Hudson Pacific Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Hudson Pacific is a REIT focused on office and studio properties across California, the Pacific Northwest and Western Canada. Its portfolio comprised 64 consolidated and unconsolidated properties totaling approximately 20.0 million square feet. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $215.6 | $198.6 | $428.7 | $404.8 |
| Net income | $7.0 | $7.0 | $18.4 | $21.0 |
| Net income attributable to common stockholders | $2.3 | $3.7 | $7.3 | $14.5 |
| Basic and diluted EPS | $0.02 | $0.02 | $0.05 | $0.09 |
| Net operating income (NOI) | $134.0 | $126.0 | $269.1 | $257.8 |
| Operating cash flow | — | — | $172.9 | $137.5 |
- Q2 revenue rose 8.6% year over year; NOI increased 6.3%. Q2 NOI margin was approximately 62.2%, versus 63.5% a year earlier. GAAP net income was nearly unchanged, while common-stockholder income declined.
- For the first half, revenue increased 5.9% and NOI 4.4%, but common-stockholder income fell about 49.6%. A $10.8 million unrealized gain on non-real-estate investments supported 2021 results; 2020 included a $2.8 million unrealized loss. Interest expense and depreciation also increased.
- Same-store NOI declined 1.0% in Q2 and 2.4% for the first half. Non-same-store NOI rose 99.9% and 93.6%, respectively, primarily reflecting the 1918 Eighth acquisition and a lease commencement at Harlow. Same-store office occupancy and leasing were lower than prior-year levels; studio service revenue improved, alongside higher related costs.
- At June 30, total assets were $8.43 billion and total equity $3.95 billion. Cash and cash equivalents were $111.0 million; restricted cash was $34.0 million; U.S. Government securities were $132.2 million.
- Unsecured and secured debt totaled $3.519 billion before deferred financing costs; additional in-substance defeased debt was $130.0 million and joint-venture partner debt was $66.1 million. The $600 million revolver was undrawn at quarter-end; the One Westside construction loan had $192.9 million drawn of $414.6 million capacity. Reported debt to total market capitalization was 44.9%. The company was compliant with financial covenants.
- Operating cash flow was $172.9 million for the first half, investing cash outflow was $204.0 million, and financing cash inflow was $26.5 million. Additions to real estate were $191.0 million. Dividends declared were $0.25 per common share for Q2.
Business changes, outlook and risks
- At June 30, the in-service office portfolio was 91.4% leased; same-store studio occupancy averaged 88.0% over the prior 12 months. One Westside, a 584,000-square-foot redevelopment fully leased to Google for approximately 14 years, was under construction, with completion estimated for Q1 2022.
- No acquisitions or dispositions were completed in the first half. Subsequent to quarter-end, the company and a Blackstone affiliate purchased a 91-acre site near London for future studio development for $167.5 million; Hudson Pacific owns 35%. The company drew $50 million on its revolver on July 22 in anticipation of the transaction.
- Management reported no significant COVID-related disruption during Q2 and said physical occupancy was increasing as the economy reopened. However, the pandemic’s future effects on office demand, tenant rent payments, occupancy and distributions remained uncertain; the board continued to evaluate dividend policy. The filing provides no numerical earnings or operating guidance.
- Key exposures include office vacancy and lease expirations, tenant credit and lease termination risk, development costs and schedules, interest rates, financing access and LIBOR transition. The company had $163.2 million of outstanding construction-agreement obligations and a $104.2 million proportionate share of Bentall Centre debt that it guaranteed. It expected $6.0 million of hedge losses in accumulated other comprehensive loss to be reclassified as higher interest expense over the next 12 months. Management considered ordinary-course litigation loss risk remote.
Important facts for investors to verify
- Leasing, occupancy, rent collection and renewal activity, particularly same-store office performance and studio utilization.
- Debt maturities and refinancing needs, covenant headroom, floating-rate exposure and LIBOR-to-SOFR transition terms.
- Funding and execution of One Westside and the development pipeline, including the London studio-site commitment and construction obligations.
- Whether operating cash generation can support capital spending, tenant improvements, debt service and dividends as pandemic-related effects evolve.
- The durability of reported earnings excluding unrealized investment gains and the contribution of non-same-store properties.