Hudson Pacific Properties(HPP) - 2023 Q3 - Quarterly Report

EXPLANATORY NOTE Explanatory Note Summary This report consolidates the Form 10-Q filings for Hudson Pacific Properties, Inc. (REIT) and its operating partnership, Hudson Pacific Properties, L.P., to enhance investor understanding and efficiency - The report combines Form 10-Q for Hudson Pacific Properties, Inc. (REIT) and Hudson Pacific Properties, L.P. (operating partnership) for the period ended September 30, 2023[13] - Hudson Pacific Properties, Inc. owned approximately 97.2% of the ownership interest in the operating partnership as of September 30, 2023, and serves as its sole general partner[14] - Combining the reports offers benefits such as enhancing investor understanding, eliminating duplicative disclosure, and creating time and cost efficiencies[18] - Main differences between the Company and the operating partnership's consolidated financial statements are in non-controlling interest, stockholders' equity, and partners' capital[16] PART I—FINANCIAL INFORMATION ITEM 1. Financial Statements of Hudson Pacific Properties, Inc. This section provides the unaudited consolidated financial statements for Hudson Pacific Properties, Inc., detailing its balance sheets, operations, comprehensive loss, equity, and cash flows Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 This presents the unaudited consolidated balance sheets for the specified periods | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Investment in real estate, net | $7,096,199 | $7,175,301 | | Cash and cash equivalents | $75,040 | $255,761 | | Total Assets | $8,986,802 | $9,319,140 | | Liabilities | | | | Unsecured and secured debt, net | $4,417,020 | $4,585,862 | | Total Liabilities | $5,260,582 | $5,434,450 | | Equity | | | | Total Hudson Pacific Properties, Inc. stockholders' equity | $3,178,890 | $3,305,104 | | Total Equity | $3,600,825 | $3,749,831 | - Total assets decreased by $332.3 million from $9,319,140 thousand at December 31, 2022, to $8,986,802 thousand at September 30, 2023[22] - Cash and cash equivalents saw a significant decrease from $255,761 thousand to $75,040 thousand[22] Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2023 and 2022 This outlines the unaudited consolidated statements of operations for the specified periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $231,443 | $260,354 | $728,874 | $756,297 | | Total operating expenses | $228,268 | $217,893 | $684,751 | $635,765 | | Net loss | $(35,752) | $(6,792) | $(82,046) | $(10,861) | | Net loss attributable to common stockholders | $(37,597) | $(17,286) | $(94,188) | $(44,515) | | Basic and Diluted EPS | $(0.27) | $(0.12) | $(0.67) | $(0.31) | - Total revenues decreased by 11.1% for the three months ended September 30, 2023, and by 3.6% for the nine months ended September 30, 2023, compared to the same periods in 2022[24] - Net loss attributable to common stockholders significantly increased from $(17,286) thousand to $(37,597) thousand for the three months, and from $(44,515) thousand to $(94,188) thousand for the nine months ended September 30, 2023[24] Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2023 and 2022 This details the unaudited consolidated statements of comprehensive loss for the specified periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(35,752) | $(6,792) | $(82,046) | $(10,861) | | Currency translation adjustments | $(5,571) | $(10,052) | $203 | $(18,501) | | Total net unrealized gains (losses) on derivative instruments | $2,958 | $(142) | $15,743 | $2,923 | | Total other comprehensive (loss) income | $(2,613) | $(10,194) | $15,946 | $(15,578) | | Comprehensive loss | $(38,365) | $(16,986) | $(66,100) | $(26,439) | | Comprehensive loss attributable to common stockholders | $(39,832) | $(27,301) | $(78,738) | $(59,820) | - Comprehensive loss attributable to common stockholders increased significantly from $(27,301) thousand to $(39,832) thousand for the three months ended September 30, 2023, and from $(59,820) thousand to $(78,738) thousand for the nine months ended September 30, 2023[26] - Net unrealized gains on derivative instruments improved from a loss of $(142) thousand to a gain of $2,958 thousand for the three months, and from a gain of $2,923 thousand to $15,743 thousand for the nine months ended September 30, 2023[26] Consolidated Statements of Equity (unaudited) for the three and nine months ended September 30, 2023 and 2022 This provides the unaudited consolidated statements of equity or capital for the specified periods | Metric (in thousands) | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | | :-------------------------------- | :-------------------- | :-------------------- | | Series C Cumulative Redeemable Preferred Stock | $425,000 | $425,000 | | Common Stock Amount | $1,409 | $1,403 | | Additional Paid-in Capital | $2,889,967 | $2,748,309 | | Accumulated Other Comprehensive Income (Loss) | $(11,272) | $4,178 | | Total Hudson Pacific Properties, Inc. Stockholders' Equity | $3,305,104 | $3,178,890 | | Non-controlling Interest—Units in the Operating Partnership | $66,971 | $76,877 | | Total Equity | $3,749,831 | $3,600,825 | - Total Hudson Pacific Properties, Inc. stockholders' equity decreased by $126,214 thousand from December 31, 2022, to September 30, 2023[29] - Accumulated other comprehensive income (loss) shifted from a loss of $(11,272) thousand to an income of $4,178 thousand, indicating an improvement in comprehensive income components[29] Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022 This presents the unaudited consolidated statements of cash flows for the specified periods | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $223,038 | $328,549 | | Net cash used in investing activities | $(124,505) | $(335,427) | | Net cash (used in) provided by financing activities | $(290,170) | $14,070 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(191,637) | $7,192 | | Cash and cash equivalents and restricted cash—end of period | $94,094 | $204,068 | - Net cash provided by operating activities decreased by $105,511 thousand (32.1%) for the nine months ended September 30, 2023, compared to the same period in 2022[35][37] - Net cash used in investing activities decreased by $210,922 thousand (62.9%), primarily due to the Quixote acquisition in 2022 and increased proceeds from real estate sales in 2023[35][37] - Net cash from financing activities shifted from a $14,070 thousand inflow in 2022 to a $(290,170) thousand outflow in 2023, a significant decrease of $304,240 thousand (2,162.3%)[35][37] ITEM 1. Financial Statements of Hudson Pacific Properties, L.P. This section provides the unaudited consolidated financial statements for Hudson Pacific Properties, L.P., the operating partnership, reflecting its financial performance and position Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 This presents the unaudited consolidated balance sheets for the specified periods | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Investment in real estate, net | $7,096,199 | $7,175,301 | | Cash and cash equivalents | $75,040 | $255,761 | | Total Assets | $8,986,802 | $9,319,140 | | Liabilities | | | | Unsecured and secured debt, net | $4,417,020 | $4,585,862 | | Total Liabilities | $5,260,582 | $5,434,450 | | Capital | | | | Total Hudson Pacific Properties, L.P. partners' capital | $3,255,767 | $3,372,075 | | Total Capital | $3,600,825 | $3,749,831 | - Total assets for Hudson Pacific Properties, L.P. decreased by $332.3 million from $9,319,140 thousand at December 31, 2022, to $8,986,802 thousand at September 30, 2023[41] - Total partners' capital decreased by $116,308 thousand from $3,372,075 thousand to $3,255,767 thousand over the nine-month period[41] Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2023 and 2022 This outlines the unaudited consolidated statements of operations for the specified periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $231,443 | $260,354 | $728,874 | $756,297 | | Total operating expenses | $228,268 | $217,893 | $684,751 | $635,765 | | Net loss | $(35,752) | $(6,792) | $(82,046) | $(10,861) | | Net loss available to common unitholders | $(38,269) | $(17,511) | $(95,788) | $(45,063) | | Basic and Diluted EPS | $(0.27) | $(0.12) | $(0.67) | $(0.31) | - Total revenues for Hudson Pacific Properties, L.P. decreased by 11.1% for the three months and 3.6% for the nine months ended September 30, 2023, compared to the prior year periods[44] - Net loss available to common unitholders increased from $(17,511) thousand to $(38,269) thousand for the three months, and from $(45,063) thousand to $(95,788) thousand for the nine months ended September 30, 2023[44] Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2023 and 2022 This details the unaudited consolidated statements of comprehensive loss for the specified periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(35,752) | $(6,792) | $(82,046) | $(10,861) | | Currency translation adjustments | $(5,571) | $(10,052) | $203 | $(18,501) | | Total net unrealized gains (losses) on derivative instruments | $2,958 | $(142) | $15,743 | $2,923 | | Total other comprehensive (loss) income | $(2,613) | $(10,194) | $15,946 | $(15,578) | | Comprehensive loss | $(38,365) | $(16,986) | $(66,100) | $(26,439) | | Comprehensive loss attributable to partners' capital | $(40,567) | $(27,705) | $(79,898) | $(60,641) | - Comprehensive loss attributable to partners' capital increased from $(27,705) thousand to $(40,567) thousand for the three months ended September 30, 2023, and from $(60,641) thousand to $(79,898) thousand for the nine months ended September 30, 2023[46] - Total other comprehensive income (loss) improved from a loss of $(10,194) thousand to a loss of $(2,613) thousand for the three months, and from a loss of $(15,578) thousand to an income of $15,946 thousand for the nine months ended September 30, 2023[46] Consolidated Statements of Capital (unaudited) for the three and nine months ended September 30, 2023 and 2022 This provides the unaudited consolidated statements of equity or capital for the specified periods | Metric (in thousands) | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | | :-------------------------------- | :-------------------- | :-------------------- | | Preferred Units | $425,000 | $425,000 | | Common Units | $2,958,535 | $2,826,337 | | Accumulated Other Comprehensive (Loss) Income | $(11,460) | $4,430 | | Total Partners' Capital | $3,372,075 | $3,255,767 | | Non-controlling Interest—Members in Consolidated Real Estate Entities | $377,756 | $345,058 | | Total Capital | $3,749,831 | $3,600,825 | - Total partners' capital decreased by $116,308 thousand from $3,372,075 thousand at December 31, 2022, to $3,255,767 thousand at September 30, 2023[49][50] - Accumulated other comprehensive income (loss) for the operating partnership shifted from a loss of $(11,460) thousand to an income of $4,430 thousand[49][50] Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022 This presents the unaudited consolidated statements of cash flows for the specified periods | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $223,038 | $328,549 | | Net cash used in investing activities | $(124,505) | $(335,427) | | Net cash (used in) provided by financing activities | $(290,170) | $14,070 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(191,637) | $7,192 | | Cash and cash equivalents and restricted cash—end of period | $94,094 | $204,068 | - Net cash provided by operating activities decreased by $105,511 thousand (32.1%) for the nine months ended September 30, 2023, compared to the same period in 2022[55][57] - Net cash used in investing activities decreased by $210,922 thousand (62.9%), primarily due to the Quixote acquisition in 2022 and increased proceeds from real estate sales in 2023[55][57] - Net cash from financing activities shifted from a $14,070 thousand inflow in 2022 to a $(290,170) thousand outflow in 2023, a significant decrease of $304,240 thousand (2,162.3%)[55][57] Notes to Unaudited Consolidated Financial Statements This section provides detailed notes to the unaudited consolidated financial statements, clarifying reporting basis and key assumptions 1. Organization This section describes the Company's corporate structure and its real estate portfolio - Hudson Pacific Properties, Inc. is a Maryland corporation and a fully integrated, self-administered and self-managed real estate investment trust (REIT)[59] - The Company's portfolio as of September 30, 2023, includes 47 office properties (13.8M sq ft), 3 studio properties (1.3M sq ft), and 6 future development properties (2.0M sq ft) in its consolidated portfolio, totaling 56 properties and 17.0M sq ft[60] - The total portfolio, including unconsolidated joint ventures, consists of 61 properties totaling approximately 20.6 million square feet across the United States, Western Canada, and Greater London, United Kingdom[60] 2. Summary of Significant Accounting Policies This outlines the significant accounting policies used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or excluded[62] - The Company consolidates entities it controls through majority ownership or voting rights, including 13 out of 20 identified Variable Interest Entities (VIEs) as of September 30, 2023[68][69] - Revenue streams include rental revenues, tenant recoveries, ancillary revenues, other revenues, sale of real estate, management fee income, and management services reimbursement income[82] - Goodwill is tested for impairment at least annually, or more frequently if indicators arise, with no impairment identified during the three and nine months ended September 30, 2023[91][94] 3. Business Combinations This details the Company's business acquisition activities, including consideration and goodwill recognition - On August 31, 2022, the Company acquired 100% of Quixote, a media content production equipment rental business, for a total consideration of $359,098 thousand[97] | Quixote Acquisition Date Fair Value (in thousands) | Amount | | :--------------------------------- | :----- | | Cash | $199,098 | | Seller note payable | $160,000 | | Total consideration | $359,098 | - Goodwill of $153,409 thousand was recognized from the Quixote acquisition, allocated to the studio reporting unit, attributable to expected synergies and the assembled workforce[100] 4. Investment in Real Estate This provides a breakdown of the Company's real estate investments and related activities | Investment in Real Estate (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Land | $1,377,970 | $1,397,714 | | Building and improvements | $6,370,018 | $6,342,851 | | Tenant improvements | $894,595 | $868,193 | | Property under development | $179,890 | $98,175 | | Total Investment in Real Estate, at cost | $8,831,914 | $8,716,572 | - The Company had no acquisitions of real estate during the three and nine months ended September 30, 2023[103] - During the nine months ended September 30, 2023, the Company disposed of Skyway Landing, 604 Arizona, and 3401 Exposition properties for total sales proceeds of $174.5 million, recognizing a gain on sale of $23.154 million[109][277][305] 5. Non-Real Estate Property, Plant and Equipment, net This details the Company's non-real estate property, plant, and equipment, net of depreciation | Non-Real Estate Property, Plant and Equipment (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------------------------------- | :----------- | :----------- | | Trailers | $71,746 | $68,973 | | Production equipment | $36,960 | $36,019 | | Trucks and other vehicles | $20,921 | $20,306 | | Total Non-real estate property, plant and equipment, net | $115,903 | $130,289 | - Non-real estate property, plant and equipment, net, decreased by $14,386 thousand from $130,289 thousand at December 31, 2022, to $115,903 thousand at September 30, 2023[111] - No impairment charges were recognized for non-real estate property, plant and equipment during the three and nine months ended September 30, 2023 and 2022[111] 6. Investment in Unconsolidated Real Estate Entities This outlines the Company's investments in unconsolidated joint ventures and related financial information - The Company holds ownership interests in unconsolidated joint ventures including Sunset Waltham Cross Studios (35%), Sunset Glenoaks Studios (50%), Bentall Centre (20%), and Sunset Pier 94 Studios (25.6% economic interest)[112][115] - The Company's maximum exposure to these joint ventures is limited to its investment and guarantees provided for their indebtedness, such as $98.4 million at Bentall Centre and $26 thousand at Sunset Pier 94 Studios[114][116] | Combined Unconsolidated Joint Ventures (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------------------------- | :----------- | :----------- | | Total Assets | $1,315,554 | $1,156,318 | | Total Liabilities | $637,612 | $577,012 | | Total Capital | $677,942 | $579,306 | | Combined Unconsolidated Joint Ventures (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | $18,478 | $18,515 | $56,220 | $64,962 | | Net (Loss) Income | $(3,949) | $(1,636) | $(10,884) | $9,160 | 7. Deferred Leasing Costs and Intangible Assets, net and Intangible Liabilities, net This details the Company's deferred leasing costs, intangible assets, and intangible liabilities | Deferred Leasing Costs and Intangible Assets, net (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------------------------------- | :----------- | :----------- | | Deferred leasing costs and in-place lease intangibles, net | $167,183 | $187,264 | | Customer relationships, net | $75,041 | $85,554 | | Trade name | $37,200 | $37,200 | | Total Deferred Leasing Costs and Intangible Assets, net | $359,870 | $393,842 | | Intangible Liabilities, net | $29,247 | $34,091 | - Deferred leasing costs and intangible assets, net, decreased by $33,972 thousand from December 31, 2022, to September 30, 2023[120] - The Company recognized amortization related to deferred leasing costs and intangibles, with total amortization for customer relationships being $(10,512) thousand for the nine months ended September 30, 2023[121] - During the nine months ended September 30, 2022, the Company recognized an $8.5 million impairment of the Zio trade name due to rebranding[124] 8. Receivables This provides a breakdown of the Company's various receivable balances - Accounts receivable, net, was $19.330 million as of September 30, 2023, compared to $16.820 million as of December 31, 2022[22] - Straight-line rent receivables, net, increased to $290.938 million as of September 30, 2023, from $279.910 million as of December 31, 2022[22] 9. Prepaid Expenses and Other Assets, net This details the Company's prepaid expenses and other assets | Prepaid Expenses and Other Assets, net (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------------------------- | :----------- | :----------- | | Non-real estate investments | $48,833 | $47,329 | | Interest rate derivative assets | $19,559 | $9,292 | | Prepaid insurance | $17,422 | $6,530 | | Total Prepaid Expenses and Other Assets, net | $119,494 | $98,837 | - Prepaid expenses and other assets, net, increased by $20,657 thousand from December 31, 2022, to September 30, 2023[129] - The Company recognized an unrealized loss of $2.2 million on non-real estate investments and $0.1 million on stock purchase warrants for the three and nine months ended September 30, 2023[130][131] 10. Debt This outlines the Company's debt structure, including unsecured and secured borrowings and compliance with covenants | Debt (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Unsecured debt | $2,635,000 | $2,660,000 | | Secured debt | $1,798,118 | $1,950,088 | | Joint venture partner debt | $66,136 | $66,136 | | Total Unsecured and Secured Debt, net | $4,417,020 | $4,585,862 | - Total unsecured and secured debt, net, decreased by $168,842 thousand from December 31, 2022, to September 30, 2023[132] - The Company repaid $110.0 million Series A notes in January 2023, settled the Quixote note for $150.0 million (a $10.0 million discount) in April 2023, and repaid $50.0 million Series E notes in September 2023[139][141] - The operating partnership was in compliance with its financial covenants as of September 30, 2023, with key ratios like Total liabilities to total asset value at 49.0% (covenant ≤ 60%)[145][146] 11. Derivatives This describes the Company's use of derivative instruments for hedging interest rate risk - The Company uses derivatives (interest rate caps and swaps) to hedge interest rate risk, classified as Level 2 in the fair value hierarchy[150][151] | Derivative Instrument | Type | Notional Amount (in thousands) | Fair Value Assets (Liabilities) Sep 30, 2023 | | :-------------------- | :-------- | :----------------------------- | :------------------------------------------- | | Hollywood Media Portfolio | Cap | $1,100,000 | $1,010 | | 1918 Eighth | Swap | $172,865 | $3,706 | | Hollywood Media Portfolio | Swap | $351,186 | $11,754 | | Total | | | $17,338 | - As of September 30, 2023, the Company expects $8.6 million of unrealized gain from cash flow hedges to be reclassified as a reduction to interest expense in the next 12 months[154] 12. Income Taxes This details the Company's income tax position, including REIT status and deferred tax assets - Hudson Pacific Properties, Inc. has elected to be taxed as a REIT, generally exempting it from corporate-level income tax on distributed earnings[155] - The Company recognized an income tax benefit of $0.4 million for the three months ended September 30, 2023, and a provision of $0.7 million for the nine months ended September 30, 2023[158] - As of September 30, 2023, the Company had a net deferred tax asset of $4.8 million, net of valuation allowance, and no liability for uncertain tax positions[159][160] 13. Future Minimum Rents and Lease Payments This presents the Company's future minimum base rents and lease payment obligations | Year Ended | Future Minimum Base Rents (in thousands) | | :----------- | :--------------------------------------- | | Remaining 2023 | $157,835 | | 2024 | $608,532 | | 2025 | $515,865 | | Thereafter | $1,390,474 | | TOTAL | $3,540,683 | | Year | Future Minimum Lease Payments (in thousands) | | :--- | :------------------------------------------- | | Remaining 2023 | $10,115 | | 2024 | $41,275 | | 2025 | $40,514 | | Thereafter | $558,138 | | Total operating lease payments | $725,252 | | Present Value of Operating Lease Liabilities | $393,773 | - The weighted average remaining lease term for the Company's operating leases as a lessee was 22 years as of September 30, 2023[80] 14. Fair Value of Financial Instruments This provides fair value measurements for the Company's financial instruments, categorized by valuation levels - The Company classifies fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[167] | Financial Instrument (in thousands) | Fair Value Sep 30, 2023 | Fair Value Dec 31, 2022 | | :---------------------------------- | :---------------------- | :---------------------- | | Interest rate derivative assets | $19,559 | $9,292 | | Interest rate derivative liabilities | $(2,221) | $0 | | Earnout liability | $(6,283) | $(9,300) | - The earnout liability, a Level 3 item, decreased from $(9,300) thousand to $(6,283) thousand, resulting in a remeasurement gain of $3.0 million for the nine months ended September 30, 2023[171] | Debt (in thousands) | Carrying Value Sep 30, 2023 | Fair Value Sep 30, 2023 | Carrying Value Dec 31, 2022 | Fair Value Dec 31, 2022 | | :------------------ | :-------------------------- | :---------------------- | :-------------------------- | :---------------------- | | Unsecured debt | $2,635,000 | $2,200,793 | $2,660,000 | $2,364,871 | | Secured debt | $1,798,118 | $1,776,417 | $1,950,088 | $1,927,297 | 15. Stock-Based Compensation This details the Company's stock-based compensation plans and related expenses - The Company's 2010 Incentive Plan and PSU Plan allow for grants of restricted stock, restricted stock units, and operating partnership performance units to employees and non-employee directors[175][178] | Stock Compensation (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Expensed stock compensation | $5,540 | $6,494 | $17,087 | $17,816 | | Capitalized stock compensation | $712 | $894 | $2,066 | $2,683 | | Total Stock Compensation | $6,252 | $7,388 | $19,153 | $20,499 | - Total stock compensation decreased by $1,136 thousand for the three months and $1,346 thousand for the nine months ended September 30, 2023, compared to the same periods in 2022[179] 16. Earnings Per Share This outlines the calculation of basic and diluted earnings per share for the Company and its operating partnership - Basic and diluted earnings per share for Hudson Pacific Properties, Inc. were $(0.27) for the three months and $(0.67) for the nine months ended September 30, 2023[182] - Basic and diluted earnings per unit for Hudson Pacific Properties, L.P. were $(0.27) for the three months and $(0.67) for the nine months ended September 30, 2023[184] - Both basic and diluted EPS/EPU calculations yielded the same amounts for the periods presented, indicating no dilutive effect from outstanding instruments[181][183] 17. Redeemable Non-controlling Interest This details the Company's redeemable non-controlling interests in its operating partnership and consolidated entities - As of September 30, 2023, there were 392,598 Series A preferred units of the operating partnership not owned by the Company, entitled to 6.25% preferential distributions[185][186] - Redeemable non-controlling interests in consolidated real estate entities include interests in the HPP-MAC JV (75% Company interest) and the Ferry Building property JV (55% Company interest), both with put rights that are not currently redeemable[187][188] | Redeemable Non-controlling Interests (in thousands) | Beginning of Period Dec 31, 2022 | End of Period Sep 30, 2023 | | :-------------------------------------------------- | :------------------------------- | :------------------------- | | Series A Redeemable Preferred Units | $9,815 | $9,815 | | Consolidated Real Estate Entities | $125,044 | $115,580 | 18. Equity This provides an overview of the Company's equity structure, including accumulated other comprehensive income | Accumulated Other Comprehensive (Loss) Income (AOCI) (in thousands) | Balance at Dec 31, 2022 | Balance at Sep 30, 2023 | | :------------------------------------------------------------------ | :---------------------- | :---------------------- | | Hudson Pacific Properties, Inc. AOCI | $(11,272) | $4,178 | | Hudson Pacific Properties, L.P. AOCI | $(11,460) | $4,430 | - The Company's ownership interest in the operating partnership was 98.2% as of September 30, 2023, down from 98.5% at December 31, 2022[196] - The Company temporarily suspended its quarterly common stock dividend in September 2023, affecting common unit and performance unit dividends as well[203] - The Company repurchased $1.4 million of common stock during the nine months ended September 30, 2023, under its $250.0 million share repurchase program, with $214.7 million repurchased cumulatively[198] 19. Segment Reporting This presents financial information by the Company's operating segments, office and studio properties - The Company reports in two segments: office properties and studio properties, with performance evaluated based on Net Operating Income (NOI)[206] | Segment Profit (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Office segment profit | $123,066 | $135,151 | $386,169 | $410,606 | | Studio segment (loss) profit | $(3,799) | $20,175 | $7,785 | $48,805 | | Total Segment Profit | $119,267 | $155,326 | $393,954 | $459,411 | - Total segment profit decreased by $36,059 thousand (23.2%) for the three months and $65,457 thousand (14.2%) for the nine months ended September 30, 2023, compared to the prior year periods[208] - Studio NOI decreased significantly due to a slowdown in production rentals activity caused by the Writers Guild of America (WGA) and Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA) strikes[264][292] 20. Related Party Transactions This details transactions between the Company and its related parties, including unconsolidated joint ventures - The Company recognized $1.0 million and $3.1 million in management services reimbursement income from unconsolidated real estate entities for the three and nine months ended September 30, 2023, respectively[210] - Related rental expense from operating lease agreements with an unconsolidated joint venture was $0.3 million and $0.8 million for the three and nine months ended September 30, 2023, respectively[211] 21. Commitments and Contingencies This outlines the Company's various financial commitments and potential contingent liabilities - The Company has an aggregate commitment of $51.0 million to non-real estate funds, with $13.7 million remaining to be contributed as of September 30, 2023[212] - As of September 30, 2023, the Company had $3.1 million in outstanding letters of credit and $170.3 million in commitments related to construction agreements for development activities[214][215] - Management believes the ultimate resolution of all legal proceedings will not have a material adverse effect on the Company's financial position or results of operations[213] 22. Supplemental Cash Flow Information This provides additional details on cash flow activities not fully captured in the main cash flow statement | Supplemental Cash Flow Information (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | | Cash paid for interest, net of capitalized interest | $134,478 | $68,821 | | Accounts payable and accrued liabilities for real estate investments | $116,478 | $181,689 | | Lease liabilities recorded in connection with right-of-use assets | $2,117 | $94,447 | - Cash paid for interest, net of capitalized interest, increased by $65,657 thousand for the nine months ended September 30, 2023, compared to the same period in 2022[216] | Cash and Cash Equivalents and Restricted Cash (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------------------------- | :-------------------------- | :-------------------------- | | Beginning of Period | $285,731 | $196,876 | | End of Period | $94,094 | $204,068 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, liquidity, and capital resources Forward-looking Statements This section contains cautionary statements regarding forward-looking information and associated risks - This section contains cautionary statements regarding forward-looking statements, emphasizing that actual results may vary materially due to various risks and uncertainties[218] - Key risks include adverse economic or real estate developments, tenant defaults, interest rate fluctuations, financing difficulties, failure to maintain REIT status, loss of key personnel, and natural disasters[219][224] Executive Summary This provides a high-level overview of the Company's portfolio, operational performance, and key financial highlights - As of September 30, 2023, the Company's portfolio included 15.3 million square feet of office properties, 1.7 million square feet of studio properties, and 3.6 million developable square feet for future development[222] - The in-service office portfolio was 83.1% leased, and same-store studio properties were 83.5% leased for the 12 months ended September 30, 2023[223] | Portfolio Segment | Number of Properties | Rentable Square Feet | Percent Leased | | :---------------- | :------------------- | :------------------- | :------------- | | Total in-service office | 45 | 14,437,595 | 83.1% | | Same-store studio | 3 | 1,231,335 | 83.5% | | Total | 61 | 20,646,441 | | Overview This section provides an overview of the Company's property portfolio, development activities, and strategic initiatives - The Company had no business or property acquisitions during the three and nine months ended September 30, 2023[232][233] - During the nine months ended September 30, 2023, the Company sold Skyway Landing, 604 Arizona, and 3401 Exposition properties for total proceeds of $174.5 million[234] | Project Type | Property | Estimated Square Feet | Estimated Completion Date | | :------------- | :---------------------- | :-------------------- | :------------------------ | | Under Construction | Sunset Glenoaks Studios | 241,000 | Q4-2023 | | Under Construction | Washington 1000 | 546,000 | Q1-2024 | | Under Construction | Sunset Pier 94 Studios | 232,000 | Q4-2025 | | Future Development | Sunset Las Palmas Studios—Development | 617,581 | TBD | | Future Development | Sunset Waltham Cross Studios | 1,167,347 | TBD | - Total square footage under construction and future development is 4,602,589 square feet[235] Financings This details the Company's financing activities, including debt borrowings, repayments, and credit facilities - During the nine months ended September 30, 2023, there were $135.0 million of net borrowings on the unsecured revolving credit facility[248] - The Company repaid its $110.0 million Series A notes in January 2023 and its $50.0 million Series E notes in September 2023[249][251] - In April 2023, the Quixote note was settled for $150.0 million, resulting in a $10.0 million discount and gain on extinguishment of debt[249] Historical Results of Operations This provides a detailed analysis of the Company's revenues, expenses, and net income over historical periods - Net loss increased by $28.960 million (426.4%) for the three months and $71.185 million (655.4%) for the nine months ended September 30, 2023, compared to the same periods in 2022[254][285] | NOI (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total NOI | $119,267 | $155,326 | $393,954 | $459,411 | | Same-store NOI | $124,135 | $133,365 | $386,755 | $397,905 | | Non-same-store NOI | $(4,868) | $21,961 | $7,199 | $61,506 | - Total NOI decreased by $36.059 million (23.2%) for the three months and $65.457 million (14.2%) for the nine months ended September 30, 2023, primarily due to a $26.8 million decrease in non-same-store NOI and a $9.2 million decrease in same-store NOI[263][291] - Studio NOI decreased significantly due to a slowdown in production rentals activity caused by the Writers Guild of America (WGA) and Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA) strikes[264][292] Liquidity and Capital Resources This discusses the Company's cash position, credit facilities, and ability to meet its financial obligations - The Company had $75.0 million of cash and cash equivalents at September 30, 2023[313] - As of September 30, 2023, the Company had $520.0 million drawn on its $1.0 billion unsecured revolving credit facility and $324.6 million drawn on its $414.6 million construction loan for One Westside and Westside Two[316] - Net cash provided by operating activities decreased by $105.5 million (32.1%) for the nine months ended September 30, 2023, primarily due to the WGA and SAG-AFTRA strikes and property sales[324] - Net cash used in financing activities increased by $304.2 million (2,162.3%) to $290.2 million used, primarily due to decreased debt proceeds and increased debt payments, partially offset by reduced share repurchases and dividends[326] Off-Balance Sheet Arrangements This outlines the Company's off-balance sheet obligations, primarily related to joint venture indebtedness | Joint Venture Indebtedness (in thousands) | Principal Amount | HPP's Share | | :---------------------------------------- | :--------------- | :---------- | | Bentall Centre | $491,763 | $98,353 | | Sunset Glenoaks Studios | $78,308 | $39,154 | | Sunset Pier 94 Studios | $100 | $26 | - The Bentall Centre loan was amended subsequent to September 30, 2023, extending its maturity to July 1, 2027, and modifying the interest rate[327] - Sunset Glenoaks Studios has a construction loan with a total capacity of $100.6 million, with $22.3 million undrawn as of September 30, 2023[328] Critical Accounting Policies This describes the key accounting policies that require significant management judgment and estimates - The Company's financial statements rely on estimates and judgments, such as property valuations and tax reassessments, which are inherently subjective and can materially impact reported amounts[330] - Further details on critical accounting policies are provided in Note 2 to the Consolidated Financial Statements[331] Non-GAAP Supplemental Financial Measure: Funds From Operations This defines and reconciles Funds From Operations (FFO), a key non-GAAP metric for REIT performance - Funds From Operations (FFO) is calculated in accordance with NAREIT's White Paper, excluding gains/losses from sales of depreciable real estate and impairment write-downs, plus real estate-related depreciation and amortization[332] - FFO is considered a useful supplemental measure for evaluating operating performance and comparing to other REITs, but it does not reflect depreciation, amortization, or capital expenditures[333][335] | FFO (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(35,752) | $(6,792) | $(82,046) | $(10,861) | | FFO to Common Stockholders and Unitholders | $26,141 | $64,423 | $116,851 | $203,862 | - FFO attributable to common stockholders and unitholders decreased by $38,282 thousand (59.4%) for the three months and $87,011 thousand (42.7%) for the nine months ended September 30, 2023[336] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to market risk disclosures from the annual report, noting no material changes - No material changes to the quantitative and qualitative disclosures about market risk have occurred for the nine months ended September 30, 2023, compared to the 2022 Annual Report on Form 10-K[338] ITEM 4. Controls and Procedures This confirms the effectiveness of the Company's disclosure controls and internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that Hudson Pacific Properties, Inc.'s disclosure controls and procedures were effective as of September 30, 2023[341] - Similarly, the disclosure controls and procedures for Hudson Pacific Properties, L.P. were deemed effective as of September 30, 2023[344] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's or the operating partnership's internal control over financial reporting during the third quarter of 2023[345][346] PART II—OTHER INFORMATION ITEM 1. Legal Proceedings This section addresses any material legal proceedings involving the Company - The Company is not currently involved in any material legal proceedings that would significantly impact its financial condition or operations[348] ITEM 1A. Risk Factors This refers to the Company's risk factors as detailed in its annual report, with no material changes noted - There have been no material changes to the risk factors previously disclosed in the Company's 2022 Annual Report on Form 10-K[349] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This reports on any unregistered sales of equity securities or use of proceeds from registered securities - No unregistered sales of equity securities occurred during the period[353] - No proceeds from registered securities were used during the period[353] - The issuer did not purchase any equity securities during the period[353] ITEM 3. Defaults Upon Senior Securities This section confirms whether any defaults occurred on senior securities during the reporting period - There were no defaults upon senior securities[350] ITEM 4. Mine Safety Disclosures This section confirms the absence of any mine safety disclosures - There are no mine safety disclosures[351] ITEM 5. Other Information This section provides other relevant information, including Rule 10b5-1 trading arrangements - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the nine months ended September 30, 2023[352] ITEM 6. Exhibits This lists all exhibits filed with the Form 10-Q, including organizational documents and certifications - Exhibits include Articles of Amendment and Restatement, Bylaws, Agreement of Limited Partnership, and various certifications (Section 302 and 906) for both Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.[354] - Financial information formatted in iXBRL is included as Exhibit 101[354] SIGNATURES Signatures of Officers This section contains the official signatures of the Company's executive officers, certifying the report - The report is signed by Victor J. Coleman, Chief Executive Officer, and Harout K. Diramerian, Chief Financial Officer, for both Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.[360][361][365][366]