Hudson Pacific Properties, Inc. — FY2022 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2022. Hudson Pacific is a REIT focused on office and studio properties and related production services, with assets primarily in California, the Pacific Northwest, Western Canada and Greater London. At year-end, its portfolio comprised approximately 15.9 million square feet of office properties, 35 studio stages and related facilities, 3.6 million square feet of land development rights, and production-services equipment and stage lease rights. The filing combines the reports of Hudson Pacific Properties, Inc. and its operating partnership.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Total revenue | $1,026.2 million | $896.8 million | Up 14.4% |
| Consolidated net income (loss) | $(16.5) million | $29.0 million | Down $45.5 million |
| Net income (loss) attributable to common stockholders | $(56.5) million; $(0.39) per share | $6.1 million; $0.04 per share | Preferred dividends and non-controlling interests affect attribution |
| Property NOI | $612.4 million | $561.0 million | Up 9.2%; approximately 59.7% of FY2022 revenue |
| FFO attributable to common stockholders and unitholders | $270.4 million | $293.7 million | Down approximately 7.9%; non-GAAP measure |
| Net cash from operating activities | $369.5 million | $314.9 million | Up 17.4% |
| Net cash used in investing activities | $(378.1) million | $(754.2) million | Lower outflow, including real estate sale proceeds |
| Net cash from financing activities | $97.4 million | $486.7 million | Lower mainly because 2021 included preferred and common equity issuances |
Office revenue was $852.7 million and studio revenue was $173.5 million. Studio revenue increased substantially, supported by acquisitions and production-services activity. Same-store NOI fell 2.5% to $492.1 million, while non-same-store NOI more than doubled to $120.3 million, reflecting acquisitions, lease commencements and studio-services growth. Same-store office occupancy averaged 89.0%, versus 92.3% in 2021; year-end leased occupancy was 88.3%, versus 92.7%. In-service office space was 89.7% leased including signed leases not yet commenced, and 88.0% occupied. Same-store studio occupancy averaged 84.6%, compared with 85.7%.
Debt, liquidity and distributions
- Cash and cash equivalents were $255.8 million at year-end; cash plus restricted cash totaled $285.7 million.
- Unsecured and secured debt totaled $4.61 billion, excluding joint-venture partner debt; this was up from $3.76 billion at year-end 2021. Including $66.1 million of joint-venture partner debt, total consolidated debt was approximately $4.68 billion. Debt represented 71.6% of the company’s reported market capitalization measure.
- Approximately $1.0 billion of revolving-credit capacity was available, with $385.0 million drawn. The One Westside/10850 Pico construction facility had $414.6 million capacity and $316.6 million drawn. The unconsolidated Sunset Glenoaks facility had $100.6 million capacity and $41.3 million drawn.
- Variable-rate debt was approximately $1.91 billion. Management estimated that a 100-basis-point rate increase would add $19.1 million to annual interest expense, before considering mitigating actions. Interest expense rose 22.9% to $149.9 million.
- Debt maturities include $320 million in 2023 and approximately $1.06 billion in 2024–2025 combined, based on the contractual-obligations schedule. The $160 million Quixote seller note bears 5.00% interest and matures December 31, 2023.
- The company reported compliance with debt covenants at year-end and ratings of Baa3 from Moody’s and BBB- from S&P and Fitch.
- Common dividends were $1.00 per share for 2022. The filing reports that 57.13% of the common distribution was classified as return of capital for federal tax purposes. Series C preferred dividends were $1.3359 per share for the year.
Material changes, outlook and notable items
- Quixote was acquired on August 31, 2022 for $359.1 million, including a $160.0 million seller note. It contributed $33.2 million of revenue and a $5.3 million operating loss from acquisition through year-end. The acquisition added $153.4 million of goodwill; the auditor identified purchase-price accounting, particularly customer-retention assumptions, as a critical audit matter.
- FY2022 impairment losses were $28.5 million, versus $2.8 million in 2021. The 2022 charge included $20.0 million related to Del Amo, Northview Center and 6922 Hollywood, and $8.5 million for the Zio trade name following a rebranding. The three properties were sold during 2022.
- The company issued $350 million of 5.95% senior notes due 2028, using net proceeds primarily to repay revolving-credit borrowings. It also transitioned several floating-rate debt instruments from LIBOR to SOFR.
- Development projects under construction totaled approximately 787,000 square feet: Washington 1000, estimated for completion in Q1 2024, and Sunset Glenoaks Studios, estimated for Q3 2023. The filing gives no broader earnings or FFO guidance; stabilization dates and future-pipeline timing are subject to uncertainty.
- As of year-end, 19.3% of the company’s share of office square footage was available, and a further 13.2% was scheduled to expire in 2023, including leases scheduled to expire on December 31, 2022. The 15 largest office tenants represented 44.1% of office annualized base rent; Google, Amazon and Netflix together represented 22.2%.
- Management cited remote-work trends, tenant subleasing, technology and media-sector exposure, higher interest rates, operating-cost inflation and the availability and cost of capital as significant risks. Approximately 70.7% of consolidated and unconsolidated portfolio square footage was in California.
- Contractual construction commitments were $254.2 million, of which $201.7 million was expected within one year. A further $14.8 million remained to be contributed to non-real-estate funds; the Zio earnout liability was $9.3 million, with up to $20 million of additional consideration possible in 2024 subject to performance thresholds.
- After year-end, the company repaid $110 million of Series A notes and sold Skyway Landing for $102 million, using the proceeds to repay its revolving facility. These subsequent events are not included in FY2022 results.
- The financial statements received an unqualified audit opinion. Management and the auditor concluded internal control over financial reporting was effective; Quixote was excluded from the internal-control assessment.
Most important facts for investors to verify
- Whether office occupancy, leasing spreads and renewals improve, particularly given 2023 expirations and available space.
- How much rent and NOI are at risk from large tenants, early-termination rights, tenant subleases and exposure to technology and media businesses.
- Quixote’s operating performance and integration, including whether its acquisition assumptions, goodwill and intangible-asset valuations remain supportable.
- Debt refinancing plans and cost, near-term maturities, variable-rate exposure, covenant headroom and the sustainability of dividends alongside capital needs.
- Actual construction costs, delivery and lease-up progress for Washington 1000 and Sunset Glenoaks, and funding for other commitments.
- The drivers of the GAAP net loss and lower FFO, including elevated interest expense, impairment charges, preferred distributions and recurring capital and leasing requirements.