Hudson Pacific Properties Reports Fourth Quarter 2022 Financial Results

– Over 500,000 Square Feet of Leasing Activity –

– Provides Full-Year 2023 Outlook –

LOS ANGELES--(BUSINESS WIRE)--Hudson Pacific Properties, Inc. (NYSE: HPP), a unique provider of end-to-end real estate solutions for dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries, today announced financial results for the fourth quarter 2022.

"In 2022, we stayed focused on areas of the business that we can control, leveraging our unique expertise and full-service platform to successfully advance our strategy to own and lease highly amenitized, collaborative and sustainable office and studio properties in highly desirable locations," commented Victor Coleman, Chairman and CEO. "We executed over 2.1 million square feet of leases at positive rent spreads, fortified our balance sheet through asset sales and refinancings, enhanced our studio platform with the purchase of Quixote, returned capital to shareholders through share repurchases and a stable dividend, progressed 780,000 square feet of under construction projects, and received multiple awards for sustainability and ESG excellence. As we head into 2023, with $1 billion of liquidity and the majority of our debt fixed or capped, we are focused on prudent capital management and are well positioned to fund our under-construction projects and aggressive leasing efforts. We remain confident in our business’s long-term fundamentals, as we effectively navigate today’s market and prepare for the next cycle, all with an eye towards unlocking value for shareholders."

Financial Results Compared to Fourth Quarter 2021

• Total revenue of $269.9 million up 12.2% compared to $240.5 million
• Net loss attributable to common stockholders of $12.0 million, or $0.09 per diluted share, compared to net income of $8.1 million, or $0.05 per diluted share
• FFO, excluding specified items, of $70.2 million, or $0.49 per diluted share, compared to $79.6 million, or $0.52 per diluted share. Specified items consisting of transaction-related expenses of $3.6 million, or $0.03 per diluted share, compared to specified items consisting of transaction-related expenses of $1.5 million, or $0.01 per diluted share, and prior-period property tax reimbursements of $0.7 million, or $0.00 per diluted share
• FFO of $66.5 million, or $0.47 per diluted share, compared to $78.7 million, or $0.51 per diluted share
• AFFO of $62.1 million, or $0.43 per diluted share, compared to $72.5 million, or $0.47 per diluted share
• Same-store property cash NOI of $126.9 million up 2.7% compared to $123.6 million

Leasing

• Executed 76 new and renewal leases totaling 517,131 square feet, including a 101,000-square-foot, 10-year lease with a publicly traded software company at Metro Center, and a full-building, 47,000-square-foot, 17-year lease with Stanford at 3176 Porter, and a 40,000-square-foot, 10-year renewal with SFMTA at 1455 Market
• GAAP rents increased 15.5% and cash rents decreased 0.5%
• In-service office portfolio ended the quarter at 88.0% occupied and 89.7% leased
• Same-store studio portfolio was 84.6% occupied and leased over the trailing 12 months

Development

• Cash rents commenced on Company 3's full-building, 130,000-square-foot lease at Harlow office development, and cash rents set to commence on Google's full-building, 590,000-square-foot lease at One Westside office redevelopment in second quarter 2023
• Under-construction projects include Sunset Glenoaks, a seven-stage, 241,000-square-foot studio in Los Angeles delivering in second half of 2023, and Washington 1000, a 546,000-square-foot office development in Seattle delivering in 2024

Dispositions

• Sold 6922 Hollywood office property in Hollywood, California for $96.0 million before closing adjustments
• Subsequent to the quarter, sold Skyway Landing office property in Redwood Shores, California for $102.0 million before closing adjustments

Balance Sheet as of December 31, 2022

• $0.9 billion of total liquidity comprised of $255.8 million of unrestricted cash and cash equivalents and $615.0 million of undrawn capacity under the unsecured revolving credit facility
• Another $98.0 million and $59.3 million of undrawn capacity under construction loans secured by One Westside/10850 Pico and Sunset Glenoaks, respectively
• $3.7 billion of Company's share of unsecured and secured debt and preferred units (net of cash and cash equivalents)
• Investment grade credit rated with 85.1% fixed or capped debt and weighted average maturity of 4.1 years including extensions
• Subsequent to the quarter, repaid $110.0 million of Series A notes, and applied $102.0 million of Skyway Landing sale proceeds to repay amounts outstanding on the Company's unsecured revolving credit facility, resulting in $717.0 million of undrawn capacity, or an increase in total liquidity to $1.0 billion
• Subsequent to the quarter, entered into an interest rate swap to fix SOFR at a rate of 3.75% effective February 1, 2023 on $172.9 million of indebtedness (pro rata share of 1918 Eighth loan) and to fix SOFR at a rate of 3.31% effective August 15, 2023 on $351.2 million of indebtedness (net pro rata share of Hollywood Media Portfolio loan). Adjusted for the $110.0 million Series A note repayment, the $102.0 million paydown on the unsecured revolving credit facility, and these recently completed swaps, the composition of the Company’s debt as of December 31, 2022 on a pro forma basis results in fixed rate debt of approximately 82.8% and fixed rate and capped debt of approximately 86.0%

Dividend

• The Company's Board of Directors declared and paid dividends on its common stock of $0.25 per share, equivalent to an annual rate of $1.00 per share, and on its 4.750% Series C cumulative preferred stock of $0.296875 per share, equivalent to an annual rate of $1.18750 per share

ESG Leadership

• Awarded Nareit's Office Leader in the Light Award, the organization's highest sustainability achievement for office and other property sector REITs, and recognized by Newsweek as one of America's Most Responsible Companies 2023
• Subsequent to the quarter, included in the 2023 Bloomberg Gender-Equality Index

2023 Outlook

The Company is providing a 2023 full-year FFO outlook in the range of $1.77 to $1.87 per diluted share. There are no specified items in connection with this guidance.

The FFO outlook reflects management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this press release and in earlier announcements. It otherwise excludes any impact from new acquisitions, dispositions, debt financings or repayments, recapitalizations, capital markets activity or similar matters. It also excludes the impact of a disruption in studio operations in the event studio-union negotiations lead to a strike and halt in production. There can be no assurance that actual results will not differ materially from this estimate.

Below are some of the assumptions the Company used in providing this guidance:

Unaudited, in thousands, except share data
	Current Guidance
	Full Year 2023
Metric	Low		High
FFO per share	$1.77		$1.87
Growth in same-store property cash NOI(1)(2)	2.50%		3.50%
GAAP non-cash revenue (straight-line rent and above/below-market rents)(3)	$23,000		$33,000
GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)	$(7,500)		$(9,500)
General and administrative expenses(4)	$(70,000)		$(76,000)
Interest expense(5)	$(203,000)		$(213,000)
Non-real estate depreciation and amortization	$(31,000)		$(33,000)
FFO from unconsolidated joint ventures	$4,250		$6,250
FFO attributable to non-controlling interests	$(48,000)		$(52,000)
FFO attributable to Preferred Units / Shares	$(21,000)		$(21,000)
Weighted average common stock/units outstanding—diluted(6)	142,500		143,500

(1)		Same-store for the full year 2023 is defined as the 43 office properties and three studio properties, as applicable, 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 studio and office properties.
(4)		Includes non-cash compensation expense, which the Company estimates at $26,000 in 2023.
(5)		Includes amortization of deferred financing costs and loan discounts/premiums, which the Company estimates at $11,500 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, including the information under "FFO Guidance" 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 fourth quarter 2022 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 fourth quarter 2022 financial results at 11:00 a.m. PT / 2:00 p.m. ET on February 9, 2023. Please dial (844) 200-6205 and enter passcode 849611 to access the call. International callers should dial (929) 526-1599 and enter the same passcode. A live, listen-only webcast and replay can be accessed via the Investors section of the Company's website at HudsonPacificProperties.com.

About Hudson Pacific Properties

Hudson Pacific Properties (NYSE: HPP) is a real estate investment trust serving dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries. Hudson Pacific’s unique and high-barrier tech and media focus leverages a full-service, end-to-end value creation platform forged through deep strategic relationships and niche expertise across identifying, acquiring, transforming and developing properties into world-class amenitized, collaborative and sustainable office and studio space. For more information visit HudsonPacificProperties.com.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events, or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company's control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. All forward-looking statements reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

(FINANCIAL TABLES FOLLOW)

Consolidated Balance Sheets
In thousands, except share data
	December 31, 2022				December 31, 2021
	(Unaudited)
ASSETS
Investment in real estate, at cost	$	8,716,572			$	8,361,477
Accumulated depreciation and amortization		(1,541,271	)			(1,283,774	)
Investment in real estate, net		7,175,301				7,077,703
Non-real estate property, plant and equipment, net		130,289				58,469
Cash and cash equivalents		255,761				96,555
Restricted cash		29,970				100,321
Accounts receivable, net		16,820				25,339
Straight-line rent receivables, net		279,910				240,306
Deferred leasing costs and intangible assets, net		393,842				341,444
U.S. Government securities		—				129,321
Operating lease right-of-use assets		401,051				287,041
Prepaid expenses and other assets, net		98,837				119,000
Investment in unconsolidated real estate entities		180,572				154,731
Goodwill		263,549				109,439
Assets associated with real estate held for sale		93,238				250,520
TOTAL ASSETS	$	9,319,140			$	8,990,189
LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net	$	4,585,862			$	3,733,903
In-substance defeased debt		—				128,212
Joint venture partner debt		66,136				66,136
Accounts payable, accrued liabilities and other		264,098				300,959
Operating lease liabilities		399,801				293,596
Intangible liabilities, net		34,091				42,290
Security deposits, prepaid rent and other		83,797				84,939
Liabilities associated with real estate held for sale		665				3,898
Total liabilities		5,434,450				4,653,933
Redeemable preferred units of the operating partnership		9,815				9,815
Redeemable non-controlling interest in consolidated real estate entities		125,044				129,449
Equity
Hudson Pacific Properties, Inc. stockholders' equity:
Preferred stock, $0.01 par value, 18,400,000 authorized at December 31, 2022 and 2021; 4.750% Series C cumulative redeemable preferred stock; $25.00 per share liquidation preference, 17,000,000 outstanding at December 31, 2022 and 2021		425,000				425,000
Common stock, $0.01 par value, 481,600,000 authorized, 141,054,478 and 151,124,543 shares outstanding at December 31, 2022 and 2021, respectively		1,409				1,511
Additional paid-in capital		2,889,967				3,317,072
Accumulated other comprehensive loss		(11,272	)			(1,761	)
Total Hudson Pacific Properties, Inc. stockholders' equity		3,305,104				3,741,822
Non-controlling interest—members in consolidated real estate entities		377,756				402,971
Non-controlling interest—units in the operating partnership		66,971				52,199
Total equity		3,749,831				4,196,992
TOTAL LIABILITIES AND EQUITY	$	9,319,140			$	8,990,189

Consolidated Statements of Operations
In thousands, except share data
	Three Months Ended December 31,								Year Ended December 31,
		2022				2021				2022				2021
	(Unaudited)								(Unaudited)
REVENUES
Office
Rental	$	207,601			$	202,382			$	834,408			$	782,736
Service and other revenues		3,964				3,276				18,292				12,634
Total office revenues		211,565				205,658				852,700				795,370
Studio
Rental		17,535				13,513				59,672				49,985
Service and other revenues		40,827				21,311				113,852				51,480
Total studio revenues		58,362				34,824				173,524				101,465
Total revenues		269,927				240,482				1,026,224				896,835
OPERATING EXPENSES
Office operating expenses		78,139				72,796				308,668				280,334
Studio operating expenses		38,793				19,550				105,150				55,513
General and administrative		17,323				17,500				79,501				71,346
Depreciation and amortization		96,518				88,107				373,219				343,614
Total operating expenses		230,773				197,953				866,538				750,807
OTHER INCOME (EXPENSE)
(Loss) income from unconsolidated real estate entities		(788	)			151				943				1,822
Fee income		4,850				898				7,972				3,221
Interest expense		(48,085	)			(30,139	)			(149,901	)			(121,939	)
Interest income		314				926				2,340				3,794
Management services reimbursement income—unconsolidated real estate entities		1,004				253				4,163				1,132
Management services expense—unconsolidated real estate entities		(1,004	)			(253	)			(4,163	)			(1,132	)
Transaction-related expenses		(3,643	)			(1,547	)			(14,356	)			(8,911	)
Unrealized (loss) gain on non-real estate investments		(378	)			4,951				(1,440	)			16,571
Loss on sale of real estate		(1,984	)			—				(2,164	)			—
Impairment loss		—				—				(28,548	)			(2,762	)
Loss on extinguishment of debt		—				(10	)			—				(6,259	)
Other income (expense)		4,904				(1,006	)			8,951				(2,553	)
Total other expenses		(44,810	)			(25,776	)			(176,203	)			(117,016	)
Net (loss) income		(5,656	)			16,753		—		(16,517	)			29,012
Net income attributable to Series A preferred units		(153	)			(153	)			(612	)			(612	)
Net income attributable to Series C preferred shares		(5,047	)			(2,281	)			(20,431	)			(2,281	)
Net income attributable to participating securities		(300	)			(260	)			(1,194	)			(1,090	)
Net income attributable to non-controlling interest in consolidated real estate entities		(1,520	)			(6,042	)			(23,418	)			(21,806	)
Net loss attributable to redeemable non-controlling interest in consolidated real estate entities		531				122				4,964				2,902
Net loss (income) attributable to non-controlling interest in the operating partnership		161				(77	)			709				(61	)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(11,984	)		$	8,062			$	(56,499	)		$	6,064
BASIC AND DILUTED PER SHARE AMOUNTS
Net (loss) income attributable to common stockholders—basic	$	(0.09	)		$	0.05			$	(0.39	)		$	0.04
Net (loss) income attributable to common stockholders—diluted	$	(0.09	)		$	0.05			$	(0.39	)		$	0.04
Weighted average shares of common stock outstanding—basic		140,927,597				152,137,508				143,732,433				151,618,282
Weighted average shares of common stock outstanding—diluted		140,927,597				152,271,140				143,732,433				151,943,360

Funds From Operations
Unaudited, in thousands, except per share data
	Three Months Ended December 31,								Year Ended December 31,
		2022				2021				2022				2021
RECONCILIATION OF NET (LOSS) INCOME TO FUNDS FROM OPERATIONS (“FFO”)(1):
Net (loss) income	$	(5,656	)		$	16,753			$	(16,517	)		$	29,012
Adjustments:
Depreciation and amortization—Consolidated		96,518				88,107				373,219				343,614
Depreciation and amortization—Non-real estate assets		(8,652	)			(4,331	)			(23,110	)			(7,719	)
Depreciation and amortization—Company's share from unconsolidated real estate entities		1,355				1,497				5,322				6,020
Loss on sale of real estate		1,984				—				2,164				—
Impairment loss—Real estate assets		—				—				20,048				2,762
Unrealized loss (gain) on non-real estate investments		378				(4,951	)			1,440				(16,571	)
Tax impact of unrealized gain on non-real estate investment		—				1,973				—				3,849
FFO attributable to non-controlling interests		(14,201	)			(17,867	)			(71,100	)			(64,388	)
FFO attributable to preferred units		(5,200	)			(2,434	)			(21,043	)			(2,893	)
FFO to common stockholders and unitholders		66,526				78,747				270,423				293,686
Specified items impacting FFO:
Impairment loss—Trade name		—				—				8,500				—
Transaction-related expenses		3,643				1,547				14,356				8,911
Prior period property tax reassessment—Company’s share		—				(687	)			786				(581	)
Debt extinguishment cost—Company's share		—				—				—				3,187
FFO (excluding specified items) to common stockholders and unitholders	$	70,169			$	79,607			$	294,065			$	305,203
Weighted average common stock/units outstanding—diluted		142,882				153,700				145,712				153,332
FFO per common stock/unit—diluted	$	0.47			$	0.51			$	1.86			$	1.92
FFO (excluding specified items) per common stock/unit—diluted	$	0.49			$	0.52			$	2.02			$	1.99

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 (“NAREIT”). 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 real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), adjusting for consolidated and unconsolidated joint ventures. The calculation of FFO includes amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. Hudson Pacific 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 the Company's 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, Hudson Pacific believes that FFO along with the required GAAP presentations provides a more complete measurement of the Company's 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. Hudson Pacific uses FFO per share to calculate annual cash bonuses for certain employees.
		However, FFO should not be viewed as an alternative measure of Hudson Pacific'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.

Contacts

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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