Hudson Pacific Properties Reports Second Quarter 2023 Financial Results

LOS ANGELES--()--Hudson Pacific Properties, Inc. (NYSE: HPP) (the "Company," "Hudson Pacific," or "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 second quarter 2023.

"We continued to focus on the controllable aspects of our business during the quarter, which included leasing and expense management, given the industry challenges we are working to navigate," said Victor Coleman, Chairman & CEO. "Last month, the national entertainment strike expanded, with the actors joining the writers on strike for the first time since 1960. A strike of this magnitude, while rare and historically short-term, can be extremely impactful and far-reaching. We’re working diligently to mitigate its impact and to ensure our studio business is well positioned to capture the potential surge in production upon resolution. Regarding our office portfolio, a greater percentage of our tenants are starting to enforce back-to-office requirements, which we believe could ultimately result in the need for more office space as workforces have grown on a net basis over the past five years in many industries central to our leasing efforts. The timeline for tenant decision making remains extended, but increased interest is signaling that office fundamentals could begin to evolve in a more positive manner in our west coast markets. With our attention to capital preservation and addressing our debt maturities, we expect to overcome today’s challenges and capitalize on longer-term tenant activity within our attractive portfolio."

Financial Results Compared to Second Quarter 2022

  • Total revenue of $245.2 million compared to $251.4 million, primarily due to previously communicated vacancies at Skyport Plaza and 10900-10950 Washington and the sales of 6922 Hollywood and Skyway Landing
  • Net loss attributable to common stockholders of $36.2 million, or $0.26 per diluted share, compared to net loss of $7.4 million, or $0.05 per diluted share, driven by the aforementioned tenant move-outs and asset sales, higher operating expenses associated with the Quixote acquisition and increased interest expense
  • FFO, excluding specified items, of $34.5 million, or $0.24 per diluted share, compared to $74.6 million, or $0.51 per diluted share. Specified items consist of transaction-related income (rather than expense) of $2.5 million, or $0.02 per diluted share (includes lowering accruals for future earn-outs related to the Zio Studio Services acquisition); prior-period property tax reimbursement of $1.5 million, or $0.01 per diluted share; deferred tax asset write-off expense of $3.5 million, or $0.02 per diluted share; and, gain on debt extinguishment of $7.2 million (net of taxes), or $0.05 per diluted share. Prior year specified items consisted of transaction-related expenses of $1.1 million, or $0.01 per diluted share; and prior-period property tax expense of $0.5 million, or $0.00 per diluted share
  • FFO of $42.2 million, or $0.29 per diluted share, compared to $73.0 million, or $0.50 per diluted share
  • AFFO of $31.1 million, or $0.22 per diluted share, compared to $60.3 million, or $0.41 per diluted share
  • Same-store cash NOI of $127.6 million up 4.7% compared to $121.9 million, mostly attributable to significant office lease commencements at One Westside and Harlow

Leasing

  • Executed 61 new and renewal leases totaling 403,231 square feet, including a 56,000-square-foot renewal and extension with Rivian Automotive at Clocktower Square through 2028
  • GAAP and cash rents decreased 3.8% and 8.1%, respectively, from prior levels
  • In-service office portfolio ended the quarter at 85.2% occupied and 87.0% leased, with the change primarily attributable to small- to mid-sized expirations in the Peninsula and Silicon Valley, and to a lesser extent, Vancouver
  • On average over the trailing 12 months, the in-service studio portfolio was 86.5% leased, and the related 35 stages were 95.7% leased

Balance Sheet as of June 30, 2023

  • $581.2 million of total liquidity comprised of $109.2 million of unrestricted cash and cash equivalents and $472.0 million of undrawn capacity under the unsecured revolving credit facility
  • $90.0 million and $32.4 million of undrawn capacity under construction loans secured by One Westside/Westside Two and Sunset Glenoaks Studios, respectively
  • HPP's share of net debt to HPP's share of undepreciated book value was 38.7% with 85.3% of debt fixed or capped and no material maturities until the loan secured by One Westside, which is 100% leased to Google through 2036, matures in December 2024
  • Repaid the Quixote loan for $150.0 million, a $10.0 million discount on the principal balance, with funds from the unsecured revolving credit facility

Dividend

  • The Company's Board of Directors declared and paid dividends on its common stock of $0.125 per share, and on its 4.750% Series C cumulative preferred stock of $0.296875 per share

ESG Leadership

  • Issued 2022 Corporate Responsibility Report outlining achievements, including ranking #1 amongst office companies in the Americas in the GRESB Real Estate Assessment, winning Nareit’s Office Leader in the Light Award, inclusion in the Bloomberg Gender-Equality Index, and launch of HPPx2030 with ambitious targets to reduce climate impact and diversify management

2023 Outlook

Due to continued uncertainty around the duration of the studio-related union strikes, the Company will continue to provide certain assumptions relevant to its full-year 2023 office outlook, but has not reinstated its outlook for 2023 full-year FFO or studio-related assumptions. Current assumptions reflect 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 these estimates.

Unaudited, in thousands, except share data

 

 

Full Year 2023

 

Assumptions

Metric

Low

High

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

1.00%

2.00%

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

$13,500

$23,500

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

$(7,100)

$(9,100)

General and administrative expenses(4)

$(70,000)

$(76,000)

Interest expense(5)

$(212,000)

$(222,000)

Non-real estate depreciation and amortization

$(34,000)

$(36,000)

FFO from unconsolidated joint ventures

$500

$2,500

FFO attributable to non-controlling interests

$(42,000)

$(46,000)

FFO attributable to preferred units/shares

$(21,000)

$(21,000)

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

143,000,000

144,000,000

(1)

Same-store office for the full year 2023 is defined as the 43 office properties 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 office properties.

(4)

Includes non-cash compensation expense, which the Company estimates at $22,000 in 2023.

(5)

Includes non-cash interest expense, which the Company estimates at $13,000 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, 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 second quarter 2023 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 second quarter 2023 financial results at 9:00 a.m. PT / 12:00 p.m. ET on August 2, 2023. Please dial (833) 470-1428 and enter passcode 861397 to access the call. International callers should dial (404) 975-4839 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

 

 

June 30, 2023

 

December 31, 2022

 

(Unaudited)

 

 

ASSETS

 

 

 

Investment in real estate, at cost

$

8,856,229

 

 

$

8,716,572

 

Accumulated depreciation and amortization

 

(1,686,943

)

 

 

(1,541,271

)

Investment in real estate, net

 

7,169,286

 

 

 

7,175,301

 

Non-real estate property, plant and equipment, net

 

119,526

 

 

 

130,289

 

Cash and cash equivalents

 

109,220

 

 

 

255,761

 

Restricted cash

 

18,583

 

 

 

29,970

 

Accounts receivable, net

 

18,921

 

 

 

16,820

 

Straight-line rent receivables, net

 

294,050

 

 

 

279,910

 

Deferred leasing costs and intangible assets, net

 

371,525

 

 

 

393,842

 

Operating lease right-of-use assets

 

393,911

 

 

 

401,051

 

Prepaid expenses and other assets, net

 

128,836

 

 

 

98,837

 

Investment in unconsolidated real estate entities

 

218,422

 

 

 

180,572

 

Goodwill

 

263,549

 

 

 

263,549

 

Assets associated with real estate held for sale

 

 

 

 

93,238

 

TOTAL ASSETS

$

9,105,829

 

 

$

9,319,140

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Liabilities

 

 

 

Unsecured and secured debt, net

$

4,473,107

 

 

$

4,585,862

 

Joint venture partner debt

 

66,136

 

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

274,294

 

 

 

264,098

 

Operating lease liabilities

 

395,170

 

 

 

399,801

 

Intangible liabilities, net

 

30,798

 

 

 

34,091

 

Security deposits, prepaid rent and other

 

92,021

 

 

 

83,797

 

Liabilities associated with real estate held for sale

 

 

 

 

665

 

Total liabilities

 

5,331,526

 

 

 

5,434,450

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

119,136

 

 

 

125,044

 

 

 

 

 

Equity

 

 

 

HPP stockholders' equity:

 

 

 

4.750% Series C cumulative redeemable preferred stock, $0.01 par value, $25.00 per share liquidation preference, 18,400,000 authorized; 17,000,000 shares outstanding at June 30, 2023 and December 31, 2022

 

425,000

 

 

 

425,000

 

Common stock, $0.01 par value, 481,600,000 authorized, 140,937,702 shares and 141,054,478 shares outstanding at June 30, 2023 and December 31, 2022, respectively

 

1,403

 

 

 

1,409

 

Additional paid-in capital

 

2,783,858

 

 

 

2,889,967

 

Accumulated other comprehensive income (loss)

 

6,413

 

 

 

(11,272

)

Total HPP stockholders' equity

 

3,216,674

 

 

 

3,305,104

 

Non-controlling interest—members in consolidated real estate entities

 

355,270

 

 

 

377,756

 

Non-controlling interest—units in the operating partnership

 

73,408

 

 

 

66,971

 

Total equity

 

3,645,352

 

 

 

3,749,831

 

TOTAL LIABILITIES AND EQUITY

$

9,105,829

 

 

$

9,319,140

 

 

 

 

 

Consolidated Statements of Operations

Unaudited, in thousands, except share data

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

REVENUES

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Rental revenues

$

203,486

 

 

$

211,836

 

 

$

406,143

 

 

$

418,028

 

Service and other revenues

 

3,805

 

 

 

4,408

 

 

 

7,781

 

 

 

9,616

 

Total office revenues

 

207,291

 

 

 

216,244

 

 

 

413,924

 

 

 

427,644

 

Studio

 

 

 

 

 

 

 

Rental revenues

 

16,374

 

 

 

13,438

 

 

 

32,627

 

 

 

26,832

 

Service and other revenues

 

21,503

 

 

 

21,748

 

 

 

50,880

 

 

 

41,467

 

Total studio revenues

 

37,877

 

 

 

35,186

 

 

 

83,507

 

 

 

68,299

 

Total revenues

 

245,168

 

 

 

251,430

 

 

 

497,431

 

 

 

495,943

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Office operating expenses

 

76,767

 

 

 

78,558

 

 

 

150,821

 

 

 

152,189

 

Studio operating expenses

 

34,679

 

 

 

20,686

 

 

 

71,923

 

 

 

39,669

 

General and administrative

 

18,941

 

 

 

21,871

 

 

 

37,665

 

 

 

42,383

 

Depreciation and amortization

 

98,935

 

 

 

91,438

 

 

 

196,074

 

 

 

183,631

 

Total operating expenses

 

229,322

 

 

 

212,553

 

 

 

456,483

 

 

 

417,872

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

(Loss) income from unconsolidated real estate entities

 

(715

)

 

 

1,780

 

 

 

(1,460

)

 

 

2,083

 

Fee income

 

2,284

 

 

 

1,140

 

 

 

4,686

 

 

 

2,211

 

Interest expense

 

(54,648

)

 

 

(33,719

)

 

 

(108,455

)

 

 

(64,555

)

Interest income

 

236

 

 

 

920

 

 

 

607

 

 

 

1,830

 

Management services reimbursement income—unconsolidated real estate entities

 

1,059

 

 

 

1,068

 

 

 

2,123

 

 

 

2,176

 

Management services expense—unconsolidated real estate entities

 

(1,059

)

 

 

(1,068

)

 

 

(2,123

)

 

 

(2,176

)

Transaction-related expenses

 

2,530

 

 

 

(1,126

)

 

 

1,344

 

 

 

(1,382

)

Unrealized loss on non-real estate investments

 

(843

)

 

 

(1,818

)

 

 

(4

)

 

 

(168

)

Gain on extinguishment of debt

 

10,000

 

 

 

 

 

 

10,000

 

 

 

 

Gain on sale of real estate

 

 

 

 

 

 

 

7,046

 

 

 

 

Impairment loss

 

 

 

 

(3,250

)

 

 

 

 

 

(23,753

)

Other income (expense)

 

138

 

 

 

(21

)

 

 

135

 

 

 

(9

)

Total other expenses

 

(41,018

)

 

 

(36,094

)

 

 

(86,101

)

 

 

(83,743

)

(Loss) income before income tax (provision) benefit

 

(25,172

)

 

 

2,783

 

 

 

(45,153

)

 

 

(5,672

)

Income tax (provision) benefit

 

(6,302

)

 

 

763

 

 

 

(1,140

)

 

 

1,603

 

Net (loss) income

 

(31,474

)

 

 

3,546

 

 

 

(46,293

)

 

 

(4,069

)

Net income attributable to Series A preferred units

 

(153

)

 

 

(153

)

 

 

(306

)

 

 

(306

)

Net income attributable to Series C preferred shares

 

(5,047

)

 

 

(5,047

)

 

 

(10,094

)

 

 

(10,337

)

Net income attributable to participating securities

 

(297

)

 

 

(300

)

 

 

(850

)

 

 

(594

)

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

 

(346

)

 

 

(7,081

)

 

 

(1,377

)

 

 

(15,642

)

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

 

508

 

 

 

1,506

 

 

 

1,402

 

 

 

3,396

 

Net loss attributable to common units in the operating partnership

 

646

 

 

 

93

 

 

 

928

 

 

 

323

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

(36,163

)

 

$

(7,436

)

 

$

(56,590

)

 

$

(27,229

)

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

Net loss attributable to common stockholders—basic

$

(0.26

)

 

$

(0.05

)

 

$

(0.40

)

 

$

(0.19

)

Net loss attributable to common stockholders—diluted

$

(0.26

)

 

$

(0.05

)

 

$

(0.40

)

 

$

(0.19

)

Weighted average shares of common stock outstanding—basic

 

140,910

 

 

 

143,817

 

 

 

140,967

 

 

 

146,487

 

Weighted average shares of common stock outstanding—diluted

 

140,910

 

 

 

143,817

 

 

 

140,967

 

 

 

146,487

 

Funds from Operations(1)

Unaudited, in thousands, except per share data

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

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

 

 

 

 

 

 

 

Net (loss) income

$

(31,474

)

 

$

3,546

 

 

$

(46,293

)

 

$

(4,069

)

Adjustments:

 

 

 

 

 

 

 

Depreciation and amortization—consolidated

 

98,935

 

 

 

91,438

 

 

 

196,074

 

 

 

183,631

 

Depreciation and amortization—non-real estate assets

 

(8,832

)

 

 

(4,485

)

 

 

(17,224

)

 

 

(8,917

)

Depreciation and amortization—HPP's share from unconsolidated real estate entities(2)

 

1,195

 

 

 

1,320

 

 

 

2,458

 

 

 

2,689

 

Gain on sale of real estate

 

 

 

 

 

 

 

(7,046

)

 

 

 

Impairment loss—real estate assets

 

 

 

 

3,250

 

 

 

 

 

 

15,253

 

Unrealized loss on non-real estate investments

 

843

 

 

 

1,818

 

 

 

4

 

 

 

168

 

FFO attributable to non-controlling interests

 

(13,239

)

 

 

(18,687

)

 

 

(26,862

)

 

 

(38,687

)

FFO attributable to preferred shares and units

 

(5,200

)

 

 

(5,200

)

 

 

(10,400

)

 

 

(10,643

)

FFO to common stock/unit holders

 

42,228

 

 

 

73,000

 

 

 

90,711

 

 

 

139,425

 

Specified items impacting FFO:

 

 

 

 

 

 

 

Transaction-related expenses

 

(2,530

)

 

 

1,126

 

 

 

(1,344

)

 

 

1,382

 

Impairment loss—trade name

 

 

 

 

 

 

 

 

 

 

8,500

 

Prior period net property tax adjustment—Company’s share

 

(1,469

)

 

 

477

 

 

 

(1,469

)

 

 

451

 

Deferred tax asset valuation allowance

 

3,516

 

 

 

 

 

 

3,516

 

 

 

 

One-time gain on debt extinguishment

 

(10,000

)

 

 

 

 

 

(10,000

)

 

 

 

One-time tax impact of gain on debt extinguishment

 

2,751

 

 

 

 

 

 

2,751

 

 

 

 

FFO (excluding specified items) to common stock/unit holders

$

34,496

 

 

$

74,603

 

 

$

84,165

 

 

$

149,758

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

143,428

 

 

 

146,344

 

 

 

143,379

 

 

 

149,249

 

FFO per common stock/unit—diluted

$

0.29

 

 

$

0.50

 

 

$

0.63

 

 

$

0.93

 

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

$

0.24

 

 

$

0.51

 

 

$

0.59

 

 

$

1.00

 

(1)

We calculate Funds from Operations ("FFO") in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts. 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 the HPP’s share of real estate-related depreciation and amortization, excluding amortization of deferred financing costs and depreciation of non-real estate assets. The calculation of FFO includes the HPP’s share of amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets.

 

FFO is a non-GAAP financial measure we believe is a useful supplemental measure of our 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 our 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, our 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, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our 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. We use FFO per share to calculate annual cash bonuses for certain employees.

 

However, FFO should not be viewed as an alternative measure of our 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 our properties, which are significant economic costs and could materially impact our results from operations.

 

(2)

HPP's share is a Non-GAAP financial measure calculated as the measure on a consolidated basis, in accordance with GAAP, plus our Operating Partnership’s share of the measure from our unconsolidated joint ventures (calculated based upon the Operating Partnership’s percentage ownership interest), minus our partners’ share of the measure from our consolidated joint ventures (calculated based upon the partners’ percentage ownership interests). We believe that presenting HPP’s share of these measures provides useful information to investors regarding the Company’s financial condition and/or results of operations because we have several significant joint ventures, and in some cases, we exercise significant influence over, but do not control, the joint venture. In such instances, GAAP requires us to account for the joint venture entity using the equity method of accounting, which we do not consolidate for financial reporting purposes. In other cases, GAAP requires us to consolidate the venture even though our partner(s) own(s) a significant percentage interest.

Adjusted Funds from Operations(1)

Unaudited, in thousands, except per share data

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

FFO (excluding specified items)

$

34,496

 

 

$

74,603

 

 

$

84,165

 

 

$

149,758

 

Adjustments:

 

 

 

 

 

 

 

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

 

(2,660

)

 

 

(9,770

)

 

 

(11,796

)

 

 

(21,760

)

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

 

1,814

 

 

 

970

 

 

 

3,637

 

 

 

1,936

 

Non-real estate depreciation and amortization

 

8,832

 

 

 

4,485

 

 

 

17,224

 

 

 

8,917

 

Non-cash interest expense

 

5,025

 

 

 

2,407

 

 

 

9,701

 

 

 

4,810

 

Non-cash compensation expense

 

6,229

 

 

 

5,993

 

 

 

11,385

 

 

 

11,322

 

Recurring capital expenditures, tenant improvements and lease commissions

 

(22,599

)

 

 

(18,386

)

 

 

(48,124

)

 

 

(35,885

)

AFFO

$

31,137

 

 

$

60,302

 

 

$

66,192

 

 

$

119,098

 

 

 

 

 

 

 

 

 

(1)

Adjusted Funds from Operations ("AFFO") is a non-GAAP financial measure we believe is a useful supplemental measure of our performance. We compute AFFO by adding to FFO (excluding specified items) HPP's share of non-cash compensation expense and amortization of deferred financing costs, and subtracting recurring capital expenditures related to HPP'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 HPP’s share of straight-line rents, amortization of lease buy-out costs, amortization of above-and below-market lease intangible assets and liabilities, amortization of above-and below-market ground lease intangible assets and liabilities and amortization of loan discounts/premiums. 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(1)

Unaudited, in thousands

 

 

Three Months Ended June 30,

 

2023

 

2022

Net (loss) income

$

(31,474

)

 

$

3,546

 

Adjustments:

 

 

 

Loss (income) from unconsolidated real estate entities

 

715

 

 

 

(1,780

)

Fee income

 

(2,284

)

 

 

(1,140

)

Interest expense

 

54,648

 

 

 

33,719

 

Interest income

 

(236

)

 

 

(920

)

Management services reimbursement income—unconsolidated real estate entities

 

(1,059

)

 

 

(1,068

)

Management services expense—unconsolidated real estate entities

 

1,059

 

 

 

1,068

 

Transaction-related expenses

 

(2,530

)

 

 

1,126

 

Unrealized loss on non-real estate investment

 

843

 

 

 

1,818

 

Impairment loss

 

 

 

 

3,250

 

Gain on extinguishment of debt

 

(10,000

)

 

 

 

Other (income) expense

 

(138

)

 

 

21

 

Income tax provision (benefit)

 

6,302

 

 

 

(763

)

General and administrative

 

18,941

 

 

 

21,871

 

Depreciation and amortization

 

98,935

 

 

 

91,438

 

NOI

$

133,722

 

 

$

152,186

 

 

 

 

 

NOI Detail

 

 

 

Same-store office cash revenues

 

189,190

 

 

 

181,225

 

Straight-line rent

 

3,049

 

 

 

12,640

 

Amortization of above/below-market leases, net

 

1,589

 

 

 

1,891

 

Amortization of lease incentive costs

 

(262

)

 

 

(398

)

Same-store office revenues

 

193,566

 

 

 

195,358

 

 

 

 

 

Same-store studios cash revenues

 

17,153

 

 

 

20,025

 

Straight-line rent

 

417

 

 

 

646

 

Amortization of lease incentive costs

 

(9

)

 

 

(9

)

Same-store studio revenues

 

17,561

 

 

 

20,662

 

 

 

 

 

Same-store revenues

 

211,127

 

 

 

216,020

 

 

 

 

 

Same-store office cash expenses

 

69,322

 

 

 

67,196

 

Straight-line rent

 

399

 

 

 

402

 

Non-cash compensation expense

 

35

 

 

 

25

 

Amortization of above/below-market ground leases, net

 

676

 

 

 

675

 

Same-store office expenses

 

70,432

 

 

 

68,298

 

 

 

 

 

Same-store studio cash expenses

 

9,396

 

 

 

12,152

 

Non-cash compensation expense

 

113

 

 

 

69

 

Same-store studio expenses

 

9,509

 

 

 

12,221

 

 

 

 

 

Same-store expenses

 

79,941

 

 

 

80,519

 

 

 

 

 

Same-store NOI

 

131,186

 

 

 

135,501

 

Non-same-store NOI

 

2,536

 

 

 

16,685

 

NOI

$

133,722

 

 

$

152,186

 

 

 

 

 

(1)

We evaluate performance based upon property Net Operating Income ("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 our performance, or as an alternative to cash flows as a measure of liquidity, or our ability to make distributions. All companies may not calculate NOI in the same manner. We consider 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 our 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. We calculate 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. We define NOI as operating revenues (rental revenues, other property-related revenue, tenant recoveries and other operating revenues), less property-level operating expenses (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. We believe that 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

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