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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Hudson Pacific Properties Inc | NYSE:HPP | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 5.43 | 5.51 | 5.28 | 5.45 | 1,706,316 | 01:00:00 |
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 first quarter 2023.
"Our focus at Hudson Pacific remains on effectively managing the aspects of the company we can control in these unprecedented times,” said Victor Coleman, Chairman & CEO. "Even as more companies mandate in-office work and our leasing pipeline and tours at our assets are increasing, broader macroeconomic challenges continue to weigh on office fundamentals. We also must now address and work to minimize the impact of the national writers strike as it relates to our studio business. Our priorities remain executing on leasing, prudently allocating capital, reducing corporate expenses, proactively executing on asset sales, and further fortifying our balance sheet. We have a path to address all our maturities through 2025, and we recently received approval to bring our dividend policy in line with other capital preservation efforts as we move forward."
Financial Results Compared to First Quarter 2022
Leasing
Development
Dispositions
Balance Sheet as of March 31, 2023
Dividend
ESG Leadership
Subsequent Event - Writers Strike
Effective May 2, 2023, after failing to reach an agreement with the Alliance of Motion Picture and Television Producers, the Writers Guild of America (WGA) elected to strike, derailing the production cycle of hundreds of domestically produced film and television shows. Contrary to previous strikes which have historically seen unusually high production activity in the months leading up to a potential strike, independently operated studios and related services such as the Company's experienced a significant slowdown in production activity as new scripted content was pre-emptively halted. That slowdown impacted the Company's first quarter operating results, particularly with respect to March. While the potential duration of the current strike remains unknown, there have been seven WGA strikes dating back to the early 1950's the length of which have ranged from 2 to 22 weeks, the last of which in 2007 to 2008 lasted approximately 14 weeks.
Updated 2023 Outlook
As noted last quarter, the Company's 2023 full-year FFO outlook excluded the impact of a disruption in studio operations in the event related union negotiations led to a strike and halt in production. Due to the uncertainty around the duration of a strike, the Company will continue to provide certain assumptions relevant to its full year 2023 office outlook, but will no longer provide an 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)
$18,000
$28,000
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)
$(204,000)
$(214,000)
Non-real estate depreciation and amortization
$(34,000)
$(36,000)
FFO from unconsolidated joint ventures
$500
$2,500
FFO attributable to non-controlling interests
$(43,500)
$(47,500)
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 $12,000 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 first 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 first quarter 2023 financial results at 9:00 a.m. PT / 12:00 p.m. ET on May 9, 2023. Please dial (833) 470-1428 and enter passcode 927408 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.
Consolidated Balance Sheets
In thousands, except share data
March 31, 2023
December 31, 2022
(Unaudited)
ASSETS
Investment in real estate, at cost
$
8,790,335
$
8,716,572
Accumulated depreciation and amortization
(1,619,164
)
(1,541,271
)
Investment in real estate, net
7,171,171
7,175,301
Non-real estate property, plant and equipment, net
124,465
130,289
Cash and cash equivalents
163,327
255,761
Restricted cash
19,571
29,970
Accounts receivable, net
15,176
16,820
Straight-line rent receivables, net
290,650
279,910
Deferred leasing costs and intangible assets, net
382,173
393,842
Operating lease right-of-use assets
399,063
401,051
Prepaid expenses and other assets, net
100,783
98,837
Investment in unconsolidated real estate entities
194,163
180,572
Goodwill
263,549
263,549
Assets associated with real estate held for sale
—
93,238
TOTAL ASSETS
$
9,124,091
$
9,319,140
LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net
$
4,433,546
$
4,585,862
Joint venture partner debt
66,136
66,136
Accounts payable, accrued liabilities and other
271,931
264,098
Operating lease liabilities
399,081
399,801
Intangible liabilities, net
32,443
34,091
Security deposits, prepaid rent and other
91,355
83,797
Liabilities associated with real estate held for sale
—
665
Total liabilities
5,294,492
5,434,450
Redeemable preferred units of the operating partnership
9,815
9,815
Redeemable non-controlling interest in consolidated real estate entities
120,902
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 March 31, 2023 and December 31, 2022
425,000
425,000
Common stock, $0.01 par value, 481,600,000 authorized, 140,888,769 shares and 141,054,478 shares outstanding at March 31, 2023 and December 31, 2022, respectively
1,403
1,409
Additional paid-in capital
2,835,061
2,889,967
Accumulated other comprehensive loss
(8,147
)
(11,272
)
Total HPP stockholders' equity
3,253,317
3,305,104
Non-controlling interest—members in consolidated real estate entities
375,960
377,756
Non-controlling interest—units in the operating partnership
69,605
66,971
Total equity
3,698,882
3,749,831
TOTAL LIABILITIES AND EQUITY
$
9,124,091
$
9,319,140
Consolidated Statements of Operations
Unaudited, in thousands, except share data
Three Months Ended March 31,
2023
2022
REVENUES
Office
Rental revenues
$
202,657
$
206,192
Service and other revenues
3,976
5,208
Total office revenues
206,633
211,400
Studio
Rental revenues
16,253
13,394
Service and other revenues
29,377
19,719
Total studio revenues
45,630
33,113
Total revenues
252,263
244,513
OPERATING EXPENSES
Office operating expenses
74,054
73,631
Studio operating expenses
37,244
18,983
General and administrative
18,724
20,512
Depreciation and amortization
97,139
92,193
Total operating expenses
227,161
205,319
OTHER INCOME (EXPENSES)
(Loss) income from unconsolidated real estate entities
(745
)
303
Fee income
2,402
1,071
Interest expense
(53,807
)
(30,836
)
Interest income
371
910
Management services reimbursement income—unconsolidated real estate entities
1,064
1,108
Management services expense—unconsolidated real estate entities
(1,064
)
(1,108
)
Transaction-related expenses
(1,186
)
(256
)
Unrealized gain on non-real estate investments
839
1,650
Gain on sale of real estate
7,046
—
Impairment loss
—
(20,503
)
Other income
5,161
852
Total other expenses
(39,919
)
(46,809
)
Net loss
(14,817
)
(7,615
)
Net income attributable to Series A preferred units
(153
)
(153
)
Net income attributable to Series C preferred shares
(5,047
)
(5,290
)
Net income attributable to participating securities
(553
)
(294
)
Net income attributable to non-controlling interest in consolidated real estate entities
(1,031
)
(8,561
)
Net loss attributable to redeemable non-controlling interest in consolidated real estate entities
894
1,890
Net loss attributable to common units in the operating partnership
282
230
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(20,425
)
$
(19,793
)
BASIC AND DILUTED PER SHARE AMOUNTS
Net loss attributable to common stockholders—basic
$
(0.14
)
$
(0.13
)
Net loss attributable to common stockholders—diluted
$
(0.14
)
$
(0.13
)
Weighted average shares of common stock outstanding—basic
141,025,021
149,187,994
Weighted average shares of common stock outstanding—diluted
141,025,021
149,187,994
Funds from Operations(1)
Unaudited, in thousands, except per share data
Three Months Ended March 31,
2023
2022
Net loss
$
(14,817
)
$
(7,615
)
Adjustments:
Depreciation and amortization—consolidated
97,139
92,193
Depreciation and amortization—non-real estate assets
(8,392
)
(4,432
)
Depreciation and amortization—HPP's share from unconsolidated real estate entities(2)
1,263
1,369
Gain on sale of real estate
(7,046
)
—
Impairment loss—real estate assets
—
12,003
Unrealized gain on non-real estate investments
(839
)
(1,650
)
FFO attributable to non-controlling interests
(13,637
)
(20,004
)
FFO attributable to preferred shares and units
(5,200
)
(5,443
)
FFO to common stock/unit holders
48,471
66,421
Specified items impacting FFO:
Transaction-related expenses
1,186
256
Impairment loss—trade name
—
8,500
FFO (excluding specified items) to common stock/unit holders
$
49,657
$
75,177
Weighted average common stock/units outstanding—diluted
143,329
151,426
FFO per common stock/unit—diluted
$
0.34
$
0.44
FFO (excluding specified items) per common stock/unit—diluted
$
0.35
$
0.50
(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 March 31,
2023
2022
FFO (excluding specified items)
$
49,657
$
75,177
Adjustments:
GAAP non-cash revenue (straight-line rent and above/below-market rents)
(9,136
)
(11,990
)
GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)
1,823
966
Non-real estate depreciation and amortization
8,392
4,432
Non-cash interest expense
4,676
2,403
Non-cash compensation expense
5,156
5,329
Recurring capital expenditures, tenant improvements and lease commissions
(25,525
)
(17,499
)
AFFO
$
35,043
$
58,818
(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 March 31,
2023
2022
Net loss
$
(14,817
)
$
(7,615
)
Adjustments:
Loss (income) from unconsolidated real estate entities
745
(303
)
Fee income
(2,402
)
(1,071
)
Interest expense
53,807
30,836
Interest income
(371
)
(910
)
Management services reimbursement income—unconsolidated real estate entities
(1,064
)
(1,108
)
Management services expense—unconsolidated real estate entities
1,064
1,108
Transaction-related expenses
1,186
256
Unrealized gain on non-real estate investments
(839
)
(1,650
)
Gain on sale of real estate
(7,046
)
—
Impairment loss
—
20,503
Other income
(5,161
)
(852
)
General and administrative
18,724
20,512
Depreciation and amortization
97,139
92,193
NOI
$
140,965
$
151,899
NOI Detail
Same-store office cash revenues
182,542
172,146
Straight-line rent
10,148
15,311
Amortization of above/below-market leases, net
1,591
2,680
Amortization of lease incentive costs
(282
)
(400
)
Same-store office revenues
193,999
189,737
Same-store studios cash revenues
21,904
19,807
Straight-line rent
494
590
Amortization of lease incentive costs
(9
)
(9
)
Same-store studio revenues
22,389
20,388
Same-store revenues
216,388
210,125
Same-store office cash expenses
66,971
63,265
Straight-line rent
414
405
Non-cash portion of interest expense
35
24
Amortization of above/below-market ground leases, net
676
669
Same-store office expenses
68,096
64,363
Same-store studio cash expenses
11,920
11,532
Non-cash portion of interest expense
111
68
Same-store studio expenses
12,031
11,600
Same-store expenses
80,127
75,963
Same-store NOI
136,261
134,162
Non-same-store NOI
4,704
17,737
NOI
$
140,965
$
151,899
(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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230508005581/en/
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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