STOCK TITAN

Hudson Pacific Properties Reports Fourth Quarter 2023 Financial Results

Rhea-AI Impact
(Neutral)
Rhea-AI Sentiment
(Neutral)
Tags
earnings
Rhea-AI Summary
Hudson Pacific Properties, Inc. (NYSE: HPP) announced financial results for Q4 2023, highlighting 432,000 square feet of leasing activity, $889 million in dispositions, and top ESG honors. The company reported total revenue of $223.4 million, a net loss of $98.0 million, and FFO of $19.6 million. Leasing activity included 77 new and renewal leases totaling 431,980 square feet. The in-service office portfolio ended at 80.8% occupied. The company sold various properties, strengthening its balance sheet with $808.4 million in total liquidity. Hudson Pacific also provided its first quarter and full-year 2024 outlook, projecting FFO in the range of $0.15 to $0.19 and $1.00 to $1.10 per diluted share, respectively.
Positive
  • Strong leasing activity with 432,000 square feet leased and $889 million in dispositions.
  • Total revenue of $223.4 million and a net loss of $98.0 million reported for Q4 2023.
  • FFO of $19.6 million and AFFO of $21.5 million disclosed for the quarter.
  • 77 new and renewal leases totaling 431,980 square feet executed.
  • In-service office portfolio ended at 80.8% occupied.
  • Balance sheet strengthened with $808.4 million in total liquidity.
  • Provided first quarter and full-year 2024 FFO outlook of $0.15 to $0.19 and $1.00 to $1.10 per diluted share, respectively.
Negative
  • Net loss of $98.0 million reported for the quarter.
  • FFO, excluding specified items, decreased to $19.6 million from $70.2 million in Q4 2022.
  • GAAP rents decreased 2.1% and cash rents decreased 9.8% from prior levels.
  • Same-store cash NOI decreased to $116.1 million from $127.4 million.
  • In-service office portfolio occupancy decreased to 80.8%.
  • Negative impact from sales of properties and tenant move-outs reflected in financial results.

The financial results reported by Hudson Pacific Properties, Inc. indicate a significant year-over-year decline in total revenue and net income, which could be of concern to investors and market analysts. The reported net loss of $98.0 million, a substantial increase from the previous year's $12.0 million, alongside a drop in Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO), reflects pressures the company faced from asset dispositions and tenant move-outs. The decrease in Same-store Cash Net Operating Income (NOI) further underscores operational challenges, such as the strike's impact on studio services and leasing activity.

However, the company's proactive balance sheet management, including extending debt maturities and refinancing efforts, alongside the liquidity position of $808.4 million, suggests a strategic approach to financial stability. The sale of assets and repayment of loans using the proceeds demonstrates an attempt to streamline operations and reduce leverage, which could be interpreted as a positive sign for long-term financial health. The forward-looking FFO guidance for 2024, though lower than previous performance, provides a transparent outlook for stakeholders.

From a real estate market perspective, Hudson Pacific's leasing activity, with 77 new and renewal leases totaling 431,980 square feet, is a critical indicator of the company's ability to attract and retain tenants amid a challenging economic environment. The decline in GAAP and cash rents upon renewal suggests a potentially softening market or a strategic decision to secure tenancy at the cost of immediate rental income. The occupancy rates, at 80.8% for the in-service office portfolio, may reflect broader market trends, such as the evolving dynamics of return-to-office mandates and the impact of economic uncertainty on commercial real estate.

The strategic dispositions of properties like One Westside and Westside Two for $700 million and the land parcel in North San Jose, are noteworthy for their potential to reshape the company's portfolio and concentrate on core assets. These transactions could be seen as a strategic pivot to optimize the asset base and focus on high-potential markets, particularly in light of the company's ongoing New York studio development.

Hudson Pacific's recognition in sustainability and ESG (Environmental, Social and Governance) is significant, as it reflects the company's commitment to responsible business practices. Top rankings in the 2023 GRESB Real Estate Assessment and consecutive awards from Nareit and Newsweek suggest that the company is a leader in this area, which can enhance its reputation among investors who prioritize ESG factors. This leadership could potentially translate into competitive advantages, including access to capital, tenant attraction and retention, as well as operational efficiencies that can have long-term financial benefits.

Given the increasing importance of ESG considerations in investment decisions, Hudson Pacific's performance in this area could impact investor sentiment and potentially influence its stock market performance. ESG-focused funds and socially responsible investors might view the company's achievements as aligning with their investment criteria, potentially leading to increased demand for its shares.

– 432,000 Square Feet of Leasing Activity –

– Completed $889 Million of Dispositions –

– Earned Top ESG Honors –

– Provides First Quarter and Full-Year 2024 Outlook –

LOS ANGELES--(BUSINESS WIRE)-- Hudson Pacific Properties, Inc. (NYSE: HPP) (the "Company," "Hudson Pacific," or "HPP"), a unique provider of end-to-end real estate solutions for tech and media tenants, today announced financial results for the fourth quarter 2023.

"We are proud of our team’s efforts and our positive results that overcame a multitude of industry challenges in 2023 including ongoing economic uncertainty. Among our accomplishments for the year, we leased 1.7 million square feet and completed over $1 billion of asset dispositions," stated Victor Coleman, Chairman and CEO. "As we look ahead, we have strengthened our balance sheet by extending maturities to late 2025, and our core focus remains 'leasing, leasing and more leasing' within our high-quality portfolio to capture the benefits of both evolving return-to-office mandates and the studio production ramp up post-strike. We are also focused on continuing to control costs, executing on opportunistic dispositions, progressing our New York studio development, and further fortifying our balance sheet. We are well-positioned to leverage our portfolio, expertise and relationships to the benefit of our shareholders as we seek to drive improved financial performance in the coming year."

Financial Results Compared to Fourth Quarter 2022

  • Total revenue of $223.4 million compared to $269.9 million, largely due to the sales of Skyway Landing, 604 Arizona and 3401 Exposition, previously communicated tenant move-outs at 1455 Market and 10900-10950 Washington, as well as a reduction in studio service and other revenue due to the related union strikes
  • Net loss attributable to common stockholders of $98.0 million, or $0.70 per diluted share, compared to net loss of $12.0 million, or $0.09 per diluted share, primarily due to the aforementioned revenue changes
  • FFO, excluding specified items, of $19.6 million, or $0.14 per diluted share, compared to $70.2 million, or $0.49 per diluted share. Specified items include deferred tax asset write-off expense of $6.6 million, or $0.05 per diluted share and transaction-related expense of $0.2 million, or $0.00 per diluted share, compared to specified items consisting of transaction-related expense of $3.6 million, or $0.03 per diluted share
  • FFO of $12.8 million, or $0.09 per diluted share, compared to $66.5 million, or $0.47 per diluted share
  • AFFO of $21.5 million, or $0.15 per diluted share, compared to $62.1 million, or $0.43 per diluted share
  • Same-store cash NOI of $116.1 million compared to $127.4 million, mostly attributable to a large vacate at 1455 Market and mid-size tenant move-outs in the San Francisco Peninsula and Silicon Valley, as well as a single tenant vacating six stages at Sunset Las Palmas due to the strike

Leasing

  • Executed 77 new and renewal leases totaling 431,980 square feet, including a 57,000-square-foot five-year renewal with GitHub at 275 Brannan
  • GAAP rents decreased 2.1% and cash rents decreased 9.8% from prior levels, mostly attributable to two mid-size tenant renewals in the San Francisco Bay Area
  • In-service office portfolio ended the quarter at 80.8% occupied and 81.9% leased, with the change primarily resulting from the sale of One Westside
  • On average over the trailing 12 months, the in-service studio portfolio was 80.4% leased and the related 35 stages were 84.7% leased, with the change attributable to aforementioned single tenant vacating space at Sunset Las Palmas

Dispositions

  • Sold Cloud10, a 5.3-acre land parcel in North San Jose, California, for $43.5 million before prorations and closing costs
  • Sold 100% of two tranches and 49% of a third tranche of debt associated with the Hollywood Media Portfolio, generating gross proceeds of $145.8 million, while retaining a 51% ownership in the third tranche with a notional value of $30.2 million
  • Sold One Westside and Westside Two office redevelopment in West Los Angeles, California (owned 75/25% Hudson Pacific/Macerich) for $700 million before prorations and closing costs

Balance Sheet as of December 31, 2023

  • $808.4 million of total liquidity comprised of $100.4 million of unrestricted cash and cash equivalents and $708.0 million of undrawn capacity under the unsecured revolving credit facility
  • $17.5 million and $183.1 million of undrawn capacity under construction loans secured by Sunset Glenoaks and Sunset Pier 94, respectively
  • HPP's share of net debt to HPP's share of undepreciated book value was 36.5% with 86.1% of debt fixed or capped and no maturities until November 2025
  • Refinanced Bentall Centre owned in partnership with Blackstone with a $482.2 million mortgage loan (reflects the foreign currency exchange rate from CAD to USD as of December 31, 2023) maturing in July 2027 and bearing an interest rate of 230 basis points over CORRA
  • Applied net proceeds from the sale of One Westside and Westside Two to fully repay the construction loan secured by those properties, with remaining net proceeds, as well as those from the sales of Cloud10 and the Hollywood Media Portfolio loan, used to repay amounts outstanding on the unsecured revolving credit facility
  • Completed credit facility amendment to favorably adjust certain definitions and covenant calculations, for which aggregate lender commitments were reduced by $100.0 million to $900.0 million maturing in December 2026 (including extension options)

Dividend

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

ESG Leadership

  • Received multiple industry-wide sustainability and ESG recognitions, including:
    • Top rankings in the 2023 GRESB Real Estate Assessment, including being named an Office, Americas Sector Leader for the third consecutive year, and Green Star and 5-star ratings for a fifth consecutive year
    • Winner of Nareit's Leader in the Light: Office Award for the second consecutive year
    • Named one of Newsweek's America's Most Responsible Companies for the second consecutive year

2024 Outlook

Hudson Pacific is providing its first quarter and full-year 2024 FFO outlook in the range of $0.15 to $0.19 and $1.00 to $1.10 per diluted share, respectively. There are no specified items in connection with this guidance.

This 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, amendments or repayments, recapitalizations, capital markets activity or similar matters. It also excludes the impact of a disruption in studio operations in the event a strike leads to a halt in production. There can be no assurance that actual results will not differ materially from these estimates.

Below are some of the assumptions the Company used in providing this guidance:

Unaudited, in thousands, except share data

 

Current Guidance

 

Full Year 2024

Metric

Low

High

FFO per share

$1.00

$1.10

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

(11.50)%

(12.50)%

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

$(500)

$(10,500)

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

$(7,100)

$(9,100)

General and administrative expenses(4)

$80,000

$86,000

Interest expense(5)

$(170,000)

$(180,000)

Non-real estate depreciation and amortization

$(32,000)

$(34,000)

FFO from unconsolidated joint ventures

$1,000

$3,000

FFO attributable to non-controlling interests

$(28,000)

$(32,000)

FFO attributable to Preferred Units / Shares

$(21,000)

$(21,000)

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

145,000,000

146,000,000

(1)

Same-store for the full year 2024 is defined as the 41 office properties and three studio properties, as applicable, owned and included in the Company's stabilized portfolio as of January 1, 2023, and anticipated to still be owned and included in the stabilized portfolio through December 31, 2024.

(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 2024.

(5)

Includes amortization of deferred financing costs and loan discounts/premiums, which the Company estimates at $6,000 in 2024.

(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 2024 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 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 fourth quarter 2023 financial results at 9:00 a.m. PT / 12:00 p.m. ET on February 13, 2024. Please dial (833) 470-1428 and enter passcode 937174 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.

Consolidated Balance Sheets

In thousands, except share data

 

12/31/23

 

12/31/22

 

(Unaudited)

 

 

ASSETS

 

 

 

Investment in real estate, at cost

$

8,212,896

 

 

$

8,716,572

 

Accumulated depreciation and amortization

 

(1,728,437

)

 

 

(1,541,271

)

Investment in real estate, net

 

6,484,459

 

 

 

7,175,301

 

Non-real estate property, plant and equipment, net

 

118,783

 

 

 

130,289

 

Cash and cash equivalents

 

100,391

 

 

 

255,761

 

Restricted cash

 

18,765

 

 

 

29,970

 

Accounts receivable, net

 

24,609

 

 

 

16,820

 

Straight-line rent receivables, net

 

220,787

 

 

 

279,910

 

Deferred leasing costs and intangible assets, net

 

326,950

 

 

 

393,842

 

Operating lease right-of-use assets

 

376,306

 

 

 

401,051

 

Prepaid expenses and other assets, net

 

94,145

 

 

 

98,837

 

Investment in unconsolidated real estate entities

 

252,711

 

 

 

180,572

 

Goodwill

 

264,144

 

 

 

263,549

 

Assets associated with real estate held for sale

 

 

 

 

93,238

 

TOTAL ASSETS

$

8,282,050

 

 

$

9,319,140

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Liabilities

 

 

 

Unsecured and secured debt, net

$

3,945,314

 

 

$

4,585,862

 

Joint venture partner debt

 

66,136

 

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

203,736

 

 

 

264,098

 

Operating lease liabilities

 

389,210

 

 

 

399,801

 

Intangible liabilities, net

 

27,751

 

 

 

34,091

 

Security deposits, prepaid rent and other

 

88,734

 

 

 

83,797

 

Liabilities associated with real estate held for sale

 

 

 

 

665

 

Total liabilities

 

4,720,881

 

 

 

5,434,450

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

57,182

 

 

 

125,044

 

 

 

 

 

Equity

 

 

 

Hudson Pacific Properties, Inc. stockholders' equity:

 

 

 

Preferred stock, $0.01 par value, 18,400,000 authorized; 4.750% Series C cumulative redeemable preferred stock; $25.00 per share liquidation preference, 17,000,000 outstanding at 12/31/23 and 12/31/22

 

425,000

 

 

 

425,000

 

Common stock, $0.01 par value, 481,600,000 authorized, 141,034,806 and 141,054,478 shares outstanding at 12/31/23 and 12/31/22, respectively

 

1,403

 

 

 

1,409

 

Additional paid-in capital

 

2,651,798

 

 

 

2,889,967

 

Accumulated other comprehensive loss

 

(187

)

 

 

(11,272

)

Total Hudson Pacific Properties, Inc. stockholders' equity

 

3,078,014

 

 

 

3,305,104

 

Non-controlling interest—members in consolidated real estate entities

 

335,439

 

 

 

377,756

 

Non-controlling interest—units in the operating partnership

 

80,719

 

 

 

66,971

 

Total equity

 

3,494,172

 

 

 

3,749,831

 

TOTAL LIABILITIES AND EQUITY

$

8,282,050

 

 

$

9,319,140

 

 

 

 

 

Consolidated Statements of Operations

In thousands, except per share data

 

Three Months Ended

 

Year Ended

 

12/31/23

 

12/31/22

 

12/31/23

 

12/31/22

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

REVENUES

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Rental

$

191,319

 

 

$

207,601

 

 

$

797,095

 

 

$

834,408

 

Service and other revenues

 

3,545

 

 

 

3,964

 

 

 

15,280

 

 

 

18,292

 

Total office revenues

 

194,864

 

 

 

211,565

 

 

 

812,375

 

 

 

852,700

 

Studio

 

 

 

 

 

 

 

Rental

 

13,167

 

 

 

17,535

 

 

 

59,276

 

 

 

59,672

 

Service and other revenues

 

15,392

 

 

 

40,827

 

 

 

80,646

 

 

 

113,852

 

Total studio revenues

 

28,559

 

 

 

58,362

 

 

 

139,922

 

 

 

173,524

 

Total revenues

 

223,423

 

 

 

269,927

 

 

 

952,297

 

 

 

1,026,224

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Office operating expenses

 

80,676

 

 

 

78,139

 

 

 

312,018

 

 

 

308,668

 

Studio operating expenses

 

34,869

 

 

 

38,793

 

 

 

138,447

 

 

 

105,150

 

General and administrative

 

19,781

 

 

 

17,323

 

 

 

74,958

 

 

 

79,501

 

Depreciation and amortization

 

103,192

 

 

 

96,518

 

 

 

397,846

 

 

 

373,219

 

Total operating expenses

 

238,518

 

 

 

230,773

 

 

 

923,269

 

 

 

866,538

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

(Loss) income from unconsolidated real estate entities

 

(1,683

)

 

 

(788

)

 

 

(3,902

)

 

 

943

 

Fee income

 

1,155

 

 

 

4,850

 

 

 

6,181

 

 

 

7,972

 

Interest expense

 

(52,379

)

 

 

(48,085

)

 

 

(214,415

)

 

 

(149,901

)

Interest income

 

775

 

 

 

314

 

 

 

2,182

 

 

 

2,340

 

Management services reimbursement income—unconsolidated real estate entities

 

987

 

 

 

1,004

 

 

 

4,125

 

 

 

4,163

 

Management services expense—unconsolidated real estate entities

 

(987

)

 

 

(1,004

)

 

 

(4,125

)

 

 

(4,163

)

Transaction-related expenses

 

(194

)

 

 

(3,643

)

 

 

1,150

 

 

 

(14,356

)

Unrealized loss on non-real estate investments

 

(851

)

 

 

(378

)

 

 

(3,120

)

 

 

(1,440

)

Gain (loss) on sale of real estate

 

80,048

 

 

 

(1,984

)

 

 

103,202

 

 

 

(2,164

)

Impairment loss

 

(60,158

)

 

 

 

 

 

(60,158

)

 

 

(28,548

)

Gain on extinguishment of debt

 

 

 

 

 

 

 

10,000

 

 

 

 

Other (expense) income

 

(145

)

 

 

4,904

 

 

 

(6

)

 

 

8,951

 

Loss on sale of bonds

 

(34,046

)

 

 

 

 

 

(34,046

)

 

 

 

Total other expenses

 

(67,478

)

 

 

(44,810

)

 

 

(192,932

)

 

 

(176,203

)

Loss before income tax provision

 

(82,573

)

 

 

(5,656

)

 

 

(163,904

)

 

 

(16,517

)

Income tax provision

 

(6,081

)

 

 

 

 

 

(6,796

)

 

 

 

Net loss

 

(88,654

)

 

 

(5,656

)

 

(170,700

)

 

 

(16,517

)

Net income attributable to Series A preferred units

 

(153

)

 

 

(153

)

 

 

(612

)

 

 

(612

)

Net income attributable to Series C preferred shares

 

(5,047

)

 

 

(5,047

)

 

 

(20,188

)

 

 

(20,431

)

Net income attributable to participating securities

 

 

 

 

(300

)

 

 

(850

)

 

 

(1,194

)

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

 

8,957

 

 

 

(1,520

)

 

 

9,331

 

 

 

(23,418

)

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

 

(14,854

)

 

 

531

 

 

 

(12,520

)

 

 

4,964

 

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

 

1,758

 

 

 

161

 

 

 

3,358

 

 

 

709

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

(97,993

)

 

$

(11,984

)

 

$

(192,181

)

 

$

(56,499

)

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

Net loss attributable to common stockholders—basic

$

(0.70

)

 

$

(0.09

)

 

$

(1.36

)

 

$

(0.39

)

Net loss attributable to common stockholders—diluted

$

(0.70

)

 

$

(0.09

)

 

$

(1.36

)

 

$

(0.39

)

Weighted average shares of common stock outstanding—basic

 

140,941

 

 

 

140,928

 

 

 

140,953

 

 

 

143,732

 

Weighted average shares of common stock outstanding—diluted

 

140,941

 

 

 

140,928

 

 

 

140,953

 

 

 

143,732

 

Funds From Operations(1)

Unaudited, in thousands, except per share data

 

Three Months Ended

 

Year Ended

 

12/31/23

 

12/31/22

 

12/31/23

 

12/31/22

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

 

 

 

 

 

 

 

Net loss

$

(88,654

)

 

$

(5,656

)

 

$

(170,700

)

 

$

(16,517

)

Adjustments:

 

 

 

 

 

 

 

Depreciation and amortization—Consolidated

 

103,192

 

 

 

96,518

 

 

 

397,846

 

 

 

373,219

 

Depreciation and amortization—Non-real estate assets

 

(7,865

)

 

 

(8,652

)

 

 

(33,389

)

 

 

(23,110

)

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

 

1,156

 

 

 

1,355

 

 

 

4,779

 

 

 

5,322

 

(Gain) loss on sale of real estate

 

(80,048

)

 

 

1,984

 

 

 

(103,202

)

 

 

2,164

 

Loss on sale of bonds

 

34,046

 

 

 

 

 

 

34,046

 

 

 

 

Impairment loss—Real estate assets

 

60,158

 

 

 

 

 

 

60,158

 

 

 

20,048

 

Unrealized loss on non-real estate investments

 

851

 

 

 

378

 

 

 

3,120

 

 

 

1,440

 

FFO attributable to non-controlling interests

 

(4,857

)

 

 

(14,201

)

 

 

(42,335

)

 

 

(71,100

)

FFO attributable to preferred units

 

(5,200

)

 

 

(5,200

)

 

 

(20,800

)

 

 

(21,043

)

FFO to common stockholders and unitholders

 

12,779

 

 

 

66,526

 

 

 

129,523

 

 

 

270,423

 

Specified items impacting FFO:

 

 

 

 

 

 

 

Impairment loss—Trade name

 

 

 

 

 

 

 

 

 

 

8,500

 

Transaction-related expenses

 

194

 

 

 

3,643

 

 

 

(1,150

)

 

 

14,356

 

Prior period net property tax adjustment—HPP's share(2)

 

 

 

 

 

 

 

(1,469

)

 

 

786

 

Deferred tax asset valuation allowance

 

6,626

 

 

 

 

 

 

10,142

 

 

 

One-time gain on debt extinguishment

 

 

 

 

 

 

 

(10,000

)

 

 

 

One-time tax impact of gain on debt extinguishment

 

 

 

 

 

 

 

2,751

 

 

 

FFO (excluding specified items) to common stockholders and unitholders

$

19,599

 

 

$

70,169

 

 

$

129,797

 

 

$

294,065

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

144,616

 

 

 

142,882

 

 

 

144,552

 

 

 

145,712

 

FFO per common stock/unit—diluted

$

0.09

 

 

$

0.47

 

 

$

0.90

 

 

$

1.86

 

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

$

0.14

 

 

$

0.49

 

 

$

0.90

 

 

$

2.02

 

(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

 

Year Ended

 

12/31/23

 

12/31/22

 

12/31/23

 

12/31/22

FFO (excluding specified items)

$

19,599

 

 

$

70,169

 

 

$

129,797

 

 

$

294,065

 

Adjustments:

 

 

 

 

 

 

 

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

 

6,306

 

 

 

(3,208

)

 

 

(3,020

)

 

 

(29,716

)

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

 

1,939

 

 

 

1,925

 

 

 

7,495

 

 

 

5,318

 

Non-real estate depreciation and amortization

 

7,865

 

 

 

8,652

 

 

 

33,389

 

 

 

23,110

 

Non-cash interest expense

 

1,572

 

 

 

2,439

 

 

 

14,394

 

 

 

9,727

 

Non-cash compensation expense

 

6,707

 

 

 

6,480

 

 

 

23,611

 

 

 

24,296

 

Recurring capital expenditures, tenant improvements and lease commissions

 

(22,514

)

 

 

(24,356

)

 

 

(89,997

)

 

 

(89,815

)

AFFO

$

21,474

 

 

$

62,101

 

 

$

115,669

 

 

$

236,985

 

 

 

 

 

 

 

 

 

(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

 

12/31/23

 

12/31/22

Net loss

$

(88,654

)

 

$

(5,656

)

Adjustments:

 

 

 

Loss from unconsolidated real estate entities

 

1,683

 

 

 

788

 

Fee income

 

(1,155

)

 

 

(4,850

)

Interest expense

 

52,379

 

 

 

48,085

 

Interest income

 

(775

)

 

 

(314

)

Management services reimbursement income—unconsolidated real estate entities

 

(987

)

 

 

(1,004

)

Management services expense—unconsolidated real estate entities

 

987

 

 

 

1,004

 

Transaction-related expenses

 

194

 

 

 

3,643

 

Unrealized loss on non-real estate investments

 

851

 

 

 

378

 

Loss on sale of bonds

 

34,046

 

 

 

 

(Gain) loss on sale of real estate

 

(80,048

)

 

 

1,984

 

Impairment loss

 

60,158

 

 

 

 

Other expense (income)

 

145

 

 

 

(4,904

)

Income tax provision

 

6,081

 

 

 

 

General and administrative

 

19,781

 

 

 

17,323

 

Depreciation and amortization

 

103,192

 

 

 

96,518

 

NOI

$

107,878

 

 

$

152,995

 

 

 

 

 

NET OPERATING INCOME BREAKDOWN

 

 

 

Same-store office cash revenues

 

181,467

 

 

 

186,089

 

Straight-line rent

 

(11,424

)

 

 

(5,401

)

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

 

1,444

 

 

 

1,611

 

Amortization of lease incentive costs

 

(212

)

 

 

(293

)

Same-store office revenues

 

171,275

 

 

 

182,006

 

 

 

 

 

Same-store studios cash revenues

 

15,932

 

 

 

21,677

 

Straight-line rent

 

171

 

 

 

414

 

Amortization of lease incentive costs

 

(9

)

 

 

(9

)

Same-store studio revenues

 

16,094

 

 

 

22,082

 

 

 

 

 

Same-store revenues

 

187,369

 

 

 

204,088

 

 

 

 

 

Same-store office cash expenses

 

70,802

 

 

 

67,797

 

Straight-line rent

 

376

 

 

 

402

 

Non-cash compensation expense

 

35

 

 

 

25

 

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

 

676

 

 

 

675

 

Same-store office expenses

 

71,889

 

 

 

68,899

 

 

 

 

 

Same-store studio cash expenses

 

10,514

 

 

 

12,558

 

Non-cash compensation expense

 

113

 

 

 

240

 

Same-store studio expenses

 

10,627

 

 

 

12,798

 

 

 

 

 

Same-store expenses

 

82,516

 

 

 

81,697

 

 

 

 

 

Same-store net operating income

 

104,853

 

 

 

122,391

 

Non-same-store net operating income

 

3,025

 

 

 

30,604

 

NET OPERATING INCOME

$

107,878

 

 

$

152,995

 

 

 

 

 

SAME-STORE OFFICE NOI DECREASE

 

(12.1

)%

 

 

SAME-STORE OFFICE CASH NOI DECREASE

 

(6.4

)%

 

 

SAME-STORE STUDIO NOI DECREASE

 

(41.1

)%

 

 

SAME-STORE STUDIO CASH NOI DECREASE

 

(40.6

)%

 

 

(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.

 

Investor Contact

Laura Campbell

Executive Vice President, Investor Relations & Marketing

(310) 622-1702

lcampbell@hudsonppi.com

Media Contact

Laura Murray

Vice President, Communications

(310) 622-1781

lmurray@hudsonppi.com

Source: Hudson Pacific Properties, Inc.

In 2023, Hudson Pacific Properties leased 1.7 million square feet and completed over $1 billion of asset dispositions.

Hudson Pacific Properties reported total revenue of $223.4 million for Q4 2023.

The net loss attributable to common stockholders for Q4 2023 was $98.0 million, or $0.70 per diluted share.

The FFO, excluding specified items, for Q4 2023 was $19.6 million, or $0.14 per diluted share.

The in-service office portfolio ended Q4 2023 at 80.8% occupied.

As of December 31, 2023, Hudson Pacific Properties had total liquidity of $808.4 million.

Hudson Pacific Properties provided its first quarter and full-year 2024 FFO outlook in the range of $0.15 to $0.19 and $1.00 to $1.10 per diluted share, respectively.
Hudson Pacific Properties Inc

NYSE:HPP

HPP Rankings

HPP Latest News

HPP Stock Data

Lessors of Nonresidential Buildings (except Miniwarehouses)
Real Estate and Rental and Leasing
Link
Finance, Real Estate Investment Trusts, Real Estate and Rental and Leasing, Lessors of Nonresidential Buildings (except Miniwarehouses)

About HPP

hudson pacific properties (nyse: hpp) is a vertically-integrated real estate company focused on acquiring, repositioning, developing and operating high-quality office and state-of-the-art media and entertainment properties in select west coast markets. hpp invests across the risk-return spectrum, favoring opportunities where it can employ leasing, capital investment and management expertise to create additional value. founded in 2006 as hudson capital, the company went public in 2010, electing to be taxed as a real estate investment trust. through the years, hpp has strategically assembled a portfolio totaling approximately 17.3 million square feet, including land for development, in high-growth, high-barrier-to-entry submarkets throughout northern and southern california and the pacific northwest. the company is a leading provider of design-forward, next-generation workspaces for a variety of tenants, with a focus on fortune 500 and industry-leading growth companies, many in the techn