Hudson Pacific Properties, Inc. — Q3 2020 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2020; amounts below are U.S. dollars. Hudson Pacific is a West Coast and Vancouver-focused REIT with office and studio properties. At quarter-end, its portfolio comprised 62 consolidated and unconsolidated properties totaling approximately 18.8 million square feet. Office occupancy was 92.6% and leased rate 93.5%; same-store studios averaged 91.3% occupied.
Financial performance and position
- Revenue: Q3 revenue was $196.3 million, down 5.4% year over year; nine-month revenue was $601.1 million, essentially unchanged. Q3 office revenue declined 2.5% and studio revenue declined 29.9%, chiefly reflecting reduced service revenue.
- Profit and FFO: Q3 consolidated net loss was $1.4 million versus net income of $63.0 million a year earlier; net loss attributable to common stockholders was $5.4 million, or $0.04 per share, versus income of $58.8 million, or $0.38 per share. Nine-month common-stockholder income was $8.9 million, or $0.06 per share, versus $29.8 million, or $0.19. FFO attributable to common stockholders and unitholders was $63.2 million for Q3 versus $79.2 million, and $221.6 million for nine months versus $231.1 million.
- Property operations: Q3 NOI was $121.2 million, down 6.2%; same-store NOI fell 11.9%, partly offset by a 60.7% rise in non-same-store NOI. Nine-month NOI was $378.9 million, down 0.4%. NOI as a share of revenue was approximately 61.7% in Q3 versus 62.2% and 63.0% for nine months versus 63.3% in 2019.
- Cash flow: Nine-month operating cash flow was $247.9 million, up from $233.6 million. Investing used $305.2 million; financing provided $403.3 million. Cash and cash equivalents were $365.3 million, with restricted cash of $39.0 million, at September 30.
- Debt and liquidity: Balance-sheet unsecured and secured debt, net, was $3.055 billion; additional balances included $132.6 million of in-substance defeased debt and $66.1 million of joint-venture partner debt. The company reported $600 million undrawn on its revolver and $339.5 million remaining on the One Westside construction facility. Net debt to consolidated market capitalization was 42.1%; the partnership was in compliance with financial covenants.
Material changes and unusual items
- On July 30, Blackstone acquired a 49% interest in the 2.2-million-square-foot Hollywood Media Portfolio; Hudson retained 51% and operating responsibility. The transaction’s gross portfolio valuation was $1.65 billion. A $900 million, interest-only mortgage was also arranged; combined proceeds from the stake sale and Hudson’s share of asset-level financing were approximately $1.27 billion before transaction adjustments and costs.
- Proceeds were used to repay the revolver, Term Loans B and D, the Met Park North mortgage and the Sunset Bronson/ICON/CUE facility. The transaction drove a shift from unsecured to secured debt and contributed to higher interest expense. The new mortgage has an initial two-year term, with three one-year extension options subject to conditions.
- Same-store operating results reflected pandemic-related reductions in parking, tenant services and studio filming activity. Q3 studio service and other revenue fell 65.4%; office service and other revenue fell 60.1%. The prior-year comparison also included a $47.1 million real estate sale gain in 2019, while 2019 nine-month results included a $52.2 million impairment charge; neither item occurred in 2020.
- Management reported collecting approximately 97% of Q3 contractual rents: 98% from office tenants, 100% from studio tenants and 52% from storefront retail tenants. By October 29, 94% of October contractual rents had been collected. These figures exclude rent deferred or abated under COVID-related amendments.
Outlook, risks and contingencies
The filing provides no numerical earnings or FFO guidance. Management said the pandemic’s future effect on rent collection, tenant demand, capital access and development timing remained uncertain. The board would continue evaluating dividend policy to preserve liquidity; the Q3 common dividend was $0.25 per share. Management cited $365.3 million cash, available revolver capacity and no secured or unsecured debt maturities until 2022 as liquidity resources. Key risks include tenant defaults or lease terminations, vacancy and rent pressure, financing access and costs, construction delays, and broader economic and social disruption. The company guaranteed approximately $95.2 million of debt attributable to its 20% Bentall Centre joint venture interest. Management assessed ordinary-course litigation loss risk as remote and reported no material legal proceedings.
Important facts for investors to verify
- Rent collections, rent relief and tenant credit quality, particularly storefront retail and office tenants.
- Underlying leasing, occupancy and renewal trends, including office lease expirations and studio activity.
- Cash available after development spending, dividends and any further repurchases; the board’s dividend decision.
- Hollywood Media Portfolio loan terms, extension conditions, rate exposure and debt maturities concentrated in 2022.
- Actual project costs and completion schedules, especially One Westside and other development projects.