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Hudson Pacific Properties Reports Third Quarter 2019 Financial Results

October 30, 2019 GMT

LOS ANGELES--(BUSINESS WIRE)--Oct 30, 2019--

Hudson Pacific Properties, Inc. (the “Company” or “Hudson Pacific”) (NYSE: HPP) today announced financial results for the third quarter 2019.

Management Comments & Industry Outlook

Victor Coleman, Hudson Pacific Properties’ Chairman and CEO, said:

“Our third quarter and year-to-date results highlight solid momentum across all aspects of our business, whether in terms of leasing, operations, development, capital recycling or balance sheet management. We signed another half a million square feet of leases this quarter with exceptional rent spreads. This strong execution, coupled with excellent West Coast office and studio fundamentals, contributed to robust NOI growth at our same-store properties, and to our decision to raise guidance assumptions in relation to those properties yet again. In addition, recent development and redevelopment deliveries, including our fully pre-leased EPIC project earlier this month, are now poised to contribute substantially to our non-same-store property NOI growth starting in the fourth quarter and beyond.

“Specific to our balance sheet, during and subsequent to the quarter, we continued to address near-term maturities, further improving our credit profile and liquidity. We used net proceeds from our Campus Center sale and our third successful public debt offering to either repay or improve terms on our outstanding indebtedness. Shortly thereafter, we received an upgrade to Baa2 with a stable outlook from Moody’s. We now have only $65.0 million maturing next year, with no maturities thereafter until 2022, and over $900.0 million of immediate liquidity to support our growth objectives and business plan.”

Consolidated Financial & Operating Results

For third quarter 2019 compared to third quarter 2018:

Office Segment Results

Financial & operating

For third quarter 2019 compared to third quarter 2018:

Leasing

Studio Segment Results

Financial & operating

For third quarter 2019 compared to third quarter 2018:

Leasing

Leasing Activity

Executed significant leases throughout the Bay Area

Dispositions

Sold Milpitas office campus and land

On July 24, 2019, the Company sold Campus Center’s 471,580-square-foot, three-building office campus for approximately $70.3 million before credits, prorations, and closing costs, and applied $70.0 million of net proceeds to repay its revolving credit facility. On July 30, 2019, the Company sold the Campus Center land for approximately $78.1 million before credits, prorations and closing costs, and applied $75.0 million of net proceeds to repay its revolving credit facility.

Balance Sheet

As of the end of the third quarter 2019:

Dividend

Paid common dividend

Activities Subsequent to Third Quarter 2019

Delivered EPIC office development 100% pre-leased

On October 1, 2019, the Company placed in service its 302,102-square-foot EPIC creative office development, which is fully pre-leased to Netflix. Delivered on-time and on-budget, the $207 million project represents the Company’s fourth Hollywood office development adjacent to or part of its Sunset Studios lots.

Issued $400.0 million of additional public debt

On October 3, 2019, the Company’s operating partnership, Hudson Pacific Properties, L.P. (the “Operating Partnership”), completed a public offering of $400.0 million of senior notes issued at 99.268% of par value, with a coupon of 3.250%, maturing on January 15, 2030. The Operating Partnership used the net proceeds to repay its $300.0 million five-year term loan due April 2020, and to pay down its remaining $80.0 million balance on its revolving credit facility, with the remainder available for general corporate purposes.

Upgraded by Moody’s to Baa2 with stable outlook

On October 16, 2019, Moody’s Investors Service (“Moody’s”) upgraded the Company’s credit rating, including its long-term issuer and senior unsecured ratings, from Baa3 to Baa2 with a stable outlook. The upgrade reflects the Company’s quality portfolio in high-growth West Coast markets with solid fundamentals, good liquidity profile supported by a large unencumbered asset base, and strong fixed charge coverage. Moody’s also highlighted the Company’s experienced management team; demonstrated success in leasing, repositioning, development and redevelopment; and commitment to owning and operating sustainable and efficient properties.

2019 Outlook

The Company increased its full-year 2019 FFO guidance from its previously announced range of $1.98 to $2.04 per diluted share, excluding specified items, to a revised range of $2.00 to $2.06 per diluted share, excluding specified items. Specified items consist of transaction-related expenses of $0.5 million identified in connection with the Company’s first and third quarter results, and one-time debt extinguishment costs of $0.7 million, $0.1 million of which was identified in connection with the Company’s first quarter results and another $0.6 million of which will be identified in connection with the Company’s fourth quarter results, stemming from the repayment of our $300.0 million five-year term loan due April 2020, as described earlier. Combined, these specified items total $1.2 million, or $0.01 per diluted share.

The full-year 2019 FFO estimates 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 future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital markets activity or similar matters. There can be no assurance that the actual results will not differ materially from this estimate.

Below are some of the assumptions the Company used in providing this guidance (dollars and share data in thousands):

 

 

Full Year 2019

Metric

 

Low

 

High

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

 

5.00%

 

6.00%

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

 

7.00%

 

8.00%

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

 

$59,000

 

$69,000

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

 

$(4,000)

 

$(4,000)

General and administrative expenses (4)(5)

 

$(70,000)

 

$(74,000)

Interest expense (6)

 

$(105,500)

 

$(108,500)

Interest income

 

$3,450

 

$3,550

Corporate-related depreciation and amortization

 

$(2,050)

 

$(2,150)

FFO from unconsolidated joint ventures

 

$3,000

 

$4,000

FFO attributable to non-controlling interests

 

$(26,500)

 

$(30,500)

Weighted average common stock/units outstanding—diluted (7)

 

156,000

 

157,000

 

 

 

 

 

The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, including the information under “2019 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, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, acquisition costs and other non-core items that have not yet occurred, are out of the Company’s control and/or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Supplemental Information

Supplemental financial information regarding Hudson Pacific’s third quarter 2019 results may be found on the Investors section of the Company’s website at HudsonPacificProperties.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property, and debt maturity schedules.

Conference Call

The Company will hold a conference call to discuss third quarter 2019 financial results at 11:00 a.m. PT / 2:00 p.m. ET on October 30, 2019. Please dial (877) 407-0784 to access the call. International callers should dial (201) 689-8560. A live, listen-only webcast can be accessed via the Investors section of the Company’s website at HudsonPacificProperties.com, where a replay of the call will be available. A replay will also be available beginning October 30, 2019 at 2:00 p.m. PT / 5:00 p.m. ET, through November 13, 2019 at 8:59 p.m. PT / 11:59 p.m. ET, by dialing (844) 512-2921 and entering the passcode 13695149. International callers should dial (412) 317-6671 and enter the same passcode.

About Hudson Pacific

Hudson Pacific is a real estate investment trust with a portfolio of office and studio properties totaling nearly 19 million square feet, including land for development. Focused on premier West Coast epicenters of innovation, media and technology, its anchor tenants include Fortune 500 and leading growth companies such as Netflix, Google, Square, Uber, NFL Enterprises and more. Hudson Pacific is publicly traded on the NYSE under the symbol HPP, and listed as a component of the Russell 2000® and the Russell 3000® indices. 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 that 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, new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

Consolidated Balance Sheets

In thousands, except share data

  

 

 

September 30, 2019

 

December 31, 2018

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

Investment in real estate, at cost

 

$

7,162,474

 

 

$

7,059,537

 

Accumulated depreciation and amortization

 

(841,802

)

 

(695,631

)

Investment in real estate, net

 

6,320,672

 

 

6,363,906

 

Cash and cash equivalents

 

56,777

 

 

53,740

 

Restricted cash

 

12,562

 

 

14,451

 

Accounts receivable, net

 

15,432

 

 

14,004

 

Straight-line rent receivables, net

 

181,971

 

 

142,369

 

Deferred leasing costs and lease intangible assets, net

 

294,959

 

 

279,896

 

U.S. Government securities

 

142,268

 

 

146,880

 

Operating lease right-of-use asset

 

270,318

 

 

 

Prepaid expenses and other assets, net

 

69,152

 

 

55,633

 

Investment in unconsolidated real estate entity

 

64,183

 

 

 

TOTAL ASSETS

 

$

7,428,294

 

 

$

7,070,879

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities

 

 

 

 

Unsecured and secured debt, net

 

$

2,728,387

 

 

$

2,623,835

 

In-substance defeased debt

 

135,846

 

 

138,223

 

Joint venture partner debt

 

66,136

 

 

66,136

 

Accounts payable, accrued liabilities and other

 

261,272

 

 

175,300

 

Operating lease liability

 

273,624

 

 

 

Lease intangible liabilities, net

 

34,717

 

 

45,612

 

Security deposits and prepaid rent

 

64,474

 

 

68,687

 

Total liabilities

 

3,564,456

 

 

3,117,793

 

 

 

 

 

 

Redeemable preferred units of the operating partnership

 

9,815

 

 

9,815

 

Redeemable non-controlling interest in consolidated real estate entities

 

122,216

 

 

113,141

 

 

 

 

 

 

Equity

 

 

 

 

Hudson Pacific Properties, Inc. stockholders' equity:

 

 

 

 

Common stock, $0.01 par value, 490,000,000 authorized, 154,414,452 shares and 154,371,538 shares outstanding at September 30, 2019 and December 31, 2018, respectively

 

1,543

 

 

1,543

 

Additional paid-in capital

 

3,442,136

 

 

3,524,502

 

Accumulated other comprehensive (loss) income

 

(2,727

)

 

17,501

 

Total Hudson Pacific Properties, Inc. stockholders' equity

 

3,440,952

 

 

3,543,546

 

Non-controlling interest—members in consolidated entities

 

269,662

 

 

268,246

 

Non-controlling interest—units in the operating partnership

 

21,193

 

 

18,338

 

Total equity

 

3,731,807

 

 

3,830,130

 

TOTAL LIABILITIES AND EQUITY

 

$

7,428,294

 

 

$

7,070,879

 

 

 

 

 

 

Consolidated Statements of Operations

In thousands, except share data

 

 Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

REVENUES

 

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

 

Rental (1)

 

$

179,197

 

 

$

129,963

 

 

$

521,650

 

 

$

389,777

 

Tenant recoveries (1)

 

 

 

24,615

 

 

 

 

67,479

 

Service revenues and other (1)

 

6,818

 

 

6,868

 

 

19,270

 

 

19,272

 

Total office revenues

 

186,015

 

 

161,446

 

 

540,920

 

 

476,528

 

Studio

 

 

 

 

 

 

 

 

Rental (1)

 

11,086

 

 

11,731

 

 

38,001

 

 

32,822

 

Tenant recoveries (1)

 

 

 

299

 

 

 

 

1,153

 

Service revenues and other (1)

 

11,117

 

 

7,222

 

 

23,342

 

 

19,482

 

Total studio revenues

 

22,203

 

 

19,252

 

 

61,343

 

 

53,457

 

Total revenues

 

208,218

 

 

180,698

 

 

602,263

 

 

529,985

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Office operating expenses

 

66,969

 

 

57,295

 

 

188,680

 

 

164,475

 

Studio operating expenses

 

11,440

 

 

10,511

 

 

32,088

 

 

28,714

 

General and administrative

 

17,661

 

 

14,280

 

 

54,099

 

 

46,047

 

Depreciation and amortization

 

69,781

 

 

62,224

 

 

207,892

 

 

183,483

 

Total operating expenses

 

165,851

 

 

144,310

 

 

482,759

 

 

422,719

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Loss from unconsolidated joint venture

 

(260

)

 

 

 

(345

)

 

 

Interest expense

 

(26,590

)

 

(20,131

)

 

(77,492

)

 

(59,965

)

Interest income

 

1,002

 

 

418

 

 

3,034

 

 

493

 

Transaction-related expenses

 

(331

)

 

(165

)

 

(459

)

 

(283

)

Unrealized gain on non-real estate investment

 

 

 

 

 

 

 

928

 

Gain on sale of real estate

 

47,100

 

 

3,735

 

 

47,100

 

 

43,337

 

Impairment loss

 

 

 

 

 

(52,201

)

 

 

Other (loss) income

 

(333

)

 

25

 

 

(258

)

 

748

 

Total other income (expense)

 

20,588

 

 

(16,118

)

 

(80,621

)

 

(14,742

)

Net income

 

62,955

 

20,270

 

38,883

 

 

92,524

 

Net income attributable to preferred units

 

(153

)

 

(153

)

 

(459

)

 

(465

)

Net income attributable to participating securities

 

(274

)

 

(118

)

 

(138

)

 

(555

)

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

 

(3,660

)

 

(2,520

)

 

(9,798

)

 

(9,010

)

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

 

347

 

 

(49

)

 

1,505

 

 

(49

)

Net income attributable to non-controlling interest in the operating partnership

 

(460

)

 

(63

)

 

(225

)

 

(299

)

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

$

58,755

 

 

$

17,367

 

 

$

29,768

 

 

$

82,146

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED PER SHARE AMOUNTS

 

 

 

 

 

 

 

 

Net income attributable to common stockholders—basic

 

$

0.38

 

 

$

0.11

 

 

$

0.19

 

 

$

0.53

 

Net income attributable to common stockholders—diluted

 

$

0.38

 

 

$

0.11

 

 

$

0.19

 

 

$

0.52

 

Weighted average shares of common stock outstanding—basic

 

154,414,452

 

 

155,649,110

 

 

154,398,466

 

 

155,637,351

 

Weighted average shares of common stock outstanding—diluted

 

156,498,919

 

 

156,669,247

 

 

156,400,075

 

 

156,628,488

 

 

Funds From Operations

Unaudited, in thousands, except per share data

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

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

 

 

 

 

 

 

 

 

Net income

 

$

62,955

 

 

$

20,270

 

 

$

38,883

 

 

$

92,524

 

Adjustments:

 

 

 

 

 

 

 

 

Depreciation and amortization—Consolidated

 

69,781

 

 

62,224

 

 

207,892

 

 

183,483

 

Depreciation and amortization—Corporate-related

 

(543

)

 

(497

)

 

(1,596

)

 

(1,470

)

Depreciation and amortization—Company's share from unconsolidated real estate investment

 

1,751

 

 

 

 

2,314

 

 

 

Gains on sale of real estate

 

(47,100

)

 

(3,735

)

 

(47,100

)

 

(43,337

)

Impairment loss

 

 

 

 

 

52,201

 

 

 

Unrealized gain on non-real estate investment (2)

 

 

 

 

 

 

 

(928

)

FFO attributable to non-controlling interests

 

(7,463

)

 

(5,019

)

 

(21,032

)

 

(15,666

)

FFO attributable to preferred units

 

(153

)

 

(153

)

 

(459

)

 

(465

)

FFO to common stockholders and unitholders

 

79,228

 

 

73,090

 

 

231,103

 

 

214,141

 

Specified items impacting FFO:

 

 

 

 

 

 

 

 

Transaction-related expenses

 

331

 

 

165

 

 

459

 

 

283

 

One-time debt extinguishment cost

 

 

 

 

 

143

 

 

421

 

FFO (excluding specified items) to common stockholders and unitholders

 

$

79,559

 

 

$

73,255

 

 

$

231,705

 

 

$

214,845

 

 

 

 

 

 

 

 

 

 

Weighted average common stock/units outstanding—diluted

 

156,011

 

 

157,238

 

 

155,912

 

 

157,198

 

FFO per common stock/unit—diluted

 

$

0.51

 

 

$

0.46

 

 

$

1.48

 

 

$

1.36

 

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

 

$

0.51

 

 

$

0.47

 

 

$

1.49

 

 

$

1.37

 

 

Net Operating Income

Unaudited, in thousands

 

 

Three Months Ended September 30,

 

 

2019

 

2018

RECONCILIATION OF NET INCOME TO NET OPERATING INCOME (NOI) (1):

 

 

 

 

Net income

 

$

62,955

 

 

$

20,270

 

Adjustments:

 

 

 

 

Loss from unconsolidated real estate investments

 

260

 

 

 

Interest expense

 

26,590

 

 

20,131

 

Interest income

 

(1,002

)

 

(418

)

Transaction-related expenses

 

331

 

 

165

 

Other loss (income)

 

333

 

 

(25

)

Gains on sale of real estate

 

(47,100

)

 

(3,735

)

General and administrative

 

17,661

 

 

14,280

 

Depreciation and amortization

 

69,781

 

 

62,224

 

NOI

 

$

129,809

 

 

$

112,892

 

 

 

 

 

 

NET OPERATING INCOME BREAKDOWN

 

 

 

 

Same-store office cash revenues

 

127,211

 

 

117,335

 

Straight-line rent

 

6,033

 

 

4,680

 

Amortization of above-market and below-market leases, net

 

1,928

 

 

2,336

 

Amortization of lease incentive costs

 

(414

)

 

(338

)

Same-store office revenues

 

134,758

 

 

124,013

 

 

 

 

 

 

Same-store studios cash revenues

 

21,934

 

 

18,658

 

Straight-line rent

 

214

 

 

594

 

Amortization of lease incentive costs

 

(9

)

 

 

Same-store studio revenues

 

22,139

 

 

19,252

 

 

 

 

 

 

Same-store revenues

 

156,897

 

 

143,265

 

 

 

 

 

 

Same-store office cash expenses

 

43,629

 

 

39,563

 

Amortization of above-market and below-market ground leases, net

 

590

 

 

590

 

Same-store office expenses

 

44,325

 

 

40,259

 

 

 

 

 

 

Same-store studio cash expenses

 

11,396

 

 

10,511

 

Same-store studio expenses

 

11,396

 

 

10,511

 

 

 

 

 

 

Same-store expenses

 

55,721

 

 

50,770

 

 

 

 

 

 

Same-store net operating income

 

101,176

 

 

92,495

 

Non-same-store net operating income

 

28,633

 

 

20,397

 

NET OPERATING INCOME

 

$

129,809

 

 

$

112,892

 

 

 

 

 

 

SAME-STORE OFFICE NOI GROWTH

 

8.0

%

 

 

SAME-STORE OFFICE CASH NOI GROWTH

 

7.5

%

 

 

SAME-STORE STUDIO NOI GROWTH

 

22.9

%

 

 

SAME-STORE STUDIO CASH NOI GROWTH

 

29.3

%

 

 

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191030005261/en/

CONTACT: Laura Campbell

Senior Vice President, Investor Relations and Marketing

(310) 622-1702

lcampbell@hudsonppi.com

KEYWORD: UNITED STATES NORTH AMERICA CALIFORNIA

INDUSTRY KEYWORD: REIT OTHER CONSTRUCTION & PROPERTY COMMERCIAL BUILDING & REAL ESTATE CONSTRUCTION & PROPERTY URBAN PLANNING

SOURCE: Hudson Pacific Properties, Inc.

Copyright Business Wire 2019.

PUB: 10/30/2019 06:00 AM/DISC: 10/30/2019 06:01 AM

http://www.businesswire.com/news/home/20191030005261/en