tower $250,000)
2019$470,000
2020$265,000
2021$450,000
Thereafter$458,500

Guidance Changes

MetricPeriodPrevious Guidance/StatusCurrent Guidance/StatusChange
Capex (ex TI/LC)Next 10 years~$125M; majority ~$106M over 5 years (as of Q3 2017) ~$113M; majority ~$98M over 5 years (as of Q1 2018) Lowered
777 Tower loanNov 1, 2018Plan to refinance/extend (noted later in Q1 2018) Intend to extend/refinance; not meeting extension criteria; no lender commitment as of 3/31/18 Risk increased
WFC–South Tower loanDec 6, 2018Extension options available Intend to extend/refinance; meets criteria to extend one year as of 3/31/18 Maintained/Executable
EY Plaza financing2020 maturityPrior loan outstanding Refinanced Mar 29, 2018: $230M mortgage (swapped to ~3.90% eff), $35M mezz (L+4.55%) Executed
Figueroa at 7th financing2023 maturity$35M loan, short-term extensions in late 2017 Refinanced Feb 6, 2018: $58.5M at 3.88% fixed; net proceeds $58.0M Executed
Series A preferred dividendOngoingNo dividends declared; cumulative unpaid $145.0M at 10/31/17 No dividends declared; cumulative unpaid $152.8M at 3/31/18; $154.3M at 4/30/18 Higher arrears

Earnings Call Themes & Trends

No Q1 2018 earnings call transcript was found. Thematic evolution based on MD&A disclosures:

TopicPrevious Mentions (Q2 & Q3 2017)Current Period (Q1 2018)Trend
Downtown LA leasing conditions“Challenging leasing conditions” with limited new tenants; average asking net effective rents essentially flat Rents “essentially flat”; management believes in-place rents at market; leased % ~85.9% Stable
Liquidity/“negative cash burn”Emphasis on need for liquidity; negative cash burn commentary recurring Reiterated negative cash burn and need for access to cash Unchanged concern
Debt refinancingWells Fargo North refinanced in Apr 2017 EY Plaza and Figueroa at 7th refinanced in Q1 2018 Active de-risking
Near-term maturitiesFigueroa short-term extensions and planned refi 2018 maturities (777, WFC–South) highlighted; 777 not yet extendable; WFC–South extendable Mixed risk
Capex outlook~$129–$125M 10-year spend (varying estimates across filings) Lowered to ~$113M 10-year; majority next 5 years Lower spend plan

Management Commentary

  • “The amount of cash [we] currently generate from operations is not sufficient to cover operating, financing and investing activities, resulting in ‘negative cash burn’” (MD&A Liquidity) .
  • “Brookfield DTLA currently intends to extend or refinance the $220.0 million mortgage loan secured by 777 Tower… As of March 31, 2018, we do not meet the criteria… and we do not have a commitment from the lenders” .
  • “As of March 31, 2018, we meet the criteria… to extend [Wells Fargo Center–South Tower] for one year” .
  • “No dividends were declared on the Series A preferred stock… dividends… are cumulative, and therefore, will continue to accrue… cumulative amount of unpaid dividends totals $152.8 million [3/31/18]” .

Q&A Highlights

No Q1 2018 earnings call transcript was available; no Q&A to report.

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q1 2018 revenue and EPS, but data were unavailable due to request limits; thus, no comparison to Street is provided (S&P Global consensus unavailable).

Key Takeaways for Investors

  • Balance sheet execution was constructive (two refinancings closed), but 2018 maturities are still a central catalyst: watch for 777 Tower extension/refi progress and any required concessions or paydowns .
  • Operating fundamentals remain steady: leased % and rent/RSF trends are stable-to-improving; tenant reimbursements were softer YoY on slightly lower occupancy, a watch item for future quarters .
  • Preferred stock dynamics: arrears continue to accrete; Series A is carried at redemption value (par plus accrued), underscoring seniority but also highlighting ongoing cash constraints (no dividends declared) .
  • Liquidity remains a focus: company reiterates “negative cash burn” and reliance on refinancings and sponsor capital sources; execution on leasing and capex pacing is key to stabilizing cash outflows .
  • Capex outlook trimmed: 10-year (ex TI/LC) spend reduced to ~$113M (from ~$125M), with ~$98M over the next five years—potentially easing near-term cash demands .
  • Rate and credit exposure: floating-rate mix remains high (approx. 57% combined variable and swapped-to-fixed), with LIBOR caps/swaps in place; interest expense sensitivity and DSCR covenants should be monitored .

Sources:

  • Q1 2018 10-Q (filed May 15, 2018) for financials, liquidity, occupancy, debt, capex, and Series A disclosures .
  • Q3 2017 10-Q (filed Nov 13, 2017) for prior-quarter trend and capex outlook .
  • Q2 2017 10-Q (filed Aug 11, 2017) for earlier-quarter trend .
  • 8-K (Apr 25, 2018) included a market update session press release; no Q1 2018 earnings press release details were furnished .