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Hudson Pacific Properties Reports Fourth Quarter 2021 Financial Results

Full Year Net Income of $0.04 per Diluted Share

Achieved High End of Full Year FFO Guidance Range of $1.99 per Diluted Share (Excluding Specified Items)

Signed in aggregate over 1.8 million square feet of office leases

Achieved full-year GAAP and cash office rent growth of 14.0% and 7.1%, respectively

Same-store office and studio cash NOI increased 4.9% and 11.3%, respectively

Fourth Quarter Net Income of $0.05 per Diluted Share

Fourth Quarter FFO of $0.52 per Diluted Share (Excluding Specified Items)

Signed over 448,000 square feet of office leases

Achieved GAAP and cash office rent growth of 16.2% and 11.2%, respectively

Stabilized and in-service office leased percentages increased to 93.8% and 92.8%, respectively

Provided Full-Year 2022 FFO Guidance

$2.01 to $2.09 per diluted share (excluding specified items)

Hudson Pacific Properties, Inc. (the "Company" or "Hudson Pacific") (NYSE: HPP) today announced financial results for the fourth quarter 2021.

Management Comments & Industry Outlook

Victor Coleman, Hudson Pacific Properties' Chairman and CEO, said:

"We ended 2021 by reaching the high end of our outlook in another pandemic-challenged year as we benefited from our ongoing diversification of owning studio and office properties," stated Victor Coleman, Hudson Pacific Properties' Chairman and CEO. "As the demand for content continues to expand, we are well positioned to benefit in the coming years. During the quarter, we continued to execute effectively, leasing nearly half a million square feet of office space and ending the year 92.8% leased. We remain highly committed to the ongoing expansion of our studio portfolio, and accelerating leasing in the coming year across our assets in efforts to enhance long-term shareholder value."

Consolidated Financial & Operating Results

For fourth quarter 2021 compared to fourth quarter 2020:

  • Net income attributable to common stockholders of $8.1 million, or $0.05 per diluted share, compared to net loss of $8.5 million, or $0.05 per diluted share;
  • FFO of $78.7 million, or $0.51 per diluted share, compared to $62.0 million, or $0.41 per diluted share;
  • FFO, excluding specified items, of $79.6 million, or $0.52 per diluted share, compared to $66.8 million, or $0.44 per diluted share;
    • Specified items consisting of transaction-related expenses of $1.5 million, or $0.01 per diluted share, and one-time, prior-period supplemental property tax reimbursements of $0.7 million, or $0.00 per diluted share, compared to a one-time tax reassessment management cost of $5.5 million, or $0.04 per diluted share, and a one-time net property tax savings for periods prior to the fourth quarter of 2020 of $0.7 million, or $0.00 per diluted share;
  • Total revenue grew 18.0% to $240.5 million;
  • Total operating expenses were $198.0 million compared to $178.9 million; and
  • Interest expense was $30.1 million compared to $29.6 million.

Office Segment Results

Financial & operating

Fourth quarter 2021 compared to fourth quarter 2020:

  • Total revenue increased 11.5% to $205.7 million;
  • Operating expenses were $72.8 million compared to $67.7 million; and
  • Net operating income and cash net operating income for the 42 consolidated same-store office properties increased 4.6% and 2.8%, respectively.

Leasing

  • In-service office portfolio was 91.8% occupied and 92.8% leased; and
  • Executed 74 new and renewal leases totaling 448,121 square feet with GAAP and cash rent growth of 16.2% and 11.2%, respectively.

Studio Segment Results

Financial & operating

Fourth quarter 2021 compared to fourth quarter 2020:

  • Total revenue grew 79.7% to $34.8 million;
  • Total operating expenses were $19.6 million compared to $9.9 million, including a $2.2 million one-time supplemental property tax savings on Sunset Gower in fourth quarter 2020; and
  • Net operating income and cash net operating income for the three same-store studio properties decreased 9.5% and 17.3%, respectively. Adjusted for the one-time supplemental property tax savings on Sunset Gower occurring in fourth quarter 2020, net operating income and cash net operating income for the three same-store studio properties would have increased 17.7% and 6.9%, respectively.

Leasing

  • Trailing 12-month occupancy for the three same-store studio properties was 85.7%.

Leasing Activity

Executed significant leases across the portfolio during fourth quarter 2021

  • Amazon leased an additional 52,588 square feet at 1918 Eighth in Seattle beginning May 2022 through September 2030, coterminous with its existing 606,562-square-foot lease.
  • Tipalti signed a 26,986-square-foot lease commencing January 2022 through September 2028 at Bentall Centre in Downtown Vancouver.
  • Hopkins & Carley signed a 15,805-square-foot lease commencing December 2021 through July 2032 at 555 Twin Dolphin in Redwood Shores.

Capital Transactions

Purchased office tower in Seattle's Denny Triangle

Hudson Pacific acquired the leasehold interest in 5th & Bell, a 197,000-square-foot office building in Seattle's vibrant Denny Triangle submarket for $119 million before closing costs and prorations. The immediately accretive transaction further expanded Hudson Pacific's Downtown Seattle portfolio to 2.7 million square feet, and deepened its relationship with Amazon, which leases the entirety of the property's 192,000-square-foot office component.

Repurchased 1.3 million shares of common stock

The Company repurchased 1.3 million shares of common stock at an average price of $24.07 per share, bringing total shares repurchased in 2021 to 1.9 million at an average price of $23.82 per share.

Raised over $400 million through preferred stock offering

Hudson Pacific completed a public offering of 16 million shares, as well as the exercise of the underwriters' over-allotment option to purchase another 1 million shares, of 4.750% Series C Cumulative Redeemable Preferred Stock, generating total proceeds, after underwriters’ discount and offering expenses, of approximately $413 million. The Company contributed the net proceeds to its operating partnership, which in turn used a portion of the net proceeds to repay amounts outstanding under its credit facility and other indebtedness, inclusive of the $25.2 million loan secured by 10950 Washington maturing in March 2022.

Development

Commenced construction on Los Angeles-area studio facility

The Company began construction on its 241,000-square-foot, seven-stage Sunset Glenoaks studio development in Sun Valley, with delivery anticipated in third quarter 2023. The project, owned 50/50% by Hudson Pacific and Blackstone, expands the partnership's Los Angeles-area studio portfolio to 42 stages across four facilities, and will offer content creators a unique production environment as the first large-scale, purpose-built facility built in the city in more than 20 years.

Delivered One Westside mall-to-office conversion to Google

The Company delivered its 584,000-square-foot, award-winning One Westside mall-to-creative office adaptive-reuse project fully leased to Google for tenant improvements on-budget and nearly two months ahead of schedule.

Progressed pipeline of near-term (re)development projects

The Company has finalized designs for its fully entitled 538,000-square-foot Washington 1000 office development in Seattle's Denny Triangle, and could commence construction within 12 months from the podium's delivery as part of the Washington State Convention Center Addition. Hudson Pacific continues to make progress on planning approvals for its 20-25 stage Sunset Waltham Cross studio development in the UK and its 450,000-square-foot Burrard Exchange hybrid-mass-timber office development at Bentall Centre in Vancouver. Sunset Waltham Cross and Burrard Exchange are jointly owned by Hudson Pacific/Blackstone 35/65% and 20/80%, respectively.

Financings

Recast $1 billion unsecured revolving credit facility

Hudson Pacific amended and restated its unsecured revolving credit facility to, among other adjustments, increase availability from $600 million to $1 billion and extend the maturity date to December 21, 2025 with two options to extend for additional six-month periods.

Secured $94 million construction loan for Sunset Glenoaks

Hudson Pacific and Blackstone secured a $94 million construction loan to finance a portion of its Sunset Glenoaks studio development, with total estimated projects costs of $180-200 million.

Balance Sheet

At the end of the fourth quarter 2021:

  • $3.0 billion of the Company's share of unsecured and secured debt and Series A preferred units (net of cash and cash equivalents) resulting in a leverage ratio of 41.0%.
  • Approximately $1.0 billion of total liquidity comprised of:
    • $96.6 million of unrestricted cash and cash equivalents; and
    • $875.0 million of undrawn capacity under the unsecured revolving credit facility.
  • Access to another $173.2 million of undrawn capacity under the construction loan secured by One Westside and 10850 Pico as well as $90.7 million of undrawn capacity under the construction loan secured by its Sunset Glenoaks studio development.
  • Investment grade credit rated with 66.5% unsecured and 81.1% fixed-rate debt and a weighted average maturity of 4.8 years.

Dividend

  • The Company's Board of Directors declared a dividend on its common stock of $0.25 per share, equivalent to an annual rate of $1.00 per share, payable on December 30, 2021 to stockholders of record on December 20, 2021.

ESG Leadership

Earned top honors in 2021 GRESB Real Estate Assessment

In addition to achieving Green Star and highest 5-Star ratings for the third consecutive year, Hudson Pacific was recognized by the Global Real Estate Sustainability Benchmark (GRESB) as an Office Sector Leader for the Americas, ranking first among the 22 companies in this category in the Development Benchmark. The Company also received an "A" Public Disclosure score, ranking first among U.S. office companies.

Pledged $1 million to support veteran housing

Hudson Pacific pledged a $500,000 monetary donation and another $500,000 in pro bono work to support The Veterans Fund, a $10 million launch fund for the capital campaign to build the nation’s largest veteran housing community at the West Los Angeles VA Campus across the street from the Company's headquarters.

2022 Outlook

The Company is providing 2022 full-year FFO guidance in the range of $2.01 to $2.09 per diluted share, excluding specified items. There are no specified items in connection with this guidance.

The FFO outlook reflects management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this press release and in earlier announcements. It otherwise excludes any impact from new acquisitions, dispositions, debt financings or repayments, recapitalizations, capital markets activity or similar matters. There can be no assurance that actual results will not differ materially from this estimate.

Below are some of the assumptions the Company used in providing this guidance (dollars and share data in thousands):

Unaudited, in thousands, except share data

 

 

Current Guidance

 

Full Year 2022

Metric

Low

High

FFO per share

$2.01

$2.09

Growth in same-store office property cash NOI(1)(2)

2.00%

3.00%

Growth in same-store studio property cash NOI(1)(2)

15.00%

16.00%

GAAP non-cash revenue (straight-line rent and above/below-market rents)(3)

$49,000

$59,000

GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)

$(3,100)

$(3,100)

General and administrative expenses(4)

$(78,000)

$(82,000)

Interest expense(5)

$(129,500)

$(132,500)

Interest income

$1,700

$1,800

Corporate-related depreciation and amortization

$(17,950)

$(18,050)

FFO from unconsolidated joint ventures

$6,000

$7,000

FFO attributable to non-controlling interests

$(75,000)

$(79,000)

FFO attributable to Preferred Units / Shares

$(20,800)

$(20,800)

Weighted average common stock/units outstanding—diluted(6)

152,750

153,750

(1)

 

Same-store for the full year 2022 is defined as the 43 office properties or three studio properties, as applicable, owned and included in the Company's stabilized portfolio as of January 1, 2021, and anticipated to still be owned and included in the stabilized portfolio through December 31, 2022. Same-store office property cash NOI growth assumes the expiration (without renewal or backfill in 2022) of all 376,817 square feet leased to Qualcomm at Skyport Plaza as of July 31, 2022. Adjusted for this expiration, full year 2022 same-store office property cash NOI growth would be 3.50% - 4.50%.

(2)

 

Please see non-GAAP information below for definition of cash NOI.

(3)

 

Includes non-cash straight-line rent associated with the studio and office properties.

(4)

 

Includes non-cash compensation expense, which the Company estimates at $20,500 in 2022.

(5)

 

Includes amortization of deferred financing costs and loan discounts/premiums, which the Company estimates at $5,800 in 2022.

(6)

 

Diluted shares represent ownership in the Company through shares of common stock, OP Units and other convertible or exchangeable instruments. The weighted average fully diluted common stock/units outstanding for 2022 includes an estimate for the dilution impact of stock grants to the Company's executives under its 2020, 2021 and 2022 long-term incentive programs. This estimate is based on the projected award potential of such programs as of the end of the most recently completed quarter, as calculated in accordance with the ASC 260, Earnings Per Share.

The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, including the information under "FFO Guidance" above, where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted share, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, acquisition costs and other non-core items that have not yet occurred, are out of the Company's control and/or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Supplemental Information

Supplemental financial information regarding Hudson Pacific's fourth quarter 2021 results may be found on the Investors section of the Company's website at HudsonPacificProperties.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property and debt maturity schedules.

Conference Call

The Company will hold a conference call to discuss fourth quarter 2021 financial results at 11:00 a.m. PT / 2:00 p.m. ET on February 17, 2022. Please dial (844) 200-6205 and enter passcode 967644 to access the call. International callers should dial (929) 526-1599 and enter the same passcode. A live, listen-only webcast and replay can be accessed via the Investors section of the Company's website at HudsonPacificProperties.com.

About Hudson Pacific Properties

Hudson Pacific is a real estate investment trust with a portfolio of office and studio properties totaling over 20 million square feet, including land for development. Focused on global epicenters of innovation, media and technology, its anchor tenants include Fortune 500 and leading growth companies such as Google, Netflix, Riot Games, Square, Uber and more. Hudson Pacific is publicly traded on the NYSE under the symbol HPP and listed as a component of the S&P MidCap 400 Index. For more information visit HudsonPacificProperties.com.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events, or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company's control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. All forward-looking statements reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

Consolidated Balance Sheets

Unaudited, in thousands, except share data

 

 

December 31, 2021

 

December 31, 2020

 

(Unaudited)

 

 

ASSETS

 

 

 

Investment in real estate, at cost

$

8,361,477

 

 

$

8,215,017

 

Accumulated depreciation and amortization

 

(1,283,774

)

 

 

(1,102,748

)

Investment in real estate, net

 

7,077,703

 

 

 

7,112,269

 

Non-real estate property, plant and equipment, net

 

58,469

 

 

 

8,444

 

Cash and cash equivalents

 

96,555

 

 

 

113,686

 

Restricted cash

 

100,321

 

 

 

35,854

 

Accounts receivable, net

 

25,339

 

 

 

22,105

 

Straight-line rent receivables, net

 

240,306

 

 

 

225,685

 

Deferred leasing costs and intangible assets, net

 

341,444

 

 

 

285,836

 

U.S. Government securities

 

129,321

 

 

 

135,115

 

Operating lease right-of-use asset

 

287,041

 

 

 

264,880

 

Prepaid expenses and other assets, net

 

119,000

 

 

 

55,469

 

Investment in unconsolidated real estate entities

 

154,731

 

 

 

82,105

 

Goodwill

 

109,439

 

 

 

8,754

 

Assets associated with real estate held for sale

 

250,520

 

 

 

 

TOTAL ASSETS

$

8,990,189

 

 

$

8,350,202

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Liabilities

 

 

 

Unsecured and secured debt, net

$

3,733,903

 

 

$

3,399,492

 

In-substance defeased debt

 

128,212

 

 

 

131,707

 

Joint venture partner debt

 

66,136

 

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

300,959

 

 

 

235,860

 

Operating lease liability

 

293,596

 

 

 

270,014

 

Intangible liabilities, net

 

42,290

 

 

 

49,144

 

Security deposits and prepaid rent

 

84,939

 

 

 

92,180

 

Liabilities associated with real estate held for sale

 

3,898

 

 

 

 

Total liabilities

 

4,653,933

 

 

 

4,244,533

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

129,449

 

 

 

127,874

 

 

 

 

 

Equity

 

 

 

Hudson Pacific Properties, Inc. stockholders' equity:

 

 

 

4.750% series C cumulative redeemable preferred stock, $0.01 par value, 17,000,000 authorized; 17,000,000 and no shares outstanding at December 31, 2021 and 2020, respectively

 

425,000

 

 

 

 

Common stock, $0.01 par value, 490,000,000 authorized, 151,124,543 and 151,401,365 shares outstanding at December 31, 2021 and 2020, respectively

 

1,511

 

 

 

1,514

 

Additional paid-in capital

 

3,317,072

 

 

 

3,469,758

 

Accumulated other comprehensive loss

 

(1,761

)

 

 

(8,133

)

Total Hudson Pacific Properties, Inc. stockholders' equity

 

3,741,822

 

 

 

3,463,139

 

Non-controlling interest—members in consolidated real estate entities

 

402,971

 

 

 

467,009

 

Non-controlling interest—units in the operating partnership

 

52,199

 

 

 

37,832

 

Total equity

 

4,196,992

 

 

 

3,967,980

 

TOTAL LIABILITIES AND EQUITY

$

8,990,189

 

 

$

8,350,202

 

Consolidated Statements of Operations

Unaudited, in thousands, except share data

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

2021

 

2020

 

2021

 

2020

REVENUES

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Rental

$

202,382

 

 

$

181,263

 

 

$

782,736

 

 

$

721,286

 

Service and other revenues

 

3,276

 

 

 

3,205

 

 

 

12,634

 

 

 

14,633

 

Total office revenues

 

205,658

 

 

 

184,468

 

 

 

795,370

 

 

 

735,919

 

Studio

 

 

 

 

 

 

 

Rental

 

13,513

 

 

 

11,989

 

 

 

49,985

 

 

 

48,756

 

Service and other revenues

 

21,311

 

 

 

7,386

 

 

 

51,480

 

 

 

20,290

 

Total studio revenues

 

34,824

 

 

 

19,375

 

 

 

101,465

 

 

 

69,046

 

Total revenues

 

240,482

 

 

 

203,843

 

 

 

896,835

 

 

 

804,965

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Office operating expenses

 

72,796

 

 

 

67,653

 

 

 

280,334

 

 

 

262,199

 

Studio operating expenses

 

19,550

 

 

 

9,945

 

 

 

55,513

 

 

 

37,580

 

General and administrative

 

17,500

 

 

 

23,939

 

 

 

71,346

 

 

 

77,882

 

Depreciation and amortization

 

88,107

 

 

 

77,351

 

 

 

343,614

 

 

 

299,682

 

Total operating expenses

 

197,953

 

 

 

178,888

 

 

 

750,807

 

 

 

677,343

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Income from unconsolidated real estate entities

 

151

 

 

 

667

 

 

 

1,822

 

 

 

736

 

Fee income

 

898

 

 

 

1,074

 

 

 

3,221

 

 

 

2,815

 

Interest expense

 

(30,139

)

 

 

(29,638

)

 

 

(121,939

)

 

 

(113,823

)

Interest income

 

926

 

 

 

960

 

 

 

3,794

 

 

 

4,089

 

Management services reimbursement income—unconsolidated real estate entities

 

253

 

 

 

 

 

 

1,132

 

 

 

 

Management services expense—unconsolidated real estate entities

 

(253

)

 

 

 

 

 

(1,132

)

 

 

 

Transaction-related expenses

 

(1,547

)

 

 

 

 

 

(8,911

)

 

 

(440

)

Unrealized gain (loss) on non-real estate investments

 

4,951

 

 

 

(128

)

 

 

16,571

 

 

 

(2,463

)

Impairment loss

 

 

 

 

 

 

 

(2,762

)

 

 

 

Loss on extinguishment of debt

 

(10

)

 

 

 

 

 

(6,259

)

 

 

(2,654

)

Other (expense) income

 

(1,006

)

 

 

(1,058

)

 

 

(2,553

)

 

 

548

 

Total other expense

 

(25,776

)

 

 

(28,123

)

 

 

(117,016

)

 

 

(111,192

)

Net income (loss)

 

16,753

 

 

 

(3,168

)

 

29,012

 

 

 

16,430

 

Net income attributable to Series A preferred units

 

(153

)

 

 

(153

)

 

 

(612

)

 

 

(612

)

Net income attributable to Series C preferred shares

 

(2,281

)

 

 

 

 

 

(2,281

)

 

 

 

Net income attributable to participating securities

 

(260

)

 

 

(720

)

 

 

(1,090

)

 

 

(1,041

)

Net income attributable to non-controlling interest in consolidated real estate entities

 

(6,042

)

 

 

(6,378

)

 

 

(21,806

)

 

 

(18,955

)

Net loss attributable to redeemable non-controlling interest in consolidated real estate entities

 

122

 

 

 

1,864

 

 

 

2,902

 

 

 

4,571

 

Net (income) loss attributable to non-controlling interest in the operating partnership

 

(77

)

 

 

79

 

 

 

(61

)

 

 

(10

)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

8,062

 

 

$

(8,476

)

 

$

6,064

 

 

$

383

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders—basic

$

0.05

 

 

$

(0.05

)

 

$

0.04

 

 

$

0.00

 

Net income (loss) attributable to common stockholders—diluted

$

0.05

 

 

$

(0.05

)

 

$

0.04

 

 

$

0.00

 

Weighted average shares of common stock outstanding—basic

 

152,137,508

 

 

 

151,585,520

 

 

 

151,618,282

 

 

 

153,126,027

 

Weighted average shares of common stock outstanding—diluted

 

152,271,140

 

 

 

151,585,520

 

 

 

151,943,360

 

 

 

153,169,025

 

Funds From Operations

Unaudited, in thousands, except per share data

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

2021

 

2020

 

2021

 

2020

RECONCILIATION OF NET INCOME (LOSS) TO FUNDS FROM OPERATIONS (FFO)(1):

 

 

 

 

 

 

 

Net income (loss)

$

16,753

 

 

$

(3,168

)

 

$

29,012

 

 

$

16,430

 

Adjustments:

 

 

 

 

 

 

 

Depreciation and amortization—Consolidated

 

88,107

 

 

 

77,351

 

 

 

343,614

 

 

 

299,682

 

Depreciation and amortization—Non-real estate assets

 

(4,331

)

 

 

(566

)

 

 

(7,719

)

 

 

(2,286

)

Depreciation and amortization—Company's share from unconsolidated real estate entities

 

1,497

 

 

 

1,424

 

 

 

6,020

 

 

 

5,605

 

Impairment loss

 

 

 

 

 

 

 

2,762

 

 

 

 

Unrealized (gain) loss on non-real estate investments

 

(4,951

)

 

 

128

 

 

 

(16,571

)

 

 

2,463

 

Tax impact of unrealized gain on non-real estate investment

 

1,973

 

 

 

 

 

 

3,849

 

 

 

 

FFO attributable to non-controlling interests

 

(17,867

)

 

 

(13,025

)

 

 

(64,388

)

 

 

(37,644

)

FFO attributable to preferred units

 

(2,434

)

 

 

(153

)

 

 

(2,893

)

 

 

(612

)

FFO to common stockholders and unitholders

 

78,747

 

 

 

61,991

 

 

 

293,686

 

 

 

283,638

 

Specified items impacting FFO:

 

 

 

 

 

 

 

Transaction-related expenses

 

1,547

 

 

 

 

 

 

8,911

 

 

 

440

 

One-time tax reassessment management cost

 

 

 

 

5,500

 

 

 

 

 

 

5,500

 

One-time straight line rent reserve

 

 

 

 

 

 

 

 

 

 

2,620

 

One-time prior period net property tax adjustment

 

(687

)

 

 

(702

)

 

 

(581

)

 

 

(937

)

One-time debt extinguishment cost—Company's share

 

 

 

 

 

 

 

3,187

 

 

 

2,654

 

FFO (excluding specified items) to common stockholders and unitholders

$

79,607

 

 

$

66,789

 

 

$

305,203

 

 

$

293,915

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

153,700

 

 

 

152,576

 

 

 

153,332

 

 

 

154,084

 

FFO per common stock/unit—diluted

$

0.51

 

 

$

0.41

 

 

$

1.92

 

 

$

1.84

 

FFO (excluding specified items) per common stock/unit—diluted

$

0.52

 

 

$

0.44

 

 

$

1.99

 

 

$

1.91

 

1.

 

Hudson Pacific calculates FFO in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). The White Paper defines FFO as net income or loss calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), excluding gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), adjusting for consolidated and unconsolidated joint ventures. The calculation of FFO includes amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. Hudson Pacific believes that FFO is a useful supplemental measure of its operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of the Company's activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, the Company's FFO may not be comparable to all other REITs.

 

 

 

 

 

Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, Hudson Pacific believes that FFO along with the required GAAP presentations provides a more complete measurement of the Company's performance relative to its competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide. Hudson Pacific uses FFO per share to calculate annual cash bonuses for certain employees.

 

 

 

 

 

However, FFO should not be viewed as an alternative measure of Hudson Pacific's operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties, which are significant economic costs and could materially impact the Company's results from operations.

Net Operating Income

Unaudited, in thousands

 

 

Three Months Ended December 31,

 

2021

 

2020

RECONCILIATION OF NET INCOME (LOSS) TO NET OPERATING INCOME (NOI)(1):

 

 

 

Net income (loss)

$

16,753

 

 

$

(3,168

)

Adjustments:

 

 

 

Income from unconsolidated real estate entities

 

(151

)

 

 

(667

)

Fee income

 

(898

)

 

 

(1,074

)

Interest expense

 

30,139

 

 

 

29,638

 

Interest income

 

(926

)

 

 

(960

)

Management services reimbursement income—unconsolidated real estate entities

 

(253

)

 

 

(1,132

)

Management services expense—unconsolidated real estate entities

 

253

 

 

 

1,132

 

Transaction-related expenses

 

1,547

 

 

 

 

Unrealized (gain) loss on non-real estate investments

 

(4,951

)

 

 

128

 

Loss on extinguishment of debt

 

10

 

 

 

 

Other expense

 

1,006

 

 

 

1,058

 

General and administrative

 

17,500

 

 

 

23,939

 

Depreciation and amortization

 

88,107

 

 

 

77,351

 

NOI

$

148,136

 

 

$

126,245

 

 

 

 

 

NET OPERATING INCOME BREAKDOWN

 

 

 

Same-store office cash revenues

 

168,394

 

 

 

163,729

 

Straight-line rent

 

584

 

 

 

(1,128

)

Amortization of above-market and below-market leases, net

 

2,010

 

 

 

1,892

 

Amortization of lease incentive costs

 

(404

)

 

 

(418

)

Same-store office revenues

 

170,584

 

 

 

164,075

 

 

 

 

 

Same-store studios cash revenues

 

20,113

 

 

 

19,539

 

Straight-line rent

 

665

 

 

 

(154

)

Amortization of above-market and below-market leases, net

 

 

 

 

6

 

Amortization of lease incentive costs

 

(9

)

 

 

(16

)

Same-store studio revenues

 

20,769

 

 

 

19,375

 

 

 

 

 

Same-store revenues

 

191,353

 

 

 

183,450

 

 

 

 

 

Same-store office cash expenses

 

59,267

 

 

 

57,561

 

Straight-line rent

 

325

 

 

 

366

 

Non-cash portion of interest expense

 

11

 

 

 

4

 

Amortization of above-market and below-market ground leases, net

 

586

 

 

 

586

 

Same-store office expenses

 

60,189

 

 

 

58,517

 

 

 

 

 

Same-store studio cash expenses

 

12,157

 

 

 

9,916

 

Non-cash portion of interest expense

 

79

 

 

 

29

 

Same-store studio expenses

 

12,236

 

 

 

9,945

 

 

 

 

 

Same-store expenses

 

72,425

 

 

 

68,462

 

 

 

 

 

Same-store net operating income

 

118,928

 

 

 

114,988

 

Non-same-store net operating income

 

29,208

 

 

 

11,257

 

NET OPERATING INCOME

$

148,136

 

 

$

126,245

 

 

 

 

 

SAME-STORE OFFICE NOI INCREASE

 

4.6

%

 

 

SAME-STORE OFFICE CASH NOI INCREASE

 

2.8

%

 

 

SAME-STORE STUDIO NOI DECREASE

 

(9.5

)%

 

 

SAME-STORE STUDIO CASH NOI DECREASE

 

(17.3

)%

 

 

1.

Hudson Pacific evaluates performance based upon property NOI from continuing operations. NOI is not a measure of operating results or cash flows from operating activities or cash flows as measured by GAAP and should not be considered an alternative to income from continuing operations, as an indication of the Company's performance, or as an alternative to cash flows as a measure of liquidity, or the Company's ability to make distributions. All companies may not calculate NOI in the same manner. Hudson Pacific considers NOI to be a useful performance measure to investors and management because when compared across periods, NOI reflects the revenues and expenses directly associated with owning and operating the Company's properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing a perspective not immediately apparent from income from continuing operations. Hudson Pacific calculates NOI as net income (loss) excluding corporate general and administrative expenses, depreciation and amortization, impairments, gains/losses on sales of real estate, interest expense, transaction-related expenses and other non-operating items. Hudson Pacific defines NOI as operating revenues (including rental revenues, other property-related revenue, tenant recoveries and other operating revenues), less property-level operating expenses (which includes external management fees, if any, and property-level general and administrative expenses). NOI on a cash basis is NOI adjusted to exclude the effect of straight-line rent and other non-cash adjustments required by GAAP. Hudson Pacific believes NOI on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent and other non-cash adjustments to revenue and expenses.

 

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