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Press Release

Hudson Pacific Properties, Inc. Announces Second Quarter 2010 Financial Results

August 9, 2010

LOS ANGELES--(BUSINESS WIRE)-- Hudson Pacific Properties, Inc. (the “Company”) (NYSE: HPP) today announced financial results for the second quarter ended June 30, 2010.

Financial Results

For the second quarter of 2010, the Company reported a net loss of $2.8 million, compared to a net loss of $0.1 million a year ago. Net loss for the first six months of 2010 was $2.2 million, compared to net income of $0.1 million in the first six months of the prior year.

Second quarter 2010 results include a one-time, $2.4 million expense for transaction costs related to the Company’s initial public offering on June 23, 2010.

“The second quarter was a milestone period for Hudson Pacific, as we took the Company public on June 23, raising more than $270 million in gross proceeds,” said Mr. Victor J. Coleman, Chairman and Chief Executive Officer of the Company. “This new capital will enable us to acquire new properties and take advantage of the prime opportunities to which we have access while retaining our low leverage levels.”

Combined Operating Results For The Three Months Ended June 30, 2010

Total revenue during the quarter increased 2.4% to $11.1 million from $10.8 million a year ago. The increase in total revenue was attributed to a $0.6 million increase in rental revenue to $8.2 million, which was partially offset by a $0.4 million decrease in other property-related revenue to $1.9 million.

Total operating expenses increased 6.0% to $9.3 million from $8.8 million a year ago. The increase in total operating expenses was primarily the result of a $0.2 million increase in office operating expenses and a $0.3 million increase in depreciation and amortization expense.

Income from operations was $1.8 million, compared to income from operations of $2.0 million a year ago.

Interest expense during the second quarter remained relatively flat compared to the same period of 2009.

Acquisition-related expense during the second quarter was $2.4 million, with no comparable expense for the same period a year ago. The increase was due to one-time transaction costs relating to the Company’s acquisition of properties in connection with its IPO and related formation transactions.

Segment Operating Results For The Three Months Ended June 30, 2010

Office Properties

Total revenue at the Company’s office properties increased 23.0% to $3.7 million from $3.0 million in the second quarter of 2009. The increase was primarily the result of a $0.7 million increase in rental revenue to $3.3 million, which was largely attributable to improved occupancy.

Office property operating expenses increased 10.4% to $1.6 million from $1.5 million a year ago.

At June 30, 2010, the Company’s office portfolio was 85.9% leased and 80.2% occupied. During the quarter, the Company signed five new and renewal leases totaling 11,086 square feet.

Media and Entertainment Properties

Total revenue at the Company’s media and entertainment properties decreased 5.7% to $7.3 million from $7.8 million in the second quarter of 2009. The decline was primarily the result of a $0.4 million decrease in other property-related revenue.

Total media and entertainment expenses remained relatively flat compared to the same period a year ago.

At June 30, 2010, the Company’s media and entertainment portfolio was 67.1% leased.

Combined Operating Results For The Six Months Ended June 30, 2010

For the first six months of 2010, total revenue was $22.1 million, a decrease of 1.3% from $22.4 million in the same period the prior year. Total operating expenses remained relatively flat compared to the same period a year ago. As a result, income from operations was $4.3 million, compared to income from operations of $4.6 million during the first six months of 2009. Acquisition-related expense during the first six months of 2010 was $2.4 million, with no comparable expense for the same period a year ago. The increase was due to one-time transaction costs relating to the Company’s acquisition of properties in connection with its IPO and related formation transactions. Interest expense during the first six months of 2010 was relatively flat compared to the same period of 2009.

Balance Sheet

At June 30, 2010, the Company had total real estate assets of $487.9 million, in addition to cash and cash equivalents of $84.5 million. At June 30, 2010, the Company had availability of approximately $77.0 million on its undrawn, $200 million secured credit facility.

Initial Public Offering

On June 29, 2010, the Company completed an initial public offering and concurrent private placement at $17.00 per share of common stock. Including the exercise of the underwriters’ over-allotment option, the Company generated $270.2 million in total gross proceeds. Of the total, $217.6 million was from the public offering of common stock, $32.6 million was from the exercise of the over-allotment option and $20.0 million was from a private placement investment by Victor J. Coleman, the Company’s Chairman and Chief Executive Officer, and certain investment funds affiliated with Farallon Capital Management, L.L.C.

Supplemental Information

Supplemental financial information regarding the Company’s second quarter 2010 results may be found in the Investor Relations section of the Company's Web site at www.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 host a conference call at 10 a.m. PDT / 1 p.m. EDT on Tuesday, August 10, 2010, to discuss results for the second quarter of 2010. To participate in the event by telephone, please dial (877) 941-2069 five to 10 minutes prior to the start time (to allow time for registration) and use conference ID 4329153. International callers should dial (480) 629-9713 and use the same conference ID number. A digital replay of the conference call will be available beginning August 10, 2010, at 1 p.m. PDT / 4 p.m. EDT, through August 17, 2010, at 8:59 p.m. PDT / 11:59 p.m. EDT. To access the replay, dial (877) 870-5176 (U.S.), and use conference ID 4329153. International callers should dial (858) 384-5517 and enter the same conference ID number. The call will also be broadcast live over the Internet and can be accessed on the Investor Relations section of the Company’s Web site at www.hudsonpacificproperties.com. To listen to the live webcast, please visit the site at least 15 minutes prior to the start of the call in order to register, download and install any necessary audio software. A replay of the call will also be available for 90 days on the Company’s Web site.

About Hudson Pacific Properties

Hudson Pacific Properties, Inc. is a full-service, vertically integrated real estate company focused on owning, operating and acquiring high-quality office properties and state-of-the-art media and entertainment properties in select growth markets primarily in Northern and Southern California. The Company’s investment strategy is focused on high barrier-to-entry, in-fill locations with favorable, long-term supply-demand characteristics. These markets include Los Angeles, Orange County, San Diego, San Francisco, Silicon Valley and the East Bay. The Company’s portfolio includes eight properties totaling approximately 2.0 million square feet, strategically located in many of the Company’s target markets. The Company intends to elect to be taxed and to operate in a manner that will allow it to qualify as a real estate investment trust, or REIT, for federal income tax purposes, commencing with the taxable year ending December 31, 2010. For more information, please visit www.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, that 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 final prospectus dated June 23, 2010, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.

                   

Hudson Pacific Properties, Inc.

Combined Balance Sheets

As of June 30, 2010 and December 31, 2009

(Unaudited and in thousands, except for per share data)

 
June 30, December 31,
2010 2009
ASSETS
Investment in real estate, net
Land $ 204,213 $ 193,042
Land improvements 10,537 10,220
Building and improvements 259,294 196,495
Tenant improvements 19,113 14,344
Furniture and fixtures   11,248     11,097  
504,405 425,198
Accumulated depreciation   (21,442 )   (16,868 )
482,963 408,330
Property under development   4,973     4,148  
Total investment in real estate 487,936 412,478
 
Cash and cash equivalents 84,509 4,217
Restricted cash 2,320 3,709
Accounts receivable, net of allowance of $216 and $308 1,724 1,273
Straight-line rent receivables 4,279 2,935
Lease intangibles, net 22,288 15,028
Goodwill 8,754 -
Prepaid expenses and other assets   9,970     8,594  
TOTAL ASSETS $ 621,780   $ 448,234  
 
LIABILITIES AND EQUITY
Notes payable $ 94,020 $ 189,518
Accounts payable and accrued liabilities 5,860 6,026
Below-market leases 12,259 11,636
Security deposits 3,976 2,939
Prepaid rent 9,706 11,102
Interest rate contracts   78     425  
TOTAL LIABILITIES 125,899 221,646
 
6.25% Series A Cumulative Redeemable Preferred units of the Operating Partnership 12,475 -
 
EQUITY
Members' equity - 223,240
Hudson Pacific Properties, Inc. stockholders’ equity:
Common stock, $0.01 par value 490,000,000 authorized, 22,211,817

222

-

outstanding at June 30, 2010

 

 
APIC 434,484 -
Accumulative Earnings   (2,177 )   -  
Total Stockholders' Equity 432,529 -
 
Noncontrolling interests:
Members in consolidated real estate entities - 3,348
Unitholders in the Operating Partnership   50,877     -  
  50,877     3,348  
TOTAL EQUITY   483,406     226,588  

TOTAL LIABILITIES AND EQUITY

$ 621,780   $ 448,234  
 
 
                   
Hudson Pacific Properties, Inc.
Combined Statements of Operations
(Unaudited and in thousands)
 

Three Months Ended
June 30,

Six Months Ended
June 30,

2010 2009 2010 2009
REVENUES
Office
Rental $ 3,285 $ 2,591 $ 6,265 $ 5,449
Tenant recoveries 374 397 785 939
Other   79     50     160     113  
Total office revenues 3,738 3,038 7,210 6,501
 
Media & Entertainment
Rental 4,944 4,990 10,229 10,389
Tenant recoveries 449 455 816 877
Other property-related revenue 1,949 2,330 3,800 4,559
Other   7     15     13     39  
Total media & entertainment revenue 7,349 7,790 14,858 15,864
       
Total revenues   11,087     10,828     22,068     22,365  
 
OPERATING EXPENSES
Office operating expenses 1,639 1,485 2,837 2,788
Media & entertainment operating expenses 4,719 4,610 9,249 9,358
General and administrative - - - -
Depreciation and amortization   2,955     2,688     5,668     5,605  
Total operating expenses   9,313     8,783     17,754     17,751  
 
Income from operations 1,774 2,045 4,314 4,614
 
OTHER EXPENSE (INCOME)
 
Interest expense 2,331 2,181 4,413 4,471
Interest income (3 ) (2 ) (6 ) (5 )
Unrealized (gain) loss of interest rate contracts (140 ) (96 ) (347 ) (104 )

Acquisition-related expenses

2,433 - 2,433 -
Other   -     33     -     123  
4,621 2,116 6,493 4,485
 

Net income (loss) before non-controlling interests

$ (2,847 ) $ (71 ) $ (2,179 ) $ 129
 
Less: Net dividends attributable to preferred non-controlling partnership interest (4 ) - (4 ) -
Less: Net income attributable to restricted shares - - - -
Add: Net (income) loss attributable to non-controlling Members in consolidated real estate entities 32 3 29 (8 )
Add: Net loss attributable to unitholders in the Operating Partnership 256 - 256 -
       
Income (loss) attributable to Hudson Pacific Properties, Inc. shareholders’ / controlling member’s equity $ (2,563 ) $ (68 ) $ (1,898 ) $ 121  

 

Source: Hudson Pacific Properties, Inc.

Contact:

Investor Contact:

Hudson Pacific Properties, Inc.

Mark Lammas, Chief Financial Officer

(310) 445-5700

or

Addo Communications, Inc.

Andrew Blazier

(310) 829-5400

andrewb@addocommunications.com

or

Media Contact:

Casey & Sayre

Karen Diehl

(310) 473-8090

kdiehl@cswpr.com