Hudson Pacific Properties : Quarterly Earnings Documents

Hudson Pacific Properties, Inc.

Press Release

Hudson Pacific Properties Reports

First Quarter 2023 Financial Results

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LOS ANGELES (May 8, 2023)-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 in global epicenters for these synergistic, converging and secular growth industries, today announced financial results for the first quarter 2023.

"Our focus at Hudson Pacific remains on effectively managing the aspects of the company we can control in these unprecedented times," said Victor Coleman, Chairman & CEO. "Even as more companies mandate in-office work and our leasing pipeline and tours at our assets are increasing, broader macroeconomic challenges continue to weigh on office fundamentals. We also must now address and work to minimize the impact of the national writers strike as it relates to our studio business. Our priorities remain executing on leasing, prudently allocating capital, reducing corporate expenses, proactively executing on asset sales, and further fortifying our balance sheet. We have a path to address all our maturities through 2025, and we recently received approval to bring our dividend policy in line with other capital preservation efforts as we move forward."

Financial Results Compared to First Quarter 2022

• Total revenue of $252.3 million up 3.2% compared to $244.5 million, primarily due to the acquisition of Quixote in the third quarter 2022
• Net loss attributable to common stockholders of $20.4 million, or $0.14 per diluted share, compared to net loss of $19.8 million, or $0.13 per diluted share, largely the result of higher interest expense on debt associated with the Quixote acquisition
• FFO, excluding specified items, of $49.7 million, or $0.35 per diluted share, compared to $75.2 million, or $0.50 per diluted share, primarily due to lower production activity impacting Quixote and, to a lesser extent, higher interest expense and lower office tenancy. Specified items consist of transaction-related expenses of $1.2 million, or $0.01 per diluted share, compared to prior year specified items of transaction-related expenses of $0.3 million, or $0.00 per diluted share, and a trade name non-cash impairment of $8.5 million, or $0.06 per diluted share
• FFO of $48.5 million, or $0.34 per diluted share, compared to $66.4 million, or $0.44 per diluted share
• AFFO of $35.0 million, or $0.24 per diluted share, compared to $58.8 million, or $0.39 per diluted share, largely due to aforementioned items affecting FFO
• Same-storecash NOI of $125.6 million up 7.2% compared to $117.2 million, mostly attributable to significant office lease commencements at Harlow and 1918 Eighth, as well as higher production- related revenue and lower operating expenses at Sunset Gower and Sunset Bronson Studios

Leasing

• Executed 75 new and renewal leases totaling 344,069 square feet, with an average lease size of 4,300 square feet and over 80% of that activity in the San Francisco Bay Area
• GAAP and cash rents decreased 2.8% and 4.9%, respectively, from prior levels, with the decline largely driven by a 20,000 square foot short-term renewal
• In-serviceoffice portfolio ended the quarter at 86.9% occupied and 88.7% leased, with decreases for both primarily attributable to small- to mid-sized expirations in the Peninsula and Silicon Valley
• On average over the trailing 12 months, the in-service studio portfolio was 86.3% leased, and the related 35 stages were 96.5% leased

Hudson Pacific Properties, Inc.

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Development

• Subsequent to the quarter, cash rents commenced May 1, 2023 on Google's full-building lease at One Westside office redevelopment, contributing $43.2 million of NOI annually

Dispositions

• Sold Skyway Landing office property in Redwood Shores, California for $102.0 million before closing adjustments

Balance Sheet as of March 31, 2023

• $828.3 million of total liquidity comprised of $163.3 million of unrestricted cash and cash equivalents and $665.0 million of undrawn capacity under the Company's unsecured revolving credit facility
• $93.4 million and $45.5 million of undrawn capacity under construction loans secured by One Westside/Westside Two and Sunset Glenoaks Studios, respectively
• The Company's share of net debt to the Company's share of undepreciated book value stood at 38.2% with no material maturities until the loan secured by One Westside, which is 100% leased to Google through 2036, matures in December 2024
• Investment grade credit rated, 66.2% of debt unsecured, and 90.3% fixed and capped rate debt
• 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
• Entered into interest rate swaps on the Company's $172.9 million pro rata share of the 1918 Eighth loan (effective February 2023) and on its $351.2 million net pro rata share of the Hollywood Media Portfolio loan (effective August 2023)
• Subsequent to the quarter, on April 18, 2023, repaid the Quixote loan for $150.0 million, a $10.0 million discount on the principal balance with funds from the Company's unsecured revolving credit facility

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
• Subsequent to quarter, the Company's Board of Directors approved a 40% to 50% reduction in the common stock dividend, with the exact amount to be determined later this month

ESG Leadership

• Named an ENERGY STAR Partner of the Year for Sustained Excellence for the fifth consecutive year

Subsequent Event - Writers Strike

Effective May 2, 2023, after failing to reach an agreement with the Alliance of Motion Picture and Television Producers, the Writers Guild of America (WGA) elected to strike, derailing the production cycle of hundreds of domestically produced film and television shows. Contrary to previous strikes which have historically seen unusually high production activity in the months leading up to a potential strike, independently operated studios and related services such as the Company's experienced a significant slowdown in production activity as new scripted content was pre-emptively halted. That slowdown impacted the Company's first quarter operating results, particularly with respect to March. While the potential duration of the current strike remains unknown, there have been seven WGA strikes dating back to the early 1950's the length of which have ranged from 2 to 22 weeks, the last of which in 2007 to 2008 lasted approximately 14 weeks.

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Updated 2023 Outlook

As noted last quarter, the Company's 2023 full-year FFO outlook excluded the impact of a disruption in studio operations in the event related union negotiations led to a strike and halt in production. Due to the uncertainty around the duration of a strike, the Company will continue to provide certain assumptions relevant to its full year 2023 office outlook, but will no longer provide an 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 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)	$18,000	$28,000
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)	$(204,000)	$(214,000)
Non-real estate depreciation and amortization	$(34,000)	$(36,000)
FFO from unconsolidated joint ventures	$500	$2,500
FFO attributable to non-controlling interests	$(43,500)	$(47,500)
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-storeoffice for the full year 2023 is defined as the 43 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-cashstraight-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 $12,000 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-lookingnon-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 first 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

Hudson Pacific Properties, Inc.

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property and debt maturity schedules.

Conference Call

The Company will hold a conference call to discuss first quarter 2023 financial results at 9:00 a.m. PT / 12:00 p.m. ET on May 9, 2023. Please dial [phone] and enter passcode 927408 to access the call. International callers should dial [phone] and enter the same passcode. A live, listen-only webcast and replay can be accessed via the Investors section of the Company's website

atHudsonPacificProperties.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.

Investor Contact

Laura Campbell

Executive Vice President, Investor Relations & Marketing

1. [e-mail]

Media Contact

Laura Murray

Senior Director, Communications

1. [e-mail]

(FINANCIAL TABLES FOLLOW)

Hudson Pacific Properties, Inc.

Press Release

Consolidated Balance Sheets

In thousands, except share data

		March 31, 2023		December 31, 2022
		(Unaudited)
ASSETS
Investment in real estate, at cost	$	8,790,335	$	8,716,572
Accumulated depreciation and amortization		(1,619,164)			(1,541,271)
Investment in real estate, net		7,171,171			7,175,301
Non-real estate property, plant and equipment, net		124,465			130,289
Cash and cash equivalents		163,327			255,761
Restricted cash		19,571			29,970
Accounts receivable, net		15,176			16,820
Straight-line rent receivables, net		290,650			279,910
Deferred leasing costs and intangible assets, net		382,173			393,842
Operating lease right-of-use assets		399,063			401,051
Prepaid expenses and other assets, net		100,783			98,837
Investment in unconsolidated real estate entities		194,163			180,572
Goodwill		263,549			263,549
Assets associated with real estate held for sale		-			93,238
TOTAL ASSETS	$	9,124,091	$	9,319,140
LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net	$	4,433,546	$	4,585,862
Joint venture partner debt		66,136			66,136
Accounts payable, accrued liabilities and other		271,931			264,098
Operating lease liabilities		399,081			399,801
Intangible liabilities, net		32,443			34,091
Security deposits, prepaid rent and other		91,355			83,797
Liabilities associated with real estate held for sale		-			665
Total liabilities		5,294,492			5,434,450
Redeemable preferred units of the operating partnership		9,815			9,815
Redeemable non-controlling interest in consolidated real estate entities		120,902			125,044
Equity
HPP stockholders' equity:
4.750% Series C cumulative redeemable preferred stock, $0.01 par value, $25.00 per share		425,000			425,000
liquidation preference,18,400,000 authorized; 17,000,000 shares outstanding at March 31, 2023
and December 31, 2022
Common stock, $0.01 par value, 481,600,000 authorized, 140,888,769 shares and 141,054,478		1,403			1,409
shares outstanding at March 31, 2023 and December 31, 2022, respectively
Additional paid-in capital		2,835,061			2,889,967
Accumulated other comprehensive loss		(8,147)			(11,272)
Total HPP stockholders' equity		3,253,317			3,305,104
Non-controllinginterest-members in consolidated real estate entities		375,960			377,756
Non-controllinginterest-units in the operating partnership		69,605			66,971
Total equity		3,698,882			3,749,831
TOTAL LIABILITIES AND EQUITY	$	9,124,091	$	9,319,140