Net Income of $0.11 per Diluted Share
FFO of $0.47 per Diluted Share (Excluding Specified Items)
Signed Quarterly Record of 1.2 Million Square Feet of Office Leases
Achieved
GAAP and cash rent growth of 28% and 12%, respectively
Leased
100% of EPIC and Fourth & Traction (re)developments
Sold Remainder of San Mateo Office Park for $210 Million
Sale
price represents 5% GAAP premium and 14% purchase price premium
Narrowed 2018 FFO Guidance to $1.84 to $1.88 per Diluted Share
(Excluding Specified Items)
Increased same-store office cash
NOI growth assumption to 4.5-5.5%
LOS ANGELES--(BUSINESS WIRE)--
Hudson Pacific Properties, Inc. (the "Company" or "Hudson Pacific")
(NYSE: HPP) today announced financial results for the third quarter
2018.
Management Comments & Industry Outlook
Victor Coleman, Hudson Pacific Properties' Chairman and CEO, said:
"The third quarter 2018 was our most productive quarter ever in terms of
office leasing activity, capping our most successful four consecutive
quarters of overall leasing. As our results demonstrate, fundamentals in
West Coast innovation hubs remain among the best in the nation. We're
seeing further rent growth and vacancy compression, and robust
absorption driven by expanding tech and media companies. We're
successfully addressing availabilities throughout our portfolio, and in
the third quarter we signed nearly half-a-million square feet of leases
at our priority, large block lease-up assets, including two
full-building deals. In addition, we have renewed, backfilled, or are in
leases, LOIs or proposals on 64% of our remaining fourth quarter 2018
and 55% of our remaining 2019 expirations.
"With third quarter's sale of Peninsula Office Park's remaining
buildings, we have sold nearly half-a-billion of non-core assets this
year into very strong investment markets. We are re-investing that
capital into higher-potential value creation projects and properties,
which will accelerate FFO growth in 2019 and beyond. This includes
organic growth like EPIC, Harlow, and One Westside. It also includes
disciplined external growth like the Ferry Building, which we purchased
in the fourth quarter in a joint venture with Allianz Real Estate, where
we expect significant upside through strategic re-leasing at market
rents as well as our ability to drive more visitors and higher tenant
demand."
Consolidated Financial & Operating Results
For third quarter 2018 compared to third quarter 2017:
-
Net income attributable to common stockholders of $17.4 million, or
$0.11 per diluted share, compared to $11.1 million, or $0.07 per
diluted share;
-
FFO, excluding specified items, of $73.3 million, or $0.47 per diluted
share, compared to $78.9 million, or $0.50 per diluted share;
-
Specified items consisting of transaction-related expenses of $0.2
million, or $0.00 per diluted share, compared to specified items
consisting of transaction-related expenses of $0.6 million, or
$0.00 per diluted share;
-
FFO, including specified items, of $73.1 million, or $0.46 per diluted
share, compared to $78.3 million, or $0.50 per diluted share;
-
Total revenue decreased 4.9% to $180.7 million;
-
Total operating expenses decreased 6.2% to $144.3 million;
-
Income from operations increased 0.6% to $36.4 million; and
-
Interest expense decreased 10.4% to $20.1 million.
Office Segment Results
Financial & operating
For third quarter 2018 compared to third quarter 2017:
-
Total revenue decreased 6.2% to $161.4 million, primarily due to a
$9.2 million decrease in rental revenue to $130.0 million, a $0.4
million decrease in tenant recoveries to $24.6 million, and a $1.2
million decrease in parking and other revenue to $6.9 million. Factors
include:
-
The sales of Pinnacle I and Pinnacle II (November 16, 2017),
Embarcadero Place (January 25, 2018), 2180 Sand Hill (March 1,
2018), 9300 Wilshire (April 10, 2018) and Peninsula Office Park
(July 27, 2018) as well as the anticipated Cisco and Robert Bosch
lease terminations at Campus Center and Foothill Research Center,
respectively;
-
Operating expenses decreased 3.1% to $57.3 million, also due to the
aforementioned asset sales and lease terminations; and
-
Net operating income and cash net operating income for the 31
same-store office properties increased 3.2% and 2.5%, respectively.
The cash basis comparison is muted by a $3.2 million one-time tenant
improvement cost reimbursement received in 2017, which the Company
excluded for purposes of both 2017 and 2018 same-store office cash net
operating income growth guidance estimates. Adjusted for this one-time
reimbursement, third quarter and year-to-date same-store office cash
net operating income increased 7.6% and 4.3%, respectively.
Leasing
-
Stabilized and in-service office portfolio was 94.6% and 91.4% leased,
respectively; and
-
Executed 55 new and renewal leases totaling 1,199,578 square feet with
GAAP and cash rent growth of 28.4% and 12.0% respectively. Excluding
the impact of the early Netflix renewal at ICON and CUE, GAAP and cash
rents grew by 31.2% and 27.5%, respectively.
Studio Segment Results
Financial & operating
For third quarter 2018 compared to third quarter 2017:
-
Total revenue increased 7.9% to $19.3 million, largely due to a $0.7
million increase in rental revenue to $11.7 million, a $0.2 million
increase in tenant recoveries to $0.3 million, and a $0.4 million
increase in other property-related revenue to $7.0 million. Factors
include:
-
The acquisition of 6605 Eleanor Avenue and 1034 Seward Street
(June 7, 2018), higher rental revenue as Sunset Gower Studios
relating to the Company's studio leases with Netflix, and
increased production at Sunset Las Palmas and Sunset Gower Studios;
-
Total operating expenses decreased 0.7% to $10.5 million, primarily
due to lower lighting expense at Sunset Bronson Studios; and
-
Net operating income and cash net operating income for the three
same-store studio properties increased by 12.6% and decreased by 3.0%,
respectively. The cash basis comparison is muted by a $0.7 million
one-time tenant improvement cost reimbursement received in 2017.
Adjusted for this one-time reimbursement, third quarter and
year-to-date same-store studio cash net operating income increased
6.4% and 11.9%, respectively.
Leasing
-
Trailing 12-month occupancy for the same-store studio portfolio was
88.9%.
Leasing Activity
Record quarterly leasing activity across portfolio
-
Netflix leased all 302,102 square feet of the EPIC office
development in Hollywood through mid-2031. Netflix is expected to
occupy the building in phases beginning in early 2020.
-
Netflix also signed a coterminous lease extension for all
325,757 square feet of office space at ICON and all 91,953 square feet
of office space at CUE, both located at Sunset Bronson Studios across
the street from EPIC.
-
Honey Science Corporation leased all 131,701 square feet at the
Fourth & Traction office redevelopment in the Los Angeles Arts
District through May 2030. Honey will occupy the building in phases
beginning in mid-2019 upon landlord's completion of tenant
improvements.
-
Nutanix leased another 72,637 square feet at Concourse in North
San Jose through May 2024, coterminous with its existing
58,714-square-foot lease in the building, and its 233,979 square feet
of leases at 1740 Technology and Metro Plaza also in North San Jose.
-
Poshmark leased 50,327 square feet through May 2024 at Towers
at Shore Center in Redwood City.
Acquisitions
One Westside/10850 Pico (formerly Westside Pavilion) contributed to
joint venture
On August 31, 2018, Macerich contributed Westside Pavilion for $190.0
million, before prorations, credits and closing costs, into the 75/25%
Hudson Pacific/Macerich joint venture, of which the Company serves as
managing member. The joint venture defeased an existing $139.0 million
loan in connection with the contribution by purchasing U.S. Government
securities. Planning and entitlements are underway to convert the mall
into an approximately 500,000-square-foot creative office campus called
One Westside, while maintaining 95,987 square feet of adjacent
entertainment and retail space at 10850 Pico. Estimated total project
costs, inclusive of the asset value at contribution, are in the range of
$425.0-475.0 million, with construction completion expected in mid-2021.
Dispositions
Sold remainder of Peninsula Office Park
On July 27, 2018, the Company sold Peninsula Office Park's remaining six
buildings totaling 447,739 square feet in San Mateo for $210.0 million
before credits, prorations and closing costs. The sale price represents
a 5% premium to the Company's GAAP basis and a 14% premium to the
Company's allocated purchase price. In January of this year, the Company
sold a fully vacant, 63,050-square-foot building that was part of the
Peninsula Office Park campus for $22.5 million before prorations,
credits and closing costs. Net proceeds from this latest sale were used
to repay $140 million outstanding under the Company's unsecured
revolving credit facility, and then for general corporate purposes.
Balance Sheet
As of the end of the third quarter 2018:
-
$2.4 billion of total debt equivalent to a leverage ratio of 31.9%
(includes preferred units).
-
Approximately $794.5 million of total liquidity comprised of:
-
$52.5 million of unrestricted cash and cash equivalents;
-
$490.0 million of undrawn total capacity under the unsecured
revolving credit facility; and
-
$252.0 million of excess capacity on the Sunset Bronson/Gower
construction loan.
Dividend
Paid common dividend
-
The Company's Board of Directors declared a dividend on its common
stock of $0.25 per share, equivalent to an annual rate of $1.00 per
share.
-
The dividends were paid on September 28, 2018 to stockholders of
record on September 18, 2018.
Activities Subsequent to Third Quarter 2018
Further expanded top 15 tenant
-
Nutanix signed an additional lease for 80,489 square feet at
Metro Plaza in North San Jose through May 2024.
Formed joint venture and purchased San Francisco Ferry Building
On October 9, 2018, a joint venture owned 55% by Hudson Pacific and 45%
by Allianz Real Estate purchased a leasehold in the land and
improvements of the iconic Ferry Building in San Francisco for $291.0
million before credits, prorations and closing costs. The Company serves
as managing member of the joint venture and earns a management fee. The
fully leased Ferry Building consists of 192,532 square feet of office
and 75,486 square feet of retail. Office tenants include top-tier
companies, such as SS&C Technologies, Meltwater, Meritage Group and
Niantic. Retail contains a world-renowned public food market, with
popular restaurants and retailers such as The Slanted Door and Blue
Bottle Coffee. The joint venture intends to further enhance and drive
revenue at the property by re-leasing space at market rents, introducing
new amenities, activities and events, and capturing additional foot
traffic associated with the Ferry Terminal expansion. This was an
all-cash transaction and 49 years remain on the ground lease.
Acquired parcel strategic to Sunset Las Palmas Studios expansion
On October 23, 2018, the Company purchased an 11,200-square-foot office
building at 6660 Santa Monica Boulevard in Hollywood adjacent to, and
now part of, Sunset Las Palmas Studios for $10.0 million before credits,
prorations and closings costs.
2018 Outlook
The Company is narrowing its full-year 2018 FFO guidance to a range of
$1.84 to $1.88 per diluted share, excluding specified items, maintaining
the $1.86 midpoint last provided on October 10, 2018 in connection with
the Ferry Building acquisition announcement.
Specified items for full-year 2018 FFO guidance consist of $0.3 million
of transaction-related expenses, a $0.4 million write-off of original
issuance costs (i.e., deferred financing costs) associated with the
Company's recast of its unsecured revolving credit facility and 5- and
7-year term loan facilities, and $0.9 million of unrealized gains from
changes in fair value on non-real estate investments.
The full-year 2018 FFO estimates 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. It otherwise excludes any impact from
future unannounced or speculative acquisitions, dispositions, debt
financings or repayments, recapitalizations, capital markets activity or
similar matters. There can be no assurance that the actual results will
not differ materially from this estimate.
Below are some of the assumptions the Company used in providing this
guidance (dollars in thousands):
|
|
|
|
|
|
|
|
|
Full Year 2018
|
Metric
|
|
|
|
Low
|
|
|
|
High
|
Growth in same-store office property cash NOI(1)(2)(3)
|
|
|
|
4.5%
|
|
|
|
5.5%
|
Growth in same-store studio property cash NOI(1)(2)
|
|
|
|
8.5%
|
|
|
|
9.5%
|
GAAP non-cash revenue (straight-line rent and above/below-market
rents)(4)
|
|
|
|
$43,000
|
|
|
|
$53,000
|
GAAP non-cash expense (above/below-market ground rent)
|
|
|
|
$(3,000)
|
|
|
|
$(3,000)
|
General and administrative expenses(5)
|
|
|
|
$(58,000)
|
|
|
|
$(63,000)
|
Interest expense, net(6)
|
|
|
|
$(81,500)
|
|
|
|
$(84,500)
|
FFO attributable to non-controlling interests
|
|
|
|
$(20,000)
|
|
|
|
$(24,000)
|
Weighted average common stock/units outstanding—diluted(7)
|
|
|
|
157,150,000
|
|
|
|
158,150,000
|
|
|
|
|
|
|
|
|
|
1.
|
|
|
Same-store is defined as the 29 office properties or two studio
properties, as applicable, owned and included in the Company's
stabilized portfolio as of January 1, 2017, and anticipated to still
be owned and included in the stabilized portfolio through December
31, 2018.
|
2.
|
|
|
Please see non-GAAP information below for definition of cash NOI.
|
3.
|
|
|
This estimate excludes approximately $4.2 million of material
one-time tenant improvement cost reimbursements received in 2017,
which were likewise excluded from prior year (2017) guidance for
purposes of same-store office property cash NOI growth estimates.
Please see the Same-Store Analysis in the Company's Fourth Quarter
2017 Supplemental Information report for further detail regarding
these reimbursements.
|
4.
|
|
|
Includes non-cash straight-line rent associated with the studio
properties.
|
5.
|
|
|
Includes non-cash compensation expense, which the Company estimates
at $17,500 in 2018.
|
6.
|
|
|
Includes amortization of deferred financing costs and loan
discounts, which the Company estimates at $6,000 in 2018.
|
7.
|
|
|
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 2018 includes an estimate for the dilution impact of
stock grants to the Company's executives under its 2016, 2017 and
2018 outperformance programs, as well as performance-based awards
under the Company's special one-time retention award grants. This
estimate is based on the projected award potential of such programs
as of the end of such periods, as calculated in accordance with the
Accounting Standards Codification 260, Earnings Per Share.
|
|
|
|
|
The Company does not provide a reconciliation for non-GAAP estimates on
a forward-looking basis, including the information under "2018 Outlook"
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 third
quarter 2018 results may be found in the Investor Relations 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 third quarter 2018
financial results at 11:00 a.m. PT / 2:00 p.m. ET on November 1, 2018.
Please dial (877) 407-0784 to access the call. International callers
should dial (201) 689-8560. A live, listen-only webcast can be accessed
via the Investor Relations section of the Company's website at HudsonPacificProperties.com,
where a replay of the call will be available. A replay will also be
available beginning November 1, 2018 at 2:00 p.m. PT / 5:00 p.m. ET,
through November 8, 2018 at 8:59 p.m. PT / 11:59 p.m. ET, by dialing
(844) 512-2921 and entering the passcode 13683762. International callers
should dial (412) 317-6671 and enter the same passcode.
About Hudson Pacific Properties
Hudson Pacific Properties is a visionary real estate investment trust
that owns and operates more than 17 million square feet of marquee
office and studio properties. Focused on premier West Coast epicenters
of innovation, media and technology, its anchor tenants include Fortune
500 and leading growth companies such as Netflix, Google, Square, Uber,
NFL Enterprises and more. Hudson Pacific is publicly traded on the NYSE
under the symbol HPP, and listed as a component of the Russell 2000® and
the Russell 3000® indices. 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 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, 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 for the year ended December 31,
2017 filed with the Securities and Exchange Commission, or SEC, on
February 16, 2018, 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
|
|
|
|
|
September 30, 2018
(Unaudited)
|
|
|
|
December 31, 2017
|
ASSETS
|
|
|
|
|
|
|
|
|
Investment in real estate, at cost
|
|
|
|
$
|
6,690,374
|
|
|
|
|
$
|
6,219,361
|
|
Accumulated depreciation and amortization
|
|
|
|
(649,624
|
)
|
|
|
|
(521,370
|
)
|
Investment in real estate, net
|
|
|
|
6,040,750
|
|
|
|
|
5,697,991
|
|
Cash and cash equivalents
|
|
|
|
52,456
|
|
|
|
|
78,922
|
|
Restricted cash
|
|
|
|
10,782
|
|
|
|
|
22,358
|
|
Accounts receivable, net
|
|
|
|
12,125
|
|
|
|
|
4,234
|
|
Straight-line rent receivables, net
|
|
|
|
131,713
|
|
|
|
|
106,466
|
|
Deferred leasing costs and lease intangible assets, net
|
|
|
|
256,100
|
|
|
|
|
239,029
|
|
U.S. Government securities
|
|
|
|
148,315
|
|
|
|
|
—
|
|
Prepaid expenses and other assets, net
|
|
|
|
92,609
|
|
|
|
|
61,139
|
|
Assets associated with real estate held for sale
|
|
|
|
—
|
|
|
|
|
411,931
|
|
TOTAL ASSETS
|
|
|
|
$
|
6,744,850
|
|
|
|
|
$
|
6,622,070
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Unsecured and secured debt, net
|
|
|
|
$
|
2,332,795
|
|
|
|
|
$
|
2,421,380
|
|
In-substance defeased debt
|
|
|
|
139,003
|
|
|
|
|
—
|
|
Accounts payable, accrued liabilities and other
|
|
|
|
193,941
|
|
|
|
|
162,346
|
|
Lease intangible liabilities, net
|
|
|
|
43,289
|
|
|
|
|
49,540
|
|
Security deposits and prepaid rent
|
|
|
|
64,169
|
|
|
|
|
62,760
|
|
Liabilities associated with real estate held for sale
|
|
|
|
—
|
|
|
|
|
4,903
|
|
Total liabilities
|
|
|
|
2,773,197
|
|
|
|
|
2,700,929
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred units of the operating partnership
|
|
|
|
9,815
|
|
|
|
|
10,177
|
|
Redeemable non-controlling interest in consolidated real estate
entity
|
|
|
|
50,092
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Hudson Pacific Properties, Inc. stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 490,000,000 authorized, 155,649,125
shares and 155,602,508 shares outstanding at September 30, 2018 and
December 31, 2017, respectively
|
|
|
|
1,556
|
|
|
|
|
1,556
|
|
Additional paid-in capital
|
|
|
|
3,597,904
|
|
|
|
|
3,622,988
|
|
Accumulated other comprehensive income
|
|
|
|
27,834
|
|
|
|
|
13,227
|
|
Total Hudson Pacific Properties, Inc. stockholders' equity
|
|
|
|
3,627,294
|
|
|
|
|
3,637,771
|
|
Non-controlling interest—members in consolidated entities
|
|
|
|
266,986
|
|
|
|
|
258,602
|
|
Non-controlling interest—units in the operating partnership
|
|
|
|
17,466
|
|
|
|
|
14,591
|
|
Total equity
|
|
|
|
3,911,746
|
|
|
|
|
3,910,964
|
|
TOTAL LIABILITIES AND EQUITY
|
|
|
|
$
|
6,744,850
|
|
|
|
|
$
|
6,622,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
Unaudited, in thousands, except share data
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
|
|
$
|
129,963
|
|
|
|
|
$
|
139,157
|
|
|
|
|
$
|
389,777
|
|
|
|
|
$
|
406,275
|
|
Tenant recoveries
|
|
|
|
24,615
|
|
|
|
|
24,982
|
|
|
|
|
67,479
|
|
|
|
|
67,421
|
|
Parking and other
|
|
|
|
6,868
|
|
|
|
|
8,035
|
|
|
|
|
19,272
|
|
|
|
|
22,146
|
|
Total office revenues
|
|
|
|
161,446
|
|
|
|
|
172,174
|
|
|
|
|
476,528
|
|
|
|
|
495,842
|
|
Studio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
|
|
11,731
|
|
|
|
|
11,012
|
|
|
|
|
32,822
|
|
|
|
|
26,802
|
|
Tenant recoveries
|
|
|
|
299
|
|
|
|
|
133
|
|
|
|
|
1,153
|
|
|
|
|
927
|
|
Other property-related revenue
|
|
|
|
6,988
|
|
|
|
|
6,561
|
|
|
|
|
18,724
|
|
|
|
|
14,964
|
|
Other
|
|
|
|
234
|
|
|
|
|
141
|
|
|
|
|
758
|
|
|
|
|
271
|
|
Total studio revenues
|
|
|
|
19,252
|
|
|
|
|
17,847
|
|
|
|
|
53,457
|
|
|
|
|
42,964
|
|
Total revenues
|
|
|
|
180,698
|
|
|
|
|
190,021
|
|
|
|
|
529,985
|
|
|
|
|
538,806
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office operating expenses
|
|
|
|
57,295
|
|
|
|
|
59,102
|
|
|
|
|
164,475
|
|
|
|
|
162,524
|
|
Studio operating expenses
|
|
|
|
10,511
|
|
|
|
|
10,588
|
|
|
|
|
28,714
|
|
|
|
|
24,842
|
|
General and administrative
|
|
|
|
14,280
|
|
|
|
|
13,013
|
|
|
|
|
46,047
|
|
|
|
|
41,329
|
|
Depreciation and amortization
|
|
|
|
62,224
|
|
|
|
|
71,158
|
|
|
|
|
183,483
|
|
|
|
|
217,340
|
|
Total operating expenses
|
|
|
|
144,310
|
|
|
|
|
153,861
|
|
|
|
|
422,719
|
|
|
|
|
446,035
|
|
Operating income
|
|
|
|
36,388
|
|
|
|
|
36,160
|
|
|
|
|
107,266
|
|
|
|
|
92,771
|
|
OTHER EXPENSE (INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
20,131
|
|
|
|
|
22,461
|
|
|
|
|
59,965
|
|
|
|
|
66,086
|
|
Interest income
|
|
|
|
(418
|
)
|
|
|
|
(44
|
)
|
|
|
|
(493
|
)
|
|
|
|
(90
|
)
|
Unrealized gain on non-real estate investment
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(928
|
)
|
|
|
|
—
|
|
Unrealized loss on ineffective portion of derivative instrument
|
|
|
|
—
|
|
|
|
|
37
|
|
|
|
|
—
|
|
|
|
|
82
|
|
Transaction-related expenses
|
|
|
|
165
|
|
|
|
|
598
|
|
|
|
|
283
|
|
|
|
|
598
|
|
Other income
|
|
|
|
(25
|
)
|
|
|
|
(1,402
|
)
|
|
|
|
(748
|
)
|
|
|
|
(2,656
|
)
|
Total other expenses
|
|
|
|
19,853
|
|
|
|
|
21,650
|
|
|
|
|
58,079
|
|
|
|
|
64,020
|
|
Income before gains on sale of real estate
|
|
|
|
16,535
|
|
|
|
|
14,510
|
|
|
|
|
49,187
|
|
|
|
|
28,751
|
|
Gains on sale of real estate
|
|
|
|
3,735
|
|
|
|
|
—
|
|
|
|
|
43,337
|
|
|
|
|
16,866
|
|
Net income
|
|
|
|
20,270
|
|
|
|
|
14,510
|
|
|
|
|
92,524
|
|
|
|
|
45,617
|
|
Net income attributable to preferred units
|
|
|
|
(153
|
)
|
|
|
|
(159
|
)
|
|
|
|
(465
|
)
|
|
|
|
(477
|
)
|
Net income attributable to participating securities
|
|
|
|
(118
|
)
|
|
|
|
(255
|
)
|
|
|
|
(555
|
)
|
|
|
|
(750
|
)
|
Net income attributable to non-controlling interest in consolidated
entities
|
|
|
|
(2,569
|
)
|
|
|
|
(2,991
|
)
|
|
|
|
(9,059
|
)
|
|
|
|
(9,002
|
)
|
Net income attributable to non-controlling interest in the operating
partnership
|
|
|
|
(63
|
)
|
|
|
|
(41
|
)
|
|
|
|
(299
|
)
|
|
|
|
(256
|
)
|
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
|
|
$
|
17,367
|
|
|
|
|
$
|
11,064
|
|
|
|
|
$
|
82,146
|
|
|
|
|
$
|
35,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED PER SHARE AMOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders—basic
|
|
|
|
$
|
0.11
|
|
|
|
|
$
|
0.07
|
|
|
|
|
$
|
0.53
|
|
|
|
|
$
|
0.23
|
|
Net income attributable to common stockholders—diluted
|
|
|
|
$
|
0.11
|
|
|
|
|
$
|
0.07
|
|
|
|
|
$
|
0.52
|
|
|
|
|
$
|
0.23
|
|
Weighted average shares of common stock outstanding—basic
|
|
|
|
155,649,110
|
|
|
|
|
155,302,800
|
|
|
|
|
155,637,351
|
|
|
|
|
152,874,952
|
|
Weighted average shares of common stock outstanding—diluted
|
|
|
|
156,669,247
|
|
|
|
|
156,093,736
|
|
|
|
|
156,628,488
|
|
|
|
|
153,648,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations
|
Unaudited, in thousands, except per share data
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS ("FFO")
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
20,270
|
|
|
|
|
$
|
14,510
|
|
|
|
|
$
|
92,524
|
|
|
|
|
$
|
45,617
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of real estate assets
|
|
|
|
61,727
|
|
|
|
|
70,555
|
|
|
|
|
182,013
|
|
|
|
|
215,788
|
|
Gains on sale of real estate
|
|
|
|
(3,735
|
)
|
|
|
|
—
|
|
|
|
|
(43,337
|
)
|
|
|
|
(16,866
|
)
|
FFO attributable to non-controlling interests
|
|
|
|
(5,019
|
)
|
|
|
|
(6,609
|
)
|
|
|
|
(15,666
|
)
|
|
|
|
(18,561
|
)
|
Net income attributable to preferred units
|
|
|
|
(153
|
)
|
|
|
|
(159
|
)
|
|
|
|
(465
|
)
|
|
|
|
(477
|
)
|
FFO to common stockholders and unitholders
|
|
|
|
73,090
|
|
|
|
|
78,297
|
|
|
|
|
215,069
|
|
|
|
|
225,501
|
|
Specified items impacting FFO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction-related expenses
|
|
|
|
165
|
|
|
|
|
598
|
|
|
|
|
283
|
|
|
|
|
598
|
|
One-time debt extinguishment costs
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
421
|
|
|
|
|
—
|
|
Unrealized gains on non-real estate investment(2) |
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(928
|
)
|
|
|
|
—
|
|
FFO (EXCLUDING SPECIFIED ITEMS) TO COMMON STOCKHOLDERS AND
UNITHOLDERS
|
|
|
|
$
|
73,255
|
|
|
|
|
$
|
78,895
|
|
|
|
|
$
|
214,845
|
|
|
|
|
$
|
226,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock/units outstanding—diluted
|
|
|
|
157,238
|
|
|
|
|
156,663
|
|
|
|
|
157,198
|
|
|
|
|
154,511
|
|
FFO per common stock/unit—diluted
|
|
|
|
$
|
0.46
|
|
|
|
|
$
|
0.50
|
|
|
|
|
$
|
1.37
|
|
|
|
|
$
|
1.46
|
|
FFO (excluding specified items) per common stock/unit- diluted
|
|
|
|
$
|
0.47
|
|
|
|
|
$
|
0.50
|
|
|
|
|
$
|
1.37
|
|
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
|
|
Hudson Pacific calculates 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
extraordinary items, as defined by GAAP, gains and losses from sales
of depreciable real estate and impairment write-downs associated
with depreciable real estate, plus real estate-related depreciation
and amortization (excluding amortization of deferred financing costs
and depreciation of non-real estate assets) and after adjustment for
unconsolidated partnerships and joint ventures. The calculation of
FFO includes the amortization of deferred revenue related to
tenant-funded tenant improvements and excludes the depreciation of
the related tenant improvement assets. The Company believes that FFO
is a useful supplemental measure of its 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 its
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, the Company's 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, the Company
believes that FFO along with the required GAAP presentations
provides a more complete measurement of its performance relative to
its 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. The
Company uses FFO per share to calculate annual cash bonuses for
certain employees.
|
|
|
|
|
|
|
|
FFO should not be viewed as an alternative measure of the Company's
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 the Company's properties, which are significant
economic costs and could materially impact the Company's results
from operations.
|
|
|
|
|
2.
|
|
|
Hudson Pacific adopted ASU 2016-01 on January 1, 2018 and elected
the measurement alternative. This standard requires the Company to
mark the investment in shares to fair value whenever fair value is
readily available or observable. During the second quarter of 2018,
Hudson Pacific recognized a $928 thousand unrealized gain.
|
|
|
|
|
Net Operating Income
|
Unaudited, in thousands
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
RECONCILIATION OF NET INCOME TO NET OPERATING INCOME ("NOI")
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
20,270
|
|
|
|
|
$
|
14,510
|
|
|
|
|
$
|
92,524
|
|
|
|
|
$
|
45,617
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
20,131
|
|
|
|
|
22,461
|
|
|
|
|
59,965
|
|
|
|
|
66,086
|
|
Interest income
|
|
|
|
(418
|
)
|
|
|
|
(44
|
)
|
|
|
|
(493
|
)
|
|
|
|
(90
|
)
|
Unrealized gain on non-real estate investment(2) |
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(928
|
)
|
|
|
|
—
|
|
Unrealized loss on ineffective portion of derivatives
|
|
|
|
—
|
|
|
|
|
37
|
|
|
|
|
—
|
|
|
|
|
82
|
|
Transaction-related expenses
|
|
|
|
165
|
|
|
|
|
598
|
|
|
|
|
283
|
|
|
|
|
598
|
|
Other income
|
|
|
|
(25
|
)
|
|
|
|
(1,402
|
)
|
|
|
|
(748
|
)
|
|
|
|
(2,656
|
)
|
Gains on sale of real estate
|
|
|
|
(3,735
|
)
|
|
|
|
—
|
|
|
|
|
(43,337
|
)
|
|
|
|
(16,866
|
)
|
Income from operations
|
|
|
|
36,388
|
|
|
|
|
36,160
|
|
|
|
|
107,266
|
|
|
|
|
92,771
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
|
14,280
|
|
|
|
|
13,013
|
|
|
|
|
46,047
|
|
|
|
|
41,329
|
|
Depreciation and amortization
|
|
|
|
62,224
|
|
|
|
|
71,158
|
|
|
|
|
183,483
|
|
|
|
|
217,340
|
|
NOI
|
|
|
|
$
|
112,892
|
|
|
|
|
$
|
120,331
|
|
|
|
|
$
|
336,796
|
|
|
|
|
$
|
351,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
|
|
Hudson Pacific evaluates performance based upon property NOI from
continuing operations. NOI is not a measure of operating results or
cash flows from operating activities as measured by GAAP and should
not be considered an alternative to income from continuing
operations, as an indication of the Company's performance, or as an
alternative to cash flows as a measure of liquidity, or the
Company's ability to make distributions. All companies may not
calculate NOI in the same manner. Hudson Pacific considers 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 its 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. The Company
calculates 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. The
Company defines NOI as operating revenues (including rental
revenues, other property-related revenue, tenant recoveries and
other operating revenues), less property-level operating expenses
(which includes 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. Hudson Pacific believes 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.
|
|
|
|
|
2.
|
|
|
Hudson Pacific adopted ASU 2016-01 on January 1, 2018 and elected
the measurement alternative. This standard requires the Company to
mark the investment in shares to fair value whenever fair value is
readily available or observable. During the second quarter of 2018,
Hudson Pacific recognized a $928 thousand unrealized gain.
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Hudson Pacific Properties, Inc.
Laura Campbell
Senior Vice
President, Investor Relations & Marketing
(310) 622-1702
[email protected]
Source: Hudson Pacific Properties, Inc.