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Hudson Pacific Properties Reports Fourth Quarter 2022 Financial Results

– Over 500,000 Square Feet of Leasing Activity –

– Provides Full-Year 2023 Outlook –

Hudson Pacific Properties, Inc. (NYSE: HPP), a unique provider of end-to-end real estate solutions for dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries, today announced financial results for the fourth quarter 2022.

"In 2022, we stayed focused on areas of the business that we can control, leveraging our unique expertise and full-service platform to successfully advance our strategy to own and lease highly amenitized, collaborative and sustainable office and studio properties in highly desirable locations," commented Victor Coleman, Chairman and CEO. "We executed over 2.1 million square feet of leases at positive rent spreads, fortified our balance sheet through asset sales and refinancings, enhanced our studio platform with the purchase of Quixote, returned capital to shareholders through share repurchases and a stable dividend, progressed 780,000 square feet of under construction projects, and received multiple awards for sustainability and ESG excellence. As we head into 2023, with $1 billion of liquidity and the majority of our debt fixed or capped, we are focused on prudent capital management and are well positioned to fund our under-construction projects and aggressive leasing efforts. We remain confident in our business’s long-term fundamentals, as we effectively navigate today’s market and prepare for the next cycle, all with an eye towards unlocking value for shareholders."

Financial Results Compared to Fourth Quarter 2021

  • Total revenue of $269.9 million up 12.2% compared to $240.5 million
  • Net loss attributable to common stockholders of $12.0 million, or $0.09 per diluted share, compared to net income of $8.1 million, or $0.05 per diluted share
  • FFO, excluding specified items, of $70.2 million, or $0.49 per diluted share, compared to $79.6 million, or $0.52 per diluted share. Specified items consisting of transaction-related expenses of $3.6 million, or $0.03 per diluted share, compared to specified items consisting of transaction-related expenses of $1.5 million, or $0.01 per diluted share, and prior-period property tax reimbursements of $0.7 million, or $0.00 per diluted share
  • FFO of $66.5 million, or $0.47 per diluted share, compared to $78.7 million, or $0.51 per diluted share
  • AFFO of $62.1 million, or $0.43 per diluted share, compared to $72.5 million, or $0.47 per diluted share
  • Same-store property cash NOI of $126.9 million up 2.7% compared to $123.6 million

Leasing

  • Executed 76 new and renewal leases totaling 517,131 square feet, including a 101,000-square-foot, 10-year lease with a publicly traded software company at Metro Center, and a full-building, 47,000-square-foot, 17-year lease with Stanford at 3176 Porter, and a 40,000-square-foot, 10-year renewal with SFMTA at 1455 Market
  • GAAP rents increased 15.5% and cash rents decreased 0.5%
  • In-service office portfolio ended the quarter at 88.0% occupied and 89.7% leased
  • Same-store studio portfolio was 84.6% occupied and leased over the trailing 12 months

Development

  • Cash rents commenced on Company 3's full-building, 130,000-square-foot lease at Harlow office development, and cash rents set to commence on Google's full-building, 590,000-square-foot lease at One Westside office redevelopment in second quarter 2023
  • Under-construction projects include Sunset Glenoaks, a seven-stage, 241,000-square-foot studio in Los Angeles delivering in second half of 2023, and Washington 1000, a 546,000-square-foot office development in Seattle delivering in 2024

Dispositions

  • Sold 6922 Hollywood office property in Hollywood, California for $96.0 million before closing adjustments
  • Subsequent to the quarter, sold Skyway Landing office property in Redwood Shores, California for $102.0 million before closing adjustments

Balance Sheet as of December 31, 2022

  • $0.9 billion of total liquidity comprised of $255.8 million of unrestricted cash and cash equivalents and $615.0 million of undrawn capacity under the unsecured revolving credit facility
  • Another $98.0 million and $59.3 million of undrawn capacity under construction loans secured by One Westside/10850 Pico and Sunset Glenoaks, respectively
  • $3.7 billion of Company's share of unsecured and secured debt and preferred units (net of cash and cash equivalents)
  • Investment grade credit rated with 85.1% fixed or capped debt and weighted average maturity of 4.1 years including extensions
  • Subsequent to the quarter, repaid $110.0 million of Series A notes, and applied $102.0 million of Skyway Landing sale proceeds to repay amounts outstanding on the Company's unsecured revolving credit facility, resulting in $717.0 million of undrawn capacity, or an increase in total liquidity to $1.0 billion
  • Subsequent to the quarter, entered into an interest rate swap to fix SOFR at a rate of 3.75% effective February 1, 2023 on $172.9 million of indebtedness (pro rata share of 1918 Eighth loan) and to fix SOFR at a rate of 3.31% effective August 15, 2023 on $351.2 million of indebtedness (net pro rata share of Hollywood Media Portfolio loan). Adjusted for the $110.0 million Series A note repayment, the $102.0 million paydown on the unsecured revolving credit facility, and these recently completed swaps, the composition of the Company’s debt as of December 31, 2022 on a pro forma basis results in fixed rate debt of approximately 82.8% and fixed rate and capped debt of approximately 86.0%

Dividend

  • The Company's Board of Directors declared and paid dividends on its common stock of $0.25 per share, equivalent to an annual rate of $1.00 per share, and on its 4.750% Series C cumulative preferred stock of $0.296875 per share, equivalent to an annual rate of $1.18750 per share

ESG Leadership

  • Awarded Nareit's Office Leader in the Light Award, the organization's highest sustainability achievement for office and other property sector REITs, and recognized by Newsweek as one of America's Most Responsible Companies 2023
  • Subsequent to the quarter, included in the 2023 Bloomberg Gender-Equality Index

2023 Outlook

The Company is providing a 2023 full-year FFO outlook in the range of $1.77 to $1.87 per diluted share. 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. It also excludes the impact of a disruption in studio operations in the event studio-union negotiations lead to a strike and halt in production. 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:

Unaudited, in thousands, except share data

 

Current Guidance

 

Full Year 2023

Metric

Low

High

FFO per share

$1.77

$1.87

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

2.50%

3.50%

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

$23,000

$33,000

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

$(7,500)

$(9,500)

General and administrative expenses(4)

$(70,000)

$(76,000)

Interest expense(5)

$(203,000)

$(213,000)

Non-real estate depreciation and amortization

$(31,000)

$(33,000)

FFO from unconsolidated joint ventures

$4,250

$6,250

FFO attributable to non-controlling interests

$(48,000)

$(52,000)

FFO attributable to Preferred Units / Shares

$(21,000)

$(21,000)

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

142,500

143,500

(1)

Same-store for the full year 2023 is defined as the 43 office properties and three studio properties, as applicable, owned and included in the Company's stabilized portfolio as of January 1, 2022, and anticipated to still be owned and included in the stabilized portfolio through December 31, 2023.

(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 $26,000 in 2023.

(5)

Includes amortization of deferred financing costs and loan discounts/premiums, which the Company estimates at $11,500 in 2023.

(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 2023 includes an estimate for the dilution impact of stock grants to the Company's executives under its 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 2022 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 2022 financial results at 11:00 a.m. PT / 2:00 p.m. ET on February 9, 2023. Please dial (844) 200-6205 and enter passcode 849611 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 Properties (NYSE: HPP) is a real estate investment trust serving dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries. Hudson Pacific’s unique and high-barrier tech and media focus leverages a full-service, end-to-end value creation platform forged through deep strategic relationships and niche expertise across identifying, acquiring, transforming and developing properties into world-class amenitized, collaborative and sustainable office and studio space. 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.

(FINANCIAL TABLES FOLLOW)

Consolidated Balance Sheets

In thousands, except share data

 

December 31, 2022

 

December 31, 2021

 

(Unaudited)

 

 

ASSETS

 

 

 

Investment in real estate, at cost

$

8,716,572

 

 

$

8,361,477

 

Accumulated depreciation and amortization

 

(1,541,271

)

 

 

(1,283,774

)

Investment in real estate, net

 

7,175,301

 

 

 

7,077,703

 

Non-real estate property, plant and equipment, net

 

130,289

 

 

 

58,469

 

Cash and cash equivalents

 

255,761

 

 

 

96,555

 

Restricted cash

 

29,970

 

 

 

100,321

 

Accounts receivable, net

 

16,820

 

 

 

25,339

 

Straight-line rent receivables, net

 

279,910

 

 

 

240,306

 

Deferred leasing costs and intangible assets, net

 

393,842

 

 

 

341,444

 

U.S. Government securities

 

 

 

 

129,321

 

Operating lease right-of-use assets

 

401,051

 

 

 

287,041

 

Prepaid expenses and other assets, net

 

98,837

 

 

 

119,000

 

Investment in unconsolidated real estate entities

 

180,572

 

 

 

154,731

 

Goodwill

 

263,549

 

 

 

109,439

 

Assets associated with real estate held for sale

 

93,238

 

 

 

250,520

 

TOTAL ASSETS

$

9,319,140

 

 

$

8,990,189

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Liabilities

 

 

 

Unsecured and secured debt, net

$

4,585,862

 

 

$

3,733,903

 

In-substance defeased debt

 

 

 

 

128,212

 

Joint venture partner debt

 

66,136

 

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

264,098

 

 

 

300,959

 

Operating lease liabilities

 

399,801

 

 

 

293,596

 

Intangible liabilities, net

 

34,091

 

 

 

42,290

 

Security deposits, prepaid rent and other

 

83,797

 

 

 

84,939

 

Liabilities associated with real estate held for sale

 

665

 

 

 

3,898

 

Total liabilities

 

5,434,450

 

 

 

4,653,933

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

125,044

 

 

 

129,449

 

 

 

 

 

Equity

 

 

 

Hudson Pacific Properties, Inc. stockholders' equity:

 

 

 

Preferred stock, $0.01 par value, 18,400,000 authorized at December 31, 2022 and 2021; 4.750% Series C cumulative redeemable preferred stock; $25.00 per share liquidation preference, 17,000,000 outstanding at December 31, 2022 and 2021

 

425,000

 

 

 

425,000

 

Common stock, $0.01 par value, 481,600,000 authorized, 141,054,478 and 151,124,543 shares outstanding at December 31, 2022 and 2021, respectively

 

1,409

 

 

 

1,511

 

Additional paid-in capital

 

2,889,967

 

 

 

3,317,072

 

Accumulated other comprehensive loss

 

(11,272

)

 

 

(1,761

)

Total Hudson Pacific Properties, Inc. stockholders' equity

 

3,305,104

 

 

 

3,741,822

 

Non-controlling interest—members in consolidated real estate entities

 

377,756

 

 

 

402,971

 

Non-controlling interest—units in the operating partnership

 

66,971

 

 

 

52,199

 

Total equity

 

3,749,831

 

 

 

4,196,992

 

TOTAL LIABILITIES AND EQUITY

$

9,319,140

 

 

$

8,990,189

 

Consolidated Statements of Operations

In thousands, except share data

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

(Unaudited)

 

(Unaudited)

REVENUES

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Rental

$

207,601

 

 

$

202,382

 

 

$

834,408

 

 

$

782,736

 

Service and other revenues

 

3,964

 

 

 

3,276

 

 

 

18,292

 

 

 

12,634

 

Total office revenues

 

211,565

 

 

 

205,658

 

 

 

852,700

 

 

 

795,370

 

Studio

 

 

 

 

 

 

 

Rental

 

17,535

 

 

 

13,513

 

 

 

59,672

 

 

 

49,985

 

Service and other revenues

 

40,827

 

 

 

21,311

 

 

 

113,852

 

 

 

51,480

 

Total studio revenues

 

58,362

 

 

 

34,824

 

 

 

173,524

 

 

 

101,465

 

Total revenues

 

269,927

 

 

 

240,482

 

 

 

1,026,224

 

 

 

896,835

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Office operating expenses

 

78,139

 

 

 

72,796

 

 

 

308,668

 

 

 

280,334

 

Studio operating expenses

 

38,793

 

 

 

19,550

 

 

 

105,150

 

 

 

55,513

 

General and administrative

 

17,323

 

 

 

17,500

 

 

 

79,501

 

 

 

71,346

 

Depreciation and amortization

 

96,518

 

 

 

88,107

 

 

 

373,219

 

 

 

343,614

 

Total operating expenses

 

230,773

 

 

 

197,953

 

 

 

866,538

 

 

 

750,807

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

(Loss) income from unconsolidated real estate entities

 

(788

)

 

 

151

 

 

 

943

 

 

 

1,822

 

Fee income

 

4,850

 

 

 

898

 

 

 

7,972

 

 

 

3,221

 

Interest expense

 

(48,085

)

 

 

(30,139

)

 

 

(149,901

)

 

 

(121,939

)

Interest income

 

314

 

 

 

926

 

 

 

2,340

 

 

 

3,794

 

Management services reimbursement income—unconsolidated real estate entities

 

1,004

 

 

 

253

 

 

 

4,163

 

 

 

1,132

 

Management services expense—unconsolidated real estate entities

 

(1,004

)

 

 

(253

)

 

 

(4,163

)

 

 

(1,132

)

Transaction-related expenses

 

(3,643

)

 

 

(1,547

)

 

 

(14,356

)

 

 

(8,911

)

Unrealized (loss) gain on non-real estate investments

 

(378

)

 

 

4,951

 

 

 

(1,440

)

 

 

16,571

 

Loss on sale of real estate

 

(1,984

)

 

 

 

 

 

(2,164

)

 

 

 

Impairment loss

 

 

 

 

 

 

 

(28,548

)

 

 

(2,762

)

Loss on extinguishment of debt

 

 

 

 

(10

)

 

 

 

 

 

(6,259

)

Other income (expense)

 

4,904

 

 

 

(1,006

)

 

 

8,951

 

 

 

(2,553

)

Total other expenses

 

(44,810

)

 

 

(25,776

)

 

 

(176,203

)

 

 

(117,016

)

Net (loss) income

 

(5,656

)

 

 

16,753

 

 

(16,517

)

 

 

29,012

 

Net income attributable to Series A preferred units

 

(153

)

 

 

(153

)

 

 

(612

)

 

 

(612

)

Net income attributable to Series C preferred shares

 

(5,047

)

 

 

(2,281

)

 

 

(20,431

)

 

 

(2,281

)

Net income attributable to participating securities

 

(300

)

 

 

(260

)

 

 

(1,194

)

 

 

(1,090

)

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

 

(1,520

)

 

 

(6,042

)

 

 

(23,418

)

 

 

(21,806

)

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

 

531

 

 

 

122

 

 

 

4,964

 

 

 

2,902

 

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

 

161

 

 

 

(77

)

 

 

709

 

 

 

(61

)

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

(11,984

)

 

$

8,062

 

 

$

(56,499

)

 

$

6,064

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

Net (loss) income attributable to common stockholders—basic

$

(0.09

)

 

$

0.05

 

 

$

(0.39

)

 

$

0.04

 

Net (loss) income attributable to common stockholders—diluted

$

(0.09

)

 

$

0.05

 

 

$

(0.39

)

 

$

0.04

 

Weighted average shares of common stock outstanding—basic

 

140,927,597

 

 

 

152,137,508

 

 

 

143,732,433

 

 

 

151,618,282

 

Weighted average shares of common stock outstanding—diluted

 

140,927,597

 

 

 

152,271,140

 

 

 

143,732,433

 

 

 

151,943,360

 

Funds From Operations

Unaudited, in thousands, except per share data

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

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

 

 

 

 

 

 

 

Net (loss) income

$

(5,656

)

 

$

16,753

 

 

$

(16,517

)

 

$

29,012

 

Adjustments:

 

 

 

 

 

 

 

Depreciation and amortization—Consolidated

 

96,518

 

 

 

88,107

 

 

 

373,219

 

 

 

343,614

 

Depreciation and amortization—Non-real estate assets

 

(8,652

)

 

 

(4,331

)

 

 

(23,110

)

 

 

(7,719

)

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

 

1,355

 

 

 

1,497

 

 

 

5,322

 

 

 

6,020

 

Loss on sale of real estate

 

1,984

 

 

 

 

 

 

2,164

 

 

 

 

Impairment loss—Real estate assets

 

 

 

 

 

 

 

20,048

 

 

 

2,762

 

Unrealized loss (gain) on non-real estate investments

 

378

 

 

 

(4,951

)

 

 

1,440

 

 

 

(16,571

)

Tax impact of unrealized gain on non-real estate investment

 

 

 

 

1,973

 

 

 

 

 

 

3,849

 

FFO attributable to non-controlling interests

 

(14,201

)

 

 

(17,867

)

 

 

(71,100

)

 

 

(64,388

)

FFO attributable to preferred units

 

(5,200

)

 

 

(2,434

)

 

 

(21,043

)

 

 

(2,893

)

FFO to common stockholders and unitholders

 

66,526

 

 

 

78,747

 

 

 

270,423

 

 

 

293,686

 

Specified items impacting FFO:

 

 

 

 

 

 

 

Impairment loss—Trade name

 

 

 

 

 

 

 

8,500

 

 

 

 

Transaction-related expenses

 

3,643

 

 

 

1,547

 

 

 

14,356

 

 

 

8,911

 

Prior period property tax reassessment—Company’s share

 

 

 

 

(687

)

 

 

786

 

 

 

(581

)

Debt extinguishment cost—Company's share

 

 

 

 

 

 

 

 

 

 

3,187

 

FFO (excluding specified items) to common stockholders and unitholders

$

70,169

 

 

$

79,607

 

 

$

294,065

 

 

$

305,203

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

142,882

 

 

 

153,700

 

 

 

145,712

 

 

 

153,332

 

FFO per common stock/unit—diluted

$

0.47

 

 

$

0.51

 

 

$

1.86

 

 

$

1.92

 

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

$

0.49

 

 

$

0.52

 

 

$

2.02

 

 

$

1.99

 

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.

Adjusted Funds From Operations

Unaudited, in thousands, except per share data

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

RECONCILIATION OF FFO (excluding specified items) TO ADJUSTED FFO (“AFFO”)(1):

 

 

 

 

 

 

 

FFO (excluding specified items)

$

70,169

 

 

$

79,607

 

 

$

294,065

 

 

$

305,203

 

Adjustments:

 

 

 

 

 

 

 

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

 

(3,208

)

 

 

(6,337

)

 

 

(29,716

)

 

 

(25,448

)

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

 

1,925

 

 

 

821

 

 

 

5,318

 

 

 

3,255

 

Non-real estate depreciation and amortization

 

8,652

 

 

 

4,331

 

 

 

23,110

 

 

 

7,719

 

Amortization of deferred financing costs and loan discounts/

premiums, net

 

2,439

 

 

 

2,029

 

 

 

9,727

 

 

 

7,305

 

Non-cash compensation expense

 

6,480

 

 

 

5,445

 

 

 

24,296

 

 

 

21,163

 

Recurring capital expenditures, tenant improvements and lease commissions

 

(24,356

)

 

 

(13,384

)

 

 

(89,815

)

 

 

(62,880

)

AFFO

$

62,101

 

 

$

72,512

 

 

$

236,985

 

 

$

256,317

 

 

 

 

 

 

 

 

 

1.

Hudson Pacific believes AFFO to be a useful supplemental measure of the Company's performance. The Company computes AFFO by adding to FFO (excluding specified items) the Company’s Share of non-cash compensation expense, the Company’s Share of the net amortization of deferred financing costs and loan discounts/premiums and the Company’s share of non-real estate depreciation and amortization and subtracting recurring capital expenditures related to the Company’s Share of tenant improvements and leasing commissions (excluding pre-existing obligations on contributed or acquired properties funded with amounts received in settlement of prorations), and eliminating the net effect of the Company’s Share of straight-line rents, amortization of lease buy-out costs, amortization of above-and below-market lease intangible assets and liabilities, and amortization of above-and below-market ground lease intangible assets and liabilities. AFFO is not intended to represent cash flow for the period. We believe that AFFO provides useful information to the investment community about our financial position as compared to other REITs since AFFO is a widely reported measure used by other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs.

Net Operating Income

Unaudited, in thousands

 

Three Months Ended December 31,

 

 

2022

 

 

 

2021

 

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

 

 

 

Net (loss) income

$

(5,656

)

 

$

16,753

 

Adjustments:

 

 

 

Loss (income) from unconsolidated real estate entities

 

788

 

 

 

(151

)

Fee income

 

(4,850

)

 

 

(898

)

Interest expense

 

48,085

 

 

 

30,139

 

Interest income

 

(314

)

 

 

(926

)

Management services reimbursement income—unconsolidated real estate entities

 

(1,004

)

 

 

(253

)

Management services expense—unconsolidated real estate entities

 

1,004

 

 

 

253

 

Transaction-related expenses

 

3,643

 

 

 

1,547

 

Unrealized loss (gain) on non-real estate investments

 

378

 

 

 

(4,951

)

Loss on sale of real estate

 

1,984

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

10

 

Other (income) expense

 

(4,904

)

 

 

1,006

 

General and administrative

 

17,323

 

 

 

17,500

 

Depreciation and amortization

 

96,518

 

 

 

88,107

 

NOI

$

152,995

 

 

$

148,136

 

 

 

 

 

NET OPERATING INCOME BREAKDOWN

 

 

 

Same-store office cash revenues

 

183,858

 

 

 

177,619

 

Straight-line rent

 

(6,773

)

 

 

1,384

 

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

 

1,469

 

 

 

3,032

 

Amortization of lease incentive costs

 

(290

)

 

 

(404

)

Same-store office revenues

 

178,264

 

 

 

181,631

 

 

 

 

 

Same-store studios cash revenues

 

21,677

 

 

 

20,113

 

Straight-line rent

 

414

 

 

 

665

 

Amortization of lease incentive costs

 

(9

)

 

 

(9

)

Same-store studio revenues

 

22,082

 

 

 

20,769

 

 

 

 

 

Same-store revenues

 

200,346

 

 

 

202,400

 

 

 

 

 

Same-store office cash expenses

 

66,028

 

 

 

62,011

 

Straight-line rent

 

325

 

 

 

325

 

Non-cash compensation expense

 

21

 

 

 

11

 

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

 

586

 

 

 

586

 

Same-store office expenses

 

66,960

 

 

 

62,933

 

 

 

 

 

Same-store studio cash expenses

 

12,558

 

 

 

12,157

 

Non-cash compensation expense

 

240

 

 

 

79

 

Same-store studio expenses

 

12,798

 

 

 

12,236

 

 

 

 

 

Same-store expenses

 

79,758

 

 

 

75,169

 

 

 

 

 

Same-store net operating income

 

120,588

 

 

 

127,231

 

Non-same-store net operating income

 

32,407

 

 

 

20,905

 

NET OPERATING INCOME

$

152,995

 

 

$

148,136

 

 

 

 

 

SAME-STORE OFFICE NOI DECREASE

 

(6.2

)%

 

 

SAME-STORE OFFICE CASH NOI INCREASE

 

1.9

%

 

 

SAME-STORE STUDIO NOI INCREASE

 

8.8

%

 

 

SAME-STORE STUDIO CASH NOI INCREASE

 

14.6

%

 

 

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.

 

Contacts

Investor Contact

Laura Campbell

Executive Vice President, Investor Relations & Marketing

(310) 622-1702

lcampbell@hudsonppi.com

Media Contact

Laura Murray

Senior Director, Communications

(310) 622-1781

lmurray@hudsonppi.com

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