Hudson Pacific Properties Reports Fourth Quarter and Full Year 2020 Financial Results

Rhea-AI Summary

Hudson Pacific Properties (HPP) reported a fourth-quarter 2020 net loss of $8.5 million, or $0.05 per diluted share, a decline from $13.6 million, or $0.09 per diluted share in Q4 2019. Total revenue fell 6% to $203.8 million, with FFO of $62 million, down from $84.6 million a year earlier. However, the company signed nearly 280,000 square feet of office leases, marking its best quarter of the year. Approximately 97% of rents were collected, and $1 billion in liquidity remains for future projects. HPP aims for Q1 2021 FFO of $0.45 to $0.47 per share.

Positive

• Signed 280,000 square feet of office leases in Q4 2020, highest quarterly volume for the year.
• Collected 97% of total rents in Q4 2020, including 100% of studio rents.
• Maintained $1 billion in liquidity for future developments or acquisitions.
• First quarter 2021 FFO guidance of $0.45 to $0.47 per diluted share, excluding specified items.

Negative

• Net loss of $8.5 million in Q4 2020 compared to a net income of $13.6 million in Q4 2019.
• Total revenue decreased 6% to $203.8 million year-over-year.
• Interest expense increased 4.5% to $29.6 million.
• FFO declined to $62 million from $84.6 million in the same quarter last year.

Hudson Pacific Properties, Inc. (the "Company" or "Hudson Pacific") (NYSE: HPP) today announced financial results for the fourth quarter 2020.

Management Comments & Industry Outlook

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

"Our markets are once again reopening as COVID-19 cases decline, and the development and roll out of multiple vaccines, albeit slower than we would all like, are key milestones in getting our tenants back to the office. We saw renewed tenant interest in the fourth quarter, which resulted in our signing nearly 280,000 square feet of office leases—our best quarter for the year in terms of volume. This positive trend is extending into the first few months of 2021. Our tenants continue to pay rent, and in the fourth quarter, we collected 97% of total rents, including 98% of office and 100% of studio rents. Our storefront retail remains most challenged by the pandemic.

"We continue to strategically deploy capital. In the fourth quarter, we acquired a 668,000-square-foot Class A office tower in Seattle through a JV, and opportunistically repurchased additional shares of our stock. Even so, we still have $1.0 billion of liquidity to fund our developments and/or acquisitions, and to otherwise operate our business as needed. We are actively evaluating potential office and studio acquisitions, and we have over 1.0 million square feet of development projects fully entitled and ready to build as market conditions warrant.

"I am also extraordinarily proud that through our Better Blueprint we have strengthened our commitment to our communities during these very challenging times. In December, we launched our Vibrant Cities Arts Grant to benefit artists in Los Angeles impacted by the pandemic. Last week, we announced our five-year, $20 million pledge to address homelessness in our core markets. Now more than ever, we have both a moral and business imperative to give back and work diligently to ensure that our cities continue to thrive post-COVID and beyond."

Consolidated Financial & Operating Results

For fourth quarter 2020 compared to fourth quarter 2019:

• Net loss attributable to common stockholders of $8.5 million, or $0.05 per diluted share, compared to net income of $13.6 million, or $0.09 per diluted share;
• FFO, excluding specified items, of $66.8 million, or $0.44 per diluted share, compared to $85.4 million, or $0.55 per diluted share;
  • Specified items consisting of a one-time tax reassessment management cost of $5.5 million, or $0.04 per diluted share, and a one-time net property tax savings for periods prior to the fourth quarter of 2020 of $0.7 million, or $0.00 per diluted share, compared to transaction-related expenses of $0.2 million, or $0.00 per diluted share and one-time debt extinguishment costs of $0.6 million, or $0.00 per diluted share;
  • Fourth quarter 2020 FFO, excluding specified items, includes approximately $0.02 per diluted share of uncollected cash rents and approximately $0.01 per diluted share of charges to revenue-related write-offs of straight-line rent receivables, some or all of which may ultimately be collected;
  • Fourth quarter 2020 FFO also reflects approximately $0.02 per diluted share decrease in parking revenue, some or all of which will resume with tenant reintegration;

• FFO, including specified items, of $62.0 million, or $0.41 per diluted share, compared to $84.6 million, or $0.54 per diluted share;
• Total revenue decreased 6.0% to $203.8 million;
• Total operating expenses increased 3.5% to $178.9 million; and
• Interest expense increased 4.5% to $29.6 million.

Office Segment Results

Financial & operating

For fourth quarter 2020 compared to fourth quarter 2019:

• Total revenue decreased 4.8% to $184.5 million. Primary factors include:
  • Lower parking revenue stemming from COVID-19 impacted occupancy and higher reserves against uncollected rents for certain tenants facing COVID-19-related financial hardship, all partially offset by revenue from the acquisition of 1918 Eighth;

• Operating expenses increased 0.2% to $67.7 million. Primary factors include:
  • A one-time supplemental property tax expense on ICON and CUE for prior periods, along with expenses associated with the aforementioned acquisition; and

• Net operating income and cash net operating income for the 43 consolidated same-store office properties decreased 8.9% and increased 4.2%, respectively. Adjusted for the $1.6 million one-time supplemental property tax expense on ICON and CUE for prior periods, net operating income and cash net operating income for the same-store office properties would have decreased by 7.5% and increased by 5.7%, respectively.

Leasing

• Stabilized and in-service office portfolios were 94.5% and 93.5% leased, respectively; and
• Executed 39 new and renewal leases totaling 279,392 square feet with GAAP and cash rent growth of 4.9% and 4.7%, respectively. Note GAAP and cash rent growth excluding the 45,180-square-foot renewal with 24 Hour Fitness and 25,053 square feet of COVID-related, short-term lease extensions (i.e. 12 months or less) are 9.9% and 9.2%, respectively.

Studio Segment Results

Financial & operating

For fourth quarter 2020 compared to fourth quarter 2019:

• Total revenue decreased 16.1% to $19.4 million. Primary factors include:
  • A decrease in service and other revenue stemming from shelter-in-place measures disrupting production activities and stage utilization;

• Total operating expenses decreased 24.8% to $9.9 million, primarily due to a $2.2 million one-time supplemental property tax savings on Sunset Gower Studios for prior periods; and
• Net operating income and cash net operating income for the three same-store studio properties decreased 4.5% and 0.8%, respectively.

Leasing

• Trailing 12-month occupancy for the three same-store studio properties was 90.2%.

Leasing Activity

Executed significant leases throughout the portfolio

• 24 Hour Fitness renewed its 45,180-square-foot lease through February 2026 at Met Park North in Seattle.
• CIBC World Markets Inc. renewed its 36,978-square-foot lease through July 2026 at Bentall Centre in Vancouver.
• Rivian signed a 36,630-square-foot lease, commencing January 2021, through June 2026 at Clocktower Square in Palo Alto.
• Frank, Rimerman & Co., LLP renewed its 24,968-square-foot lease through December 2022 at Page Mill Hill in Palo Alto.

Balance Sheet

As of the end of the fourth quarter 2020:

• $2.8 billion of the Company's share of unsecured and secured debt and preferred units (net of cash and cash equivalents) resulting in a leverage ratio of 42.3%.
• Approximately $1.0 billion of total liquidity comprised of:
  • $113.7 million of unrestricted cash and cash equivalents;
  • $600.0 million of undrawn capacity under the unsecured revolving credit facility; and
  • $308.5 million of undrawn capacity under the construction loan secured by One Westside and 10850 Pico.

• Investment grade credit rated with 66.9% unsecured and 87.8% fixed-rate debt and a weighted average maturity of 5.8 years.

Dividend

Paid common dividend

• The Company's Board of Directors declared a dividend on its common stock of $0.25 per share, equivalent to an annual rate of $1.00 per share.

Capital Transactions

Purchased office tower in Seattle's Denny Triangle with CPP Investments

On December 18, Hudson Pacific and Canada Pension Plan Investment Board (“CPP Investments”) completed their acquisition of 1918 Eighth, a 668,000-square-foot Class A office building anchored by Amazon in Seattle’s Denny Triangle neighborhood for $625.0 million (before closing adjustments). Through the joint venture, CPP Investments owns a 45% interest and Hudson Pacific owns 55% and acts as general partner and as property, leasing and construction manager. In conjunction with closing the transaction, the joint venture closed a $314.3 million mortgage loan secured by the property. This loan has an initial interest rate of LIBOR plus 1.70% per annum and is interest only through the five-year term.

Repurchased 0.9 million shares of common stock

The Company repurchased 0.9 million shares of common stock at an average price of $20.41 per share using liquidity generated from recapitalization of the Hollywood Media Portfolio. In total in 2020, Hudson Pacific repurchased 3.5 million shares of common stock under the previously noted $250.0 million share repurchase plan at an average price of $23.00.

COVID-19 Update

Continued strong rent collections

During the fourth quarter, the Company collected approximately 97% of its combined contractual rents, comprised of 98% from office tenants, 100% from studio tenants and 51% from storefront retail tenants. In January, the Company collected 97% of its combined contractual rents, comprised of 98% from office tenants, 99% from studio tenants and 48% from storefront retail tenants. The Company implemented a rent relief program for the preponderance of uncollected rents, and the aforementioned collection percentages exclude rents deferred or abated in accordance with COVID-related lease amendments.

Including rents deferred or abated in accordance with COVID-related lease amendments, the Company collected 97% of its fourth quarter combined contractual rents, comprised of 99% from office tenants, 102% from studio tenants and 43% from storefront retail tenants. The Company collected 96% of its January combined contractual rents, comprised of 98% from office tenants, 100% from studio tenants and 44% from storefront retail tenants.

Provided community support through the Vibrant Cities Arts Grant

In association with One Westside, the Company and joint venture partner, Macerich, fast-tracked more than $650,000 to COVID-19 impacted artists in Los Angeles through the Vibrant Cities Arts Grant. Consistent with the joint venture structure, Hudson Pacific funded the majority of the grant, which helped individual artists and artist groups recoup lost funds from canceled programs and support ongoing artistic endeavors. Special consideration was given to female and LGBTQ+ artists and artists of color as well as those presenting work on social justice, civil rights, the physical environment and other contemporary social issues.

Activities Subsequent to Fourth Quarter 2020

Pledged $20 million to address homelessness

Hudson Pacific pledged $20 million over the next five years to increase affordable housing and support individuals and families experiencing homelessness. The comprehensive program will include both impact investments and philanthropic donations in the Company's core markets of Los Angeles, Silicon Valley, San Francisco, Seattle and Vancouver. As part of this commitment, Hudson Pacific is investing $3 million with SDS Capital Group’s Supportive Housing Fund, which in turn invests in the development of permanent, supportive housing across Los Angeles and the San Francisco Bay Area.

Repurchased 0.6 million shares of common stock

The Company repurchased 0.6 million shares of common stock at an average price of $23.32 per share using liquidity generated from recapitalization of the Hollywood Media Portfolio.

FFO Guidance

The Company is providing first quarter 2021 guidance in the range of $0.45 to $0.47 per diluted share excluding specified items. There are no specified items in connection with this guidance.

The FFO estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this press release and in earlier announcements. It otherwise excludes any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital markets activity or similar matters. There can be no assurance that actual results will not differ materially from this estimate.

The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, including the information under "FFO Guidance" above, where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted share, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, acquisition costs and other non-core items that have not yet occurred, are out of the Company's control and/or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Supplemental Information

Supplemental financial information regarding Hudson Pacific's fourth quarter 2020 results may be found on the Investors section of the Company's website at HudsonPacificProperties.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property and debt maturity schedules.

Conference Call

The Company will hold a conference call to discuss fourth quarter 2020 financial results at 11:00 a.m. PT / 2:00 p.m. ET on February 18, 2021. Please dial (877) 407-0784 to access the call. International callers should dial (201) 689-8560. A live, listen-only webcast can be accessed via the Investors section of the Company's website at HudsonPacificProperties.com, where a replay of the call will be available. A replay will also be available beginning February 18, 2021 at 2:00 p.m. PT / 5:00 p.m. ET, through March 4, 2021 at 8:59 p.m. PT / 11:59 p.m. ET, by dialing (844) 512-2921 and entering the passcode 13715463. International callers should dial (412) 317-6671 and enter the same passcode.

About Hudson Pacific

Hudson Pacific is a real estate investment trust with a portfolio of office and studio properties totaling over 19 million square feet, including land for development. Focused on premier West Coast epicenters of innovation, media and technology, its anchor tenants include Fortune 500 and leading growth companies such as Netflix, Google, Square, Uber, NFL Enterprises and more. Hudson Pacific is publicly traded on the NYSE under the symbol HPP, and listed as a component of the S&P MidCap 400 Index. For more information visit HudsonPacificProperties.com.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events, or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company's control that may cause actual results to differ significantly from those expressed in any forward-looking statement. All forward-looking statements reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

Consolidated Balance Sheets In thousands, except share data
	December 31, 2020					December 31, 2019
ASSETS
Investment in real estate, at cost	$	8,215,017				$	7,269,128
Accumulated depreciation and amortization	(1,102,748		)			(898,279		)
Investment in real estate, net	7,112,269					6,370,849
Cash and cash equivalents	113,686					46,224
Restricted cash	35,854					12,034
Accounts receivable, net	22,105					13,007
Straight-line rent receivables, net	225,685					195,328
Deferred leasing costs and lease intangible assets, net	285,836					285,448
U.S. Government securities	135,115					140,749
Operating lease right-of-use asse

FAQ

What were Hudson Pacific Properties' Q4 2020 earnings results?

Hudson Pacific reported a net loss of $8.5 million, or $0.05 per diluted share, and total revenue of $203.8 million, a 6% decline from the previous year.

How much rent did Hudson Pacific collect in Q4 2020?

Hudson Pacific collected approximately 97% of its total rents in Q4 2020, including 100% from studio tenants.

What is Hudson Pacific Properties' FFO guidance for Q1 2021?

The FFO guidance for Q1 2021 is between $0.45 and $0.47 per diluted share, excluding specified items.

What is the impact of COVID-19 on Hudson Pacific Properties' business?

The company faced challenges, including a decrease in total revenue and a net loss, but maintained strong rent collection rates.

What strategic actions did Hudson Pacific Properties take in Q4 2020?

Hudson Pacific acquired a 668,000-square-foot office tower in Seattle and repurchased 0.9 million shares of stock.