Hudson Pacific Properties, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Hudson Pacific is a REIT focused on office and studio properties; the filing combines the Company and its operating partnership. Unless stated otherwise, amounts below are in U.S. dollars.
Business context and portfolio
At quarter-end, the consolidated and unconsolidated portfolio comprised 66 properties totaling approximately 21.3 million square feet across California, the Pacific Northwest, Western Canada and Greater London. The in-service office portfolio was 92.3% leased; same-store studio occupancy averaged 84.1% over the prior 12 months. Four non-strategic office properties totaling about 745,000 square feet were classified as held for sale.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $244.5 million | $213.1 million |
| Net income (loss) | $(7.6) million | $11.4 million |
| Net income (loss) attributable to common stockholders | $(19.8) million; $(0.13) per share | $5.0 million; $0.03 per share |
| Net operating income (NOI), a non-GAAP measure | $151.9 million | $135.1 million |
| FFO attributable to common stockholders and unitholders, a non-GAAP measure | $66.4 million | $72.5 million |
| Cash provided by operating activities | $95.5 million | $114.7 million |
Revenue increased 14.7%, while NOI rose 12.4%. Same-store NOI was nearly flat at $124.8 million, down 0.1%; non-same-store NOI increased to $27.1 million from $10.2 million, principally reflecting completed developments and 2021 acquisitions. Office segment profit was $137.8 million and studio segment profit was $14.1 million. GAAP net loss included $20.5 million of impairment charges and lower unrealized investment gains than a year earlier. FFO declined about 8.3% year over year.
At March 31, cash and cash equivalents were $137.6 million, with restricted cash of $60.2 million. Net cash from operating activities fell 16.8%. Total unsecured and secured debt before deferred financing costs was $4.00 billion, up from $3.76 billion at year-end; including in-substance defeased debt and joint-venture partner debt, reported debt obligations were higher. Debt to total market capitalization was 46.9%. The company had drawn $335.0 million of its $1.0 billion revolver, leaving approximately $665 million of capacity, and was in compliance with its financial covenants. Debt maturities include $127.3 million of defeased debt in the remainder of 2022 and $160.0 million of unsecured and secured debt in 2023.
Material changes and notable items
- Q1 impairment charges totaled $20.5 million: $12.0 million related to the Del Amo property’s reduced estimated fair value and $8.5 million for the Zio trade name following the planned rebranding into the Sunset Studios platform.
- The Company paid $200 million under two accelerated share repurchase agreements and received approximately 6.6 million shares initially. Final settlement was expected in Q3 2022 and could require additional share or cash settlement. Common shares outstanding fell to 144.6 million at March 31 from 151.1 million at year-end.
- Operating cash flow was lower, while investing cash outflows decreased to $72.3 million from $97.2 million. Financing cash flow was a $22.3 million outflow, including the ASRs and dividends, partly offset by debt proceeds.
- After quarter-end, the Company completed the $85.6 million acquisition of the Washington 1000 development site in Seattle and borrowed $65.0 million under its revolver. It also launched EquiBlue, whose initial fund target is $300 million; the Company and its strategic partner committed to contribute at least 20% of total capital commitment collectively.
Outlook, risks and contingencies
The filing provides no quantified earnings or FFO guidance. Management said the commercial real estate market appeared to be recovering, while emphasizing continued uncertainty from the pandemic, office utilization and tenant renewal decisions, competition for leasing and investment, higher operating costs, interest-rate and capital-market conditions, and the ability to refinance debt on favorable terms. Management also cited potential effects on occupancy, rents, property values, cash flows, distributions and debt service.
Notable commitments include $249.7 million of outstanding construction agreements and $21.1 million remaining under commitments to non-real-estate investment funds. The Company also guarantees $105.2 million of Bentall Centre joint-venture debt. Management assessed ordinary-course legal claims as unlikely to cause a material adverse effect. The filing reported no loan defaults and no material changes to the prior annual report’s risk factors.
Important facts for investors to verify
- Whether office leasing, occupancy and renewals sustain the reported 92.3% leased rate, and how the 2022–2024 lease expirations affect rent and occupancy.
- Final ASR settlement, total shares repurchased and the resulting cash, share-count and per-share effects.
- Progress on selling the four held-for-sale properties and whether estimated values, especially Del Amo, change further.
- Debt refinancing costs and floating-rate exposure, upcoming maturities, revolver availability and continued covenant compliance.
- Whether studio service revenue and NOI remain supported following the 2021 acquisitions and changes in production activity.
- Execution, financing needs and timing for development projects and the Washington 1000 acquisition, as well as EquiBlue’s final capital commitments.