UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________
FORM 8-K _________________________________
CURRENT REPORT Pursuant to Section 13 OR 15 (d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 6, 2013 _________________________________
Hudson Pacific Properties, Inc. (Exact name of registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation)
001-34789 (Commission File Number)
11601 Wilshire Blvd., Suite 1600 Los Angeles, California (Address of Principal Executive Offices)
27-1430478 (IRS Employer Identification No.)
90025 (Zip Code)
(310) 445-5700 Registrant's Telephone Number, Including Area Code Not Applicable (Former Name or Former Address, if Changed Since Last Report) _________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Section 2 — Financial Information Item 2.02Results of Operations and Financial Condition. On May 6, 2013 , Hudson Pacific Properties, Inc. (also referred to herein as the “Company,” “we,” “us,” or “our”) issued a press release regarding our financial results for our quarter ended March 31, 2013 . A copy of the press release is furnished herewith as Exhibit 99.1, which is incorporated herein by reference. Also on May 6, 2013 , we made available on our Web site (www.hudsonpacificproperties.com) certain supplemental information concerning our financial results and operations for the first quarter. A copy of the supplemental information is furnished herewith as Exhibit 99.2, which is incorporated herein by reference. Exhibits 99.1 and 99.2 are being furnished pursuant to Item 2.02 and shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act regardless of any general incorporation language in such filing. Section 7 — Regulation FD Item 7.01Regulation FD Disclosure. As discussed in Item 2.02 above, we issued a press release regarding our financial results for our quarter ended March 31, 2013 and made available on our Web site certain supplemental information relating to our financial results for the quarter ended March 31, 2013 . The information being furnished pursuant to Item 7.01 shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act regardless of any general incorporation language in such filing. Section 9 — Financial Statements and Exhibits Item 9.01Financial Statements and Exhibits.
(d)
Exhibits.
Exhibit No.
Description
99.1** 99.2**
**
Press release dated May 6, 2012 regarding the Company’s financial results for the quarter ended March 31, 2013. Supplemental Operating and Financial Data for the quarter ended March 31, 2013.
Furnished herewith.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HUDSON PACIFIC PROPERTIES, INC. Date:
May 6, 2013
By:
/s/ Mark T. Lammas Mark T. Lammas Chief Financial Officer
EXHBIT INDEX Exhibit Description
No.
99.1** 99.2**
**
Press release dated May 6, 2013 regarding the Company’s financial results for the quarter ended March 31, 2013. Supplemental Operating and Financial Data for the quarter ended March 31, 2013.
Furnished herewith.
Hudson Pacific Properties, Inc. Announces First Quarter 2013 Financial Results Los Angeles, CA, May 6, 2013 — Hudson Pacific Properties, Inc. (the “Company”) (NYSE: HPP) today announced financial results for the first quarter ended March 31, 2013 . Financial Results Funds From Operations (FFO) (excluding specified items) for the three months ended March 31, 2013 totaled $14.1 million , or $0.26 per diluted share, compared to FFO (excluding specified items) of $9.4 million , or $0.26 per share, a year ago. The specified items for the first quarter of 2013 consisted of an early lease termination payment from Bank of America relating to our 1455 Market Street property of $1.1 million (after the writeoff of non-cash items), or $0.02 per diluted share, and a property tax reimbursement stemming from the reassessment of the Sunset Gower media and entertainment property of $0.8 million , or $0.01 per diluted share, all as detailed below. Specified items for the first quarter of 2012 consisted of expenses associated with the acquisitions of operating properties of $0.1 million , or $0.00 per diluted share. FFO including the specified items totaled $16.0 million , or $0.29 per diluted share, for the three months ended March 31, 2013 , compared to $9.4 million , or $0.26 per share, a year ago. The Company reported a net loss attributable to common stockholders of $2.9 million , or $(0.06) per diluted share, for the three months ended March 31, 2013 , compared to net loss attributable to common shareholders of $2.6 million , or $(0.08) per diluted share, for the three months ended March 31, 2012 . “Our first quarter was highlighted by a very successful common stock offering and healthy leasing activity,” said Mr. Victor J. Coleman, Chairman and Chief Executive Officer of Hudson Pacific Properties, Inc. “During the quarter, we completed a public offering of 9.2 million shares of common stock, generating approximately $189.9 million of proceeds to support our growth objectives in 2013. Leasing activity during the quarter resulted in the execution of 212,178 square feet of new and renewal leases in the first quarter, including an expansion option exercised by Square, Inc. for an additional 81,354 square feet of space at 1455 Market Street, a 45,496 square-foot lease with Nordstrom, Inc. at 901 Market Street, and a 38,391 square foot lease with CashCall, Inc. at City Plaza to entirely backfill space leased to Kondaur Capital scheduled to expire in May of this year. This activity helped drive our stabilized office portfolio leased rate up to 94.5% as the end of the first quarter.” First Quarter Highlights •
• • • • •
FFO (excluding specified items) of $14.1 million , or $0.26 per diluted share, compared to $9.4 million , or $0.26 per share, a year ago; Completed new and renewal leases totaling 212,178 square feet; Stabilized office portfolio leased rate of 94.5% at March 31, 2013 ; Completed the public offering of 9,200,000 shares of common stock (including the full exercise of the underwriters’ option to purchase additional shares) generating total proceeds of $189.9 million (before transaction costs); Declared and paid quarterly dividend of $0.125 per common share; and Declared and paid dividend of $0.52344 per share on 8.375% Series B Cumulative Preferred Stock.
Combined Operating Results For The Three Months Ended March 31, 2013 Total revenue during the quarter increased 29.2% to $49.4 million from $38.2 million for the same quarter a year ago. Total operating expenses increased 33.0% to $43.6 million from $32.8 million for the same quarter a year ago. As a result, income from operations increased 6.3% to $5.8 million for the first quarter of 2013 , compared to income from operations of $5.5 million for the same quarter a year ago. The primary reasons for the increases in total revenue and total operating expenses are discussed below in connection with our segment operating results. Interest expense during the first quarter increased 14.3% to $5.6 million , compared to interest expense of $4.9 million for the same quarter a year ago. At March 31, 2013 , the Company had $530.0 million of notes payable, compared to $582.1 million as of December 31, 2012 and $361.1 million at March 31, 2012.
Segment Operating Results For The Three Months Ended March 31, 2013 Office Properties Total revenue at the Company’s office properties increased 28.8% to $38.5 million from $29.9 million for the same quarter a year ago. The increase was primarily the result of a $6.3 million increase in rental revenue to $28.6 million , a $1.8 million increase in parking and other revenue to $3.9 million , and a $0.5 million increase in tenant recoveries to $5.9 million , largely resulting from the acquisition of office properties during the second, third and fourth quarters of 2012. The parking and other revenue increase also reflects the impact of an early lease termination payment received during the quarter from Bank of America at the Company’s 1455 Market Street property of approximately $1.1 million , or $0.02 per diluted share, including the write-off of the straight-line rent receivable and below market lease liability associated with this early termination. Office property operating expenses increased 24.3% to $14.1 million from $11.4 million for the same quarter a year ago. The increase was primarily the result of office properties acquired during the second, third and fourth quarters of 2012. At March 31, 2013 , the Company’s stabilized office portfolio was 94.5% leased. During the quarter, the Company executed 16 new and renewal leases totaling 212,178 square feet. Media and Entertainment Properties Total revenue at the Company’s media and entertainment properties increased 30.5% to $10.9 million from $8.4 million for the same quarter a year ago. The increase was primarily the result of a $1.9 million increase in other property-related revenue to $4.5 million , a $0.3 million increase in rental revenue to $5.8 million , and a $0.2 million increase in other revenue to $0.2 million resulting from higher occupancy and stronger production activity. Total media and entertainment operating expenses increased 16.7% to $5.6 million from $4.8 million for the same quarter a year ago, primarily resulting from higher production activity and occupancy compared to the same quarter a year ago. The increase in operating expenses was partially offset by $0.8 million of property tax reimbursement stemming from the reassessment of the Company’s Sunset Gower media and entertainment property resulting from the Company’s initial public offering and attributable to prior-year property taxes. As a result of this reassessment, the Company expects an on-going property tax savings of approximately $0.3 million per annum compared to property taxes incurred in 2012. As of March 31, 2013 , the trailing 12-month occupancy for the Company’s media and entertainment portfolio increased to 74.1% from 69.2% for the trailing 12-month period ended March 31, 2012 . Balance Sheet At March 31, 2013 , the Company had total assets of $1.7 billion , including unrestricted cash and cash equivalents of $141.6 million . At March 31, 2013 , the Company had total capacity of approximately $203.8 million on its unsecured credit facility, of which nothing had been drawn. Offerings On February 12, 2013, the Company completed the public offering of 8,000,000 shares of common stock and the exercise of the underwriters’ option to purchase an additional 1,200,000 shares of our common stock at the public offering price of $21.50 per share. Total proceeds from the public offering, after underwriters’ discount, were approximately $189.9 million (before transaction costs). The Company contributed the net proceeds to its operating partnership, which then used $60.0 million of the net proceeds to fully repay the outstanding balance under its unsecured revolving credit facility. The operating partnership intends to use the remaining proceeds to fund development or redevelopment activities, fund potential acquisition opportunities, and for general corporate purposes.
Leasing Activities On February 20, 2013, the Company announced that a current tenant, Square Inc., exercised its option to lease an additional 81,354 square feet of space at the Company’s 1455 Market Street property in San Francisco. In connection with exercise of its option, Square Inc. also increased the square footage under its lease by an additional 5,060 square feet. In November 2012, Square Inc. signed a lease encompassing 246,078 square feet of initial occupancy at 1455 Market Street, with the 81,354 square-foot expansion option. The exercise of this option and expansion brings Square Inc.’s lease at 1455 Market to a total of 332,492 square feet of occupancy. 181,805 square feet commenced in March, 2013, 20,801 square feet commenced in April, 2013, and the remaining 129,886 square feet is scheduled for commencement in early 2014. On March 29, 2013, the Company signed a 45,496 square-foot lease with Nordstrom, Inc. for a term of 10 years at its 901 Market Street property in San Francisco, encompassing a portion of the ground floor and entire second floor. This lease is scheduled to commence with the opening of the store for business in the first quarter of 2014. On March 18, 2013, the Company signed an expansion lease at its City Plaza property with CashCall Inc. for an additional 38,391 square feet scheduled to commence in June 2013. This expansion brings CashCall’s total leased square footage at City Plaza to a total of 163,329 square feet and entirely backfills space leased to Kondaur Capital scheduled to expire in May of this year. Dividend The Company’s Board of Directors declared a dividend on its common stock of $0.125 per share and on its 8.375% Series B Cumulative Preferred Stock of $0.52344 per share for the first quarter of 2013. Both dividends were paid on April 1, 2013 to stockholders of record on March 20, 2013. 2013 Outlook The Company is reaffirming full-year 2012 FFO guidance in the range of $0.90 to $0.94 per diluted share (excluding specified items). This guidance reflects the February 2013 common stock offering and leasing activity referenced in this release and all previously announced acquisitions, including the anticipated contribution of the Pinnacle II building (but excludes acquisition-related expenses associated with that acquisition). This guidance also reflects the Company’s FFO for the first quarter ended March 31, 2013 of $0.26 per diluted share (excluding specified items). Importantly, our guidance reflects the anticipated expiration of our lease for the production of the Showtime series, Dexter, and management's current expectations regarding a corresponding temporary decrease in net income from operations in our media and entertainment segment on account of that expiration. As is always the case, the Company’s guidance does not reflect or attempt to anticipate any impact to FFO from speculative acquisitions. The full-year 2013 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 release, but otherwise exclude any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital market activity, or similar matters. Supplemental Information Supplemental financial information regarding the Company’s first quarter 2013 results may be found in the Investor Relations section of the Company’s Web site at www.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 conduct a conference call to discuss the results at 1:30 p.m. PT / 4:30 p.m. ET. To participate in the event by telephone, please dial (877) 407-0784 five to 10 minutes prior to the start time (to allow time for registration) and use conference ID 412348. International callers should dial (201) 689-8560 and enter the same conference ID number. The call will also be broadcast live over the Internet and can be accessed on the Investor Relations section of the Company’s Web site at www.hudsonpacificproperties.com . A replay of the call will also be available for 90 days on the Company’s Web site. For those unable to participate during the live broadcast, a replay will be available beginning May 6, at 4:30 p.m. PT / 7:30 p.m. ET, through May 13, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (877) 870-5176 and use passcode 412348. International callers should dial (858) 384-5517 and enter the same conference ID number. 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 our 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 our 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. About Hudson Pacific Properties Hudson Pacific Properties, Inc. is a full-service, vertically integrated real estate company focused on owning, operating and acquiring high-quality office properties and state-of-the-art media and entertainment properties in select growth markets primarily in Northern and Southern California. The Company’s strategic investment program targets high barrier-to-entry, in-fill locations with favorable, long-term supply-demand characteristics in select target markets, including Los Angeles, Orange County, San Diego and San Francisco. The Company’s portfolio currently consists of approximately 5.5 million square feet, not including undeveloped land that the Company believes can support an additional 2.0 million square feet. The Company has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. Hudson Pacific Properties is a component of the Russell 2000® and the Russell 3000® indices. For additional information, please visit www.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. Forwardlooking 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, 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, 2012 filed with the Securities and Exchange Commission on March 14, 2013, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Investor Contact: Hudson Pacific Properties, Inc. Mark Lammas Chief Financial Officer (310) 445-5700 or
Investor / Media Contact: Addo Communications, Inc. Lasse Glassen (310) 829-5400
[email protected]
(FINANCIAL TABLES FOLLOW)
Hudson Pacific Properties, Inc. Consolidated Balance Sheets (In thousands, except share data) ASSETS
March 31, 2013
December 31, 2012
(Unaudited)
Audited
REAL ESTATE ASSETS Land
$
Building and improvements
493,211
$
493,211
869,409
867,268
Tenant improvements
80,272
79,966
Furniture and fixtures
14,354
11,548
Property under development
30,015
23,962
1,487,261
1,475,955
Total real estate held for investment
(90,782)
Accumulated depreciation and amortization Investment in real estate, net Cash and cash equivalents
(85,184)
1,396,479
1,390,771
141,562
18,904
Restricted cash
14,321
14,322
Accounts receivable, net
13,925
12,442
Notes receivable
4,000
4,000
Straight-line rent receivables
15,612
14,165
Deferred leasing costs and lease intangibles, net
81,729
83,498
7,553
8,175
Deferred finance costs, net Interest rate contracts Goodwill
71
8,754
8,754
3,330
Prepaid expenses and other assets TOTAL ASSETS
64
4,588
$
1,687,329
$
1,559,690
$
530,023
$
582,085
LIABILITIES AND EQUITY Notes payable Accounts payable and accrued liabilities
21,696
18,833
Below-market leases
29,351
31,560
Security deposits
6,262
5,997
Prepaid rent
9,216
11,518
596,548
649,993
12,475
12,475
145,000
145,000
TOTAL LIABILITIES
6.25% series A cumulative redeemable preferred units of the Operating Partnership
EQUITY Hudson Pacific Properties, Inc. stockholders’ equity: Preferred stock, $0.01 par value, 10,000,000 authorized; 8.375% series B cumulative redeemable preferred stock, $25.00 liquidation preference, 5,800,000 shares outstanding at March 31, 2013 and December 31, 2012, respectively Common Stock, $0.01 par value, 490,000,000 authorized, 56,698,156 shares and 47,496,732 shares outstanding at March 31, 2013 and December 31, 2012, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total Hudson Pacific Properties, Inc. stockholders’ equity
567
475
910,792
726,605
(1,271)
(1,287)
(33,373)
(30,580)
1,021,715
840,213
Non-controlling interest—members in Consolidated Entities
1,470
1,460
Non-controlling common units in the Operating Partnership
55,121
55,549
1,078,306
TOTAL EQUITY TOTAL LIABILITIES AND EQUITY
$
1,687,329
897,222 $
1,559,690
Hudson Pacific Properties, Inc. Combined Statements of Operations (Unaudited, in thousands, except share and per share data)
Three Months Ended March 31, 2013
2012
Revenues Office Rental
$
28,648
$
22,380 5,374
Tenant recoveries
5,882
Parking and other
3,938
2,114
38,468
29,868
5,768
5,451
418
248
4,490
2,624
Total office revenues
Media & entertainment Rental Tenant recoveries Other property-related revenue Other Total media & entertainment revenues
Total revenues
236
40
10,912
8,363
49,380
38,231
Operating expenses Office operating expenses
14,114
11,356
Media & entertainment operating expenses
5,568
4,770
General and administrative
4,989
4,514
Depreciation and amortization
18,905
12,132
Total operating expenses
43,576
32,772
5,804
5,459
5,592
4,891
Income from operations
Other expense (income) Interest expense Interest income Acquisition-related expenses Other expenses
Net income
$
Net income attributable to preferred stock and units
(150)
(5)
—
61
45
44
5,487
4,991
317
$
468
(3,231)
(3,231)
Net income attributable to restricted shares
(79)
(78)
Net income attributable to non-controlling interest in Consolidated Entities
(10)
—
Net loss attributable to common units in the Operating Partnership
131
203
Net loss attributable to Hudson Pacific Properties, Inc. common stockholders
$
(2,872)
$
Net loss attributable to common stockholders’ per share—basic and diluted
$
(0.06)
$
52,184,280
Weighted average shares of common stock outstanding—basic and diluted Dividends declared per share of common stock
$
0.125
(2,638) (0.08) 33,320,450
$
0.125
Hudson Pacific Properties, Inc. Funds From Operations (Unaudited, in thousands, except per share data)
Three Months Ended March 31, 2013
2012
Reconciliation of net loss to Funds From Operations (FFO): Net (loss) income
$
317
$
468
Adjustments: Depreciation and amortization of real estate assets
18,905
Less: Net loss (income) attributable to non-controlling interest in Consolidated Entities
—
(3,231)
Less: Net income attributable to preferred stock and units FFO to common shareholders and unit holders
12,132
(35) $
15,956
(3,231) $
9,369
Specified items impacting FFO: Acquisition-related expenses Property tax savings
61 —
(1,082)
Lease termination revenue FFO (excluding specified items) to common shareholders and unit holders
— (797) $
Weighted average common stock/units outstanding—diluted
14,077
— $
55,196
9,430 36,454
FFO per common stock/unit—diluted
$
0.29
$
0.26
FFO (excluding specified items) per common stock/unit—diluted
$
0.26
$
0.26
HUDSON PACIFIC PROPERTIES, INC. FIRST QUARTER 2013 Supplemental Operating and Financial Data This Supplemental Operating and Financial Data contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. You should not rely on forward-looking statements as predictions of future events. Forward-looking statements involve numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statement made by us. These risks and uncertainties include, but are not limited to: adverse economic and real estate developments in Southern and Northern California; decreased rental rates or increased tenant incentives and vacancy rates; defaults on, early terminations of, or non-renewal of leases by tenants; increased interest rates and operating costs; failure to generate sufficient cash flows to service our outstanding indebtedness; difficulties in identifying properties to acquire and completing acquisitions; failure to successfully integrate pending and recent acquisitions; failure to successfully operate acquired properties and operations; failure to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended; possible adverse changes in laws and regulations; environmental uncertainties; risks related to natural disasters; lack or insufficient amount of insurance; inability to successfully expand into new markets or submarkets; risks associated with property development; conflicts of interest with our officers; changes in real estate and zoning laws and increases in real property tax rates; the consequences of any possible future terrorist attacks; and other risks and uncertainties detailed in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on March 14, 2013. You are cautioned that the information contained herein speaks only as of the date hereof and Hudson Pacific Properties, Inc. assumes no obligation to update any forward-looking information, whether as a result of new information, future events or otherwise. For a discussion of important risks related to Hudson Pacific Properties, Inc.'s business, and an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information, see the discussion under the caption “Risk Factors” in Hudson Pacific Properties, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on March 14, 2013.
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data TABLE OF CONTENTS
PAGE 3 -4
COMPANY BACKGROUND AND CORPORATE DATA CONSOLIDATED FINANCIAL RESULTS Consolidated Balance Sheets Consolidated Statements of Operations Funds from Operations and Adjusted Funds from Operations Debt Summary
6 7 8 9
PORTFOLIO DATA Same-Store Analysis Reconciliation to net income Stabilized Office Portfolio Summary, Occupancy and In-place Rents Development, Redevelpment, and Lease-up Properties and Land Properties Media & Entertainment Portfolio Summary, Occupancy, and In-place Rents Ten Largest Office Tenants Office Portfolio Leasing Activity Office Lease Expirations — Annual Quarterly Office Lease Expirations — Next Four Quarters Office Portfolio Diversification
11 12 13 14 15 16 17 18 19 20
DEFINITIONS
21
2
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data COMPANY BACKGROUND CORPORATE 11601 Wilshire Boulevard, Suite 1600, Los Angeles, California 90025 (310) 445-5700 BOARD OF DIRECTORS
Victor J. Coleman Chairman of the Board and Chief Executive Officer, Hudson Pacific Properties, Inc.
Theodore R. Antenucci President and Chief Executive Officer, Catellus Development Corporation
Jonathan M. Glaser Managing Member, JMG Capital Management LLC
Richard B. Fried Managing Member, Farallon Capital Management, L.L.C.
Mark D. Linehan President and Chief Executive Officer, Wynmark Company
Robert M. Moran, Jr. Co-founder and Co-owner, FJM Investments LLC
Barry A. Porter Managing General Partner, Clarity Partners L.P.
Howard S. Stern President, Hudson Pacific Properties, Inc.
Patrick Whitesell Co-Chief Executive, WME Entertainment
EXECUTIVE AND SENIOR MANAGEMENT
Victor J. Coleman Chief Executive Officer
Howard S. Stern President
Mark T. Lammas Chief Financial Officer
Christopher Barton EVP, Operations and Development
Dale Shimoda EVP, Finance
Kay Tidwell EVP, General Counsel and Secretary
Alexander Vouvalides SVP, Acquisitions
Drew Gordon SVP, Northern California
Harout Diramerian Chief Accounting Officer
Arthur X. Suazo Director of Leasing
Elva Hernandez VP, Controller INVESTOR RELATIONS Addo Communications (310) 829-5400 Email Contact:
[email protected] Please visit our corporate Web site at: www.hudsonpacificproperties.com
3
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data CORPORATE DATA (unaudited, $ in thousands, except per share data) Hudson Pacific Properties, Inc. (NYSE: HPP) (also referred to herein as the “Company,” “we,” “us,” or “our”) is a full-service, vertically integrated real estate company focused on owning, operating and acquiring high-quality office properties in select growth markets primarily in Northern and Southern California. Our investment strategy is focused on high barrier-to-entry, in-fill locations with favorable, long-term supply demand characteristics. These markets include Los Angeles, Orange County, San Diego, San Francisco, Silicon Valley and the East Bay, which we refer to as our target markets. This Supplemental Operating and Financial Data supplements the information provided in our reports filed with the Securities and Exchange Commission. We maintain a Web site at www.hudsonpacificproperties.com . Number of office properties owned Office properties square feet (in thousands) Stabilized office properties leased rate as of March 31, 2013 (1) Stabilized office properties occupied rate as of March 31, 2013 (1)(2)
19 4,454 94.5% 92.2%
Number of media & entertainment properties owned Media & entertainment square feet (in thousands) Media & entertainment occupied rate as of March 31, 2013 (3)
2 884 74.1%
Number of land assets owned Land assets square feet (in thousands) (4)
5 1,947
Market capitalization (in thousands): Total debt (5) Series A Preferred Units Series B Preferred Stock Common equity capitalization (6) Total market capitalization Debt/total market capitalization Series A preferred units & debt/total market capitalization Common stock data (NYSE:HPP): Range of closing prices (7) Closing price at quarter end Weighted average fully diluted common stock\units outstanding (in thousands) (8) Shares of common stock\units outstanding on March 31, 2013 (in thousands) (9)
$
529,013 12,475 145,000 1,285,006
$
1,971,494 26.8% 27.5%
$
$ 20.54-23.12 21.75 55,196 59,081
__________________________ (1) (2) (3) (4) (5) (6) (7) (8) (9)
Stabilized office properties leased rate and occupied rate excludes the development, redevelopment, and lease-up properties described on page 14. Represents percent leased less signed leases not yet commenced. Percent occupied for media and entertainment properties is the average percent occupied for the 12 months ended March 31, 2013 . Square footage for land assets represents management's estimate of developable square feet, the majority of which remains subject to receipt of entitlement approvals that have not yet been obtained. Total debt excludes non-cash loan premium/discount. Common equity capitalization represents the shares of common stock (including unvested restricted shares) and OP units outstanding multiplied by the closing price of our stock at the end of the period. For the quarter ended March 31, 2013 . For the quarter ended March 31, 2013 . Diluted shares represent ownership in our Company through shares of common stock, OP Units and other convertible instruments. Diluted shares do not include shares issuable upon exchange of our series A preferred units, which do not become exchangeable until June 29, 2013. This amount represents fully diluted common stock and OP units (including unvested restricted stocks) at March 31, 2013 , and does not include shares issuable upon exchange of our series A preferred units, which do not become exchangeable until June 29, 2013.
4
CONSOLIDATED FINANCIAL RESULTS
5
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data Consolidated Balance Sheets (Unaudited, in thousands, except share data) March 31, 2013
December 31, 2012
ASSETS
$
Total investment in real estate, net Cash and cash equivalents Restricted cash Accounts receivable, net Notes receivable Straight-line rent receivables Deferred leasing costs and lease intangibles, net Deferred finance costs, net Interest rate contracts Goodwill Prepaid expenses and other assets
$
TOTAL ASSETS
1,396,479 141,562 14,321 13,925 4,000 15,612 81,729 7,553 64 8,754 3,330 1,687,329
$
530,023 21,696 29,351 6,262 9,216 596,548
$
$
1,390,771 18,904 14,322 12,442 4,000 14,165 83,498 8,175 71 8,754 4,588 1,559,690
LIABILITIES AND EQUITY
$
Notes payable Accounts payable and accrued liabilities Below-market leases Security deposits Prepaid rent TOTAL LIABILITIES 6.25% series A cumulative redeemable preferred units of the Operating Partnership
582,085 18,833 31,560 5,997 11,518 649,993
12,475
12,475
145,000
145,000
567 910,792 (1,271) (33,373) 1,021,715 1,470 55,121 1,078,306 1,687,329
475 726,605 (1,287) (30,580) 840,213 1,460 55,549 897,222 1,559,690
EQUITY Hudson Pacific Properties, Inc. stockholders’ equity: Preferred stock, $0.01 par value, 10,000,000 authorized; 8.375% series B cumulative redeemable preferred stock, $25.00 liquidation preference, 5,800,000 shares outstanding at March 31, 2013 and December 31, 2012, respectively Common Stock, $0.01 par value, 490,000,000 authorized, 56,698,156 shares and 47,496,732 shares outstanding at March 31, 2013 and December 31, 2012, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total Hudson Pacific Properties, Inc. stockholders’ equity Non-controlling interest—members in Consolidated Entities Non-controlling common units in the Operating Partnership TOTAL EQUITY
$
TOTAL LIABILITIES AND EQUITY
6
$
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data Consolidated Statements of Operations (Unaudited, in thousands, except share and per share data)
Three Months Ended March 31, 2012 2013 Revenues Office Rental
$
28,648
$
22,380
Tenant recoveries
5,882
Parking and other
3,938
2,114
38,468
29,868
5,768
5,451
Total office revenues
5,374
Media & entertainment Rental Tenant recoveries Other property-related revenue Other Total media & entertainment revenues Total revenues
418
248
4,490
2,624
236
40
10,912
8,363
49,380
38,231
Operating expenses Office operating expenses
14,114
11,356
Media & entertainment operating expenses
5,568
4,770
General and administrative
4,989
4,514
Depreciation and amortization
18,905
12,132
Total operating expenses
43,576
32,772
5,804
5,459
5,592
4,891
Income from operations Other expense (income) Interest expense Interest income Acquisition-related expenses Other expenses
Net income
$
Net income attributable to preferred stock and units Net income attributable to restricted shares
(150)
(5)
—
61
45
44
5,487
4,991
317
$
468
(3,231)
(3,231)
(79)
(78)
Net income attributable to non-controlling interest in Consolidated Entities
(10)
—
Net loss attributable to common units in the Operating Partnership
131
203
Net loss attributable to Hudson Pacific Properties, Inc. common stockholders
$
(2,872)
$
(2,638)
Net loss attributable to common stockholders’ per share—basic and diluted
$
(0.06)
$
(0.08)
Weighted average shares of common stock outstanding—basic and diluted
52,184,280
Dividends declared per share of common stock
$
7
0.125
33,320,450 $
0.125
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended March 31, 2013 Funds From Operations (FFO)
2012
(1)
Net (loss) income
$
317
$
468
Adjustments: Depreciation and amortization of real estate assets
18,905
Less: Net loss (income) attributable to non-controlling interest in Consolidated Entities
12,132
(35)
—
(3,231)
Less: Net income attributable to preferred stock and units FFO to common shareholders and unit holders
$
15,956
(3,231) $
9,369
Specified items impacting FFO: Acquisition-related expenses Property tax savings Termination fee revenue FFO (excluding specified items) to common shareholders and unit holders
$
Weighted average common stock/units outstanding - diluted
—
61
(797)
—
(1,082)
—
14,077
$
55,196
9,430 36,454
FFO per common stock/unit—diluted
$
0.29
$
0.26
FFO (excluding specified items) per common stock/unit—diluted
$
0.26
$
0.26
$
15,956
$
9,369
Adjusted Funds From Operations (AFFO) (1) FFO Adjustments: Straight-line rent
(1,448)
Amortization of prepaid rent (2)
(1,563)
327
Amortization of above market and below market leases, net
314
(1,519)
(370)
Amortization of below market ground lease
62
Amortization of lease buy-out costs
22
23
297
304
Amortization of deferred financing costs and loan premium/discount, net Recurring capital expenditures, tenant improvements and lease commissions
62
(15,473)
(2,004)
1,726
Non-cash compensation expense AFFO
$
Dividends paid to common stock and unit holders
$
AFFO payout ratio
(50) 7,385 (14,770.0)%
1,229 $
7,364
$
4,559 61.9%
______________________________ (1) (2)
See page 18 for Management's Statements on Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO). Represents the difference between rental revenue recognize in accordance with accounting principles generally accepted in the United States (GAAP) based on the amortization of the prepaid rent liability relating to the KTLA lease at our Sunset Bronson property compared to scheduled cash rents received in connection with such prepayment.
8
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data DEBT SUMMARY (In thousands)
The following table sets forth information with respect to our outstanding indebtedness as of March 31, 2013 .
Debt Unsecured Revolving Credit Facility Mortgage loan secured by 625 Second Street (2) Mortgage loan secured by 6922 Hollywood Boulevard (3) Mortgage loan secured by 275 Brannan (4) Mortgage loan secured by Sunset Gower/Sunset Bronson (5) Mortgage loan secured by 901 Market (6) Mortgage loan secured by Rincon Center (7) Mortgage loan secured by First Financial (8) Mortgage loan secured by 10950 Washington (9) Mortgage loan secured by Pinnacle I Subtotal Unamortized loan premium, net (10) Total
Interest Rate (1) LIBOR+1.55% to 2.20% 5.850% 5.580% LIBOR+2.00% LIBOR+3.50% LIBOR+2.25% 5.134% 4.580% 5.316% 3.954%
Outstanding $ — 33,700 41,081 3,830 92,000 49,600 107,197 43,000 29,605 129,000 $ 529,013 1,010 $ 530,023
Annual Debt Service (1)
$
—
1,999 3,230 — — — 7,195 2,002 2,639 5,172
Balance at Maturity Date Maturity 8/3/2016 $ — 2/1/2014 33,700 1/1/2015 39,426 10/5/2015 3,830 2/11/2016 89,681 10/31/2016 49,600 5/1/2018 97,673 2/1/2022 36,799 3/11/2022 24,632 11/7/2022 117,190
______________________________ (1) (2) (3) (4) (5)
Interest rate with respect to indebtedness is calculated on the basis of a 360-day year for the actual days elapsed, excluding the amortization of loan fees and costs. This loan was assumed on September 1, 2011 in connection with the closing of our acquisition of the 625 Second Street property. This loan was assumed on November 22, 2011 in connection with the closing of our acquisition of the 6922 Hollywood Boulevard property. On October 5, 2012, we obtained a loan for our 275 Brannan property pursuant to which we have the ability to draw up to $15,000 for budgeted base building, tenant improvements, and other costs associated with the renovation and lease-up of that property. On March 16, 2011, we purchased an interest rate cap in order to cap one-month LIBOR at 3.715% with respect to $50.0 million of the loan through its maturity on February 11, 2016. On January 11, 2012 we purchased an interest rate cap in order to cap one-month LIBOR at 2.00% with respect to $42.0 million of the loan through its maturity on February 11, 2016. Beginning with the
payment due February 1, 2014, monthly debt service will include principal payments based on a 30-year amortization schedule, for total annual debt amortization of $1,113. . On October 29, 2012, we obtained a loan for our 901 Market property pursuant to which we borrowed $49,600 upon closing, with the ability to draw up to an additional $11,900 for budgeted base building, tenant improvements, and other costs associated with the renovation and lease-up of that property. (7) On April 29, 2011, we closed a seven-year term loan totaling $110.0 million with JPMorgan Chase Bank, National Association, secured by our Rincon Center property. The loan bears interest at a fixed annual rate of 5.134%. (8) The loan bears interest only for the first two years. Beginning with the payment due March 1, 2014, monthly debt service will include principal payments based on a 30-year amortization schedule, for total annual debt service of $2,639 . (9) On February 11, 2012, we closed a 10-year term loan totaling $30.0 million with Cantor Commercial Real Estate Lending, L.P., secured by our 10950 Washington property. The loan bears interest at a fixed annual rate of 5.316% and will mature on March 11, 2022. (10) Represents unamortized amount of the non-cash mark-to-market adjustment on debt associated with 625 Second Street and 6922 Hollywood Boulevard. (6)
9
PORTFOLIO DATA
10
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data SAME-STORE ANALYSIS (1) (unaudited, $ in thousands) Same-Store Analysis Three Months Ended March 31, 2013
2012
% change
Same-store office statistics Number of properties Rentable square feet
14
14
3,531,469
3,531,469
Ending % leased
94.8%
92.5%
Ending % occupied
92.2%
90.5%
2.5 % 1.9 %
Quarterly average % occupied
88.5%
90.3%
(2.0)%
Same-store media statistics Number of properties Rentable square feet
2
2
857,435
857,435
TTM average % occupied
74.0%
69.2%
6.9 %
Quarterly average % occupied
71.2%
69.5%
2.4 %
Same-store net operating income — GAAP basis (2)
Total office revenues
29,948
29,650
1.0 %
Total media revenues
10,630
8,211
29.5 %
40,578
37,861
7.2 %
Total revenues
Total office expense
11,421
Total media expense
6,165
11,366
0.5 %
4,769
29.3 %
17,586
16,135
9.0 %
Same-store office net operating income - GAAP basis
18,527
18,284
1.3 %
Same-store media net operating income- GAAP basis
4,465
3,442
29.7 %
22,992
21,726
5.8 %
Total property expense
Same-store total property net operating income — GAAP basis
(3)
Same-store net operating income — Cash basis (2)
Total office revenues
28,360
27,871
1.8 %
Total media revenues
10,628
8,206
29.5 %
38,988
36,077
8.1 %
Total revenues
Total office expense
11,359
Total media expense
6,165
11,304
0.5 %
4,769
29.3 %
17,524
16,073
9.0 %
Same-store office net operating income - Cash basis
17,001
16,567
2.6 %
Same-store media net operating income - Cash basis
4,463
3,437
29.9 %
21,464
20,004
7.3 %
Total property expense
Same-store total property net operating income — Cash basis
(3)
______________________________ (1) (2) (3)
Same store defined as all of the properties owned and included in our stabilized portfolio as of January 1, 2012 and still owned and included in the stabilized portfolio as of March 31, 2013 . Amount excludes $1,082 early lease termination fee income disclosed in the Q1-2013 earnings release. Amount excludes $797 property tax savings disclosed in the Q1-2013 earnings release.
11
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data RECONCILIATION OF SAME-STORE PROPERTY NET OPERATING INCOME TO GAAP NET INCOME (LOSS) (unaudited, $ in thousands) Three Months Ended March 31, 2013
2012
Reconciliation to net income Same-store office revenues — Cash basis
28,360
27,871
GAAP adjustments to office revenues — Cash basis
1,589
1,779
Early lease termination fee adjustment to office revenues
1,081
—
Same-store office revenues — GAAP basis
31,030
29,650
Same-store media revenues — Cash basis
10,628
8,206
2
5
Same-store media revenues — GAAP basis
10,630
8,211
Same-store property revenues — GAAP basis
41,660
37,861
Same-store office expenses — Cash basis
11,359
11,304
GAAP adjustments to media revenues — Cash basis
62
62
Same-store office expenses — GAAP basis
11,421
11,366
Same-store media expenses — Cash basis
6,165
4,769
GAAP adjustments to office expenses — Cash basis
(797)
Property tax savings adjustment to media expenses Same-store media expenses — GAAP basis
—
5,368
4,769
Same-store property expenses — GAAP basis
16,789
16,135
Same-store net operating income — GAAP basis
24,871
21,726
4,827
380
Non-Same Store GAAP net operating income General and administrative Depreciation and amortization Income from operations Interest expense Interest income Acquisition-related expenses
(4,989)
(4,514)
(18,905)
(12,132)
5,804
5,460
(5,592)
(4,891)
150
5
—
(61)
Other expenses (income)
(45)
(45)
Net income
317
468
12
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data STABILIZED OFFICE PORTFOLIO SUMMARY, OCCUPANCY, AND IN-PLACE RENTS (1)
County
Square Feet (2)
Percent of Total
Percent Occupied (3)
Annualized Base Rent (4)
Percent Leased (3)
Annualized Base Rent Per Square Foot (4)
Monthly Rent Per Square Foot
San Francisco Rincon Center
580,850
14.8%
79.2%
85.4%
1455 Market Street
1,012,012
25.7%
93.3%
97.2%
18,175,259
19.25
1.60
875 Howard Street
286,270
7.3%
99.4%
101.4%
6,879,995
24.19
2.02
222 Kearny Street
148,797
3.8%
93.8%
93.8%
4,992,156
35.78
2.98
625 Second Street
136,906
3.5%
95.0%
95.0%
5,213,949
40.09
2,164,835
55.0%
90.5%
94.2%
$
52,544,626
$
26.83
$
2.24
First Financial
222,423
5.7%
99.9%
99.9%
$
7,521,531
$
33.84
$
2.82
Technicolor Building
114,958
2.9%
100.0%
100.0%
4,395,488
38.24
3.19
Del Amo Office Building
113,000
2.9%
100.0%
100.0%
3,069,070
27.16
2.26
61,224
1.6%
84.2%
84.2%
2,098,373
40.71
3.39
159,024
4.0%
100.0%
100.0%
4,826,932
30.35
2.53
44,260
1.1%
100.0%
100.0%
1,779,252
40.20
3.35
205,523
5.2%
92.2%
92.2%
7,851,541
41.44
3.45 2.78
Subtotal
$
17,283,267
$
37.58
$
3.13
3.34
Los Angeles
9300 Wilshire 10950 Washington 604 Arizona 6922 Hollywood 10900 Washington Pinnacle I Subtotal
9,919
0.3%
100.0%
100.0%
331,017
33.37
393,777
10.0%
91.7%
91.7%
14,916,290
41.29
1,324,108
33.6%
95.6%
95.6%
$
46,789,494
$
36.97
$
3.08
333,922
8.5%
93.8%
93.8%
$
7,485,632
$
23.91
$
1.99
333,922
8.5%
93.8%
93.8%
$
7,485,632
$
23.91
$
1.99
3.44
Orange City Plaza Subtotal San Diego 112,300
2.9%
81.1%
89.1%
$
1,353,740
$
14.86
$
1.24
Subtotal
Tierrasanta
112,300
2.9%
81.1%
89.1%
$
1,353,740
$
14.86
$
1.24
TOTAL
3,935,165
100.0%
92.2%
94.5%
$ 108,173,492
$
29.81
$
2.48
_____________________________ (1)
(2) (3) (4)
Our stabilized portfolio excludes undeveloped land, development and redevelopment properties currently under construction or committed for construction, “lease-up” properties and properties “held-for-sale”. As of March 31, 2013 , we had no office development property under construction, one office redevelopment property (275 Brannan Street) under construction, and two lease-up properties (901 Market Street and Element LA). We define “lease-up” properties as properties we recently purchased, developed, or redeveloped that have not yet reached 92% occupancy and are within one year following purchase and cessation of major construction activities, as applicable. Square footage for office properties has been determined by management based upon estimated leasable square feet, which may be less or more than the Building Owners and Managers Association, or BOMA, rentable area. Square footage may change over time due to remeasurement or releasing. Percent occupied for office properties is calculated as (i) square footage under commenced leases as of March 31, 2013 , divided by (ii) total square feet, expressed as a percentage. Percent leased for office properties includes uncommenced leases. Rent data for our office properties is presented on an annualized basis. Annualized base rent for office properties is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) under commenced leases as of March 31, 2013 , by (ii) 12. Annualized base rent per square foot for the office properties is calculated as (i) annualized base rent divided by (ii) square footage under commenced leases as of March 31, 2013 . Annualized base rent does not reflect tenant reimbursements.
13
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data DEVELOPMENT, REDEVELOPMENT, AND LEASE-UP PROPERTIES (1)
County
Square Feet
(2)
Percent of Total
Percent Occupied (3)
Percent Leased (3)
Annualized Base Rent (4)
Annualized Base Rent Per Occupied Square Foot (4)
Monthly Rent Per Occupied Square Foot
San Francisco 275 Brannan Street
54,673
10.8%
—%
100.0%
901 Market Street
212,319
41.8%
54.4%
75.8%
266,992
52.5%
43.3%
80.8%
$
3,429,343
$
29.69
$
2.47
Subtotal
$
—
$
3,429,343
—
$
29.69
— 2.47
Los Angeles 241,427
47.5%
22.4%
22.4%
$
1,297,200
$
24.02
$
2.00
Subtotal
Element LA (Olympic Bundy)
241,427
47.5%
22.4%
22.4%
$
1,297,200
$
24.02
$
2.00
TOTAL
508,419
100.0%
33.3%
53%
$
4,726,543
$
27.89
$
2.32
LAND PROPERTIES County
Los Angeles Sunset Bronson—Lot A Sunset Bronson—Redevelopment Sunset Gower— Redevelopment Olympic Bundy Subtotal Orange City Plaza Subtotal TOTAL
Square Feet (5)
Percent of Total
273,913 389,740 423,396 500,000 1,587,049
14.1% 20.0% 21.7% 25.7% 81.5%
360,000 360,000
18.5% 18.5%
1,947,049
100.0%
______________________________ (1)
(2) (3) (4)
(5)
Our stabilized portfolio excludes undeveloped land, development and redevelopment properties currently under construction or committed for construction, “lease-up” properties and properties “held-for-sale”. As of December 31, 2012, we had no office development property under construction, one office redevelopment property (275 Brannan Street) under construction, and two lease-up properties (901 Market and Olympic Bundy). We define “lease-up” properties as properties we recently purchased, developed, or redeveloped that have not yet reached 92% occupancy and are within one year following purchase and cessation of major construction activities, as applicable. Square footage for office properties has been determined by management based upon estimated leasable square feet, which may be less or more than the Building Owners and Managers Association, or BOMA, rentable area. Square footage may change over time due to remeasurement or releasing. Percent occupied for office properties is calculated as (i) square footage under commenced leases as of March 31, 2013 , divided by (ii) total square feet, expressed as a percentage. Percent leased for office properties includes uncommenced leases. Rent data for our office properties is presented on an annualized basis. Annualized base rent for office properties is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) as of March 31, 2013 , by (ii) 12. Annualized base rent per occupied square foot for the office properties is calculated as (i) annualized base rent divided by (ii) square footage under lease as of March 31, 2013 . Annualized base rent does not reflect tenant reimbursements. Square footage for land assets represents management’s estimate of developable square feet, the majority of which remains subject to entitlement approvals that have not yet been obtained.
14
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data MEDIA & ENTERTAINMENT PORTFOLIO SUMMARY, OCCUPANCY, AND IN-PLACE RENTS
Property
Square Feet (1)
Percent of Total
Percent Leased (2)
Annual Base Rent (3)
Sunset Gower
567,637
64.4%
72.2%
$ 12,642,298
Sunset Bronson
313,723
35.6%
77.7%
10,275,489
881,360
100.0%
74.1%
$ 22,917,787
Annual Base Rent Per Leased Square Foot (4) $
30.86 42.14
$
35.07
______________________________ (1)
(2) (3) (4)
Square footage for media and entertainment properties has been determined by management based upon estimated gross square feet, which management believes is less than the BOMA rentable area. Square footage may change over time due to remeasurement or releasing. On September 21, 2012 we acquired 5,921 square feet of office property located at 1455 Gordon, ancillary to our Sunset Gower property. That acquisition is reflected in the square footage for Sunset Gower as of September 21, 2012 on a weighted average basis. As of March 31, 2013 , the square footage for Sunset Gower and Sunset Bronson totaled 884,196 square feet, including that acquisition. Since the percent occupied is determined on a weighted average basis for the 12 months ended March 31, 2013 , the square footage for 1455 Gordon is also included in the square footage for the media and entertainment properties on a weighted average basis. Percent leased for media and entertainment properties is the average percent leased for the 12 months ended March 31, 2013 . Annual base rent for media and entertainment properties reflects actual base rent for the 12 months ended March 31, 2013 , excluding tenant reimbursements. Annual base rent per leased square foot for the media and entertainment properties is calculated as (i) annual base rent divided by (ii) square footage under lease as of March 31, 2013 .
15
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data TEN LARGEST OFFICE TENANTS
Tenant
Number of Leases
Number of Properties
Lease Expiration (1)
Total Leased Square Feet
Percent of Rentable Square Feet
Annualized Base Rent (2)
Warner Music Group
1
1
12/31/2019
195,166
4.4%
7,959,209
7.0%
Bank of America
1
1
Various
616,788
13.9%
7,652,661
6.8%
AIG
1
1
7/31/2017
142,655
3.2%
6,134,165
5.4%
AT&T
1
1
8/31/2013
155,964
3.5%
5,850,333
5.2%
Square Inc.
1
1
9/27/2023
181,805
4.1%
5,698,375
5.0%
GSA - U.S. Corps of Engineers
3
2
Various
139,400
3.1%
4,534,147
4.0%
Fox Interactive Media, Inc.
1
1
3/31/2017
104,897
2.4%
4,489,382
4.0%
Clear Channel
1
1
9/30/2016
107,715
2.4%
4,481,830
4.0%
Technicolor Creative Services USA, Inc.
1
1
5/31/2020
114,958
2.6%
4,395,488
3.9%
NFL Enterprises
2
2
3/31/2015
115,084
2.6%
3,708,243
3.3%
13
12
1,874,432
42.2%
$ 54,903,833
48.6%
Total
$
Percent of Annualized Base Rent
______________________________ (1) (2) (3)
(4)
(5)
GSA and Saatchi & Saatchi North America, Inc. leases are subject to early termination prior to expiration at the option of the tenant. Annualized base rent is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) under commenced leases as of March 31, 2013 , by (ii) 12. Annualized base rent does not reflect tenant reimbursements. We have completed leases at our 1455 Market property with Square Inc. for 332,492 square feet which backfills certain space currently leased to Bank of America. The following summarizes Bank of America’s early termination rights by square footage as of March 31, 2013 , subject to the pending lease commencements with Square Inc.: (1) 22,687 square feet at March 31, 2013, 20,801 square feet of which is scheduled to be delivered to Square Inc. in April, 2013 for lease commencement in April, 2013; (2) 152,373 square feet at December 31, 2013, 129,886 square feet of which is scheduled to be delivered to Square Inc. in January, 2014 for lease commencement in January, 2014; (3) 212,854 square feet at December 31, 2015; and (4) 228,874 square feet at December 31, 2017. In sum, the lease with Square Inc. backfills a combined 150,687 square feet of the 616,788 square feet leased to Bank of America as of March 31, 2013. We have completed leases at our Rincon Center property with salesforce.com for 235,733 square feet which backfills 148,375 square feet currently leased to AT&T. The following summarizes the scheduled commencement by square footage of the lease with salesforce.com: (1) 93,028 square feet commencing on November 1, 2013, 71,931 square feet of which backfills space currently occupied by AT&T; (2) 59,689 square feet commencing May 1, 2014, 37,230 square feet of which backfills space currently occupied by AT&T; (3) 76,004 square feet commencing August 1, 2014, 39,214 square feet of which backfills space currently occupied by AT&T and 31,205 square feet currently occupied to other tenants; (4) 2,868 square feet commencing August 1, 2015, 2,851 square feet of which backfills space currently occupied by other tenants; and (5) 4,144 square feet commencing May 1, 2017, all of which backfills space currently occupied by other tenants. In addition to the 186,575 square feet under the lease with salesforce.com which backfills space under the lease with AT&T and other tenants, the lease with salesforce.com also includes 13,021 square feet of additional square footage due to BOMA adjustments and 36,137 square feet of net absorption, scheduled for commencement, as follows: 18,062 square feet in November, 2013; and 18,075 square feet in May, 2014. GSA expirations by property and square footage: (1) 89,995 square feet at 1455 Market Street expiring on February 19, 2017; (2) 5,906 square feet at 901 Market Street expiring on April 30, 2017; and (3) 43,499 square feet at 901 Market Street expiring on July 31, 2021.
16
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data OFFICE PORTFOLIO LEASING ACTIVITY
Total Gross Leasing Activity Rentable square feet Number of leases
212,178 16
Gross New Leasing Activity Rentable square feet New cash rate Number of leases
$
195,456 35.55 9
$
16,722 36.00 7
Gross Renewal Leasing Activity Rentable square feet Renewal cash rate Number of leases Net Absorption Leased rentable square feet
64,413
Cash Rent Growth (1) Expiring Rate New/Renewal Rate Change
$ $
24.03 28.95 20.5%
$ $
24.89 30.56 22.8%
Straight-Line Rent Growth (2) Expiring Rate New/Renewal Rate Change Weighted Average Lease Terms New (in months) Renewal (in months)
106 40 Total Lease Transaction Costs Per Square Foot
Tenant Improvements and Leasing Commissions (3) New leases Renewal leases Blended
$54.46 $4.27 $50.5
Annual Lease Transaction Costs Per Square Foot $6.18 $1.29 $6.03
______________________________ (1) (2) (3)
Represents a comparison between initial stabilized cash rents on new and renewal leases as compared to the expiring cash rents in the same space. New leases are only included if the same space was leased within the previous 12 months. Represents a comparison between initial straight-line rents on new and renewal leases as compared to the straight-line rents on expiring leases in the same space. New leases are only included if the same space was leased within the previous 12 months. Represents per square foot weighted average lease transaction costs based on the lease executed in the current quarter in our properties.
17
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data OFFICE LEASE EXPIRATIONS - ANNUAL
Year of Lease Expiration
Square Footage of Expiring Leases (1)
Percent of Office Portfolio Square Feet
Annualized Base Rent (2)
455,614
10.3%
605,208
13.6%
16,972,078
13.9%
28.04
27.52
2014
157,532
3.6%
5,290,912
4.4%
33.59
34.23
2015
400,648
9.0%
8,228,789
6.8%
20.54
22.12
2016
338,399
7.6%
11,421,852
9.4%
33.75
36.14
2017
771,843
17.4%
22,876,369
18.8%
29.64
30.93
2018
281,314
6.3%
7,189,209
5.9%
25.56
28.58
2019
594,986
13.4%
19,918,749
16.4%
33.48
38.27
2020
263,175
5.9%
9,520,453
7.8%
36.18
44.78
2021
43,499
1.0%
1,071,673
0.9%
24.64
28.45
2022
9,359
0.2%
376,528
0.3%
40.23
52.49
308,448
6.9%
10,033,423
8.2%
32.53
43.79
23,331
0.5%
—
—%
—
—
190,228
4.3%
8,797,424
7.2%
46.25
55.69
4,443,584
100.0%
$ 121,697,459
100.0%
Signed leases not commenced (5) Total/Weighted Average
—
(3)
$
$
—
Annualized Base Rent Per Square Foot at Expiration (4)
Available
Building management use
—
Annualized Base Rent Per Square Foot
2013
Thereafter
$
Percentage of Office Portfolio Annualized Base Rent
30.52
$
$
—
33.96
______________________________ (1)
(2)
(3) (4) (5)
Please see footnote (3) on page 16 of this Supplemental Operating and Financial Data report for an explanation of the re-leasing status of 175,060 square feet currently leased to Bank of America scheduled to expire in 2013 at our 1455 Market property, and footnote (4) on page 16 of this Supplemental Operating and Financial Data report for an explanation of the re-leasing status of 155,964 square feet currently leased to AT&T scheduled to expire in 2013 at our Rincon Center property. Rent data for our office properties is presented on an annualized basis without regard to cancellation options (with the exception of the Bank of America lease at our 1455 Market property which is assumed to exercise all early termination options). Annualized base rent for office properties is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) as of March 31, 2013 , by (ii) 12. Annualized base rent does not reflect tenant reimbursements. Annualized base rent per square foot for all lease expiration years and building management use is calculated as (i) base rental payments (defined as cash base rents (before abatements)) under commenced leases, divided by (ii) square footage under commenced leases as of March 31, 2013 . Annualized base rent per square foot at expiration for all lease expiration years and building management use is calculated as (i) base rental payments (defined as cash base rents (before abatements)) under commenced leases, divided by (ii) square footage under commenced lease as of March 31, 2013 . Annualized base rent per leased square foot and annualized best rent per square foot at expiration for signed leases not commenced, reflects uncommenced leases and is calculated as (i) base rental payments (defined as cash base rents (before abatements)) under uncommenced leases for vacant space as of March 31, 2013 , divided by (ii) square footage under uncommenced leases as of March 31, 2013 .
18
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data QUARTERLY OFFICE LEASE EXPIRATIONS - NEXT FOUR QUARTERS Q2 2013 County
Expiring SF
Q3 2013
Rent per SF (1)
Expiring SF
Q4 2013
Rent per SF (1)
Expiring SF
Q1 2014
Rent per SF (1)
Expiring SF
Rent per SF (1)
San Francisco Rincon Center
3,264 $
25.59
155,964 $
37.51
(2)
2,390 $
33.67
8,623 $ (3)
—
—
1,511
30.23
152,373
20.16
875 Howard Street
—
—
—
—
4,307
32.00
—
—
222 Kearny Street
—
—
11,772
49.55
11,026
24.11
5,306
43.86
625 Second Street
—
—
25,175
28.78
—
—
—
—
275 Brannan Street
—
—
—
—
—
—
—
—
901 Market Street
349
15.47
2,790
21.00
43,364
29.54
—
3,613 $
24.61
197,212 $
36.83
213,460 $
22.66
13,929 $
45.80
3,240 $
7.41
1,430 $
38.56
4,574 $
39.17
Subtotal
—
47.00
1455 Market Street
—
—
Los Angeles First Financial Technicolor Building Del Amo Office Building 9300 Wilshire
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,087
37.08
1,688
44.92
1,772
36.00
20,047
28.20
2,174
27.36
—
—
—
—
604 Arizona
—
—
—
—
—
—
—
—
6922 Hollywood
—
—
—
—
—
—
3,459
88.16
10950 Washington
10900 Washington Element LA Pinnacle I Subtotal
—
—
—
—
—
—
—
—
54,000
24.02
—
—
—
—
—
—
—
—
—
—
9,005
46.35
—
—
77,287 $
24.41
4,691 $
33.03
15,267 $
44.04
5,231 $
70.49
41,156 $
29.42
831 $
25.80
6,114 $
23.75
1,660 $
27.60
41,156 $
29.42
831 $
25.80
6,114 $
23.75
1,660 $
27.60
— $
—
— $
—
— $
—
31,422 $
14.42
— $
—
— $
—
— $
—
31,422 $
14.42
122,056 $
26.11
202,734 $
36.69
234,841 $
24.08
52,242 $
28.82
Orange City Plaza Subtotal San Diego Tierrasanta Subtotal
Total
______________________________ (1)
(2) (3)
Rent data for our office properties is presented on an annualized basis without regard to cancellation options (with the exception of the Bank of America lease at our 1455 Market property which is assumed to exercise all early termination options). Annualized base rent for office properties is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) as of March 31, 2013 , by (ii) 12. Annualized base rent does not reflect tenant reimbursements. Please see footnote (4) on page 16 of this Supplemental Operating and Financial Data report for an explanation of the re-leasing status of the 155,964 square feet scheduled to expire in Q3 2013 at our Rincon Center property. Please see footnote (3) on page 16 of this Supplemental Operating and Financial Data report for an explanation of the re-leasing status of the 152,373 square feet scheduled to expire in Q4 2013 at our 1455 Market property.
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Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data OFFICE PORTFOLIO DIVERSIFICATION
Total (1) Square Feet 80,981 120,396 900,530 175,921 139,037 777,828 147,441 65,102 227,374 737,895 169,735 216,418 39,084 3,797,742
Industry Business Services Educational Financial Services Insurance Legal Media & Entertainment Other Real Estate Retail Technology Advertising Government Healthcare Total
______________________________ (1)
Does not include signed leases not commenced.
20
Annualized Rent as of Percent of Total 2% 3.8% 13.9% 6% 3.7% 26.1% 2.7% 2% 5.4% 23.2% 3.9% 6.2% 1.1% 100.0%
Hudson Pacific Properties, Inc. First Quarter 2013 Supplemental Operating and Financial Data DEFINITIONS Funds From Operations (FFO): We calculate 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 rents for acquisition properties and amortization of deferred financing costs and debt discounts) and after adjustments for unconsolidated partnerships and joint ventures. We use 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. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that results from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our 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 our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our 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. Adjusted Funds From Operations (AFFO): 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 the non-cash compensation expense and amortization of deferred financing costs, and subtracting recurring capital expenditures, 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 straight-line rents, amortization of lease buy-out costs, and amortization of above/below market lease intangible assets and liabilities and amortization of loan discounts/premium . We also add to FFO the difference between rental revenue recognize in accordance with accounting principles generally accepted in the United States (GAAP) based on the amortization of the prepaid rent liability relating to the KTLA lease at our Sunset Bronson property compared to scheduled cash rents received in connection with such prepayment. 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.
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