Hudson Pacific Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Hudson Pacific is a REIT focused on office and studio properties, operating through Hudson Pacific Properties, L.P. Its portfolio totaled approximately 20.5 million square feet across 62 consolidated and unconsolidated properties.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $245.2 million | $251.4 million | $497.4 million | $495.9 million |
| Net income (loss) | $(31.5) million | $3.5 million | $(46.3) million | $(4.1) million |
| Net loss attributable to common stockholders | $(36.2) million; $(0.26) per share | $(7.4) million; $(0.05) per share | $(56.6) million; $(0.40) per share | $(27.2) million; $(0.19) per share |
| NOI (non-GAAP) | $133.7 million | $152.2 million | $274.7 million | $304.1 million |
| FFO attributable to common stockholders and unitholders (non-GAAP) | $42.2 million | $73.0 million | $90.7 million | $139.4 million |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $151.7 million | $190.1 million |
Q2 NOI was about 54.5% of revenue, versus 60.5% a year earlier; six-month NOI was about 55.2% of revenue, versus 61.3%. These are calculated ratios, not company-reported GAAP margins.
- At June 30, cash and cash equivalents were $109.2 million; cash plus restricted cash was $127.8 million, down from $285.7 million at year-end 2022.
- Unsecured and secured debt was $4.491 billion gross ($4.473 billion net of financing costs and discounts), plus $66.1 million of joint-venture partner debt. Total assets were $9.106 billion and total equity was $3.645 billion.
- Operating cash flow declined 20.2% year over year. Investing used $93.4 million; financing used $216.2 million. The company paid $384 million of debt and received $263.4 million of debt proceeds during the half-year.
Material changes and operating trends
- Q2 revenue fell 2.5%, while six-month revenue was nearly flat. Office revenue declined, partly offset by higher studio revenue and service activity.
- Q2 NOI declined 12.1%; six-month NOI declined 9.7%. Same-store NOI fell 3.2% in Q2 and 0.8% for six months. Non-same-store NOI fell sharply, including from property sales and weaker studio activity.
- Management attributed lower studio NOI primarily to reduced production rentals during the Writers Guild of America strike. Office same-store occupancy also weakened: 85.2% average occupied in Q2 versus 91.2% a year earlier; ending leased was 86.6% versus 92.0%.
- Interest expense rose 62.1% in Q2 and 68.0% for six months, principally from higher floating reference rates, increased revolver and construction-loan borrowings, and the 5.95% senior notes issued in 2022.
- The company sold Skyway Landing for $102 million in February, recording a $7.0 million gain. It settled the Quixote seller note for $150 million versus $160 million principal, recognizing a $10 million gain on extinguishment.
- The common dividend was reduced to $0.125 per share for Q2 from $0.25 in Q2 2022.
Liquidity, debt, outlook and risks
- The $1.0 billion revolver had $528 million drawn, leaving approximately $472 million undrawn. The One Westside and Westside Two construction facility had $324.6 million drawn of $414.6 million capacity. An unconsolidated Sunset Glenoaks joint venture had $68.2 million drawn of $100.6 million capacity.
- Debt principal maturities, after extension options, included $50 million for the remainder of 2023, $324.6 million in 2024, $741.3 million in 2025 and $1.568 billion in 2026. The Series E notes include $50 million due September 2023; the filing lists extension options for certain secured loans.
- The company reported compliance with financial covenants at June 30. Actual ratios included liabilities to asset value of 47.5% against a 60% limit, and adjusted EBITDA to fixed charges of 2.4x against a 1.5x minimum.
- No quantitative earnings or occupancy guidance is provided in the supplied filing text. Management identified expected liquidity sources including operations, cash, debt facilities, joint-venture funding and potential equity issuance; future ATM sales are discretionary and market-dependent.
- Key risks include further production disruption, office tenant defaults or non-renewals and vacancy, higher rates and operating costs, refinancing and capital-market access, and execution and funding of development projects. The filing reports $201.7 million of construction and lease-related commitments, plus guarantees for certain joint-venture debt and construction obligations. Management assessed legal-loss risk as remote and reported no loan defaults.
- Subsequent to quarter-end, the company entered into and sold offsetting interest-rate caps related to the Hollywood Media Portfolio loan, effective August 15, 2023 through August 15, 2024.
Most important facts for investors to verify
- Whether the production strike and subsequent activity materially change studio rentals and cash generation.
- Office leasing, occupancy, upcoming expirations, and the pace of new lease commencements.
- Near-term debt repayment or extension outcomes, floating-rate exposure, and available borrowing capacity.
- Funding needs and delivery schedules for construction projects, including the $201.7 million of commitments.
- Dividend sustainability against operating cash flow, debt service, and tenant-improvement and leasing costs.