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 third quarter 2023.

"Our leasing activity accelerated once again in the third quarter and while the timeline for tenant decision making remains extended, we've seen a continued uptick in tours and inquiries at our assets into the fourth quarter as return-to-office mandates expand," stated Victor Coleman, Chairman and CEO. "While the actors strike continues, we were pleased to see the writers strike resolved, and are ready to help our studio tenants efficiently ramp their production efforts utilizing our growing full-service platform. We also remain vigilant in controlling expenses and continue to focus on deleveraging and further fortifying our balance sheet while proactively managing our debt maturities. We believe our emphasis on ‘leasing and more leasing’ will allow our evolving portfolio to drive improved performance as we move into next year and beyond."

Financial Results Compared to Third Quarter 2022

  • Total revenue of $231.4 million compared to $260.4 million, primarily due to the sales of 6922 Hollywood, Skyway Landing and Northview Center, previously communicated tenant move-outs at Skyport Plaza and 10900-10950 Washington, as well as a reduction in studio service and other revenue due to the related union strikes
  • Net loss attributable to common stockholders of $37.6 million, or $0.27 per diluted share, compared to net loss of $17.3 million, or $0.12 per diluted share, due to the aforementioned asset sales and tenant move-outs, higher operating expenses associated with the Quixote acquisition and higher interest expense
  • FFO, excluding specified items, of $26.1 million, or $0.18 per diluted share, compared to $74.1 million, or $0.52 per diluted share. There were no specified items for the third quarter 2023. Prior year specified items consisted of transaction-related expenses of $9.3 million, or $0.07 per diluted share, and prior-period property tax expense of $0.4 million, or $0.00 per diluted share
  • FFO of $26.1 million, or $0.18 per diluted share, compared to $64.4 million, or $0.45 per diluted share
  • AFFO of $28.1 million, or $0.20 per diluted share, compared to $55.8 million, or $0.39 per diluted share
  • Same-store cash NOI of $126.7 million, up 0.4% compared to $126.2 million, mostly attributable to significant office lease commencements at One Westside and Harlow, which drove same-store office NOI growth of 3.5%

Leasing

  • Executed 53 new and renewal leases totaling 519,167 square feet, including significant tenant renewals:
    • 140,000-square-foot renewal at Met Park North
    • 75,000-square-foot renewal of Bank of Montreal (BMO) at Bentall Centre
    • 50,000-square-foot renewal of Poshmark at Towers at Shore Center
  • GAAP and cash rents increased 9.4% and 8.7%, respectively, from prior levels, primarily due to the strength of leasing in the Seattle and Vancouver markets
  • In-service office portfolio ended the quarter at 81.3% occupied and 83.1% leased, with the decrease primarily attributable to known-vacate Block's 469,000-square-foot lease expiration at 1455 Market, as well as the sales of 3401 Exposition and 604 Arizona
  • On average over the trailing 12 months, the in-service studio portfolio was 83.5% leased, and the related 35 stages were 89.9% leased, with the sequential change attributable to a single tenant vacating 6 stages at Sunset Las Palmas due to the strike

Transactions

  • Sold 3401 Exposition office property in Los Angeles, California for $40.0 million before closing adjustments
  • Sold 604 Arizona office property in Santa Monica, California for $32.5 million before closing adjustments
  • Entered into a joint venture with Vornado and Blackstone to own the leasehold interest for Pier 94 in Manhattan, New York, and develop and operate a 6-stage, 232,000-square-foot purpose-built Sunset Studios facility, representing an expected $38.5 million total capital requirement for Hudson Pacific

Development

  • Commenced construction on Sunset Pier 94 Studios with delivery anticipated by year-end 2025

Balance Sheet as of September 30, 2023

  • $555.0 million of total liquidity comprised of $75.0 million of unrestricted cash and cash equivalents and $480.0 million of undrawn capacity under the unsecured revolving credit facility
  • $90.0 million, $22.3 million and $183.1 million of undrawn capacity under construction loans secured by One Westside/Westside Two, Sunset Glenoaks Studios and Sunset Pier 94 Studios, respectively
  • HPP's share of net debt to HPP's share of undepreciated book value was 38.6% with 77.1% of debt fixed or capped and no material maturities until the loan secured by One Westside, which is 100% leased to Google through 2036, matures in December 2024
  • Repaid $50.0 million of Series E notes, and applied net proceeds from the sales of 3401 Exposition and 604 Arizona to repay amounts outstanding on the unsecured revolving credit facility

Dividend

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

ESG Leadership

  • Subsequent to the quarter, earned top rankings in the 2023 GRESB Real Estate Assessment for sustainability accomplishments, marking the Company's third consecutive year as a Regional Sector Leader in the Office, Americas peer group, and fifth consecutive year earning a Green Star designation as well as the highest 5-star rating

2023 Outlook

Due to continued uncertainty around the duration of the studio-related union strikes, the Company will continue to provide certain assumptions relevant to its full-year 2023 office outlook, but has not reinstated its 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, 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.

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)

$13,500

$23,500

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)

$(212,000)

$(222,000)

Non-real estate depreciation and amortization

$(34,000)

$(36,000)

FFO from unconsolidated joint ventures

$500

$2,500

FFO attributable to non-controlling interests

$(42,000)

$(46,000)

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 41 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 $13,000 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 third 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 third quarter 2023 financial results at 9:00 a.m. PT / 12:00 p.m. ET on November 2, 2023. Please dial (833) 470-1428 and enter passcode 214013 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

 

9/30/23

 

12/31/22

 

(Unaudited)

 

 

ASSETS

 

 

 

Investment in real estate, at cost

$

8,831,914

 

 

$

8,716,572

 

Accumulated depreciation and amortization

 

(1,735,715

)

 

 

(1,541,271

)

Investment in real estate, net

 

7,096,199

 

 

 

7,175,301

 

Non-real estate property, plant and equipment, net

 

115,903

 

 

 

130,289

 

Cash and cash equivalents

 

75,040

 

 

 

255,761

 

Restricted cash

 

19,054

 

 

 

29,970

 

Accounts receivable, net

 

19,330

 

 

 

16,820

 

Straight-line rent receivables, net

 

290,938

 

 

 

279,910

 

Deferred leasing costs and intangible assets, net

 

359,870

 

 

 

393,842

 

Operating lease right-of-use assets

 

391,177

 

 

 

401,051

 

Prepaid expenses and other assets, net

 

119,494

 

 

 

98,837

 

Investment in unconsolidated real estate entities

 

236,248

 

 

 

180,572

 

Goodwill

 

263,549

 

 

 

263,549

 

Assets associated with real estate held for sale

 

 

 

 

93,238

 

TOTAL ASSETS

$

8,986,802

 

 

$

9,319,140

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Liabilities

 

 

 

Unsecured and secured debt, net

$

4,417,020

 

 

$

4,585,862

 

Joint venture partner debt

 

66,136

 

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

267,426

 

 

 

264,098

 

Operating lease liabilities

 

393,773

 

 

 

399,801

 

Intangible liabilities, net

 

29,247

 

 

 

34,091

 

Security deposits, prepaid rent and other

 

86,980

 

 

 

83,797

 

Liabilities associated with real estate held for sale

 

 

 

 

665

 

Total liabilities

 

5,260,582

 

 

 

5,434,450

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

115,580

 

 

 

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 September 30, 2023 and December 31, 2022

 

425,000

 

 

 

425,000

 

Common stock, $0.01 par value, 481,600,000 authorized, 140,937,702 shares and 141,054,478 shares outstanding at September 30, 2023 and December 31, 2022, respectively

 

1,403

 

 

 

1,409

 

Additional paid-in capital

 

2,748,309

 

 

 

2,889,967

 

Accumulated other comprehensive income (loss)

 

4,178

 

 

 

(11,272

)

Total HPP stockholders' equity

 

3,178,890

 

 

 

3,305,104

 

Non-controlling interest—members in consolidated real estate entities

 

345,058

 

 

 

377,756

 

Non-controlling interest—units in the operating partnership

 

76,877

 

 

 

66,971

 

Total equity

 

3,600,825

 

 

 

3,749,831

 

TOTAL LIABILITIES AND EQUITY

$

8,986,802

 

 

$

9,319,140

 

 

 

 

 

 

Consolidated Statements of Operations

Unaudited, in thousands, except per share data

 

Three Months Ended

 

Nine Months Ended

 

9/30/23

 

9/30/22

 

9/30/23

 

9/30/22

REVENUES

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Rental revenues

$

199,633

 

 

$

208,779

 

 

$

605,776

 

 

$

626,807

 

Service and other revenues

 

3,954

 

 

 

4,712

 

 

 

11,735

 

 

 

14,328

 

Total office revenues

 

203,587

 

 

 

213,491

 

 

 

617,511

 

 

 

641,135

 

Studio

 

 

 

 

 

 

 

Rental revenues

 

13,482

 

 

 

15,305

 

 

 

46,109

 

 

 

42,137

 

Service and other revenues

 

14,374

 

 

 

31,558

 

 

 

65,254

 

 

 

73,025

 

Total studio revenues

 

27,856

 

 

 

46,863

 

 

 

111,363

 

 

 

115,162

 

Total revenues

 

231,443

 

 

 

260,354

 

 

 

728,874

 

 

 

756,297

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Office operating expenses

 

80,521

 

 

 

78,340

 

 

 

231,342

 

 

 

230,529

 

Studio operating expenses

 

31,655

 

 

 

26,688

 

 

 

103,578

 

 

 

66,357

 

General and administrative

 

17,512

 

 

 

19,795

 

 

 

55,177

 

 

 

62,178

 

Depreciation and amortization

 

98,580

 

 

 

93,070

 

 

 

294,654

 

 

 

276,701

 

Total operating expenses

 

228,268

 

 

 

217,893

 

 

 

684,751

 

 

 

635,765

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

(Loss) income from unconsolidated real estate entities

 

(759

)

 

 

(352

)

 

 

(2,219

)

 

 

1,731

 

Fee income

 

340

 

 

 

911

 

 

 

5,026

 

 

 

3,122

 

Interest expense

 

(53,581

)

 

 

(37,261

)

 

 

(162,036

)

 

 

(101,816

)

Interest income

 

800

 

 

 

196

 

 

 

1,407

 

 

 

2,026

 

Management services reimbursement income—unconsolidated real estate entities

 

1,015

 

 

 

983

 

 

 

3,138

 

 

 

3,159

 

Management services expense—unconsolidated real estate entities

 

(1,015

)

 

 

(983

)

 

 

(3,138

)

 

 

(3,159

)

Transaction-related expenses

 

 

 

 

(9,331

)

 

 

1,344

 

 

 

(10,713

)

Unrealized loss on non-real estate investments

 

(2,265

)

 

 

(894

)

 

 

(2,269

)

 

 

(1,062

)

Gain on extinguishment of debt

 

 

 

 

 

 

 

10,000

 

 

 

 

(Gain) loss on sale of real estate

 

16,108

 

 

 

(180

)

 

 

23,154

 

 

 

(180

)

Impairment loss

 

 

 

 

(4,795

)

 

 

 

 

 

(28,548

)

Other income

 

5

 

 

 

1,147

 

 

 

139

 

 

 

1,138

 

Total other expenses

 

(39,352

)

 

 

(50,559

)

 

 

(125,454

)

 

 

(134,302

)

Loss before income tax benefit (provision)

 

(36,177

)

 

 

(8,098

)

 

 

(81,331

)

 

 

(13,770

)

Income tax benefit (provision)

 

425

 

 

 

1,306

 

 

 

(715

)

 

 

2,909

 

Net loss

 

(35,752

)

 

 

(6,792

)

 

 

(82,046

)

 

 

(10,861

)

Net income attributable to Series A preferred units

 

(153

)

 

 

(153

)

 

 

(459

)

 

 

(459

)

Net income attributable to Series C preferred shares

 

(5,047

)

 

 

(5,047

)

 

 

(15,141

)

 

 

(15,384

)

Net income attributable to participating securities

 

 

 

 

(300

)

 

 

(850

)

 

 

(894

)

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

 

1,752

 

 

 

(6,256

)

 

 

375

 

 

 

(21,898

)

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

 

931

 

 

 

1,037

 

 

 

2,333

 

 

 

4,433

 

Net loss attributable to common units in the operating partnership

 

672

 

 

 

225

 

 

 

1,600

 

 

 

548

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

(37,597

)

 

$

(17,286

)

 

$

(94,188

)

 

$

(44,515

)

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

Net loss attributable to common stockholders—basic

$

(0.27

)

 

$

(0.12

)

 

$

(0.67

)

 

$

(0.31

)

Net loss attributable to common stockholders—diluted

$

(0.27

)

 

$

(0.12

)

 

$

(0.67

)

 

$

(0.31

)

Weighted average shares of common stock outstanding—basic

 

140,938

 

 

 

141,117

 

 

 

140,957

 

 

 

144,678

 

Weighted average shares of common stock outstanding—diluted

 

140,938

 

 

 

141,117

 

 

 

140,957

 

 

 

144,678

 

 

Funds from Operations(1)

Unaudited, in thousands, except per share data

 

Three Months Ended

 

Nine Months Ended

 

9/30/23

 

9/30/22

 

9/30/23

 

9/30/22

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

 

 

 

 

 

 

 

Net loss

$

(35,752

)

 

$

(6,792

)

 

$

(82,046

)

 

$

(10,861

)

Adjustments:

 

 

 

 

 

 

 

Depreciation and amortization—consolidated

 

98,580

 

 

 

93,070

 

 

 

294,654

 

 

 

276,701

 

Depreciation and amortization—non-real estate assets

 

(8,300

)

 

 

(5,541

)

 

 

(25,524

)

 

 

(14,458

)

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

 

1,165

 

 

 

1,278

 

 

 

3,623

 

 

 

3,967

 

(Gain) loss on sale of real estate

 

(16,108

)

 

 

180

 

 

 

(23,154

)

 

 

180

 

Impairment loss—real estate assets

 

 

 

 

4,795

 

 

 

 

 

 

20,048

 

Unrealized loss on non-real estate investments

 

2,265

 

 

 

894

 

 

 

2,269

 

 

 

1,062

 

FFO attributable to non-controlling interests

 

(10,509

)

 

 

(18,261

)

 

 

(37,371

)

 

 

(56,934

)

FFO attributable to preferred shares and units

 

(5,200

)

 

 

(5,200

)

 

 

(15,600

)

 

 

(15,843

)

FFO to common stock/unit holders

 

26,141

 

 

 

64,423

 

 

 

116,851

 

 

 

203,862

 

Specified items impacting FFO:

 

 

 

 

 

 

 

Transaction-related expenses

 

 

 

 

9,331

 

 

 

(1,344

)

 

 

10,713

 

Impairment loss—trade name

 

 

 

 

 

 

 

 

 

 

8,500

 

Prior period net property tax adjustment—Company’s share

 

 

 

 

366

 

 

 

(1,469

)

 

 

786

 

Deferred tax asset valuation allowance

 

 

 

 

 

 

 

3,516

 

 

 

 

One-time gain on debt extinguishment

 

 

 

 

 

 

 

(10,000

)

 

 

 

One-time tax impact of gain on debt extinguishment

 

 

 

 

 

 

 

2,751

 

 

 

 

FFO (excluding specified items) to common stock/unit holders

$

26,141

 

 

$

74,120

 

 

$

110,305

 

 

$

223,861

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

143,483

 

 

 

143,158

 

 

 

143,519

 

 

 

147,068

 

FFO per common stock/unit—diluted

$

0.18

 

 

$

0.45

 

 

$

0.81

 

 

$

1.39

 

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

$

0.18

 

 

$

0.52

 

 

$

0.77

 

 

$

1.52

 

(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

 

Nine Months Ended

 

9/30/23

 

9/30/22

 

9/30/23

 

9/30/22

FFO (excluding specified items)

$

26,141

 

 

$

74,120

 

 

$

110,305

 

 

$

223,861

 

Adjustments:

 

 

 

 

 

 

 

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

 

2,470

 

 

 

(4,748

)

 

 

(9,326

)

 

 

(26,508

)

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

 

1,919

 

 

 

1,457

 

 

 

5,556

 

 

 

3,393

 

Non-real estate depreciation and amortization

 

8,300

 

 

 

5,541

 

 

 

25,524

 

 

 

14,458

 

Non-cash interest expense

 

3,121

 

 

 

2,478

 

 

 

12,822

 

 

 

7,288

 

Non-cash compensation expense

 

5,519

 

 

 

6,494

 

 

 

16,904

 

 

 

17,816

 

Recurring capital expenditures, tenant improvements and lease commissions

 

(19,359

)

 

 

(29,574

)

 

 

(67,483

)

 

 

(65,459

)

AFFO

$

28,111

 

 

$

55,768

 

 

$

94,302

 

 

$

174,849

 

 

 

 

 

 

 

 

 

(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

 

9/30/23

 

9/30/22

Net loss

$

(35,752

)

 

$

(6,792

)

Adjustments:

 

 

 

Loss from unconsolidated real estate entities

 

759

 

 

 

352

 

Fee income

 

(340

)

 

 

(911

)

Interest expense

 

53,581

 

 

 

37,261

 

Interest income

 

(800

)

 

 

(196

)

Management services reimbursement income—unconsolidated real estate entities

 

(1,015

)

 

 

(983

)

Management services expense—unconsolidated real estate entities

 

1,015

 

 

 

983

 

Transaction-related expenses

 

 

 

 

9,331

 

Unrealized loss on non-real estate investment

 

2,265

 

 

 

894

 

(Gain) loss on sale of real estate

 

(16,108

)

 

 

180

 

Impairment loss

 

 

 

 

4,795

 

Other income

 

(5

)

 

 

(1,147

)

Income tax benefit

 

(425

)

 

 

(1,306

)

General and administrative

 

17,512

 

 

 

19,795

 

Depreciation and amortization

 

98,580

 

 

 

93,070

 

NOI

$

119,267

 

 

$

155,326

 

 

 

 

 

NOI Detail

 

 

 

Same-store office cash revenues

 

194,847

 

 

 

186,876

 

Straight-line rent

 

(2,872

)

 

 

6,614

 

Amortization of above/below-market leases, net

 

1,495

 

 

 

1,645

 

Amortization of lease incentive costs

 

(266

)

 

 

(330

)

Same-store office revenues

 

193,204

 

 

 

194,805

 

 

 

 

 

Same-store studios cash revenues

 

14,053

 

 

 

21,834

 

Straight-line rent

 

316

 

 

 

440

 

Amortization of lease incentive costs

 

(9

)

 

 

(9

)

Same-store studio revenues

 

14,360

 

 

 

22,265

 

 

 

 

 

Same-store revenues

 

207,564

 

 

 

217,070

 

 

 

 

 

Same-store office cash expenses

 

73,349

 

 

 

69,453

 

Straight-line rent

 

376

 

 

 

402

 

Non-cash compensation expense

 

35

 

 

 

25

 

Amortization of above/below-market ground leases, net

 

676

 

 

 

675

 

Same-store office expenses

 

74,436

 

 

 

70,555

 

 

 

 

 

Same-store studio cash expenses

 

8,879

 

 

 

13,080

 

Non-cash compensation expense

 

114

 

 

 

70

 

Same-store studio expenses

 

8,993

 

 

 

13,150

 

 

 

 

 

Same-store expenses

 

83,429

 

 

 

83,705

 

 

 

 

 

Same-store NOI

 

124,135

 

 

 

133,365

 

Non-same-store NOI

 

(4,868

)

 

 

21,961

 

NOI

$

119,267

 

 

$

155,326

 

 

 

 

 

(1)

We evaluate performance based upon property Net Operating Income ("NOI") from continuing operations. NOI is not a measure of operating results or cash flows from operating activities or cash flows as measured by GAAP and should not be considered an alternative to income from continuing operations, as an indication of our performance, or as an alternative to cash flows as a measure of liquidity, or our ability to make distributions. All companies may not calculate NOI in the same manner. We consider NOI to be a useful performance measure to investors and management because when compared across periods, NOI reflects the revenues and expenses directly associated with owning and operating our properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing a perspective not immediately apparent from income from continuing operations. We calculate NOI as net income (loss) excluding corporate general and administrative expenses, depreciation and amortization, impairments, gains/losses on sales of real estate, interest expense, transaction-related expenses and other non-operating items. We define NOI as operating revenues (rental revenues, other property-related revenue, tenant recoveries and other operating revenues), less property-level operating expenses (external management fees, if any, and property-level general and administrative expenses). NOI on a cash basis is NOI adjusted to exclude the effect of straight-line rent and other non-cash adjustments required by GAAP. We believe that NOI on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent and other non-cash adjustments to revenue and expenses.

 

Investor Contact Laura Campbell Executive Vice President, Investor Relations & Marketing (310) 622-1702 lcampbell@hudsonppi.com Media Contact Laura Murray Senior Director, Communications (310) 622-1781 lmurray@hudsonppi.com

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