The following excerpt is from the company's SEC filing.
Fourth Quarter and Full Year
Surpassed 2.9 Million Square Feet of Executed Leases in 2016
Cash Rent Spreads in 2016
Provided 2017 FFO Outlook of $1.93 to $2.03 Per Share
Los Angeles, CA,
February 16, 2017
—Hudson Pacific Properties, Inc. (the “Company” or “Hudson Pacific”) (NYSE: HPP) today announced financial results for the
December 31, 2016
Net income attributable to common stockholders of
per diluted share , compared to net loss of
per diluted share, a year ago;
Funds From Operations (FFO), excluding specified items, of
per share, a year ago;
Completed new and renewal leases totaling
square feet with GAAP and cash rent growth of
, respectively, including a two-year extension of NFL Enterprises 167,606-square-foot lease at 10900 and 10950 Washington Boulevard in Culver City at in-place rents (GAAP and cash rent growth of 32.0% and 21.1%, respectively, disregarding NFL Enterprises extension);
Improved in-service office portfolio leased rate to
, up from 90.7% as of September 30, 2016;
Acquired Hill7 in Seattle through a joint venture with Canada Pension Plan Investment Board (“CPPIB”) for $180.0 million before certain prorations and closing costs, and Page Mill Hill in Palo Alto for $150.0 million before credits, prorations and closing costs;
Sold 12655 Jefferson Boulevard in Playa Vista for $80.0 million before credits prorations and closing costs; and
Declared and paid a quarterly dividend of $
per share on common stock.
“Our fourth quarter topped off an outstanding year for Hudson Pacific,” said Victor Coleman, Hudson Pacific Properties’ Chairman and CEO. “We signed over 560,000 square feet of leases in the quarter, bringing total
deals to north of 2.9 million square feet--nearly double the transactions we completed in 2015. GAAP and cash rent spreads for the year were an impressive
, respectively. We continued to transform our studio business, achieving
GAAP and cash year-over-year net income growth, and as of the end of the fourth quarter, Netflix’s Sunset Bronson footprint had grown to over 500,000 square feet. Also in 2016, we improved the quality of our office portfolio with over $1.0 billion of capital recycling and selective investments. This includes the fourth quarter sale of our completed and fully pre-leased 12655 Jefferson redevelopment and the acquisitions of two value-add opportunities, Hill7 and Page Mill Hill.”
The Company reported net income attributable to common stockholders of
per diluted share, for the three months ended
, compared to net loss attributable to common stockholders of
December 31, 2015
FFO, excluding specified items, for the three months ended
per share, a year ago. There were no specified items for the
. Specified items for the fourth quarter of 2015 consisted of acquisition-related expense reimbursements of
per diluted share.
FFO, including the specified items, for the three months ended
Combined Operating Results For The Three Months Ended
Total revenue during the
for the same quarter a year ago. Total operating expenses for the fourth quarter remained relatively flat compared to the same quarter a year ago. As a result, income from operations increased
for the same quarter a year ago. The primary reasons for the changes in total revenue and total operating expenses are discussed below in connection with the Company’s segment operating results.
Interest expense during the
for the same quarter a year ago. The Company had
of notes payable at
of gain on sale primarily associated with the disposition of 12655 Jefferson Boulevard during the
, with no comparable activity for the same quarter last year.
Segment Operating Results For The Three Months Ended
Total revenue at the Company’s office properties increased
for the same quarter a year ago. The increase was primarily due to a
increase in rental revenue to
increase in parking and other revenue to
, offset by a
decrease in tenant recoveries to
. The increase in rental revenue largely resulted from higher rents and occupancy throughout the Company’s same-store portfolio together with rental revenue associated with the acquisitions of 11601 Wilshire Boulevard, Hill7 and Page Mill Hill, partially offset by the dispositions of Bayhill Office Center (sold in January 2016) and One Bay Plaza (sold in June 2016). The increase in parking and other revenue is primarily attributable to additional parking income generated by higher occupancy throughout the Company’s same-store portfolio together with parking and other revenue associated with the aforementioned acquisitions. The decrease in tenant recoveries is largely due to a recovery adjustment following the favorable property tax reassessments of 1455 Market Street and Clocktower Square.
Office property operating expenses from continuing operations increased
for the same quarter a year ago. The increase primarily resulted from the aforementioned acquisitions, as well as higher occupancy throughout the Company’s in-service portfolio, partially offset by the 1455 Market Street favorable property tax reassessment and the sales of Bayhill Office Center and One Bay Plaza.
Net operating income with respect to the Company’s
same-store office properties for the
quarter increased by
on a GAAP basis and by
on a cash basis. The cash basis net operating income increase was muted by the September 1, 2016 commencement of a rent and square footage reduction with Weil Gotshal at Towers at Shore Center under a lease amendment entered into on December 18, 2014, prior to the Company’s acquisition of that property from Blackstone. The Company estimates that
quarter cash basis net operating income generated by its
same-store office properties would have increased approximately 14.4% under the prior lease terms with Weil Gotshal.
, the Company’s stabilized and in-service office portfolio was
leased, respectively. During the quarter, the Company executed
Media and Entertainment Properties
Total revenue at the Company’s media and entertainment properties increased
for the same quarter a year ago, primarily due to a
increase in tenant recoveries to
. The increase in rental revenue largely stemmed from higher occupancy at Sunset Gower and Sunset Bronson, including certain stage and office space at Sunset Bronson taken off-
line for improvements during the first quarter of 2015 and brought back on-line and fully occupied over the three months ended September 30, 2016. The increase in tenant recoveries largely stemmed from higher recoveries for current and prior year expenses attributable to KTLA at Sunset Bronson. Total media and entertainment operating expenses increased
for the same quarter a year ago, largely due to higher occupancy at Sunset Gower and Sunset Bronson.
Media and entertainment net operating income in the
, the trailing 12-month occupancy for the Company’s media and entertainment portfolio increased to
for the trailing 12-month period ended
, the Company had total assets of
, including unrestricted cash and cash equivalents of
of total capacity under its unsecured revolving credit facility, of which
had been drawn. Subsequent to the quarter, the Company repaid $45.0 million of unsecured revolving credit facility from proceeds generated by the sale of 222 Kearny Street.
Executed Significant New & Renewal Leases
NFL Enterprises executed a two-year extension through June 2021 of its 167,606-square-foot lease at 10900 and 10950 Washington Boulevard in Culver City. NFL Enterprises continues to occupy the entirety of 10900 and 10950 Washington Boulevard, where it utilizes both office space and sound stages to broadcast the NFL Network.
Netflix executed a lease to fully occupy all 91,953 square feet at the Company’s CUE development in Hollywood through December 2026. Designed by Gensler and currently under construction, CUE is a Class-A, creative office environment directly adjacent to the Company’s ICON development on the Sunset Bronson lot. Netflix had already leased all 323,000 square feet of space at ICON.
Netflix also executed an agreement to lease multiple stages and production offices at Sunset Bronson totaling 99,250 square feet through December 2026. The deal enables Netflix to keep its stage and production teams close to its new Los Angeles headquarters at ICON and CUE.
Qualys, Inc., a leading provider of cloud-based security and compliance solutions, executed a 10-year lease for 75,275 square feet at 919 Hillsdale Drive, part of the Company’s Metro Center complex in Foster City. Tenant’s possession of the space commences February 2017 for purposes of tenant improvements, with cash rents commencing in May 2018.
Acquired New Construction Seattle Office Asset
On October 7, 2016, the Company purchased, through a joint venture with CPPIB, a
-square-foot, Class-A office tower, known as “Hill7,” for $180.0 million before certain prorations and closing costs. Pursuant to the joint venture, CPPIB owns a 45% interest in the property and Hudson Pacific owns a 55% interest. The Company will act as managing member responsible for property management, leasing and construction. Located at 1099 Stewart Street in Seattle’s South Lake Union neighborhood, directly adjacent to the Company’s Met Park North asset, this newly constructed, 11-story office building is currently
leased, with HBO and Redfin as anchor tenants. In conjunction with the acquisition, the joint venture closed a secured, non-recourse loan in the amount of
million bearing an
interest rate of 3.38% per annum, interest only. This loan has a 10-year maturity with an option to extend an additional two years at a higher interest rate and with principal amortization.
Acquired Palo Alto Office Asset
On December 12, 2016, the Company purchased the leasehold and improvements for Page Mill Hill, a five-building office campus totaling 182,676 square feet in Palo Alto’s Stanford Research Park for $150.0 million before credits, prorations and closing costs. Page Mill Hill is currently leased to prominent legal and accounting firms, including Gibson, Dunn & Crutcher; Frank, Rimerman + Co.; Manatt, Phelps & Phillips; and Perkins Coie. The acquisition complements the Company’s existing Stanford Research Park holdings, which now include seven properties comprising more than 1.2 million square feet. The Company is the largest office landlord in the Stanford Research Park, a 10-million-square-foot, university-affiliated business center focused on innovation and research & development.
Sold Fully Leased Playa Vista Redevelopment
On November 4, 2016, the Company sold its 100,756-square-foot 12655 Jefferson Boulevard redevelopment in Playa Vista for $80.0 million before certain credits, prorations, and closing costs, representing a 30.0% premium over the Company’s basis. The Company had fully pre-leased the project to and completed tenant build-outs for WeWork and Dentsu Aegis Network prior to sale. The Company decided to sell 12655 Jefferson Boulevard, its only Playa Vista holding, after receiving a compelling off-market purchase offer. Proceeds from the sale were used to repay amounts outstanding under the Company’s unsecured revolving credit facility.
Completed Common Stock Public Offering
On November 24, 2016, the Company completed a public offering of 18,699,017 shares of its common stock, consisting of 17,533,099 shares offered by the Company and 1,165,918 shares offered by funds affiliated with Farallon Capital Management, L.L.C. (collectively, the “Farallon Funds”). The Company used the approximately $572.5 million of net proceeds to acquire 17,250,000 common units of limited partnership interest in its operating partnership, Hudson Pacific Properties, L.P. (the “Operating Partnership”), from certain entities affiliated with The Blackstone Group L.P. (collectively, “Blackstone”), and 283,099 common units of limited partnership interest in the Operating Partnership from the Farallon Funds. The Company did not receive any proceeds from the sale of the shares of common stock in this offering by the Farallon Funds.
Paid Common Dividend
The Company’s Board of Directors declared a dividend on its common stock of
per share for the
. The dividends were paid on December 29, 2016 to stockholders of record on December 19, 2016.
Activities Subsequent to
Sold San Francisco Office Asset
On February 14, 2017, the Company sold 222 Kearny Street, a 148,797-square-foot office building in San Francisco, to a partnership led by LBA Realty for $51.8 million before credits, prorations and closing costs. The Company applied $45.0 million of proceeds from the sale to pay down amounts outstanding under its unsecured revolving credit facility.
Entered into Agreement to Sell Los Angeles Redevelopment
On January 20, 2017, the Company entered into an agreement to sell 3402 Pico Boulevard, a 50,687-square-foot office redevelopment and related development land in Santa Monica, for $34.0 million before credits, prorations and closing costs. The Company expects this transaction to close in the first quarter of 2017, and intends to use proceeds to pay down amounts outstanding under its unsecured revolving credit facility.
On January 10, 2017, the Company completed a public offering of 18,673,808 shares of its common stock, consisting of 8,881,575 shares offered by the Company, 8,626,311 shares offered by Blackstone and 1,165,922 shares offered by the Farallon Funds. The Company used the approximately $312.2 million of gross proceeds to acquire 8,598,480 common units of limited partnership interest in the Operating Partnership from Blackstone, and 283,095 common units of limited partnership interest in the Operating Partnership from the Farallon Funds. The Company did not receive any proceeds from the sale of the shares of common stock in this offering by Blackstone or the Farallon Funds. Upon the offering’s completion, Blackstone and the Farallon Funds no longer hold any ownership interest in the Company or its Operating Partnership.
The Company is providing full-year
FFO guidance in the range of $1.93 to $2.03 per diluted share excluding specified items. This guidance assumes the use of $45.0 million of proceeds from the completed sale of 222 Kearny Street and the use of $35.0 million of proceeds from the anticipated sale of 3402 Pico Boulevard in late March toward the repayment of amounts outstanding under the Company’s revolving credit facility. This guidance also assumes full-year
weighted average fully diluted common stock/units of 147,357,000 (including 1,000,000 shares of unvested restricted stock). As is always the case, the full-year
FFO estimate 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, but otherwise excludes any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital market activity or similar matters.
The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, including the information under “
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, the most directly comparable forward-looking GAAP financial measure, including, 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 financial information regarding the Company’s
quarter and full year
may be found in the Investor Relations section of the Company’s Website at
. This supplemental information provides additional detail on items such as property occupancy, financial performance by property, and debt maturity schedules.
The Company will hold a conference call to discuss
financial results at 11:00 a.m. PT / 2:00 p.m. ET on
. To participate in the call by telephone, please dial (877) 407-0784 five to 10 minutes prior to the start time to allow time for registration. International callers should dial (201) 689-8560. The call will also be broadcast live over the Internet and can be accessed via the Investor Relations section of Hudson Pacific’s Website at
, where a replay of the call will be available for 90 days. A replay will also be available beginning February 16, 2017, at 2:00 p.m. PT / 5:00 p.m. ET, through February 23, 2017, at 8:59 p.m. PT / 11:59 p.m. ET by dialing (844) 512-2921 and entering the passcode 13653151. International callers should
and enter the same passcode.
Use of Non-GAAP Information
The Company calculates funds from operations before non-controlling interest (FFO) in accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT). FFO represents net income (loss), computed in accordance with accounting principles generally accepted in the United States of America (GAAP), excluding gains (or losses) from sales of depreciable operating property, real estate depreciation and amortization (excluding amortization of above/below market lease intangible assets and liabilities and amortization of deferred financing costs and debt discounts/premium) and after adjustments for unconsolidated partnerships and joint ventures. The Company uses FFO as a supplemental performance measure because, in excluding real estate depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. The Company also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare its operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of the Company’s properties that results from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of its properties, all of which have real economic effect and could materially impact the Company’s results from operations, the utility of FFO as a measure of the Company’s performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, the Company’s FFO may not be comparable to such other REITs’ FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of the Company’s performance. FFO should not be used as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including the Company’s ability to pay dividends. FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
The Company evaluates 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 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. The Company 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 the Company’s 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 net operating income as net income (loss) excluding corporate general and administrative expenses, depreciation and amortization, impairments, gains/losses on sales of real estate, interest expense, acquisition-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 on a GAAP basis, adjusted to exclude the effect of straight-line rent and other non-cash adjustments required by GAAP. The Company 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.
About Hudson Pacific Properties
Hudson Pacific Properties is a vertically integrated real estate company focused on acquiring, repositioning, developing and operating high quality office and state-of-the-art media and entertainment properties in select West Coast markets. Hudson Pacific invests across the risk-return spectrum, favoring opportunities where it can employ leasing, capital investment and management expertise to create additional value. Founded in 2006 as Hudson Capital, the Company went public in 2010, electing to be taxed as a real estate investment trust. Through the years, Hudson Pacific has
strategically assembled a portfolio totaling over 17 million square feet, including land for development, in high growth, high-barrier-to-entry submarkets throughout Northern and Southern California and the Pacific Northwest. The Company is a leading provider of design-forward, next-generation workspaces for a variety of tenants, with a focus on Fortune 500 and leading growth companies, many in the technology, media and entertainment sectors. As a long-term owner, Hudson Pacific prioritizes tenant satisfaction and retention, providing highly customized build-outs and working proactively to accommodate tenants’ growth. Hudson Pacific trades as a component of the Russell 2000® and the Russell 3000® indices. For more information visit
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 for the year ended December 31, 2015 filed with the SEC on February 26, 2016, as amended by the Form 10-K/A filed with the SEC on December 23, 2016, and other risks described in documents subsequently filed by the Company from time to time with the SEC.
Vice President, Head of Investor Relations
Blue Marlin Partners
(FINANCIAL TABLES FOLLOW)
Consolidated Balance Sheet
(Unaudited, in thousands, except share data)
REAL ESTATE ASSETS
Building and improvements
Furniture and fixtures
Property under development
Total real estate held for investment
Accumulated depreciation and amortization
Investment in real estate, net
Cash and cash equivalents
Accounts receivable, net
Notes receivable, net
Straight-line rent receivables, net
Deferred leasing costs and lease intangible assets, net
Prepaid expenses and other assets, net
Investment in unconsolidated entities
Assets associated with real estate held for sale
LIABILITIES AND EQUITY
Notes payable, net
Accounts payable and accrued liabilities
Lease intangible liabilities, net
Liabilities associated with real estate held for sale
6.25% Series A cumulative redeemable preferred units of the operating partnership
Hudson Pacific Properties, Inc. stockholders’ equity:
Common stock, $0.01 par value, 490,000,000 authorized, 136,492,235 shares and 89,153,780 shares outstanding at December 31, 2016 and 2015, respectively.
Additional paid-in capital
Accumulated other comprehensive income (loss)
Total Hudson Pacific Properties, Inc. stockholders’ equity
Non-controlling interest—members in consolidated entities
Non-controlling interest—units in the operating partnership
TOTAL LIABILITIES AND EQUITY
Consolidated Statements of Operations
Three Months Ended December 31,
Year Ended December 31,
Parking and other
Total office revenues
Media & Entertainment
Other property-related revenue
Total Media & Entertainment revenues
Office operating expenses
Media & Entertainment operating expenses
General and administrative
Depreciation and amortization
TOTAL OPERATING EXPENSES
INCOME FROM OPERATIONS
OTHER EXPENSE (INCOME)
Unrealized (gain) loss on ineffective portion of derivative instruments
Acquisition-related (expense reimbursements) expenses
Other (income) expense
TOTAL OTHER EXPENSES
INCOME (LOSS) BEFORE GAINS ON SALES
Gains on sales
NET INCOME (LOSS)
Net income attributable to preferred stock
Original issuance costs of redeemed Series B preferred stock
Net income attributable to participating securities
Net (income) loss attributable to non-controlling interest in consolidated entities
Net (income) loss attributable to common units in the operating partnership
Net income (loss) attributable to Hudson Pacific Properties, Inc. common stockholders
Basic and diluted per share amounts:
Net income (loss) attributable to common stockholders—basic
Net income (loss) attributable to common stockholders—diluted
Weighted average shares of common stock outstanding—basic
Weighted average shares of common stock outstanding—diluted
Dividends declared per share of common stock
(Unaudited, in thousands, except per share data)
Year Ended December 31,
Reconciliation of net income (loss) to Funds From Operations (
Depreciation and amortization of real estate assets
FFO attributable to non-controlling interests
Net income attributable to preferred stock and units
FFO to common stockholders and unitholders
Specified items impacting FFO:
FFO (excluding specified items) to common stockholders and unitholders
Weighted average common stock/units outstanding—diluted
FFO per common stock/unit—diluted
FFO (excluding specified items) per common stock/unit—diluted
Net Operating Income
(Unaudited, in thousands)
Reconciliation of net income (loss) to Net Operating Income:
Acquisition-related (expense reimbursements) expenses
Income from operations
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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