HPP Hudson Pacific Properties Inc

– Signed 540,000 Sq Ft of Office Leases –

– Provided 3Q 2024 FFO Outlook and Updated Full-Year Assumptions –

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 second quarter 2024.

"With over 500,000 square feet of office leases signed in the second quarter, we have continued to build on our strong start to the year. While still challenging, our west coast office market conditions are gradually improving. We believe our solid leasing execution will continue as we move through the balance of the year given the second quarter was our highest activity since 2022, and our leasing pipeline remains healthy," stated Victor Coleman, Hudson Pacific's Chairman and CEO.

"In terms of our studios, after 18 months of strikes and negotiations, the recent ratification of the Teamsters’ contract clears the way for increased production activity. However, industry dynamics are very fluid, and as a result, we still lack visibility in regard to timing and direction of our studio operations. Importantly, we do not require production to return to anywhere near prior peak levels for our studio business to start to contribute meaningful value, in part due to the streamlining of our model these past few years, but it will take time. Lastly, from a balance sheet perspective, ongoing deleveraging remains a top priority and we have no debt maturities until the end of 2025."

Financial Results Compared to Second Quarter 2023

• Total revenue of $218.0 million compared to $245.2 million, primarily due to asset sales and two tenant move outs, one at 1455 Market and one at Sunset Las Palmas Studios, all partially offset by improved studio ancillary revenue
• Net loss attributable to common stockholders of $47.0 million, or $0.33 per diluted share, compared to net loss of $36.2 million, or $0.26 per diluted share, largely attributable to the items affecting revenue, and partially offset by reduced depreciation and interest expense
• FFO, excluding specified items, of $24.5 million, or $0.17 per diluted share, compared to $34.5 million, or $0.24 per diluted share, mostly attributable to the items affecting revenue, along with less FFO allocable to non-controlling interests. Specified items consisted of transaction-related income of $0.1 million, or $0.00 per diluted share; and a one-time derivative fair value adjustment of $1.3 million, or $0.01 per diluted share. Prior year specified items consisted of transaction-related income of $2.5 million, or $0.02 per diluted share; prior-period property tax reimbursement of $1.5 million, or $0.01 per diluted share; deferred tax asset write-off expense of $3.5 million, or $0.02 per diluted share; and, gain on debt extinguishment (net of taxes) of $7.2 million, or $0.05 per diluted share.
• FFO of $23.3 million, or $0.16 per diluted share, compared to $42.2 million, or $0.29 per diluted share
• AFFO of $24.2 million, or $0.17 per diluted share, compared to $31.1 million, or $0.22 per diluted share, primarily attributable to the items affecting FFO, partially improved by reduced non-cash revenue adjustments and lower recurring capital expenditures
• Same-store cash NOI of $105.2 million, compared to $119.3 million, mostly driven by the two tenant move outs at 1455 Market and Sunset Las Palmas Studios

Leasing

• Executed 82 new and renewal leases totaling 539,531 square feet, with significant leases including:
  • 157,000-square-foot new lease with the City and County of San Francisco at 1455 Market with a 21-year term
  • 48,000-square-foot renewal lease with a financial services company at the Ferry Building with an approximately 6-year term
• GAAP rents increased 2.6% and cash rents decreased 13.3% from prior levels, with the change in cash rents primarily resulting from the aforementioned new lease at 1455 Market. If excluded, GAAP and cash rents increased 8.0% and 0.9%, respectively
• In-service office portfolio ended the quarter at 78.7% occupied and 80.0% leased, compared to 79.0% and 80.5%, respectively, in first quarter of this year, with the change primarily due to a single tenant known vacate at Concourse
• On average over the trailing 12 months, the in-service studio portfolio was 76.1% leased, and the related 34 stages were 78.1% leased, compared to 76.9% and 79.4%, respectively, in the first quarter of this year, with the change due to the aforementioned tenant move out at Sunset Las Palmas

Balance Sheet as of June 30, 2024

• $706.5 million of total liquidity comprised of $78.5 million of unrestricted cash and cash equivalents and $628.0 million of undrawn capacity under the unsecured revolving credit facility
• $13.4 million and $183.1 million, or $6.7 million and $46.8 million at HPP's share, of undrawn capacity under construction loans secured by Sunset Glenoaks Studios and Sunset Pier 94 Studios, respectively
• HPP's share of net debt to HPP's share of undepreciated book value was 37.3% with 92.2% of debt fixed or capped and no maturities until November 2025

Dividend

• The Company's Board of Directors declared and paid dividends on its common stock of $0.05 per share, and on its 4.750% Series C cumulative preferred stock of $0.296875 per share

2024 Outlook

Hudson Pacific is providing an FFO outlook for the third quarter of $0.08 to $0.12 per diluted share and updating key assumptions related to its full-year FFO outlook (see table below). There are no specified items in connection with this outlook.

The IATSE and Teamsters unions ratified new contracts in mid-July and early August, respectively, which paves the way for production to normalize. The Company's outlook assumes lower studio NOI in the third quarter, as operating conditions are incrementally less favorable than the first half of the year and it will take time to greenlight and ready new productions. Accordingly, the Company has also adjusted its full-year same-store cash NOI growth assumptions due to slower than anticipated absorption within its same-store studio portfolio.

The Company believes that office occupancy at the end of the third quarter could be in line with that reported for the second quarter. However, the Company's third quarter FFO outlook assumes that office lease expirations in the second and third quarter result in lower average office occupancy and NOI for the third quarter compared to the second quarter. The Company’s same-store office portfolio continues to perform in line with its previously provided full-year same-store cash NOI growth assumptions.

This 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, 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.

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

Unaudited, in thousands, except share data

 

Full Year 2024

 

Assumptions

Metric

Low

High

Growth in same-store property cash NOI(1)(2)

(12.50)%

(13.50)%

GAAP non-cash revenue (straight-line rent and above/below-market rents)(3)

$—

$(5,000)

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

$(6,500)

$(8,500)

General and administrative expenses(4)

$(78,000)

$(84,000)

Interest expense(5)

$(173,000)

$(183,000)

Non-real estate depreciation and amortization

$(32,000)

$(34,000)

FFO from unconsolidated joint ventures

$500

$2,500

FFO attributable to non-controlling interests

$(18,000)

$(22,000)

FFO attributable to preferred units/shares

$(21,000)

$(21,000)

Weighted average common stock/units outstanding—diluted(6)

145,000,000

146,000,000

(1)

Same-store for the full year 2024 is defined as the 41 office properties and three studio properties, as applicable, owned and included in the Company's stabilized portfolio as of January 1, 2023, and anticipated to still be owned and included in the stabilized portfolio through December 31, 2024.

(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 2024.

(5)

Includes non-cash interest expense, which the Company estimates at $4,000 in 2024.

(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 2024 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 second quarter 2024 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 second quarter 2024 financial results at 2:00 p.m. PT / 5:00 p.m. ET on August 7, 2024. Please dial (833) 470-1428 and enter passcode 550142 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.

(FINANCIAL TABLES FOLLOW)

Consolidated Balance Sheets

In thousands, except share data

 

6/30/24

 

12/31/23

 

(Unaudited)

 

 

ASSETS

 

 

 

Investment in real estate, at cost

$

8,394,504

 

 

$

8,212,896

 

Accumulated depreciation and amortization

 

(1,776,693

)

 

 

(1,728,437

)

Investment in real estate, net

 

6,617,811

 

 

 

6,484,459

 

Non-real estate property, plant and equipment, net

 

120,761

 

 

 

118,783

 

Cash and cash equivalents

 

78,458

 

 

 

100,391

 

Restricted cash

 

21,482

 

 

 

18,765

 

Accounts receivable, net

 

18,251

 

 

 

24,609

 

Straight-line rent receivables, net

 

217,543

 

 

 

220,787

 

Deferred leasing costs and intangible assets, net

 

329,310

 

 

 

326,950

 

Operating lease right-of-use assets

 

363,843

 

 

 

376,306

 

Prepaid expenses and other assets, net

 

109,049

 

 

 

94,145

 

Investment in unconsolidated real estate entities

 

212,130

 

 

 

252,711

 

Goodwill

 

264,144

 

 

 

264,144

 

TOTAL ASSETS

$

8,352,782

 

 

$

8,282,050

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Liabilities

 

 

 

Unsecured and secured debt, net

$

4,114,125

 

 

$

3,945,314

 

Joint venture partner debt

 

66,136

 

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

228,036

 

 

 

203,736

 

Operating lease liabilities

 

378,785

 

 

 

389,210

 

Intangible liabilities, net

 

24,997

 

 

 

27,751

 

Security deposits, prepaid rent and other

 

83,940

 

 

 

88,734

 

Total liabilities

 

4,896,019

 

 

 

4,720,881

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

51,140

 

 

 

57,182

 

 

 

 

 

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 06/30/24 and 12/31/23

 

425,000

 

 

 

425,000

 

Common stock, $0.01 par value, 481,600,000 authorized, 141,232,361 shares and 141,034,806 shares outstanding at 06/30/24 and 12/31/23, respectively

 

1,403

 

 

 

1,403

 

Additional paid-in capital

 

2,700,907

 

 

 

2,651,798

 

Accumulated other comprehensive income (loss)

 

2,824

 

 

 

(187

)

Total HPP stockholders' equity

 

3,130,134

 

 

 

3,078,014

 

Non-controlling interest—members in consolidated real estate entities

 

176,346

 

 

 

335,439

 

Non-controlling interest—units in the operating partnership

 

89,328

 

 

 

80,719

 

Total equity

 

3,395,808

 

 

 

3,494,172

 

TOTAL LIABILITIES AND EQUITY

$

8,352,782

 

 

$

8,282,050

 

 

 

 

 

Consolidated Statements of Operations

In thousands, except per share data

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2024

 

2023

 

2024

 

2023

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

REVENUES

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

Rental revenues

$

172,596

 

 

$

203,486

 

 

$

344,023

 

 

$

406,143

 

Service and other revenues

 

3,443

 

 

 

3,805

 

 

 

7,091

 

 

 

7,781

 

Total office revenues

 

176,039

 

 

 

207,291

 

 

 

351,114

 

 

 

413,924

 

Studio

 

 

 

 

 

 

 

Rental revenues

 

14,441

 

 

 

16,374

 

 

 

28,041

 

 

 

32,627

 

Service and other revenues

 

27,520

 

 

 

21,503

 

 

 

52,868

 

 

 

50,880

 

Total studio revenues

 

41,961

 

 

 

37,877

 

 

 

80,909

 

 

 

83,507

 

Total revenues

 

218,000

 

 

 

245,168

 

 

 

432,023

 

 

 

497,431

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Office operating expenses

 

75,304

 

 

 

76,767

 

 

 

148,251

 

 

 

150,821

 

Studio operating expenses

 

37,952

 

 

 

34,679

 

 

 

75,061

 

 

 

71,923

 

General and administrative

 

20,705

 

 

 

18,941

 

 

 

40,415

 

 

 

37,665

 

Depreciation and amortization

 

86,798

 

 

 

98,935

 

 

 

178,652

 

 

 

196,074

 

Total operating expenses

 

220,759

 

 

 

229,322

 

 

 

442,379

 

 

 

456,483

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

Loss from unconsolidated real estate entities

 

(2,481

)

 

 

(715

)

 

 

(3,224

)

 

 

(1,460

)

Fee income

 

1,371

 

 

 

2,284

 

 

 

2,496

 

 

 

4,686

 

Interest expense

 

(44,159

)

 

 

(54,648

)

 

 

(88,248

)

 

 

(108,455

)

Interest income

 

579

 

 

 

236

 

 

 

1,433

 

 

 

607

 

Management services reimbursement income—unconsolidated real estate entities

 

1,042

 

 

 

1,059

 

 

 

2,198

 

 

 

2,123

 

Management services expense—unconsolidated real estate entities

 

(1,042

)

 

 

(1,059

)

 

 

(2,198

)

 

 

(2,123

)

Transaction-related expenses

 

113

 

 

 

2,530

 

 

 

(2,037

)

 

 

1,344

 

Unrealized loss on non-real estate investments

 

(1,045

)

 

 

(843

)

 

 

(1,943

)

 

 

(4

)

Gain on extinguishment of debt

 

—

 

 

 

10,000

 

 

 

—

 

 

 

10,000

 

Gain on sale of real estate

 

—

 

 

 

—

 

 

 

—

 

 

 

7,046

 

Other income

 

1,334

 

 

 

138

 

 

 

1,477

 

 

 

135

 

Total other expenses

 

(44,288

)

 

 

(41,018

)

 

 

(90,046

)

 

 

(86,101

)

Loss before income tax provision

 

(47,047

)

 

 

(25,172

)

 

 

(100,402

)

 

 

(45,153

)

Income tax provision

 

(510

)

 

 

(6,302

)

 

 

(510

)

 

 

(1,140

)

Net loss

 

(47,557

)

 

 

(31,474

)

 

 

(100,912

)

 

 

(46,293

)

Net income attributable to Series A preferred units

 

(153

)

 

 

(153

)

 

 

(306

)

 

 

(306

)

Net income attributable to Series C preferred shares

 

(5,047

)

 

 

(5,047

)

 

 

(10,094

)

 

 

(10,094

)

Net income attributable to participating securities

 

(207

)

 

 

(297

)

 

 

(409

)

 

 

(850

)

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

 

3,751

 

 

 

(346

)

 

 

7,920

 

 

 

(1,377

)

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

 

961

 

 

 

508

 

 

 

2,118

 

 

 

1,402

 

Net loss attributable to common units in the operating partnership

 

1,225

 

 

 

646

 

 

 

2,454

 

 

 

928

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

$

(47,027

)

 

$

(36,163

)

 

$

(99,229

)

 

$

(56,590

)

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

Net loss attributable to common stockholders—basic

$

(0.33

)

 

$

(0.26

)

 

$

(0.70

)

 

$

(0.40

)

Net loss attributable to common stockholders—diluted

$

(0.33

)

 

$

(0.26

)

 

$

(0.70

)

 

$

(0.40

)

Weighted average shares of common stock outstanding—basic

 

141,181

 

 

 

140,910

 

 

 

141,152

 

 

 

140,967

 

Weighted average shares of common stock outstanding—diluted

 

141,181

 

 

 

140,910

 

 

 

141,152

 

 

 

140,967

 

Funds from Operations(1)

Unaudited, in thousands, except per share data

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2024

 

2023

 

2024

 

2023

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

 

 

 

 

 

 

 

Net loss

$

(47,557

)

 

$

(31,474

)

 

$

(100,912

)

 

$

(46,293

)

Adjustments:

 

 

 

 

 

 

 

Depreciation and amortization—consolidated

 

86,798

 

 

 

98,935

 

 

 

178,652

 

 

 

196,074

 

Depreciation and amortization—non-real estate assets

 

(8,211

)

 

 

(8,832

)

 

 

(16,192

)

 

 

(17,224

)

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

 

2,006

 

 

 

1,195

 

 

 

3,157

 

 

 

2,458

 

Gain on sale of real estate

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,046

)

Unrealized loss on non-real estate investments

 

1,045

 

 

 

843

 

 

 

1,943

 

 

 

4

 

FFO attributable to non-controlling interests

 

(5,576

)

 

 

(13,239

)

 

 

(10,996

)

 

 

(26,862

)

FFO attributable to preferred shares and units

 

(5,200

)

 

 

(5,200

)

 

 

(10,400

)

 

 

(10,400

)

FFO to common stock/unit holders

 

23,305

 

 

 

42,228

 

 

 

45,252

 

 

 

90,711

 

Specified items impacting FFO:

 

 

 

 

 

 

 

Transaction-related expenses

 

(113

)

 

 

(2,530

)

 

 

2,037

 

 

 

(1,344

)

One-time derivative fair value adjustment

 

1,310

 

 

 

—

 

 

 

1,310

 

 

 

—

 

Prior period net property tax adjustment—Company’s share

 

—

 

 

 

(1,469

)

 

 

—

 

 

 

(1,469

)

Deferred tax asset valuation allowance

 

—

 

 

 

3,516

 

 

 

—

 

 

 

3,516

 

One-time gain on debt extinguishment

 

—

 

 

 

(10,000

)

 

 

—

 

 

 

(10,000

)

One-time tax impact of gain on debt extinguishment

 

—

 

 

 

2,751

 

 

 

—

 

 

 

2,751

 

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

$

24,502

 

 

$

34,496

 

 

$

48,599

 

 

$

84,165

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

145,657

 

 

 

143,428

 

 

 

145,647

 

 

 

143,379

 

FFO per common stock/unit—diluted

$

0.16

 

 

$

0.29

 

 

$

0.31

 

 

$

0.63

 

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

$

0.17

 

 

$

0.24

 

 

$

0.33

 

 

$

0.59

 

(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 June 30,

 

Six Months Ended June 30,

 

2024

 

2023

 

2024

 

2023

FFO (excluding specified items)

$

24,502

 

 

$

34,496

 

 

$

48,599

 

 

$

84,165

 

Adjustments:

 

 

 

 

 

 

 

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

 

(118

)

 

 

(2,660

)

 

 

1,900

 

 

 

(11,796

)

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

 

1,638

 

 

 

1,814

 

 

 

3,304

 

 

 

3,637

 

Non-real estate depreciation and amortization

 

8,211

 

 

 

8,832

 

 

 

16,192

 

 

 

17,224

 

Non-cash interest expense

 

1,764

 

 

 

5,025

 

 

 

3,610

 

 

 

9,701

 

Non-cash compensation expense

 

6,889

 

 

 

6,229

 

 

 

13,421

 

 

 

11,385

 

Recurring capital expenditures, tenant improvements and lease commissions

 

(18,645

)

 

 

(22,599

)

 

 

(34,388

)

 

 

(48,124

)

AFFO

$

24,241

 

 

$

31,137

 

 

$

52,638

 

 

$

66,192

 

 

 

 

 

 

 

 

 

(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 June 30,

 

2024

 

2023

RECONCILIATION OF NET LOSS TO NET OPERATING INCOME (“NOI”):

 

 

 

Net loss

$

(47,557

)

 

$

(31,474

)

Adjustments:

 

 

 

Loss from unconsolidated real estate entities

 

2,481

 

 

 

715

 

Fee income

 

(1,371

)

 

 

(2,284

)

Interest expense

 

44,159

 

 

 

54,648

 

Interest income

 

(579

)

 

 

(236

)

Management services reimbursement income—unconsolidated real estate entities

 

(1,042

)

 

 

(1,059

)

Management services expense—unconsolidated real estate entities

 

1,042

 

 

 

1,059

 

Transaction-related expenses

 

(113

)

 

 

(2,530

)

Unrealized loss on non-real estate investments

 

1,045

 

 

 

843

 

Gain on extinguishment of debt

 

—

 

 

 

(10,000

)

Other income

 

(1,334

)

 

 

(138

)

Income tax provision

 

510

 

 

 

6,302

 

General and administrative

 

20,705

 

 

 

18,941

 

Depreciation and amortization

 

86,798

 

 

 

98,935

 

NOI

$

104,744

 

 

$

133,722

 

 

 

 

 

NOI Detail

 

 

 

Same-store office cash revenues

 

166,181

 

 

 

178,783

 

Straight-line rent

 

(1,887

)

 

 

(727

)

Amortization of above/below-market leases, net

 

1,262

 

 

 

1,589

 

Amortization of lease incentive costs

 

(350

)

 

 

(262

)

Same-store office revenues

 

165,206

 

 

 

179,383

 

 

 

 

 

Same-store studios cash revenues

 

20,186

 

 

 

17,153

 

Straight-line rent

 

109

 

 

 

417

 

Amortization of lease incentive costs

 

(9

)

 

 

(9

)

Same-store studio revenues

 

20,286

 

 

 

17,561

 

 

 

 

 

Same-store revenues

 

185,492

 

 

 

196,944

 

 

 

 

 

Same-store office cash expenses

 

68,608

 

 

 

67,252

 

Straight-line rent

 

317

 

 

 

399

 

Non-cash compensation expense

 

15

 

 

 

35

 

Amortization of above/below-market ground leases, net

 

650

 

 

 

676

 

Same-store office expenses

 

69,590

 

 

 

68,362

 

 

 

 

 

Same-store studio cash expenses

 

12,540

 

 

 

9,396

 

Non-cash compensation expense

 

40

 

 

 

113

 

Same-store studio expenses

 

12,580

 

 

 

9,509

 

 

 

 

 

Same-store expenses

 

82,170

 

 

 

77,871

 

 

 

 

 

Same-store NOI

 

103,322

 

 

 

119,073

 

Non-same-store NOI

 

1,422

 

 

 

14,649

 

NOI

$

104,744

 

 

$

133,722

 

(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.

 

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Investor Contact Laura Campbell Executive Vice President, Investor Relations & Marketing (310) 622-1702 lcampbell@hudsonppi.com

Media Contact Laura Murray Vice President, Communications (310) 622-1781 lmurray@hudsonppi.com