HUDSON PACIFIC PROPERTIES, INC. ITEM 8.01. Other Events. The following discussion provides information with respect to certain recent developments ofHudson Pacific Properties, Inc. (the "Company"). Unless otherwise expressly stated or the context otherwise requires, "we," "us" and "our" refer collectively to the Company,Hudson Pacific Properties, L.P. (the "Operating Partnership"), aMaryland limited partnership of which the Company serves as the sole general partner, and the Company's other subsidiaries. We employ a conservative approach to development and redevelopment. Development and redevelopment projects have only represented approximately 18.0% of our capital allocation since our initial public offering in 2010 and estimated project costs as a percentage of our Company's share of market capitalization have averaged approximately 8.0% over the preceding eight quarters. Estimated project costs are based on management estimates and exclude capitalized interest, personnel costs and operating expenses. Gross assets represents the sum of total assets calculated in accordance withUnited States generally accepted accounting principles, or GAAP, plus accumulated depreciation and amortization. We also have a diverse concentration of tenants. The table below presents our top fifteen office tenants as ofSeptember 30, 2021 . Company's Share (1) Total Annualized Percent of Tenant Total Occupied Occupied Percent of Rentable Base Rent Annualized (2) Square Feet Square Feet Square Feet (3) Base RentGoogle, Inc. 640,726 622,117 4.9 %$ 48,521,102 8.6 % Netflix, Inc. 722,305 368,376 2.9 24,035,884 4.2 Nutanix, Inc. 439,406 439,406 3.5 18,503,384 3.3 Riot Games, Inc. 284,037 284,037 2.2 17,864,002 3.2 Amazon 746,386 473,433 3.7 14,981,924 2.6 Qualcomm 376,817 376,817 3.0 14,940,041 2.6 Salesforce.com 265,394 265,394 2.1 14,287,683 2.5 Square, Inc. 469,056 257,981 2.0 13,267,953 2.3
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Company's Share
(1)
Total Annualized Percent of
Tenant Total Occupied Occupied Percent of Rentable Base Rent Annualized
(2) Square Feet Square Feet Square Feet (3) Base Rent
Dell EMC Corporation 311,795 311,795 2.5 12,430,309 2.2
Uber Technologies, Inc. 325,445 178,995 1.4 9,644,556 1.7
NFL Enterprises 167,606 167,606 1.3 8,447,342 1.5
WeWork Companies, Inc 330,921 159,456 1.3 7,956,673 1.4
GitHub, Inc. 92,450 92,450 0.7 6,751,168 1.2
Weil, Gotshal & Manges LLP 76,278 76,278 0.6 5,747,762 1.0
PayPal Holdings , Inc. 123,097 123,097 1.0 5,545,170 1.0
TOTAL 5,371,719 4,197,154 33.1 % $ 222,924,953 39.3 %
(1) Company's Share is calculated as the total amounts on a consolidated basis,
in accordance with GAAP (where applicable), plus our company's share of the
amount from our company's unconsolidated joint ventures (calculated based
upon our company's percentage ownership interest), minus our company's
partners' share of the amount from our company's consolidated joint ventures
(calculated based upon the partners' percentage ownership interests). Because
we own some of our properties through significant joint ventures, we believe
that presenting Company's Share of certain measures provides investors with
useful information regarding our financial condition and/or results of
operations by accounting for our true economic interest in these joint
ventures. In some cases, we exercise significant influence over, but do not
control, the joint venture, in which case, GAAP requires us to account for
the joint venture entity using the equity method of accounting, and we do not
consolidate it for financial reporting purposes. In other cases, GAAP
requires us to consolidate the joint venture even though our partner(s) owns
a significant percentage interest.
(2) Presented in order of Company's Share of annualized base rent.
(3) Annualized base rent is calculated by multiplying (i) base rental payments
(defined as cash base rents (before abatements or deferments)) under
commenced leases as of
does not reflect tenant reimbursements.
The table below presents our office portfolio tenant industry diversification as ofSeptember 30, 2021 Company's Share (1) Annualized Base Rent as Total Square Feet Percent of Total Industry (2)(3) (4) Technology (5) 4,156,879 39.3 %Media & Entertainment (6) 1,332,070 14.1 Legal 653,904 8.5 Business Services 885,931 8.3 Financial Services 813,792 7.8 Retail 946,666 5.8 Other 1,652,243 16.2 TOTAL 10,441,485 100.0 %
(1) Company's Share is calculated as the total amounts on a consolidated basis,
in accordance with GAAP (where applicable), plus our company's share of the
amount from our company's unconsolidated joint ventures (calculated based
upon our company's percentage ownership interest), minus our company's
partners' share of the amount from our company's consolidated joint ventures
(calculated based upon the partners' percentage ownership interests).
(2) Excludes signed leases not commenced.
(3) Excludes 181,792 square feet occupied by
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(4) Annualized base rent is calculated by multiplying (i) base rental payments
(defined as cash base rents (before abatements or deferments)) under
commenced leases as of
does not reflect tenant reimbursements.
(5) Our diverse set of technology tenants largely consist of public and other
well established companies. As a percentage of annualized base rent, the
businesses of our technology tenants consist of online services (31%),
software (28%), hardware & tech equipment (19%), business support services
(12%) and other (10%). In addition, only 7% of annualized base rent of
technology tenants as a percent of total annualized base rent of technology
tenants are attributable to private companies in business for less than 10
years. Furthermore, only five tenants contribute more than 5% of annualized
base rent of our technology tenants:
and Square, and over half of the annualized base rent of our technology
tenants is comprised of tenants contributing less than 5% to the annualized
base rent of our technology tenants.
(6) As a percentage of annualized base rent, the businesses of our media &
entertainment tenants consist of production & service (62%), gaming (29%),
advertising & marketing (7%) and other (2%).
The table below presents certain information regarding our portfolio by market as ofSeptember 30, 2021 . Company's Share (1)Total Square Annualized Feet Base Rent Annualized Rent as Market (2) (3) of Percent of Total Office: Silicon Valley 6,438,644$ 293,968,845 50.0 % Los Angeles 4,877,066 102,842,644 17.4 Seattle 2,703,452 49,458,077 8.4 San Francisco 2,561,358 111,092,692 18.9 Vancouver 1,945,738 8,389,521 1.4 Studio: Los Angeles 1,465,403 22,669,820 3.9 TOTAL 19,991,661$ 588,421,599 100.0 %
(1) Company's Share is calculated as the total amounts on a consolidated basis,
in accordance with GAAP (where applicable), plus our company's share of the
amount from our company's unconsolidated joint ventures (calculated based
upon our company's percentage ownership interest), minus our company's
partners' share of the amount from our company's consolidated joint ventures
(calculated based upon the partners' percentage ownership interests).
(2) Includes land.
(3) Annualized base rent for the office properties is calculated by multiplying
(i) base rental payments (defined as cash base rents (before abatements or
deferments)) under commenced leases as of
Annualized base rent for the studio properties reflects actual base rent for
the 12 months ended
tenant reimbursements.
The table below presents certain information regarding our stabilized and in-service office properties by market as of various acquisition dates andSeptember 30, 2021 . Annualized Base Rent (2) Annualized Percent Leased at at Base Rent at Percent Leased at September 30, 2021 Acquisition Date per September 30, 2021 Market Acquisition Date (1) square foot per square foot Office: Silicon Valley 85.7 % 87.5 % $ 41.15 $ 56.95 Seattle 84.8 90.1 26.80 33.39
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Annualized Base
Rent
(2) Annualized
Percent Leased at at Base Rent at
Percent Leased at September 30, 2021 Acquisition Date per September 30, 2021
Market Acquisition Date (1) square foot per square foot
San Francisco 83.0 93.8 30.53 61.30
Los Angeles 37.7 94.6 35.40 56.13
(1) Does not include signed leases not commenced.
(2) Annualized base rent for office properties is calculated by multiplying
(i) base rental payments (defined as cash base rents (before abatements or
deferments)) under commenced leases as of
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
reimbursements.
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The following tables present and reconcile the Company's Share of net debt and debt for the periods presented (in thousands).
Net Debt & Total Unsecured / Secured Debt ($ in Thousands)
Q2 2010 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019
Q4 2020 Q3 2021
Total unsecured and secured debt, net $ 94,020 $
342,060
- - - - - - 19,039 19,829 17,209 15,898 26,235 31,599 32,480
Unamortized loan discount/ (premium), net 280 (643 ) (1,965 ) (1,201 ) (5,320 ) (3,056 ) (1,310 )
- 722 648 1,314 1,185 1,088
Debt related to held for sale property - - - - - 42,449 - - - - - - -
Company's share of unconsolidated joint venture debt - - - - - - - - - - 97,053 99,973 102,722
Partner's share of consolidated debt - (51,940 ) - (2,257 ) (76,139 ) (75,747 ) (75,330 ) (121,050 ) (45,450 ) (45,450 ) (46,862 ) (654,403 ) (780,945 ) Total unsecured and secured debt
$ 94,300 289,477$ 397,906 $ 578,627 $ 849,849 $ 881,705 $ 2,203,115 $ 2,586,789 $ 2,393,861 $ 2,594,931 $ 2,895,650 $ 2,877,846 $ 3,265,750 Q2 2010 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019 Q4 2020 Q3 2021 Cash and cash equivalents$ 84,509 $
48,875
53,551
- - - - - - - - - - 2,690 (3,060 ) (11,359 )
Partner's share of cash and cash equivalents - (2,030 ) - (1 ) (1,865 ) (1,664 ) (3,251 ) (9,285 ) (1,594 ) (7,659 ) (8,846 ) (17,002 ) (31,269 ) Company's share of net debt
$ 9,791 $ 242,632 $ 384,201 $ 559,724 $ 821,358 $ 865,616 $ 2,152,815 $ 2,513,059 $ 2,316,533 $ 2,548,850 $ 2,855,582 $ 2,778,102 $ 3,175,160 Q2 2010 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019 Q4 2020 Q3 2021 Unsecured debt -$ 111,117 -$ 55,000 $ 155,000 $ 280,000 $ 1,555,000 $ 2,025,000 $ 1,975,000 $ 2,275,000 $ 2,475,000 $ 1,925,000 $ 2,225,000 Secured debt$ 94,300 178,360 397,906 523,627 694,849 601,705
648,115 561,789 418,861 319,931 420,650 952,846 1,040,750 Total company's share of debt
$ 94,300 $ 289,477 $ 397,906 $ 578,627 $ 849,849 $ 881,705 $ 2,203,115 $ 2,586,789 $ 2,393,861 $ 2,594,931 $ 2,895,650 $ 2,877,846 $ 3,265,750
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The following table presents and reconciles the Company's Share of gross assets for the periods presented (in thousands).
Gross Asset Value ($ in Thousands)
Q2 2010 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014
Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019 Q4 2020 Q3 2021
Total Assets, net $ 621,780 $ 1,004,576 $ 1,152,791 $ 1,559,690 $ 2,131,274 $ 2,340,885 $ 6,254,035 $ 6,678,998 $ 6,622,070 $ 7,070,879 $ 7,466,568 $ 8,350,202 $ 8,803,997
Accumulated depreciation 21,442 27,113 53,329 85,184 116,342 134,657 269,074 419,368 533,498 695,631 898,279 1,102,748 1,285,137 Accumulated depreciation related to held for sale
- - - - - 7,904 3,650 4,582 15,913 - - - -
Partner's share of gross assets - (94,606 ) - (3,897 ) (127,795 ) (128,740 ) (194,809 ) (289,075 ) (163,559 ) (406,815 ) (453,722 ) (1,421,834 ) (1,526,056 ) Company's share of depreciation of the unconsolidated -
- - - - - - - - - 976 1,197 768
Company's Share of Gross Assets $ 643,222 $
937,083
$ 6,331,950 $ 6,813,873 $ 7,007,922 $ 7,359,695 $ 7,912,101 $ 8,032,313 $ 8,563,846
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The table below presents a reconciliation of net income to FFO (as defined below) for the years endedDecember 31, 2011 and 2020 (in thousands except per share data): Year Ended December 31, 2011 2020 Net income$ (2,238 ) $ 16,430 Adjustments: Depreciation and amortization-Consolidated 44,660
299,682
Depreciation and amortization-Corporate-related -
(2,286 ) Depreciation and amortization-Company's share from unconsolidated real estate investments
- 5,605
Gain on sale of real estate - -
Impairment loss - -
Unrealized loss on
non-real
estate investments - 2,463
FFO attributable to
non-controlling
interests (1,297 ) (37,644 )
FFO attributable to preferred stock and units (8,108 ) (612 )
FFO to common stockholders and unitholders$ 33,017
Specified items impacting FFO: Transaction-related expenses 1,693
440
One-time
tax reassessment management cost - 5,500 One-time straight line rent reserve - 2,620 One-time prior period property tax adjustment - (937 ) One-time debt extinguishment cost - 2,654
FFO (excluding specified items) to common stockholders and unitholders
$ 34,710
Weighted average common stock/units outstanding-diluted 32,004
154,084
FFO per common stock/unit-diluted 1.03
1.84
FFO (excluding specified items) per common stock/unit-diluted 1.08 1.91 We calculate funds from operations, or FFO, in accordance with the White Paper issued inDecember 2018 on FFO approved by theBoard of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with generally accepted accounting principles inthe United States ("GAAP"), excluding gains and losses from sales of depreciable real estate, gains and losses from sale of certain real estate assets and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. The calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. In theDecember 2018 White Paper, NAREIT provided an option to include value changes in mark-to-market equity securities in the calculation of FFO. We elected this option retroactively during fourth quarter 2018. We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs. Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating -------------------------------------------------------------------------------- results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide. We use FFO per share to calculate annual cash bonuses for certain employees. However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations. -------------------------------------------------------------------------------- Recent Developments We are currently in negotiations to refinance our revolving credit facility to, among other things, increase the capacity under such facility. Our current expectation is that any refinancing transaction would likely close during the fourth quarter of 2021, although we cannot provide assurance that any refinancing transaction will occur on that timeline, or at all. --------------------------------------------------------------------------------
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