UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from_____to_____
Commission file number 001-34789 (Hudson Pacific Properties, Inc.)
Commission file number 333-202799-01 (Hudson Pacific Properties, L.P.)
Hudson Pacific Properties, Inc.
Hudson Pacific Properties, L.P.
Hudson Pacific Properties, Inc.
Hudson Pacific Properties, L.P.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
Maryland
(State or other jurisdiction of
incorporation or organization)
27-1430478
(I.R.S. Employer
Identification Number)
80-0579682
(I.R.S. Employer
Identification Number)
11601 Wilshire Blvd., Ninth Floor, Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (310) 445-5700
Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Hudson Pacific Properties, Inc.
Common Stock, $0.01 par value
HPP
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Hudson Pacific Properties, Inc. Yes x No o Hudson Pacific Properties, L.P. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Hudson Pacific Properties, Inc. Yes o No x Hudson Pacific Properties, L.P. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Hudson Pacific Properties, Inc. Yes x No o Hudson Pacific Properties, L.P. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files).
Hudson Pacific Properties, Inc. Yes x No o Hudson Pacific Properties, L.P. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Hudson Pacific Properties, Inc.
Large accelerated filer x
Non-accelerated filer o
Hudson Pacific Properties, L.P.
Large accelerated filer o
Non-accelerated filer x
Accelerated filer o
Smaller reporting company ☐
Emerging growth company ☐
Accelerated filer o
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)
Hudson Pacific Properties, Inc. Yes ☐ No x Hudson Pacific Properties, L.P. Yes ☐ No x
As of June 30, 2020, the aggregate market value of common stock held by non-affiliates of the registrant (assuming for these purposes, but
without conceding, that all executive officers and directors are “affiliates” of the registrant) was $3.80 billion based upon the last sales price on
June 30, 2020 for the registrant’s Common Stock.
There is no public trading market for the common units of limited partnership interest of Hudson Pacific Properties, L.P. As a result, the
aggregate market value of the common units of limited partnership interest held by non-affiliates of Hudson Pacific Properties, L.P. cannot be
determined.
The number of shares of common stock of Hudson Pacific Properties, Inc. outstanding at February 15, 2021 was 150,957,542.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant’s 2021 Annual Meeting of Stockholders to be held May 20, 2021 are incorporated by
reference in Part III of this Annual Report on Form 10-K. The proxy statement will be filed by the registrant with the United States Securities and
Exchange Commission, or the SEC, not later than 120 days after the end of the registrant’s fiscal year.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the period ended December 31, 2020 of Hudson Pacific
Properties, Inc., a Maryland corporation, and Hudson Pacific Properties, L.P., a Maryland limited partnership. Unless otherwise
indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” or “our Company” refer to
Hudson Pacific Properties, Inc. together with its consolidated subsidiaries, including Hudson Pacific Properties, L.P. In statements
regarding qualification as a REIT, such terms refer solely to Hudson Pacific Properties, Inc. Unless otherwise indicated or unless
the context requires otherwise, all references to “our operating partnership” or “the operating partnership” refer to Hudson Pacific
Properties, L.P. together with its consolidated subsidiaries.
Hudson Pacific Properties, Inc. is a real estate investment trust, or REIT, and the sole general partner of our operating
partnership. As of December 31, 2020, Hudson Pacific Properties, Inc. owned approximately 98.6% of the ownership interest in
our operating partnership (including unvested restricted units). The remaining approximately 1.4% interest was owned by certain
of our executive officers and directors, certain of their affiliates and other outside investors, including unvested operating
partnership performance units. As the sole general partner of our operating partnership, Hudson Pacific Properties, Inc. has the full,
exclusive and complete responsibility for our operating partnership’s day-to-day management and control.
We believe combining the annual reports on Form 10-K of Hudson Pacific Properties, Inc. and the operating partnership
into this single report results in the following benefits:
•
•
•
enhancing investors’ understanding of our Company and our operating partnership by enabling investors to view the
business as a whole in the same manner as management views and operates the business;
eliminating duplicative disclosure and providing a more streamlined and readable presentation because a substantial
portion of the disclosures apply to both our Company and our operating partnership; and
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
There are a few differences between our Company and our operating partnership, which are reflected in the disclosures in
this report. We believe it is important to understand the differences between our Company and our operating partnership in the
context of how we operate as an interrelated, consolidated company. Hudson Pacific Properties, Inc. is a REIT, the only material
assets of which are the units of partnership interest in our operating partnership. As a result, Hudson Pacific Properties, Inc. does
not conduct business itself, other than acting as the sole general partner of our operating partnership, issuing equity from time to
time and guaranteeing certain debt of our operating partnership. Hudson Pacific Properties, Inc. itself does not issue any
indebtedness but guarantees some of the debt of our operating partnership. Our operating partnership, which is structured as a
partnership with no publicly traded equity, holds substantially all of the assets of our Company and conducts substantially all of
our business. Except for net proceeds from equity issuances by Hudson Pacific Properties, Inc., which are generally contributed to
our operating partnership in exchange for units of partnership interest in our operating partnership, our operating partnership
generates the capital required by our Company’s business through its operations, its incurrence of indebtedness or through the
issuance of units of partnership interest in our operating partnership.
Non-controlling interest, stockholders’ equity and partners’ capital are the main areas of difference between the
consolidated financial statements of our Company and those of our operating partnership. The common units in our operating
partnership are accounted for as partners’ capital in our operating partnership’s consolidated financial statements and, to the extent
not held by our Company, as a non-controlling interest in our Company’s consolidated financial statements. The differences
between stockholders’ equity, partners’ capital and non-controlling interest result from the differences in the equity issued by our
Company and our operating partnership.
To help investors understand the significant differences between our Company and our operating partnership, this report
presents the consolidated financial statements separately for our Company and our operating partnership. All other sections of this
report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative
and Qualitative Disclosures About Market Risk,” are presented together for our Company and our operating partnership.
In order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the
requisite certifications and that our Company and our operating partnership are compliant with Rule 13a-15 or Rule 15d-15 of the
Securities Exchange Act of 1934, or the Exchange Act and 18 U.S.C. §1350, this report also includes separate Part II, Item 9A
“Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of Hudson Pacific Properties, Inc. and
our operating partnership.
HUDSON PACIFIC PROPERTIES, INC. AND HUDSON PACIFIC PROPERTIES, L.P.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM 1.
Business
ITEM 1A.
Risk Factors
ITEM 1B.
Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
ITEM 5.
Market for Hudson Pacific Properties, Inc.’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market for Hudson Pacific Properties, L.P.’s Common Capital, Related Unitholder Matters and Issuer
Purchases of Units
ITEM 6.
ITEM 7.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
ITEM 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
ITEM 10.
Directors, Executive Officers and Corporate Governance
ITEM 11.
Executive Compensation
PART III
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13.
Certain Relationships and Related Transactions and Director Independence
ITEM 14.
Principal Accountant Fees and Services
ITEM 15.
Exhibits, Financial Statement Schedules
ITEM 16.
SIGNATURES
Form 10-K Summary
PART IV
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Forward-looking Statements
PART I
Certain written and oral statements made or incorporated by reference from time to time by us or our representatives in
this Annual Report on Form 10-K, other filings or reports filed with the SEC, press releases, conferences, or otherwise, are
“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A
of the Securities Act of 1933, as amended, or the Securities Act, as amended, and Section 21E of the Exchange Act). In particular,
statements relating to our liquidity and capital resources, portfolio performance and results of operations contain forward-looking
statements. Furthermore, all of the statements regarding future financial performance (including anticipated funds from operations,
or FFO, market conditions and demographics) are forward-looking statements. We are including this cautionary statement to make
applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any such
forward-looking statements. We caution investors that any forward-looking statements presented in this Annual Report on
Form 10-K, or that management may make orally or in writing from time to time, are based on management’s beliefs and
assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,”
“expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions that do not
relate solely to historical matters are intended to identify forward-looking statements. Such statements are subject to risks,
uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond
our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or projected. We expressly disclaim any responsibility to
update forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors
should use caution in relying on past forward-looking statements, which were based on results and trends at the time they were
made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ
materially from those expressed or implied by forward-looking statements include, among others, the following:
• adverse economic or real estate developments in our target markets;
• general economic conditions;
• defaults on, early terminations of or non-renewal of leases by tenants;
• fluctuations in interest rates and increased operating costs;
• our failure to obtain necessary outside financing or maintain an investment grade rating;
• our failure to generate sufficient cash flows to service our outstanding indebtedness and maintain dividend payments;
• lack or insufficient amounts of insurance;
• decreased rental rates or increased vacancy rates;
• difficulties in identifying properties to acquire and completing acquisitions;
• our failure to successfully operate acquired properties and operations;
• our failure to maintain our status as a REIT;
• the loss of key personnel;
• environmental uncertainties and risks related to adverse weather conditions and natural disasters;
• financial market and foreign currency fluctuations;
• risks related to acquisitions generally, including the diversion of management’s attention from ongoing business
operations and the impact on customers, tenants, lenders, operating results and business;
• the inability to successfully integrate acquired properties, realize the anticipated benefits of acquisitions or capitalize on
value creation opportunities;
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• changes in the tax laws and uncertainty as to how those changes may be applied;
• changes in real estate and zoning laws and increases in real property tax rates; and
• other factors affecting the real estate industry generally, including the impact of the COVID-19 pandemic.
Set forth below are some (but not all) of the factors that could adversely affect our business and financial performance.
Moreover, we operate in a highly competitive and rapidly changing environment. New risk factors emerge from time to time, and
it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in
any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
ITEM 1. Business
Company Overview
We are a vertically integrated real estate company focused on acquiring, repositioning, developing and operating high-
quality office and state-of-the-art studio properties in high-growth, high-barrier-to-entry submarkets throughout Northern and
Southern California, the Pacific Northwest and Western Canada. We invest across the risk-return spectrum, favoring opportunities
where we can employ leasing, capital investment and management expertise to create additional value. As of December 31, 2020,
our portfolio included office properties, comprising an aggregate of approximately 15.6 million square feet, and studio properties,
comprising approximately 1.2 million square feet of sound-stage, office and supporting production facilities. We also own
undeveloped density rights for approximately 3.2 million square feet of future office and residential space.
We were formed as a Maryland corporation in 2009 to succeed the business of Hudson Capital, LLC, a Los Angeles-
based real estate investment firm founded by Victor J. Coleman, our Chief Executive Officer. On June 29, 2010, we completed our
initial public offering (“IPO”). We own our interests in all of our properties and conduct substantially all of our business through
our operating partnership, of which we serve as the sole general partner.
This Annual Report on Form 10-K includes financial measures that are not in accordance with generally accepted
accounting principles in the United States (“GAAP”), which are accompanied by what the Company considers the most directly
comparable financial measures calculated and presented in accordance with GAAP. The Company presents the “Company’s share”
of certain of these measures, which are non-GAAP financial measures that are calculated as the consolidated amount calculated in
accordance with GAAP, plus the Company’s share of the amount from the Company’s unconsolidated joint ventures (calculated
based upon the Company’s percentage ownership interest), minus the Company’s partners’ share of the amount from the
Company’s consolidated joint ventures (calculated based upon the partners’ percentage ownership interests). Management believes
that presenting the “Company’s share” of these measures provides useful information to investors regarding the Company’s
financial condition and/or results of operations because the Company has several significant joint ventures, and in some cases the
Company exercises significant influence over, but does not control, the joint venture, in which case GAAP requires that the
Company accounts for the joint venture entity using the equity method of accounting and the Company does not consolidate it for
financial reporting purposes. In other cases, GAAP requires that the Company consolidate the joint venture even though the
Company’s partner(s) owns a significant percentage interest. As a result, management believes that presenting the Company’s
share of various financial measures in this manner can help investors better understand the Company’s financial condition and/or
results of operations after taking into account its true economic interest in these joint ventures.
Business and Growth Strategies
We invest in Class-A office and studio properties located in high barrier-to-entry, innovation-centric submarkets with
significant growth potential. Our positioning within these submarkets allows us to attract and retain quality growth companies as
tenants, many in the technology and media and entertainment sectors. The purchase of properties with a value-add component,
typically through off-market transactions, also facilitates our growth. These types of assets afford us the opportunity to capture
embedded rent growth and occupancy upside, and to strategically invest capital to reposition and redevelop assets to generate
additional cash flow. We take a more measured approach to ground-up development, with most under-construction, planned or
potential projects located on ancillary sites that are part of existing operating assets. Management expertise across disciplines
supports execution at all levels of our operations. In particular, aggressive leasing and proactive asset management, combined with
a focus on conservatively managing our balance sheet, are central to our strategy.
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Major Tenants
As of December 31, 2020, the 15 largest tenants in our office portfolio represented approximately 38.6% of the
Company’s share of total annualized base rent generated by our office properties. As of December 31, 2020, our two largest
tenants were Google, Inc. and Netflix, Inc., which together accounted for 12.8% of the Company’s share of the annualized base
rent generated by our office properties.
For further detail regarding major tenants, see Item 2 “Properties—Tenant Diversification.”
Our Competitive Position
We believe the following competitive strengths distinguish us from other real estate owners and operators and will enable
us to capitalize on opportunities in the market to successfully expand and operate our portfolio.
•
•
•
•
•
Experienced Management Team with a Proven Track Record of Acquiring and Operating Assets and Managing a
Public Office REIT. Our senior management team has an average of over 30 years of experience in the commercial real
estate industry, with a focus on acquiring, repositioning, developing and operating office properties in Northern and
Southern California, the Pacific Northwest and Western Canada.
Committed and Incentivized Management Team. Our senior management team is dedicated to our successful operation
and growth, with no competing real estate business interests outside of our Company. Additionally, as of December 31,
2020, our senior management team owned approximately 1.9 million shares of our common stock and 1.9 million units in
our operating partnership on a fully diluted basis, thereby aligning management’s interests with those of our stockholders.
Northern and Southern California, the Pacific Northwest and Western Canada Focus with Local and Regional
Expertise. We are primarily focused on acquiring and managing office properties in Northern and Southern California,
the Pacific Northwest and Western Canada, where our senior management has significant expertise and relationships. Our
markets are supply-constrained as a result of the scarcity of available land, high construction costs and restrictive
entitlement processes. We believe our experience, in-depth market knowledge and meaningful industry relationships with
brokers, tenants, landlords, lenders and other market participants enhance our ability to identify and capitalize on
attractive acquisition opportunities, particularly those that arise in Northern and Southern California, the Pacific
Northwest and Western Canada.
Long-Standing Relationships that Provide Access to an Extensive Pipeline of Investment and Leasing Opportunities.
We have an extensive network of long-standing relationships with real estate developers, individual and institutional real
estate owners, national and regional lenders, brokers, tenants and other participants in the Northern and Southern
California, the Pacific Northwest and Western Canada real estate markets. These relationships have historically provided
us with access to attractive acquisition opportunities, including opportunities with limited or no prior marketing by sellers.
We believe they will continue to provide us access to an ongoing pipeline of attractive acquisition opportunities and
additional growth capital, both of which may not be available to our competitors. Additionally, we focus on establishing
strong relationships with our tenants in order to understand their long-term business needs, which we believe enhances
our ability to retain quality tenants, facilitates our leasing efforts and maximizes cash flows from our properties.
Growth-Oriented, Flexible and Conservative Capital Structure. We have remained well-capitalized since our IPO,
including through 16 offerings (including two public offerings of 8.375% series B Cumulative Preferred Stock, ten public
offerings of our common stock, one private placement of our common stock and three public offerings of senior notes)
and continuous offerings under our at-the-market (“ATM”) program for aggregate total proceeds of approximately $4.7
billion (before underwriters’ discounts and transaction costs) as of December 31, 2020. Available cash on hand and our
unsecured credit facility provide us with a significant amount of capital to pursue acquisitions and execute our growth
strategy while maintaining a flexible and conservative capital structure. We believe our access to capital and flexible and
conservative capital structure provide us with an advantage over many of our private and public competitors as we look to
take advantage of growth opportunities. As of December 31, 2020, we had total borrowing capacity of approximately
$600.0 million under our unsecured revolving credit facility, none of which has been drawn, and we have the ability to
draw up to $414.6 million under our construction loan secured by our One Westside and 10850 Pico properties, $106.1
million of which has been drawn. We believe our access to capital and flexible and conservative capital structure provide
us with an advantage over many of our private and public competitors as we look to take advantage of growth
opportunities. Based on the closing price of our common stock of $24.02 on December 31, 2020, we had a debt-to-market
capitalization ratio (counting series A preferred units in our operating partnership, or series A preferred units, as debt) of
approximately 48.2%.
7
We have access to and are actively pursuing a pipeline of potential acquisitions consistent with our investment strategy.
We believe our significant expertise in operating in the Northern and Southern California, the Pacific Northwest and Western
Canada office sectors and extensive, long-term relationships with real estate owners, developers and lenders, coupled with our
conservative capital structure and access to capital, will allow us to capitalize on current market opportunities.
Competition
We compete with a number of developers, owners and operators of office and commercial real estate, many of which own
properties similar to ours in the same markets in which our properties are located and some of which have greater financial
resources than we do. In operating and managing our portfolio, we compete for tenants based on a number of factors, including
location, rental rates, security, flexibility and expertise to design space to meet prospective tenants’ needs and the manner in which
our properties are operated, maintained and marketed. As leases at our properties expire, we may encounter significant competition
to renew or re-let space in light of competing properties within the markets in which we operate. As a result, we may be required to
provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination
rights or below-market renewal options, or we may not be able to timely lease vacant space. In that case, our financial condition,
results of operations and cash flows may be adversely affected.
We also face competition when pursuing acquisition and disposition opportunities. Our competitors may be able to pay
higher property acquisition prices, may have private access to acquisition opportunities not available to us and may otherwise be in
a better position to acquire a property. Competition may also increase the price required to consummate an acquisition opportunity
and generally reduce the demand for commercial office space in our markets. Likewise, competition with sellers of similar
properties to locate suitable purchasers may result in us receiving lower proceeds from a sale or in us not being able to dispose of a
property at a time of our choosing due to the lack of an acceptable return.
For further discussion of the potential impact of competitive conditions on our business, see Item 1A “Risk Factors.”
Segment and Geographic Financial Information
We report our results of operations through two segments: (i) office properties and (ii) studio properties. For information
about our segments, refer to Part IV, Item 15(a) “Financial Statement Schedules—Note 15 to the Consolidated Financial
Statements—Segment Reporting.”
All of our business is conducted in Northern and Southern California, the Pacific Northwest and Western Canada. For
further detail regarding our geographic financial information, refer to Item 2 “Properties.”
Principal Executive Offices
Our principal executive offices are located at 11601 Wilshire Blvd., Ninth Floor, Los Angeles, California 90025 and our
telephone number is (310) 445-5700. We believe that our current facilities are adequate for our present operations.
Regulation
General
Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to
common areas and fire and safety requirements. We believe that each of the properties in our portfolio have the necessary permits
and approvals to operate its business.
8
Americans with Disabilities Act
Our properties located in the United States must comply with Title III of the Americans with Disabilities Act (“ADA”) to
the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural
barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.
We have developed and undertaken continuous capital improvement programs at various properties, some of which have included
ADA-related modifications. As capital improvement programs progress, certain ADA upgrades will continue to be integrated into
the planned improvements, specifically at the studio properties where we are able to utilize in-house construction crews to
minimize costs for required ADA-related improvements. However, some of our properties may currently be in noncompliance with
the ADA. Such noncompliance could result in the incurrence of additional costs to attain compliance, the imposition of fines or an
award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will
continue to assess our properties and to make alterations as appropriate in this respect.
Environmental Matters
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or
operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic
substances, waste or petroleum products at, on, in, under, or migrating from such property, including costs to investigate and clean
up such contamination and liability for natural resources. Such laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These
liabilities could be substantial and the cost of any required remediation, removal, fines, or other costs could exceed the value of the
property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our
properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially
adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition,
environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address
such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on
the manner in which the property may be used or businesses may be operated, and these restrictions may require substantial
expenditures.
Some of our properties contain, have contained, or are adjacent to or near other properties that have contained or currently
contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. Similarly, some of our
properties were used in the past for commercial or industrial purposes, or are currently used for commercial purposes, that involve
or involved the use of petroleum products or other hazardous or toxic substances, or are adjacent to or near properties that have
been or are used for similar commercial or industrial purposes. As a result, some of our properties have been or may be impacted
by contamination arising from the release of such hazardous substances or petroleum products. Where we have deemed
appropriate, we have taken steps to address identified contamination or mitigate risks associated with such contamination;
however, we are unable to ensure that further actions will not be necessary. As a result of the foregoing, we could potentially incur
material liabilities.
Independent environmental consultants have conducted Phase I Environmental Site Assessments at all of our properties
located in the United States using the American Society for Testing and Materials (“ASTM”) Practice E 1527-05. A Phase I
Environmental Site Assessment is a report prepared for real estate holdings that identifies potential or existing environmental
contamination liabilities. Site assessments are intended to discover and evaluate information regarding the environmental condition
of the surveyed property and surrounding properties. These assessments do not generally include soil samplings, subsurface
investigations or asbestos or lead surveys. None of the recent site assessments identified any known past or present contamination
that we believe would have a material adverse effect on our business, assets or operations. However, the assessments are limited in
scope and may have failed to identify all environmental conditions or concerns. A prior owner or operator of a property or historic
operations at our properties may have created a material environmental condition that is not known to us or the independent
consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or
may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability.
Environmental laws also govern the presence, maintenance and removal of asbestos-containing building materials
(“ACBM”) or lead-based paint (“LBP”) and may impose fines and penalties for failure to comply with these requirements or
expose us to third party liability (e.g., liability for personal injury associated with exposure to asbestos). Such laws require that
owners or operators of buildings containing ACBM and LBP (and employers in such buildings) properly manage and maintain the
asbestos and lead, adequately notify or train those who may come into contact with asbestos or lead, and undertake special
precautions, including removal or other abatement, if asbestos or lead would be disturbed during renovation or demolition of a
building. Some of our properties contain ACBM and/or LBP and we could be liable for such damages, fines or penalties.
9
In addition, the properties in our portfolio also are subject to various federal, state and local environmental and health and
safety requirements, such as state and local fire requirements. Moreover, some of our tenants routinely handle and use hazardous or
regulated substances and waste as part of their operations at our properties, which are subject to regulation. Such environmental
and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental
liabilities could affect a tenant’s ability to make rental payments to us. In addition, changes in laws could increase the potential
liability for noncompliance. We sometimes require our tenants to comply with environmental and health and safety laws and
regulations and to indemnify us for any related liabilities. But in the event of the bankruptcy or inability of any of our tenants to
satisfy such obligations, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such
damages or claims regardless of whether we knew of, or were responsible for, the presence or disposal of hazardous or toxic
substances or waste and irrespective of tenant lease provisions. The costs associated with such liability could be substantial and
could have a material adverse effect on us.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor
sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants
above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions.
As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a
costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase
indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from
our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any
material adverse indoor air quality issues at our properties.
Environmental, Social and Governance (“ESG”)
ESG Commitment
Our ESG platform, Better BlueprintTM, is informed by decades of experience and what we believe to be best practices
across every aspect of real estate. Better BlueprintTM brings to life our vision of vibrant, thriving urban spaces and places built for
the long term. Its principles and objectives provide a common thread that authentically guides our work and relations with tenants,
employees, investors and partners. Through this program, we aim to foster the growth of sustainable, healthy and equitable cities—
vibrant cities, today and in the future.
Sustainable: Minimizing our Footprint
We are committed to leadership in sustainability—whether designing a new property, reimagining a dated building, or
managing our existing portfolio. Our sustainability initiatives focus specifically on carbon and energy and waste and water. In
2020, we met our goal to achieve net zero carbon across operations and achieved this five years ahead of schedule, making us one
of the first large real estate organizations in the world to go fully carbon neutral. While we continue to reduce our energy use
through innovative, tech-enabled solutions, we are also focused on reducing the carbon embodied in our building materials like
steel and concrete and achieving our goal to be net zero waste by 2025.
Our 2020 achievements include:
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100% of properties are net zero carbon across all operations;
100% of properties use renewable electricity;
100% of (re)developments and major repositionings adhere to our Sustainable Design Vision, which includes a
commitment to obtaining a minimum of LEED Gold certification on all projects;
80% of our in-service office portfolio is LEED certified and 71% is ENERGY STAR certified; and
99% of our in-service office portfolio has recycling services and 71% has composting services.
Healthy: Healthy Buildings, Healthy Lives
We aim to set our properties apart by providing safe environments that promote wellness and resilience for our
employees, tenants and neighbors. Our healthy buildings initiatives focus specifically on Building Design and Operations and
Community Engagement. We are a Fitwel Champion, committed to the healthy building principles outlined in Fitwel’s evidence-
based certification framework developed in partnership with the U.S. Centers for Disease Control, and we were one of the first
major North American landlords to achieve portfolio-wide certification under Fitwel’s Viral Response Module (“VRM”). We also
have developed a comprehensive Healthy Building Checklist, which our entire in-service office portfolio will meet by 2025.
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Our 2020 achievements include:
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100% of properties use COVID-safe operational procedures certified under Fitwel’s VRM, including but not limited to:
face covering requirement for all common spaces, use of hospital-grade disinfectants, increased cleaning frequency,
maximized outside air and optimized filtration with MERV-13+ filters where possible;
100% of multi-tenant properties have a mobile app that regularly promotes health and wellness through virtual fitness
classes, mindfulness training, cooking sessions and more;
98% of our in-service office portfolio is served by bike storage, 72% has showers and/or lockers and 53% has on-site
fitness amenities; and
23% of our in-service office portfolio is Fitwel certified.
Equitable: Vibrant, Thriving Cities for All
We seek to create and cultivate communities that champion diversity and inclusivity and afford ample opportunity for
everyone to succeed. Our equity and inclusion initiatives focus specifically on workplace opportunity and homelessness and
housing. We offer a highly competitive approach to compensation, benefits, workplace and culture, and we have an established
diversity, equity and inclusion (“DEI”) program focused both internally and externally. Our employees are actively engaged in
their communities, and as a company we are committed to donating at least 1% of net earnings annually to charitable causes.
Our 2020 achievements include:
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100% of employees received training on subjects such as health and safety, leadership development, corporate operations
and/or new employee onboarding;
100% of employees were given access to DEI education resources and a subset of employees completed intensive, cohort-
based DEI training (with the remaining employees to complete the training in 2021);
Over $1 million in charitable giving, with a focus on organizations advancing homelessness, racial equity and health and
wellness in our core markets;
Over $650,000 in grants made available to under-represented artists through the Vibrant Cities Arts Grant, which is
associated with our One Westside development project in partnership with Macerich; and
Long-standing policy of providing every employee with 32 hours of paid volunteer time-off annually, access to a robust
Matching Gift program and regular employee volunteering events.
Human Capital
Hiring
In alignment with our Company values, we believe people are our greatest asset and we embrace a recruitment process
that strives to attract top-tier, diverse talent. Through a series of behavioral-based interviews, Company recruiters assess candidates
for skills, competencies and cultural fit. The hiring team comprises a recruiter, hiring manager and other peers or stakeholders to
ensure a collaborative process.
Diversity, Equity and Inclusion
We value employees at all levels of the organization and provide ample opportunities for growth, while striving to foster
and celebrate diversity in all its forms, whether gender, age, ethnicity or cultural background. We take pride in the fact that our
employee base reflects an even gender split as well as a broad cross-section of racial and ethnic backgrounds. In 2020, we
launched a comprehensive DEI program for employees at all levels, which includes initiatives such as:
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An ongoing series of intensive, cohort-based DEI training with an external consultant/coach for all employees.
The development of Employee Resource Groups (“ERGs”), which are designed to connect employees who have similar
backgrounds and shared experiences. ERGs commit to working with the Company on diversity and inclusion, bringing
people together to share best practices and ensure that we are supporting each other across our communities.
A thoughtfully curated DEI Library filled with education resources, which employees can access online at any time to
increase awareness and knowledge of important concepts and to develop skills to help make meaningful change.
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Training and Development
Upon joining the Company, our employees from all regions attend Hudson U, a two-day orientation program that is a fun,
interactive way for new hires to get to know the Company, its strategy, values and leadership. Senior executives speak candidly
about the Company and their roles.
In addition to traditional employee development programs like annual performance reviews and role-specific training
programs, we offer individualized curriculums through an online platform at no cost to the employees, interactive leadership
development programs for junior and mid-career/senior team members and off-site team retreats that foster team-building and
skills training. The Company regularly honors top performers, and generous Company policies encourage work/life balance
through paid time off, subsidized gym memberships, fitness programs and events and healthy dining options.
Compensation and Benefits
We are a pay-for-performance organization, which means that compensation decisions are made based on individual,
team/department, and overall company performance. This includes consideration of contributions and accomplishments as well as
how these were achieved (values, skills and competencies). The objective is to emphasize corporate goals and individual
contributions to the achievement of those goals for the year.
We award merit salary increases as recognition for the past year’s performance, sustained contributions and/or the
attainment of new skills. Discretionary bonuses are designed to reward employees for fulfilling their responsibilities, delivering
superior results and making significant contributions. Discretionary performance bonus amounts are based on job level and should
be dependent on the nature and significance of the employee’s contribution and accomplishment.
We offer competitive compensation and benefits, including, but not limited to, retirement savings plans and medical,
dental and vision coverage. We offer multiple flexible spending accounts, an employee referral bonus program and a
comprehensive charitable giving program with matching donations and 32 hours of paid time off each year for volunteering. We
have generous policies to encourage work/life balance, including paid holiday, vacation and sick time as well as an employee
assistance program that offers confidential assistance 24 hours a day, 365 days a year to assist with personal and work-related
problems.
Collective Bargaining Arrangements
At December 31, 2020, we had 375 employees, of which six were subject to collective bargaining agreements. Each of
the six employees are on-site at the Sunset Bronson Studios property. We believe that relations with our employees are good.
Available Information
On the Investor Relations page on our Company’s Website at investors.hudsonpacificproperties.com we post the
following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and
Exchange Commission (“SEC”): our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on
Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All such
filings are available to be viewed on our Investor Relations page on our Website free of charge. Also available on our Investor
Relations page on our Website, free of charge, are our corporate governance guidelines, the charters of the nominating and
corporate governance, audit and compensation committees of our board of directors and our Code of Business Conduct and Ethics
(which applies to all directors and employees, including our Principal Executive Officer and Principal Financial Officer). We
intend to use our Website as a means of disclosing material non-public information and for complying with our disclosure
obligations under Regulation FD. Such disclosures will be included on our Website in the ‘Investor Resources’ sections.
Accordingly, investors should monitor such portions of our Website, in addition to following our press releases, SEC filings and
public conference calls and webcasts. Information contained on or hyperlinked from our Website is not incorporated by reference
into, and should not be considered part of, this Annual Report on Form 10-K or our other filings with the SEC. A copy of this
Annual Report on Form 10-K is available without charge upon written request to: Investor Relations, Hudson Pacific Properties,
Inc., 11601 Wilshire Blvd., Ninth Floor, Los Angeles, California 90025.
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ITEM 1A. Risk Factors
Overview
The following section sets forth material factors that may adversely affect our business and financial performance. The
following factors, as well as the factors discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Factors That May Influence Our Operating Results” and other information contained in this Annual
Report on Form 10-K, should be considered in evaluating us and our business.
Risk Factors Summary
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or
may adversely affect our business and financial performance. These risks are discussed more fully below and include, but are not
limited to, the following:
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Risks Related to Our Properties and Our Business
• Our properties are located in Northern and Southern California, the Pacific Northwest and Western Canada, and
we are susceptible to adverse economic conditions, local regulations and natural disasters affecting those
markets.
• We derive a significant portion of our rental revenue from tenants in the technology and media and entertainment
industries, which makes us particularly susceptible to demand for rental space in those industries.
• We may be unable to identify and complete acquisitions of properties that meet our criteria, dispose of such
assets, yield the returns we expect or to successfully and profitably operate our properties.
• Our growth depends on external sources of capital that are outside of our control and may not be available to us
on commercially reasonable terms or at all, and our existing debt may restrict our ability to engage in some
business activities.
• Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our
investment in a property or group of properties subject to mortgage debt.
• We face considerable competition, depend on significant tenants, may be unable to renew leases, lease vacant
space or may be unable to obtain our asking rents, which could each have an adverse effect on our financial
condition, results of operations, cash flow and the per share trading price of our securities.
• Some of our properties are subject to ground leases, the termination or expiration of which could cause us to lose
our interest in, and the right to receive rental income from, such properties.
• Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance
on co-venturers’ financial condition and disputes between us and our co-venturers.
• If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report
our financial results.
•
Risks Related to the Real Estate Industry
• Our performance and value are subject to risks associated with real estate assets and the real estate industry, as
well as property development and redevelopment.
• The illiquidity of real estate investments could significantly impede our ability to respond to adverse changes and
harm our financial condition.
• We may incur significant costs related to compliance with government laws, regulations and covenants that are
applicable to our properties, including environmental regulations.
• Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to
liability for adverse health effects and costs of remediation.
•
Risks Related to Our Organizational Structure
• The series A preferred units that were issued to some contributors in connection with our IPO in exchange for
the contribution of their properties have certain preferences, which could limit our ability to pay dividends or
other distributions to the holders of our securities or engage in certain business combinations, recapitalizations or
other fundamental changes.
• Conflicts of interest exist or could arise in the future between the interests of our stockholders and the interests of
holders of units in our operating partnership.
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• Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law contain
provisions that may delay, defer or prevent a change of control transaction, even if such a change in control may
be in our stockholders’ interest, and as a result may depress the market price of our securities.
• Our board of directors may change our investment and financing policies without stockholder approval and we
may become more highly leveraged, which may increase our risk of default under our debt obligations.
• Our rights and the rights of our stockholders to take action against our directors and officers are limited.
• We are a holding company with no direct operations and, as such, we rely on funds received from our operating
partnership to pay liabilities, and the interests of our stockholders are structurally subordinated to all liabilities
and obligations of our operating partnership and its subsidiaries.
•
Risks Related to Our Status as a REIT
• Failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock.
• If our operating partnership were to fail to qualify as a partnership for federal income tax purposes, we would
cease to qualify as a REIT and suffer other adverse consequences.
• The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions
that would be treated as sales for federal income tax purposes.
• Our ownership of taxable REIT subsidiaries is subject to certain restrictions, and we will be required to pay a
100% penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not
conducted on arm’s length terms.
• To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions.
• Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise
attractive investments.
• Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
• The power of our board of directors to revoke our REIT election without stockholder approval may cause
adverse consequences to our stockholders and unitholders.
• Legislative or other actions affecting REITs could have a negative effect on our investors and us.
•
Risks Related to General and Global Factors
• Our business and results of operations and financial condition have been and may be further materially or
adversely impacted by the outbreak of a pandemic, including COVID-19.
• Adverse economic and geopolitical conditions and dislocations in the credit markets, as well as social, political,
and economic instability, unrest, and other circumstances beyond our control could have a material adverse
effect on our financial condition, results of operations, cash flow and per share trading price of our securities.
• Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be
covered by insurance.
• Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate,
may adversely affect interest expense related to outstanding debt.
• We may become subject to litigation, which could have an adverse effect on our financial condition, results of
operations, cash flow and the per share trading price of our securities.
• We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as
other significant disruptions of our information technology (“IT”) networks and related systems.
• Future terrorist activity or engagement in war by the United States may have an adverse effect on our financial
condition and operating results.
Risks Related to Our Properties and Our Business
Our properties are located in Northern and Southern California, the Pacific Northwest and Western Canada, and we
are susceptible to adverse economic conditions, local regulations and natural disasters affecting those markets.
Our properties are located in Northern and Southern California, the Pacific Northwest and Western Canada, which
exposes us to greater economic risks than if we owned a more geographically dispersed portfolio. Further, our properties are
concentrated in certain areas, including Los Angeles, San Francisco, Silicon Valley, Seattle and Vancouver, exposing us to risks
associated with those specific areas. We are susceptible to adverse developments in the economic and regulatory environments of
Northern and Southern California, the Pacific Northwest and Western Canada (such as business layoffs or downsizing, industry
slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or
increased regulation), as well as to natural disasters that occur in our markets (such as earthquakes, windstorms, landslides,
droughts, fires and other events). In addition, the State of California has had historical periods of budgetary constraints and is
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regarded as more litigious and more highly regulated and taxed than many other states, all of which may reduce demand for office
space in California. Any adverse developments in the economy or real estate market in Northern and Southern California, the
Pacific Northwest or Western Canada, or any decrease in demand for office space resulting from the California regulatory or
business environment, could adversely impact our financial condition, results of operations, cash flow and the per share trading
price of our securities.
We are required to pay property taxes on our properties. These taxes could increase as property tax rates increase or as
properties are reassessed by the taxing authorities. For example, under the existing California law commonly referred to as
Proposition 13, property tax reassessments generally occur as a result of a “change of ownership” of a property. Because the
property tax authorities may take extensive time to determine if there has a been a “change of ownership” or the actual reassessed
value of the property, the potential reassessment may not be determined until a period after the transaction has occurred. From time
to time, including recently, lawmakers and voters have initiated efforts to repeal or amend Proposition 13, which, if successful,
would increase the assessed value or tax rates for our properties in California. Additionally, there is similar legislation being
proposed in other state and local jurisdictions in which our properties are located. An increase in the assessed value of our
properties, property tax rates, or potential other new taxes could adversely affect our financial condition, cash flows and our ability
to pay dividends to our stockholders.
We derive a significant portion of our rental revenue from tenants in the technology and media and entertainment
industries, which makes us particularly susceptible to demand for rental space in those industries.
A significant portion of our rental revenue is derived from tenants in the technology and media and entertainment
industries. Consequently, we are susceptible to adverse developments affecting the demand by tenants in these industries for office,
production and support space in Northern and Southern California, the Pacific Northwest and Western Canada and, more
particularly, in Hollywood and the South of Market area of the San Francisco submarket. As we continue our development and
potential acquisition activities in markets populated by knowledge-and creative-based tenants in the technology and media and
entertainment industries, our tenant mix could become more concentrated, further exposing us to risks in those industries. Any
adverse development in the technology and media and entertainment industries could adversely affect our financial condition,
results of operations, cash flow and the per share trading price of our securities.
We may be unable to identify and complete acquisitions of properties that meet our criteria, which may impede our
growth.
Our business strategy includes the acquisition of underperforming office properties. These activities require us to identify
suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategies. We
continue to evaluate the market of available properties and may attempt to acquire properties when strategic opportunities exist.
However, we may be unable to acquire any of the properties that we may identify as potential acquisition opportunities in the
future. Our ability to acquire properties on favorable terms, or at all, may be exposed to the following significant risks:
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potential inability to acquire a desired property because of competition from other real estate investors with significant
capital, including publicly traded REITs, private equity investors and institutional investment funds, which may be able to
accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments
and the payment of higher acquisition prices;
we may incur significant costs and divert management attention in connection with evaluating and negotiating potential
acquisitions, including ones that we are subsequently unable to complete;
even if we enter into agreements for the acquisition of properties, these agreements are typically subject to customary
conditions to closing, including the satisfactory completion of our due diligence investigations; and
we may be unable to finance the acquisition on favorable terms or at all.
If we are unable to finance property acquisitions or acquire properties on favorable terms, or at all, our financial
condition, results of operations, cash flow and the per share trading price of our securities could be adversely affected. In addition,
failure to identify or complete acquisitions of suitable properties could slow our growth.
Our future acquisitions may not yield the returns we expect.
Our future acquisitions and our ability to successfully operate the properties we acquire in such acquisitions may be
exposed to the following significant risks:
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even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the
purchase price;
we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully manage and
lease those properties to meet our expectations;
our cash flow may be insufficient to meet our required principal and interest payments;
we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of
properties, into our existing operations;
• market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
•
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to
unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants,
vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of
business and claims for indemnification by general partners, directors, officers and others indemnified by the former
owners of the properties.
If we cannot operate acquired properties to meet our financial expectations, our financial condition, results of operations,
cash flow and the per share trading price of our securities could be adversely affected.
We may acquire properties or portfolios of properties through tax deferred contribution transactions, which could
result in stockholder dilution and limit our ability to sell such assets.
In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in
exchange for partnership interests in our operating partnership, which may result in stockholder dilution. This acquisition structure
may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the
acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through
restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to
maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable
absent such restrictions.
Our growth depends on external sources of capital that are outside of our control and may not be available to us on
commercially reasonable terms or at all.
In order to maintain our qualification as a REIT, we are required to meet various requirements under the Internal Revenue
Code of 1986, as amended, or the Code, including that we distribute annually at least 90% of our REIT taxable income, excluding
any net capital gain. In addition, we will be subject to federal corporate income tax to the extent that we distribute less than 100%
of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to
fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely
on third-party sources to fund our capital needs. We may not be able to obtain the financing on favorable terms or at all. Any
additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends,
in part, on:
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general market conditions;
the market’s perception of our growth potential;
our current debt levels;
our current and expected future earnings;
our cash flow and cash distributions; and
the market price per share of our common stock.
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The credit markets can experience significant disruptions. If we cannot obtain capital from third-party sources, we may
not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing
properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to maintain our
qualification as a REIT.
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of
operations, cash flow, cash available for distribution, including cash available for payment of dividends on and the per share
trading price of our securities.
If interest rates increase, then so will the interest costs on our unhedged variable rate debt, which could adversely affect
our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our stockholders.
Further, rising interest rates could limit our ability to refinance existing debt when it matures. We seek to manage our exposure to
interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to
honor their obligations under these arrangements, and that these arrangements may not be effective in reducing our exposure to
interest rate changes. Failure to hedge effectively against interest rate changes may materially adversely affect our financial
condition, results of operations, cash flow, cash available for distribution, including cash available for payment of dividends on and
the per share trading price of our securities. In addition, while such agreements are intended to lessen the impact of rising interest
rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs
associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to
qualify as highly-effective cash flow hedges under Accounting Standards Codification (“ASC”) 815, Derivative and Hedging.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment
in a property or group of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on
indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property
securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely
affect the overall value of our portfolio of properties. For tax purposes, a foreclosure of any of our properties that is subject to a
nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the
debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property,
we would recognize taxable income on foreclosure, but would not receive any cash proceeds.
Our unsecured revolving credit facility, registered senior notes, term loan facility and note purchase agreements
restrict our ability to engage in some business activities.
Our unsecured revolving credit facility, registered senior notes, term loan facility and note purchase agreements contain
customary negative covenants and other financial and operating covenants that, among other things:
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restrict our ability to incur additional indebtedness;
restrict our ability to make certain investments;
restrict our ability to merge with another company;
restrict our ability to make distributions to stockholders; and
require us to maintain financial coverage ratios.
These limitations restrict our ability to engage in some business activities, which could adversely affect our financial
condition, results of operations, cash flow, cash available for distributions to our stockholders, and per share trading price of our
securities. In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of
default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us. Furthermore,
our unsecured revolving credit facility and term loan facility contain specific cross-default provisions with respect to specified
other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some circumstances.
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We have a limited operating history with respect to some of our properties and may not be able to operate them
successfully.
Our 1918 Eighth property in Seattle has only been under our management since it was acquired in December 2020. This
property may have characteristics or deficiencies unknown to us which could affect its valuation or revenue potential. In addition,
there can be no assurance that the operating performance of this property will not decline under our management. We cannot
assure you that we will be able to operate this property successfully.
We face significant competition, which may decrease or prevent increases in the occupancy and rental rates of our
properties.
We compete with numerous developers, owners and operators of office properties, many of which own properties similar
to ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below current
market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be
pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant
improvements, early termination rights or below-market renewal options in order to retain tenants when our tenants’ leases expire.
As a result, our financial condition, results of operations, cash flow and the per share trading price of our securities could be
adversely affected.
We depend on significant tenants.
As of December 31, 2020, the 15 largest tenants in our office portfolio represented approximately 38.6% of the
Company’s share of the total annualized base rent generated by our office properties. The inability of a significant tenant to pay
rent or the bankruptcy or insolvency of a significant tenant may adversely affect the income produced by our properties. If a tenant
becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or
insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease with us. Any claim
against such tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining
rent owed under the lease. As of December 31, 2020, our two largest tenants were Google, Inc. and Netflix, Inc., which together
accounted for 12.8% of the Company’s share of the annualized base rent generated by our office properties. If Google, Inc. and
Netflix, Inc. were to experience a downturn or a weakening of financial condition resulting in a failure to make timely rental
payments or causing a lease default, we may experience delays in enforcing our rights as landlord and may incur substantial costs
in protecting our investment.
We may be unable to renew leases, lease vacant space or re-let space as leases expire.
As of December 31, 2020, approximately 10.2% of the Company’s share of the square footage of the office properties
(including our development and redevelopment properties) in our portfolio was available, taking into account uncommenced leases
signed as of December 31, 2020. An additional approximately 11.0% of the Company’s share of the square footage of the office
properties in our portfolio is scheduled to expire in 2021 (includes leases scheduled to expire on December 31, 2020). We cannot
assure you that leases will be renewed or that our properties will be re-let at net effective rental rates equal to or above the current
average net effective rental rates or that substantial rent abatements, tenant improvements, early termination rights or below-market
renewal options will not be offered to attract new tenants or retain existing tenants. If the rental rates for our properties decrease,
our existing tenants do not renew their leases or we do not re-let a significant portion of our available space and space for which
leases will expire, our financial condition, results of operations, cash flow and per share trading price of our securities could be
adversely affected.
We may be required to make rent or other concessions and/or significant capital expenditures to improve our
properties in order to retain and attract tenants, causing our financial condition, results of operations, cash flow and per share
trading price of our securities to be adversely affected.
To the extent adverse economic conditions continue in the real estate market and demand for office space remains low,
we expect that, upon expiration of leases at our properties, we will be required to make rent or other concessions to tenants,
accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our
tenants. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire
and to attract new tenants in sufficient numbers. Additionally, we may need to raise capital to make such expenditures. If we are
unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures. This could result in non-
renewals by tenants upon expiration of their leases, which could adversely affect our financial condition, results of operations, cash
flow and the per share trading price of our securities.
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The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may
experience lease roll-down from time to time.
As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in Northern or
Southern California, the Pacific Northwest or Western Canada real estate markets, a general economic downturn and the
desirability of our properties compared to other properties in our submarkets, we may be unable to realize the asking rents across
the properties in our portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able to
obtain may vary both from property to property and among different leased spaces within a single property. If we are unable to
obtain rental rates that are on average comparable to our asking rents across our portfolio, then our ability to generate cash flow
growth will be negatively impacted. In addition, depending on asking rental rates at any given time as compared to expiring leases
in our portfolio, from time to time rental rates for expiring leases may be higher than starting rental rates for new leases.
Some of our properties are subject to ground leases, the termination or expiration of which could cause us to lose our
interest in, and the right to receive rental income from, such properties.
Twelve of our consolidated properties are subject to ground leases (including properties with a portion of the land subject
to a ground lease). See Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 9 to the Consolidated Financial
Statements—Future Minimum Base Rents and Lease Payments Future Minimum Rents” for more information regarding our
ground lease agreements. If any of these ground leases are terminated following a default or expire without being extended, we
may lose our interest in the related property and may no longer have the right to receive any of the rental income from such
property, which would adversely affect our financial condition, results of operations, cash flow and the per share trading price of
our securities.
The ground sublease for the Del Amo property is subject and subordinate to a ground lease, the termination of which
could result in a termination of the ground sublease.
The property on which the Del Amo building is located is subleased by Del Amo Fashion Center Operating Company,
L.L.C., or Del Amo, through a long-term ground sublease. The ground sublease is subject and subordinate to the terms of a ground
lease between the fee owner of the Del Amo property and the sub-landlord under the ground sublease. The fee owner has not
granted to the subtenant under the ground sublease any rights of non-disturbance. Accordingly, a termination of the ground lease
for any reason, including a rejection thereof by the ground tenant under the ground lease in a bankruptcy proceeding, could result
in a termination of the ground sublease. In the event of a termination of the ground sublease, we may lose our interest in the Del
Amo building and may no longer have the right to receive any of the rental income from the Del Amo building. In addition, our
lack of any non-disturbance rights from the fee owner may impair our ability to obtain financing for the Del Amo building.
Our success depends on key personnel whose continued service is not guaranteed.
Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key
personnel who have extensive market knowledge and relationships and exercise substantial influence over our operational,
financing, acquisition and disposition activity. Many of our senior executives have extensive experience and strong reputations in
the real estate industry, which aid us in identifying opportunities, having opportunities brought to us, and negotiating with tenants
and build-to-suit prospects. In February 2021, our Chief Investment Officer/Chief Operating Officer and Executive Vice President,
Operations resigned from the Company in order to pursue their own venture. The loss of services of these executives or other
members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect
our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and
prospective tenants and industry personnel, which could adversely affect our financial condition, results of operations, cash flow
and the per share trading price of our securities.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on
co-venturers’ financial condition and disputes between us and our co-venturers.
As of December 31, 2020, we have fourteen joint ventures. See Part IV, Item 15(a) “Exhibits, Financial Statement
Schedules—Note 2 to the Consolidated Financial Statements—Summary of Significant Accounting Policies” for details on our
joint ventures. We may co-invest in the future with other third parties through partnerships, joint ventures or other entities,
acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or
other entity. These investments may, under certain circumstances, involve risks not present were a third party not involved,
including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital
contributions. Partners or co-venturers may have economic or other business interests or goals that are inconsistent with our
business interests or goals, and may be in a position to take actions contrary to our policies or objectives, and they may have
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competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential risk of
impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the
partnership or joint venture. In addition, prior consent of our joint venture partners may be required for a sale or transfer to a third
party of our interests in the joint venture, which would restrict our ability to dispose of our interest in the joint venture. If we
become a limited partner or non-managing member in any partnership or limited liability company and such entity takes or expects
to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in
such entity. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our
expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or
disputes with partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional
risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. Our joint
ventures may be subject to debt and, in the current volatile credit market, the refinancing of such debt may require equity capital
calls.
If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our
financial results.
Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent
fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our
reputation and operating results would be harmed. As part of our ongoing monitoring of internal controls we may discover material
weaknesses or significant deficiencies in our internal controls. As a result of weaknesses that may be identified in our internal
controls, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe require
remediation. If we discover weaknesses, we will make efforts to improve our internal and disclosure controls. However, there is no
assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our
internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could
affect our ability to remain listed with the NYSE. Ineffective internal and disclosure controls could also cause investors to lose
confidence in our reported financial information, which would likely have a negative effect on the per share trading price of our
securities.
Risks Related to the Real Estate Industry
Our performance and value are subject to risks associated with real estate assets and the real estate industry.
Our ability to pay expected dividends to our stockholders depends on our ability to generate revenues in excess of
expenses, pay scheduled principal payments on debt and pay capital expenditure requirements. Events and conditions generally
applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the
value of our properties. These events include many of the risks set forth above under “—Risks Related to Our Properties and Our
Business,” as well as the following:
•
•
•
•
•
•
•
local oversupply or reduction in demand for office or studio-related space;
adverse changes in financial conditions of buyers, sellers and tenants of properties;
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent
abatements, tenant improvements, early termination rights or below-market renewal options, and the need to periodically
repair, renovate and re-let space;
increased operating costs, including insurance premiums, utilities, real estate taxes and state and local taxes;
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes and floods, which may result in
uninsured or underinsured losses;
decreases in the underlying value of our real estate; and
changing submarket demographics.
In addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the
public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults
under existing leases, which would adversely affect our financial condition, results of operations, cash flow and per share trading
price of our securities.
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Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the
performance of our properties and harm our financial condition.
The real estate investments made, and to be made, by us are relatively difficult to sell quickly. As a result, our ability to
promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is
limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing
of the underlying property. We may be unable to realize our investment objectives by sale, other disposition or refinancing at
attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, our ability
to dispose of one or more properties within a specific time period is subject to certain limitations imposed by our tax protection
agreements, as well as weakness in or even the lack of an established market for a property, changes in the financial condition or
prospects of prospective purchasers, changes in national or international economic conditions, such as the current economic
downturn, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.
In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other
types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for
investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of
properties that otherwise would be in our best interest.
Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable
terms, which may adversely affect our financial condition, results of operations, cash flow and per share trading price of our
securities.
We could incur significant costs related to government regulation and litigation over environmental matters.
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or
operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic
substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean up
such contamination and liability for harm to natural resources. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several.
These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs could exceed the value
of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at
our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially
adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition,
environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address
such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on
the manner in which property may be used or businesses may be operated, and these restrictions may require substantial
expenditures. Some of our properties have been or may be impacted by contamination arising from current or prior uses of the
property, or adjacent properties, for commercial or industrial purposes. Such contamination may arise from spills of petroleum or
hazardous substances or releases from tanks used to store such materials. As a result, we could potentially incur material liability
for these issues, which could adversely impact our financial condition, results of operations, cash flow and the per share trading
price of our securities.
Environmental laws also govern the presence, maintenance and removal of ACBM and LBP and may impose fines and
penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury
associated with exposure to asbestos or lead). Such laws require that owners or operators of buildings containing ACBM and LBP
(and employers in such buildings) properly manage and maintain the asbestos and lead, adequately notify or train those who may
come into contact with asbestos or lead, and undertake special precautions, including removal or other abatement, if asbestos or
lead would be disturbed during renovation or demolition of a building. Some of our properties contain ACBM and/or LBP and we
could be liable for such damages, fines or penalties.
In addition, the properties in our portfolio also are subject to various federal, state and local environmental and health and
safety requirements, such as state and local fire requirements. Moreover, some of our tenants routinely handle and use hazardous or
regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental
and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental
liabilities could affect a tenant’s ability to make rental payments to us. In addition, changes in laws could increase the potential
liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely
affect our operations, or those of our tenants, which could in turn have an adverse effect on us.
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We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to
make distributions to our stockholders or that such costs or other remedial measures will not have an adverse effect on our
financial condition, results of operations, cash flow and the per share trading price of our securities. If we do incur material
environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any affected
properties.
Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to
liability for adverse health effects and costs of remediation.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor
sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants
above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions.
As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a
costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase
indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from
our tenants, employees of our tenants or others if property damage or personal injury is alleged to have occurred.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are
applicable to our properties.
The properties in our portfolio are subject to various covenants and federal, state and local laws and regulatory
requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning
restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us
to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from local
officials of community standards organizations at any time with respect to our properties, including prior to acquiring a property or
when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and
safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and regulatory policies
will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be
adopted that increase such delays or result in additional costs. Our growth strategy may be affected by our ability to obtain permits,
licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief or to comply with applicable laws could
have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our securities.
In addition, federal and state laws and regulations, including laws such as the ADA, impose further restrictions on our
properties and operations. Under the ADA, all public accommodations must meet federal requirements related to access and use by
disabled persons. Some of our properties may currently be in non-compliance with the ADA. If one or more of the properties in
our portfolio is not in compliance with the ADA or any other regulatory requirements, we may be required to incur additional costs
to bring the property into compliance and we might incur governmental fines or the award of damages to private litigants. In
addition, we do not know whether existing requirements will change or whether future requirements will require us to make
significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flow and per
share trading price of our securities.
We are exposed to risks associated with property development and redevelopment.
We may engage in development and redevelopment activities with respect to certain of our properties. To the extent that
we do so, we will be subject to certain risks, including the availability and pricing of financing on favorable terms or at all;
construction and/or lease-up delays; cost overruns, including construction costs that exceed our original estimates; contractor and
subcontractor disputes, strikes, labor disputes or supply disruptions; failure to achieve expected occupancy and/or rent levels
within the projected time frame, if at all; and delays with respect to obtaining or the inability to obtain necessary zoning,
occupancy, land use and other governmental permits, and changes in zoning and land use laws. These risks could result in
substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities
once undertaken, any of which could have an adverse effect on our financial condition, results of operations, cash flow and per
share trading price of our securities.
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Risks Related to Our Organizational Structure
The series A preferred units that were issued to some contributors in connection with our IPO in exchange for the
contribution of their properties have certain preferences, which could limit our ability to pay dividends or other distributions to
the holders of our securities or engage in certain business combinations, recapitalizations or other fundamental changes.
In exchange for the contribution of properties to our portfolio in connection with our IPO, some contributors received
series A preferred units in our operating partnership. As of December 31, 2020, these units have an aggregate liquidation
preference of approximately $9.8 million and have a preference as to distributions and upon liquidation that could limit our ability
to pay dividends on common stock. The series A preferred units are senior to any other class of securities our operating partnership
may issue in the future without the consent of the holders of the series A preferred units. As a result, we will be unable to issue
partnership units in our operating partnership senior to the series A preferred units without the consent of the holders of series A
preferred units. Any preferred stock in our Company that we issue will be subordinate to the series A preferred units. In addition,
we may only engage in a fundamental change, including a recapitalization, a merger and a sale of all or substantially all of our
assets, as a result of which our common stock ceases to be publicly traded or common units cease to be exchangeable (at our
option) for publicly traded shares of our stock, without the consent of holders of series A preferred units if following such
transaction we will maintain certain leverage ratios and equity requirements, and pay certain minimum tax distributions to holders
of our outstanding series A preferred units. Alternatively, we may redeem all or any portion of the then outstanding series A
preferred units for cash (at a price per unit equal to the redemption price). In addition, these provisions could increase the cost of
any such fundamental change transaction, which may discourage a merger, combination or change of control that might involve a
premium price for our common stock or that our stockholders otherwise believe to be in their best interests.
Conflicts of interest exist or could arise in the future between the interests of our stockholders and the interests of
holders of units in our operating partnership, which may impede business decisions that could benefit our stockholders.
Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on the
one hand, and our operating partnership or any partner thereof, on the other. Our directors and officers have duties to our Company
under applicable Maryland law in connection with their management of our Company. At the same time, we, as the general partner
of our operating partnership, have fiduciary duties and obligations to our operating partnership and its limited partners under
Maryland law and the partnership agreement of our operating partnership in connection with the management of our operating
partnership. Our fiduciary duties and obligations as general partner to our operating partnership and its partners may come into
conflict with the duties of our directors and officers to our Company.
Additionally, the partnership agreement provides that we and our directors and officers will not be liable or accountable to
our operating partnership for losses sustained, liabilities incurred or benefits not derived if we, or such director or officer acted in
good faith. The partnership agreement also provides that we will not be liable to the operating partnership or any partner for
monetary damages for losses sustained, liabilities incurred or benefits not derived by the operating partnership or any limited
partner, except for liability for our intentional harm or gross negligence. Moreover, the partnership agreement provides that our
operating partnership is required to indemnify us and our directors, officers and employees, officers and employees of the
operating partnership and our designees from and against any and all claims that relate to the operations of our operating
partnership, except (i) if the act or omission of the person was material to the matter giving rise to the action and either was
committed in bad faith or was the result of active and deliberate dishonesty, (ii) for any transaction for which the indemnified party
received an improper personal benefit, in money, property or services or otherwise, in violation or breach of any provision of the
partnership agreement or (iii) in the case of a criminal proceeding, if the indemnified person had reasonable cause to believe that
the act or omission was unlawful. No reported decision of a Maryland appellate court has interpreted provisions similar to the
provisions of the partnership agreement of our operating partnership that modify and reduce our fiduciary duties or obligations as
the general partner or reduce or eliminate our liability for money damages to the operating partnership and its partners, and we
have not obtained an opinion of counsel as to the enforceability of the provisions set forth in the partnership agreement that purport
to modify or reduce the fiduciary duties that would be in effect were it not for the partnership agreement.
Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law contain provisions
that may delay, defer or prevent a change of control transaction, even if such a change in control may be in your interest, and
as a result may depress the market price of our securities.
Our charter contains certain ownership limits. Our charter contains various provisions that are intended to preserve our
qualification as a REIT and, subject to certain exceptions, authorize our directors to take such actions as are necessary or
appropriate to preserve our qualification as a REIT. For example, our charter prohibits the actual, beneficial or constructive
ownership by any person of more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares
of our common stock, and more than 9.8% in value of the aggregate outstanding shares of all classes and series of our stock. Our
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board of directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership
limits if certain conditions are satisfied. The restrictions on ownership and transfer of our stock may:
•
•
discourage a tender offer or other transactions or a change in management or of control that might involve a premium
price for our common stock or that our stockholders otherwise believe to be in their best interests; or
result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary
and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.
We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock
without stockholder approval. Our board of directors has the power under our charter to amend our charter to increase the
aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to
authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any
unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such newly
classified or reclassified shares. Although our board of directors has no such intention at the present time, it could establish a class
or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of
control that might involve a premium price for our securities or that our stockholders otherwise believe to be in their best interest.
Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from
conducting a tender offer or seeking other change of control transactions that our stockholders otherwise believe to be in their
best interest. Certain provisions of the Maryland General Corporation Law (“the MGCL”) may have the effect of inhibiting a third
party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could be in the
best interest of our stockholders, including:
•
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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an
“interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our
shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of
10% or more of the voting power of our then outstanding voting stock at any time within the two-year period immediately
prior to the date in question) for five years after the most recent date on which the stockholder becomes an interested
stockholder, and thereafter impose fair price and/or supermajority and stockholder voting requirements on these
combinations; and
“control share” provisions that provide that “control shares” of our Company (defined as shares that, when aggregated
with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting
power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of
ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by
our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding
all interested shares.
As permitted by the MGCL, we have elected, by resolution of our board of directors, to exempt from the business
combination provisions of the MGCL, any business combination that is first approved by our disinterested directors and, pursuant
to a provision in our bylaws, to exempt any acquisition of our stock from the control share provisions of the MGCL. However, our
board of directors may by resolution elect to repeal the exemption from the business combination provisions of the MGCL and
may by amendment to our bylaws opt into the control share provisions of the MGCL at any time in the future.
Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is
currently provided in our charter or bylaws, to implement certain corporate governance provisions, some of which (for example, a
classified board) are not currently applicable to us. These provisions may have the effect of limiting or precluding a third party
from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control of us under
circumstances that otherwise could be in the best interest of our stockholders. Our charter contains a provision whereby we have
elected to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of
directors.
Certain provisions in the partnership agreement of our operating partnership may delay or prevent unsolicited
acquisitions of us. Provisions in the partnership agreement of our operating partnership may delay or make more difficult
unsolicited acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals
involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if
made, desirable. These provisions include, among others:
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•
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redemption rights of qualifying parties;
transfer restrictions on units;
our ability, as general partner, in some cases, to amend the partnership agreement and to cause the operating partnership
to issue units with terms that could delay, defer or prevent a merger or other change of control of us or our operating
partnership without the consent of the limited partners;
the right of the limited partners to consent to transfers of the general partnership interest and mergers or other transactions
involving us under specified circumstances; and
restrictions on debt levels and equity requirements pursuant to the terms of our series A preferred units, as well as
required distributions to holders of series A preferred units of our operating partnership, following certain changes of
control of us.
Our charter, bylaws, the partnership agreement of our operating partnership and Maryland law also contain other
provisions that may delay, defer or prevent a transaction or a change of control that our stockholders otherwise believe to be in
their best interest.
Our board of directors may change our investment and financing policies without stockholder approval and we may
become more highly leveraged, which may increase our risk of default under our debt obligations.
Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our
stockholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of
indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on
borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged, which could
result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change
in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in
which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes
to our policies with regards to the foregoing could adversely affect our financial condition, results of operations, cash flow and per
share trading price of our securities.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Our charter eliminates the liability of our directors and officers to us and our stockholders for monetary damages, except
for liability resulting from:
•
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actual receipt of an improper benefit or profit in money, property or services; or
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the
cause of action adjudicated.
In addition, our charter authorizes us to obligate our Company, and our bylaws require us, to indemnify our directors and
officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law. As a
result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist.
Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of our
Company, your ability to recover damages from such director or officer will be limited.
We are a holding company with no direct operations and, as such, we rely on funds received from our operating
partnership to pay liabilities, and the interests of our stockholders are structurally subordinated to all liabilities and obligations
of our operating partnership and its subsidiaries.
We are a holding company and conduct substantially all of our operations through our operating partnership. We do not
have, apart from an interest in our operating partnership, any independent operations. As a result, we rely on distributions from our
operating partnership to pay any dividends we might declare on our common stock. We also rely on distributions from our
operating partnership to meet our obligations, including any tax liability on taxable income allocated to us from our operating
partnership. In addition, because we are a holding company, claims of our equity holders will be structurally subordinated to all
existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries
and subordinate to the rights of holders of series A preferred units. Therefore, in the event of our bankruptcy, liquidation or
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reorganization, our assets and those of our operating partnership and its subsidiaries will be available to satisfy the claims of our
stockholders only after all of our and our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in
full.
Risks Related to Our Status as a REIT
Failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock.
We have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended
December 31, 2010. We believe that we have operated in a manner that has allowed us to qualify as a REIT for federal income tax
purposes commencing with such taxable year, and we intend to continue operating in such manner. We have not requested and do
not plan to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, and the statements in this Annual
Report are not binding on the IRS or any court. Therefore, we cannot assure you that we have qualified as a REIT, or that we will
remain qualified as such in the future. If we lose our REIT status, we will face serious tax consequences that would substantially
reduce the funds available for distribution to our stockholders for each of the years involved because:
•
•
•
we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be
subject to federal corporate income tax on our taxable income;
we also could be subject to the federal alternative minimum tax for taxable years prior to 2018 and possibly increased
state and local taxes; and
unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four
taxable years following the year during which we were disqualified.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our
operations and distributions to stockholders. In addition, if we were to fail to qualify as a REIT, we would not be required to make
distributions to our stockholders. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to
expand our business and raise capital, and could materially and adversely affect the value of our securities.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are
only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury
regulations that have been promulgated under the Code, or the Treasury Regulations, is greater in the case of a REIT that, like us,
holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our
control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements,
including requirements regarding the ownership of our stock and requirements regarding the composition of our assets and our
gross income. Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income,
excluding net capital gains.
We own and may acquire direct or indirect interests in one or more entities that have elected or will elect to be taxed as
REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements
and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that
Subsidiary REIT would become subject to federal income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying
assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that we would fail certain of the asset tests
applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.
In addition, legislation, new regulations, administrative interpretations or court decisions may materially adversely affect
our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT
relative to other investments.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income,
property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a
dealer. In addition, our taxable REIT subsidiaries will be subject to tax as regular corporations in the jurisdictions they operate.
If our operating partnership were to fail to qualify as a partnership for federal income tax purposes, we would cease to
qualify as a REIT and suffer other adverse consequences.
We believe that our operating partnership is properly treated as a partnership for federal income tax purposes. As a
partnership, our operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including us,
26
is allocated, and may be required to pay tax with respect to, its share of our operating partnership’s income. We cannot assure you,
however, that the IRS will not challenge the status of our operating partnership or any other subsidiary partnership in which we
own an interest as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were
successful in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for
federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and,
accordingly, we would likely cease to qualify as a REIT. Also, the failure of our operating partnership or any subsidiary
partnerships to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which could
reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions that
would be treated as sales for federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are
sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course
of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the
ordinary course of our business, such characterization is a factual determination and we cannot assure you that the IRS would
agree with our characterization of our properties or that we will always be able to make use of the available safe harbors, which, if
met, would prevent any such sales from being treated as prohibited transactions.
Our ownership of taxable REIT subsidiaries is subject to certain restrictions, and we will be required to pay a 100%
penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not conducted on arm’s
length terms.
We currently own interests in certain taxable REIT subsidiaries and may acquire securities in additional taxable REIT
subsidiaries in the future. A taxable REIT subsidiary is a corporation (or entity treated as a corporation for federal income tax
purposes) other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT
to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of
the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other
than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business,
including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject
to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a
taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis. A REIT’s ownership of securities of
a taxable REIT subsidiary is not subject to the 5% or 10% asset tests applicable to REITs. No more than 25% of our total assets
may be represented by securities, including securities of taxable REIT subsidiaries, other than those securities includable in the
75% asset test. Further, no more than 20% of the value of our total assets may be represented by securities of taxable REIT
subsidiaries. We anticipate that the aggregate value of the stock and other securities of any taxable REIT subsidiaries that we own
will be less than 20% of the value of our total assets, and we will monitor the value of these investments to ensure compliance with
applicable asset test limitations. In addition, we intend to structure our transactions with any taxable REIT subsidiaries that we own
to ensure that they are entered into on arm’s length terms to avoid incurring the 100% excise tax described above. There can be no
assurance, however, that we will be able to comply with these limitations or avoid application of the 100% excise tax discussed
above.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each
year, excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than
100% of our REIT taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if
any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our
capital gain net income and 100% of our undistributed income from prior years. In order to maintain our REIT status and avoid the
payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if the then
prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among other things,
differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of
non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however,
may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors,
including the market’s perception of our growth potential, our current debt levels, the market price of our common stock, and our
current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the
desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and
could adversely affect our financial condition, results of operations, cash flow, cash available for distributions to our stockholders,
and per share trading price of our securities.
27
Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise
attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of
our assets, the sources of our income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo
otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions.
We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily
available for distribution. As a result, having to comply with the distribution requirement could cause us to: (i) sell assets in
adverse market conditions; (ii) borrow on unfavorable terms; or (iii) distribute amounts that would otherwise be invested in future
acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse
effect on our business results, profitability and ability to execute our business plan. Moreover, if we are compelled to liquidate our
investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to
comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such
sales constitute prohibited transactions.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are individuals, trusts
and estates is 20%. Dividends payable by REITs, however, generally are not eligible for these reduced rates. U.S. stockholders that
are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as
capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning before January 1, 2026.
Although this deduction reduces the effective tax rate applicable to certain dividends paid by REITs (generally to 29.6% assuming
the shareholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends
that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive investments
in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could
materially and adversely affect the value of the shares of REITs, including the per share trading price of our securities.
The power of our board of directors to revoke our REIT election without stockholder approval may cause adverse
consequences to our stockholders and unitholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the
approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to
qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to
distribute most of our taxable income to our stockholders and accordingly, distributions Hudson Pacific Properties, L.P. makes to
its unitholders could be similarly reduced.
Legislative or other actions affecting REITs could have a negative effect on our investors and us.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process
and by the IRS and the United States Department of the Treasury. Changes to the tax laws, with or without retroactive application,
could adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New
legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our
ability to qualify as a REIT, the federal income tax consequences of such qualification, or the federal income tax consequences of
an investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change,
making an investment in such other entities more attractive relative to an investment in a REIT.
Risks Related to General and Global Factors
Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse
effect on our financial condition, results of operations, cash flow and per share trading price of our securities.
Volatility in the United States and international capital markets and concern over a return to recessionary conditions in
global economies, and the California economy in particular, may adversely affect our financial condition, results of operations,
cash flow and the per share trading price of our securities as a result of the following potential consequences, among others:
•
significant job losses in the financial and professional services industries may occur, which may decrease demand for our
office space, causing market rental rates and property values to be negatively impacted;
28
•
•
•
our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could
reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns
from our acquisition and development activities and increase our future interest expense;
reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing
secured by our properties and may reduce the availability of unsecured loans; and
one or more lenders under our unsecured revolving credit facility could refuse to fund their financing commitment to us
or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at
all.
Our business and results of operations and financial condition have been and may be further materially or adversely
impacted by the outbreak of a pandemic including COVID-19.
The global spread of COVID-19 has created, and is likely to continue to create, significant volatility, uncertainty and
economic disruption. In response to the pandemic, state and local governments, including those in Northern and Southern
California, the Pacific Northwest and British Columbia have reacted by instituting quarantines, restrictions on travel, “shelter in
place” rules, restrictions on types of business that may continue to operate and/or restrictions on the types of construction projects
that may continue. As a result, the COVID-19 pandemic is negatively impacting almost every industry, including industries our
tenants operate in. The COVID-19 pandemic, or a future pandemic, could have material and adverse effects on our ability to
successfully operate our business and on our financial condition, results of operations and cash flows due to, among other factors:
our tenants’ ability to pay rent on their leases; our inability to re-let space in our properties on favorable terms; ability to access
capital markets on favorable terms and potential delays with development and re-development activities resulting in failure to
achieve expected occupancy and/or rent levels within the projected time frames.
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the
COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk on our ability to successfully
operate our business and on our financial condition, results of operations and cash flows.
Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect
our business operations.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption in a geographic
region in which we operate, regardless of cause, including protests, demonstrations, strikes, riots, civil disturbance, disobedience,
insurrection, or social and political unrest. Such events may result in restrictions, curfews, or other actions and give rise to
significant changes in regional and global economic conditions and cycles, which may adversely affect our financial condition and
operations.
There have been recent demonstrations and protests in cities throughout the U.S. as well as globally in connection with
civil rights, liberties, and social and governmental reform. While protests have been peaceful in many locations, looting,
vandalism, and fires have taken place in cities, including Seattle, Los Angeles, and Vancouver, Canada, which led to the
imposition of mandatory curfews and, in some locations, deployment of the U.S. National Guard. Government actions in an effort
to protect people and property, including curfews and restrictions on business operations, may disrupt operations, harm perceptions
of personal well-being, and increase the need for additional expenditures on security resources. In addition, action resulting from
such social or political unrest may pose significant risks to our personnel, facilities, and operations. The effect and duration of the
demonstrations, protests, or other factors is uncertain, and we cannot assure there will not be further political or social unrest in the
future or that there will not be other events that could lead to the disruption of social, political, and economic conditions. If such
events or disruptions persist for a prolonged period of time, our overall business and results of operations may be adversely
affected.
Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by
insurance.
We carry commercial property (including earthquake), liability and terrorism coverage on all the properties in our
portfolio (most are covered under a blanket insurance policy while a few are under individual policies), in addition to other
coverages, such as trademark and pollution coverage, that may be appropriate for certain of our properties. We have selected
policy specifications and insured limits that we believe to be appropriate and adequate given the relative risk of loss, the cost of the
coverage and industry practice. However, we do not carry insurance for losses such as those arising from riots or war because such
coverage is not available or is not available at commercially reasonable rates. Some of our policies, like those covering losses due
to terrorism or earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that
29
may not be sufficient to cover losses, which could affect certain of our properties that are located in areas particularly susceptible
to natural disasters. All of the properties we currently own are located in Northern and Southern California, the Pacific Northwest
and Western Canada, areas especially susceptible to earthquakes. In addition, we may discontinue earthquake, terrorism or other
insurance on some or all of our properties in the future if the cost of premiums for any such policies exceeds, in our judgment, the
value of the coverage discounted for the risk of loss. As a result, we may be required to incur significant costs in the event of
adverse weather conditions and natural disasters. If we or one or more of our tenants experiences a loss that is uninsured or that
exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from
those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the
indebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance
coverage at reasonable costs in the future as the costs associated with property and casualty renewals may be higher than
anticipated. In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to
rebuild such property to its existing specifications. Further reconstruction or improvement of such a property would likely require
significant upgrades to meet zoning and building code requirements.
Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may
adversely affect interest expense related to outstanding debt.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop
compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”)
has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to
USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a
paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry-wide and company
specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR.
As of December 31, 2020, we have $1.2 billion variable rate debt, of which $475.0 million is subject to interest rate
swaps. If LIBOR changes or is replaced, the interest rates on our debt which is indexed to USD-LIBOR will be determined using a
different successor rate, which may adversely affect interest expense and may result in interest obligations which are more than, or
do not otherwise correlate over time with, the payments that would have been made on such debt if USD-LIBOR was available in
its current form. These changes could adversely affect our financial condition, results of operations, cash flow, cash available for
distribution, including cash available for payment of dividends on and the per share trading price of our securities.
We may become subject to litigation, which could have an adverse effect on our financial condition, results of
operations, cash flow and the per share trading price of our securities.
In the future we may become subject to litigation, including claims relating to our operations, offerings, and otherwise in
the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments
against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves; however, we
cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against
us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and
settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our
financial condition, results of operations, cash flow and per share trading price of our securities. Certain litigation or the resolution
of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results
of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract
officers and directors.
We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other
significant disruptions of our information technology (“IT”) networks and related systems.
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions, malware, computer
viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and
other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly
through cyber attacks or cyber intrusions, including by computer hackers, foreign governments and cyber terrorists, has generally
increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have recently
increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day
operations (including managing our building systems) and, in some cases, may be critical to the operations of certain of our
tenants. Although we make efforts to maintain the security and integrity of our IT networks and related systems, and we have
implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security
efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques
30
used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases
are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or
to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this
risk.
A security breach or other significant disruption involving our IT networks and related systems could:
disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our
tenants;
result in misstated financial reports, violations of loan covenants, and/or missed reporting deadlines;
result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a
REIT;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential,
sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for
disruptive, destructive or otherwise harmful purposes and outcomes;
result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased
space;
require significant management attention and resources to remedy any resulting damages;
subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or
damage our reputation among our tenants and investors generally.
•
•
•
•
•
•
•
•
Any or all of the foregoing could have an adverse effect on our financial condition, results of operations, cash flow and
the per share trading price of our securities.
Our business and operations would suffer in the event of IT networks and related systems failures.
Despite system redundancy and the planned implementation of a disaster recovery plan and security measures for our IT
networks and related systems, our systems are vulnerable to damage from any number of sources, including computer viruses,
energy blackouts, natural disasters, terrorism, war, and telecommunication failure. We rely on our IT networks and related
systems, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our
business processes, including financial transactions and keeping of records, which may include personal identifying information of
tenants and lease data. We rely on commercially available systems, software, tools and monitoring to provide security for
processing, transmitting and storing confidential tenant information, such as individually identifiable information relating to
financial accounts. Any failure to maintain proper function, security and availability of our IT networks and related systems could
interrupt our operations, damage our reputation and subject us to liability claims or regulatory penalties. Further, we are dependent
on our personnel and, although we are working to implement a formal disaster recovery plan to assist our employees and to
facilitate their maintaining continuity of operations after events such as energy blackouts, natural disasters, terrorism, war, and
telecommunication failures, we can provide no assurance that any of the foregoing events would not have an adverse effect on our
results of operations.
Future terrorist activity or engagement in war by the United States may have an adverse effect on our financial
condition and operating results.
Terrorist attacks in the United States and other acts of terrorism or war may result in declining economic activity, which
could harm the demand for and the value of our properties. A decrease in demand could make it difficult for us to renew or re-lease
our properties at these sites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value
of our properties through damage, destruction, or loss, and the availability of insurance for these acts may be less, and cost more,
which could adversely affect our financial condition. To the extent that our tenants are impacted by future attacks, their businesses
similarly could be adversely affected, including their ability to continue to honor their existing leases.
Terrorist attacks and engagement in war by the United States also may adversely affect the markets in which our
securities trade and may cause further erosion of business and consumer confidence and spending and may result in increased
31
volatility in national and international financial markets and economies. Any one of these events may cause decline in the demand
for our office and studio leased space, delay the time in which our new or renovated properties reach stabilized occupancy,
increase our operating expenses, such as those attributable to increased physical security for our properties, and limit our access to
capital or increase our cost of raising capital.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
As of December 31, 2020, our portfolio consisted of 64 properties (41 wholly-owned properties, 15 properties owned by
joint ventures and eight land properties) located in eleven California, three Seattle and one Western Canada submarkets, totaling
approximately 20.0 million square feet.
Office Portfolio
Our office portfolio consists of 53 office properties comprising an aggregate of approximately 15.6 million square feet.
All of our office properties are located in Northern and Southern California, the Pacific Northwest and Western Canada. As of
December 31, 2020, the weighted average remaining lease term for our stabilized office portfolio was 4.9 years.
In-Service Portfolio
Our in-service office properties include stabilized office properties and lease-up office properties. Stabilized office
properties consist of same-store properties and non-same-store properties. Same-store properties include all of the properties
owned and included in our stabilized portfolio as of January 1, 2019 and still owned and included in the stabilized portfolio as of
December 31, 2020. Lease-up properties are defined as those properties that have not yet reached 92.0% occupancy since the date
they were acquired or placed under redevelopment or development.
The following table summarizes information relating to the consolidated and unconsolidated in-service office properties
owned as of December 31, 2020:
Location
Same-store:
Greater Seattle, Washington
Northview Center
Met Park North
Hill7(6)
450 Alaskan
411 First
505 First
83 King
Subtotal
San Francisco Bay Area, California
1455 Market(6)
275 Brannan
625 Second
875 Howard
901 Market
Rincon Center(7)
Ferry Building(6)
Towers at Shore Center
Skyway Landing
555 Twin Dolphin
Submarket
Square Feet(1)
Percent
Occupied(2)
Percent
Leased(3)
Annualized
Base Rent(4)
Annualized
Base Rent
Per Square
Foot(5)
Lynnwood
Denny Triangle
Denny Triangle
Pioneer Square
Pioneer Square
Pioneer Square
Pioneer Square
San Francisco
San Francisco
San Francisco
San Francisco
San Francisco
San Francisco
San Francisco
Redwood Shores
Redwood Shores
Redwood Shores
182,009
183,355
285,310
170,974
163,768
288,009
183,939
1,457,364
1,034,977
57,120
138,094
286,003
205,530
539,461
268,018
334,483
247,173
198,936
32
63.6 %
63.6 % $
100.0
99.1
95.4
87.3
100.0
91.5
92.2
99.3
100.0
100.0
99.9
100.0
96.4
92.9
91.1
80.8
84.7
100.0
99.1
95.4
89.6
100.0
91.5
92.5
99.3
100.0
100.0
99.9
100.0
96.4
92.9
91.1
80.8
84.7
2,730,690 $
5,723,658
11,023,376
6,700,074
4,987,839
7,260,428
7,226,240
45,652,305
54,373,248
4,646,712
8,299,424
15,353,671
12,764,083
32,086,340
21,279,024
21,772,467
11,529,578
10,645,308
23.60
31.22
39.01
41.08
34.90
25.21
42.94
33.97
52.92
81.35
60.10
53.74
62.10
61.68
85.50
71.45
57.70
63.15
Submarket
Palo Alto
Palo Alto
Palo Alto
Palo Alto
Palo Alto
Palo Alto
Palo Alto
North San Jose
North San Jose
North San Jose
North San Jose
Santa Clara
Hollywood
Hollywood
Hollywood
Hollywood
West Los Angeles
West Los Angeles
West Los Angeles
West Los Angeles
West Los Angeles
West Los Angeles
Downtown Vancouver
Denny Triangle
North San Jose
Redwood Shores
Hollywood
Downtown Los Angeles
Downtown Los Angeles
Location
Palo Alto Square
3176 Porter
3400 Hillview
Clocktower Square
Foothill Research Center
Page Mill Center(8)
Page Mill Hill
Gateway
1740 Technology
Concourse
Skyport Plaza
Techmart
Subtotal
Los Angeles, California
6922 Hollywood
6040 Sunset(9)
ICON(9)
CUE(9)
604 Arizona
3401 Exposition
10900 Washington
10950 Washington
11601 Wilshire
Element LA
Subtotal
Total same-store
NON-SAME-STORE
Vancouver, British Columbia
Bentall Centre(10)
Subtotal
Greater Seattle, Washington
1918 Eighth(6)
Subtotal
San Francisco Bay Area, California
Metro Plaza(11)
Shorebreeze
Subtotal
Los Angeles, California
EPIC(9)
Fourth & Traction
Maxwell(12)
10850 Pico(13)
Subtotal
Total non-same-store
Total stabilized
Company’s Share of Total Stabilized
Square Feet(1)
333,254
42,899
207,857
100,655
195,385
94,542
182,676
609,093
206,879
944,386
418,086
284,440
6,929,947
Percent
Occupied(2)
88.1
100.0
100.0
44.6
100.0
100.0
82.0
87.3
99.5
92.0
96.2
78.8
92.6
Percent
Leased(3)
88.1
100.0
100.0
100.0
100.0
100.0
82.0
87.3
99.5
92.2
96.2
78.8
93.5
202,528
114,958
326,792
94,386
44,260
63,376
9,919
159,198
500,475
284,037
1,799,929
10,187,240
1,488,266
1,488,266
668,109
668,109
408,594
230,932
639,526
301,127
131,701
102,963
75.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
89.6
100.0
94.4
92.9
97.8
97.8
98.1
98.1
91.0
89.0
90.3
100.0
93.5
94.8
Annualized
Base Rent(4)
26,530,599
3,290,983
15,008,606
4,069,401
14,291,460
6,074,841
11,704,377
22,287,416
8,597,223
34,413,114
15,256,242
10,938,343
365,212,460
8,290,673
6,414,656
19,492,518
5,696,484
3,129,220
3,042,105
448,736
7,133,760
20,954,152
17,343,691
91,945,995
502,810,760
40,724,699
40,724,699
20,075,870
20,075,870
15,912,333
13,009,783
28,922,116
20,597,087
5,383,660
—
2,179,567
28,160,314
117,882,999
620,693,759
513,952,560
Annualized
Base Rent
Per Square
Foot(5)
90.33
76.71
72.21
90.73
73.15
64.26
78.14
41.90
41.76
39.61
37.92
48.77
56.90
54.06
55.80
59.65
60.35
70.70
48.00
45.24
44.81
46.73
61.06
54.13
53.15
27.97
27.97
30.62
30.62
42.78
63.26
50.07
68.40
43.74
—
39.17
48.77
36.09
48.77
50.67
75.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
92.7
100.0
95.2
93.6
98.4
98.4
99.6
99.6
91.0
89.0
90.3
100.0
100.0
94.8
100.0
99.1
97.2
94.5
93.5
West Los Angeles
55,650
100.0
97.6
96.4
93.8
92.7
591,441
3,387,342
13,574,582
10,944,413
33
Submarket
Square Feet(1)
Percent
Occupied(2)
Percent
Leased(3)
Annualized
Base Rent(4)
Annualized
Base Rent
Per Square
Foot(5)
Location
LEASE-UP
Greater Seattle, Washington
95 Jackson
Subtotal
San Francisco Bay Area, California
Metro Center
333 Twin Dolphin
Subtotal
Total lease-up
TOTAL IN-SERVICE
Pioneer Square
Foster City
Redwood Shores
35,904
35,904
736,986
182,789
919,775
955,679
74.3
74.3
79.1
74.9
78.2
78.1
74.3
74.3
79.4
74.9
78.5
78.3
1,110,164
1,110,164
34,577,275
8,243,745
42,821,020
43,931,184
14,530,261
11,900,092
92.7 %
91.5 %
93.5 % $ 664,624,943 $
92.3 % $ 557,883,744 $
41.64
41.64
59.33
60.22
59.50
58.86
49.33
51.24
COMPANY’S SHARE OF TOTAL IN-SERVICE
_____________
1.
Determined by management based upon estimated leasable square feet, which may be less or more than the Building Owners and Managers Association
(“BOMA”) rentable area. Square footage may change over time due to re-measurement or re-leasing.
Calculated as (i) square footage under commenced leases as of December 31, 2020, divided by (ii) total square feet, expressed as a percentage.
Calculated as (i) square footage under commenced and uncommenced leases as of December 31, 2020, divided by (ii) total square feet, expressed as a
percentage.
Presented on an annualized basis and is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements or deferments))
under commenced leases as of December 31, 2020, by (ii) 12. Annualized base rent does not reflect tenant reimbursements.
Calculated as (i) annualized base rent divided by (ii) square footage under commenced leases as of December 31, 2020. Annualized base rent does not reflect
tenant reimbursements.
2.
3.
4.
5.
6. We own 55% of the ownership interest in the consolidated joint ventures that own Hill7, 1455 Market, Ferry Building and 1918 Eighth.
7.
20,047 square feet at Rincon Center was taken off-line for repositioning as of third quarter 2019. An additional 6,444 square feet was taken off-line in
subsequent quarters. The total repositioning space was re-measured during fourth quarter 2020 at 36,905 square feet.
63,201 square feet at Page Mill Center was taken off-line for repositioning as of first quarter 2020. This space was re-measured during second quarter 2020 to
64,038 square feet. An additional 15,018 square feet was taken off-line for repositioning as of third quarter 2020.
9. We own 51% of the ownership interest in the consolidated joint venture that owns 6040 Sunset, ICON, CUE and EPIC.
10. We own 20% of the ownership interest in the unconsolidated joint venture that owns Bentall Centre. Annualized base rent and rental rates have been
8.
converted from CAD to USD using the foreign currency exchange rate as of December 31, 2020.
11. 17,624 square feet at Metro Plaza was taken off-line for repositioning as of fourth quarter 2019. An additional 30,851 square feet was taken off-line for
repositioning as of first quarter 2020. The total repositioning space was re-measured during third quarter 2020 at 61,066 square feet.
12. We entered into an agreement with WeWork Companies Inc. stipulating that the tenant shall pay substitution rent in an amount equal to 70% of net revenues
actually received during each full calendar month for the remainder of the lease term in lieu of paying monthly base rent. We reserve the option to terminate
this lease in its entirety or as to a full floor of the premises at any time by providing a minimum 60 days’ written notice.
13. We own 75% of the ownership interest in the consolidated joint venture that owns 10850 Pico. 40,337 square feet at 10850 Pico was taken off-line for
repositioning as of first quarter 2020.
Repositioning, Redevelopment and Development Portfolio
Properties are selected for repositioning when a portion of the asset is reclassified for purposes of improving its quality
and value through investment of significant capital, resulting in substantial down time in occupancy. Properties are selected for
redevelopment or development when we believe the result will render a higher economic return. A redevelopment can consist of a
range of improvements to a property, and may constitute a complete structural renovation of a building or remodeling select areas
to make the property more attractive to tenants. Repositioning, redevelopment and development properties are excluded from our
in-service portfolio to maintain consistency in evaluating our performance from period to period. The repositioning, redevelopment
and development processes are generally capital-intensive and occur over the course of several months or years. Commonly
associated with newly-acquired properties, redevelopment efforts may also occur at properties we currently own.
34
The following table summarizes information relating to each of the repositioning, redevelopment and development
properties owned as of December 31, 2020:
Location
Repositioning:
Rincon Center
Page Mill Center
Metro Plaza
10850 Pico(2)
Total repositioning
Redevelopment:
One Westside(3)
Del Amo
Total redevelopment
Development:
Harlow(4)
Total development
TOTAL REPOSITIONING, REDEVELOPMENT AND DEVELOPMENT
COMPANY’S SHARE OF TOTAL REPOSITIONING, REDEVELOPMENT AND
DEVELOPMENT
Submarket
Square Feet(1)
San Francisco
Palo Alto
North San Jose
West Los Angeles
West Los Angeles
Torrance
Hollywood
36,905
79,056
61,066
40,337
217,364
584,000
113,000
697,000
106,125
106,125
1,020,489
812,404
_____________
1.
Determined by management based upon estimated leasable square feet, which may be less or more than the BOMA rentable area. Square footage may change
over time due to re-measurement or re-leasing.
2. We own 75% of the ownership interest in the consolidated joint venture that owns 10850 Pico.
3. We own 75% of the ownership interest in the consolidated joint venture that owns One Westside. This property is fully leased to Google, Inc. for
approximately 14 years anticipated to commence upon completion of construction and build-out of tenant improvements in 2022.
4. We own 51% of the ownership interest in the consolidated joint venture that owns Harlow.
35
15 WeWork Companies
Inc.
TOTAL
_____________
1.
2.
Tenant Diversification
The following table summarizes information regarding the 15 largest tenants in our office portfolio based on Company’s
share of annualized base rent as of December 31, 2020:
Tenant(1)
1 Google, Inc.
2 Netflix, Inc.
3 Nutanix, Inc.
Property
Various
Various
Various
Lease
Expiration
Various
9/30/2031
5/31/2024
4 Riot Games, Inc.
Element LA
3/31/2030
Total
Occupied
Square Feet
Total
Occupied
Square Feet
640,726 (3)
722,305 (4)
439,406 (5)
284,037 (6)
265,394 (7)
700,917 (8)
Company’s Share
Percent of
Rentable
Square Feet
Annualized
Base Rent(2)
4.9 % $ 47,709,365
Percent of
Annualized
Base Rent
8.6 %
2.9
3.5
2.2
3.0
2.1
3.5
2.0
2.5
1.4
1.3
0.7
1.2
0.6
1.6
23,350,905
17,964,505
17,343,691
14,505,947
14,140,695
13,546,786
12,973,776
12,198,893
9,363,617
7,582,495
6,554,532
6,537,247
5,580,351
5,425,467
4.2
3.2
3.1
2.6
2.5
2.4
2.3
2.2
1.7
1.4
1.2
1.2
1.0
1.0
622,117
368,376
439,406
284,037
376,817
265,394
448,425
257,981
92,450
150,081
76,278
203,077
5,396,855
4,242,835
33.4 % $ 214,778,272
38.6 %
5 Qualcomm
Skyport Plaza
7/31/2022
376,817
6 Salesforce.com
Rincon Center
Various
Various
9/27/2023
469,056
Various
1455 Market(9)
Various
1455 Market(9)
7 Amazon
8 Square, Inc.
9 Dell EMC Corporation
10 Uber Technologies, Inc.
11 NFL Enterprises
12 GitHub, Inc.
13 Regus
Various
311,795 (10)
311,795
2/28/2025
325,445
178,995
167,606 (11)
167,606
Various
Various
Various
12/31/2023
6/30/2025
Various
92,450 (12)
150,081 (13)
14
Weil, Gotshal & Manges
LLP
Towers at
Shore Center
8/31/2026
76,278
Various
Various
(14)
374,542
Presented in order of Company’s share of annualized base rent.
Annualized base rent is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements or deferments)) under commenced
leases as of December 31, 2020, by (ii) 12. Annualized base rent does not reflect tenant reimbursements. Annualized base rents related to Bentall Centre have
been converted from CAD to USD using the foreign currency exchange rate as of December 31, 2020.
Google, Inc. expirations by square footage and property: (i) 207,857 square feet at 3400 Hillview expiring on November 30, 2021, (ii) 182,672 square feet at
Foothill Research Center expiring on February 28, 2025, (iii) 208,843 square feet at Rincon Center expiring on February 29, 2028, and (iv) 41,354 square feet
at Ferry Building expiring on October 31, 2029. We own 55% of the ownership interest in the consolidated joint venture that owns Ferry Building. Google,
Inc. may elect to exercise its early termination right at Rincon Center for 166,460 square feet effective April 15, 2025 by delivering written notice on or
before January 15, 2024. At One Westside, Google, Inc. is expected to take possession of an additional 584,000 square feet during first quarter 2022. We own
75% of the ownership interest in the consolidated joint venture that owns One Westside.
Netflix, Inc. expirations by square footage and property: (i) 326,792 square feet at ICON, (ii) 301,127 square feet at EPIC, and (iii) 94,386 square feet at
CUE. We own 51% of the ownership interest in the consolidated joint venture that owns ICON, EPIC and CUE.
Nutanix, Inc. expirations by square footage and property: (i) 199,445 square feet at 1740 Technology, (ii) 131,351 square feet at Concourse, and (iii) 108,610
square feet at Metro Plaza. At 1740 Technology, Nutanix, Inc. is expected to take possession of an additional 6,413 square feet during second quarter 2022.
All leases for Nutanix, Inc. will expire on May 31, 2024.
Riot Games, Inc. may elect to exercise its early termination right for the entire premises effective February 28, 2025 by delivering written notice on or before
February 29, 2024.
Salesforce.com expirations by square footage: (i) 83,016 square feet expiring on July 31, 2025, (ii) 83,372 square feet expiring on April 30, 2027, (iii) 93,028
square feet expiring on October 31, 2028, and (iv) 5,978 square feet of month-to-month storage space. Salesforce.com subleased 259,416 square feet at
Rincon Center to Twilio Inc. during third quarter 2018. Effective January 30, 2019, we entered into an agreement to reimburse Salesforce.com approximately
$6.3 million for costs incurred in connection with the sublease. We are entitled to recoup this cost from amounts paid pursuant to the sublease commencing
February 1, 2019, of which we have been fully reimbursed as of March 31, 2020. Thereafter, Salesforce.com has paid us 50% of any amounts received
pursuant to the sublease, such that we began receiving an average of $340,000 per month of sublease cash rents starting June 2020, with annual growth
thereafter.
Amazon expirations by square footage and property: (i) 139,824 square feet at Met Park North expiring on November 30, 2023 and (ii) 561,093 square feet at
1918 Eighth expiring on September 30, 2030. At 1918 Eighth, Amazon is expected to take possession of an additional 9,945 square feet during first quarter
2021. We own 55% of the ownership interest in the consolidated joint venture that owns 1918 Eighth.
3.
4.
5.
6.
7.
8.
9. We own 55% of the ownership interest in the consolidated joint venture that owns 1455 Market.
10. Dell EMC Corporation expirations by square footage and property: (i) 185,292 square feet at 505 First expiring on October 18, 2021, (ii) 42,954 square feet at
505 First expiring on December 31, 2023, and (iii) 83,549 square feet at 875 Howard expiring on June 30, 2026.
11. NFL Enterprises by square footage and property: (i) 157,687 square feet at 10950 Washington and (ii) 9,919 square feet at 10900 Washington. NFL
Enterprises may elect to exercise its early termination right for the entire premises effective December 31, 2022 by delivering written notice on or before
September 30, 2021.
36
12. GitHub Inc. expirations by square footage and property: (i) 57,120 square feet at 275 Brannan and (ii) 35,330 square feet at 625 Second.
13. Regus expirations by square footage and property: (i) 26,661 square feet at 95 Jackson expired on December 31, 2020, (ii) 44,957 square feet at Gateway
expiring on March 31, 2022, (iii) 20,059 square feet at 11601 Wilshire expiring on February 29, 2024, (iv) 27,369 square feet at Techmart expiring on April
30, 2025, (v) 9,739 square feet at Palo Alto Square expiring on April 30, 2026, and (vi) 21,296 square feet at 450 Alaskan expiring on October 31, 2030.
14. WeWork Companies Inc. expirations by square footage and property: (i) 12,713 square feet at Foothill Research Center expiring June 30, 2022, (ii) 54,336
square feet at Hill7 expiring January 31, 2030, (iii) 94,826 square feet at Maxwell expiring June 30, 2031, (iv) 66,056 square feet at 1455 Market expiring
October 31, 2031, and (v) 146,611 square feet at Bentall Centre expiring October 31, 2033. We own 55% of the ownership interest in the consolidated joint
ventures that own Hill7 and 1455 Market, and 20% of the ownership interest in the unconsolidated joint venture that owns Bentall Centre. We entered into an
agreement with WeWork Companies Inc. with respect to its lease at Maxwell stipulating that the tenant shall pay substitution rent in an amount equal to 70%
of net revenues actually received during each full calendar month for the remainder of the lease term in lieu of paying monthly base rent. We reserve the
option to terminate the Maxwell lease in its entirety or as to a full floor of the premises at any time by providing a minimum 60 days’ written notice.
Industry Diversification
Our office portfolio is currently leased to a variety of companies. The following table summarizes information relating to
the industry diversification in our office portfolio as of December 31, 2020:
Industry(1)
Technology
Media and Entertainment
Business Services
Legal
Financial Services
Retail
Other
Real Estate
Healthcare
Insurance
Educational
Government
Advertising
Total
Square Feet(2)(3)
Annualized Base
Rent as Percent
of Total
Square Feet(2)(4)
Annualized
Base Rent as
Percent of
Total
Company’s Share
4,861,008
1,789,641
1,343,008 (5)
707,089
1,163,792
1,256,072 (7)
727,231
491,764
210,236
247,377
161,567
264,441
60,075
37.9 %
4,290,135
15.6
1,308,040
40.1 %
13.4
9.3
7.2
8.3
6.5
5.2
3.1
1.9
1.6
1.2
1.6
0.6
1,073,228 (6)
645,855
824,816
952,442 (8)
561,164
263,231
199,085
192,579
156,612
200,177
55,656
9.2
8.2
7.7
6.0
5.5
2.4
2.2
1.7
1.5
1.4
0.7
13,283,301
100.0 %
10,723,020
100.0 %
_____________
1.
2.
3.
4.
5.
6.
7.
8.
Determined by management using Thompson Reuters Business Classification and presented in order of Company’s share of annualized base rent.
Excludes signed leases not commenced.
Excludes 190,707 square feet occupied by the Company.
Excludes 165,499 square feet occupied by the Company.
Includes 637,832 square feet occupied by co-working tenants (represents 3.9% of total annualized base rent).
Includes 445,759 square feet occupied by co-working tenants (represents 3.2% of the Company’s Share of total annualized base rent).
Includes 431,246 square feet of storefront retail (represents 2.3% of total annualized base rent).
Includes 380,108 square feet of storefront retail (represents 2.3% of the Company’s Share of total annualized base rent).
37
Lease Distribution
The following table sets forth information relating to the distribution of leases in our office portfolio, based on net
rentable square feet under lease as of December 31, 2020:
Square Feet Under Lease
10,000 or Less
10,001-25,000
25,001-50,000
50,001-100,000
Greater than 100,000
Building Management Use
Signed Leases Not Commenced
Total
Company’s Share
Number
of Leases
663
Total Leased
Square Feet
Annualized
Base Rent(1)
2,363,208 $ 115,181,319
Number
of Leases
695
Total Leased
Square Feet
Annualized
Base Rent(1)
2,113,311 $ 107,082,076
118
57
31
21
35
14
939
1,877,843
90,492,801
100
1,566,954
85,376,524
2,126,840 123,413,532
2,278,210 106,707,088
4,637,200 228,830,200
190,707
—
691,005
43,462,205
14,165,013 $ 708,087,145
53
24
18
35
14
939
1,910,761 111,327,238
1,752,662
86,040,390
3,379,332 168,057,513
165,499
—
533,377
33,910,362
11,421,896 $ 591,794,103
_____________
1.
Annualized base rent is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements or deferments)), including
uncommenced leases, as of December 31, 2020 (ii) by 12. Annualized base rent does not reflect tenant reimbursements.
Lease Expirations
The following table summarizes the lease expirations for leases in place as of December 31, 2020, including vacancies.
Unless otherwise stated in the footnotes, the information set forth in the table assumes that tenants did not exercise any renewal
options.
Number of
Leases
Expiring(1)
Square
Footage of
Expiring
Leases(2)(3)
Square
Footage of
Expiring
Leases(2)(4)
Percent of
Office
Portfolio
Square
Feet
Annualized
Base Rent(2)
Percentage
of Office
Portfolio
Annualized
Base Rent
Annualized
Base Rent
Per Leased
Square
Foot(5)
Annualized
Base Rent
at
Expiration
Annualized
Base Rent
Per Lease
Square Foot
at
Expiration(6)
1,385,737 1,290,600
10.2 %
Year of Lease
Expiration
Vacant
Company’s Share
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Thereafter
Building
management
use(7)
Signed leases not
commenced(8)
Portfolio Total/
Weighted
Average
17
90,936
75,725
0.6
$ 3,976,555
0.7 % $
52.51 $ 3,976,552 $
52.51
180 1,451,755 1,320,045
10.4
63,243,523
188 1,634,875 1,426,448
11.2
72,244,934
126 1,856,568 1,437,580
11.3
66,674,198
123 1,804,468 1,607,366
12.7
82,322,671
82 1,622,973 1,311,465
10.3
75,643,914
43
597,351
508,136
28
612,778
524,702
22
704,768
630,748
16
311,382
217,548
4.0
4.1
5.0
1.7
29,553,544
30,036,504
40,966,681
16,247,673
10.7
12.2
11.4
13.9
12.8
5.0
5.1
6.9
2.7
47.91 64,102,897
50.65 76,215,872
46.38 72,220,786
51.22 91,600,964
57.68 86,032,021
58.16 34,299,588
57.24 35,695,866
64.95 50,119,796
74.69 19,897,605
30 2,567,756 1,646,671
13.0
76,522,538
12.9
46.47 106,069,467
48.56
53.43
50.24
56.99
65.60
67.50
68.03
79.46
91.46
64.41
35
190,707
165,499
1.3
—
14
691,005
533,377
4.2
33,910,362
—
5.7
—
—
—
63.58 48,935,826
91.75
904 15,523,059 12,695,910
100.0 % $ 591,343,097
100.0 % $
51.85 $ 689,167,240 $
60.43
_____________
1.
2.
Does not include 35 month-to-month leases.
Rent data for our office properties is presented on an annualized basis without regard to cancellation options.
38
3.
4.
5.
6.
7.
8.
Total expiring square footage does not include 27,691 square feet of month-to-month leases.
Total expiring square footage does not include 16,587 square feet of month-to-month leases.
Annualized base rent for office properties is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements or deferments))
as of December 31, 2020, by (ii) 12. Annualized base rent does not reflect tenant reimbursements.
Annualized base rent per square foot for all lease expiration years is calculated as (i) base rental payments (defined as cash base rents (before abatements or
deferments)) under commenced leases, divided by (ii) square footage under commenced leases as of December 31, 2020.
Reflects management offices occupied by the Company with various expiration dates.
Annualized base rent per leased square foot and annualized base rent per square foot at expiration for signed leases not commenced reflects uncommenced
leases for spaces not occupied as of December 31, 2020 and is calculated as (i) base rental payments (defined as cash base rents at expiration (before
abatements or deferments)) under uncommenced leases for vacant space as of December 31, 2020, divided by (ii) square footage under uncommenced leases
as of December 31, 2020.
Historical Tenant Improvements and Leasing Commissions
The following table represents 100% share of consolidated and unconsolidated joint ventures, summarizing historical
information regarding tenant improvement and leasing commission costs for tenants at our office properties:
Year Ended December 31,
2019
2018
2020
Renewals(1)
Number of leases
Square feet(2)
Tenant improvement costs per square foot(3)(4)
Leasing commission costs per square foot(3)
Total tenant improvement and leasing commission costs
New leases(5)
Number of leases
Square feet
Tenant improvement costs per square foot(3)(4)
Leasing commission costs per square foot(3)
Total tenant improvement and leasing commission costs
TOTAL
Number of leases
Square feet
Tenant improvement costs per square foot(3)(4)
Leasing commission costs per square foot(3)
TOTAL TENANT IMPROVEMENT AND LEASING COMMISSION COSTS
90
122
101
459,921
749,483
1,560,700
4.40 $
10.78 $
5.04
8.62
9.44 $
19.40 $
30.39
15.05
45.44
72
137
153
340,415
1,785,606
1,806,170
66.09 $
79.93 $
12.30
23.11
78.39 $
103.04 $
57.57
18.61
76.18
162
259
254
800,336
2,535,089
3,366,870
29.13 $
60.18 $
7.95
18.97
37.08 $
79.15 $
44.97
16.96
61.93
$
$
$
$
$
$
_____________
1.
2.
3.
Excludes retained tenants that have relocated or expanded into new space within our portfolio.
Year ended 2020 leasing activity includes 113,632 square feet of short-term extensions (i.e. 12 months or less) in connection with COVID-19 tenant relief.
Assumes all tenant improvement and leasing commissions are paid in the calendar year in which the lease is executed, which may be different than the year in
which they were actually paid.
Tenant improvement costs are based on negotiated tenant improvement allowances set forth in leases, or, for any lease in which a tenant improvement
allowance was not specified, the aggregate cost originally budgeted at the time the lease commenced.
Includes retained tenants that have relocated or expanded into new space within our portfolio.
4.
5.
Studio Portfolio
Our studio portfolio consists of three properties, comprising an aggregate of 1.2 million square feet located in the heart of
Hollywood in Southern California. We define our studio properties as those properties in our portfolio that are primarily used for
the physical production of media content, such as television programs, feature films, commercials, music videos and
photographs. These properties feature a fully-integrated environment within which our studio-focused tenants can access
production, post-production, traditional office component and support facilities that enables them to conduct their business in a
collaborative and efficient setting. In addition, we require tenants at our studio properties to use our facilities for items such as
lighting, equipment rental, parking, power, HVAC and telecommunications (telephone and internet). Accordingly, our other
property-related revenues typically track overall occupancy of our studio properties.
39
The following table summarizes information relating to each of the studio properties owned as of December 31, 2020:
Property
Same-store studio:
Sunset Gower Studios
Sunset Bronson Studios
Sunset Las Palmas Studios
Total same-store studio(4)
TOTAL STUDIO
COMPANY’S SHARE OF TOTAL STUDIO(5)
Square
Feet
Percent
Leased(1)
Annual Base
Rent(2)
Annual Base
Rent Per Leased
Square Foot(3)
531,756
308,026
384,621
1,224,403
1,224,403
624,446
91.8 % $ 18,793,404 $
99.1
80.7
90.2
12,434,853
13,754,831
44,983,088
38.49
40.74
45.11
40.74
44,983,088
$ 22,941,375
_____________
1.
2.
3.
4.
Percent leased is the average percent leased for the 12 months ended December 31, 2020.
Annual base rent reflects actual base rent for the 12 months ended December 31, 2020, excluding tenant reimbursements.
Annual base rent per leased square foot is calculated as (i) annual base rent divided by (ii) square footage under lease as of December 31, 2020.
Same-store studio defined as all studios owned and included in our portfolio as of January 1, 2019 and still owned and included in our portfolio as of
December 31, 2020.
5. We own 51% of the ownership interest in the consolidated joint venture that owns Sunset Gower Studios, Sunset Bronson Studios and Sunset Las Palmas
Studios.
Land Portfolio
The following table summarizes information relating to each of the consolidated and unconsolidated land properties
owned as of December 31, 2020:
Location
Vancouver, British Columbia
Bentall Centre—Development(2)
Subtotal
Seattle, Washington
Washington 1000(3)
Subtotal
San Francisco Bay Area, California
Cloud10
Subtotal
Los Angeles, California
Sunset Bronson Studios Lot D—Development(4)(5)
Sunset Gower Studios—Development(5)(6)
Sunset Las Palmas Studios—Development(5)
Sunset LA—Development(7)
Element LA—Development
Subtotal
TOTAL LAND
COMPANY’S SHARE OF TOTAL LAND
Submarket
Square Feet(1)
Percent of Total
Downtown Vancouver
Denny Triangle
North San Jose
Hollywood
Hollywood
Hollywood
Los Angeles
West Los Angeles
450,000
450,000
538,164
538,164
350,000
350,000
19,816
478,845
617,581
232,855
500,000
1,849,097
3,187,261
2,163,875
14.1 %
14.1 %
16.9 %
16.9 %
11.0 %
11.0 %
0.6 %
15.0
19.4
7.3
15.7
58.0 %
100.0 %
_____________
1.
Square footage for land assets represents management’s estimate of developable square feet, the majority of which remains subject to entitlement approvals
that have not yet been obtained.
2. We own 20% of the ownership interest in the unconsolidated joint venture that owns Bentall Centre—Development. The construction of Bentall Centre—
3.
Development may require the demolition of certain retail square footage.
The final purchase of Washington 1000 is pending as of December 31, 2020. Square footage represents condominium rights to build a fully entitled 16-story
office tower.
Square footage for Sunset Bronson Studios Lot D—Development represents management’s estimate of developable square footage for 33 residential units.
4.
5. We own 51% of the ownership interest in the consolidated joint venture that owns Sunset Bronson Studios, Sunset Gower Studios and Sunset Las Palmas
6.
Studios.
Estimated square footage for Sunset Gower Studios—Development is net of 130,169 square feet of anticipated demolition in connection with the
development.
7. We own 50% of the ownership interest in the unconsolidated joint venture that owns Sunset LA—Development.
40
ITEM 3. Legal Proceedings
From time to time, we are a party to various lawsuits, claims and other legal proceedings arising out of, or incident to, our
ordinary course of business. We are not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be
material or that, individually or in the aggregate, would be expected to have a material adverse effect on our business, financial
condition, results of operations or cash flows if determined adversely to us.
ITEM 4. Mine Safety Disclosures
Not applicable.
41
PART II
ITEM 5. Market for Hudson Pacific Properties, Inc. Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Overview
As of February 15, 2021, Hudson Pacific Properties, Inc. had 95 stockholders of record of our common stock. Hudson
Pacific Properties, Inc. common stock has traded on the NYSE under the symbol “HPP” since June 24, 2010.
Dividends
We intend to pay dividends each taxable year (not including a return of capital for federal income tax purposes) equal to
at least 90% of REIT taxable income. We intend to pay regular quarterly dividends to our stockholders. Currently, we pay
dividends to our stockholders quarterly in March, June, September and December. Dividends are paid to those stockholders who
are stockholders as of the dividend record date. Dividends are paid at the discretion of our board of directors and dividend amounts
depend on our available cash flows, financial condition and capital requirements, the annual distribution requirements under the
REIT provisions of the Code and such other factors that our board of directors deems relevant.
Issuer Purchases of Equity Securities
During the fourth quarter of 2020, certain employees surrendered common shares owned by them to satisfy their statutory
federal income tax obligation associated with the vesting of restricted common shares of beneficial interest issued under our 2010
Incentive Award Plan.
The following table summarizes all of the repurchases of Hudson Pacific Properties, Inc. equity securities during the
fourth quarter of 2020:
Period
Total Number
of Shares
Purchased
Average Price
Paid Per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs(1)
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Plans or
Programs
October 1 - October 31, 2020
—
$
—
—
$
November 1 - November 30, 2020
December 1 - December 31, 2020
TOTAL
894,209
88,597 (2)
982,806
$
20.41
23.49 (3)
20.69
894,209
—
894,209
138,137,965
119,886,344
119,886,344
_____________
1.
On January 20, 2016, our board of directors authorized a share repurchase program to buy up to $100.0 million of the outstanding common stock of Hudson
Pacific Properties, Inc. On March 8, 2018, this total was increased to $250.0 million. The program does not have a termination date, and repurchases may be
discontinued at any time. A cumulative total of $130.1 million had been repurchased under the program as of December 31, 2020.
Represents shares of common stock remitted to Hudson Pacific Properties, Inc. to satisfy tax withholding obligations in connection with the vesting of
restricted stock.
The price paid per share is based on the closing price of our common stock, as reported by the NYSE, as of the date of the vesting of restricted stock.
2.
3.
Equity Compensation Plan Information
Our equity compensation plan information required by this item is incorporated by reference to the information in Part III,
Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual
Report on Form 10-K.
42
Market for Hudson Pacific Properties, L.P. Common Capital, Related Unitholder Matters and Issuer Purchases of Units
Overview
There is no established public trading market for our operating partnership’s common units. As of February 15, 2021,
there were 15 holders of record of common units (including through our general partnership interest).
Distributions
We intend to make distributions each taxable year. We intend to make regular quarterly distributions to our unitholders.
Currently, we make distributions to our unitholders quarterly in March, June, September and December. Distributions are made to
those unitholders who are unitholders as of the distribution record date. Distributions are made at the discretion of our board of
directors and distribution amounts depend on our available cash flows, financial condition and capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other factors that our board of directors deems relevant.
Recent Sales of Unregistered Securities
During the fourth quarter of 2020, our operating partnership issued partnership units in private placements in reliance on
the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set
forth below.
During the fourth quarter of 2020, the Company issued an aggregate of 240,679 shares of its common stock in connection
with restricted stock awards for no cash consideration, out of which 88,597 shares of common stock were forfeited to the Company
in connection with restricted stock awards for a net issuance of 152,082 shares of common stock. For each share of common stock
issued by the Company in connection with such an award, our operating partnership issued a restricted common unit to the
Company as provided in the partnership agreement of our operating partnership. During the fourth quarter of 2020, our operating
partnership issued an aggregate of 240,679 common units to the Company. The operating partnership also issued 409,225 long-
term incentive plan units during the fourth quarter of 2020.
All other issuances of unregistered equity securities of our operating partnership during the year ended December 31,
2020 have previously been disclosed in filings with the SEC. For all issuances of units to the Company, our operating partnership
relied on the Company’s status as a publicly traded NYSE-listed company with approximately $8.35 billion in total consolidated
assets and as our operating partnership’s majority owner and sole general partner as the basis for the exemption under Section
4(a)(2) of the Securities Act.
Equity Compensation Plan Information
Our equity compensation plan information required by this item is incorporated by reference to the information in Part III,
Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual
Report on Form 10-K.
Stock Performance Graph
The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to
Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange
Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it
by reference into a filing under the Securities Act or the Exchange Act.
The following graph shows our cumulative total stockholder return for the five-year period ending on December 31, 2020.
The graph assumes a $100 investment in each of the indices on December 31, 2015 and the reinvestment of all dividends. The
graph also shows the cumulative total returns of the Standard & Poor’s 500 Stock Index (“S&P 500”), and industry peer groups.
Our stock price performance shown in the following graph is not indicative of future stock price performance.
43
Total Return Performance
$200
$175
$150
$125
$100
12/31/15
12/30/16
12/29/17
12/31/18
12/31/19
12/31/20
Hudson Pacific Properties, Inc.
MSCI U.S. REIT
SNL U.S. REIT Office
S&P 500
SNL U.S. REIT Equity
FTSE Nareit All Equity REITs
Index
Hudson Pacific Properties, Inc.
S&P 500
MSCI U.S. REIT
SNL U.S. REIT Equity
SNL U.S. REIT Office
FTSE NAREIT All Equity REITs
ITEM 6. Selected Financial Data
Not applicable.
Period Ending
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
100.00
100.00
100.00
100.00
100.00
100.00
126.86
111.96
108.60
108.88
111.59
108.63
128.64
136.40
114.11
118.00
114.60
118.05
112.55
130.42
108.89
112.46
94.53
113.28
150.09
171.49
137.03
144.54
120.51
145.75
99.97
203.04
126.65
137.09
95.69
138.28
44
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion relates to our consolidated financial statements and should be read in conjunction with the
consolidated financial statements and the related notes, see Part IV, Item 15(a) “Exhibits, Financial Statement Schedules.”
Statements in this Item 7 contain forward-looking statements. Such statements are subject to risks, uncertainties and assumptions
and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or
more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. In particular, information concerning projected future occupancy rates,
rental rate increases, property development timing and investment amounts contain forward-looking statements. Furthermore, all
of the statements regarding future financial performance (including anticipated funds from operations (“FFO”) market conditions
and demographics) are forward-looking statements. Numerous factors will affect our actual results, some of which are beyond our
control. These include the impact of the COVID-19 pandemic, the breadth and duration of the current economic recession and its
impact on our tenants, the strength of commercial and industrial real estate markets, market conditions affecting tenants,
competitive market conditions, interest rate levels, volatility in our stock price and capital market conditions. Accordingly,
investors should use caution and not place undue reliance on this information, which speaks only as of the date of this report. We
expressly disclaim any responsibility to update any forward-looking information, whether as a result of new information, future
events, or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal
securities laws to disclose material information.
For a discussion of important risks related to our business, and related to investing in our securities, including risks that
could cause actual results and events to differ materially from results and events referred to in the forward-looking statements see
Part I, Item 1A “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this
report might not occur.
Executive Summary
Through our interest in Hudson Pacific Properties, L.P. (our operating partnership) and its subsidiaries, at December 31,
2020, our office portfolio consisted of approximately 15.6 million square feet of in-service, repositioning, redevelopment and
development properties. Additionally, as of December 31, 2020, our studio portfolio consisted of 1.2 million square feet of in-
service and development properties and our land portfolio consisted of 3.2 million developable square feet.
As of December 31, 2020, our in-service office portfolio was 93.5% leased (including leases not yet commenced). Our
same-store studio properties were 90.2% leased for the average percent leased for the 12 months ended December 31, 2020.
Impact of COVID-19
The following discussion is intended to provide stockholders with certain information regarding the impact of the
COVID-19 pandemic on our business and management’s efforts to respond to that impact. Unless otherwise specified, the
statistical and other information regarding our portfolio and tenants are estimates based on information available to us as of
February 10, 2021. As a result of the continued uncertainty surrounding this situation, we expect that such statistical and other
information will change, potentially significantly, going forward and may not be indicative of the actual impact of the COVID-19
pandemic on our business, operations, cash flows and financial condition for future periods.
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies,
including how it will impact our tenants and business partners. While we did not incur significant disruptions during the year
ended December 31, 2020 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will
have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the
scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and
indirect economic effects of the pandemic and containment measures, among others. The spread of COVID-19 is having a
significant impact on the global economy, the U.S. economy, the economies of the local markets throughout the west coast in
which our properties are located, and the broader financial markets. The commercial real estate market has come under pressure
due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health
crisis such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders.
These containment measures, which generally do not apply to businesses designated as “essential,” are affecting the operations of
different categories of our tenancy to varying degrees with, for example, “essential businesses” generally permitted to remain open
and operational, storefront retail and restaurants generally limited to take-out and delivery services only, and non-essential
businesses generally forced to temporarily close, curtail operations and/or implement work-from-home strategies. There is
uncertainty as to the time, date and extent to which these restrictions will be relaxed or lifted, businesses of tenants that have
temporarily been disrupted, either voluntarily or by mandate, will resume normal operations or when customers will re-engage
45
with tenants as they have in the past. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly
or indirectly, including industries in which we and our tenants operate. Further, the impacts of a potential worsening of global
economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as
well as other unanticipated consequences remain unknown.
Our base rent collections during the COVID-19 pandemic were as follows:
Office
Studio
Storefront Retail
Total
Percent of contractual rents collected1
Second quarter 2020
Third quarter 2020
Fourth quarter 2020
January 2021
99.0 %
97.9 %
97.7 %
97.9 %
100.0 %
100.0 %
99.9 %
99.1 %
48.7 %
51.9 %
50.8 %
48.0 %
97.3 %
96.6 %
96.7 %
96.6 %
_____________
1. We have implemented a rent relief program for the majority of the uncollected rents, and the collection percentages above exclude rents deferred or abated in
accordance with COVID-related lease amendments.
We continue to take several proactive measures to maintain the strength of our business and manage the impact of COVID-19
on our operations and liquidity, including the following:
•
Along with our tenants and the communities we serve, the health and safety of our employees and their families is a top
priority. We are closely monitoring and conforming our operations in accordance with policies and guidelines set forth by
public health agencies and state and local governments. All office and studio properties remain open and operational to
enable essential business tenants to continue to operate with enhanced cleaning, communications and safety protocols. In
May, we launched our “4Cs” approach to tenant repopulation in conjunction with the easing of stay-at-home orders across
our markets. The program, which we developed in consultation with large tenants, local governments, and internal and
external subject matter experts, emphasizes proactive communication through multiple channels, seeks to instill
confidence in tenants with safety-focused cleaning and operating procedures, ensures convenience with an emphasis on
efficient access, and encourages cooperation by asking all tenants to do their part. Similarly, in early June, we shifted
from a policy encouraging all non-location essential employees to work remotely, and began bringing our employees back
to the office with enhanced health and safety protocols, and in staggered shifts to provide for adequate physical distancing
at any given time. After Labor Day, we successfully returned 100% of our workforce to our offices in rotating shifts,
adjusting as needed during periods of increased infection rates in the areas in which our offices are located.
• We are in frequent communication with our tenants and are assisting tenants in identifying local, state and federal
resources that may be available to support their businesses and employees during the pandemic, including stimulus funds
that may be available under various federal and state relief funds, such as the CARES Act and the Paycheck Protection
Program.
•
As of December 31, 2020, we had approximately $113.7 million in cash and cash equivalents. We have $600.0 million of
undrawn capacity under our unsecured revolving credit facility and $308.5 million of undrawn capacity under our stand-
alone loan for One Westside, which fully funds the cost of that project.
• We do not have any secured or unsecured debt maturing until 2022.
• We have taken proactive measures to manage costs, including by taking advantage of rent relief in connection with our
existing ground lease obligations and reducing services provided by third party vendors.
Given the uncertainty of the COVID-19 pandemic’s near and potential long-term impact on our business, and in order to
preserve our liquidity position, our Board of Directors will continue to evaluate our dividend policy. We intend to continue to
operate our business in a manner that will allow us to qualify as a REIT for U.S. federal income tax purposes. We derive revenues
primarily from rents and reimbursement payments received from tenants under leases at our properties. Our operating results
therefore depend materially on the ability of our tenants to make required rental payments. The extent to which the COVID-19
pandemic impacts the businesses of our tenants, and our operations and financial condition, will depend on future developments
that remain uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the
actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and such
containment measures, among others. While the extent of the outbreak and its impact on us, our tenants and the markets in which
we operate is uncertain, a prolonged crisis could result in continued disruptions in the credit and financial markets, a continued rise
46
in unemployment rates, decreases in consumer confidence and consumer spending levels and an overall worsening of global and
U.S. economic conditions. The factors described above, as well as additional factors that we may not currently be aware of, could
materially negatively impact our ability to collect rent and could lead to termination of leases by tenants, tenant bankruptcies,
decreases in demand for office space at our properties, difficulties in accessing capital, impairment of our long-lived assets and
other impacts that could materially and adversely affect our business, results of operations, financial condition and ability to pay
distributions to stockholders. See Part I, Item 1A, “Risk Factors.”
For the foregoing reasons, the comparability of our results of operations for the year ended December 31, 2020 to future
periods may be significantly impacted by the effects of the COVID-19 pandemic. The situation surrounding the COVID-19
pandemic remains fluid, and we are actively managing our response in collaboration with tenants, government officials and
business partners and assessing potential impacts to our financial position and operating results, as well as potential adverse
developments in our business. For further information regarding the impact of COVID-19 on us, see Part I, Item 1A, “Risk
Factors.”
Current Year Highlights
Acquisitions
During 2020, we continued to focus on strategic acquisitions by investing across the risk-return spectrum, favoring
opportunities where we can employ leasing, capital investments and management expertise to create additional value.
On December 18, 2020, we acquired, through a joint venture with CPPIB US RE-3, Inc., a subsidiary of Canada Pension
Plan Investment Board (“CPPIB”), the 668,109 square-foot 1918 Eighth office property located in Seattle, Washington. We own
55% of the ownership interest in the consolidated joint venture. Please refer to Part IV, Item 15(a) “Exhibits, Financial Statement
Schedules—Note 3 to the Consolidated Financial Statements—Investment in Real Estate” for details.
As of December 24, 2020, the Company owns 50% of the ownership interests in the joint venture which owns the Sunset
LA development in Los Angeles, California. Please refer to Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 3
to the Consolidated Financial Statements—Investment in Real Estate” for details.
Dispositions
We had no dispositions during the year ended December 31, 2020.
Held for Sale
As of December 31, 2020, we had no properties that met the criteria to be classified as held for sale.
Studio Joint Venture
On July 30, 2020, funds affiliated with Blackstone Property Partners (“Blackstone”) acquired a 49% interest in our three
Hollywood studios and five on-lot or adjacent Class A office properties (collectively, the “Hollywood Media Portfolio”) at a gross
portfolio valuation of $1.65 billion, before closing credits, prorations and costs (the “Studio Joint Venture”). The transaction
included Sunset Gower, Sunset Bronson and Sunset Las Palmas Studios, as well as 6040 Sunset, ICON, CUE, EPIC and Harlow,
along with 1.1 million square feet of development rights associated with Sunset Gower and Sunset Las Palmas Studios. We
retained a 51% ownership stake and remain responsible for day-to-day operations, leasing and development, and the joint venture
will look to partner on studio acquisitions in Los Angeles and other key markets.
In conjunction with closing the transaction, the joint venture closed a $900.0 million mortgage loan secured by the
portfolio. This loan has an initial term of two years from the first payment date, with three one-year extension options, subject to
certain requirements. With an initial interest rate of LIBOR plus 2.15% per annum, it bears interest only payable every month
during the term of the loan with principal payable at maturity. The loan is non-recourse, except as to customary non-recourse
carveout guaranties from us and the Blackstone affiliate.
The combined proceeds from the sale of the 49% interest in the Hollywood Media Portfolio and our share of asset-level
financing was approximately $1.27 billion before closing credits, prorations and costs. We used approximately $849.5 million to
repay all outstanding amounts under our revolving credit facilities, Met Park North loan and Term Loans B and D, which were
originally due in the second and fourth quarter 2022, respectively. The remainder is available for potential future investments and/
or share repurchases, and general corporate purposes.
47
Under Construction and Future Development Projects
We completed construction of our Harlow property in 2020.
The following table summarizes the properties currently under construction and future developments as of December 31,
2020:
Location
Under Construction:
One Westside(2)
Total Under Construction
Future Development Pipeline:
Washington 1000
Bentall Centre—Development(3)
Element LA—Development
Sunset LA—Development(4)
Sunset Bronson Studios Lot D—Development(5)
Sunset Gower Studios—Development(5)
Sunset Las Palmas Studios—Development(5)
Cloud10
Total Future Development Pipeline
TOTAL UNDER CONSTRUCTION AND FUTURE
DEVELOPMENT PIPELINE
Submarket
Estimated
Square Feet(1)
Estimated
Completion Date
Estimated
Stabilization Date
West Los Angeles
Denny Triangle
Downtown Vancouver
West Los Angeles
Los Angeles
Hollywood
Hollywood
Hollywood
North San Jose
Q1-2022
Q2-2023
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
584,000
584,000
538,164
450,000
500,000
232,855
19,816
478,845
617,581
350,000
3,187,261
3,771,261
_____________
1.
Determined by management based upon estimated leasable square feet, which may be less or more than the BOMA rentable area. Square footage may change
over time due to re-measurement or re-leasing.
2. We own 75% of the ownership interest in the consolidated joint venture that owns this property. This property is fully leased to Google, Inc. for
approximately 14 years anticipated to commence upon completion of construction and build-out of tenant improvements in 2022.
3. We own 20% of the ownership interest in the unconsolidated joint venture that owns Bentall Centre—Development.
4. We own 50% of the ownership interest in the unconsolidated joint venture that owns Sunset LA—Development.
5. We own 51% of the ownership interest in the consolidated joint venture that owns Sunset Bronson Studios, Sunset Gower Studios and Sunset Las Palmas
Studios.
Financings
During the year ended December 31, 2020, the outstanding borrowings on our unsecured revolving credit facility
decreased by $75.0 million, net of draws. We use the unsecured revolving credit facility to finance the acquisition of properties, to
provide funds for tenant improvements and capital expenditures and to provide for working capital and other corporate purposes.
See Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 6 to the Consolidated Financial Statements—Debt” for
details on our debt.
On July 30, 2020, in conjunction with closing the Studio Joint Venture transaction with Blackstone, the joint venture
closed a $900.0 million mortgage loan secured by our Hollywood Media Portfolio. This loan has an initial term of two years from
the first payment date, with three one-year extension options, subject to certain requirements. With an initial interest rate of LIBOR
plus 2.15% per annum, it bears interest only payable every month during the term of the loan with principal payable at maturity.
The loan is non-recourse, except as to customary non-recourse carveout guaranties from the Company and Blackstone. The
combined proceeds from sale of the 49% interest in the Hollywood Media Portfolio and our share of asset-level financing were
approximately $1.27 billion before closing credits, prorations and costs. We used approximately $849.5 million to repay all
outstanding amounts under our revolving credit facilities, Met Park North loan and Term Loans B and D, which were originally
due in the second and fourth quarter 2022, respectively. The remainder is available for potential future investments and/or share
repurchases, and general corporate purposes. The Company and Blackstone also subsequently purchased bonds comprising the
loan in the amounts of $107.8 million and $12.5 million, respectively.
48
On December 18, 2020, we acquired, through a joint venture with CPPIB, the 1918 Eighth office property located in
Seattle, Washington. We own 55% of the ownership interest in the consolidated joint venture. In conjunction with closing the
transaction, the joint venture closed a $314.3 million mortgage loan secured by the property. This loan has an initial interest rate of
LIBOR plus 1.70% per annum and is interest only through the five-year term.
Factors That May Influence Our Operating Results
Business and Strategy
We invest in Class-A office and studio properties located in high barrier-to-entry, innovation-centric submarkets with
significant growth potential. Our positioning within these submarkets allows us to attract and retain quality growth companies as
tenants, many of which are in the technology and studio sectors. The purchase of properties with a value-add component, typically
through off-market transactions, also facilitates our growth. These types of assets afford us the opportunity to capture embedded
rent growth and occupancy upside, and to strategically invest capital to reposition and redevelop assets to generate additional cash
flow. We take a more measured approach to ground-up development, with most under-construction, planned or potential projects
located on ancillary sites part of existing operating assets. Management expertise across disciplines supports execution at all levels
of our operations. In particular, aggressive leasing and proactive asset management, combined with a focus on conservatively
managing our balance sheet, are central to our strategy.
Rental Revenue
The amount of net rental revenue generated by the properties in our portfolio depends principally on our ability to
maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available
from lease terminations. As of December 31, 2020, the percent leased for our in-service office properties was approximately 93.5%
(or 92.7%, excluding leases signed but not commenced as of that date). As of December 31, 2020, the percent leased, based on a
12-month trailing average, was approximately 90.2% for same-store studio properties. The amount of rental revenue generated by
us also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental rates for our
office properties are generally below the current average quoted market rate. We believe the average rental rates for our studio
properties are generally equal to current average quoted market rates. Negative trends in one or more of these factors could
adversely affect our rental revenue in future periods. Future economic downturns or regional downturns affecting our submarkets
or downturns in our tenants’ industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their
lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at
our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that
meet our investment criteria.
Conditions in Our Markets
The properties in our portfolio are all located in Northern and Southern California, the Pacific Northwest and Western
Canada. Positive or negative changes in economic or other conditions in Northern and Southern California, the Pacific Northwest
or Western Canada, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our
overall performance.
Operating Expenses
Our operating expenses generally consist of utilities, cleaning, engineering, administrative, property, ad valorem taxes
and site maintenance costs. Increases in these expenses over tenants’ base years are generally passed on to tenants in our full-
service gross leased properties and are generally paid in full by tenants in our net lease properties. Certain of our properties have
been reassessed for property tax purposes as a result of subsequent acquisition, development, redevelopment and other
reassessments that remain pending. In the case of completed reassessments, the amount of property taxes we pay reflects the
valuations established with the county assessors for the relevant locations of each property as of IPO or their subsequent
acquisition. With respect to pending reassessments, we similarly expect the amount of property taxes we pay to reflect the
valuations established with such county assessors.
Taxable REIT Subsidiaries
Hudson Pacific Services, Inc., or our services company, is a Maryland corporation that is wholly-owned by our operating
partnership. We have elected, together with our services company and certain of our subsidiaries, to treat our services company
and such other subsidiaries as taxable REIT subsidiaries for federal income tax purposes, and we may form additional taxable
REIT subsidiaries in the future. Our taxable REIT subsidiaries generally may provide both customary and non-customary services
49
to our tenants and engage in other activities that we may not engage in directly without adversely affecting our qualification as a
REIT. Our services company and its subsidiaries provide a number of services to certain tenants at our studio properties and, from
time to time, one or more taxable REIT subsidiaries may provide services to our tenants at these and other properties. In addition,
our operating partnership has contributed some or all of its interests in certain subsidiaries or their assets to our services company.
We currently lease space to subsidiaries of our services company at our studio properties and may, from time to time, enter into
additional leases with one or more taxable REIT subsidiaries. Any income earned by our taxable REIT subsidiaries will not be
included in our taxable income for purposes of the 75% or 95% gross income tests, except to the extent such income is distributed
to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a
taxable REIT subsidiary is subject to federal income tax, and state and local income tax (where applicable), as a regular C
corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as compared
to the income earned by our other subsidiaries.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies as of the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing
basis, we evaluate our estimates, including those related to acquiring, developing and assessing the carrying values of our real
estate properties, our accrued liabilities, and our performance-based equity compensation awards. We base our estimates on
historical experience, current market conditions, and various other assumptions that are believed to be reasonable under the
circumstances. Actual results could materially differ from these estimates. The following critical accounting policies discussion
reflects what we believe are the most significant estimates, assumptions and judgments used in the preparation of our consolidated
financial statements. See Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 2 to the Consolidated Financial
Statements—Summary of Significant Accounting Policies” for details on our significant accounting policies.
Investment in Real Estate Properties
Acquisitions
Our acquisitions are accounted for using the acquisition method. The results of operations for each of these acquisitions
are included in our Consolidated Statements of Operations from the date of acquisition.
We evaluate each acquisition of real estate to determine if the integrated set of assets and activities acquired meet the
definition of a business and need to be accounted for as a business combination in accordance with ASC 805, Business
Combinations. An integrated set of assets and activities would fail to qualify as a business if either (i) substantially all of the fair
value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii)
the integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create outputs (i.e., revenue generated before and after the transaction). An acquired process is
considered substantive if (i) the process includes an organized workforce (or includes an acquired contract that provides access to
an organized workforce), that is skilled, knowledgeable, and experienced in performing the process, (ii) the process cannot be
replaced without significant cost, effort, or delay or (iii) the process is considered unique or scarce.
Acquisitions of real estate will generally not meet the definition of a business because substantially all of the fair value is
concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and improvements and related
intangible assets or liabilities) or because the acquisition does not include a substantive process in the form of an acquired
workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
When we acquire properties that are considered asset acquisitions, the purchase price, which includes transaction-related
expenses, is allocated based on relative fair value of the assets acquired and liabilities assumed. Assets acquired and liabilities
assumed include, but are not limited to, land, building and improvements, intangible assets related to above-and below-market
leases, intangible assets related to in-place leases, debt and other assumed assets and liabilities. The purchase price accounting is
finalized in the period of acquisition.
50
The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant. The fair
value of acquired “above- and below-” market leases are based on the estimated cash flow projections utilizing discount rates that
reflect the risks associated with the leases acquired. The amount recorded is based on the present value of the difference between
(i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for
each in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term
plus the extended below-market term for any leases with below-market renewal options. Other intangible assets acquired include
amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors
considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to
execute similar leases. In estimating carrying costs, we include estimates of lost rents at market rates during the hypothetical
expected lease-up periods, which are dependent on local market conditions. In estimating costs to execute similar leases, we
consider leasing commissions, legal and other related costs. The fair value debt assumed is based on the estimated cash flow
projections utilizing interest rates available for the issuance of debt with similar terms and remaining maturities.
Cost Capitalization
We capitalize costs associated with development and redevelopment activities, capital improvements, tenant
improvements and leasing activity. Costs associated with development and redevelopment that are capitalized include interest,
property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a real
estate project. Indirect development costs, including salaries and benefits, office rent, and associated costs for those individuals
directly responsible for and who spend their time on development activities are also capitalized and allocated to the projects to
which they relate. Construction and development costs are capitalized while substantial activities are ongoing to prepare an asset
for its intended use. We consider a construction project as substantially complete and held available for occupancy upon the
completion of tenant improvements but no later than one year after cessation of major construction activity. Costs incurred after a
project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as they
are incurred. Costs previously capitalized related to abandoned acquisitions or developments are charged to earnings. Expenditures
for repairs and maintenance are expensed as they are incurred.
Operating Properties
The properties are generally carried at cost less accumulated depreciation and amortization. We compute depreciation and
amortization using the straight-line method over the estimated useful lives of the assets as represented in the table below:
Asset Description
Building and improvements
Land improvements
Furniture and fixtures
Tenant improvements
Estimated Useful Life (Years)
Shorter of the ground lease term or 39
15
5 to 7
Shorter of the estimated useful life or the lease term
We amortize above- and below-market lease intangibles over the remaining non-cancellable lease terms and bargain
renewal periods, if applicable. The in-place lease intangibles are amortized over the remaining non-cancellable lease term. When
tenants vacate prior to the expiration of their lease, the amortization of intangible assets and liabilities is accelerated. We amortize
above- and below-market ground lease intangibles over the remaining non-cancellable lease terms.
Impairment of Long-Lived Assets
We assess the carrying value of real estate assets and related intangibles for impairment on a quarterly basis and whenever
events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in
accordance with GAAP. Impairment losses are recorded on real estate assets held for investment when indicators of impairment
are present and the future undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying
amount. We recognize impairment losses to the extent the carrying amount exceeds the fair value of the properties.
Revenue Recognition
Starting on January 1, 2019, the recognition of revenues related to lease components is governed by ASC 842, while the
2018 rental revenues are accounted for under ASC 840. The revenue related to non-lease components is subject to ASC 606,
Revenue from Contracts with Customers (“ASC 606”).
51
Upon adoption of ASC 842 on January 1, 2019, our revenue recognition model remained consistent with previous
guidance, apart from the narrower definition of initial direct costs that can be capitalized. The new standard defines initial direct
costs as only the incremental costs of signing a lease. Internal direct compensation costs and external legal fees related to the
execution of successful lease agreements that no longer meet the definition of initial direct costs under ASC 842 are accounted for
as office operating expense or studio operating expense in our Consolidated Statements of Operations.
We elected the lessor’s practical expedient that changed the presentation of revenues on the Consolidated Statement of
Operations to reflect a single lease component that combines rental, tenant recoveries, and other tenant-related revenues for the
office portfolio. For our rentals at the studio properties, total lease consideration is allocated to lease and non-lease components on
a relative standalone basis.
We recognize rental revenue from tenants on a straight-line basis over the lease term when collectability is probable and
the tenant has taken possession or controls the physical use of the leased asset. If the lease provides for tenant improvements, we
determine whether the tenant improvements, for accounting purposes, are owned by the tenant or us. When we are the owner of the
tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the
leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements,
any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the
lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
•
•
•
•
whether the lease stipulates how and on what a tenant improvement allowance may be spent;
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
whether the tenant improvements are unique to the tenant or general-purpose in nature; and
whether the tenant improvements are expected to have any residual value at the end of the lease.
Other property-related revenue is revenue that is derived from the tenants’ use of lighting, equipment rental, parking,
power, HVAC and telecommunications (telephone and internet). Other property-related revenue is recognized based on a five-step
model and revenue is recognized once all performance obligations are satisfied.
Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating
expenses are recognized as revenue in the period during which the applicable expenses are incurred. The reimbursements are
recognized and presented gross, as we are generally the primary obligor with respect to purchasing goods and services from third-
party suppliers, have discretion in selecting the supplier and bear the associated credit risk.
We evaluate the sales of real estate based on transfer of control. If a real estate sale contract includes ongoing involvement
by the seller with the sold property, we evaluate each promised good or service under the contract to determine whether it
represents a performance obligation, constitutes a guarantee or prevents the transfer of control.
Stock-Based Compensation
Compensation cost of restricted stock, restricted stock units and performance units under our equity incentive award plans
are accounted for under ASC 718, Compensation-Stock Compensation (“ASC 718”). For time-based awards, stock-based
compensation is valued based on the quoted closing price of our common stock on the applicable grant date and discounted for any
hold restrictions. For performance-based awards, stock-based compensation is valued utilizing a Monte Carlo Simulation to
estimate the probability of the performance vesting conditions being satisfied.
The stock-based compensation is amortized through the final vesting period on a straight-line basis and graded vesting
basis for time-based awards and performance-based awards, respectively. We account for forfeitures of awards as they occur.
Share-based payments granted to non-employees are accounted for in the same manner as share-based payments granted to
employees.
Our compensation committee will regularly consider the accounting implications of significant compensation decisions,
especially in connection with decisions that relate to our equity incentive award plans and programs.
52
Income Taxes
Our property-owning subsidiaries are limited liability companies and are treated as pass-through entities or disregarded
entities (or, in the case of the entities that own the 1455 Market, Hill7, Ferry Building and 1918 Eighth properties, REITs) for
federal income tax purposes. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated
financial statements for the activities of these entities.
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing
with our taxable year ended December 31, 2010. We believe that we have operated in a manner that has allowed us to qualify as a
REIT for federal income tax purposes commencing with such taxable year, and we intend to continue operating in such manner. To
qualify as a REIT, we are required to distribute at least 90% of our REIT taxable income, excluding net capital gains, to our
stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset
holdings, distribution levels and diversity of stock ownership.
Provided that we continue to qualify for taxation as a REIT, we are generally not subject to corporate level income tax on
the earnings distributed currently to our stockholders. If we were to fail to qualify as a REIT in any taxable year, and were unable
to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal
corporate income tax, including any applicable alternative minimum tax for taxable years prior to 2018. Unless entitled to relief
under specific statutory provisions, we would be ineligible to elect to be treated as a REIT for the four taxable years following the
year for which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this
statutory relief.
We own and may acquire direct or indirect interests in one or more Subsidiary REITs. A Subsidiary REIT is subject to the
various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were
to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii) shares in such REIT
would cease to be qualifying assets for purposes of the asset tests applicable to REITs and (iii) it is possible that we would fail
certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of
certain relief provisions.
We believe that our operating partnership is properly treated as a partnership for federal income tax purposes. As a
partnership, our operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including us,
is allocated, and may be required to pay tax with respect to, its share of our operating partnership’s income. As such, no provision
for federal income taxes has been included for the operating partnership.
We have elected, together with certain of our subsidiaries, to treat such subsidiaries as taxable REIT subsidiaries
(“TRSs”) for federal income tax purposes. Certain activities that we may undertake, such as non-customary services for our tenants
and holding assets that we cannot hold directly, will be conducted by a TRS. A TRS is subject to federal and, where applicable,
state and local income taxes on its net income.
We are subject to the statutory requirements of the states in which we conduct business.
We periodically evaluate our tax positions to determine whether it is more likely than not that such positions would be
sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their
technical merits. As of December 31, 2020, we have not established a liability for uncertain tax positions.
We and our TRSs file income tax returns with the U.S. federal government and various state and local jurisdictions. We
and our TRSs are no longer subject to tax examinations by tax authorities for years prior to 2016. Generally, we have assessed our
tax positions for all open years, which as of December 31, 2020 include 2017 to 2019 for Federal purposes and 2016 to 2019 for
state purposes, and concluded that there are no material uncertainties to be recognized.
53
Results of Operations
As of December 31, 2020, our portfolio consists of 64 properties (41 wholly-owned properties, 15 properties owned by
joint ventures and eight land properties) located in eleven California, three Seattle and one Western Canada submarkets, totaling
approximately 20.0 million square feet.
The following table summarizes our consolidated and unconsolidated portfolio as of December 31, 2020:
Number of
Properties
Rentable
Square Feet(1)
Percent
Occupied(2)
Percent
Leased(2)
Annualized Base Rent
per Square Foot(3)
OFFICE
Same-store(4)
Stabilized non-same store(5)
Total stabilized
Lease-up(5)(6)
Total in-service
Repositioning(5)(7)
Redevelopment(5)
Development(6)
Total office
STUDIO
Same-store(8)
Non-same-store(5)
Total studio
Total office and studio properties
Land
TOTAL
92.9 %
93.6 % $
96.4
93.8
78.1
92.7
—
—
—
90.2
—
97.2
94.5
78.3
93.5
—
83.8
—
90.2
—
53.15
36.09
48.77
58.86
49.33
40.74
—
39
8
47
3
50
—
2
1
53
3
—
3
56
8
64
10,187,240
3,387,342
13,574,582
955,679
14,530,261
217,364
697,000
106,125
15,550,750
1,224,403
—
1,224,403
16,775,153
3,187,261 (9)
19,962,414
____________
1.
Determined by management based upon estimated leasable square feet, which may be less or more than the Building Owners and Managers Association
(“BOMA”) rentable area. Square footage may change over time due to re-measurement or re-leasing. Represents 100% share of consolidated and
unconsolidated joint ventures.
Percent occupied for office properties is calculated as (i) square footage under commenced leases as of December 31, 2020, divided by (ii) total square feet,
expressed as a percentage. Percent leased for office properties includes uncommenced leases. Percent leased for studio properties is calculated as (i) average
square footage under commenced leases for the 12 months ended December 31, 2020, divided by (ii) total square feet, expressed as a percentage.
Office portfolio calculated as (i) annualized base rent divided by (ii) square footage under commenced leases as of December 31, 2020. Annualized base rent
does not reflect tenant reimbursements. Studio portfolio calculated as annual base rent per leased square foot calculated as (i) annual base rent divided by (ii)
square footage under leased as of December 31, 2020.
Includes office properties owned and included in our stabilized portfolio as of January 1, 2019 and still owned and included in the stabilized portfolio as of
December 31, 2020.
Included in our non-same-store property group.
Includes office properties that have not yet reached 92.0% occupancy since the date they were acquired or placed under redevelopment or development as of
December 31, 2020.
Includes 79,056 square feet at Page Mill Center, 61,066 square feet at Metro Plaza, 40,337 square feet at 10850 Pico and 36,905 square feet at Rincon Center
as of fourth quarter 2020.
Includes studio properties owned and included in our portfolio as of January 1, 2019 and still owned and included in our portfolio as of December 31, 2020.
Includes 538,164 square feet related to the office development Washington 1000, adjacent to the Washington State Convention Center, to which we
purchased rights during first quarter 2019.
2.
3.
4.
5.
6.
7.
8.
9.
All amounts and percentages used in this discussion of our results of operations are calculated using the numbers
presented in the financial statements contained in this report rather than the rounded numbers appearing in this discussion. The
dollar amounts included in the tables in this discussion of our results of operations are presented in thousands.
54
Comparison of the year ended December 31, 2020 to the year ended December 31, 2019
Net Operating Income
We evaluate performance based upon property net operating income (“NOI”). NOI is not a measure of operating results
or cash flows from operating activities or cash flows as measured by GAAP and should not be considered an alternative to net
income, as an indication of our performance, or as an alternative to cash flows as a measure of liquidity, or our ability to make
distributions. All companies may not calculate NOI in the same manner. We consider NOI to be a useful performance measure to
investors and management because when compared across periods, NOI reflects the revenues and expenses directly associated
with owning and operating our properties and the impact to operations from trends in occupancy rates, rental rates and operating
costs, providing a perspective not immediately apparent from net income. We calculate NOI as net income (loss) excluding
corporate general and administrative expenses, depreciation and amortization, impairments, gains/losses on sales of real estate,
interest expense, transaction-related expenses and other non-operating items. We define NOI as operating revenues (including
rental revenues, other property-related revenue, tenant recoveries and other operating revenues), less property-level operating
expenses (which includes external management fees, if any, and property-level general and administrative expenses). NOI on a
cash basis is NOI adjusted to exclude the effect of straight-line rent and other non-cash adjustments required by GAAP. We
believe that NOI on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates
straight-line rent and other non-cash adjustments to revenue and expenses.
•
•
Management further analyzes NOI by evaluating the performance from the following property groups:
Same-store properties, which include all of the properties owned and included in our stabilized portfolio as of January 1,
2019 and still owned and included in the stabilized portfolio as of December 31, 2020; and
Non-same-store properties include:
◦
◦
◦
◦
◦
Stabilized non-same store properties
Lease-up properties
Repositioning properties
Development properties
Redevelopment properties
The following table reconciles net income to NOI (in thousands, except percentage change):
NET INCOME
Adjustments:
(Income) loss from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Transaction-related expenses
Unrealized loss on non-real estate investments
Gain on sale of real estate
Impairment loss
Other income
General and administrative
Depreciation and amortization
NOI
Same-store NOI
Non-same-store NOI
NOI
Year Ended December 31,
2020
2019
Dollar
Change
Percentage
Change
$
16,430 $
55,846 $
(39,416)
(70.6) %
(736)
(2,815)
116,477
(4,089)
440
2,463
—
—
(548)
77,882
299,682
747
(1,459)
105,845
(4,044)
667
—
(47,100)
52,201
(78)
71,947
282,088
(1,483)
(1,356)
10,632
(45)
(227)
2,463
47,100
(52,201)
(470)
5,935
17,594
(198.5)
92.9
10.0
1.1
(34.0)
100.0
(100.0)
(100.0)
602.6
8.2
6.2
505,186 $
516,660 $
(11,474)
(2.2) %
436,787 $
465,957 $
(29,170)
68,399
50,703
17,696
505,186 $
516,660 $
(11,474)
(6.3) %
34.9
(2.2) %
$
$
$
55
The following table summarizes certain statistics of our consolidated same-store office and studio properties:
Same-store office
Number of properties
Rentable square feet
Ending % leased
Ending % occupied
Average % occupied for the period
Average annual rental rate per square foot
Same-store studio
Number of properties
Rentable square feet
Average % occupied over period(1)
Year Ended December 31,
2020
2019
39
39
10,187,240
93.6 %
92.9 %
93.9 %
10,187,240
96.9 %
96.4 %
94.7 %
$
53.15
$
51.33
3
3
1,224,403
90.2 %
1,224,403
92.4 %
_____________
1.
Percent occupied for same-store studio is the average percent occupied for the 12 months ended December 31, 2020.
The following table gives further detail on our consolidated NOI (in thousands):
REVENUES
Office
Rental
Service and other revenues
Total office revenues
Studio
Rental
Service and other revenues
Total studio revenues
Year Ended December 31,
2020
2019
Same-store Non-same-
store
Total
Same-store Non-same-
store
Total
$
609,356 $
13,433
622,789
111,930 $
1,200
113,130
721,286 $
14,633
735,919
614,215 $
23,774
637,989
94,349 $
1,397
95,746
708,564
25,171
733,735
48,756
20,290
69,046
—
—
—
48,756
20,290
69,046
51,340
33,107
84,447
—
—
—
51,340
33,107
84,447
Total revenues
691,835
113,130
804,965
722,436
95,746
818,182
OPERATING EXPENSES
Office operating expenses
Studio operating expenses
Total operating expenses
Office NOI
Studio NOI
NOI
217,468
37,580
255,048
44,731
—
44,731
262,199
37,580
299,779
211,166
45,313
256,479
45,043
—
45,043
256,209
45,313
301,522
405,321
31,466
436,787 $
68,399
—
68,399 $
473,720
31,466
505,186 $
426,823
39,134
465,957 $
50,703
—
50,703 $
477,526
39,134
516,660
$
56
The following table gives further detail on our change in consolidated NOI (in thousands, except percentage change):
Year Ended December 31, 2020 as compared to the Year Ended December 31, 2019
Non-same-store
Same-store
Total
REVENUES
Office
Rental
Service and other revenues
Total office revenues
Studio
Rental
Service and other revenues
Total studio revenues
Dollar
change
Percentage
change
Dollar
change
Percentage
change
Dollar
change
Percentage
change
$
(4,859)
(10,341)
(15,200)
(0.8) % $
(43.5)
(2.4)
17,581
(197)
17,384
18.6 % $
(14.1)
18.2
12,722
(10,538)
2,184
1.8 %
(41.9)
0.3
(2,584)
(12,817)
(15,401)
(5.0)
(38.7)
(18.2)
—
—
—
—
—
—
(2,584)
(12,817)
(15,401)
(5.0)
(38.7)
(18.2)
Total revenues
(30,601)
(4.2)
17,384
18.2
(13,217)
(1.6)
OPERATING EXPENSES
Office operating expenses
Studio operating expenses
Total operating expenses
Office NOI
Studio NOI
NOI
6,302
(7,733)
(1,431)
3.0
(17.1)
(0.6)
(312)
—
(312)
(21,502)
(7,668)
(29,170)
$
(5.0)
(19.6)
(6.3) % $
17,696
—
17,696
(0.7)
—
(0.7)
34.9
—
34.9 % $
5,990
(7,733)
(1,743)
(3,806)
(7,668)
(11,474)
2.3
(17.1)
(0.6)
(0.8)
(19.6)
(2.2) %
NOI decreased $11.5 million, or 2.2%, for the year ended December 31, 2020 as compared to the year ended
December 31, 2019, primarily resulting from:
•
a $29.2 million decrease in NOI from our same-store properties driven by:
a decrease in office NOI of $21.5 million primarily due to:
•
•
•
•
$10.3 million decrease in service and other revenues primarily relating to reduced parking and other
revenue at our 1455 Market, Rincon Center, 6922 Hollywood, Met Park North, ICON, 505 First and
Ferry Building properties due to COVID-19 restrictions;
$6.3 million increase in office operating expenses primarily resulting from a $1.1 million increase in
real estate taxes attributable to a prior period property tax reassessment as well as an increase in repairs
and maintenance, security, insurance and administrative expenses, partially offset by a decrease in
utilities and cleaning expenses; and
$4.9 million decrease in rental revenues primarily relating to tenants vacating our Page Mill Center
property and an increase in write-offs of cash rents, primarily related to our store-front retail tenants,
and accrued straight-line rent receivables due to the impact of COVID-19.
•
a decrease in studio NOI of $7.7 million primarily due to:
•
•
•
$12.8 million decrease in service and other revenues primarily resulting from a decrease in one-time
inactive fees received from Netflix in first quarter 2019 and reduced filming activity at our studio
properties related to the COVID-19 pandemic; and
$2.6 million decrease in rental revenues also resulting from reduced filming activity related to
COVID-19;
partially offset by a $7.7 million decrease in studio operating expenses primarily resulting from a $2.1
million net real estate tax savings attributable to a prior period property tax reassessment as well as
lower lighting, parking, utilities and cleaning expenses related to reduced operating activity at our
studio properties due to COVID-19.
•
a $17.7 million increase in NOI from our non-same-store properties driven by:
an increase in office NOI of $17.7 million primarily due to:
•
•
$17.6 million increase in rental revenues primarily relating to:
57
•
•
commencement of leases at our EPIC (Netflix, Inc.), Fourth & Traction (Honey Science
Corporation), Metro Center (various tenants) and 333 Twin Dolphin (various tenants)
properties and the acquisition of 1918 Eighth (Amazon);
partially offset by vacancies at our Del Amo property due to the commencement of a
repositioning project and reduced rental income at our Maxwell (WeWork Companies Inc.)
property.
•
$0.3 million decrease in office operating expenses primarily relating to reduced owner's expenses and
repair and maintenance expenses.
Other Income (Expense)
Income (loss) from unconsolidated real estate entities
Income from our unconsolidated real estate entities increased by $1.5 million, or 198.5%, to $0.7 million of income for
the year ended December 31, 2020 compared to $0.7 million of loss for the year ended December 31, 2019. The increase was
primarily driven by a decrease in interest expense and amortization expense and an increase in rental revenue at the unconsolidated
entities for the year ended December 31, 2020, as well as a partial year of operations recognized for the year ended December 31,
2019 due to the acquisition of Bentall Centre on June 5, 2019.
Fee income
Fee income increased by $1.4 million, or 92.9%, to $2.8 million for the year ended December 31, 2020 compared to $1.5
million for the year ended December 31, 2019. The fee income represents the management fee income earned from the
unconsolidated real estate entities.
Interest expense
Comparison of the year ended December 31, 2020 to the year ended December 31, 2019 is as follows (in thousands,
except percentage change):
Year Ended December 31,
2020
2019
Dollar Change
Gross interest expense
Capitalized interest
$
126,447 $
115,845 $
(19,509)
(16,258)
Amortization of deferred financing costs/loan discount
9,539
6,258
TOTAL
$
116,477 $
105,845 $
10,602
(3,251)
3,281
10,632
Percentage
Change
9.2 %
20.0
52.4
10.0 %
Gross interest expense increased by $10.6 million, or 9.2%, to $126.4 million for the year ended December 31, 2020
compared to $115.8 million for the year ended December 31, 2019. The increase was primarily driven by the closing of a $900.0
million loan secured by the Hollywood Media Portfolio (July 2020), the issuance of $500.0 million 4.65% registered senior notes
(June 2019) and $400.0 million 3.25% registered senior notes (October 2019) and the closing of a $314.3 million loan secured by
our 1918 Eighth property (December 2020), partially offset by the paydown of Term Loan A (October 2019), Term Loan B, Term
Loan D, Met Park North loan, Revolving Sunset Bronson Studios/ICON/CUE facility and outstanding borrowings on our
unsecured revolving credit facility all in July 2020.
Capitalized interest increased $3.3 million, or 20.0%, to $19.5 million for the year ended December 31, 2020 compared to
$16.3 million for the year ended December 31, 2019. The increase was primarily driven by our Harlow development property, Del
Amo redevelopment property and our Rincon Center, Page Mill Center, Metro Plaza and 10850 Pico repositioning projects.
Amortization of deferred financing costs and loan discounts/premiums increased by $3.3 million, or 52.4% to $9.5 million
for the year ended December 31, 2020 compared to $6.3 million for the year ended December 31, 2019. The increase was
primarily driven by the accelerated amortization of deferred financing costs on debt paid off during the year ended December 31,
2020 and new amortization of deferred financing costs associated with our $900.0 million loan secured by the Hollywood Media
Portfolio (July 2020).
58
Gains on sale of real estate
We recognized a $47.1 million gain on the sale of our Campus Center property during the year ended December 31, 2019.
We did not recognize any gains or losses on sale of real estate for the year ended December 31, 2020.
Impairment loss
We recorded $52.2 million of impairment charges during the year ended December 31, 2019 related to our Campus
Center office property. Our estimated fair value was based on the sale price. We did not recognize any impairment charges for the
year ended December 31, 2020.
General and administrative expenses
General and administrative expenses include wages and salaries for corporate-level employees, accounting, legal and
other professional services, office supplies, entertainment, travel and automobile expenses, telecommunications and computer-
related expenses and other miscellaneous items. General and administrative expenses increased $5.9 million, or 8.2%, to $77.9
million for the year ended December 31, 2020 compared to $71.9 million for the year ended December 31, 2019. The increase was
primarily attributable to political contributions made for statewide ballot measures.
Depreciation and amortization expense
Depreciation and amortization expense increased $17.6 million, or 6.2%, to $299.7 million for the year ended
December 31, 2020 compared to $282.1 million for the year ended December 31, 2019. The increase was primarily related to
recently completed redevelopment and development properties (EPIC, Fourth & Traction and Maxwell) and an increase in
deferred leasing costs and tenant improvements for properties placed in service in the fourth quarter of 2019.
Comparison of the year ended December 31, 2019 to the year ended December 31, 2018
Refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Results of Operations—Comparison of the year ended December 31, 2019 to the year ended December 31, 2018” of the Form 10-
K for the fiscal year ended December 31, 2019.
Liquidity and Capital Resources
We have remained capitalized since our initial public offering through public offerings, private placements, joint ventures
and continuous offerings under our at-the-market (“ATM”) program. We currently expect that our principal sources of funds to
meet our short-term and long-term liquidity requirements for working capital, strategic acquisitions, capital expenditures, tenant
improvements, leasing costs, dividends and distributions, share repurchases and repayments of outstanding debt financing will
include:
•
•
•
•
•
•
cash on hand, cash reserves and net cash provided by operations;
proceeds from additional equity securities;
our ATM program;
borrowings under the operating partnership’s unsecured revolving credit facility and One Westside construction loan;
proceeds from joint venture partners; and
proceeds from additional secured, unsecured debt financings or offerings.
59
Liquidity Sources
We had approximately $113.7 million of cash and cash equivalents at December 31, 2020. Our principal source of
operating cash flow is related to leasing and operating the properties in our portfolio. Our properties provide a relatively consistent
stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend and
distribution requirements.
Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market
conditions for REITs and market perceptions about us.
We have an ATM program that allows us to sell up to $125.0 million of common stock, $20.1 million of which has been
sold through December 31, 2020. Any future sales will depend on several factors, including, but not limited to, market conditions,
the trading price of our common stock and our capital needs. We have no obligation to sell the remaining shares available for sale
under this program.
As of December 31, 2020, we had total borrowing capacity of $600.0 million under our unsecured revolving credit
facility, none of which had been drawn. As of December 31, 2020, we had total borrowing capacity of $414.6 million under our
construction loan, secured by our One Westside and 10850 Pico properties, $106.1 million of which had been drawn.
Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value
of our unencumbered assets and borrowing restrictions that may be imposed by lenders. If we incur additional debt, the risks
associated with our leverage, including our ability to service our debt, would increase.
The following table sets forth our ratio of debt to total market capitalization (counting series A preferred units as debt) as
of December 31, 2020 (in thousands, except percentage):
Market Capitalization
Unsecured and secured debt(1)
Series A preferred units
Total consolidated debt
Common equity capitalization(2)
TOTAL CONSOLIDATED MARKET CAPITALIZATION
Total consolidated debt/total consolidated market capitalization
December 31, 2020
$
$
3,432,276
9,815
3,442,091
3,705,869
7,147,960
48.2 %
_____________
1.
2.
Excludes in-substance defeased debt, joint venture partner debt and unamortized deferred financing costs and loan discount.
Common equity capitalization represents the shares of common stock outstanding (including unvested restricted shares), OP units outstanding, restricted
performance units and dilutive shares multiplied by the closing price of $24.02, reported by the NYSE, on December 31, 2020.
Outstanding Indebtedness
The following table sets forth information as of December 31, 2020 and December 31, 2019 with respect to our
outstanding indebtedness, excluding unamortized deferred financing costs and loan discounts (in thousands):
Unsecured debt
Secured debt
In-substance defeased debt
Joint venture partner debt
December 31,
2020
December 31,
2019
$ 1,925,000 $ 2,475,000
370,459
$ 1,507,276 $
135,030
131,707 $
$
66,136
66,136 $
$
The operating partnership was in compliance with its financial covenants as of December 31, 2020.
Credit Rating
In October 2019, Moody’s Investors Service upgraded the Company’s long-term corporate credit rating from Baa3 to
Baa2, with a stable outlook. A corporate credit rating is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time.
60
Liquidity Uses
Contractual Obligations
The following table provides information with respect to our commitments at December 31, 2020, including any
guaranteed or minimum commitments under contractual obligations (in thousands):
Contractual Obligation
Payments Due by Period
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Principal payments on unsecured and secured debt
$ 3,432,276 $
632 $ 1,083,344 $ 741,300 $ 1,607,000
Principal payments on in-substance defeased debt
131,707
3,494
128,213
Principal payments on joint venture partner debt
Interest payments—fixed rate(1)
Interest payments—variable rate(2)
Capital improvements(3)
Ground leases(4)
TOTAL
—
—
—
66,136
66,136
—
—
643,304
100,827
186,940
172,244
183,293
67,800
28,429
27,956
11,415
241,623
241,623
—
—
—
—
608,468
18,622
37,101
36,784
515,961
$ 5,191,314 $ 393,627 $ 1,463,554 $ 961,743 $ 2,372,390
_____________
1.
Interest rates with respect to indebtedness are calculated on the basis of a 360-day year for the actual days elapsed. Reflects our projected interest obligations
for fixed rate debts, which includes $10.7 million of projected interest related to our in-substance defeased debt and $23.1 million of projected interest related
to our joint venture partner debt.
Interest rates with respect to indebtedness are calculated on the basis of a 360-day year for the actual days elapsed. Reflects our projected interest obligations
for variable rate debts, including those that are effectively fixed as a result of derivatives and in instances where interest is paid based on a LIBOR margin.
We used the average December LIBOR and current margin based on the leverage ratio as of December 31, 2020.
Amount represents capital improvement commitments related to development and redevelopment projects and contractual obligations related to tenant
improvements as of December 31, 2020. Includes tenant overages that will ultimately be reimbursed by our tenants.
Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options. Refer to Part IV, Item 15(a) “Exhibits,
Financial Statement Schedules—Note 9 to the Consolidated Financial Statements—Future Minimum Base Rents and Lease Payments” for details of our
ground lease agreements.
2.
3.
4.
The Company invests in a real estate technology venture capital fund. The investment involves a commitment of funding
from the Company of up to $20.0 million. As of December 31, 2020, the Company has contributed $4.2 million, net of
distributions, with $15.8 million remaining to be contributed.
Off-Balance Sheet Arrangements
Joint Venture Indebtedness
We have one investment in an unconsolidated real estate entity, pursuant to a co-ownership agreement with an affiliate of
Blackstone Property Partners Lower Fund 1 LP (“Blackstone 1 LP”), the Bentall Centre property located in Vancouver, Canada.
We own 20% of this joint venture and we serve as the operating partner. The unconsolidated real estate entity has mortgage
indebtedness. Due to our significant influence over the unconsolidated entity, the Company accounts for the entity using the equity
method of accounting. As of December 31, 2020, the aggregate carrying amount of debt, including both our and our partners’
share, incurred by the unconsolidated entity was approximately $499.9 million and our proportionate share is approximately
$100.0 million.
Cash Flows
Comparison of the cash flow activity for the year ended December 31, 2020 to the year ended December 31, 2019 is as
follows (in thousands, except percentage change):
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Year Ended December 31,
2020
2019
Dollar Change
302,032 $
288,011 $
14,021
(1,006,844) $
(316,409) $
(690,435)
Percentage
Change
4.9 %
218.2 %
796,094 $
18,465 $
777,629
4,211.4 %
$
$
$
61
Cash and cash equivalents and restricted cash were $149.5 million and $58.3 million at December 31, 2020 and 2019,
respectively.
Operating Activities
Net cash provided by operating activities increased by $14.0 million, or 4.9%, to $302.0 million for the year ended
December 31, 2020 as compared to $288.0 million for the year ended December 31, 2019. The change resulted primarily from
lower cash rents during the year ended December 31, 2019 due to free rent and beneficial occupancy periods for several tenants in
the prior year that did not reoccur in the current year, partially offset by an increase in interest expense.
Investing Activities
Net cash used in investing activities increased by $690.4 million, or 218.2%, to $1.0 billion for the year ended
December 31, 2020 as compared to $316.4 million for the year ended December 31, 2019. The change resulted primarily from
$593.9 million spent on the 2020 acquisition of 1918 Eighth and $147.8 million proceeds from the Campus Center disposition in
2019, partially offset by $47.7 million lower contributions to unconsolidated entities in 2020 as compared to 2019.
Financing Activities
Net cash provided by financing activities increased by $777.6 million, or 4,211.4%, to $796.1 million for the year ended
December 31, 2020 as compared to $18.5 million for the year ended December 31, 2019. The change resulted primarily from
$381.7 million higher proceeds from notes payable, net of repayments, in 2020 as compared to 2019, $367.5 million proceeds from
the sale of a non-controlling interest in the Hollywood Media Portfolio in 2020 and $123.6 million higher contributions from non-
controlling members, net of distributions, in 2020 as compared to 2019. The increase was partially offset by $80.2 million of share
repurchases and $16.0 million of transaction costs for related to the sale of a non-controlling interest in the Hollywood Media
Portfolio in 2020.
Non-GAAP Supplemental Financial Measures
We calculate FFO in accordance with the White Paper issued in December 2018 on FFO approved by the Board of
Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with generally accepted
accounting principles in the United States (“GAAP”), excluding gains and losses from sales of depreciable real estate, gains and
losses from sale of certain real estate assets and impairment write-downs associated with depreciable real estate, plus real estate-
related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate
assets) and after adjustment for unconsolidated partnerships and joint ventures. The calculation of FFO includes the amortization
of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement
assets. In the December 2018 White Paper, NAREIT provided an option to include value changes in mark-to-market equity
securities in the calculation of FFO. We elected this option retroactively during fourth quarter 2018. We believe that FFO is a
useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating
real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our
activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the
industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs.
However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all
other REITs.
Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of
real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions,
many industry investors and analysts have considered presentations of operating results for real estate companies using historical
cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that
FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our
competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than
the required GAAP presentations alone would provide. We use FFO per share to calculate annual cash bonuses for certain
employees.
However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect
either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating
performance of our properties, which are significant economic costs and could materially impact our results from operations.
62
The following table presents a reconciliation of net income to FFO (in thousands):
Net income
Adjustments:
Depreciation and amortization—Consolidated
Depreciation and amortization—Corporate-related
Depreciation and amortization—Company’s share from unconsolidated real estate investments
Gain on sale of real estate
Impairment loss
Unrealized loss on non-real estate investments
FFO attributable to non-controlling interests
FFO attributable to preferred units
FFO TO COMMON STOCKHOLDERS AND UNITHOLDERS
$
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Year Ended December 31,
2020
2019
$
16,430 $
55,846
299,682
(2,286)
5,605
—
—
2,463
(37,644)
(612)
283,638 $
282,088
(2,153)
3,964
(47,100)
52,201
—
(28,576)
(612)
315,658
The primary market risk we face is interest rate risk. Our future income, cash flows and fair values relevant to financial
instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in
market prices and interest rates. As more fully described below, we use derivatives to manage, or hedge, interest rate risks related
to our borrowings. We only enter into contracts with major financial institutions based on their credit rating and other factors. For a
summary of our outstanding indebtedness, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Liquidity and Capital Resources.” For a summary of our derivatives, refer to Part IV, Item 15(a) “Exhibits,
Financial Statement Schedules—Note 7 to the Consolidated Financial Statements—Derivatives.”
Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial
instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that
environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the
change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses
assume no changes in our financial structure.
The following table summarizes our derivative instruments used to hedge interest rate risk as of December 31, 2020
(notional amount and fair value in thousands):
Underlying Debt Instrument
Number of
Derivatives
Notional
Amount
Effective Date
Maturity Date
Low
High
Interest Rate Range
Interest rate swaps
Hollywood Media Portfolio
(formerly Term Loan B)
Hollywood Media Portfolio
(formerly Term Loan D)
Interest rate cap
Hollywood Media Portfolio
TOTAL
2
1
1
$
350,000
April 2015
April 2022
2.96 %
3.46 %
125,000
June 2016
November 2022
2.63 %
3.13 %
$
$
900,000
July 2020
August 2022
1,375,000
Strike rate
3.50%
Fair Value
(Liabilities)/
Assets
$
(7,112)
(2,994)
$
$
5
(10,101)
63
The following table summarizes our fixed and variable rate debt as of December 31, 2020 (in thousands):
Unsecured and Secured Debt
In-Substance Defeased Debt
Joint Venture Partner Debt
Carrying Value
Fair Value
Carrying Value
Fair Value
Carrying Value
Fair Value
Variable rate(1)
Fixed rate
TOTAL(2)
$
$
1,212,559 $
1,212,560 $
— $
— $
— $
2,219,717
2,364,233
131,707
131,633
66,136
3,432,276 $
3,576,793 $
131,707 $
131,633 $
66,136 $
—
68,346
68,346
_____________
1.
2.
Includes $475.0 million of debt that is effectively fixed as a result of interest rate swaps.
Excludes unamortized deferred financing costs.
For sensitivity purposes, if one-month LIBOR as of December 31, 2020 was to increase by 100 basis points, or 1.0%, the
resulting increase in annual interest expense would decrease our future earnings and cash flows by $8.5 million, after considering the
effects of our interest rate swap agreements.
Foreign Currency Exchange Rate Risk
We have exposure to foreign currency exchange rate risk related to our unconsolidated real estate entity operating in Canada.
The unconsolidated real estate entity’s functional currency is the local currency, or Canadian dollars. Any gains or losses resulting from
the translation of Canadian dollars to U.S. dollars are classified on our Consolidated Balance Sheets as a separate component of other
comprehensive income and are excluded from net income.
ITEM 8. Financial Statements and Supplementary Data
Our consolidated financial statements included in this Annual Report on Form 10-K are listed in Part IV, Item 15(a) of
this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures (Hudson Pacific Properties, Inc.)
Hudson Pacific Properties, Inc. maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in Hudson Pacific
Properties, Inc.’s reports under the Exchange Act is processed, recorded, summarized and reported within the time periods
specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As required by Rule 13a-15(b) under the Exchange Act, Hudson Pacific Properties, Inc. carried out an evaluation, under
the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the disclosure controls and procedures as of the end of the period covered by this
report.
Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded, as of that time, that Hudson
Pacific Properties, Inc.’s disclosure controls and procedures were effective in providing a reasonable level of assurance that
information Hudson Pacific Properties, Inc. is required to disclose in reports that Hudson Pacific Properties, Inc. files under the
Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms
and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
64
Disclosure Controls and Procedures (Hudson Pacific Properties, L.P.)
Hudson Pacific Properties, L.P. maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in Hudson Pacific
Properties, L.P.’s reports under the Exchange Act is processed, recorded, summarized and reported within the time periods
specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson
Pacific Properties, L.P.), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, Hudson Pacific Properties, L.P. carried out an evaluation,
under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), of the effectiveness of the
design and operation of the disclosure controls and procedures as of the end of the period covered by this report.
Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the
sole general partner of Hudson Pacific Properties, L.P.) concluded, as of that time, that Hudson Pacific Properties, L.P.’s
disclosure controls and procedures were effective in providing a reasonable level of assurance that information Hudson Pacific
Properties, L.P. is required to disclose in reports that Hudson Pacific Properties, L.P. files under the Exchange Act is processed,
recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of Hudson
Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), as appropriate, to allow for timely decisions
regarding required disclosure.
Changes in Internal Control Over Financial Reporting (Hudson Pacific Properties, Inc.)
There have been no changes that occurred during the fourth quarter of the year covered by this report in Hudson Pacific
Properties, Inc.’s internal control over financial reporting identified in connection with the evaluation referenced above that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting (Hudson Pacific Properties, L.P.)
There have been no changes that occurred during the fourth quarter of the year covered by this report in Hudson Pacific
Properties, L.P.’s internal control over financial reporting identified in connection with the evaluation referenced above that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting (Hudson Pacific Properties, Inc.)
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Hudson Pacific Properties, Inc.’s system of internal control is designed to provide reasonable assurance regarding the
reliability of financial reporting and preparation of Hudson Pacific Properties, Inc.’s financial statements for external reporting
purposes in accordance with GAAP. Hudson Pacific Properties, Inc.’s management, including the Chief Executive Officer and
Chief Financial Officer, assessed the effectiveness of Hudson Pacific Properties, Inc.’s internal control over financial reporting
as of December 31, 2020. In conducting its assessment, management used the criteria issued by the Committee of Sponsoring
Organizations of the Treadway Commission on Internal Control-Integrated Framework (2013 Framework). Based on this
assessment, management concluded that, as of December 31, 2020, Hudson Pacific Properties, Inc.’s internal control over
financial reporting was effective based on those criteria.
Management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc.,
does not expect that Hudson Pacific Properties, Inc.’s disclosure controls and procedures, or Hudson Pacific Properties, Inc.’s
internal controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
65
Management’s Annual Report on Internal Control over Financial Reporting (Hudson Pacific Properties, L.P.)
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Hudson Pacific Properties, L.P.’s system of internal control is designed to provide reasonable assurance regarding the
reliability of financial reporting and preparation of Hudson Pacific Properties, L.P.’s financial statements for external reporting
purposes in accordance with GAAP. Hudson Pacific Properties, L.P.’s management, including the Chief Executive Officer and
Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), assessed
the effectiveness of Hudson Pacific Properties, L.P.’s internal control over financial reporting as of December 31, 2020. In
conducting its assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway
Commission on Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded
that, as of December 31, 2020, Hudson Pacific Properties, L.P.’s internal control over financial reporting was effective based on
those criteria.
Management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the
sole general partner of Hudson Pacific Properties, L.P.), does not expect that Hudson Pacific Properties, L.P.’s disclosure
controls and procedures, or Hudson Pacific Properties, L.P.’s internal controls will prevent all errors and fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the
benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Attestation Report of the Registered Accounting Firm (Hudson Pacific Properties, Inc.)
The effectiveness of Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2020,
has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated
financial statements included in this annual report, as stated in their report appearing on page F-2, which expresses an
unqualified opinion on the effectiveness of Hudson Pacific Properties, Inc.’s internal control over financial reporting as of
December 31, 2020.
ITEM 9B. Other Information
Not applicable.
66
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Item 10 is incorporated by reference from our definitive proxy statement for our annual
stockholders’ meeting presently scheduled to be held in May 2021. We intend to disclose any amendment to, or waiver from, our
code of ethics within four business days following the date of the amendment or waiver.
ITEM 11. Executive Compensation
The information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual
stockholders’ meeting presently scheduled to be held in May 2021.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual
stockholders’ meeting presently scheduled to be held in May 2021.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference from our definitive proxy statement for our annual
stockholders’ meeting presently scheduled to be held in May 2021.
ITEM 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference from our definitive proxy statement for our annual
stockholders’ meeting presently scheduled to be held in May 2021.
67
PART IV
ITEM 15. Exhibits, Financial Statement Schedules
(a)(1) and (2) Financial Statements and Schedules
The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:
FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, INC.
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, L.P.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Capital for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
1
2
3
5
6
7
8
9
10
12
13
14
15
16
17
52
All other schedules are omitted since the required information is not present in amounts sufficient to require submission
of the schedule or because the information required is included in the financial statements and notes thereto.
(3) Exhibits
Exhibit
No.
Description
Articles of Amendment and Restatement of Hudson Pacific Properties, Inc.
Form of Articles Supplementary of Hudson Pacific Properties, Inc.
Second Amended and Restated Bylaws of Hudson Pacific Properties, Inc.
Fourth Amended and Restated Agreement of Limited Partnership of Hudson Pacific
Properties, L.P. dated as of December 17, 2015.
Certificate of Limited Partnership of Hudson Pacific Properties, L.P.
Form of Certificate of Common Stock of Hudson Pacific Properties, Inc.
Indenture, dated October 2, 2017, among Hudson Pacific Properties, L.P., and U.S. Bank
National Association
Incorporated by Reference
Form
File No.
S-11/A 333-164916
S-11/A 333-170751
001-34789
8-K
10-K
10-Q
001-34789
S-11/A 333-164916
8-K
001-34789
Exhibit
No.
3.1
3.3
3.1
Filing Date
May 12, 2010
December 6, 2010
January 12, 2015
3.4
4.1
4.1
4.2
November 4, 2016
June 14, 2010
October 2, 2017
October 2, 2017
001-34789
10.1
February 26, 2016
Supplemental Indenture No. 1, dated October 2, 2017, among Hudson Pacific Properties,
L.P., Hudson Pacific Properties, Inc. and U.S. Bank National Association
8-K
001-34789
Supplemental Indenture No. 2, dated as of February 27, 2019, among Hudson Pacific
Properties, L.P., as issuer, Hudson Pacific Properties, Inc., as guarantor, and U.S. Bank
National Association, as trustee, including the form of 4.650% Senior Notes due 2029
and the guarantee.
Supplemental Indenture No. 3, dated as of October 3, 2019, among Hudson Pacific
Properties, L.P., as issuer, Hudson Pacific Properties, Inc., as guarantor, and U.S. Bank
National Association, as trustee, including the form of 3.250% Senior Notes due 2030
and the guarantee.
10-Q
001-34789
10.1
May 7, 2019
8-K
001-34789
4.2
October 3, 2019
68
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
Exhibit
No.
4.6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Description of Securities
Description
Registration Rights Agreement among Hudson Pacific Properties, Inc. and the persons
named therein.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Victor J. Coleman.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Mark T. Lammas.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Christopher Barton.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Dale Shimoda.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Theodore R. Antenucci.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Richard B. Fried.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Jonathan M. Glaser.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Mark D. Linehan.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Robert M. Moran, Jr.
Indemnification Agreement, dated June 29, 1010, by and between Hudson Pacific
Properties, Inc. and Barry A. Porter.
Incorporated by Reference
Form
10-K
S-11
File No.
001-34789
333-170751
Exhibit
No.
Filing Date
4.6
10.2
February 24, 2020
November 22, 2010
S-11
333-170751
10.3
November 22, 2010
S-11
333-170751
10.5
November 22, 2010
S-11
333-170751
10.6
November 22, 2010
S-11
333-170751
10.7
November 22, 2010
S-11
333-170751
10.8
November 22, 2010
S-11
333-170751
10.10
November 22, 2010
S-11
333-170751
10.11
November 22, 2010
S-11
333-170751
10.12
November 22, 2010
S-11
333-170751
10.13
November 22, 2010
S-11
333-170751
10.14
November 22, 2010
Restricted Stock Award Grant Notice and Restricted Stock Award Agreement.*
S-11/A 333-164916
Hudson Pacific Properties, Inc. Director Stock Plan.*
Contribution Agreement by and among Victor J. Coleman, Howard S. Stern, Hudson
Pacific Properties, L.P. and Hudson Pacific Properties, Inc., dated as of February 15,
2010.
Contribution Agreement by and among SGS investors, LLC, HFOP Investors, LLC,
Soma Square Investors, LLC, Hudson Pacific Properties, L.P. and Hudson Pacific
Properties, Inc., dated as of February 15, 2010.
Contribution Agreement by and among TMG-Flynn SOMA, LLC, Hudson Pacific
Properties, L.P. and Hudson Pacific Properties, Inc., dated as of February 15, 2010.
Contribution Agreement by and among Glenborough Fund XIV, L.P., Glenborough
Acquisition, LLC, Hudson Pacific Properties, L.P. and Hudson Pacific Properties, Inc.
dated as of February 15, 2010.
Representation, Warranty and Indemnity Agreement by and among Hudson Pacific
Properties, Inc., Hudson Pacific Properties, L.P. and the persons named therein as
nominees of TMG-Flynn SOMA, LLC, dated as of February 15, 2010.
Representation, Warranty and Indemnity Agreement by and among Hudson Pacific
Properties, Inc. Hudson Pacific Properties, L.P., and the persons named therein as
nominees of Glenborough Fund XIV, L.P. dated as of February 15, 2010.
Tax Protection Agreement between Hudson Pacific Properties, L.P. and the persons
named therein, dated June 29, 2010.
Agreement of Purchase and Sale and Joint Escrow Instructions between Del Amo
Fashion Center Operating Company and Hudson Capital, LLC dated as of May 18,
2010.
Conditional Consent Agreement between GLB Encino, LLC, as Borrower, and
SunAmerica Life Insurance Company, as Lender, dated as of June 10, 2010.
Amended and Restated Deed of Trust, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Leases and Rents between GLB Encino, LLC, as Trustor,
SunAmerica Life Insurance Company, as Beneficiary, and First American Title
Insurance Company, as Trustee, dated as of January 26, 2007.
Amended and Restated Promissory Note by GLB Encino, as Maker, to SunAmerica Life
Insurance Company, as Holder, dated as of January 26, 2007.
Approval Letter from Wells Fargo, as Master Servicer, and CWCapital Asset
Management, LLC, as Special Servicer to Hudson Capital LLC, dated as of June 8,
2010.
S-11/A 333-170751
S-11/A 333-164916
10.5
10.17
10.11
June 14, 2010
December 6, 2010
April 9, 2010
S-11/A 333-164916
10.12
April 9, 2010
S-11/A 333-164916
10.13
April 9, 2010
S-11/A 333-164916
10.14
April 9, 2010
S-11/A 333-164916
10.16
April 9, 2010
S-11/A 333-164916
10.17
April 9, 2010
8-K
001-34789
10.3
July 1, 2010
S-11/A 333-164916
10.20
June 11, 2010
S-11/A 333-164916
10.24
June 22, 2010
S-11/A 333-164916
10.25
June 22, 2010
S-11/A 333-164916
10.26
June 22, 2010
S-11/A 333-164916
10.27
June 22, 2010
Loan and Security Agreement between Glenborough Tierrasanta, LLC, as Borrower, and
German American Capital Corporation, as Lender, dated as of November 28, 2006.
S-11/A 333-164916
10.28
June 22, 2010
Note by Glenborough Tierrasanta, LLC, as Borrower, in favor of German American
Capital Corporation, as Lender, dated as of November 28, 2006.
S-11/A 333-164916
10.29
June 22, 2010
69
Exhibit
No.
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
Description
Reaffirmation, Consent to Transfer and Substitution of Indemnitor, by and among
Glenborough Tierrasanta, LLC, Morgan Stanley Real Estate Fund V U.S., L.P., MSP
Real Estate Fund V, L.P. Morgan Stanley Real Estate Investors, V U.S., L.P., Morgan
Stanley Real Estate Fund V Special U.S., L.P., MSP Co-Investment Partnership V, L.P.,
MSP Co-Investment Partnership V, L.P., Glenborough Fund XIV, L.P., Hudson Pacific
Properties, L.P., and US Bank National Association, dated June 29, 2010.
First Amendment to Purchase and Sale Agreement, dated October 1, 2010, by and
between ECI Washington LLC and Hudson Pacific Properties, L.P.
Contract for Sale dated as of December 15, 2010 by and between Hudson 1455 Market,
LLC and Bank of America, National Association.
Contribution Agreement by and between BCSP IV U.S. Investments, L.P. and Hudson
Pacific Properties, L.P., dated as of December 15, 2010.
Limited Liability Company Agreement of Rincon Center JV LLC by and between
Rincon Center Equity LLC and Hudson Rincon, LLC, dated as of December 16, 2010.
First Amendment to Registration Rights Agreement by and among Hudson Pacific
Properties, Inc., Farallon Capital Partners, L.P., Farallon Capital Institutional Partners,
L.P. and Farallon Capital Institutional Partners III, L.P., dated May 3, 2011.
Loan Agreement by and between Hudson Rincon Center, LLC, as Borrower, and
JPMorgan Chase Bank, National Association, as Lender, dated April 29, 2011.
Form of 2012 Outperformance Award Agreement.*
Form of 2013 Outperformance Award Agreement.*
Purchase Agreement between 1220 Howell LLC, a Delaware limited liability company,
King & Dearborn LLC, a Delaware limited liability company, and Northview Corporate
Center LLC, a Delaware limited liability company, as Sellers, and Hudson Pacific
Properties, L.P., a Maryland limited partnership, as Buyer.
First Modification and Additional Advance Agreement by and among Wells Fargo
Bank, N.A., as Lender, and Sunset Bronson Entertainment Properties, LLC, and Sunset
Gower Entertainment Properties, LLC as Borrower.
Supplemental Federal Income Tax Considerations.
Form of 2014 Outperformance Award Agreement.*
Addendum to Outperformance Agreement.*
Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and Barclays Capital
Inc.
Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and KeyBanc Capital
Markets Inc.
Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and Wells Fargo
Securities, LLC.
Bridge Commitment Letter, dated as of December 6, 2014, by and among the operating
partnership, Wells Fargo Bank, National Association, Wells Fargo Securities, LLC,
Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman
Sachs Bank USA.
Backstop Commitment Letter, dated as of December 6, 2014, by and among the
operating partnership, Wells Fargo Bank, National Association and Wells Fargo
Securities, LLC.
Form of 2015 Outperformance Award Agreement.*
First Amended and Restated Limited Partnership Agreement of Hudson 1455 Market,
L.P.
Indemnification Agreement, dated December 15, 2014, by and between Hudson Pacific
Properties, Inc. and Robert L. Harris II.
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. 2010 Incentive
Award Plan (2012 Outperformance program) Restricted Stock Unit Award Agreement.*
Form of Addendum to 2014 Outperformance Award Agreement.*
Hudson Pacific Properties, Inc. Revised Non-Employee Director Compensation
Program.
Loan Agreement dated as of October 9, 2015 between Hudson Element LA, LLC, as
Borrower and Cantor Commercial Real Estate Lending, L.P. and Goldman Sachs
Mortgage Company, collectively, as Lender.
Incorporated by Reference
Form
8-K
File No.
Exhibit
No.
001-34789
10.5
Filing Date
July 1, 2010
S-11/A 333-170751
10.45
December 6, 2010
8-K
001-34789
10.1
December 21, 2010
S-11
333-173487
10.48
April 14, 2011
S-11
333-173487
10.49
April 14, 2011
8-K
001-34789
4.1
May 4, 2011
8-K
001-34789
10.1
May 4, 2011
8-K
8-K
8-K
001-34789
001-34789
001-34789
10.1
10.1
10.1
January 6, 2012
January 7, 2013
July 1, 2013
10-Q
001-34789
10.66
November 7, 2013
8-K
8-K
10-K
10-Q
001-34789
001-34789
001-34789
001-34789
99.1
10.1
10.70
10.76
November 22, 2013
January 3, 2014
March 3, 2014
August 7, 2014
10-Q
001-34789
10.77
August 7, 2014
10-Q
001-34789
10.78
August 7, 2014
10-Q
001-34789
10.79
August 7, 2014
8-K
001-34789
10.1
December 11, 2014
8-K
001-34789
10.2
December 11, 2014
8-K
8-K
001-34789
001-34789
10.1
10.1
January 2, 2015
January 12, 2015
10-K
001-34789
10.84
March 2, 2015
8-K
001-34789
10.1
March 12, 2015
8-K
10-Q
001-34789
001-34789
10.2
10.91
March 12, 2015
August 10, 2015
10-Q
001-34789
10.93
November 6, 2015
10.55
Note Purchase Agreement, dated as of November 16, 2015, by and among Hudson
Pacific Properties, L.P. and the purchasers named therein.
8-K
001-34789
10.2
November 20, 2015
70
Exhibit
No.
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.70
10.71
10.72
10.73
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
10.87
10.88
Description
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Victor J. Coleman, dated January 1, 2016.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Mark T. Lammas, dated January 1, 2016.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Christopher Barton, dated January 1, 2016.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Alex Vouvalides, dated January 1, 2016.*
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award
Agreement.*
Employment Agreement between Hudson Pacific Properties, Inc. and Joshua Hatfield*
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award
Agreement (2013 Outperformance Program)*
Form of 2016 Outperformance Award Agreement (REIT Shares)*
Form of 2016 Outperformance Program OPP Unit Agreement (LTIP Units)*
Note Purchase Agreement, dated as of July 6, 2016, by and among Hudson Pacific
Properties, L.P. and the purchasers named therein
Form of 2017 Outperformance Award Agreement (REIT Shares)*
Form of 2017 Outperformance Award Agreement (LTIP Units)*
Amended and Restated Hudson Pacific Properties, Inc. and Hudson Pacific Properties,
L.P. 2010 Incentive Award Plan*
Indemnification Agreement, dated August 16, 2017, by and between Hudson Pacific
Properties, Inc. and Andrea Wong
Form of 2018 Outperformance Award Agreement (REIT Shares)*
Form of 2018 Outperformance Award Agreement (LTIP Units)*
Third Amended and Restated Credit Agreement, dated as of March 13, 2018, by and
among Hudson Pacific Properties, L.P., as borrower, each of the financial institutions a
signatory thereto, as lenders, and Wells Fargo Bank, National Association, as
administrative agent
Form of Amendment to Outperformance Award Agreement*
Form of Time-Based LTIP Unit Agreement*
Form of 2019 Outperformance Award Agreement (REIT Shares)*
Form of 2019 Outperformance Award Agreement (LTIP Units)*
Indemnification Agreement, dated March 14, 2019, by and between Hudson Pacific
Properties, Inc. and Christy Haubegger*
Form of Performance-Based LTIP Unit Agreement.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Victor J. Coleman, dated January 1, 2020.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Mark T. Lammas, dated January 1, 2020.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Alexander Vouvalides, dated January 1, 2020.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Christopher J. Barton, dated January 1, 2020.*
Amended and Restated Employment Agreement between Hudson Pacific Properties,
Inc. and Joshua Hatfield, dated January 1, 2020.*
Employment Agreement between Hudson Pacific Properties, Inc. and Harout
Diramerian, dated January 1, 2020.*
Indemnification Agreement, dated January 1, 2020, by and between Hudson Pacific
Properties, Inc. and Harout Diramerian.
Amendment No.1 to the Third Amended and Restated Credit Agreement, dated as of
March 1, 2019, by and among Hudson Pacific Properties, L.P., as borrower, each of the
financial institutions a signatory thereto, as lenders, and Wells Fargo Bank, National
Association, as administrative agent
Amendment No. 2 to the Third Amended and Restated Credit Agreement, dated as of
November 7, 2019, by and among Hudson Pacific Properties, L.P., as borrower, each of
the financial institutions a signatory thereto, as lenders, and Wells Fargo Bank, National
Association, as administrative agent
Note Purchase Agreement, dated as of November 16, 2015, by and among Hudson
Pacific Properties, L.P. and the purchasers named therein, as amended by that certain
First Amendment, dated as of November 7, 2019.
71
Incorporated by Reference
Form
8-K
File No.
Exhibit
No.
Filing Date
001-34789
10.2
December 21, 2015
8-K
001-34789
10.3
December 21, 2015
8-K
001-34789
10.4
December 21, 2015
8-K
001-34789
10.5
December 21, 2015
8-K
001-34789
10.6
December 21, 2015
001-34789
001-34789
10.95
10.96
February 26, 2016
February 26, 2016
10-K
10-K
8-K
8-K
001-34789
001-34789
10-Q
001-34789
8-K
8-K
8-K
001-34789
001-34789
001-34789
10.1
10.2
10.8
10.1
10.2
10.1
March 21, 2016
March 21, 2016
August 4, 2016
February 10, 2017
February 10, 2017
May 25, 2017
10-Q
001-34789
10.2
November 6, 2017
10-K
10-K
8-K
10-Q
8-K
10-K
10-K
10-Q
10-K
10-K
001-34789
001-34789
001-34789
001-34789
001-34789
001-34789
001-34789
001-34789
001-34789
001-34789
10.72
10.73
10.1
10.1
10.1
10.75
10.76
10.2
10.78
10.79
February 16, 2018
February 16, 2018
March 19, 2018
August 2, 2018
December 14, 2018
February 19, 2019
February 19, 2019
May 7, 2019
February 24, 2020
February 24, 2020
10-K
001-34789
10.8
February 24, 2020
10-K
001-34789
10.81
February 24, 2020
10-K
001-34789
10.82
February 24, 2020
10-K
001-34789
10.83
February 24, 2020
10-K
001-34789
10.84
February 24, 2020
10-K
001-34789
10.85
February 24, 2020
10-K
001-34789
10.86
February 24, 2020
10-K
001-34789
10.87
February 24, 2020
10-K
001-34789
10.88
February 24, 2020
Exhibit
No.
10.89
10.90
10.91
10.92
Description
Note Purchase Agreement, dated as of July 6, 2016, by and among Hudson Pacific
Properties, L.P. and the purchasers named therein, as amended by that certain First
Amendment, dated as of November 7, 2019.
Transition Agreement, dated as of February 8, 2021 between Alexander Vouvalides,
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Transition Agreement, dated as of February 8, 2021 between Joshua Hatfield, Hudson
Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Indemnification Agreement, dated January 1, 2021, by and between Hudson Pacific
Properties, Inc.and Karen Brodkin.+
10.93
Form of Performance-Based LTIP Unit Agreement.*+
Incorporated by Reference
Form
10-K
File No.
Exhibit
No.
Filing Date
001-34789
10.89
February 24, 2020
8-K
001-34789
10.1
February 12, 2021
8-K
001-34789
10.2
February 12, 2021
21.1
23.1
31.1
31.2
31.3
31.4
32.1
32.2
99.1
101
104
*
**
Subsidiaries of Hudson Pacific Properties, Inc.+
Consent of Independent Registered Public Accounting Firm+
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 for Hudson Pacific Properties, Inc.+
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 for Hudson Pacific Properties, Inc.+
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 for Hudson Pacific Properties, L.P.+
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 Hudson Pacific Properties, L.P.+
Certifications by Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.+
Certifications by Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, L.P.+
Certificate of Correction
8-K
001-34789
99.1
January 23, 2012
The following financial information from Hudson Pacific Properties, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2020 formatted in iXBRL (Inline
eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive
Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Capital,
(vi) Consolidated Statements of Cash Flows and (vii) Notes to Consolidated Financial
Statements**
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit
101)
Denotes a management contract or compensatory plan or arrangement.
Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto
are deemed not filed or part of a registration statement or prospectus for purposes of
Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and
otherwise are not subject to liability under those sections.
+
Filed herewith.
ITEM 16. Form 10-K Summary
Not Applicable.
72
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Hudson Pacific Properties,
Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 22, 2021
HUDSON PACIFIC PROPERTIES, INC.
/s/ VICTOR J. COLEMAN
VICTOR J. COLEMAN
Chief Executive Officer (Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute
and appoint Victor J. Coleman and Mark T. Lammas, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and
any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and
directors to enable Hudson Pacific Properties, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as
amended, and all requirements of the Securities and Exchange Commission in connection therewith, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all
amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S/ VICTOR J. COLEMAN
Victor J. Coleman
/S/ HAROUT K. DIRAMERIAN
Harout K. Diramerian
/S/ THEODORE R. ANTENUCCI
Theodore R. Antenucci
/S/ RICHARD B. FRIED
Richard B. Fried
/S/ JONATHAN M. GLASER
Jonathan M. Glaser
/S/ ROBERT L. HARRIS II
Robert L. Harris II
/s/ CHRISTY HAUBEGGER
Christy Haubegger
/S/ MARK D. LINEHAN
Mark D. Linehan
/S/ ROBERT M. MORAN, JR.
Robert M. Moran, Jr.
/S/ BARRY A. PORTER
Barry A. Porter
/S/ ANDREA L. WONG
Andrea L. Wong
/s/ KAREN BRODKIN
Karen Brodkin
Date
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
Title
Chief Executive Officer and
Chairman of the Board of Directors (Principal
Executive Officer)
Chief Financial Officer (Principal Financial Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
73
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Hudson Pacific Properties,
L.P. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 22, 2021
HUDSON PACIFIC PROPERTIES, L.P.
/s/ VICTOR J. COLEMAN
VICTOR J. COLEMAN
Chief Executive Officer (Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute
and appoint Victor J. Coleman and Mark T. Lammas, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and
any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and
directors to enable Hudson Pacific Properties, Inc. as sole general partner and on behalf of Hudson Pacific Properties, L.P., to
comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and
Exchange Commission in connection therewith, hereby ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S/ VICTOR J. COLEMAN
Victor J. Coleman
/S/ HAROUT K. DIRAMERIAN
Harout K. Diramerian
/S/ THEODORE R. ANTENUCCI
Theodore R. Antenucci
/S/ RICHARD B. FRIED
Richard B. Fried
/S/ JONATHAN M. GLASER
Jonathan M. Glaser
/S/ ROBERT L. HARRIS II
Robert L. Harris II
/s/ CHRISTY HAUBEGGER
Christy Haubegger
/S/ MARK D. LINEHAN
Mark D. Linehan
/S/ ROBERT M. MORAN, JR.
Robert M. Moran, Jr.
/S/ BARRY A. PORTER
Barry A. Porter
/S/ ANDREA L. WONG
Andrea L. Wong
/S/ KAREN BRODKIN
Karen Brodkin
Date
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
Title
Chief Executive Officer and
Chairman of the Board of Directors (Principal
Executive Officer)
Chief Financial Officer (Principal Financial Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
74
Report of Management on Internal Control over Financial Reporting
The management of Hudson Pacific Properties, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
Our system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting
and preparation of our financial statements for external reporting purposes in accordance with United States generally accepted
accounting principles. Our management, including the undersigned Chief Executive Officer and Chief Financial Officer, assessed
the effectiveness of our internal control over financial reporting as of December 31, 2020. In conducting its assessment,
management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission on Internal
Control—Integrated Framework (2013 Framework). Based on this assessment, management concluded that, as of December 31,
2020, our internal control over financial reporting was effective based on those criteria.
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure
controls and procedures, or our internal controls will prevent all error and fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been detected.
The effectiveness of our internal control over financial reporting as of December 31, 2020, has been audited by Ernst &
Young LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this
annual report, as stated in their report appearing on page F-2, which expresses an unqualified opinion on the effectiveness of our
internal control over financial reporting as of December 31, 2020.
/S/ VICTOR J. COLEMAN
Victor J. Coleman
Chief Executive Officer and
Chairman of the Board of Directors
/S/ HAROUT K. DIRAMERIAN
Harout K. Diramerian
Chief Financial Officer
F-1
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
To the Board of Directors and Stockholders of
Hudson Pacific Properties, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, Hudson Pacific Properties, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Hudson Pacific Properties, Inc. as of December 31, 2020 and 2019, and the related
consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period
ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report
dated February 22, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
February 22, 2021
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Hudson Pacific Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, Inc. (the “Company”), as of
December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, equity, and cash
flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule
listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at
December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit
matters or on the accounts or disclosures to which they relate.
Description of the
Matter
Impairment of investment in real estate
The Company’s net investment in real estate totaled $7.1 billion as of December 31, 2020. As discussed in
Note 2 to the consolidated financial statements, the Company assesses for impairment on a real estate asset
by real estate asset basis whenever events or changes in circumstances indicate that the carrying value of a
real estate asset may not be recoverable. Impairment is recognized on real estate assets held for investment
when indicators of impairment are present and the future undiscounted cash flows for a real estate asset are
less than its carrying amount, at which time the real estate asset is written down to its estimated fair value.
There were no impairment charges recognized during the year ended December 31, 2020.
Auditing the Company's impairment assessment for real estate assets is challenging because of the subjective
auditor judgment necessary in evaluating management’s identification of indicators of potential impairment
and the related assessment of the severity of such indicators, either individually or in combination, in
determining whether a triggering event has occurred that requires the Company to evaluate the recoverability
of the real estate asset.
F-3
How We
Addressed the
Matter in Our
Audit
Description of the
Matter
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s real estate asset impairment assessment process. For example, we tested controls over
management’s process for identifying and evaluating potential impairment indicators.
Our testing of the Company’s impairment assessment included, among other procedures, evaluating
significant judgments applied in determining whether indicators of impairment were present at any given real
estate asset by obtaining evidence to corroborate such judgments and searching for evidence contrary to such
judgments. For example, we searched for any tenants or groups of tenants with significant allowances for
doubtful accounts or upcoming lease expirations that occupy a substantial portion of a real estate asset. We
also searched for any significant declines in operating results of a real estate asset due to occupancy changes,
tenant bankruptcies, environmental issues, physical damage, change in intended use or adverse changes in
legal factors.
Purchase price accounting
During the year ended December 31, 2020, the Company completed the acquisition of one real estate
property through a consolidated joint venture for a total purchase price of $593.9 million, which was
accounted for as an asset acquisition. As discussed in Note 2 to the consolidated financial statements, the
purchase price, including capitalized acquisition-related costs, was allocated based on the relative fair value
of the assets acquired and liabilities assumed. As part of the purchase price allocation, the Company
estimated market rental rates and market rent growth rates that reflect the risks associated with the leases
acquired. The estimated market rental rates and market rent growth rates are utilized as inputs in estimating
the fair value of “above- and below-” market leases using the income approach. Amortization of “above- and
below-” market lease intangible assets and liabilities are recorded in rental revenue over the related lease
term.
Auditing the Company’s purchase price allocation was complex due to the significant estimation required by
management in determining the fair value assigned to assets acquired and liabilities assumed. In particular,
significant estimation was used in management’s selection of market rental rates and market rent growth
rates due to the judgmental nature of the inputs as well as the sensitivity of the related lease intangible assets
and liabilities to the underlying assumptions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s
controls over management’s purchase price accounting, including controls over the Company’s review of the
assumptions underlying the purchase price allocation, the cash flow projections, and the accuracy of the
underlying data used.
Our testing of the Company’s purchase price allocation included, among other procedures, assessing the
valuation methods and significant assumptions used by management in developing the fair value estimates of
the assets acquired and liabilities assumed. For example, we involved our valuation specialists in evaluating
the appropriateness of management’s selected estimated market rental rates and market rent growth rates by
comparing the selected assumptions to data from independently identified external market data sources. We
also evaluated the completeness and accuracy of the underlying data supporting management’s purchase
price allocation, tested the incorporation of the significant assumptions in the purchase price allocation, and
recalculated the model’s results for clerical accuracy.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2009.
Los Angeles, California
February 22, 2021
F-4
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Investment in real estate, at cost
Accumulated depreciation and amortization
Investment in real estate, net
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Straight-line rent receivables, net
Deferred leasing costs and lease intangible assets, net
U.S. Government securities
Operating lease right-of-use asset
Prepaid expenses and other assets, net
Investment in unconsolidated real estate entities
TOTAL ASSETS
LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net
In-substance defeased debt
Joint venture partner debt
Accounts payable, accrued liabilities and other
Operating lease liability
Lease intangible liabilities, net
Security deposits and prepaid rent
Total liabilities
Redeemable preferred units of the operating partnership
Redeemable non-controlling interest in consolidated real estate entities
Equity
Hudson Pacific Properties, Inc. stockholders’ equity:
December 31,
2020
December 31,
2019
$
8,215,017 $
7,269,128
(1,102,748)
7,112,269
(898,279)
6,370,849
113,686
35,854
22,105
225,685
285,836
135,115
264,880
72,667
46,224
12,034
13,007
195,328
285,448
140,749
269,029
68,974
82,105
8,350,202 $
64,926
7,466,568
$
$
3,399,492 $
2,817,910
131,707
66,136
235,860
270,014
49,144
92,180
4,244,533
9,815
127,874
135,030
66,136
212,673
272,701
31,493
86,188
3,622,131
9,815
125,260
Common stock, $0.01 par value, 490,000,000 authorized, 151,401,365 and 154,691,052 shares outstanding at
December 31, 2020 and 2019, respectively
1,514
1,546
Additional paid-in capital
Accumulated other comprehensive loss
Total Hudson Pacific Properties, Inc. stockholders’ equity
Non-controlling interest—members in consolidated real estate entities
Non-controlling interest—units in the operating partnership
Total equity
TOTAL LIABILITIES AND EQUITY
3,469,758
(8,133)
3,463,139
467,009
37,832
3,967,980
$
8,350,202 $
3,415,808
(561)
3,416,793
269,487
23,082
3,709,362
7,466,568
The accompanying notes are an integral part of these consolidated financial statements.
F-5
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Year Ended December 31,
2019
2018
2020
REVENUES
Office
Rental
Tenant recoveries
Service and other revenues
Total office revenues
Studio
Rental
Tenant recoveries
Service and other revenues
Total studio revenues
Total revenues
OPERATING EXPENSES
Office operating expenses
Studio operating expenses
General and administrative
Depreciation and amortization
Total operating expenses
OTHER INCOME (EXPENSE)
Income (loss) from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Transaction-related expenses
Unrealized (loss) gain on non-real estate investments
Gains on sale of real estate
Impairment loss
Other income
Total other expense
Net income
Net income attributable to preferred units
Net income attributable to participating securities
Net income attributable to non-controlling interest in consolidated real estate entities
Net loss (income) attributable to redeemable non-controlling interest in consolidated real estate entities
Net income attributable to non-controlling interest in the operating partnership
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
BASIC AND DILUTED PER SHARE AMOUNTS
Net income attributable to common stockholders—basic
Net income attributable to common stockholders—diluted
Weighted average shares of common stock outstanding—basic
Weighted average shares of common stock outstanding—diluted
$
721,286 $
708,564
$
533,184
—
14,633
735,919
48,756
—
20,290
69,046
804,965
262,199
37,580
77,882
299,682
677,343
736
2,815
—
25,171
733,735
51,340
—
33,107
84,447
818,182
256,209
45,313
71,947
282,088
655,557
(747)
1,459
92,760
26,573
652,517
44,734
2,013
29,154
75,901
728,418
226,820
40,890
61,027
251,003
579,740
—
—
(116,477)
(105,845)
(83,167)
4,089
(440)
(2,463)
—
—
548
(111,192)
16,430
(612)
(1,041)
(18,955)
4,571
(10)
383 $
4,044
(667)
—
47,100
(52,201)
78
(106,779)
55,846
(612)
(692)
(13,352)
1,994
(459)
42,725
1,718
(535)
928
43,337
—
822
(36,897)
111,781
(618)
(663)
(11,883)
(169)
(358)
98,090
0.00 $
0.00 $
0.28
0.28
$
$
0.63
0.63
$
$
$
153,126,027
154,404,427
155,445,247
153,169,025
156,602,408
155,696,486
The accompanying notes are an integral part of these consolidated financial statements.
F-6
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
Net income
Currency translation adjustments
Net unrealized (losses) gains on derivative instruments:
Unrealized (losses) gains
Reclassification adjustment for realized losses (gains)
Total net unrealized (losses) gains on derivative instruments:
Total other comprehensive (loss) income
Comprehensive income
Comprehensive income attributable to preferred units
Comprehensive income attributable to participating securities
Comprehensive income attributable to non-controlling interest in consolidated real estate entities
Comprehensive loss (income) attributable to redeemable non-controlling interest in consolidated real estate
entities
Year Ended December 31,
2020
2019
2018
$
16,430 $
55,846
$
111,781
1,394
1,845
—
(14,471)
5,444
(9,027)
(7,633)
8,797
(612)
(1,041)
(18,955)
4,571
(14,533)
(5,490)
(20,023)
(18,178)
37,668
(612)
(692)
7,357
(3,299)
4,058
4,058
115,839
(618)
(660)
(13,352)
(11,883)
1,994
(169)
(372)
Comprehensive loss (income) attributable to non-controlling interest in the operating partnership
51
(343)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(7,189) $
24,663
$
102,137
The accompanying notes are an integral part of these consolidated financial statements.
F-7
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share data)
Hudson Pacific Properties, Inc. Stockholders’ Equity
Non-controlling Interest
Shares of
Common
Stock
Stock
Amount
Additional
Paid-in
Capital
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Units in the
Operating
Partnership
Members in
Consolidated
Real Estate
Entities
Total
Equity
Balance, December 31, 2017
155,602,508 $ 1,556 $ 3,622,988 $
— $
13,227 $
14,591 $
258,602 $ 3,910,964
(231)
230
Cumulative adjustment related to adoption
of ASU 2017-12
Contributions
Distributions
—
—
—
Issuance of unrestricted stock
571,481
—
—
—
5
—
—
—
(5)
Shares withheld to satisfy tax withholding
obligations
(163,191)
(2)
(4,751)
Repurchase of common stock
(1,639,260)
(16)
(50,000)
Declared dividend
Amortization of stock-based
compensation
Net income
Other comprehensive income
—
—
—
—
—
—
—
—
(57,769)
(98,522)
14,039
—
Balance, December 31, 2018
154,371,538
1,543
3,524,502
Cumulative adjustment related to adoption
of ASC 842
Distributions
—
—
Issuance of unrestricted stock
554,237
—
—
5
—
—
(5)
Shares withheld to satisfy tax withholding
obligations
(234,723)
(2)
(7,682)
Declared dividend
Amortization of stock-based
compensation
Net income
Other comprehensive loss
Redemption of common units in the
operating partnership
—
—
—
—
—
—
—
—
—
—
(114,283)
(41,312)
13,276
—
—
—
—
—
—
Balance, December 31, 2019
154,691,052
1,546
3,415,808
Contributions
Sale of non-controlling interest
Distributions
Transaction costs
—
—
—
—
Issuance of unrestricted stock
420,970
—
—
—
—
5
—
300,104
—
(16,047)
(5)
Shares withheld to satisfy tax withholding
obligations
(225,314)
(2)
(7,580)
Repurchase of common stock
(3,485,343)
(35)
(80,178)
Declared dividend
Amortization of stock-based
compensation
Net income
Other comprehensive loss
(151,772)
(1,424)
—
—
—
—
—
—
9,428
—
—
—
—
—
—
—
98,753
—
—
(2,105)
—
—
—
43,417
—
—
—
—
—
—
—
—
—
—
—
1,424
—
— $
—
—
—
—
—
—
—
—
4,044
17,501
—
—
—
—
—
—
—
(18,062)
—
—
—
—
—
—
—
—
—
—
—
(7,572)
1
—
—
—
—
—
(712)
4,086
358
14
—
—
2,486
2,486
(4,725)
(4,725)
—
—
—
—
—
—
(4,753)
(50,016)
(157,003)
18,125
11,883
110,994
—
4,058
18,338
268,246
3,830,130
—
—
—
—
—
(2,105)
(12,111)
(12,111)
—
—
—
(7,684)
(2,230)
—
(157,825)
7,156
—
20,432
459
(116)
(525)
13,352
57,228
—
—
(18,178)
(525)
—
—
—
—
—
—
—
(1,800)
16,601
138,124
138,124
67,038
367,142
(26,595)
(26,595)
—
—
—
—
—
—
(16,047)
—
(7,582)
(80,213)
(154,996)
26,029
20,389
(7,633)
10
(61)
18,955
—
Balance, December 31, 2020
151,401,365 $ 1,514 $ 3,469,758 $
(8,133) $
37,832 $
467,009 $ 3,967,980
(561)
23,082
269,487
3,709,362
The accompanying notes are an integral part of these consolidated financial statements.
F-8
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Year Ended December 31,
2019
2018
2020
$
16,430 $
55,846
$
111,781
Depreciation and amortization
Non-cash portion of interest expense
Amortization of stock-based compensation
(Income) loss from unconsolidated real estate entities
Unrealized loss (gain) on non-real estate investment
Straight-line rents
Straight-line rent expenses
Amortization of above- and below-market leases, net
Amortization of above- and below-market ground lease, net
Amortization of lease incentive costs
Other non-cash adjustments
Impairment loss
Gains on sale of real estate
Change in operating assets and liabilities:
Accounts receivable
Deferred leasing costs and lease intangibles
Prepaid expenses and other assets
Accounts payable, accrued liabilities and other
Security deposits and prepaid rent
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment property
Property acquisitions
Purchase of U.S. Government securities
Maturities of U.S. Government securities
Proceeds from sales of real estate
Contributions to non-real estate investments
Distributions from non-real estate investments
Proceeds from sale of non-real estate investment
Distributions from unconsolidated real estate entities
Contributions to unconsolidated real estate entities
Deposits for property acquisitions
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured and secured debt
Payments of unsecured and secured debt
Payments of in-substance defeased debt
Proceeds from joint venture partner debt
Transaction costs
Repurchase of common stock
Repurchase of operating partnership units
Redemption of series A preferred units
Dividends paid to common stock and unitholders
Dividends paid to preferred unitholders
Contributions from redeemable non-controlling members in consolidated real estate entities
Distributions to redeemable non-controlling members in consolidated real estate entities
Contributions from non-controlling members in consolidated real estate entities
Distributions to non-controlling members in consolidated real estate entities
Proceeds from sale of non-controlling interest
Payments to satisfy tax withholding obligations
Payment of loan costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash—beginning of period
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—END OF PERIOD
$
$
299,682
9,539
22,723
(736)
2,463
(30,357)
1,462
(9,635)
2,352
1,915
—
—
—
(9,098)
(13,276)
(9,117)
11,693
5,992
302,032
(402,283)
(593,945)
—
5,656
—
(3,404)
1,238
1,042
1,608
(16,756)
—
(1,006,844)
282,088
6,258
19,481
747
—
(52,959)
1,463
(12,836)
2,460
1,771
—
52,201
(47,100)
699
(46,645)
(11,165)
18,202
17,500
288,011
(385,751)
—
—
6,226
147,824
—
—
—
290
(64,498)
(20,500)
(316,409)
1,736,914
(1,150,097)
(3,323)
—
(16,047)
(80,213)
—
—
(154,996)
(612)
7,201
(16)
138,124
(26,595)
367,500
(7,582)
(14,164)
796,094
91,282
58,258
149,540 $
149,540 $
1,215,647
(1,010,569)
(3,193)
—
—
—
(525)
—
(157,825)
(612)
14,128
(15)
—
(12,111)
—
(7,684)
(18,776)
18,465
(9,933)
68,191
58,258
58,258
$
$
251,003
5,965
17,028
—
(928)
(36,202)
711
(17,593)
2,422
1,464
1,297
—
(43,337)
(10,854)
(55,286)
(2,978)
(13,184)
3,317
214,626
(351,277)
(362,687)
(149,176)
2,229
454,542
—
—
—
14,036
—
—
(392,333)
650,000
(449,711)
—
66,136
—
(50,000)
—
(362)
(157,003)
(618)
100,223
—
2,486
(4,725)
—
(4,769)
(7,039)
144,618
(33,089)
101,280
68,191
68,191
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Report of Independent Registered Public Accounting Firm
The Partners of Hudson Pacific Properties, L.P.
Opinion of the Financial Statements
We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, L.P. (the “Operating Partnership”),
as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, capital, and cash
flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule
listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Operating
Partnership at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an
opinion on the Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit
matters or on the accounts or disclosures to which they relate.
Description of the
Matter
Impairment of investment in real estate
The Operating Partnership’s net investment in real estate totaled $7.1 billion as of December 31, 2020. As
discussed in Note 2 to the consolidated financial statements, the Operating Partnership assesses for
impairment on a real estate asset by real estate asset basis whenever events or changes in circumstances
indicate that the carrying value of a real estate asset may not be recoverable. Impairment is recognized on
real estate assets held for investment when indicators of impairment are present and the future undiscounted
cash flows for a real estate asset are less than its carrying amount, at which time the real estate asset is
written down to its estimated fair value. There were no impairment charges recognized during the year ended
December 31, 2020.
F-10
How We
Addressed the
Matter in Our
Audit
Description of the
Matter
How We
Addressed the
Matter in Our
Audit
Auditing the Operating Partnership’s impairment assessment for real estate assets is challenging because of
the subjective auditor judgment necessary in evaluating management’s identification of indicators of
potential impairment and the related assessment of the severity of such indicators, either individually or in
combination, in determining whether a triggering event has occurred that requires the Operating Partnership
to evaluate the recoverability of the real estate asset.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Operating Partnership’s real estate asset impairment assessment process. For example, we tested controls
over management’s process for identifying and evaluating potential impairment indicators.
Our testing of the Operating Partnership’s impairment assessment included, among other procedures,
evaluating significant judgments applied in determining whether indicators of impairment were present at
any given real estate asset by obtaining evidence to corroborate such judgments and searching for evidence
contrary to such judgments. For example, we searched for any tenants or groups of tenants with significant
allowances for doubtful accounts or upcoming lease expirations that occupy a substantial portion of a real
estate asset. We also searched for any significant declines in operating results of a real estate asset due to
occupancy changes, tenant bankruptcies, environmental issues, physical damage, change in intended use or
adverse changes in legal factors.
Purchase price accounting
During the year ended December 31, 2020, the Operating Partnership completed the acquisition of one real
estate property through a consolidated joint venture for a total purchase price of $593.9 million, which was
accounted for as an asset acquisition. As discussed in Note 2 to the consolidated financial statements, the
purchase price, including capitalized acquisition-related costs, was allocated based on the relative fair value
of the assets acquired and liabilities assumed. As part of the purchase price allocation, the Operating
Partnership estimated market rental rates and market rent growth rates that reflect the risks associated with
the leases acquired. The estimated market rental rates and market rent growth rates are utilized as inputs in
estimating the fair value of “above- and below-” market leases using the income approach. Amortization of
“above- and below-” market lease intangible assets and liabilities are recorded in rental revenue over the
related lease term.
Auditing the Operating Partnership’s purchase price allocation was complex due to the significant estimation
required by management in determining the fair value assigned to assets acquired and liabilities assumed. In
particular, significant estimation was used in management’s selection of market rental rates and market rent
growth rates due to the judgmental nature of the inputs as well as the sensitivity of the related lease intangible
assets and liabilities to the underlying assumptions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Operating
Partnership’s controls over management’s purchase price accounting, including controls over the Operating
Partnership’s review of the assumptions underlying the purchase price allocation, the cash flow projections,
and the accuracy of the underlying data used.
Our testing of the Operating Partnership’s purchase price allocation included, among other procedures,
assessing the valuation methods and significant assumptions used by management in developing the fair
value estimates of the assets acquired and liabilities assumed. For example, we involved our valuation
specialists in evaluating the appropriateness of management’s selected estimated market rental rates and
market rent growth rates by comparing the selected assumptions to data from independently identified
external market data sources. We also evaluated the completeness and accuracy of the underlying data
supporting management’s purchase price allocation, tested the incorporation of the significant assumptions in
the purchase price allocation, and recalculated the model’s results for clerical accuracy.
/s/ Ernst & Young LLP
We have served as the Operating Partnership’s auditor since 2015.
Los Angeles, California
February 22, 2021
F-11
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Investment in real estate, at cost
Accumulated depreciation and amortization
Investment in real estate, net
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Straight-line rent receivables, net
Deferred leasing costs and lease intangible assets, net
U.S. Government securities
Operating lease right-of-use asset
Prepaid expenses and other assets, net
Investment in unconsolidated real estate entities
TOTAL ASSETS
LIABILITIES AND CAPITAL
Liabilities
Unsecured and secured debt, net
In-substance defeased debt
Joint venture partner debt
Accounts payable, accrued liabilities and other
Operating lease liability
Lease intangible liabilities, net
Security deposits and prepaid rent
Total liabilities
Redeemable preferred units of the operating partnership
Redeemable non-controlling interest in consolidated real estate entities
Capital
Hudson Pacific Properties, L.P. partners’ capital:
Common units, 152,722,448 and 155,602,910 outstanding at December 31, 2020 and 2019, respectively.
Accumulated other comprehensive loss
Total Hudson Pacific Properties, L.P. partners’ capital
Non-controlling interest—members in consolidated real estate entities
Total capital
TOTAL LIABILITIES AND CAPITAL
December 31,
2020
December 31,
2019
$
8,215,017 $
7,269,128
(1,102,748)
7,112,269
(898,279)
6,370,849
113,686
35,854
22,105
225,685
285,836
135,115
264,880
72,667
46,224
12,034
13,007
195,328
285,448
140,749
269,029
68,974
82,105
8,350,202 $
64,926
7,466,568
$
$
3,399,492 $
2,817,910
131,707
66,136
235,860
270,014
49,144
92,180
4,244,533
9,815
127,874
135,030
66,136
212,673
272,701
31,493
86,188
3,622,131
9,815
125,260
3,509,217
(8,246)
3,500,971
467,009
3,967,980
8,350,202 $
3,440,488
(613)
3,439,875
269,487
3,709,362
7,466,568
$
The accompanying notes are an integral part of these consolidated financial statements.
F-12
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
REVENUES
Office
Rental
Tenant recoveries
Service and other revenues
Total office revenues
Studio
Rental
Tenant recoveries
Service and other revenues
Total studio revenues
Total revenues
OPERATING EXPENSES
Office operating expenses
Studio operating expenses
General and administrative
Depreciation and amortization
Total operating expenses
OTHER INCOME (EXPENSE)
Income (loss) from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Transaction-related expenses
Unrealized (loss) gain on non-real estate investments
Gains on sale of real estate
Impairment loss
Other income
Total other expense
Net income
Net income attributable to non-controlling interest in consolidated real estate entities
Net loss (income) attributable to redeemable non-controlling interest in consolidated real estate entities
Net income attributable to Hudson Pacific Properties, L.P.
Net income attributable to preferred units
Net income attributable to participating securities
NET INCOME AVAILABLE TO COMMON UNITHOLDERS
BASIC AND DILUTED PER UNIT AMOUNTS
Net income attributable to common unitholders—basic
Net income attributable to common unitholders—diluted
Weighted average shares of common units outstanding—basic
Weighted average shares of common units outstanding—diluted
Year Ended December 31,
2019
2018
2020
$
721,286 $
708,564 $
533,184
—
14,633
735,919
48,756
—
20,290
69,046
804,965
262,199
37,580
77,882
299,682
677,343
736
2,815
—
25,171
733,735
51,340
—
33,107
84,447
818,182
256,209
45,313
71,947
282,088
655,557
(747)
1,459
92,760
26,573
652,517
44,734
2,013
29,154
75,901
728,418
226,820
40,890
61,027
251,003
579,740
—
—
(116,477)
(105,845)
(83,167)
4,089
(440)
(2,463)
—
—
548
(111,192)
16,430
(18,955)
4,571
2,046
(612)
(1,041)
393 $
4,044
(667)
—
47,100
(52,201)
78
(106,779)
55,846
(13,352)
1,994
44,488
(612)
(922)
42,954 $
1,718
(535)
928
43,337
—
822
(36,897)
111,781
(11,883)
(169)
99,729
(618)
(663)
98,448
0.00 $
0.00 $
0.28 $
0.28 $
0.63
0.63
$
$
$
154,040,775
155,094,997
156,014,292
154,083,773
156,112,602
156,265,531
The accompanying notes are an integral part of these consolidated financial statements.
F-13
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
Net income
Currency translation adjustments
Net unrealized (losses) gains on derivative instruments:
Unrealized (losses) gains
Reclassification adjustment for realized losses (gains)
Total net unrealized (losses) gains on derivative instruments:
Total other comprehensive (loss) income
Comprehensive income
Comprehensive income attributable to preferred units
Comprehensive income attributable to participating securities
Year Ended December 31,
2020
2019
2018
$
16,430 $
55,846 $ 111,781
1,394
1,845
—
(14,471)
(14,533)
5,444
(9,027)
(7,633)
8,797
(612)
(1,041)
(5,490)
(20,023)
(18,178)
7,357
(3,299)
4,058
4,058
37,668
115,839
(612)
(922)
(618)
(660)
Comprehensive income attributable to non-controlling interest in consolidated real estate entities
(18,955)
(13,352)
(11,883)
Comprehensive loss (income) attributable to redeemable non-controlling interest in consolidated real estate entities
4,571
1,994
(169)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO PARTNERS’ CAPITAL
$
(7,240) $
24,776 $ 102,509
The accompanying notes are an integral part of these consolidated financial statements.
F-14
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CAPITAL
(in thousands, except share data)
Partners’ Capital
Number of
Common Units Common Units
Accumulated
Other
Comprehensive
Income (Loss)
Total Partners’
Capital
Non-controlling
Interest—
Members in
Consolidated
Real Estate
Entities
Total Capital
Balance, December 31, 2017
156,171,553 $
3,639,086 $
13,276 $
3,652,362 $
258,602 $
3,910,964
Cumulative adjustment related to adoption of
ASU 2017-12
Contributions
Distributions
—
—
—
Issuance of unrestricted units
571,481
—
—
—
(231)
231
Units withheld to satisfy tax withholding
obligations
Repurchase of common units
Declared distributions
Amortization of unit-based compensation
Net income
Other comprehensive income
Balance, December 31, 2018
Cumulative adjustment related to adoption of
ASC 842
Distributions
Issuance of unrestricted units
Units withheld to satisfy tax withholding
obligations
Declared distributions
Amortization of unit-based compensation
Net income
Other comprehensive loss
Redemption of common units
Balance, December 31, 2019
Contributions
Sale of non-controlling interest
Distributions
Transaction costs
Units withheld to satisfy tax withholding
obligations
Repurchase of common units
Declared distributions
Amortization of unit-based compensation
Net income
Other comprehensive loss
Balance, December 31, 2020
(163,191)
(4,769)
(1,639,260)
—
—
—
—
(50,000)
(157,003)
18,125
99,111
—
154,940,583
3,544,319
—
—
915,126
(2,105)
—
—
(234,723)
(7,684)
—
—
—
—
(18,076)
(157,825)
20,432
43,876
—
(525)
—
—
—
—
—
300,104
—
(16,047)
—
(225,314)
(7,582)
(3,485,343)
—
—
—
—
(80,213)
(154,996)
26,029
1,434
—
Issuance of unrestricted units
830,195
—
—
—
—
—
—
—
—
4,058
17,565
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,769)
(50,000)
(157,003)
18,125
99,111
4,058
—
2,486
(4,725)
—
—
—
—
—
11,883
—
—
2,486
(4,725)
—
(4,769)
(50,000)
(157,003)
18,125
110,994
4,058
3,561,884
268,246
3,830,130
(2,105)
—
(2,105)
(12,111)
(12,111)
—
—
(7,684)
(157,825)
20,432
43,876
—
300,104
(16,047)
—
(7,582)
(80,213)
(154,996)
26,029
1,434
—
—
—
—
13,352
—
—
269,487
138,124
67,038
—
—
—
—
—
—
18,955
—
—
(7,684)
(157,825)
20,432
57,228
(18,178)
(525)
3,709,362
138,124
367,142
(26,595)
(16,047)
—
(7,582)
(80,213)
(154,996)
26,029
20,389
(7,633)
—
(26,595)
155,602,910
3,440,488
(613)
3,439,875
(18,178)
(18,178)
—
(525)
152,722,448 $
3,509,217 $
(8,246) $
3,500,971 $
467,009 $
3,967,980
(7,633)
(7,633)
The accompanying notes are an integral part of these consolidated financial statements.
F-15
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Year Ended December 31,
2019
2018
2020
$
16,430 $
55,846
$
111,781
Depreciation and amortization
Non-cash portion of interest expense
Amortization of unit-based compensation
(Income) loss from unconsolidated real estate entities
Unrealized loss (gain) on non-real estate investment
Straight-line rents
Straight-line rent expenses
Amortization of above- and below-market leases, net
Amortization of above- and below-market ground lease, net
Amortization of lease incentive costs
Other non-cash adjustments
Impairment loss
Gains on sale of real estate
Change in operating assets and liabilities:
Accounts receivable
Deferred leasing costs and lease intangibles
Prepaid expenses and other assets
Accounts payable, accrued liabilities and other
Security deposits and prepaid rent
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment property
Property acquisitions
Purchase of U.S. Government securities
Maturities of U.S. Government securities
Proceeds from sales of real estate
Contributions to non-real estate investments
Distributions from non-real estate investments
Proceeds from sale of non-real estate investment
Distributions from unconsolidated real estate entities
Contributions to unconsolidated real estate entities
Deposits for property acquisitions
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured and secured debt
Payments of unsecured and secured debt
Payments of in-substance defeased debt
Proceeds from joint venture partner debt
Transaction costs
Repurchase of common units
Repurchase of operating partnership units
Redemption of series A preferred units
Distributions paid to common stock and unitholders
Dividends paid to preferred unitholders
Contributions from redeemable non-controlling members in consolidated real estate entities
Distributions to redeemable non-controlling members in consolidated real estate entities
Contributions from non-controlling members in consolidated real estate entities
Distributions to non-controlling members in consolidated real estate entities
Proceeds from sale of non-controlling interest
Payments to satisfy tax withholding obligations
Payment of loan costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash—beginning of period
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—END OF PERIOD
$
299,682
9,539
22,723
(736)
2,463
(30,357)
1,462
(9,635)
2,352
1,915
—
—
—
(9,098)
(13,276)
(9,117)
11,693
5,992
302,032
(402,283)
(593,945)
—
5,656
—
(3,404)
1,238
1,042
1,608
(16,756)
—
(1,006,844)
282,088
6,258
19,481
747
—
(52,959)
1,463
(12,836)
2,460
1,771
—
52,201
(47,100)
699
(46,645)
(11,165)
18,202
17,500
288,011
(385,751)
—
—
6,226
147,824
—
—
—
290
(64,498)
(20,500)
(316,409)
1,736,914
(1,150,097)
(3,323)
—
(16,047)
(80,213)
—
—
(154,996)
(612)
7,201
(16)
138,124
(26,595)
367,500
(7,582)
(14,164)
796,094
91,282
58,258
149,540 $
1,215,647
(1,010,569)
(3,193)
—
—
—
(525)
—
(157,825)
(612)
14,128
(15)
—
(12,111)
—
(7,684)
(18,776)
18,465
(9,933)
68,191
58,258
$
251,003
5,965
17,028
—
(928)
(36,202)
711
(17,593)
2,422
1,464
1,297
—
(43,337)
(10,854)
(55,286)
(2,978)
(13,184)
3,317
214,626
(351,277)
(362,687)
(149,176)
2,229
454,542
—
—
—
14,036
—
—
(392,333)
650,000
(449,711)
—
66,136
—
(50,000)
—
(362)
(157,003)
(618)
100,223
—
2,486
(4,725)
—
(4,769)
(7,039)
144,618
(33,089)
101,280
68,191
The accompanying notes are an integral part of these consolidated financial statements.
F-16
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except square footage and share/unit data)
1. Organization
Hudson Pacific Properties, Inc. is a Maryland corporation formed on November 9, 2009 as a fully integrated, self-
administered and self-managed real estate investment trust (“REIT”). Through its controlling interest in the operating partnership
and its subsidiaries, Hudson Pacific Properties, Inc. owns, manages, leases, acquires and develops real estate, consisting primarily
of office and studio properties. Unless otherwise indicated or unless the context requires otherwise, all references in these financial
statements to “the Company” refer to Hudson Pacific Properties, Inc. together with its consolidated subsidiaries, including Hudson
Pacific Properties, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our operating
partnership” or “the operating partnership” refer to Hudson Pacific Properties, L.P. together with its consolidated subsidiaries.
The Company’s portfolio consists of properties located throughout Northern and Southern California, the Pacific
Northwest and Western Canada. The following table summarizes the Company’s portfolio as of December 31, 2020:
Segments
Consolidated portfolio
Office
Studio
Land
Total consolidated portfolio
Unconsolidated portfolio(1)
Office
Land
Total unconsolidated portfolio
TOTAL(2)
Number of
Properties
Square Feet
(unaudited)
52
3
6
61
1
2
3
64
14,062,484
1,224,403
2,504,406
17,791,293
1,488,266
682,855
2,171,121
19,962,414
_________________
1.
Pursuant to a co-ownership agreement with Blackstone 1, LP, the Company owns 20% of the unconsolidated joint venture entity which owns the Bentall
Centre property. The Company also owns 50% of the unconsolidated joint venture entity which owns the Sunset LA development. The square footage shown
above represents 100% of the properties. For further detail regarding the Company’s unconsolidated real estate entities, see Note 4.
Includes redevelopment and development properties.
2.
Concentrations
As of December 31, 2020, the Company’s office properties were located in Northern and Southern California, the Pacific
Northwest and Western Canada. The Company’s studio properties were located in Hollywood in Southern California. 78.2% of the
Company’s consolidated and unconsolidated properties were located in California, which exposes the Company to greater
economic risks than if it owned a more geographically dispersed portfolio.
A significant portion of the Company’s rental revenue is derived from tenants in the technology and media and
entertainment industries. As of December 31, 2020, approximately 29.0% and 18.0% of consolidated and unconsolidated rentable
square feet were related to the tenants in the technology and media and entertainment industries, respectively.
As of December 31, 2020, the Company’s 15 largest tenants represented approximately 34.4% of consolidated and
unconsolidated rentable square feet and no single tenant accounted for more than 10%.
As of December 31, 2020, no single tenant in the Company’s office or studio segment had rental revenues representing
more than 10% of the respective segment’s total revenue.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company and the operating partnership are prepared in
accordance with generally accepted accounting principles in the United States (“GAAP”). Any references to the number of
properties, acres and square footage are unaudited and outside the scope of the Company’s independent registered public
accounting firm’s audit of the Company’s financial statements in accordance with the standards of the United States Public
Company Accounting Oversight Board (“PCAOB”).
F-17
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Certain amounts in the consolidated financial statements for the prior periods have been reclassified to conform to the
current year presentation.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company, the operating partnership
and all wholly-owned and controlled subsidiaries. The consolidated financial statements of the operating partnership include the
accounts of the operating partnership and all wholly-owned and controlled subsidiaries. All intercompany balances and
transactions have been eliminated in the consolidated financial statements.
Under the consolidation guidance, the Company first evaluates an entity using the variable interest model, then the voting
model. The Company ultimately consolidates all entities that the Company controls through either majority ownership or voting
rights, including all variable interest entities (“VIEs”) of which the Company is considered the primary beneficiary. The Company
accounts for all other unconsolidated joint ventures using the equity method of accounting. In addition, the Company continually
evaluates each legal entity that is not wholly-owned for reconsideration based on changing circumstances.
VIEs are defined as entities in which equity investors do not have:
the characteristics of a controlling financial interest;
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties; and/or
the entity is structured with non-substantive voting rights.
•
•
•
The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with both the power to
direct the activities that most significantly affect the VIE’s economic performance and the right to receive benefits from the VIE or
the obligation to absorb losses of the VIE that could be significant to the VIE. As of December 31, 2020, the Company has
determined that its operating partnership and fourteen joint ventures met the definition of a VIE. Twelve of these joint ventures are
consolidated and two are unconsolidated.
Consolidated Joint Ventures
On November 22, 2020, the Company entered into a joint venture agreement with CPPIB US RE-3, Inc., a subsidiary of
Canada Pension Plan Investment Board (“CPPIB”), to form Hudson 1918 Eighth, L.P. On December 18, 2020, the joint venture
purchased the 1918 Eighth property through a wholly-owned subsidiary. The Company owns 55% of the joint venture. As of
December 31, 2020, the Company has determined that this joint venture met the definition of a VIE and is consolidated.
On July 30, 2020, funds affiliated with Blackstone Property Partners (“Blackstone”) acquired a 49% interest in the
Hollywood Media Portfolio. The Company retained a 51% ownership stake and remains responsible for day-to-day operations,
leasing and development. As of December 31, 2020, the Company has determined that the entities included in the Hollywood
Media Portfolio and the related entities met the definition of a VIE and are consolidated.
F-18
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
As of December 31, 2020, the operating partnership has determined that twelve of its joint ventures met the definition of a
VIE and are consolidated:
Entity
Hudson 1455 Market, L.P.
Hudson 1099 Stewart, L.P.
HPP-MAC WSP, LLC
Property
1455 Market
Hill7
One Westside and 10850 Pico
Hudson One Ferry REIT, L.P.
Ferry Building
Sunset Bronson Entertainment Properties, LLC
Sunset Bronson Studios, ICON, CUE
Sunset Gower Entertainment Properties, LLC
Sunset Gower Studios
Sunset Las Palmas Entertainment Properties, LLC
Sunset Services Holdings, LLC
Sunset Studios Holdings, LLC
Hudson Media and Entertainment Management, LLC
Hudson 6040 Sunset, LLC
Hudson 1918 Eighth, L.P.
__________________
1.
Sunset Las Palmas Studios, Harlow
None(1)
EPIC
None(2)
6040 Sunset
1918 Eighth
Ownership Interest
55.0 %
55.0 %
75.0 %
55.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
55.0 %
Sunset Services Holdings, LLC wholly owns Services Holdings, LLC, which owns 100% interests in Sunset Bronson Services, LLC, Sunset Gower Services,
LLC and Sunset Las Palmas Services, LLC, which provide services to the respective entertainment properties above.
Hudson Media and Entertainment Management, LLC manages the properties comprising the Hollywood Media Portfolio.
2.
As of December 31, 2020 and 2019, the Company has determined that its operating partnership met the definition of a
VIE and is consolidated.
Substantially all of the assets and liabilities of the Company are related to the operating partnership VIE. The assets and
credit of certain VIEs can only be used to satisfy those VIEs’ own contractual obligations, and the VIEs’ creditors have no
recourse to the general credit of the Company.
Unconsolidated Joint Ventures
As of December 31, 2020, the Company has determined is not the primary beneficiary of two of its joint ventures. Due to
its significant influence over the unconsolidated entities, the Company accounts for them using the equity method of accounting.
Under the equity method, the Company initially records the investment at cost and subsequently adjusts for equity in earnings or
losses and cash contributions and distributions.
As of December 24, 2020, the Company owns 50% of the ownership interests in the joint venture which owns the Sunset
LA development. The Company serves as the operating member.
On June 5, 2019, the Company purchased, pursuant to a co-ownership agreement with Blackstone 1 LP, an affiliate of
Blackstone, 20% of the ownership interest in the Bentall Centre property. The joint venture property-owning entity is structured as
a tenancy in common under applicable tax laws. The Company owns 20% of this joint venture and serves as the operating partner.
The Company’s net equity investment in these unconsolidated entities is reflected within investment in unconsolidated
real estate entities on the Consolidated Balance Sheets. The Company’s share of net income or loss from the entities is included
within income (loss) from unconsolidated real estate entities on the Consolidated Statements of Operations. Refer to Note 4 for
details.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,
the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real
estate properties, determining the incremental borrowing rate used in the present value calculations of its new or modified
operating lessee agreements, its accrued liabilities, and its performance-based equity compensation awards. The Company bases its
F-19
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
estimates on historical experience, current market conditions, and various other assumptions that are believed to be reasonable
under the circumstances. Actual results could materially differ from these estimates.
Investment in Real Estate Properties
Acquisitions
The Company evaluates each acquisition to determine if the integrated set of assets and activities acquired meets the
definition of a business and needs to be accounted for as a business combination in accordance with ASC 805, Business
Combinations. An integrated set of assets and activities would fail to qualify as a business if either (i) substantially all of the fair
value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii)
the integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).
Acquisitions of real estate will generally not meet the definition of a business because substantially all of the fair value is
concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and improvements and related
intangible assets or liabilities) or because the acquisition does not include a substantive process in the form of an acquired
workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
When the Company acquires properties that are considered asset acquisitions, the purchase price is allocated based on
relative fair value of the assets acquired and liabilities assumed. There is no measurement period concept for asset acquisitions,
with the purchase price accounting being final in the period of acquisition. Additionally, acquisition-related expenses associated
with asset acquisitions are capitalized as part of the purchase price.
When the Company acquires properties that are considered business combinations, assets acquired and liabilities assumed
are fair valued at the acquisition date. The initial accounting for a business combination is based on management’s preliminary
assessment, which may change when final information becomes available. Subsequent adjustments made to the initial purchase
price assignment are made within the measurement period, which typically does not exceed one year, within the Consolidated
Balance Sheets. Acquisition-related expenses associated with business combinations are expensed in the period incurred which is
included in the transaction-related expenses line item of the Consolidated Statements of Operations.
The Company assesses fair value based on Level 2 and Level 3 inputs within the fair value framework, which includes
estimated cash flow projections that utilize appropriate discount, capitalization rates, renewal probability and available market
information, which includes market rental rate and market rent growth rates. Estimates of future cash flows are based on a number
of factors, including historical operating results, known and anticipated trends, and market and economic conditions.
The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant. The fair
values of acquired “above- and below-” market leases are based on the estimated cash flow projections utilizing discount rates that
reflect the risks associated with the leases acquired. The amount recorded is based on the present value of the difference between
(i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for
each in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term
plus the extended below-market term for any leases with below-market renewal options. Other intangible assets acquired include
amounts for in-place lease values that are based on the Company’s evaluation of the specific characteristics of each tenant’s lease.
Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs
to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at market rates during the
hypothetical expected lease-up periods, which are dependent on local market conditions. In estimating costs to execute similar
leases, the Company considers commissions, legal and other leasing-related costs. The fair value of debt assumed is based on the
estimated cash flow projections utilizing interest rates available for the issuance of debt with similar terms and remaining
maturities.
F-20
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Cost Capitalization
The Company capitalizes costs associated with development and redevelopment activities, capital improvements, tenant
improvements and leasing activity. Costs associated with development and redevelopment that are capitalized include interest,
property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a real
estate project. Indirect development costs, including salaries and benefits, office rent, and associated costs for those individuals
directly responsible for and who spend their time on development activities are also capitalized and allocated to the projects to
which they relate. Construction and development costs are capitalized while substantial activities are ongoing to prepare an asset
for its intended use. The Company considers a construction project as substantially complete and held available for occupancy
upon the completion of tenant improvements but no later than one year after cessation of major construction activity. Costs
incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are
expensed as they are incurred. Costs previously capitalized that related to abandoned acquisitions or developments are charged to
earnings. Expenditures for repairs and maintenance are expensed as they are incurred.
The Company recognized the following capitalized costs associated with development and redevelopment activities:
Capitalized personnel costs
Capitalized interest
Operating Properties
Year Ended December 31,
2020
2019
2018
$
15,843 $
19,509
9,218 $
16,258
12,233
14,815
The properties are generally carried at cost, less accumulated depreciation and amortization. The Company computes
depreciation and amortization using the straight-line method over the estimated useful lives of the assets as represented in the table
below:
Asset Description
Building and improvements
Land improvements
Furniture and fixtures
Tenant improvements
Estimated Useful Life (Years)
Shorter of the ground lease term or 39
15
5 to 7
Shorter of the estimated useful life or the lease term
The Company amortizes above- and below-market lease intangibles over the remaining non-cancellable lease terms and
bargain renewal periods, if applicable. The in-place lease intangibles are amortized over the remaining non-cancellable lease term.
When tenants vacate prior to the expiration of lease, the amortization of intangible assets and liabilities is accelerated. The
Company amortizes above- and below-market ground lease intangibles over the remaining non-cancellable lease terms.
Held for Sale
The Company classifies properties as held for sale when certain criteria set forth in ASC 360, Property, Plant, and
Equipment, are met. These criteria include (i) whether the Company is committed to a plan to sell, (ii) whether the asset or disposal
group is available for immediate sale, (iii) whether an active program to locate a buyer and other actions required to complete the
plan to sell have been initiated, (iv) whether the sale of the asset or disposal group is probable (i.e., likely to occur) and the transfer
is expected to qualify for recognition as a completed sale within one year, (v) whether the long-lived asset or disposal group is
being actively marketed for sale at a price that is reasonable in relation to its current fair value, (vi) whether actions necessary to
complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn. At the
time a property is classified as held for sale, the Company reclassifies its assets and liabilities to held for sale on the Consolidated
Balance Sheets for all periods presented and ceases recognizing depreciation expense. Properties held for sale are reported at the
lower of their carrying value or their estimated fair value, less estimated costs to sell.
According to ASC 205, Presentation of Financial Statements, the Company does not present the operating results in net
loss from discontinued operations for disposals if they do not represent a strategic shift in the Company’s business. There were no
discontinued operations for the years ended December 31, 2020, 2019 and 2018.
F-21
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Impairment of Long-Lived Assets
The Company assesses the carrying value of real estate assets and related intangibles for impairment on a quarterly basis
and whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be
recoverable in accordance with GAAP. Impairment losses are recorded on real estate assets held for investment when indicators of
impairment are present and the future undiscounted cash flows estimated to be generated by those assets are less than the assets’
carrying amount. The Company recognizes impairment losses to the extent the carrying amount exceeds the fair value of the
properties based on Level 1 or Level 2 inputs, less estimated costs to sell. During the year ended December 31, 2019, the Company
recorded $52.2 million of impairment charges related to the sold Campus Center office property. The Company’s estimated fair
value was based on the sale price (Level 2 input). During the years ended December 31, 2020 and 2018, the Company recorded no
impairment charges.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of net tangible and identifiable intangible assets
acquired and liabilities assumed in business acquisitions. The Company does not amortize this asset but instead analyzes it on a
quarterly basis for impairment. No impairment indicators have been identified during the years ended December 31, 2020, 2019
and 2018. Goodwill is included in the prepaid expenses and other assets, net line item on the Consolidated Balance Sheets.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of
three months or less when purchased. Restricted cash primarily consists of amounts held by lenders to fund reserves such as capital
improvements, taxes, insurance, debt service and operating expenditures.
The Company maintains some of its cash in bank deposit accounts that, at times, may exceed the federally insured limit.
No losses have been experienced related to such accounts.
The following table provides a reconciliation of cash and cash equivalents and restricted cash at the beginning and end of
the periods presented:
BEGINNING OF THE PERIOD
Cash and cash equivalents
Restricted cash
TOTAL
END OF THE PERIOD
Cash and cash equivalents
Restricted cash
TOTAL
Receivables
2020
December 31,
2019
2018
$
$
$
$
46,224 $
12,034
58,258 $
113,686 $
35,854
149,540 $
53,740 $
14,451
68,191 $
46,224 $
12,034
58,258 $
78,922
22,358
101,280
53,740
14,451
68,191
The Company’s accounting policy and methodology used to assess collectability related to rental revenues changed on
January 1, 2019 when the Company adopted ASC 842. The guidance requires the Company to assess, at lease commencement and
subsequently, collectability from its tenants of future lease payments. If the Company determines collectability is not probable, it
recognizes an adjustment to lower income from rentals, whereas previously the Company recognized bad debt expense. In
addition, for amounts deemed probable of collection, the Company also may record an allowance under other authoritative GAAP
based on the evaluation of individual receivables, including specific credit enhancements and other relevant factors.
Accounts Receivable, net
As of December 31, 2020, accounts receivable was $22.1 million and there was no allowance for doubtful accounts. As of
December 31, 2019, accounts receivable was $13.0 million and there was no allowance for doubtful accounts.
F-22
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Straight-line Rent Receivables, net
As of December 31, 2020, straight-line rent receivables was $226.0 million and there was a $0.3 million allowance for
doubtful accounts. As of December 31, 2019, straight-line rent receivables was $195.3 million and there was no allowance for
doubtful accounts.
U.S. Government Securities
The Company holds U.S. Government securities related to assumed debt held by a trust subsidiary. These securities are
considered held to maturity investments and are carried at amortized cost on the Consolidated Balance Sheets. The Company has
both the intent and ability to hold to maturity.
Prepaid Expenses and Other Assets, net
The following table represents the Company’s prepaid expenses and other assets, net as of:
December 31, 2020
December 31, 2019
Derivative assets
Goodwill
Non-real estate investments
Deposits and pre-development costs for future acquisitions
Deferred financing costs
Prepaid insurance
Prepaid property tax
Other
$
5 $
8,754
4,088
28,488
1,216
5,100
2,138
22,878
PREPAID EXPENSES AND OTHER ASSETS, NET
$
72,667 $
Non-Real Estate Investments
479
8,754
5,545
21,585
3,246
3,463
2,070
23,832
68,974
The Company held an investment in an entity that did not report NAV. The Company marked this investment to fair value
based on Level 2 inputs, whenever fair value was readily available or observable. Changes in fair value are included in the
unrealized (loss) gain on non-real estate investment line item on the Consolidated Statements of Operations. During the year ended
December 31, 2020, the Company disposed of the investment. The Company recognized an unrealized loss of $1.6 million due to
observable changes in fair value for the year ended December 31, 2020 and no gain or loss for the year ended December 31, 2019.
Over the life of this investment, the Company recognized a net unrealized loss of $0.6 million due to observable changes in fair
value.
The Company also invests in an entity that reports NAV. The investment, which is in a real estate technology venture
capital fund, involves a commitment of funding from the Company of up to $20.0 million. The Company uses NAV reported
without adjustment unless it is aware of information indicating the NAV reported does not accurately reflect the fair value for the
investment. As of December 31, 2020, the Company has contributed $4.2 million, net of distributions, with $15.8 million
remaining to be contributed. Changes in fair value are included in the unrealized (loss) gain on non-real estate investment line item
on the Consolidated Statements of Operations. The Company recognized a net unrealized loss of $0.9 million due to the observable
changes in fair value for the year ended December 31, 2020 and no gain or loss for the year ended December 31, 2019. Over the
life of the investment, the Company recognized a net unrealized loss of $0.9 million due to the observable changes in fair value.
Lease Accounting
In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC 842, which
amended the guidance in former ASC 840, Leases (“ASC 840”). The standard set out the principles for the recognition,
measurement, presentation and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors). The new
standard increased transparency and comparability most significantly by requiring the recognition by lessees of right-of-use
(“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases. The Company adopted ASC
842 on January 1, 2019 using the modified retrospective transition approach that must be applied for leases that exist or are entered
into after January 1, 2019.
F-23
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
ASC 842 requires companies to identify lease and non-lease components of a lease agreement. Lease components relate
to the right to use the leased asset whereas non-lease components relate to payments for goods or services that are transferred
separately from the right to use the underlying asset.
ASC 842 provides transition practical expedients that must be elected together, which allows relief from the requirement
to (i) reassess whether any expired or existing contracts are considered or contain leases; (ii) reassess the lease classification for
any expired or existing leases; and (iii) reassess initial direct costs for any existing leases that are in effect as of the date of
adoption. The guidance also permits an entity to elect a practical expedient that provides relief from the requirement to assess
whether an existing or expired land easement that was not previously accounted for as a lease under ASC 840 is considered a lease
under ASC 842. For lessors, the guidance provides for a practical expedient, by class of underlying asset, to elect a combined
single lease component presentation if (i) the timing and pattern of the transfer of the combined single lease component is the
same, and (ii) the related lease component, if accounted for separately, would be classified as an operating lease.
The Company elected the practical expedients above. The lessor practical expedient to combine lease and non-lease
components was elected only for the Company’s leases related to the office properties. For the Company’s studio properties, the
timing and pattern of the transfer of the lease components and non-lease components for studio properties are not the same and
therefore the Company did not elect this practical expedient for the Company’s studio properties. The standalone selling price
related to the studio non-lease components is readily available and does not require estimates.
Lessee Accounting
The Company determines if an arrangement is a lease at inception. The Company’s operating lease agreements relate to
ground lease assets and are reflected in operating lease right-of-use asset and operating lease liability on the Consolidated Balance
Sheets. For leases with a term of 12 months or less the Company made an accounting policy election by class of underlying asset
not to recognize ROU assets and lease liabilities. The Company recognizes lease expense for such leases generally on a straight-
line basis over the lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its
obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date
based on the present value of lease payments over the lease term. Variable lease payments are excluded from the ROU assets and
lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As the Company’s leases
do not provide an implicit rate, the Company determines its incremental borrowing rate based on the information available at
commencement date, or the date of the ASC 842 adoption, in determining the present value of lease payments. The weighted
average incremental borrowing rate used to calculate the ROU assets and liabilities was 5.7%. ROU assets also include any lease
payments made and exclude lease incentives. Many of the Company’s lessee agreements include options to extend the lease, which
the Company does not include in its minimum lease terms unless the option is reasonably certain to be exercised. Rental expense
for lease payments related to operating leases is recognized on a straight-line basis over the lease term. The weighted average
remaining lease term was 31 years as of December 31, 2020.
Lessor Accounting
As a lessor, the Company’s recognition of revenue remained consistent with previous guidance, apart from the narrower
definition of initial direct costs that can be capitalized. With the election of the lessor practical expedient, the presentation of
revenues on the Consolidated Statement of Operations has changed to reflect a single lease component that combines rental, tenant
recoveries and other tenant-related revenues for the office portfolio. For the Company’s rentals at the studio properties, total lease
consideration is allocated to lease and non-lease components on a relative standalone basis. The recognition of revenues related to
lease components is governed by ASC 842, while revenue related to non-lease components is subject to ASC 606, Revenue from
Contracts with Customers (“ASC 606”).
ASC 842 defines initial direct costs as only the incremental costs of signing a lease. Internal direct compensation costs
and external legal fees related to the execution of successful lease agreements that no longer meet the definition of initial direct
costs under ASC 842 are accounted for as office operating expense or studio operating expense in the Company’s Consolidated
Statements of Operations. As a result of the adoption, the Company recognized $1.8 million as a cumulative adjustment to
accumulated deficit for costs associated with leases that had not commenced as of January 1, 2019, that were previously
capitalized and no longer met the definition of initial direct costs in accordance with ASC 842. The Company recognized
$0.3 million as cumulative adjustments to accumulated deficit related to other transition adjustments.
F-24
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Revenue Recognition
The Company has compiled an inventory of its sources of revenues and has identified the following material revenue
streams: (i) rental revenues (ii) tenant recoveries and other tenant-related revenues (iii) ancillary revenues (iv) other revenues and
(v) sale of real estate.
Revenue Stream
Components
Rental revenues
Office rentals, stage rentals and storage rentals
Tenant recoveries and other
tenant-related revenues
Reimbursement of real estate taxes, insurance, repairs and
maintenance, other operating expenses and must-take parking
revenues
Financial Statement Location (1)
Office and studio segments: rental
Office segment: rental
Studio segment: rental and service
revenues and other
Revenues derived from tenants’ use of lighting, equipment rental,
power, HVAC and telecommunications (i.e., telephone and internet)
Studio segment: service revenues and
other
Parking revenue that is not associated with lease agreements and
other
Office and studio segments: service
revenues and other
Gains on sales derived from cash consideration less cost basis
Gains on sale of real estate
Ancillary revenues
Other revenues
Sale of real estate
_________________
1.
The financial statement locations stated above are for the years ended December 31, 2020 and 2019, after the adoption of ASC 842, and do not reflect the
locations for the year ended December 31, 2018.
The Company’s revenues from 2020 and 2019 are accounted for under ASC 842 while the 2018 rental revenues are
accounted for under ASC 840. The Company continues to recognize rental revenue from tenants on a straight-line basis over the
lease term when collectability is probable and the tenant has taken possession of or controls the physical use of the leased asset. If
the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes,
are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered
to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are
substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is
funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership
is determined based on various factors including, but not limited to:
•
•
•
•
whether the lease stipulates how and on what a tenant improvement allowance may be spent;
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
whether the tenant improvements are unique to the tenant or general-purpose in nature; and
whether the tenant improvements are expected to have any residual value at the end of the lease.
The Company recognizes tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and
maintenance and other operating expenses are recognized as revenue in the period during which the applicable expenses are
incurred. The reimbursements are recognized and presented gross, as the Company is generally the primary obligor with respect to
purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit
risk.
Other tenant-related revenues include parking stipulated in lease agreements as must-take parking rentals. These revenues
are recognized over the term of the lease.
Ancillary revenues and other revenues are accounted for under ASC 606. These revenues have single performance
obligations and are recognized at the point in time when services are rendered. The following table summarizes the Company’s
revenue streams that are accounted for under ASC 606:
F-25
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Ancillary revenues
Other revenues
Studio-related tenant recoveries(1)
_________________
1.
Studio-related tenant recoveries are accounted for under ASC 606 effective January 1, 2019.
Year Ended December 31,
2020
2019
2018
$
$
$
16,781 $
16,582 $
1,560 $
27,951 $
28,066 $
2,261
24,138
25,298
N/A
The following table summarizes the Company’s receivables that are accounted for under ASC 606:
Ancillary revenues
Other revenues
Studio-related tenant recoveries
December 31, 2020
December 31, 2019
$
$
$
1,700 $
1,058 $
— $
1,652
2,417
26
In regards to sales of real estate, the Company applies certain recognition and measurement principles in accordance with
ASC 606. The Company is required to evaluate the sales of real estate based on transfer of control. If a real estate sale contract
includes ongoing involvement with the sold property by the seller, the seller must evaluate each promised good or service under
the contract to determine whether it represents a performance obligation, constitutes a guarantee or prevents the transfer of control.
The timing and pattern of revenue recognition might change as it relates to gains on sale of real estate if the sale includes continued
involvement that represents a separate performance obligation.
Deferred Financing Costs and Debt Discount/Premium
Deferred financing costs are amortized over the contractual loan term into interest expense on the Consolidated
Statements of Operations. Deferred financing costs, and related amortization, related to the unsecured revolving credit facility and
undrawn term loans are presented within prepaid expenses and other assets, net on the Consolidated Balance Sheets. All other
deferred financing costs and related amortization are included within the respective debt line items on the Consolidated Balance
Sheets.
Debt discounts and premiums are amortized over the contractual loan term into interest expense on the Consolidated
Statements of Operations. The amortization of discounts is recorded as additional interest expense and the accretion of premiums is
recorded as a reduction to interest expense.
Derivative Instruments
The Company manages interest rate risk associated with borrowings by entering into derivative instruments. The
Company recognizes all derivative instruments on the Consolidated Balance Sheets on a gross basis at fair value. Derivative
instruments are adjusted to fair value at the balance sheet date. The change in the fair value of derivatives designated as cash flow
hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period
that the hedged forecasted transaction affects earnings. The change in the fair value derivatives not designated as hedges is
recorded within earnings immediately.
Stock-Based Compensation
Compensation cost of restricted stock, restricted stock units and performance units under the Company’s equity incentive
award plans are accounted for under ASC 718, Compensation-Stock Compensation (“ASC 718”). The Company accounts for
forfeitures of awards as they occur. Share-based payments granted to non-employees are accounted for in the same manner as
share-based payments granted to employees.
Income Taxes
The Company’s property-owning subsidiaries are limited liability companies and are treated as pass-through entities or
disregarded entities (or, in the case of the entities that own the 1455 Market, Hill7, Ferry Building and 1918 Eighth properties,
REITs) for federal income tax purposes. Accordingly, no provision has been made for federal income taxes in the accompanying
consolidated financial statements for the activities of these entities.
F-26
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”)
commencing with its taxable year ended December 31, 2010. The Company believes that it has operated in a manner that has
allowed the Company to qualify as a REIT for federal income tax purposes commencing with such taxable year, and the Company
intends to continue operating in such manner. To qualify as a REIT, the Company is required to distribute at least 90% of its REIT
taxable income, excluding net capital gains, to the Company’s stockholders and to meet the various other requirements imposed by
the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership.
Provided that it continues to qualify for taxation as a REIT, the Company is generally not subject to corporate level
income tax on the earnings distributed currently to its stockholders. If the Company were to fail to qualify as a REIT in any taxable
year, and were unable to avail itself of certain savings provisions set forth in the Code, all of its taxable income would be subject to
federal corporate income tax, including any applicable alternative minimum tax for taxable years prior to 2018. Unless entitled to
relief under specific statutory provisions, the Company would be ineligible to elect to be treated as a REIT for the four taxable
years following the year for which the Company loses its qualification. It is not possible to state whether in all circumstances the
Company would be entitled to this statutory relief.
The Company may acquire direct or indirect interests in one or more Subsidiary REITs. A Subsidiary REIT is subject to
the various REIT qualification requirements and other limitations described herein that are applicable to the Company. If a
subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii)
shares in such REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs and (iii) it is possible
that the Company would fail certain of the asset tests applicable to REITs, in which event the Company would fail to qualify as a
REIT unless the Company could avail itself of certain relief provisions.
The Company believes that its operating partnership is properly treated as a partnership for federal income tax purposes.
As a partnership, the Company’s operating partnership is not subject to federal income tax on its income. Instead, each of its
partners, including the Company, is allocated, and may be required to pay tax with respect to, its share of the operating
partnership’s income. As such, no provision for federal income taxes has been included for the operating partnership.
The Company has elected, together with certain of the Company’s subsidiaries, to treat such subsidiaries as taxable REIT
subsidiaries (“TRSs”) for federal income tax purposes. Certain activities that the Company may undertake, such as non-customary
services for the Company’s tenants and holding assets that the Company cannot hold directly, will be conducted by a TRS. A TRS
is subject to federal and, where applicable, state income taxes on its net income. The Company’s TRSs did not have significant tax
provisions or deferred income tax items for 2020, 2019 or 2018.
The Company is subject to the statutory requirements of the states in which it conducts business.
The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions
would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on
their technical merits. As of December 31, 2020, the Company has not established a liability for uncertain tax positions.
The Company and its TRSs file income tax returns with the U.S. federal government and various state and local
jurisdictions. The Company and its TRSs are no longer subject to tax examinations by tax authorities for years prior to 2016.
Generally, the Company has assessed its tax positions for all open years, which as of December 31, 2020 include 2017 to 2019 for
Federal purposes and 2016 to 2019 for state purposes, and concluded that there are no material uncertainties to be recognized.
Fair Value of Assets and Liabilities
The Company measures certain financial instruments at fair value on a recurring basis while certain financial instruments
and balances are measured at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets).
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants on the measurement date. Fair value measurements are classified and disclosed in one of
the following three categories:
•
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or
liabilities;
F-27
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
•
•
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are
observable in active markets; and
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both
significant to the fair value measurement and unobservable.
When available, the Company utilizes quoted market prices from an independent third party source to determine fair
value and classifies such items in Level 1 or Level 2. When the Company determines the market for a financial instrument owned
by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses
several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a
fair value by assigning weights to the various valuation sources.
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this
regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not
be realized in an immediate settlement of the instrument.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses:
Measurement of Credit Losses on Financial Instruments (Topic 326), which changed the impairment model for most financial
instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses. ASC 326 applies to
the Company’s receivables related to service revenues and parking revenue that is not associated with lease agreements. The
accounting standard was adopted on January 1, 2020 using the modified retrospective transition approach. The adoption did not
have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical
expedients for reference rate reform-related activities that impact debt, leases, derivatives and other contracts. The guidance in
ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the year ended December
31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of
effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based
matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives
consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as
applicable as additional changes in the market occur.
On April 10, 2020, the FASB issued a Staff Q&A related to the application of the lease guidance in ASC 842 for the
accounting impact of lease concessions related to the COVID-19 pandemic. The FASB staff believes that it would be acceptable
for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with
how those concessions would be accounted for under ASC 842 as though enforceable rights and obligations for those concessions
existed. As a result of this election, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to
analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to
apply or not apply the lease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in
the rights of the lessor or the obligations of the lessee. To date, the impact of lease concessions granted has not had a material
effect on the Company’s consolidated financial statements. The Company has adopted a policy to not account for concessions as
lease modifications to the extent that the concessions are granted as payment deferrals and total payments remain substantially the
same during the lease term.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible
instruments and the application of the derivatives scope exception for contracts in an entity’s own equity. This ASU is effective for
fiscal periods beginning after December 15, 2021. The Company is currently evaluating this guidance and the impact it may have
on the Company’s consolidated financial statements.
F-28
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
3. Investment in Real Estate
The following table summarizes the Company’s investment in real estate, at cost as of:
Land
Building and improvements
Tenant improvements
Furniture and fixtures
Property under development
December 31, 2020
December 31, 2019
$
1,351,888 $
5,840,819
728,111
12,250
281,949
1,313,412
5,189,342
631,459
10,693
124,222
INVESTMENT IN REAL ESTATE, AT COST
$
8,215,017 $
7,269,128
Acquisitions
On December 18, 2020, the Company purchased, pursuant to a joint venture agreement with a subsidiary of CPPIB, the
668,109 square-foot 1918 Eighth office property located in Seattle, Washington. The purchase price before certain credits,
prorations and closing costs was $625 million. The Company owns 55% of the ownership interest in this consolidated joint
venture. The acquisition did not meet the definition of a business and was therefore accounted for as an asset acquisition. For asset
acquisitions, the purchase price includes capitalized acquisition costs.
The following table represents the Company’s final purchase price accounting for the 1918 Eighth acquisition:
TOTAL CONSIDERATION
Allocation of consideration
Investment in real estate
Deferred leasing costs and in-place lease intangibles(1)
Above-market leases(2)
Below-market leases(3)
TOTAL
$
$
$
593,945
584,250
37,563
335
(28,203)
593,945
_____________
1.
2.
3.
Represents weighted-average amortization period of 9.1 years (before any renewal or extension options).
Represents weighted-average amortization period of 7.8 years (before any renewal or extension options).
Represents weighted-average amortization period of 9.3 years (before any renewal or extension options).
The Company did not complete any acquisitions related to consolidated entities during the year ended December 31,
2019.
Unconsolidated Joint Ventures
As of December 24, 2020, the Company owns 50% of the ownership interests in the joint venture which owns the Sunset
LA development in Los Angeles, California. The Company serves as the operating member.
On June 5, 2019, the Company purchased, pursuant to a co-ownership agreement with Blackstone 1 LP, an affiliate of
Blackstone, 20% of the ownership interest in the Bentall Centre office property and retail complex in Vancouver, Canada.
Refer to Note 4 for details.
F-29
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Studio Joint Venture
On July 30, 2020, funds affiliated with Blackstone acquired a 49% interest in the Hollywood Media Portfolio, a
2.2 million-square-foot collection of studio and office properties with a gross portfolio valuation of $1.65 billion before closing
credits, prorations and costs, resulting in cash proceeds to the Company of $808.5 million. The transaction included Sunset Gower,
Sunset Bronson and Sunset Las Palmas Studios, as well as 6040 Sunset, ICON, CUE, EPIC and Harlow, along with 1.1 million
square feet of development rights associated with Sunset Gower and Sunset Las Palmas Studios. The Company retained a 51%
ownership stake in the Hollywood Media Portfolio.
Impairment of Long-Lived Assets
During the year ended December 31, 2019, the Company recorded $52.2 million of impairment charges related to the
Campus Center office property that was held for sale at March 31, 2019 and was subsequently sold. The Company’s estimated fair
value was based on the sale price (Level 2 input). The Company did not recognize impairment charges during the years ended
December 31, 2020 and 2018.
Dispositions
The Company did not complete any dispositions related to consolidated entities during the year ended December 31,
2020. The following table summarizes information on dispositions completed during the years ended December 31, 2019 and
2018:
Property
Campus Center Office
Campus Center Land
TOTAL DISPOSITIONS IN 2019
Embarcadero Place
2600 Campus Drive (building 6 of Peninsula Office Park)
2180 Sand Hill
9300 Wilshire
Peninsula Office Park
TOTAL DISPOSITIONS IN 2018
_____________
1.
Represents gross sales price before certain credits, prorations and closing costs.
Segment
Office
Office
Office
Office
Office
Office
Office
Date of
Disposition
7/24/2019
7/30/2019
1/25/2018
1/31/2018
3/1/2018
4/10/2018
7/27/2018
Square Feet
Sales Price(1)
(in millions)
471,580 $
946,350
1,417,930 $
197,402 $
63,050
45,613
61,422
447,739
815,226 $
70.3
78.1
148.4
136.0
22.5
82.5
13.8
210.0
464.8
These properties were considered non-strategic to the Company’s portfolio. The disposition of these properties resulted in
gains of $47.1 million and $43.3 million for the years ended December 31, 2019 and 2018, respectively. These amounts are
included in the gains on sale of real estate line item in the Consolidated Statements of Operations.
Held for Sale
As of December 31, 2020 and 2019, the Company had no properties that met the criteria to be classified as held for sale.
4. Investment in Unconsolidated Real Estate Entities
As of December 24, 2020, the Company owns 50% of the ownership interests in the joint venture which owns the Sunset
LA development in Los Angeles, California. The Company serves as the operating member.
On June 5, 2019, the Company purchased, through a joint venture with Blackstone 1 LP, the 20% ownership interest in
the Bentall Centre office property and retail complex in Vancouver, Canada. The Company serves as the operating partner. Bentall
Centre’s functional currency is the local currency, or Canadian dollars. The Company has exposure to risks related to foreign
currency fluctuations. The assets and liabilities are translated into U.S. dollars at the exchange rate in effect as of the financial
statement date. Income statement accounts of our foreign subsidiaries are translated using the monthly-average exchange rate for
the periods presented. Gains or losses resulting from the translation are classified in accumulated other comprehensive (loss)
F-30
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
income as a separate component of total equity and are excluded from net income. The maximum exposure related to this
unconsolidated joint venture is limited to our investment and $100.0 million of debt which the Company has guaranteed.
The table below presents the combined and condensed balance sheets for the Company’s unconsolidated joint ventures:
December 31, 2020
December 31, 2019
ASSETS
Investment in real estate, net
$
Other assets
TOTAL ASSETS
LIABILITIES
Secured debt, net
Other liabilities
TOTAL LIABILITIES
Company’s capital(1)
Partner's capital
TOTAL CAPITAL
855,639 $
51,118
906,757
495,771
52,828
548,599
80,778
277,380
358,158
TOTAL LIABILITIES AND CAPITAL
$
906,757 $
794,321
51,597
845,918
480,127
42,672
522,799
64,624
258,495
323,119
845,918
_____________
1.
To the extent the Company’s cost basis is different from the basis reflected at the joint venture level, the basis is amortized over the life of the related asset
and is included in the income (loss) from unconsolidated real estate entities line item on the Consolidated Statements of Operations.
The table below presents the combined and condensed statements of operations for the Company’s unconsolidated joint
ventures:
TOTAL REVENUES
TOTAL EXPENSES
NET INCOME (LOSS)
Year Ended
December 31, 2020
June 5, 2019 through
December 31, 2019
69,592 $
(65,983)
3,609 $
41,687
(46,434)
(4,747)
$
$
F-31
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
5. Deferred Leasing Costs and Lease Intangibles, net
The following summarizes the Company’s deferred leasing costs and lease intangibles as of:
December 31, 2020
December 31, 2019
Deferred leasing costs and in-place lease intangibles
$
352,903 $
Accumulated amortization
Deferred leasing costs and in-place lease intangibles, net
Below-market ground leases
Accumulated amortization
Below-market ground leases, net
Above-market leases
Accumulated amortization
Above-market leases, net
DEFERRED LEASING COSTS AND LEASE INTANGIBLE ASSETS, NET
Below-market leases
Accumulated amortization
Below-market leases, net
Above-market ground leases
Accumulated amortization
Above-market ground leases, net
LEASE INTANGIBLE LIABILITIES, NET
(127,180)
225,723
72,916
(13,831)
59,085
2,802
(1,774)
1,028
285,836 $
98,365 $
(50,054)
48,311
1,095
(262)
833
$
$
$
49,144 $
359,215
(136,816)
222,399
72,916
(11,436)
61,480
8,015
(6,446)
1,569
285,448
87,064
(56,447)
30,617
1,095
(219)
876
31,493
The Company recognized the following amortization related to deferred leasing costs and lease intangibles:
Deferred leasing costs and in-place lease intangibles(1)
Below-market ground leases(2)
Above-market leases(3)
Below-market leases(3)
Above-market ground leases(2)
For the Year Ended December 31,
2020
2019
2018
$
$
$
$
$
(41,334) $
(45,177) $
(46,690)
(2,395) $
(874) $
(2,503) $
(1,240) $
(2,465)
(1,550)
10,509 $
14,076 $
19,143
43 $
43 $
43
_____________
1.
2.
3.
Amortization is recorded in depreciation and amortization expenses and office rental revenues in the Consolidated Statements of Operations.
Amortization is recorded in office operating expenses in the Consolidated Statements of Operations.
Amortization is recorded in office rental revenues in the Consolidated Statements of Operations.
The following table provides information regarding the Company’s estimated amortization of deferred leasing costs and
lease intangibles as of December 31, 2020:
For the Year Ended December 31,
Deferred Leasing
Costs and In-
place Lease
Intangibles
Below-market
Ground Leases
Above-market
Leases
Below-market
Leases
Above-market
Ground Leases
43
$
(33,432) $
(2,395) $
(342) $
7,180 $
(26,757)
(22,243)
(16,636)
(11,612)
(2,395)
(2,395)
(2,395)
(2,395)
(175)
(147)
(25)
(5)
4,693
3,799
1,804
842
(115,043)
(225,723) $
$
(47,110)
(59,085) $
(334)
(1,028) $
29,993
48,311 $
43
43
43
43
618
833
F-32
2021
2022
2023
2024
2025
Thereafter
TOTAL
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
6. Debt
The following table sets forth information with respect to our outstanding indebtedness:
December 31,
2020
December 31,
2019
Interest Rate(1)
Contractual
Maturity
Date
UNSECURED AND SECURED DEBT
Unsecured debt
Unsecured revolving credit facility(2)(3)
Term Loan B(2)(5)
Term Loan D(2)(6)
Series A notes
Series B notes
Series C notes
Series D notes
Series E notes
3.95% Registered senior notes
4.65% Registered senior notes(7)
3.25% Registered senior notes(8)
Total unsecured debt
Secured debt
$
— $
—
—
110,000
259,000
56,000
150,000
50,000
400,000
500,000
400,000
1,925,000
75,000 LIBOR + 1.05% to 1.50%
350,000 LIBOR + 1.20% to 1.70%
125,000 LIBOR + 1.20% to 1.70%
110,000
259,000
56,000
150,000
50,000
400,000
500,000
400,000
2,475,000
4.34%
4.69%
4.79%
3.98%
3.66%
3.95%
4.65%
3.25%
Hollywood Media Portfolio, net(9)(10)
Met Park North(11)
10950 Washington(12)
One Westside and 10850 Pico(13)
Revolving Sunset Bronson Studios/ICON/CUE facility(14)
Element LA
1918 Eighth(15)
Hill7(16)
Total secured debt
Total unsecured and secured debt
Unamortized deferred financing costs/loan discounts(17)
TOTAL UNSECURED AND SECURED DEBT, NET
792,186
—
25,717
106,073
—
168,000
314,300
101,000
1,507,276
3,432,276
(32,784)
—
64,500
26,312
5,646
5,001
168,000
—
101,000
370,459
2,845,459
(27,549)
$
3,399,492 $
2,817,910
LIBOR + 2.15%
LIBOR + 1.55%
5.32%
LIBOR + 1.70%
LIBOR + 1.35%
4.59%
LIBOR + 1.70%
3.38%
3/13/2022 (4)
4/1/2022
11/17/2022
1/2/2023
12/16/2025
12/16/2027
7/6/2026
9/15/2023
11/1/2027
4/1/2029
1/15/2030
8/9/2022
8/1/2020
3/11/2022
12/18/2023 (4)
3/1/2024
11/6/2025
12/18/2025
11/6/2028
IN-SUBSTANCE DEFEASED DEBT(18)
JOINT VENTURE PARTNER DEBT (19)
$
$
131,707 $
135,030
66,136 $
66,136
4.47%
4.50%
10/1/2022
10/9/2028
_____________
1.
Interest rate with respect to indebtedness is calculated on the basis of a 360-day year for the actual days elapsed. Interest rates are as of December 31, 2020,
which may be different than the interest rates as of December 31, 2019 for corresponding indebtedness.
The rate is based on the operating partnership’s leverage ratio. The Company has an option to make an irrevocable election to change the interest rate
depending on the Company’s credit rating or a specified base rate plus an applicable margin. As of December 31, 2020, no such election had been made.
The Company has a total capacity of $600.0 million under its unsecured revolving credit facility.
The maturity date may be extended once for an additional one-year term.
The interest rate on the outstanding balance of the term loan was effectively fixed at 2.96% to 3.46% per annum through the use of two interest rate swaps.
Term Loan B was repaid in the third quarter 2020. Instead of terminating the interest rate swaps on the loan, the swaps were designated under a first payments
approach within hedge accounting, where the Company elected to designate a cash flow (LIBOR-based interest payments) instead of a specific piece of debt.
See Note 7 for details.
The interest rate on the outstanding balance of the term loan was effectively fixed at 2.63% to 3.13% per annum through the use of an interest rate swap. Term
Loan D was repaid in the third quarter 2020. Instead of terminating the interest rate swap on the loan, the swap was designated under a first payments
approach within hedge accounting, where the Company elected to designate a cash flow (LIBOR-based interest payments) instead of a specific piece of debt.
See Note 7 for details.
On February 27, 2019, the operating partnership completed an underwritten public offering of $350.0 million of senior notes, which were issued at a discount
at 98.663% of par. On June 14, 2019, the operating partnership completed an additional underwritten public offering of $150.0 million of senior notes, which
were issued at a premium at 104.544% of par. These notes are treated as a single series of securities with an aggregate principal amount of $500.0 million.
On October 3, 2019, the operating partnership completed an underwritten public offering of $400.0 million in senior notes due January 15, 2030. The notes
were issued at 99.268% of par value, with a coupon of 3.25%.
2.
3.
4.
5.
6.
7.
8.
F-33
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
9.
The Company owns 51% of the ownership interest in the consolidated joint venture that owns the Hollywood Media Portfolio. On July 30, 2020, the joint
venture closed a $900.0 million mortgage loan secured by the Hollywood Media Portfolio. This loan has an initial term of two years from the first payment
date, with three one-year extension options, subject to certain requirements. In the third quarter 2020, the Company and Blackstone purchased bonds
comprising the loan in the amounts of $107.8 million and $12.5 million, respectively. The contractual interest rate on the purchased bonds is LIBOR + 3.31%.
10. The Company repaid Term Loans B ($350.0 million) and D ($125.0 million) in the third quarter 2020 and instead of terminating the interest rate swaps on
these loans, the swaps were designated under a first payments approach within hedge accounting, rather than a specific piece of debt. Therefore, the interest
rate on $475.0 million of the outstanding balance has been effectively fixed through the use of interest rate swaps. As of December 31, 2020, the LIBOR
component of the interest rate was fixed at 1.76% with respect to $350.0 million and 1.43% with respect to $125.0 million of the Hollywood Media Portfolio
loan.
Interest on the full loan amount was effectively fixed at 3.71% per annum through use of an interest rate swap. See Note 7 for details. On July 31, 2020, the
Company paid off the principal outstanding of $64.5 million on the Met Park North mortgage loan.
11.
12. Monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
13. The Company has the ability to draw up to $414.6 million under the construction loan secured by the One Westside and 10850 Pico properties.
14. The Company has a total capacity of $235.0 million under the Sunset Bronson Studios/ICON/CUE revolving credit facility. This loan is secured by the
Company’s Sunset Bronson Studios, ICON and CUE properties. The outstanding borrowings were paid off in the third quarter 2020.
15. On December 18, 2020 the Company acquired, through a joint venture with a subsidiary of CPPIB, the 1918 Eighth office property located in Seattle,
Washington. The Company owns 55% of the ownership interest in the consolidated joint venture that owns the 1918 Eighth property. The full amount of the
loan is shown. This loan has an initial interest rate of LIBOR plus 1.70% per annum and is interest-only through the five-year term.
16. The Company owns 55% of the ownership interest in the consolidated joint venture that owns the Hill7 property. The full amount of the loan is shown. This
loan bears interest only at 3.38% until November 6, 2026, at which time the interest rate will increase and monthly debt service will include principal
payments with a balloon payment at maturity.
17. Excludes deferred financing costs related to establishing the Company’s unsecured revolving credit facility and Sunset Bronson Studios/ICON/CUE revolving
credit facility, which are reflected in prepaid and other assets, net line item in the Consolidated Balance Sheets. See Note 2 for details.
18. The Company owns 75% of the ownership interest in the joint venture that owns the One Westside and 10850 Pico properties. The full amount of the loan is
shown. Monthly debt service includes annual debt amortization payments based on a 10-year amortization schedule with a balloon payment at maturity.
19. This amount relates to debt attributable to Allianz, the Company’s partner in the joint venture that owns the Ferry Building property. The maturity date may
be extended twice for an additional two-year term each.
Current Year Activity
During the year ended December 31, 2020, the outstanding borrowings on the unsecured revolving credit facility
decreased by $75.0 million, net of draws. The Company uses the unsecured revolving credit facility to finance the acquisition of
other properties, to provide funds for tenant improvements and capital expenditures and to provide for working capital and other
corporate purposes.
On July 30, 2020, funds affiliated with Blackstone acquired a 49% interest in the Hollywood Media Portfolio. The
Company retained a 51% ownership stake and remains responsible for day-to-day operations, leasing and development. In
conjunction with closing this transaction, the joint venture closed a $900.0 million mortgage loan secured by the Hollywood Media
Portfolio. The Company and Blackstone purchased bonds comprising the loan in the amounts of $107.8 million and $12.5 million,
respectively. This loan has an initial term of two years from the first payment date, with three one-year extension options, subject
to certain requirements. With an initial interest rate of LIBOR plus 2.15% per annum, the mortgage loan bears interest only
payable every month during the term of the loan with principal payable at maturity. The loan is non-recourse, except as to
customary non-recourse carveout guaranties from the Company and Blackstone. The combined proceeds from sale of the 49%
interest in the Hollywood Media Portfolio and the Company’s share of asset-level financing were approximately $1.27 billion
before closing credits, prorations and costs. The proceeds from the sale were used to pay down the outstanding borrowings on the
unsecured revolving credit facility and to pay off Term Loan B, Term Loan D, Met Park North and the Revolving Sunset Bronson
Studios/ICON/CUE facility.
On December 18, 2020, the Company acquired, through a joint venture with a subsidiary of CPPIB, the 1918 Eighth
office property located in Seattle, Washington. The Company owns 55% of the ownership interest in the consolidated joint
venture. In conjunction with closing the transaction, the joint venture closed a $314.3 million mortgage loan secured by the
property. This loan has an initial interest rate of LIBOR plus 1.70% per annum and is interest-only through the five-year term.
Indebtedness
The Company presents its financial statements on a consolidated basis. Notwithstanding such presentation, except to the
extent expressly indicated, the Company’s separate property-owning subsidiaries are not obligors of or under the debt of their
respective affiliates and each property-owning subsidiary’s separate liabilities do not constitute obligations of its respective
affiliates.
Loan agreements include events of default that the Company believes are usual for loans and transactions of this type. As
of the date of this filing, there have been no events of default associated with the Company’s loans.
F-34
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The following table provides information regarding the Company’s future minimum principal payments due on the
Company’s debt (before the impact of extension options, if applicable) as of December 31, 2020:
For the Year Ended December 31,
Unsecured and Secured
Debt
In-Substance Defeased
Debt
Joint Venture Partner
Debt
2021
2022
2023
2024
2025
Thereafter
TOTAL
$
632 $
817,271
266,073
—
741,300
1,607,000
3,494 $
128,213
—
—
—
—
$
3,432,276 $
131,707 $
—
—
—
—
—
66,136
66,136
Unsecured Debt
Term Loan Agreement and Credit Facility
On March 13, 2018, the operating partnership entered into a third amended and restated credit agreement (the “Amended
and Restated Credit Agreement”) with various financial institutions. The Amended and Restated Credit Agreement provided for (i)
the increase of the operating partnership’s unsecured revolving credit facility to $600.0 million and the extension of the term to
March 13, 2022 and (ii) term loans in amount and tenor equal to the term loans outstanding under the previous agreements ($300.0
million Term Loan A maturing April 1, 2020, $350.0 million Term Loan B maturing April 1, 2022, $75.0 million Term Loan C
maturing November 17, 2020 and $125.0 million Term Loan D maturing November 17, 2022). The $75.0 million Term Loan C
was repaid with proceeds from the Company’s 4.65% registered senior notes on February 27, 2019. The $300.0 million Term Loan
A was repaid with proceeds from the Company’s 3.25% registered senior notes on October 3, 2019. During the year ended
December 31, 2020, the principal outstanding on Term Loan B and D were repaid from the proceeds from the Hollywood Media
Portfolio transaction.
The following table summarizes the balance and key terms of the unsecured revolving credit facility as of:
Outstanding borrowings
Remaining borrowing capacity
TOTAL BORROWING CAPACITY
Interest rate(1)
Annual facility fee rate(1)
Contractual maturity date(2)
$
$
December 31, 2020
December 31, 2019
— $
600,000
600,000 $
LIBOR + 1.05% to 1.50%
0.15% or 0.30%
3/13/2022
75,000
525,000
600,000
_________________
1.
The rate is based on the operating partnership’s leverage ratio. The Company has the option to make an irrevocable election to change the interest rate
depending on the Company’s credit rating. As of December 31, 2020, no such election had been made.
The maturity date may be extended once for an additional one-year term.
2.
Subject to the satisfaction of certain conditions and lender commitments, the operating partnership may increase the
commitments held under the Amended and Restated Credit Agreement so long as the aggregate commitments do not exceed $2.0
billion.
The operating partnership continues to be the borrower under the Amended and Restated Credit Facility Agreement, and
the Company and all subsidiaries that own unencumbered properties will continue to provide guarantees unless the Company
obtains and maintains a credit rating of at least BBB- from S&P or Baa3 from Moody’s, in which case such guarantees are not
required except under limited circumstances.
In October 2019, Moody’s Investors Service upgraded the Company’s long-term corporate credit rating from Baa3 to
Baa2, with a stable outlook.
F-35
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Note Purchase Agreements
On November 16, 2015, the operating partnership entered into a note purchase agreement with various purchasers, which
provides for $425.0 million of guaranteed senior notes by the operating partnership, of which (i) $110.0 million are designated as
4.34% series A guaranteed senior notes due January 2, 2023 (the “Series A Notes”), (ii) $259.0 million are designated as 4.69%
series B guaranteed senior notes due December 16, 2025 (the “Series B Notes”) and (iii) $56.0 million are designated as 4.79%
series C guaranteed senior notes due December 16, 2027 (the “Series C Notes”).
On July 6, 2016, the Company entered into a note purchase agreement of debt for $150.0 million of 3.98% guaranteed
senior notes due July 6, 2026 (the “Series D Notes”). Upon issuance, the notes pay interest semi-annually on the 6th day of January
and July in each year until maturity. The Company also secured an additional $50.0 million of funds from a note purchase
agreement of 3.66% guaranteed senior notes due September 15, 2023 (the “Series E Notes”), which were drawn on September 15,
2016.
The operating partnership may prepay at any time all or, from time to time, any part of the note purchase agreements in an
amount not less than 5% of the aggregate principal amount of any series of note purchase agreements then outstanding in the case
of a partial prepayment, at 100% of the principal amount so prepaid plus a make-whole premium.
The operating partnership’s obligations under note purchase agreements will be fully and unconditionally guaranteed by
the Company. Subsidiaries of the Company will also issue unconditional guarantees upon the occurrence of certain conditions,
including such subsidiaries providing guarantees under the Amended and Restated Credit Facility Agreement, by and among the
operating partnership, the financial institutions party thereto, and Wells Fargo Bank, National Association as administrative agent.
Debt Covenants
The operating partnership’s ability to borrow under its unsecured loan arrangements remains subject to ongoing
compliance with financial and other covenants as defined in their respective agreements. Certain financial covenant ratios are
subject to change in the occurrence of material acquisitions as defined in the respective agreements. Other covenants include
certain limitations on dividend payouts and distributions, limits on certain types of investments outside of the operating
partnership’s primary business and other customary affirmative and negative covenants.
The following table summarizes existing covenants and their covenant levels related to our unsecured revolving credit
facility, term loans and note purchase agreements, when considering the most restrictive terms:
Covenant Ratio
Total liabilities to total asset value
Unsecured indebtedness to unencumbered asset value
Adjusted EBITDA to fixed charges
Secured indebtedness to total asset value
Unencumbered NOI to unsecured interest expense
Covenant Level
Actual Performance
≤ 60%
≤ 60%
≥ 1.5x
≤ 45%
≥ 2.0x
38.6%
36.6%
3.5x
17.8%
3.5x
The following table summarizes existing covenants and their covenant levels related to our registered senior notes:
Covenant Ratio(1)
Debt to total assets
Total unencumbered assets to unsecured debt
Consolidated income available for debt service to annual debt service charge
Secured debt to total assets
_________________
1.
Covenant Level
Actual Performance
≤ 60%
≥ 150%
≥ 1.5x
≤ 45%
40.8%
288.9%
3.8x
18.6%
The covenant and actual performance metrics above represent terms and definitions reflected in the indentures governing the 3.95% Senior Notes and 4.65%
Senior Notes based on the financial results as of December 31, 2020.
The operating partnership was in compliance with its financial covenants as of December 31, 2020.
F-36
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Repayment Guarantees
Although the rest of the operating partnership’s loans are secured and non-recourse, the operating partnership provides
limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and
environmental liabilities.
The Company guaranteed the operating partnership’s unsecured debt.
Interest Expense
The following table represents a reconciliation from the gross interest expense to the amount on the interest expense line
item on the Consolidated Statements of Operations:
Gross interest expense(1)
Capitalized interest
Amortization of deferred financing costs and loan discount, net(2)
INTEREST EXPENSE
Year Ended December 31,
2020
2019
2018
$
126,447 $
115,845 $
(19,509)
(16,258)
9,539
116,477 $
6,258
105,845 $
$
92,017
(14,815)
5,965
83,167
_________________
1.
2.
Includes interest on the Company’s debt and hedging activities in the term loans.
Includes loan extinguishment costs of $2.7 million, $0.7 million and $0.4 million during the years ended December 31, 2020, 2019 and 2018, respectively.
7. Derivatives
The Company enters into derivatives in order to hedge interest rate risk. The Company had three interest rate swaps with
aggregate notional amounts of $475.0 million as of December 31, 2020 and four interest rate swaps with aggregate notional
amounts of $539.5 million as of December 31, 2019. These derivatives were designated as effective cash flow hedges for
accounting purposes. The derivative assets are recorded in prepaid expenses and other assets and derivative liabilities are recorded
in accounts payable, accrued liabilities and other on the Consolidated Balance Sheets.
On July 29, 2020, the Company entered into an interest rate cap contract, required by the lender, with respect to the
Hollywood Media Portfolio loan due August 2022. The aggregate notional amount is $900.0 million as of December 31, 2020. The
interest rate cap is not designated under hedge accounting and is accounted for under mark-to-market accounting.
The Company has agreements with its derivative counterparties that contain a provision where the Company could be
declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the
Company’s default on the indebtedness.
The Company’s derivatives are classified as Level 2 and their fair values are derived from estimated values obtained from
observable market data for similar instruments.
F-37
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The fair market value of derivatives is presented on a gross basis on the Consolidated Balance Sheets. The following table
summarizes the Company’s derivative instruments as of December 31, 2020 and December 31, 2019:
Underlying Debt
Instrument
Number of
Derivatives
Notional
Amount
Effective Date Maturity Date
Low
High
Interest Rate
Range(1)
Fair Value
(Liabilities)/Assets
2019
2020
Interest rate swaps
Met Park North
Hollywood Media Portfolio
(formerly Term Loan B)
Hollywood Media Portfolio
(formerly Term Loan D)
Interest rate cap
Hollywood Media Portfolio
1
2
1
1
TOTAL
_____________
1.
$ 64,500 August 2013
August 2020
3.71 % 3.71 % $
— $
(195)
350,000
April 2015
April 2022
2.96 % 3.46 %
(7,112)
(1,596)
125,000
June 2016
November 2022
2.63 % 3.13 %
(2,994)
479
Strike rate
$ 900,000
July 2020
August 2022
3.50%
$
5 $
—
$ (10,101) $
(1,312)
The rate is based on the fixed rate from the swap and the spread based on the operating partnership’s leverage ratio.
On July 31, 2020, the Company paid off the principal outstanding of $64.5 million on the Met Park North mortgage loan.
The derivative on the Met Park North mortgage loan matured on August 1, 2020.
The Company reclassifies unrealized gains and losses related to cash flow hedges into earnings in the same period during
which the hedged forecasted transaction affects earnings. As of December 31, 2020, the Company expects $7.3 million of
unrealized loss included in accumulated other comprehensive income will be reclassified as an increase to interest expense in the
next 12 months.
8. U.S. Government Securities
The Company has U.S. Government securities of $135.1 million and $140.7 million as of December 31, 2020 and
December 31, 2019, respectively. The One Westside and 10850 Pico properties acquisition in 2018 included the assumption of
debt that was, in-substance, defeased through the purchase of U.S. Government-backed securities. The securities are investments
held to maturity and are carried at amortized cost on the Consolidated Balance Sheets. As of December 31, 2020, the Company
incurred $5.2 million of gross unrealized gains and no gross unrealized losses related to the U.S. Government securities.
The following table summarizes the carrying value and fair value of the Company’s securities by the contractual maturity
date as of December 31, 2020:
Due in 1 year
Due in 1 to 5 years
TOTAL
Carrying Value
Fair Value
$
$
5,764 $
129,351
135,115 $
5,871
134,399
140,270
9. Future Minimum Base Rents and Lease Payments
The Company’s properties are leased to tenants under operating leases with initial term expiration dates ranging from
2021 to 2040.
F-38
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The following table summarizes the future minimum base rents (excluding tenant reimbursements for operating expenses
and termination fees related to tenants exercising early termination options) for properties as of December 31, 2020:
Year Ended
2021
2022
2023
2024
2025
Thereafter
TOTAL
Non-cancellable
Subject to Early
Termination
Options
Total(1)
$
$
611,031 $
557,761
513,987
453,059
336,779
1,461,862
3,934,479 $
9,822 $
22,448
28,211
20,792
35,496
152,962
269,731 $
620,853
580,209
542,198
473,851
372,275
1,614,824
4,204,210
_____________
1.
Excludes rents under leases at the Company’s studio properties with terms of one year or less.
Future Minimum Lease Payments
The following table summarizes the Company’s ground lease terms related to properties that are held subject to long-term
non-cancellable ground lease obligations as of December 31, 2020:
Property
3400 Hillview
Clocktower Square
Expiration
Date
Notes
10/31/2040 The ground rent is the greater of the minimum annual rent or percentage annual rent. The minimum
annual rent until October 31, 2017 is the lesser of 10% of Fair Market Value (“FMV”) of the land or
$1.0 million grown at 75% of the cumulative increases in consumer price index (“CPI”) from
October 1989. Thereafter, minimum annual rent, which resets annually, is the lesser of 10% of FMV
of the land or the minimum annual rent as calculated as of November 1, 2017 plus 75% of
subsequent cumulative CPI changes. In no event can rent be less then the specific amount prescribed
in the ground lease agreement. Percentage annual rent is gross income multiplied by 24.125%.
9/26/2056 The ground rent is minimum annual rent (adjusted every 10 years) plus 25% of adjusted gross
income (“AGI”). Minimum rent adjustments adds 60% of the average annual participation rent
payable over five years. Annual participation is the excess of 25% of AGI over the minimum annual
rent for a given lease year.
Del Amo
6/30/2049 Rent under the ground sublease is $1.00 per year, with the sublessee being responsible for all
impositions, insurance premiums, operating charges, maintenance charges, construction costs and
other charges, costs and expenses that arise or may be contemplated under any provisions of the
ground sublease.
Ferry Building
Various The land on which the building is situated is subject to a ground lease agreement that expires on
April 1, 2067. The minimum annual rent (adjusted every 5 years) is the prior year’s minimum annual
rent plus cumulative increase in CPI with a floor of 10% and a cap of 20%.
Additionally, the parking lot is subject to a separate ground lease agreement that expires on April 1,
2023. The minimum annual rent adjusts each year for changes in CPI with a floor of 2% and a cap of
4%. The parking lot is subject to automatic renewals for 10-year periods at market.
Foothill Research Center
6/30/2039 The ground rent is the greater of the minimum annual rent or percentage annual rent. The minimum
annual rent, which resets annually, is the lesser of 10% of FMV of the land or the previous year’s
minimum annual rent plus 75% of CPI increase. In no event rent can be less then the specific amount
prescribed in the ground lease agreement. Percentage annual rent is gross income multiplied by
24.125%.
3176 Porter
7/31/2040 The ground rent is the greater of the minimum annual rent or percentage annual rent. The minimum
annual rent, which resets annually, is the lesser of 10% of FMV of the land or the previous year’s
minimum annual rent plus 75% of CPI increase. Percentage annual rent is Lockheed’s base rent
multiplied by 24.125%. In no event rent can be less then the specific amount prescribed in the
ground lease agreement.
Metro Center
4/29/2054 Every 10 years rent adjusts to 7.233% of FMV of the land (since 2008) and adjusts to reflect the
change in CPI from the preceding FMV adjustment date (since 2013). The CPI adjustment has a
floor of the previous minimum rent. The Company has an option to extend the ground lease for four
additional periods of 11 years each.
Page Mill Center
11/30/2041 The ground rent is minimum annual rent (adjusted on January 1, 2019 and January 1, 2029) plus
25% of AGI, less minimum annual rent. Minimum rent adjustments adds 60% of the average annual
participation rent payable over five years. Annual participation is the excess of 25% of AGI over the
minimum annual rent for a given lease year.
F-39
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Expiration
Date
Notes
11/17/2049 The ground rent is minimum annual rent (adjusted every 10 years) plus 60% of the average of the
percentage annual rent for the previous 7 lease years. Minimum rent adjustments add 60% of the
average annual percentage rent for the previous 7 years.
Property
Page Mill Hill
Palo Alto Square
11/30/2045 The ground rent is minimum annual rent (adjusted every 10 years starting January 1, 2022) plus 25%
of AGI less minimum annual rent. The minimum annual rent adjustments add 50% of the average
annual percentage rent from the previous 5 years.
Sunset Gower Studios
3/31/2060 Every 7 years rent adjusts to 7.5% of FMV of the land.
Techmart
5/31/2053 Rent subject to a 10% increase every 5 years. The Company has an option to extend the ground lease
for two additional periods of 10 years each.
Contingent rental expense is recorded in the period in which the contingent event becomes probable. The following table
summarizes rental expense for ground leases and a corporate office lease:
Contingent rental expense
Minimum rental expense
For the Year Ended December 31,
2020
2019
2018
$
8,944 $
9,193 $ 10,740
$ 19,964 $ 19,900 $ 15,906
The following table provides information regarding the Company’s future minimum lease payments for its ground leases
(before the impact of extension options, if applicable) as of December 31, 2020:
For the Year Ended December 31,
Ground Leases(1)
2021
2022
2023
2024
2025
Thereafter
Total ground lease payments
Less: interest portion
Present value of lease liability
$
$
18,622
18,663
18,438
18,392
18,392
515,961
608,468
(338,454)
270,014
_____________
1.
In situations where ground lease obligation adjustments are based on third-party appraisals of fair market land value, CPI adjustments and/or percentage of
gross income that exceeds the minimum annual rent, the future minimum lease amounts above include the lease rental obligations in effect as of
December 31, 2020.
10. Fair Value of Financial Instruments
The Company’s financial assets and liabilities measured and reported at fair value on a recurring basis include the
following as of:
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Derivative assets (1)
Derivative liabilities(2)
Non-real estate investments(1)
$
$
$
— $
5 $
— $
5 $
— $
479 $
— $
479
— $ (10,106) $
— $ (10,106) $
— $
(1,791) $
— $
(1,791)
— $
4,088 $
— $
4,088 $
— $
5,545 $
— $
5,545
_____________
1.
2.
Included in the prepaid expenses and other assets, net line item on the Consolidated Balance Sheets.
Included in the accounts payable, accrued liabilities and other line item on the Consolidated Balance Sheets.
Other Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued
liabilities are reasonable estimates of fair value, using Level 1 inputs, because of the short-term nature of these instruments. Fair
F-40
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
values for investment in U.S. Government securities are estimates based on Level 1 inputs. Fair values for debt are estimates based
on rates currently prevailing for similar instruments of similar maturities using Level 2 inputs.
The table below represents the carrying value and fair value of the Company’s investment in securities and debt as of:
Assets
U.S. Government securities
Liabilities
Unsecured debt(1)
Secured debt(1)
In-substance defeased debt
Joint venture partner debt
_____________
1.
Amounts represent debt excluding net deferred financing costs.
11. Stock-Based Compensation
December 31, 2020
December 31, 2019
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
$
$
$
135,115 $
140,270 $
140,749 $
144,589
1,925,000 $
2,072,833 $
2,475,000 $
2,540,606
1,507,276 $
1,503,960 $
131,707 $
66,136 $
131,633 $
68,346 $
370,459 $
135,030 $
66,136 $
366,476
134,936
68,557
The Company’s 2010 Incentive Plan permits the Company’s board of directors (the “Board”) to grant, among other
things, restricted stock, restricted stock units, operating partnership performance units and performance-based awards. As of
December 31, 2020, 2.7 million common shares were available for grant under the 2010 Plan. The calculation of shares available
for grant is determined after taking into account unvested restricted stock, unvested operating partnership performance units,
unvested RSUs, awards under our one-time retention performance-based awards and awards under our outstanding outperformance
programs, assuming the maximum bonus pool eligible ultimately is earned and based on a stock price of $24.02.
The Board awards restricted shares to non-employee Board members on an annual basis as part of such Board members’
annual compensation and to newly elected non-employee board members in accordance with the Non-Employee Director
Compensation Program. The time-based awards are generally issued in the second quarter, in conjunction with the director’s
election to the Board and the individual share awards vest in equal annual installments over the applicable service vesting period,
which is three years.
During the year ended December 31, 2020, certain non-employee Board members elected to receive operating partnership
performance units in lieu of their annual cash retainer fees. These awards were issued in the fourth quarter and were fully-vested
upon their issuance.
The Board awards time-based restricted shares or time-based operating partnership performance units to certain
employees on an annual basis as part of the employees’ annual compensation. These time-based awards are generally issued in the
fourth quarter and vest in equal annual installments over the applicable service vesting period, which is generally three years.
Additionally, certain awards are subject to a mandatory holding period upon vesting if the grantee is a named executive officer.
During the year ended December 31, 2020, certain employees elected to receive operating partnership performance units
in lieu of their annual cash bonus. These awards were issued in the fourth quarter and were fully-vested upon their issuance.
The compensation committee of our Board (the “Compensation Committee”) adopted a Hudson Pacific Properties, Inc.
Outperformance Program (“OPP Plan”) under the 2010 Plan through 2019. With respect to OPP Plan awards granted through
2016, to the extent an award is earned following the completion of a three-year performance period, 50% of the earned award will
vest in full at the end of the three-year performance period and 50% of the earned award will vest in equal annual installments over
the two years thereafter, subject to the participant’s continued employment. OPP Plan awards are settled in common stock and, in
the case of certain executives, in operating partnership performance units. Commencing with the 2017 OPP Plan, the two-year post
performance vesting period was replaced with a two-year mandatory holding period upon vesting.
Beginning in 2020, the Compensation Committee adopted an annual Hudson Pacific Properties, Inc. Performance Stock
Unit Plan (“PSU Plan”) under the 2010 Plan. Effective January 1, 2020, the Compensation Committee awarded to certain
employees performance units (“2020 PSU Plan”). The 2020 PSU Plan awards are settled in common stock and, in the case of
certain executives, in operating partnership performance units. The 2020 PSU Plan grant consists of two portions. A portion of
each performance unit award, the Relative TSR Performance Unit, is eligible to vest based on the achievement of the Company’s
F-41
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
total shareholder return (“TSR”) compared to the TSR of the SNL U.S. REIT Office Index over a three-year performance period
beginning January 1, 2020 and ending December 31, 2022, with the vesting percentage subject to certain percentage targets. The
remaining portion of each Performance Unit award, the Operational Performance Unit, became eligible to vest based on the
achievement of operational performance metrics over a one-year performance period beginning January 1, 2020 and ending
December 31, 2020 and will vest over three years. The number of Operational Performance Units that became eligible to vest
based on the achievement of operational performance metrics may be adjusted based on the Company’s achievement of absolute
TSR goals over the three-year performance period commencing January 1, 2020 and ending December 31, 2022, by applying the
applicable vesting percentages. The awards granted under the 2020 PSU Plan are subject to a two-year post-vesting restriction
period, during which any awards earned may not be sold or transferred.
Time-Based Awards
The stock-based compensation is valued based on the quoted closing price of the Company’s common stock on the
applicable grant date and discounted for the hold restriction in accordance with ASC 718. The stock-based compensation is
amortized through the final vesting period on a straight-line basis. Forfeitures of awards are recognized as they occur.
Performance-Based Awards
PSU Plan
The following table outlines key components of the 2020 PSU Plan:
Maximum bonus pool, in millions
Performance period
2020 PSU Plan
Operational Performance
Unit
Relative TSR Performance
Unit
$14.9
$14.9
1/1/2020 to 12/31/2020
1/1/2020 to 12/31/2022
The stock-based compensation cost of the 2020 PSU Plan was valued in accordance with ASC 718 utilizing a Monte
Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The stock-based compensation
is amortized through the final vesting period under a graded vesting expense recognition schedule. Forfeitures of awards are
recognized as they occur.
The per unit fair value of the 2020 PSU awards granted was estimated on the date of grant using the following
assumptions in the Monte Carlo simulation:
Expected price volatility for the Company
Expected price volatility for the particular REIT index
Risk-free rate
Dividend yield
OPP Plan
2020
17.00%
14.00%
1.66%
2.80%
An award under the OPP Plan is ultimately earned to the extent the Company outperforms a predetermined TSR goal and/
or achieves goals with respect to the outperformance of its peers in a particular REIT index. The ultimate aggregate award cannot
exceed the predetermined maximum bonus pool. The following table outlines key components of the 2019 and 2018 OPP Plans:
Maximum bonus pool, in millions
Performance period
2019 OPP Plan
2018 OPP Plan
$28.0
$25.0
1/1/2019 to 12/31/2021
1/1/2018 to 12/31/2020
F-42
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The stock-based compensation costs of the OPP Plans were valued in accordance with ASC 718 utilizing a Monte Carlo
simulation to estimate the probability of the performance vesting conditions being satisfied. The stock-based compensation is
amortized through the final vesting period under a graded vesting expense recognition schedule. Forfeitures of awards are
recognized as they occur.
The per unit fair value of OPP awards granted was estimated on the date of grant using the following assumptions in the
Monte Carlo simulation:
Expected price volatility for the Company
Expected price volatility for the particular REIT index
Risk-free rate
Dividend yield
One-Time Retention Awards
2019
22.00%
18.00%
2.57%
3.00%
2018
20.00%
18.00%
2.37%
2.90%
At the end of each year in the four-year performance period and over the four-year performance period, the ultimate
award is earned if the Company outperforms a predetermined TSR goal and/or achieves goals with respect to its outperformance of
its peers in a particular REIT index.
The stock-based compensation costs were valued in accordance with ASC 718, utilizing a Monte Carlo simulation to
estimate the probability of the performance vesting conditions being satisfied. The stock-based compensation is amortized through
the final vesting period under a graded vesting expense recognition schedule. Forfeitures of awards are recognized as they occur.
These awards were fully-vested as of December 31, 2019.
The per unit fair value of one-time retention awards granted was estimated on the date of grant using the following
assumptions in the Monte Carlo simulation:
Expected price volatility for the Company
Expected price volatility for the particular REIT index
Risk-free rate
Dividend yield
Summary of Unvested Share Activity
Assumptions
23.00%
18.00%
1.63%
3.20%
The following table summarizes the activity and status of all unvested stock awards:
2020
2019
2018
Weighted-
Average
Grant-Date
Fair Value
Shares
Weighted-
Average
Grant-Date
Fair Value
Shares
Weighted-
Average
Grant-Date
Fair Value
Shares
Unvested at January 1
459,784 $
Granted
Vested
Canceled
404,779
(420,970)
(948)
Unvested at December 31
442,645 $
33.67
24.70
31.61
29.91
27.44
703,796 $
247,521
(470,019)
(21,514)
459,784 $
32.93
35.50
32.88
34.16
33.67
1,087,186 $
190,557
(571,481)
(2,466)
703,796 $
33.64
29.53
32.74
33.38
32.93
The following table summarizes the activity and status of all unvested time-based restricted operating partnership
performance units:
F-43
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
2020
2019
2018
Weighted-
Average
Grant-Date
Fair Value
Units
Weighted-
Average
Grant-Date
Fair Value
Units
Weighted-
Average
Grant-Date
Fair Value
Units
608,679 $
571,978
(409,225)
—
771,432 $
32.70
23.49
30.42
—
27.08
318,549 $
481,215
(191,085)
—
608,679 $
28.41
35.74
30.37
—
32.70
— $
318,549
—
—
—
28.41
—
—
318,549 $
28.41
Unvested at January 1
Granted
Vested
Canceled
Unvested at December 31
Share-based Compensation Recorded
The following table presents the classification and amount recognized for stock-based compensation related to the
Company’s awards:
Expensed stock compensation(1)
Capitalized stock compensation(2)
Total stock compensation(3)
For the Year Ended December 31,
2020
2019
2018
$
$
22,723 $
3,306
26,029 $
19,481 $
951
20,432 $
17,028
1,097
18,125
_________________
1.
2.
Amounts are recorded in general and administrative expenses on the Consolidated Statements of Operations.
Amounts for the years ended December 31, 2020 and 2019 are recorded in investment in real estate, at cost on the Consolidated Balance Sheets. Amounts for
the year ended December 31, 2018 are recorded in deferred leasing costs and lease intangible assets, net and investment in real estate, at cost on the
Consolidated Balance Sheet.
Amounts are recorded in additional paid-in capital and non-controlling interest—units in the operating partnership on the Consolidated Balance Sheets.
3.
As of December 31, 2020, total unrecognized compensation cost related to unvested share-based payments was $44.8
million. It is expected to be recognized over a weighted-average period of two years.
12. Earnings Per Share
Hudson Pacific Properties, Inc.
The Company calculates basic earnings per share by dividing the net income or loss available to common stockholders for
the period by the weighted average number of common shares outstanding during the period. The Company calculates diluted
earnings per share by dividing the diluted net income or loss available to common stockholders for the period by the weighted
average number of common shares and dilutive instruments outstanding during the period using the treasury stock method or the
if-converted method, whichever is more dilutive. Unvested time-based restricted stock awards, unvested time-based performance
unit awards and unvested RSUs that contain non-forfeitable rights to dividends are participating securities and are included in the
computation of earnings per share pursuant to the two-class method.
F-44
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The following table reconciles the numerator and denominator in computing the Company’s basic and diluted earnings
per share for net income available to common stockholders:
Numerator:
Basic net income available to common stockholders
Effect of dilutive instruments
Diluted net income available to common stockholders
Denominator:
Basic weighted average common shares outstanding
Effect of dilutive instruments(1)
For the Year Ended December 31,
2020
2019
2018
$
$
383 $
42,725 $
98,090
—
331
—
383 $
43,056 $
98,090
153,126,027
154,404,427
155,445,247
42,998
2,197,981
251,239
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
153,169,025
156,602,408
155,696,486
Basic earnings per common share
Diluted earnings per common share
$
$
0.00 $
0.00 $
0.28 $
0.28 $
0.63
0.63
_____________
1.
The Company includes unvested awards and convertible common and participating units as contingently issuable shares in the computation of diluted
earnings per share once the market criteria are met, assuming that the end of the reporting period is the end of the contingency period. Any anti-dilutive
securities are excluded from the diluted earnings per share calculation.
Hudson Pacific Properties, L.P.
The operating partnership calculates basic earnings per unit by dividing the net income or loss available to common
unitholders for the period by the weighted average number of common units outstanding during the period. The Company
calculates diluted earnings per unit by dividing the diluted net income or loss available to common unitholders for the period by
the weighted average number of common units and dilutive instruments outstanding during the period using the treasury stock
method or the if-converted method, whichever is more dilutive. Unvested time-based restricted unit awards, unvested time-based
performance unit awards and unvested RSUs that contain non-forfeitable rights to dividends are participating securities and are
included in the computation of earnings per unit pursuant to the two-class method.
The following table reconciles the numerator and denominator in computing the operating partnership’s basic and diluted
earnings per unit for net income available to common unitholders:
For the Year Ended December 31,
2020
2019
2018
Numerator:
Basic and diluted net income available to common unitholders
$
393 $
42,954 $
98,448
Denominator:
Basic weighted average common units outstanding
Effect of dilutive instruments(1)
154,040,775
155,094,997
156,014,292
42,998
1,017,605
251,239
DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
154,083,773
156,112,602
156,265,531
Basic earnings per common unit
Diluted earnings per common unit
$
$
0.00 $
0.00 $
0.28 $
0.28 $
0.63
0.63
_____________
1.
The operating partnership includes unvested awards as contingently issuable units in the computation of diluted earnings per unit once the market criteria are
met, assuming that the end of the reporting period is the end of the contingency period. Any anti-dilutive securities are excluded from the diluted earnings per
unit calculation.
13. Redeemable Non-Controlling Interest
Redeemable Preferred Units of the Operating Partnership
As of December 31, 2020 and 2019, there were 392,598 series A preferred units of partnership interest in the operating
partnership, or series A preferred units, which are not owned by the Company. These series A preferred units are entitled to
preferential distributions at a rate of 6.25% per annum on the liquidation preference of $25.00 per unit. The units are convertible at
F-45
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
the option of the holder into common units or redeemable into cash or, at the Company’s election, exchangeable for registered
shares of common stock.
Redeemable Non-controlling Interest in Consolidated Real Estate Entities
On March 1, 2018, the Company entered into a joint venture agreement with Macerich to form the HPP-MAC JV. On
August 31, 2018, Macerich contributed Westside Pavilion to the HPP-MAC JV. The Company has a 75% interest in the joint
venture that owns the One Westside and 10850 Pico properties. The Company has a put right, after a specified time, to sell its
interest at fair market value. Macerich has a put right, after a specified time, to sell its interest at fair market value, which is a
redemption right that is not solely within the control of the Company. Therefore, the non-controlling interest related to this joint
venture is included as temporary equity. The put right is not currently redeemable.
On October 9, 2018, the Company entered into a joint venture with Allianz to purchase the Ferry Building property. The
Company has a 55% interest in the joint venture that owns the Ferry Building property. The Company has a put right, if certain
events occur, to sell its interest at fair market value. Allianz has a put right, if certain events occur, to sell its interest at fair market
value, which is a redemption right that is not solely within the control of the Company. Therefore, the non-controlling interest
related to this joint venture is included as temporary equity. The put right is not currently redeemable.
The following table reconciles the beginning and ending balances of redeemable non-controlling interests:
Balance at December 31, 2019
Contributions
Distributions
Declared dividend
Net income (loss)
BALANCE AT DECEMBER 31, 2020
14. Equity
Series A Redeemable
Preferred Units
Consolidated
Entities
$
$
9,815 $
—
—
(612)
612
9,815 $
125,260
7,201
(16)
—
(4,571)
127,874
The table below presents the activity related to Hudson Pacific Properties, Inc.’s accumulated other comprehensive (loss)
income (“OCI”):
Derivative Instruments
Currency Translation
Adjustments
Total Equity
Balance at January 1, 2018
$
Unrealized gain recognized in OCI
Reclassification from OCI into income
Net change in OCI
Cumulative adjustment related to adoption of ASU 2017-12
Balance at December 31, 2018
Unrealized (loss) gain recognized in OCI
Reclassification from OCI into income
Net change in OCI
Balance at December 31, 2019
Unrealized (loss) gain recognized in OCI
Reclassification from OCI into income
Net change in OCI
Balance at December 31, 2020
13,227 $
7,331
(3,287)
4,044
230
17,501
(14,438)
(5,454)
(19,892)
(2,391)
(14,407)
5,420
(8,987)
— $
—
—
—
—
—
1,830
—
1,830
1,830
1,415
—
1,415
$
(11,378) $
3,245 $
F-46
13,227
7,331
(3,287)
4,044
230
17,501
(12,608)
(5,454)
(18,062)
(561)
(12,992)
5,420
(7,572)
(8,133)
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The table below presents the activity related to Hudson Pacific Properties, LP’s accumulated OCI:
Derivative Instruments
Currency Translation
Adjustments
Total Equity
Balance at January 1, 2018
$
Unrealized gain recognized in OCI
Reclassification from OCI into income
Net change in OCI
Cumulative adjustment related to adoption of ASU 2017-12
Balance at December 31, 2018
Unrealized (loss) gain recognized in OCI
Reclassification from OCI into income
Net change in OCI
Balance at December 31, 2019
Unrealized (loss) income recognized in OCI
Reclassification from OCI into income
Net change in OCI
Balance at December 31, 2020
Non-controlling Interests
13,276 $
7,358
(3,300)
4,058
231
17,565
(14,533)
(5,490)
(20,023)
(2,458)
(14,471)
5,444
(9,027)
— $
—
—
—
—
—
1,845
—
1,845
1,845
1,394
—
1,394
$
(11,485) $
3,239 $
13,276
7,358
(3,300)
4,058
231
17,565
(12,688)
(5,490)
(18,178)
(613)
(13,077)
5,444
(7,633)
(8,246)
Common Units in the Operating Partnership
Common units of the operating partnership and shares of common stock of the Company have essentially the same
economic characteristics, as they share equally in the total net income or loss distributions of the operating partnership. Investors
who own common units have the right to cause the operating partnership to repurchase any or all of their common units for cash
equal to the then-current market value of one share of common stock or, at the Company’s election, issue shares of the Company’s
common stock in exchange for common units on a one-for-one basis.
Performance Units in the Operating Partnership
Performance units are partnership interests in the operating partnership. Each performance unit awarded will be deemed
equivalent to an award of one share of common stock under the 2010 Plan, reducing the availability for other equity awards on a
one-for-one basis. Under the terms of the performance units, the operating partnership will revalue its assets for tax purposes upon
the occurrence of certain specified events, and any increase in valuation from the time of grant until such event will be allocated
first to the holders of performance units to equalize the capital accounts of such holders with the capital accounts of common
unitholders. Subject to any agreed upon exceptions, once vested and having achieved parity with common unitholders,
performance units are convertible into common units in the operating partnership on a one-for-one basis.
Ownership Interest in the Operating Partnership
The following table summarizes the ownership interest in the operating partnership, excluding unvested restricted units as
of:
December 31, 2020 December 31, 2019 December 31, 2018
Company-owned common units in the operating partnership
151,401,365
154,691,052
154,371,538
Company’s ownership interest percentage
Non-controlling common units in the operating partnership(1)
Non-controlling ownership interest percentage
99.1 %
1,321,083
0.9 %
99.4 %
911,858
0.6 %
99.6 %
569,045
0.4 %
_________________
1.
Represents common units held by certain of the Company’s executive officers, directors and other outside investors. As of December 31, 2020, this amount
represents both common units and performance units of 550,969 and 770,114, respectively. As of December 31, 2019, this amount represents both common
units and performance units of 550,969 and 360,889, respectively. As of December 31, 2018, this amount represents common units of 569,045.
F-47
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
During the years ended December 31, 2020 and 2019, 409,225 and 360,889 performance units, respectively, were granted
and vested related to various performance-based awards to our employees and directors. No performance units were granted during
the year ended December 31, 2018.
During the year ended December 31, 2019, 18,076 common units of the operating partnership were redeemed at the
request of common unitholders. The Company elected, in accordance with the limited partnership agreement of the operating
partnership, to settle in cash to satisfy the redemption. The Company funded the redemption using the proceeds from a registered
underwritten public offering of common stock. No common unit redemptions were completed during the years ended
December 31, 2020 and 2018.
Common Stock Activity
The Company has not completed any common stock offerings during the years ended December 31, 2020, 2019 and
2018.
The Company’s ATM program permits sales of up to $125.0 million of common stock. A cumulative total of
$20.1 million has been sold as of December 31, 2020. The Company did not utilize the ATM program during the years ended
December 31, 2020, 2019 and 2018.
Share Repurchase Program
The Company is authorized to repurchase shares of its common stock up to a total of $250.0 million of its common stock
under the share repurchase program. During the year ended December 31, 2020, the Company repurchased 3.5 million shares at a
weighted average price of $23.00 per share for $80.1 million, before transaction costs. No shares were repurchased during the year
ended December 31, 2019. During the year ended December 31, 2018, the Company repurchased 1.6 million shares at a weighted
average price of $30.48 per share for $50.0 million, before transaction costs. Since the commencement of the program through
December 31, 2020, a cumulative total of $130.1 million had been repurchased. Share repurchases are accounted for on the trade
date. The Company may make repurchases under the program at any time in its discretion, subject to market conditions, applicable
legal requirements and other factors.
Dividends
The Board declared dividends on a quarterly basis and the Company paid the dividends during the quarters in which the
dividends were declared. The following table summarizes dividends declared and paid for the periods presented:
For the Year Ended December 31,
2020
2019
2018
$
$
$
1.00 $
1.00 $
1.5625 $
1.00 $
1.00 $
1.5625 $
1.00
1.00
1.5625
Common stock(1)
Common units (1)
Series A preferred units (1)
_________________
1.
The fourth quarter 2020 dividends were paid on December 31, 2020 to shareholders and unitholders of record on December 21, 2020.
Taxability of Dividends
Earnings and profits, which determine the taxability of distributions to stockholders, may differ from income reported for
financial reporting purposes due to the differences for federal income tax purposes in the treatment of loss on extinguishment of
debt, revenue recognition, compensation expense and the basis of depreciable assets and estimated useful lives used to compute
depreciation.
F-48
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
The Company’s dividends related to its common stock will be classified for U.S. federal income tax purposes as follows
(unaudited):
Ordinary Dividends
Capital Gains
Record
Date
Payment
Date
Distribution
Per Share
Total
Non-
Qualified
Qualified
Total
Long Term
Unrecaptured
Section 1250
Nondividend
Distributions
3/20/2020
3/30/2020
$ 0.25000
$ 0.00000
$ 0.00000 $ 0.00000 $ 0.25000
$ 0.20325 $
0.04675 $ 0.00000
6/19/2020
6/29/2020
0.25000
0.00000
0.00000
0.00000
0.25000
9/18/2020
9/28/2020
0.25000
0.00000
0.00000
0.00000
0.25000
12/21/2020
12/31/2020
0.25000
0.00000
0.00000
0.00000
0.25000
0.20325
0.20325
0.20325
0.04675
0.00000
0.04675
0.00000
0.04675
0.00000
TOTALS $ 1.00000
$ 0.00000
$ 0.00000 $ 0.00000 $ 1.00000
$ 0.81300 $
0.18700 $ 0.00000
100.00 %
0.00 %
100.00 %
0.00 %
15. Segment Reporting
The Company’s reporting segments are based on the Company’s method of internal reporting, which classifies its
operations into two reporting segments: (i) office properties and (ii) studio properties. The Company evaluates performance based
upon net operating income of the combined properties in each segment. General and administrative expenses and interest expense
are not included in segment profit as our internal reporting addresses these items on a corporate level. Asset information by
segment is not reported because the Company does not use this measure to assess performance or make decisions to allocate
resources; therefore, depreciation and amortization expense is not allocated among segments.
The table below presents the operating activity of our reportable segments:
Office segment
Total office revenues
Office expenses
Office segment profit
Studio segment
Total studio revenues
Studio expenses
Studio segment profit
TOTAL SEGMENT PROFIT
Total segment revenues
Total segment expenses
TOTAL SEGMENT PROFIT
Year Ended December 31,
2020
2019
2018
$
735,919 $
733,735 $
(262,199)
473,720
69,046
(37,580)
31,466
505,186 $
804,965 $
(299,779)
505,186 $
(256,209)
477,526
84,447
(45,313)
39,134
516,660 $
818,182 $
(301,522)
516,660 $
$
$
$
652,517
(226,820)
425,697
75,901
(40,890)
35,011
460,708
728,418
(267,710)
460,708
The table below is a reconciliation of the total profit from all segments to net income attributable to common
stockholders:
F-49
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
Year Ended December 31,
2020
2019
2018
$
i$
505,186 $
(77,882)
(299,682)
736
2,815
516,660 $
(71,947)
(282,088)
(747)
1,459
(116,477)
(105,845)
4,089
(440)
(2,463)
—
—
548
16,430 $
4,044
(667)
—
47,100
(52,201)
78
55,846 $
460,708
(61,027)
(251,003)
—
—
(83,167)
1,718
(535)
928
43,337
—
822
111,781
Total profit from all segments
General and administrative
Depreciation and amortization
Income (loss) from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Transaction-related expenses
Unrealized (loss) gain on non-real estate investments
Gains on sale of real estate
Impairment loss
Other income
NET INCOME
16. Related Party Transactions
Employment Agreements
The Company has entered into employment agreements with certain executive officers, effective January 1, 2020, that
provide for various severance and change in control benefits and other terms and conditions of employment.
Hollywood Media Portfolio Debt
On July 30, 2020, funds affiliated with Blackstone acquired a 49% interest in the Hollywood Media Portfolio. The
Company retained a 51% ownership stake and remains responsible for day-to-day operations, leasing and development. In
conjunction with closing this transaction, the joint venture closed a $900.0 million mortgage loan secured by the Hollywood Media
Portfolio. The Company and Blackstone purchased bonds comprising the loan in the amounts of $107.8 million and $12.5 million,
respectively.
17. Commitments and Contingencies
On October 5, 2018, the Company entered into an agreement to invest in a real estate technology venture capital fund.
The Company is committed to funding up to $20.0 million. As of December 31, 2020, the Company has contributed $4.2 million,
net of distributions, to this fund with $15.8 million remaining to be contributed.
Legal
From time to time, the Company is party to various lawsuits, claims and other legal proceedings arising out of, or incident
to, the ordinary course of business. Management believes, based in part upon consultation with legal counsel, that the ultimate
resolution of all such claims will not have a material adverse effect on the Company’s results of operations, financial position or
cash flows. As of December 31, 2020, the risk of material loss from such legal actions impacting the Company’s financial
condition or results from operations has been assessed as remote.
Letters of Credit
As of December 31, 2020, the Company has outstanding letters of credit totaling approximately $3.4 million under the
unsecured revolving credit facility. The letters of credit are primarily related to utility company security deposit requirements.
F-50
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)
18. Supplemental Cash Flow Information
Supplemental cash flow information for Hudson Pacific Properties, Inc. is included as follows:
Cash paid for interest, net of capitalized interest
Non-cash investing and financing activities
Accounts payable and accrued liabilities for real estate investments
Assumption of debt in connection with property acquisitions
Redeemable non-controlling interest in consolidated real estate entities
Year Ended December 31,
2020
2019
2018
103,099 $
99,961 $
78,495
(136,959) $
(8,759) $
(13,431)
— $
— $
— $
139,003
— $
12,749
$
$
$
$
Supplemental cash flow information for Hudson Pacific Properties, L.P. is included as follows:
Cash paid for interest, net of capitalized interest
Non-cash investing and financing activities
Accounts payable and accrued liabilities for real estate investments
Assumption of debt in connection with property acquisitions
Redeemable non-controlling interest in consolidated real estate entities
19. Subsequent Events
2021 Performance Unit Grants
Year Ended December 31,
2020
2019
2018
103,099 $
99,961 $
78,495
(136,959) $
(8,759) $
(13,431)
— $
— $
— $
139,003
— $
12,749
$
$
$
$
On January 25, 2021, the Compensation Committee approved the grant of performance units (“2021 PSU Plan”) under
the PSU Plan to certain employees of the Company. The 2021 PSU Plan awards were granted effective January 1, 2021. The 2021
PSU Plan is substantially similar to the 2020 PSU Plan. For additional information on the grant, refer to the Form 8-K filed with
SEC on January 25, 2021. For additional information on awards granted under the 2010 Plan, refer to Note 11.
Share Repurchase Program
In January 2021, the Company repurchased 0.6 million common shares at a weighted average price of $23.32 per share
for $14.7 million, before transaction costs. Since commencement of the program through the date of this filing, a cumulative total
of $144.9 million had been repurchased.
F-51
Property name
Office
875 Howard, San Francisco Bay Area, CA
6040 Sunset, Los Angeles, CA(2)
ICON, Los Angeles, CA(2)
CUE, Los Angeles, CA(2)
EPIC, Los Angeles, CA(2)
Del Amo, Los Angeles, CA
1455 Market, San Francisco Bay Area, CA
Rincon Center, San Francisco Bay Area, CA
10950 Washington, Los Angeles, CA
604 Arizona, Los Angeles, CA
275 Brannan, San Francisco Bay Area, CA
625 Second, San Francisco Bay Area, CA
6922 Hollywood, Los Angeles, CA
10900 Washington, Los Angeles, CA
901 Market, San Francisco Bay Area, CA
Element LA, Los Angeles, CA
3401 Exposition, Los Angeles, CA
505 First, Greater Seattle, WA
83 King, Greater Seattle, WA
Met Park North, Greater Seattle, WA
Northview Center, Greater Seattle, WA
411 First, Greater Seattle, WA
450 Alaskan, Greater Seattle, WA
95 Jackson, Greater Seattle, WA
Palo Alto Square, San Francisco Bay Area, CA
3400 Hillview, San Francisco Bay Area, CA
Foothill Research Center, San Francisco Bay
Area, CA
Page Mill Center, San Francisco Bay Area, CA
Clocktower Square, San Francisco Bay Area,
CA
3176 Porter, San Francisco Bay Area, CA
Hudson Pacific Properties, Inc. And Hudson Pacific Properties, L.P.
Schedule III—Real Estate and Accumulated Depreciation
December 31, 2020
(In thousands)
Initial Costs
Encumbrances
Land
Building &
Improvements
Costs
Capitalized
Subsequent
to Acquisition
Total Costs
Building &
Improvements
Land
Total
Accumulated
Depreciation(1)
Year
Built /
Renovated
$
900,000
—
—
—
—
—
—
25,717
—
—
—
—
—
—
168,000
—
—
$ 18,058 $
6,599
—
—
10,606
—
41,226
58,251
17,979
5,620
4,187
10,744
16,608
1,400
17,882
79,769
14,120
22,917
—
—
—
—
—
—
—
—
—
—
—
—
12,982
28,996
4,803
27,684
—
—
—
—
—
—
—
—
41,046 $
27,187
—
—
—
18,000
34,990
110,656
25,110
14,745
8,063
42,650
72,392
1,200
79,305
19,755
11,319
133,034
51,403
71,768
41,191
29,824
—
—
326,033
159,641
133,994
147,625
93,949
26,779 $ 18,058 $
30,469
163,252
49,239
214,445
2,814
100,475
60,052
1,238
4,453
13,763
6,265
25,837
141
17,282
95,989
12,131
4,799
6,599
—
—
10,606
—
41,226
58,251
17,979
5,620
4,187
10,744
16,608
1,400
17,882
79,769
14,120
22,917
67,825 $ 85,883 $
57,656
163,252
49,239
214,445
20,814
135,465
170,708
26,348
19,198
21,826
48,915
98,229
1,341
96,587
115,744
23,450
137,833
64,255
163,252
49,239
225,051
20,814
176,691
228,959
44,327
24,818
26,013
59,659
114,837
2,741
114,469
195,513
37,570
160,750
2008
2017
2017
2019
1986
1976
(21,356) Various
(18,786)
(21,674)
(4,763)
(9,566)
(4,710)
(50,953)
(41,394) 1940/1989
(6,747) 1957/1974
(4,966) 1950/2005
(7,729)
1905
(11,233) 1906/1999
(21,507)
(354)
1967
1973
(24,031) 1912/1985
(21,470)
(5,723)
1949
1961
(30,771) Various
13,589
1,511
3,405
20,193
86,704
16,768
40,227
2,648
16,625
10,026
8,995
12,982
28,996
4,803
27,684
—
—
—
—
—
—
—
—
64,992
77,974
(14,398) Various
73,279
44,596
50,017
86,704
16,768
366,260
102,275
49,399
77,701
86,704
16,768
366,260
162,289
150,619
162,289
150,619
(17,096)
(8,906)
2000
1991
(11,402) Various
(8,520) Various
(4,602) Various
(73,883)
(42,031)
(36,207)
1971
1991
1991
157,651
157,651
(34,679) 1970/2016
102,944
102,944
(15,358)
1983
35,434
35,434
(8,247)
1991
34,561
873
F-52
Year
Acquired
2007
2008
2008
2008
2008
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
2012, 2013
2013
2013
2013
2013
2013
2014
2014
2014
2015
2015
2015
2015
2015
2015
Property name
Towers at Shore Center, San Francisco Bay
Area, CA
Initial Costs
Encumbrances
—
Land
72,673
Building &
Improvements
144,188
Costs
Capitalized
Subsequent
to Acquisition
22,198
Land
72,673
37,959
69,448
40,614
36,441
—
45,085
33,117
16,038
8,052
29,033
—
12,140
13,040
28,978
36,888
—
7,455
110,438
34,682
—
3,975
17,450
11,352
20,489
64,501
41,296
51,219
34,282
4,337
4,139
16,844
69,497
57,606
59,914
19,327
9,643
56,813
185,018
(1,566)
22,555
Total Costs
Building &
Improvements
166,386
Total
239,059
Accumulated
Depreciation(1)
(30,875)
Year
Built /
Renovated
2001
Year
Acquired
2015
67,534
105,493
(12,686)
2001
77,256
84,809
146,704
125,423
(15,760) 1985/1989
(13,719)
1989
85,381
121,822
(17,556)
1985
378,184
265,567
172,436
140,438
53,823
157,983
83,504
106,607
84,566
381,187
156,406
141,045
56,813
220,029
14,747
290,847
378,184
310,652
205,553
156,476
61,875
187,016
83,504
118,747
97,606
410,165
193,294
141,045
64,268
330,467
49,429
290,847
(70,078) Various
(45,998) Various
(37,351) Various
(26,115)
(9,913)
1986
1985
(23,696) 2000/2001
(15,916)
(11,739) Various
(6,772) Various
1986
(49,681)
(22,391)
(19,550)
—
—
(1,308)
(19,346) 1898/2003
1983
2015
1975
N/A
1985
1985
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016, 2017
2016
2016
2017
2018
2018
2018
14,235
38,476
560,008
598,484
(620)
2009
2020
—
—
—
—
—
—
—
—
—
37,959
69,448
40,614
36,441
—
45,085
33,117
16,038
8,052
—
—
—
—
—
101,000
—
—
106,073
—
—
314,300
29,033
—
12,140
13,040
28,978
36,888
—
7,455
110,438
34,682
—
38,476
63,559
59,806
73,457
64,892
313,683
224,271
121,217
106,156
49,486
153,844
66,660
37,110
26,960
321,273
137,079
131,402
—
35,011
16,313
268,292
545,773
Skyway Landing, San Francisco Bay Area, CA
Shorebreeze, San Francisco Bay Area, CA
555 Twin Dolphin, San Francisco Bay Area, CA
333 Twin Dolphin, San Francisco Bay Area, CA
Metro Center, San Francisco Bay Area, CA
Concourse, San Francisco Bay Area, CA
Gateway, San Francisco Bay Area, CA
Metro Plaza, San Francisco Bay Area, CA
1740 Technology, San Francisco Bay Area, CA
Skyport Plaza, San Francisco Bay Area, CA
Techmart, San Francisco Bay Area, CA
Fourth & Traction, Los Angeles, CA
Maxwell, Los Angeles, CA
11601 Wilshire, Los Angeles, CA
Hill7, Greater Seattle, WA
Page Mill Hill, San Francisco Bay Area, CA
Harlow, Los Angeles, CA(3)
One Westside, Los Angeles, CA(4)(5)
10850 Pico, Los Angeles, CA(4)(5)
Ferry Building, San Francisco Bay Area, CA(6)
1918 Eighth, Greater Seattle, WA
Studio
Sunset Gower Studios, Los Angeles, CA(2)
Sunset Bronson Studios, Los Angeles, CA(2)
Sunset Las Palmas Studios, Los Angeles, CA(2)
TOTAL
—
79,320
64,697
60,320
79,320
125,017
204,337
(33,969) Various
—
—
67,092
134,488
32,374
104,392
41,084
34,278
67,092
134,488
73,458
138,670
140,550
273,158
(20,415) Various
(14,232) Various
$
1,615,090 $ 1,351,888 $
4,891,336 $
1,971,793 $ 1,351,888 $
6,863,129 $ 8,215,017 $
(1,102,748)
2007, 2011,
2012
2008
2017, 2018
_____________
1.
The Company computes depreciation using the straight-line method over the estimated useful lives over the shorter of the ground lease term or 39 years for building and improvements, 15 years for land improvements and
over the shorter of asset life or life of the lease for tenant improvements.
These properties are encumbered by a $900.0 million mortgage loan. Refer to Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 6 to the Consolidated Financial Statements-Debt” for additional information
on secured debt.
This asset is currently under development.
These properties are encumbered by a $106.1 million construction loan with borrowing capacity of up to $414.6 million. Refer to Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 6 to the Consolidated
Financial Statements-Debt” for additional information on secured debt.
These properties are encumbered by a $131.7 million debt secured by U.S. Government securities. Refer to Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 6 to the Consolidated Financial Statements-
Debt” for additional information on in-substance defeased debt.
2.
3.
4.
5.
F-53
6.
This property is encumbered by a $66.1 million debt due to our joint venture partner. Refer to Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 6 to the Consolidated Financial Statements-Debt” for
additional information on joint venture partner debt.
The aggregate gross cost of property included above for federal income tax purposes approximated $8.0 billion, unaudited as of December 31, 2020.
The following table reconciles the historical cost of total real estate held for investment and accumulated depreciation from January 1, 2018 to December 31, 2020:
Total investment in real estate, beginning of year
Additions during period:
Acquisitions
Improvements, capitalized costs
Total additions during period
Deductions during period
Disposal (fully depreciated assets and early terminations)
Impairment loss
Cost of property sold
Total deductions during period
Ending balance, before reclassification to assets associated with real estate held for sale
Reclassification to assets associated with real estate held for sale
TOTAL INVESTMENT IN REAL ESTATE, END OF YEAR
Total accumulated depreciation, beginning of year
Additions during period:
Depreciation of real estate
Total additions during period
Deductions during period:
Deletions
Write-offs due to sale
Total deductions during period
Ending balance, before reclassification to assets associated with real estate held for sale
Reclassification to assets associated with real estate held for sale
TOTAL ACCUMULATED DEPRECIATION, END OF YEAR
F-54
2020
Year Ended December 31,
2019
2018
$
7,269,128 $
7,059,537 $
6,644,249
584,250
415,602
999,852
(53,963)
—
—
(53,963)
—
395,390
395,390
(27,957)
(52,201)
(105,641)
(185,799)
8,215,017
—
7,269,128
—
8,215,017 $
7,269,128 $
505,257
364,721
869,978
(27,821)
—
(426,869)
(454,690)
7,059,537
—
7,059,537
(898,279) $
(695,631) $
(549,411)
$
$
(258,732)
(258,732)
54,263
—
54,263
(1,102,748)
—
$
(1,102,748) $
(235,097)
(235,097)
26,533
5,916
32,449
(898,279)
—
(898,279) $
(203,347)
(203,347)
27,410
29,717
57,127
(695,631)
—
(695,631)