Hudson Pacific Properties, Inc. Announces Third Quarter 2013 Financial Results Business Wire LOS ANGELES -- November 4, 2013 Hudson Pacific Properties, Inc. (the “Company,” “we,” “us” or “our”) (NYSE: HPP) today announced financial results for the third quarter ended September30, 2013. Financial Results Funds From Operations (FFO) (excluding specified items) for the three months ended September30, 2013 totaled $14.0 million, or $0.24 per diluted share, compared to FFO (excluding specified items) of $10.5 million, or $0.21 per share, a year ago. The specified items for the third quarter of 2013 consisted of expenses associated with the acquisition of our office portfolio in Seattle, Washington of $0.5 million, or $0.01 per diluted share. Specified items for the third quarter of 2012 consisted of expenses associated with the acquisition of the Element LA campus in West Los Angeles of $0.5 million, or $0.01 per diluted share. FFO, including the specified items, totaled $13.5 million, or $0.23 per diluted share, for the three months ended September30, 2013, compared to $10.1 million, or $0.20 per share, a year ago. The Company reported a net loss attributable to common stockholders of $5.7 million, or $(0.10) per diluted share, for the three months ended September30, 2013, compared to net loss attributable to common stockholders of $3.4 million, or $(0.07) per diluted share, for the three months ended September30, 2012. “The third quarter witnessed an important chapter in the growth of our Company,” said Mr. Victor J. Coleman, Chairman and Chief Executive Officer of Hudson Pacific Properties, Inc. “I am very pleased with our previously announced acquisition of the 848,001 square-foot office portfolio in Seattle, which we successfully closed on July 31, 2013. This high quality portfolio gives us a meaningful presence in the region with a significant foothold in the top submarkets in Downtown Seattle. We also completed the disposition of the City Plaza property for approximately $56.0 million (before certain credits, prorations and closing costs). Proceeds from the disposition were used toward the acquisition of the Seattle portfolio pursuant to a like-kind exchange under Internal Revenue Code Section 1031.” Mr. Coleman continued, “Third quarter leasing remained active, including the successful negotiation of a 12-year lease with Deluxe Entertainment Services Group Inc., a leading provider of services and technologies for the global digital media and entertainment industry, for our entire 63,376 square-foot 3401 Exposition Blvd. property in Santa Monica, California. The lease was executed on October 22, 2013 and is expected to commence in the early third quarter of 2014.” Third Quarter Highlights *FFO (excluding specified items) of $14.0 million, or $0.24 per diluted share, compared to $10.5 million, or $0.21 per share, a year ago; *Completed new and renewal leases totaling 43,122 square feet; *Stabilized office portfolio leased rate of 95.5% at September30, 2013; *Completed acquisition of 848,001 square-foot office portfolio in Seattle, Washington, for approximately $368.6 million (net of certain credits and before closing costs and prorations) (completed on July 31, 2013); *Completed disposition of 333,922 square-foot City Plaza property in Orange, California, for approximately $56.0 million (before certain credits, prorations and closing costs) (completed on July 12, 2013); *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 September30, 2013 Total revenue from continuing operations during the quarter increased 31.5% to $53.3 million from $40.6 million for the same quarter a year ago. Total operating expenses from continuing operations increased 33.7% to $48.2 million from $36.0 million for the same quarter a year ago. As a result, income from operations increased 14.1% to $5.2 million for the third quarter of 2013, compared to income from operations of $4.5 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 third quarter increased 62.2% to $7.3 million, compared to interest expense of $4.5 million for the same quarter a year ago. At September30, 2013, the Company had $891.2 million of notes payable, compared to $582.1 million as of December 31, 2012 and $359.5 million at September30, 2012. Segment Operating Results For The Three Months Ended September30, 2013 Office Properties Total revenue from continuing operations at the Company’s office properties increased 47.2% to $43.5 million from $29.6 million for the same quarter a year ago. The increase was primarily the result of a $11.5 million increase in rental revenue to $33.6 million, a $1.5 million increase in tenant recoveries to $6.5 million, and a $0.9 million increase in parking and other revenue to $3.4 million, largely resulting from the acquisition of the Pinnacle I and Pinnacle II buildings by our joint venture with MDP/Worthe on November 8, 2012 and June 14, 2013, respectively, and our acquisition of the Seattle portfolio on July 31, 2013. Office property operating expenses from continuing operations increased 37.3% to $16.8 million from $12.2 million for the same quarter a year ago. The increase was primarily the result of the acquisitions of the office properties described above. At September30, 2013, the Company’s stabilized office portfolio was 95.5% leased. During the quarter, the Company executed eight new and renewal leases totaling 43,122 square feet. Media and Entertainment Properties Total revenue at the Company’s media and entertainment properties decreased 10.7% to $9.8 million from $11.0 million for the same quarter a year ago. The decrease was primarily the result of a $1.3 million decrease in other property-related revenue to $3.2 million, primarily resulting from lower production activity at the Company’s media and entertainment properties compared to the same quarter a year ago. Total media and entertainment operating expenses decreased 11.5% to $6.1 million from $6.9 million for the same quarter a year ago, primarily resulting from lower production activity at the Company’s media and entertainment properties compared to the same quarter a year ago. As of September30, 2013, the trailing 12-month occupancy for the Company’s media and entertainment portfolio increased to 71.5% from 71.0% for the trailing 12-month period ended September30, 2012. Combined Operating Results For The Nine Months Ended September30, 2013 For the first nine months of 2013, total revenue from continuing operations was $148.1 million, an increase of 27.2% from $116.4 million in the same period the prior year. Total operating expenses from continuing operations were $130.6 million, compared to $104.3 million in the same period a year ago. As a result, income from operations increased 45.2% to $17.6 million for the first nine months of 2013, compared to income from operations of $12.1 million for the same period a year ago. The revenue for the first nine months of 2013 includes an early lease termination payment from Bank of America relating to the Company’s 1455 Market Street property of $1.1 million (after the write-off of non-cash items), with no comparable activity for the same period a year ago. Operating expenses for the first nine months of 2013 include a property tax reimbursement resulting from the reassessment of the Sunset Gower media and entertainment property of $0.8 million, compared to a supplemental property tax expense associated with our Technicolor property in the first nine months of 2012 of approximately $0.9 million. The Company also had $1.0 million of acquisition-related expense during the first nine months of 2013, compared to $0.8 million of acquisition-related expense during the first nine months of 2012. Interest expense during the first nine months of 2013 increased 33.6% to $18.7 million from $14.0 million in the same period of 2012, primarily due to interest expenses for a full nine months on the indebtedness associated with our First Financial and 10950 Washington properties, the increase in indebtedness associated with our 275 Brannan property financing on October 5, 2012, our 901 Market property financing on October 29, 2012, the indebtedness associated with the Pinnacle I and Pinnacle II buildings acquired on November 8, 2012 and June 14, 2013, respectively, and the indebtedness associated with the acquisition of the Seattle portfolio, as described below. Balance Sheet At September30, 2013, the Company had total assets of $2.1 billion, including unrestricted cash and cash equivalents of $29.3 million. At September30, 2013, we had approximately $237.3 million of total capacity under our unsecured revolving credit facility, of which $80.0 million had been drawn. City Plaza Disposition On July 12, 2013, the Company sold its City Plaza property for approximately $56.0 million (before certain credits, prorations, and closing costs). Proceeds from the disposition were used toward the acquisition of the Seattle portfolio pursuant to a like-kind exchange under Internal Revenue Code Section 1031. City Plaza is a nineteen-story, 333,922 rentable square-foot Class-A office building located in Orange, California that was acquired by the Company’s predecessor in August of 2008 and contributed to the Company in connection with its June 29, 2010 initial public offering. Seattle Acquisition On July 31, 2013, the Company acquired a 848,001 square-foot office portfolio in Seattle, Washington from Spear Street Capital for approximately $368.6 million (net of certain credits and before closing costs and prorations). The purchase price was paid from a combination of cash-on-hand (including funds from the 1031 exchange of City Plaza), borrowings under the Company’s corporate unsecured credit facility, and the asset-level financing described below. The Seattle Portfolio consists of the following: *a two-building, 484,463 square-foot waterfront property located in the Pioneer Square submarket of downtown Seattle, referred to as the First & King property. This property is 88.2% leased to tenants such as Capital One/ING Direct, EMC Corporation and Nuance Communications; *a 189,762 square-foot Class-A office building located in the South Lake Union submarket of downtown Seattle, referred to as the Met Park North property. This building is 94.6% leased, with 72.4% of the building to be occupied by Amazon.com, Inc. under a ten-year lease expected to commence in November 2013; and *a 173,776 square-foot building located in the Edmonds/Lynnwood submarket of Seattle’s Northend, referred to as the Northview property. This building is 88.6% leased to tenants such as Automatic Data Processing, Inc. and the Federal Emergency Management Agency. Financings Seattle Portfolio (Met Park North and First & King Properties) In connection with the acquisition of the Seattle portfolio, on July 31, 2013, the Company closed a seven-year loan totaling $64.5 million with Union Bank, N.A., secured by the Company’s Met Park North property. The loan bears interest at a rate equal to one-month LIBOR plus 155 basis points. The full loan is subject to an interest rate contract that swapped one-month LIBOR to a fixed rate of 2.1644% through the loan’s maturity on August 1, 2020. Proceeds from the loan were used toward the purchase the Seattle portfolio. On August 14, 2013, the Company closed a five-year loan totaling $95.0 million with Wells Fargo Bank, N.A., secured by the Company’s First & King property. The loan bears interest at a rate equal to one-month LIBOR plus 160 basis points. Proceeds from the loan were used toward the repayment of amounts drawn on our unsecured credit facility in connection with the Seattle portfolio acquisition. Media and Entertainment Properties Effective August 22, 2013, the terms of the Company’s loan secured by its Sunset Gower and Sunset Bronson media and entertainment properties were amended to increase the outstanding balance from $92.0 million to $97.0 million, reduce the interest rate from LIBOR plus 3.50% to LIBOR plus 2.25%, and extend the maturity date from February 11, 2016 to February 11, 2018. Leasing Activities (Subsequent to end of third quarter) Throughout the third quarter the Company negotiated a new 12-year lease with Deluxe Entertainment Services Inc., a leading provider of services and technologies for the global digital media and entertainment industry, for its entire 63,376 square-foot 3401 Exposition Blvd. property in Santa Monica, California. The lease was executed on October 22, 2013. Commencement of the lease with Deluxe is scheduled for the early third quarter of 2014. 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 third quarter of 2013. Both dividends were paid on September 30, 2013 to stockholders of record on September 20, 2013. 2013 Outlook The Company is revising its full-year 2013 FFO guidance from its previously announced range of $0.91 to $0.95 per diluted share (excluding specified items) to a revised range of $0.93 to $0.97 per diluted share (excluding specified items). The revised guidance reflects the Company’s FFO for the third quarter ended September30, 2013 of $0.24 per diluted share (excluding specified items). Stronger than expected operating results from our media and entertainment properties and interest savings from the recent amendment to the loan secured by the media and entertainment properties largely account for this upward revision. In addition, this guidance reflects the acquisitions, financings and leasing activity referenced in this press release and all previously announced acquisitions, dispositions, financings and leasing activity. 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 third quarter 2013 results may be found in the Investor Relations section of the Company’s Web site atwww.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 on November 4, 2013. 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 10000485. 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 November 4, at 4:30 p.m. PT / 7:30 p.m. ET, through November 11, at 8:59 p.m. PT / 11:59 p.m. ET. To access the replay, dial (877) 870-5176 and use passcode 10000485. 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 the Pacific Northwest and 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, San Francisco and Seattle. The Company’s portfolio currently consists of approximately 6.2 million square feet, not including undeveloped land that the Company believes can support an additional 1.6 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 visitwww.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, 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 December31, 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. Hudson Pacific Properties, Inc. Consolidated Balance Sheet (In thousands, except share data) September 30, December 31, 2013 2012 ASSETS (Unaudited) Audited REAL ESTATE ASSETS Land $ 581,842 $ 478,273 Building and improvements 1,257,236 831,791 Tenant improvements 93,932 75,094 Furniture and fixtures 14,386 11,545 Property under development 50,597 23,961 Total real estate held for investment 1,997,993 1,420,664 Accumulated depreciation and amortization (104,609 ) (80,303 ) Investment in real estate, net 1,893,384 1,340,361 Cash and cash equivalents 29,341 18,904 Restricted cash 17,679 14,322 Accounts receivable, net 11,922 12,167 Notes receivable — 4,000 Straight-line rent receivables 19,601 12,732 Deferred leasing costs and lease intangibles, 107,041 81,010 net Deferred finance costs, net 8,278 8,175 Interest rate contracts 87 71 Goodwill 8,754 8,754 Prepaid expenses and other assets 6,209 4,588 Assets associated with real estate held for sale — 54,608 TOTAL ASSETS $ 2,102,296 $ 1,559,692 LIABILITIES AND EQUITY Notes payable $ 891,175 $ 582,085 Accounts payable and accrued liabilities 39,270 18,578 Below-market leases 47,667 31,560 Security deposits 6,083 5,291 Prepaid rent 6,705 11,276 Interest rate contracts 863 — Obligations associated with real estate held for — 1,205 sale TOTAL LIABILITIES 991,763 649,995 6.25% series A cumulative redeemable preferred 12,475 12,475 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 145,000 145,000 preference, 5,800,000 shares outstanding at September 30, 2013 and December 31, 2012, respectively Common stock, $0.01 par value, 490,000,000 authorized, 56,711,202 shares and 47,496,732 567 475 shares outstanding at September 30, 2013 and December 31, 2012, respectively Additional paid-in capital 899,251 726,605 Accumulated other comprehensive loss (1,989 ) (1,287 ) Accumulated deficit (45,101 ) (30,580 ) Total Hudson Pacific Properties, Inc. 997,728 840,213 stockholders’ equity Non-controlling interest—members in Consolidated 46,340 1,460 Entities Non-controlling common units in the Operating 53,990 55,549 Partnership TOTAL EQUITY 1,098,058 897,222 TOTAL LIABILITIES AND EQUITY $ 2,102,296 $ 1,559,692 Hudson Pacific Properties, Inc. Combined Statements of Operations (Unaudited, in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Revenues Office Rental $ 33,575 $ 22,039 $ 89,665 $ 64,161 Tenant recoveries 6,520 4,989 17,617 15,856 Parking and other 3,426 2,537 10,472 7,062 Total office 43,521 29,565 117,754 87,079 revenues Media & entertainment Rental 5,977 6,075 17,162 17,331 Tenant recoveries 500 406 1,241 1,071 Other property-related 3,170 4,476 11,368 10,797 revenue Other 180 44 616 146 Total media & entertainment 9,827 11,001 30,387 29,345 revenues Total revenues 53,348 40,566 148,141 116,424 Operating expenses Office operating 16,766 12,211 44,191 35,977 expenses Media & entertainment 6,136 6,934 18,133 17,993 operating expenses General and 5,020 4,083 15,195 12,748 administrative Depreciation and 20,256 12,808 53,069 37,614 amortization Total operating 48,178 36,036 130,588 104,332 expenses Income from 5,170 4,530 17,553 12,092 operations Other expense (income) Interest expense 7,319 4,511 18,673 13,977 Interest income (22 ) (142 ) (262 ) (149 ) Acquisition-related 483 455 992 815 expenses Other (income) (13 ) (125 ) 41 (35 ) expenses 7,767 4,699 19,444 14,608 Loss from continuing (2,597 ) (169 ) (1,891 ) (2,516 ) operations (Loss) income from discontinued (10 ) (105 ) 1,608 481 operations Impairment loss from discontinued (145 ) — (5,580 ) — operations Net (loss) income from discontinued (155 ) (105 ) (3,972 ) 481 operations Net loss $ (2,752 ) $ (274 ) $ (5,863 ) $ (2,035 ) Net income attributable to (3,231 ) (3,231 ) (9,693 ) (9,693 ) preferred stock and units Net income attributable to (71 ) (69 ) (229 ) (226 ) restricted shares Net loss attributable to non-controlling 118 — 399 — interest in Consolidated Entities Net loss attributable to common units in the 242 179 636 704 Operating Partnership Net loss attributable to Hudson Pacific $ (5,694 ) $ (3,395 ) $ (14,750 ) $ (11,250 ) Properties, Inc. common stockholders Basic and diluted per share amounts: Net loss from continuing operations $ (0.10 ) $ (0.07 ) $ (0.20 ) $ (0.29 ) attributable to common stockholders Net (loss) income from discontinued — — (0.07 ) 0.01 operations Net loss attributable to common $ (0.10 ) $ (0.07 ) $ (0.27 ) $ (0.28 ) stockholders’ per share—basic and diluted Weighted average shares of common stock 56,144,099 46,668,862 54,815,763 39,945,249 outstanding—basic and diluted Dividends declared per share of common $ 0.125 $ 0.125 $ 0.375 $ 0.375 stock Hudson Pacific Properties, Inc. Funds From Operations (Unaudited, in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Reconciliation of net loss to Funds From Operations (FFO): Net loss $ (2,752 ) $ (274 ) $ (5,863 ) $ (2,035 ) Adjustments: Depreciation and amortization of real 20,256 12,808 53,069 37,614 estate assets Depreciation and amortization—discontinued — 774 789 1,808 operations Impairment loss 145 — 5,580 — FFO attributable to non-controlling interest (890 ) — (1,018 ) — in Consolidated Entities Net income attributable to preferred stock and (3,231 ) (3,231 ) (9,693 ) (9,693 ) units FFO to common stockholders and unit $ 13,528 $ 10,077 $ 42,864 $ 27,694 holders Specified items impacting FFO: Acquisition-related 483 455 992 815 expenses One-time property tax — — (797 ) 918 expenses/(savings) Lease termination revenue — — (1,082 ) — FFO (excluding specified items) to common $ 14,011 $ 10,532 $ 41,977 $ 29,427 stockholders and unit holders Weighted average common stock/units 59,094 49,675 57,808 43,140 outstanding—diluted FFO per common $ 0.23 $ 0.20 $ 0.74 $ 0.64 stock/unit—diluted FFO (excluding specified items) per common $ 0.24 $ 0.21 $ 0.73 $ 0.68 stock/unit—diluted Contact: 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 firstname.lastname@example.org
Hudson Pacific Properties, Inc. Announces Third Quarter 2013 Financial Results
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