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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 | |
---|---|---|---|---|---|---|---|---|
0.19 | 4.03% | 4.91 | 4.96 | 4.7601 | 4.82 | 2,254,705 | 21:51:41 |
– 509,000 Square Feet of Leasing Activity – – Purchased Partner's 45% Interest in 1455 Market – – Provides Second Quarter FFO Outlook and Updates Full-Year Assumptions –
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, today announced financial results for the first quarter 2024.
"Our office leasing momentum accelerated to start off the year, as we signed over 500,000 square feet of leases in the first quarter. Leveraging our well-positioned portfolio and the strength of our platform, our team is executing on leasing even as adverse market conditions persist, and we view long-term demand drivers for our office space as compelling," commented Victor Coleman, Hudson Pacific's Chairman and CEO. "While we remain focused on further strengthening our balance sheet through targeted asset sales, in the first quarter, we purchased our partners’ stake in 1455 Market in San Francisco. Already in the second quarter, we signed a 157,000-square-foot new lease at that asset, which is the largest lease executed in downtown since 2021, and we have another 290,000 square feet throughout our portfolio in leases or LOIs.
"In the first quarter, revenues across essentially all our studio business segments increased quarter-over-quarter, and we now have leases, activity or interest in the majority of our stages. While the long-term fundamentals related to content and subscriber growth remain intact, production has ramped more slowly than anticipated post-strikes, partly attributable to the upcoming expiration of the IATSE and Teamsters Local 399 union contracts. Until visibility improves for our Quixote business, which is primarily leased on a show-by-show basis, we are adjusting our outlook to account for this industry uncertainty."
Financial Results Compared to First Quarter 2023
Leasing
Transactions
Development
Balance Sheet as of March 31, 2024
Dividend
Corporate Responsibility
2024 Outlook
Hudson Pacific's in-service office and studio portfolios continue to perform in line with the Company's full-year 2024 outlook provided in February of this year. The Company is therefore providing an FFO outlook of $0.15 to $0.19 per diluted share for the second quarter, but updating only key assumptions for its full-year 2024 FFO outlook, including same-store property cash NOI growth. This reflects the Company's office leasing momentum and gradual improvements within the office operating environment, as well as long-term leases and the swift return of productions filming prior to the WGA and SAG-AFTRA strikes at our in-service studio assets. However, as has been well documented in the press, post-strikes, the film and television industry has recovered far more slowly than anticipated. Contributing factors include: pending expiration of the IATSE and Teamsters Local 399 union contracts in May and July, respectively; logistical and resource constraints as multiple productions attempt to re-start simultaneously; and industry consolidation and shifting business models as networks pursue profitability. Hudson Pacific's limited visibility at this time as to the precise impact of each of these factors, presents challenges to estimating how and when production counts will normalize, and, by extension, cash flow related to the Quixote business, the primary drivers of which are stages and services leased show-by-show. For clarity, Hudson Pacific's same-store property portfolio and full-year outlook assumptions exclude Quixote. Further, the Company's outlook assumes IATSE and Teamsters do not strike, and production begins to pick up in early June following successful resolution of IATSE contract negotiations. There are no specified items in connection with this guidance.
The Company's FFO outlook and the related 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, amendments or repayments, recapitalizations, capital markets activity or similar matters. 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
Full Year 2024
Assumptions
Metric
Low
High
Growth in same-store property cash NOI(1)(2)
(11.75)%
(12.75)%
GAAP non-cash revenue (straight-line rent and above/below-market rents)(3)
$(2,500)
$(7,500)
GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)
$(6,500)
$(8,500)
General and administrative expenses(4)
$(80,000)
$(86,000)
Interest expense(5)
$(172,000)
$(182,000)
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
$(19,000)
$(23,000)
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 non-cash interest expense, 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, 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 2024 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 2024 financial results at 9:00 a.m. PT / 12:00 p.m. ET on May 2, 2024. Please dial (833) 470-1428 and enter passcode 651313 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
3/31/24
12/31/23
(Unaudited)
ASSETS
Investment in real estate, at cost
$
8,178,529
$
8,212,896
Accumulated depreciation and amortization
(1,736,720
)
(1,728,437
)
Investment in real estate, net
6,441,809
6,484,459
Non-real estate property, plant and equipment, net
119,750
118,783
Cash and cash equivalents
114,305
100,391
Restricted cash
19,267
18,765
Accounts receivable, net
23,980
24,609
Straight-line rent receivables, net
217,685
220,787
Deferred leasing costs and intangible assets, net
319,214
326,950
Operating lease right-of-use assets
370,056
376,306
Prepaid expenses and other assets, net
90,812
94,145
Investment in unconsolidated real estate entities
270,440
252,711
Goodwill
264,144
264,144
TOTAL ASSETS
$
8,251,462
$
8,282,050
LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net
$
4,034,300
$
3,945,314
Joint venture partner debt
66,136
66,136
Accounts payable, accrued liabilities and other
203,194
203,736
Operating lease liabilities
383,993
389,210
Intangible liabilities, net
26,305
27,751
Security deposits, prepaid rent and other
87,047
88,734
Total liabilities
4,800,975
4,720,881
Redeemable preferred units of the operating partnership
9,815
9,815
Redeemable non-controlling interest in consolidated real estate entities
52,108
57,182
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 03/31/24 and 12/31/23
425,000
425,000
Common stock, $0.01 par value, 481,600,000 authorized, 141,144,592 shares and 141,034,806 shares outstanding at 03/31/24 and 12/31/23, respectively
1,403
1,403
Additional paid-in capital
2,753,640
2,651,798
Accumulated other comprehensive income (loss)
3,033
(187
)
Total HPP stockholders' equity
3,183,076
3,078,014
Non-controlling interest—members in consolidated real estate entities
120,526
335,439
Non-controlling interest—units in the operating partnership
84,962
80,719
Total equity
3,388,564
3,494,172
TOTAL LIABILITIES AND EQUITY
$
8,251,462
$
8,282,050
Consolidated Statements of Operations
In thousands, except per share data
Three Months Ended
3/31/2024
3/31/2023
(Unaudited)
(Unaudited)
REVENUES
Office
Rental revenues
$
171,427
$
202,657
Service and other revenues
3,648
3,976
Total office revenues
175,075
206,633
Studio
Rental revenues
13,600
16,253
Service and other revenues
25,348
29,377
Total studio revenues
38,948
45,630
Total revenues
214,023
252,263
OPERATING EXPENSES
Office operating expenses
72,947
74,054
Studio operating expenses
37,109
37,244
General and administrative
19,710
18,724
Depreciation and amortization
91,854
97,139
Total operating expenses
221,620
227,161
OTHER INCOME (EXPENSES)
Loss from unconsolidated real estate entities
(743
)
(745
)
Fee income
1,125
2,402
Interest expense
(44,089
)
(53,807
)
Interest income
854
371
Management services reimbursement income—unconsolidated real estate entities
1,156
1,064
Management services expense—unconsolidated real estate entities
(1,156
)
(1,064
)
Transaction-related expenses
(2,150
)
(1,186
)
Unrealized (loss) gain on non-real estate investments
(898
)
839
Gain on sale of real estate
—
7,046
Other income
143
5,161
Total other expenses
(45,758
)
(39,919
)
Loss before income tax benefit (provision)
(53,355
)
(14,817
)
Income tax benefit (provision)
—
—
Net loss
(53,355
)
(14,817
)
Net income attributable to Series A preferred units
(153
)
(153
)
Net income attributable to Series C preferred shares
(5,047
)
(5,047
)
Net income attributable to participating securities
(202
)
(553
)
Net loss (income) attributable to non-controlling interest in consolidated real estate entities
4,169
(1,031
)
Net loss attributable to redeemable non-controlling interest in consolidated real estate entities
1,157
894
Net loss attributable to common units in the operating partnership
1,229
282
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(52,202
)
$
(20,425
)
BASIC AND DILUTED PER SHARE AMOUNTS
Net loss attributable to common stockholders—basic
$
(0.37
)
$
(0.14
)
Net loss attributable to common stockholders—diluted
$
(0.37
)
$
(0.14
)
Weighted average shares of common stock outstanding—basic
141,122
141,025
Weighted average shares of common stock outstanding—diluted
141,122
141,025
Funds from Operations(1)
Unaudited, in thousands, except per share data
Three Months Ended
3/31/2024
3/31/2023
RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS (“FFO”)(1):
Net loss
$
(53,355
)
$
(14,817
)
Adjustments:
Depreciation and amortization—consolidated
91,854
97,139
Depreciation and amortization—non-real estate assets
(7,981
)
(8,392
)
Depreciation and amortization—HPP's share from unconsolidated real estate entities(2)
1,151
1,263
Gain on sale of real estate
—
(7,046
)
Unrealized loss (gain) on non-real estate investments
898
(839
)
FFO attributable to non-controlling interests
(5,326
)
(13,637
)
FFO attributable to preferred shares and units
(5,200
)
(5,200
)
FFO to common stock/unit holders
22,041
48,471
Specified items impacting FFO:
Transaction-related expenses
2,150
1,186
FFO (excluding specified items) to common stock/unit holders
$
24,191
$
49,657
Weighted average common stock/units outstanding—diluted
146,221
143,329
FFO per common stock/unit—diluted
$
0.15
$
0.34
FFO (excluding specified items) per common stock/unit—diluted
$
0.17
$
0.35
(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
3/31/2024
3/31/2023
FFO (excluding specified items)
$
24,191
$
49,657
Adjustments:
GAAP non-cash revenue (straight-line rent and above/below-market rents)
2,018
(9,136
)
GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)
1,666
1,823
Non-real estate depreciation and amortization
7,981
8,392
Non-cash interest expense
1,846
4,676
Non-cash compensation expense
6,532
5,156
Recurring capital expenditures, tenant improvements and lease commissions
(15,743
)
(25,525
)
AFFO
$
28,491
$
35,043
(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
3/31/2024
3/31/2023
Net loss
$
(53,355
)
$
(14,817
)
Adjustments:
Loss from unconsolidated real estate entities
743
745
Fee income
(1,125
)
(2,402
)
Interest expense
44,089
53,807
Interest income
(854
)
(371
)
Management services reimbursement income—unconsolidated real estate entities
(1,156
)
(1,064
)
Management services expense—unconsolidated real estate entities
1,156
1,064
Transaction-related expenses
2,150
1,186
Unrealized loss (gain) on non-real estate investment
898
(839
)
Gain on sale of real estate
—
(7,046
)
Other income
(143
)
(5,161
)
General and administrative
19,710
18,724
Depreciation and amortization
91,854
97,139
NOI
$
103,967
$
140,965
NOI Detail
Same-store office cash revenues
167,096
179,404
Straight-line rent
(3,308
)
63
Amortization of above/below-market leases, net
1,399
1,591
Amortization of lease incentive costs
(128
)
(282
)
Same-store office revenues
165,059
180,776
Same-store studios cash revenues
19,144
21,904
Straight-line rent
191
494
Amortization of lease incentive costs
(9
)
(9
)
Same-store studio revenues
19,326
22,389
Same-store revenues
184,385
203,165
Same-store office cash expenses
66,404
64,989
Straight-line rent
324
414
Non-cash compensation expense
19
35
Amortization of above/below-market ground leases, net
650
676
Same-store office expenses
67,397
66,114
Same-store studio cash expenses
11,542
11,920
Non-cash compensation expense
51
111
Same-store studio expenses
11,593
12,031
Same-store expenses
78,990
78,145
Same-store NOI
105,395
125,020
Non-same-store NOI
(1,428
)
15,945
NOI
$
103,967
$
140,965
(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/20240501215930/en/
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
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