Paying for buzz at Dolby…

June 27, 2012

Yesterday, Dolby Labs (DLB) announced that it was buying a building on a gritty strip of Market St. in San Francisco near the Civic Center to serve as its new headquarters. While the press release didn’t mention the price, the 8-K did: $110 million.

The news created plenty of buzz because the address is just a stone’s throw away from Twitter’s new headquarters at 1355 Market St. (the purple dot on the map is Dolby; the red dot is Twitter). Indeed, in this article in the San Francisco Times, the headline read: “Dolby to Follow Twitter.”

In Dolby’s press release, San Francisco Mayor Ed Lee said, “Companies like Dolby are transforming the Central Market neighborhood into a vibrant hub for entertainment, culture, and innovation and are proving that our economic strategy for companies to start here, grow here, and stay here is working.”

Now, we’re not real estate experts in San Francisco or really any other place. But we do know SEC filings and this one seemed strange to us for some of the things that were missing. Hat tip also goes to a footnoted reader who pointed it out to us.

That’s because neither the 8-K nor the press release made any mention of Dolby’s current offices in SoMa. But a quick search of Dolby’s prior filings shows that the company is leasing those offices from Ray Dolby, the company’s founder and director emeritus who left the company in fiscal 2009 and stepped down from the board last year. As the company’s proxy notes:

Since 1980, we have leased our principal executive offices located at 100 Potrero Avenue, San Francisco, California from Ray Dolby. We also lease additional parking and warehouse space from Ray Dolby in connection with our lease of 100 Potrero Avenue. In December 2005, we renegotiated the leases and extended their terms until December 31, 2013, with the option to renew the leases for two additional five year terms… Our rent expense for these facilities was $1.6 million in fiscal 2011 and the estimated rent expense over the remaining life of the leases for these facilities is $15.1 million….

At this point, we’re left scratching our heads: why would the company pay $110 million for the new office space when it’s still on the hook for the old space? Not to mention the cost differential: why pay $110 million for space when your annual rent is running around $1.6 million? (Clarification: the $1.6 million is only for the space at 100 Potrero owned by Dolby (the man) and not the total rent cost, which is probably closer to $5 million annually.

The only thing we’re really able to come up with is the buzz factor of having Dolby — which was founded almost 50 years ago in 1965 — linked to a real estate renaissance led by the âåber-hot Twitter.

Image source: Google maps

——-

There are no accidents in SEC filings. Over at footnotedPro, our subscription service exclusively for financial professionals, we identify early warning signs and hidden red flags well in advance of the market. For more information, or to inquire about a trial subscription, please email us.

Leave a Reply

You must be logged in to post a comment.