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, 2023
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)
Hudson Pacific Properties, Inc.
Common Stock, $0.01 par value
Hudson Pacific Properties, Inc.
4.750% Series C Cumulative
Redeemable Preferred Stock
HPP
HPP Pr C
Name of each exchange on which
registered
New York Stock Exchange
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
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the correction of an error to previously issued financial statements.
Hudson Pacific Properties, Inc. Yes ☐ No x
Hudson Pacific Properties, L.P. Yes ☐ No x
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).
Hudson Pacific Properties, Inc. Yes ☐ No x Hudson Pacific Properties, L.P. Yes ☐ No 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, 2023, 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 $583.1 million based upon the last sales price on
June 30, 2023 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 9, 2024 was 141,110,002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant’s 2024 Annual Meeting of Stockholders to be held May 16, 2024 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, 2023 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 real estate investment trust, or 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 REIT and the sole general partner of our operating partnership. As of December 31,
2023, Hudson Pacific Properties, Inc. owned approximately 97.2% of the ownership interest in our operating partnership
(including unvested restricted units). The remaining approximately 2.8% interest was owned by certain of our executive officers
and directors, certain of their affiliates and other outside investors and includes 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:
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•
•
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.
ITEM 1C.
ITEM 2.
ITEM 3.
ITEM 4.
Unresolved Staff Comments
Cybersecurity
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.
ITEM 7A.
ITEM 8.
ITEM 9.
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
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 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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, maintain an investment grade rating or maintain compliance with
covenants under our financing arrangements;
• 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 or dispose and completing acquisitions or dispositions;
• 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;
• 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.
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.
5
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, New York, Western
Canada and Greater London, United Kingdom, 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.
• Our common stock is ranked junior to our series C preferred stock.
• 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.
• 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.
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•
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 may be materially or adversely impacted by the
outbreak of a pandemic.
• 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.
• 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.
ITEM 1. Business
Company Overview
We are a vertically integrated real estate investment trust (“REIT”) offering end-to-end real estate solutions for dynamic
tenants in the synergistic, converging and secular growth industries of tech and media. We acquire, reposition, develop and operate
sustainable high-quality office and state-of-the-art studio properties in high-barrier-to-entry tech and media epicenters. Our
primary investment markets include Los Angeles, the San Francisco Bay Area, Seattle, New York, Vancouver, British Columbia
and Greater London, United Kingdom. We invest across the risk-return spectrum, favoring opportunities that allow us to leverage
leasing, capital investment and operating expertise along with deep strategic relationships to create incremental stakeholder value.
As of December 31, 2023, our portfolio included:
•
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Office properties comprising approximately 14.7 million square feet;
Studio properties comprising approximately 48 stages and 1.7 million square feet of sound stages and production-
supporting office and other facilities;
Land properties comprising approximately 3.2 million square feet of undeveloped density rights for future office, studio
and residential space; and
Production services assets, comprising vehicles, lighting and grip, production supplies and other equipment and the lease
rights to an additional 27 sound stages.
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 “HPP’s share” of
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certain of these measures, which are non-GAAP financial measures that are calculated as the measure on a consolidated basis, in
accordance with GAAP, plus our Operating Partnership’s share of the measure from our unconsolidated joint ventures (calculated
based upon the Operating Partnership’s percentage ownership interest), minus our partners’ share of the measure from our
consolidated joint ventures (calculated based upon the partners’ percentage ownership interests). We believe that presenting HPP’s
share of these measures provides useful information to investors regarding the Company’s financial condition and/or results of
operations because we have several significant joint ventures, and in some cases, we exercise significant influence over, but do not
control, the joint venture. In such instances, GAAP requires us to account for the joint venture entity using the equity method of
accounting, which we do not consolidate for financial reporting purposes. In other cases, GAAP requires us to consolidate the
venture even though our partner(s) own(s) a significant percentage interest. As a result, management believes that presenting
HPP’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 Strategy
We invest in Class-A office and studio properties located in high barrier-to-entry, innovation-centric submarkets with
significant growth potential. Our world-class sustainable office and studio properties within these submarkets allow us to attract
and retain quality companies as tenants, many in the increasingly synergistic technology and media and entertainment sectors. The
purchase of properties with a value-add component, typically sourced through off-market transactions, also facilitates our long-
term growth. These types of assets afford us the opportunity to capture embedded rent growth and occupancy upside, as we
strategically invest capital to reposition and redevelop assets to generate additional cash flow. We take a 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. We also acquire and operate leading production services companies to further expand the service
offerings for our studio portfolio and our geographic reach to other studios and on-location filming. From time to time, we also
look to sell assets opportunistically to recycle capital to enhance our portfolio or to otherwise further our long-term capital
allocation goals. Management expertise and valuable strategic relationships across disciplines support execution at all levels of our
operations. Specifically, aggressive leasing and proactive asset management, combined with a focus on maintaining a conservative
balance sheet, are central to our strategy.
Competitive Positioning
We believe the following competitive strengths distinguish us and support our efforts to capitalize on opportunities to
drive growth and profitability.
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Technology and Media Driven Markets and Assets. We are the only publicly-traded owner and operator of both premier
office and studio properties. Our focus on office properties in West Coast technology hubs and studios and related
services assets in global media markets provides differentiated exposure to these synergistic and secular growth-oriented
industries. Our portfolio attracts a tenancy comprised of many of the world’s most innovative and creative companies
seeking to build their businesses within established ecosystems, like Silicon Valley or Hollywood, and we are uniquely
able to extend these relationships across markets and asset classes.
Deep Sector-Specific Management Expertise. Our executive team has both significant tenure with the Company and
decades of experience in commercial real estate and studio-related operating businesses. We believe the breadth and depth
of their expertise enables us to execute fully on our differentiated strategy, whether acquiring, repositioning, developing,
operating, or selling sustainable premier office and studio properties and related services businesses. Beyond industry
expertise, we leverage our executives’ in-depth local and regional knowledge, which we believe furthers our ability to
execute and unlock value within our high-barrier-to-entry markets.
Long-Standing Relationships and Strategic Partnerships. We have an extensive network of long-standing relationships
with leading institutional and individual real estate owners/developers, international and regional lenders, bankers,
brokers, tenants and other participants across our industries and markets. These relationships provide us with optionality
and access to unique and attractive value creation opportunities, whether through investment transactions, leasing
activities, or asset-level or corporate (re)financings.
Proactive Balance Sheet Management. We seek to prioritize having a strong, flexible balance sheet with multiple
avenues to access capital through market cycles from both secured and unsecured financings. We seek to prudently
allocate capital to achieve growth while maintaining conservative leverage. We are willing to consider accessing equity
markets to fund attractive investment opportunities. We believe we have the discipline to work consistently to achieve
long-term leverage targets while ensuring optionality for future growth.
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•
Sustainability and ESG Leadership. Through our Better Blueprint program, the Company is an established industry
leader in sustainability and ESG and has received accolades from the Global Real Estate Sustainability Benchmark
(GRESB), the National Associate of Real Estate Investment Trusts (NAREIT), and the National Association of Office
Properties (NAIOP) among many others. Sustainability and ESG both in terms of our portfolio and operations are
important for our stakeholders and provide a key point of differentiation for those who invest, partner, lease, or work with
or for us.
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 reportable segments: (i) office properties and related operations and (ii)
studio properties and related operations. For information about our segments, refer to Part IV, Item 15(a) “Financial Statement
Schedules—Note 17 to the Consolidated Financial Statements—Segment Reporting.”
Our portfolio of owned real estate is concentrated in California, the Pacific Northwest, New York, Western Canada and
Greater London, United Kingdom. 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.
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
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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.
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
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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 real estate portfolio and production services businesses. Addressing climate change is the number one focus
of our sustainability program, and we have had 100% carbon neutral real estate operations since 2020. Our science-based target
commits us to go further by reducing absolute Scope 1 and 2 greenhouse gas (“GHG”) emissions by 50% by 2030, from a 2018
baseline, excluding financial instruments like unbundled renewable energy credits and carbon offsets. We are on track to meet this
target and also are committed to reducing our Scope 3 GHG emissions by minimizing embodied carbon in our development and
construction projects and transitioning our production services fleet to zero-emission vehicles. More about our bold sustainability
goals can be found in Hudson Pacific’s Corporate Responsibility Report.
Our 2023 achievements include:
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100% carbon neutral operations across our entire real estate operating portfolio;
100% of our in-service office portfolio has recycling services and over 70% has composting services;
Over 90% of our in-service office portfolio is LEED certified and over 70% is ENERGY STAR certified;
Better BlueprintTM Action Plans at all operating properties; and
Sustainable Design Vision for all redevelopments and major repositionings.
Healthy: Healthy Buildings, Healthy Lives
We aim to set our properties apart by providing safe environments that promote wellness and resilience for our
employees, customers and neighbors. Our health and safety program includes emergency response plans, fire life safety systems,
MERV-13+ air filters, and regular safety training at all buildings. We are also deeply committed to advancing wellness and well-
being, as we know that the quality of our indoor environment can have a huge impact on both our physical and mental health. We
consistently deliver state-of-the-art buildings with functional outdoor space, fitness amenities, natural light, healthy food and other
wellness-oriented features. We offer in-person and virtual wellness programming at most properties, and we have a goal to achieve
Fitwel certification for at least 50% of our in-service office portfolio by 2030.
Our 2023 achievements include:
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All operating office and studio properties use MERV-13+ filters, among other COVID-safe procedures;
Over 90% of our in-service office portfolio is served by bike storage, showers and/or lockers
Over 60% of our in-service office portfolio has on-site fitness amenities and/or a mobile app that promotes health and
wellness through virtual fitness classes, mindfulness training, cooking sessions, and more; and
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Over 40% 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, equity and inclusion (“DEI”) and afford opportunity
for everyone to succeed. We strive to promote an inclusive corporate culture and advance equity across recruiting, hiring and
human capital development processes. We support key groups aiming to diversify the real estate and production services talent
pipelines, and our supplier diversity program includes a commitment to increase the use of diverse and/or local contractors on-site
at all redevelopments to 15% by 2025. We donate at least 1% of net earnings to charitable causes annually and have an active
employee volunteering program to ensure we give back to our communities.
Our 2023 achievements include:
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100% of employees received training on key business topics such as health and safety and/or DEI
Deepened collaboration with Ghetto Film School to help traditionally under-represented youth enter the production
business;
Continuation of our commitment to invest $20 million in innovative homelessness and housing solutions;
Over $800,000 in charitable giving; and
Over 1,400 hours of employee volunteering.
Human Capital
Hiring
In alignment with our Company values, we believe our 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 including gender, age, ethnicity and cultural background. We take pride in the fact that our
employee population across our operating office and studio portfolio reflects a balanced gender representation as well as a broad
cross-section of racial and ethnic backgrounds. We have a comprehensive and robust 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 modules for employees.
Six Employee Resource Groups each designed to connect employees with similar backgrounds and shared experiences
while fostering partnership with the Company on diversity and inclusion efforts, sharing best practices and ensuring
support for each other across our communities.
A thoughtfully curated DEI Library filled with educational resources to increase employee awareness and knowledge of
important diversity and inclusion concepts and further develop their skills to help make meaningful change.
Training and Development
Upon joining the Company, our employees attend a comprehensive orientation program that is a fun, interactive
opportunity for new hires to learn more about the Company, our business strategy, core values and leadership philosophy. Senior
executives speak candidly about the Company and their roles.
In addition to traditional employee development programs (e.g., 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, events and healthy dining options.
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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 an individual’s 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
demonstration of newly acquired 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 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 and an employee referral bonus program. 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, 2023, we had 758 employees, of which 152 were subject to collective bargaining agreements in our
production services/operating companies. We believe that relations with our employees are good.
Available Information
On the Investors section of our Company’s Website (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 Investors page on our Website free of charge. Also available on our Investors page, 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 “SEC Filings” page. 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.
Risks Related to Our Properties and Our Business
Our properties are located in Northern and Southern California, the Pacific Northwest, New York, Western Canada
and Greater London, United Kingdom, 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, New York, Western Canada and
Greater London, United Kingdom, 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,
Vancouver and Greater London, 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, New
York, Western Canada and the United Kingdom (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 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, New York,
Western Canada or Greater London, United Kingdom, 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, New York, Western Canada and Greater
London, United Kingdom 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, including layoffs, strikes or work stoppages, such as the strikes that significantly affected our media and
entertainment properties during 2023. 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
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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 other 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
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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.
In addition, we may acquire certain businesses that are complementary to our property portfolio. Integrating acquired
businesses can be a complex, costly and time-consuming process and our business may be negatively impacted following any
acquisition if we are unable to effectively manage our expanded operations. The integration process may require significant time
and focus from our management team and may divert attention from the day-to-day operations of our existing business. If we
cannot operate acquired properties or businesses 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.
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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.
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.
As of December 31, 2023, we had $1.1 billion in variable rate debt, excluding debt that is effectively fixed through the
use of interest rate swaps. In addition, we may incur additional variable rate debt in the future. Interest rates are highly sensitive to
many factors that are beyond our control, including general economic conditions and policies of various governmental and
regulatory agencies and, in particular, the Federal Reserve Board. If the Federal Reserve Board increases the federal funds rate,
overall interest rates will likely rise. Interest rate increases would increase 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, Derivatives 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.
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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. We have
modified certain of our leverage ratio covenants for periods through December 31, 2024 to provide for a maximum ratio of 65%
for such covenants which previously required a maximum ratio of 60%. There is no assurance that we will be able to obtain future
waivers or modifications of these or other covenants, and future compliance with our financial covenants is dependent upon the
results of our operating activities, our financial condition, and the overall market conditions in which we and our tenants operate.
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.
Further downgrades in our credit ratings could materially adversely affect our business and financial condition.
The credit ratings assigned to us or our securities could change based upon, among other things, our results of operations
and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that
any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover,
these credit rating do not apply to our common stock and are not recommendations to buy, sell, or hold our common stock or any
other securities. If any of the credit rating agencies that have rated us or our securities downgrades or lowers its credit rating, or
any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or
lowering or otherwise indicates that its outlook for the rating is negative, it could have a material adverse effect on our costs and
availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash
flows, the trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and
distributions to our security holders.
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, 2023, the 15 largest tenants in our office portfolio represented approximately 42.4% of the HPP’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, 2023, our three largest tenants were Google, Inc., Amazon and Netflix, Inc., which together accounted
for 20.6% of the HPP’s share of the annualized base rent generated by our office properties. If Google, Inc., Amazon and Netflix,
Inc. were to experience a downturn or a weakening of financial condition resulting in a failure to make timely rental payments or
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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, 2023, approximately 24.5% of the HPP’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, 2023. An additional approximately 12.7% of the HPP’s share of the square footage of the office
properties in our portfolio is scheduled to expire in 2024 (includes leases scheduled to expire on December 31, 2023). 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.
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, Western Canada or Greater London, United Kingdom 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.
Eleven 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 11 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.
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
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the real estate industry, which aid us in identifying opportunities, having opportunities brought to us, and negotiating with tenants
and build-to-suit prospects. The loss of services of one or more 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.
Some of our workforce is covered by collective bargaining agreements and our business may be adversely affected by
any disruptions caused by union activities.
As of December 31, 2023, approximately 20% of our employees are covered by collective bargaining agreements. While
we believe we have good relationships with our unionized employees and we have not experienced any union-related work
stoppage over the last ten years, if we encounter difficulties with renegotiations or renewals of collective bargaining arrangements
or are unsuccessful in those efforts, we could incur additional costs and experience work stoppages. Moreover, regulations in some
jurisdictions outside of the U.S. mandate employee participation in collective bargaining agreements and work councils with
certain consultation rights with respect to the relevant companies’ operations. Although we work diligently to provide the best
possible work environment for our employees, they may still decide to join or seek recognition to form a labor union, or we may
be required to become a union signatory.
In addition, some of our key tenants employ the services of writers, directors, actors and other talent as well as trade
employees and others who are subject to collective bargaining agreements in the motion picture industry. If expiring collective
bargaining agreements cannot be renewed, then it is possible that the affected unions could take action in the form of strikes or
work stoppages. For example, the Writers Guild of America (“WGA”) and the Screen Actors Guild (“SAG-AFTRA”) collective
bargaining agreements expired in 2023, and WGA and SAG-AFTRA members went on strike in May 2023 and July 2023,
respectively. Such actions, as well as higher costs or operating complexities in connection with these collective bargaining
agreements or a significant labor dispute, have resulted, and may in the future result, in halted production activity and reduced
demand for our studios, stages and ancillary services, and could have an adverse effect on our tenants’ businesses by causing
delays in production, added costs or by reducing profit margins, which in turn could affect our ability to collect rent from those
tenants.
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, 2023, we had 20 joint ventures. See Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—
Note 2 to the Consolidated Financial Statements—Summary of Significant Accounting Policies” and Part IV, Item 15(a) “Exhibits,
Financial Statement Schedules—Note 6 to the Consolidated Financial Statements—Investment in Unconsolidated Real Estate
Entities” 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 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
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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.
We have suspended paying dividends on our common stock and we cannot assure you of our ability to pay dividends in
the future or the amount of any dividends.
In September 2023, we suspended our quarterly dividend on our common stock in order to address liquidity
considerations in light of general office industry trends and the impact of the Writers Guild of America (“WGA”) strike and the
Screen Actors Guild - American Federation of Television and Radio Artists (“SAG-AFTRA”) strikes. Our Board determines the
amount and timing of any distributions and currently expects to continue to review and evaluate future dividend payments on a
quarterly basis, but we cannot provide you with any assurances that we will resume paying dividends on our common stock. In
making this determination, our Board considers a variety of relevant factors, including, without limitation, the obligations under
our various financing agreements, projected taxable income, compliance with our debt covenants, long-term operating projections,
expected capital requirements and risks affecting our business. Accordingly, unless a declaration and payment of cash dividends is
made, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock. There is no
guarantee that our stock will appreciate in value or a dividend declaration will be made. We cannot assure you that we will be able
to make distributions in the future. Any of the foregoing could adversely affect the market price of our publicly traded 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.
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
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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 (by imposing a 100% prohibited transaction tax on
REITs on profits derived from sales of properties held primarily for sale in the ordinary course or 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.
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.
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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.
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, 2023, 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 series C preferred stock and common stock. The series A preferred units are senior to any other class of
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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). If we choose to redeem
the outstanding series A preferred units in connection with a fundamental change, this could reduce the amount of cash available
for distribution to holders of series C preferred stock and common stock. 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.
Our common stock is ranked junior to our series C preferred stock.
Our common stock is ranked junior to our series C preferred stock. Our outstanding series C preferred stock also has or
will have a preference upon our dissolution, liquidation or winding up in respect of assets available for distribution to our
stockholders. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. In the future,
we may attempt to increase our capital resources by making additional offerings of equity securities, including classes or series of
additional preferred stock. Because our decision to issue securities in any future offering will depend on market conditions and
other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offering. Thus, our
stockholders bear the risk of our future offerings reducing the per share trading price of our common stock and diluting their
interest in us.
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 our 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
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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 each of our common stock and series C preferred stock, and more than 9.8% in value of the aggregate outstanding shares of all
classes and series of our stock. Our 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 series C preferred 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. Subject to the rights of holders of series C preferred stock to approve the classification or issuance
of any class or series of stock ranking senior to the series C preferred stock, 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:
•
•
“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.
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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 and on shares of our series C preferred stock.
We also rely on distributions from our operating partnership to meet our obligations, including any tax liability on taxable income
25
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 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:
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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 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,
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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
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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.
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.
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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:
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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;
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.
Epidemics, pandemics or other outbreaks, and restrictions intended to prevent their spread, could adversely impact our
business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to
pay dividends and distributions to security holders.
Epidemics, pandemics or other outbreaks of an illness, disease or virus that affect the markets in which we conduct our
business and where our tenants are located, and actions taken to contain or prevent their further spread, could have significant
adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt
service obligations and to pay dividends and distributions to security holders in a variety of ways that are difficult to predict.
Epidemics, pandemics or other outbreaks of an illness, disease or virus, including the recent COVID-19 pandemic, could result in
significant governmental measures being implemented to control the spread of such illness, disease or virus, including quarantines,
restrictions on travel, “shelter in place” rules, stay-at-home orders, density limitations, social distancing measures, restrictions on
types of business that may continue to operate and/or restrictions on types of construction projects that may continue, which could
adversely affect our ability to adequately manage our business. Although most state governments and other authorities have lifted
or reduced restrictions relating to the COVID-19 pandemic, they and others may reinstitute these measures in the future, or impose
new, more restrictive measures, if the risks, or the perception of the risks, related to the COVID-19 pandemic worsen at any time,
including as a result of the spread of new variants of the virus or other illness. If any such restrictions remain in place for an
extended period of time, we may experience reductions in rents from our tenants. Although we will continue to be actively
engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who request rent deferrals
(particularly those occupying retail space), we can provide no assurance that such efforts or our efforts in future periods will be
successful. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or
otherwise, they may also have the effect of heightening many of the other risks set forth in this “Risk Factors” section.
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.
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
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to terrorism or earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that
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,
New York, Western Canada and Greater London, United Kingdom. Many of these areas are 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.
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
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:
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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;
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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
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.
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ITEM 1B. Unresolved Staff Comments
None.
ITEM 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality,
integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a
cybersecurity incident response plan.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity
Framework. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use
the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and
shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management
program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
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risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products,
services, and our broader enterprise IT environment;
a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security
controls, and (3) our response to cybersecurity incidents;
the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security
controls;
cybersecurity awareness training of our employees, incident response personnel, and senior management;
a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
a third-party risk management process for service providers, suppliers, and vendors.
Notwithstanding the foregoing, there can be no assurance that our cybersecurity risk management program and processes,
including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and
information.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents,
that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of
operations, or financial condition.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee
(the “Committee”) oversight of cybersecurity and other information technology risks. The Committee oversees management’s
implementation of our cybersecurity risk management program.
The Committee receives quarterly reports from management on our cybersecurity risks. In addition, management updates
the Committee, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential.
The Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full Board
also receives briefings from management on our cyber risk management program. Board members receive presentations on
cybersecurity topics from our SVP, Information Technology, as well as our Risk Committee, which includes our Chief Financial
Officer, EVP, Business Affairs and General Counsel and Chief Risk Officer, internal security staff or external experts as part of the
Board’s continuing education on topics that impact public companies.
Our management team, including our Chief Financial Officer, EVP, Business Affairs and General Counsel and Chief Risk
Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary
responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and
our retained external cybersecurity consultants. Our management team’s experience includes technical and managerial expertise,
enabling them to proficiently design, engineer, and oversee the organization’s overall security stance. Their capabilities encompass
32
a wide range of skills, including proficiency in Security and Risk Management, Vulnerability Management, as well as expertise in
Network Security and Operations, and Security Architecture.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents
through various means, which may include briefings from internal security personnel; threat intelligence and other information
obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports
produced by security tools deployed in the IT environment.
ITEM 2. Properties
As of December 31, 2023, our portfolio of owned real estate consisted of 58 properties (36 wholly-owned properties, 15
properties owned by joint ventures and seven land properties) totaling approximately 20 million square feet and located primarily
in Los Angeles, the San Francisco Bay Area, Seattle, New York, Vancouver, British Columbia and Greater London, United
Kingdom.
Office Portfolio
Our office portfolio consists of 46 office properties totaling approximately 14.7 million square feet located in Los
Angeles, the San Francisco Bay Area, Seattle and Vancouver, British Columbia.
In-Service Office Portfolio
Our in-service office portfolio consists of owned office properties, excluding repositioning, redevelopment, development
and held for sale properties. As of December 31, 2023, the weighted average remaining lease term for our in-service office
portfolio was 4.3 years
The following table summarizes information relating to the consolidated and unconsolidated in-service office properties
owned as of December 31, 2023:
Location
Los Angeles, California
ICON(6)
EPIC(6)
Harlow(6)
6040 Sunset(6)
CUE(6)
11601 Wilshire
Element LA
Fourth & Traction
Maxwell
San Francisco Bay Area, California
Concourse
Gateway
Metro Plaza
Skyport Plaza
1740 Technology
1455 Market(7)
Rincon Center
Ferry Building(7)
901 Market
875 Howard
625 Second
275 Brannan
Palo Alto Square
Submarket
Square Feet(1)
Percent
Occupied(2)
Percent
Leased(3)
Annualized
Base Rent(4)
Annualized
Base Rent
Per Square
Foot(5)
Hollywood
Hollywood
Hollywood
Hollywood
Hollywood
West Los Angeles
West Los Angeles
Downtown Los Angeles
Downtown Los Angeles
North San Jose
North San Jose
North San Jose
North San Jose
North San Jose
San Francisco
San Francisco
San Francisco
San Francisco
San Francisco
San Francisco
San Francisco
Palo Alto
326,792
301,127
129,931
114,958
94,386
500,243
284,037
131,701
102,963
943,789
609,278
451,036
418,465
215,857
1,033,682
533,076
265,916
206,113
191,201
138,354
57,120
317,845
33
100.0 %
100.0 % $ 21,278,557 $
100.0
100.0
100.0
100.0
90.2
100.0
100.0
100.0
85.4
64.3
58.3
5.4
100.0
100.0
100.0
100.0
98.4
100.0
100.0
100.0
85.8
68.0
61.6
6.1
100.0
100.0
45.3
97.6
97.4
78.8
100.0
64.2
100.0
91.9
45.3
97.6
98.3
78.8
100.0
64.2
100.0
91.9
22,512,255
7,983,344
7,009,468
6,224,702
21,835,358
18,951,920
6,173,837
5,003,414
35,597,539
18,322,351
12,940,697
805,446
10,986,935
26,072,041
33,974,980
23,727,015
11,888,684
15,603,499
6,019,851
4,975,867
28,762,617
65.11
74.76
61.44
60.97
65.95
48.38
66.72
46.88
48.59
44.16
46.75
49.18
35.36
50.90
55.70
65.31
91.65
73.17
81.61
67.73
87.11
98.47
Annualized
Base Rent(4)
Annualized
Base Rent
Per Square
Foot(5)
Location
3400 Hillview
Foothill Research Center
Page Mill Hill
Clocktower Square
Page Mill Center
3176 Porter
Towers at Shore Center
Shorebreeze
555 Twin Dolphin
333 Twin Dolphin
Metro Center
Techmart
Seattle, Washington
1918 Eighth(7)
Hill7(7)
5th & Bell
Met Park North
505 First
83 King
450 Alaskan
411 First
95 Jackson
Submarket
Palo Alto
Palo Alto
Palo Alto
Palo Alto
Palo Alto
Palo Alto
Redwood Shores
Redwood Shores
Redwood Shores
Redwood Shores
Foster City
Santa Clara
Denny Triangle
Denny Triangle
Denny Triangle
Denny Triangle
Pioneer Square
Pioneer Square
Pioneer Square
Pioneer Square
Pioneer Square
Square Feet(1)
207,857
Percent
Occupied(2)
100.0
Percent
Leased(3)
100.0
195,121
178,179
100,655
94,539
46,759
335,285
230,932
200,785
183,118
723,848
284,903
667,724
285,310
197,136
189,511
287,853
183,898
171,014
163,719
93.6
53.6
100.0
58.8
100.0
89.8
79.6
70.8
87.4
77.7
71.1
99.4
99.6
100.0
99.7
36.0
70.1
99.5
78.2
93.6
53.6
100.0
58.8
100.0
89.8
79.6
73.2
87.4
84.3
74.3
100.0
99.6
100.0
99.7
36.0
70.1
99.5
81.2
35,905
100.0
100.0
16,274,043
14,500,594
7,553,762
9,324,711
4,447,002
3,422,759
22,864,776
11,900,074
9,217,303
10,211,901
34,745,538
10,243,529
28,531,929
11,962,994
7,470,367
6,446,825
3,714,511
5,720,210
7,481,307
4,882,158
512,547
Vancouver, British Columbia
Bentall Centre(8)
Total In-Service
Downtown Vancouver
1,521,084
90.1
90.1
42,065,607
13,853,005
80.8 %
81.9 % $ 620,144,824 $
78.29
79.38
79.06
92.64
80.06
73.20
75.96
64.75
64.88
63.78
61.80
50.59
43.00
42.11
37.89
34.14
35.85
44.39
43.96
38.15
14.28
30.70
55.43
_____________
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, 2023, divided by (ii) total square feet, expressed as a percentage.
Calculated as (i) square footage under commenced and uncommenced leases as of December 31, 2023, 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, 2023, 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, 2023. Annualized base rent does not reflect
tenant reimbursements.
2.
3.
4.
5.
6. We own 51% of the ownership interest in the consolidated joint venture that owns ICON, EPIC, Harlow, 6040 Sunset and CUE.
7. We own 55% of the ownership interest in the consolidated joint ventures that own 1455 Market, Ferry Building, 1918 Eighth and Hill7.
8. We own 20% of the ownership interest in the unconsolidated joint venture that owns Bentall Centre. Annualized base rent and rental rates have been
converted from CAD to USD using the foreign currency exchange rate as of December 31, 2023.
34
Office Tenant Diversification
The following table provides information regarding the 15 largest tenants in our office portfolio based on HPP’s share of
annualized base rent as of December 31, 2023:
Tenant
1 Google, Inc.
2 Amazon
3 Netflix, Inc.
4 Riot Games, Inc.
5 Nutanix, Inc.
6 Salesforce.com
7 Dell EMC Corporation
8 Uber Technologies, Inc.
9 GitHub, Inc.
10 PayPal, Inc.
11 Weil, Gotshal & Manges LLP
12 Regus
13 Poshmark, Inc.
14 Glu Mobile, Inc.
15 TDK Corporation of America/Invensense
TOTAL
# of
Properties
4
3
3
1
2
1
2
1
2
1
1
5
1
1
1
Lease
Expiration
2025-2029
2025-2031
2031
2030
2024-2030
2025-2028
2023-2027
2025
2024-2030
2030
2026
2024-2030
2024-2029
2027
2025
HPP’s Share
Percent of
Annualized
Base Rent
Total
Occupied
Square Feet
640,726 (2)
990,788 (3)
722,305 (4)
284,037 (5)
332,858 (6)
265,394 (7)
172,975 (8)
325,445
92,450 (9)
131,701 (10)
76,278
123,583 (11)
Annualized
Base Rent(1)
$ 51,963,161
28,214,335
25,507,912
18,951,920
15,870,596
15,036,621
10,235,000
10,232,000
7,086,069
6,173,837
6,097,801
6,015,427
75,876 (12)
5,636,341
61,381
139,336
5,313,948
5,200,020
10.1 %
5.5
5.0
3.7
3.1
2.9
2.0
2.0
1.4
1.2
1.2
1.2
1.1
1.0
1.0
4,435,133
$ 217,534,988
42.4 %
_____________
1.
2.
3.
4.
5.
6.
7.
8.
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, 2023, 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, 2023.
Google, Inc. expirations: (i) 182,672 square feet at Foothill Research Center in February 2025, (ii) 208,843 square feet at Rincon Center in February 2028,
(iii) 207,857 square feet at 3400 Hillview in November 2028 (early termination right between March 2025 and February 2027) and (iv) 41,354 square feet at
Ferry Building in October 2029.
Amazon expirations: (i) 139,824 square feet at Met Park North in November 2025 (early termination right starting in December 2024), (ii) 659,150 square
feet at 1918 Eighth in September 2030 and (iii) 191,814 square feet at 5th & Bell in May 2031.
Netflix, Inc. expirations: (i) 326,792 square feet at ICON, (ii) 301,127 square feet at EPIC and (iii) 94,386 square feet at CUE.
Riot Games, Inc. has an early termination right at Element LA in March 2025.
Nutanix, Inc. expirations: (i) 117,001 square feet at Concourse in May 2024 and (ii) 215,857 square feet at 1740 Technology in May 2030.
Salesforce.com expirations: (i) 83,016 square feet in July 2025, (ii) 83,372 square feet in April 2027 and (iii) 99,006 square feet in October 2028.
Salesforce.com subleased 259,416 square feet at Rincon Center to Twilio Inc. in 2018 and in 2020 began paying us 50% of cash rents received pursuant to the
sublease, or an average of $340,000 per month with annual growth thereafter, in addition to contractual base rent.
Dell EMC Corporation expirations: (i) 42,954 square feet at 505 First in December 2023, (ii) 83,549 square feet at 875 Howard in June 2026 and (iii) 46,472
square feet at 505 First in January 2027.
GitHub Inc. expirations: (i) 35,330 square feet at 625 Second in December 2024 and (ii) 57,120 square feet at 275 Brannan in June 2030.
9.
10. PayPal, Inc. has an early termination right at Fourth & Traction in July 2026.
11. Regus expirations: (i) 20,059 square feet at 11601 Wilshire in February 2024, (ii) 27,369 square feet at Techmart in April 2025, (iii) 9,739 square feet at Palo
Alto Square in April 2026, (iv) 45,120 square feet at Gateway in September 2027 and (v) 21,296 square feet at 450 Alaskan in October 2030.
12. Poshmark, Inc. expirations: (i) 25,549 square feet in May 2024 and (ii) 50,327 square feet in December 2029.
35
Office Industry Diversification
The following table summarizes information relating to the industry diversification within our office portfolio based on
HPP’s share of annualized base rent as of December 31, 2023:
Industry(1)
Technology
Media and Entertainment
Retail
Legal
Financial Services
Business Services
Other
Real estate
Healthcare
Education
Insurance
Government
Advertising
Total
Square Feet(2)
Annualized Base
Rent as Percent
of Total
HPP’s Share
Base Rent as
Percent of
Total
Square Feet(2)
3,345,255
1,520,650
1,475,150
633,748
990,140
979,983
733,234
430,047
202,185
145,759
230,804
218,854
44,667
33.1 %
3,044,305
16.2
9.8
7.7
8.5
7.7
6.3
3.2
2.0
1.7
1.8
1.5
0.5
986,325
1,114,479
588,630
654,806
672,689
600,313
261,611
193,509
140,736
176,714
176,859
44,667
36.7 %
12.9
9.0
8.9
7.6
7.1
6.8
2.7
2.4
2.0
1.9
1.5
0.5
10,950,476
100.0 %
8,655,643
100.0 %
_____________
1.
2.
Determined by management using Thompson Reuters Business Classification.
Excludes signed leases not commenced.
Office 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, 2023:
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
HPP’s Share
Number
of Leases
611
Total Leased
Square Feet
Annualized
Base Rent(1)
2,205,381 $ 114,461,829
Number
of Leases
Total Leased
Square Feet
Annualized
Base Rent(1)
640
1,941,251 $ 105,846,379
93
54
28
15
43
31
1,421,321
75,613,497
1,940,562 119,643,329
1,911,259 114,491,195
3,471,953 195,934,975
236,687
—
167,911
9,358,839
80
48
21
12
43
31
1,232,885
74,249,574
1,671,353 108,574,537
1,429,120
88,673,278
2,381,035 136,662,199
207,760
—
162,911
9,293,342
875
11,355,074 $ 629,503,664
875
9,026,314 $ 523,299,309
_____________
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, 2023 (ii) by 12. Annualized base rent does not reflect tenant reimbursements.
36
Office Lease Expirations
The following table summarizes the lease expirations for in-place office leases as of December 31, 2023, including
vacancies. Unless otherwise stated in the footnotes, the information set forth in the table assumes that tenants did not exercise any
renewal options.
Year of Lease
Expiration
# of
Leases
Expiring(1)
Square
Feet
Expiring
Square
Footage of
Expiring
Lease
% of
Office
Portfolio
Square
Feet
3,297,287 2,921,572
24.5 %
23
155,239
142,627
23
155,239
142,627
189 1,539,790 1,378,142
165 1,978,453 1,605,458
99
699,959
633,136
106 1,070,124
913,527
67 1,187,514
986,859
47
551,223
428,319
1.2
1.2
11.5
13.4
5.3
7.6
8.3
3.6
Annualized
Base Rent(2)
7,206,259
7,206,259
77,258,172
94,399,116
39,608,525
55,674,372
70,013,934
30,245,912
25 1,642,992 1,279,627
10.7
68,116,580
18 1,091,700
678,810
10
245,879
143,943
30
775,147
460,037
43
236,687
207,760
5.7
1.2
3.9
1.7
39,016,297
8,505,128
23,695,205
—
HPP’s Share
% of Office
Portfolio
Annualized
Base Rent
Annualized
Base Rent
Per Leased
Square
Foot(2)
Annualized
Base Rent at
Expiration
Annualized
Base Rent
Per Lease
Square Foot
at
Expiration(3)
1.4
1.4
14.8
18.0
7.6
10.6
13.4
5.8
13.0
7.5
1.6
4.5
—
50.53
7,206,260
50.53
7,206,260
56.06 78,381,562
58.80 98,100,254
62.56 42,179,316
60.94 60,868,879
70.95 77,938,801
70.62 33,255,339
53.23 79,662,632
57.48 49,873,088
59.09 10,784,667
51.51 30,985,284
50.53
50.53
56.87
61.10
66.62
66.63
78.98
77.64
62.25
73.47
74.92
67.35
—
—
—
31
167,911
162,911
1.4
9,293,342
1.8
57.05 10,967,294
67.32
853 14,639,905 11,942,728
100.0 % $ 523,032,842
100.0 % $
57.98 $ 580,203,376 $
64.32
Vacant
Q4-2023
Total 2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
Building
management
use(4)
Signed leases
not
commenced
Portfolio Total/
Weighted
Average
_____________
1.
2.
Does not include 22 month-to-month leases.
Annualized base rent per square foot for office properties is calculated by multiplying (i) cash base rents under commenced leases excluding tenant
reimbursements as of December 31, 2023 by (ii) 12. On a per square foot basis, ABR is divided by square footage under commenced leases as of
December 31, 2023. For all expiration years, ABR is calculated as (i) cash base rents at expiration under commenced leases divided by (ii) square footage
under commenced leases as of December 31, 2023. The methodology is the same when calculating ABR per square foot either in place or at expiration for
uncommenced leases. Rent data is presented without regard to cancellation options. Where applicable, rental rates converted to USD using the foreign
currency exchange rate as of December 31, 2023.
ABR per square foot at expiration 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, 2023.
Reflects management offices occupied by the Company with various expiration dates.
3.
4.
37
Historical Office 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 our office properties:
Renewals(1)
Number of leases
Square feet
Tenant improvement costs per square foot(2)(3)
Leasing commission costs per square foot(2)
Total tenant improvement and leasing commission costs
New leases(4)
Number of leases
Square feet
Tenant improvement costs per square foot(2)(3)
Leasing commission costs per square foot(2)
Total tenant improvement and leasing commission costs
TOTAL
Number of leases
Square feet
Tenant improvement costs per square foot(2)(3)
Leasing commission costs per square foot(2)
TOTAL TENANT IMPROVEMENT AND LEASING COMMISSION COSTS
Year Ended December 31,
2023
2022
2021
149
162
120
1,125,614
1,172,126
1,070,864
8.77 $
11.66 $
6.80
9.50
7.31
6.92
15.57 $
21.16 $
14.23
117
140
122
572,833
943,650
730,235
38.15 $
65.71 $
10.73
18.10
48.88 $
83.81 $
62.00
14.69
76.69
266
302
242
1,698,447
2,115,776
1,801,099
18.49 $
36.41 $
8.10
13.44
26.59 $
49.85 $
28.63
9.95
38.58
$
$
$
$
$
$
_____________
1.
2.
3.
Excludes retained tenants relocated or expanded into new space within our portfolio.
Assumes tenant improvement and leasing commissions paid in the calendar year of lease execution which may be different than year actually paid.
Tenant improvement costs based on negotiated tenant improvement allowances set forth in leases, or the aggregate cost originally budgeted at lease
commencement.
Includes retained tenants relocated or expanded into new space within our portfolio.
4.
Studio Portfolio
Our studio portfolio includes five owned purpose-built properties with 48 sound stages totaling approximately 1.7 million
square feet located in Los Angeles and New York. We also own the lease rights to another 6 studios with 27 sound stages totaling
approximately 0.5 million square feet located in Los Angeles and New Orleans. We own and operate an array of production-
related services, including transportation assets, lighting and other production equipment and supplies, which we provide for lease
in Los Angeles, New York, and New Orleans, as well as Albuquerque and Atlanta. We operate owned purpose-built stages under
the Sunset Studios brand, and leased stages and production services assets under the Quixote brand.
For clarity, our studio properties are real estate used for the physical production of media content, such as television
programs, feature films, commercials, music videos and photo shoots. These properties feature a fully integrated environment
which our tenants can access production, post-production, office and support facilities in a collaborative and efficient setting. Our
transportation assets, including trucks, trailers, high-end motorhomes, lighting and other production equipment and supplies,
collectively our production services assets, cater to the same type of tenants, but capture revenue derived from both on and off-lot
productions, as well as non-production related large-scale events.
38
In-Service Studio Portfolio
Our in-service studio portfolio consists of owned purpose-built studio properties, excluding repositioning, redevelopment,
development and held for sale properties. The following table provides occupancy and rental rate information relating to the
consolidated and unconsolidated in-service studio properties owned as of December 31, 2023:
Property
Los Angeles, California
Owned/
Leased Submarket
# of
Stages
Square
Feet
Stage %
Leased
Total %
Leased(1)
Annual
Base Rent(2)
HPP’s
Share
Annualized
Base Rent
Annualized
Base Rent
Per Square
Foot(3)
Sunset Gower Studios(4) Owned Hollywood
Sunset Bronson Studios Owned Hollywood
Sunset Las Palmas
Studios(5)
Total in-service studio(6)
Owned Hollywood
12
10
13
35
558,295
100.0 % 82.4 % $ 21,370,272
$ 10,898,839 $
310,006
100.0
95.1
12,701,849
6,477,943
46.55
43.22
362,977
56.2
64.9
11,226,714
5,725,624
47.71
1,231,278
84.7 % 80.4 % $ 45,298,835
$ 23,102,406 $
45.88
_____________
1.
2.
3.
Percent leased for in-service studio is the average percent leased for the 12 months ended December 31, 2023.
Annual base rent for in-service studio reflects actual base rent for the 12 months ended December 31, 2023, excluding tenant reimbursements.
Annual base rent per leased square foot for in-service studio calculated as (i) annual base rent divided by (ii) square footage under lease as of December 31,
2023.
6,650 square feet located at Sunset Gower Studios was taken off-line for repositioning.
18,594 square feet located at Sunset Las Palmas Studios was taken off-line for repositioning.
Does not include 241,000 square feet related to Sunset Glenoaks Studios and 232,000 square feet related to Sunset Pier 94 Studios, which are both currently
under construction. We own 50% of the ownership interest in the unconsolidated joint venture that owns Sunset Glenoaks Studios and 25.6% of the
ownership interest in the unconsolidated joint venture that owns Sunset Pier 94 Studios.
4.
5.
6.
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.
39
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 9, 2024, Hudson Pacific Properties, Inc. had 86 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. Historically, we have paid
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. In September 2023, the Company
suspended its quarterly dividend in order to address liquidity considerations in light of general office industry trends and the
impact of the WGA and SAG-AFTRA strikes. Our Board will reassess the resumption of the dividend program when appropriate.
Issuer Purchases of Equity Securities
During the fourth quarter of 2023, 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 2023:
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)
December 1 - December 31, 2023
TOTAL
52,393 (3) $
$
52,393
9.31 (4)
9.31
—
—
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Plans or
Programs(2)
35,250,164
_____________
1.
Our board of directors authorized a share repurchase program to buy up to $250.0 million of the outstanding common stock of Hudson Pacific Properties, Inc.
The program does not have a termination date, and repurchases may commence or be discontinued at any time. A cumulative total of $214.7 million had been
repurchased under the program as of December 31, 2023.
The maximum that may yet be purchased under the plans or programs is shown net of repurchases.
Includes shares of common stock remitted to Hudson Pacific Properties, Inc. to satisfy tax withholding obligations in connection with the vesting of restricted
stock units.
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 vesting of the restricted stock units.
2.
3.
4.
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.
40
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 9, 2024, there
were 21 holders of record of common units (including through our general partnership interest).
Distributions
We intend to make distributions each taxable year, and 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 2023, 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 2023, the Company issued an aggregate of 149,497 shares of its common stock in connection
with restricted stock units for no cash consideration, out of which 52,393 shares of common stock were forfeited to the Company
in connection with tax withholding obligations for a net issuance of 97,104 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 2023, our operating
partnership issued 97,104 common units to the Company. Investors who own common units have the right to cause our operating
partnership to repurchase any or all of their common units for cash at a value equal to the then-current market value of one share of
common stock. However, in lieu of such payment of cash, the Company may, at its election, issue shares of its common stock in
exchange for such common units on a one-for-one basis. The operating partnership also issued 291,971 long-term incentive plan
units during the fourth quarter of 2023. Long-term incentive plan units may also, under certain circumstances, be convertible into
common units on a one-for-one basis, which are then exchangeable for shares of the Company’s common stock as described
above.
All other issuances of unregistered equity securities of our operating partnership during the year ended December 31,
2023 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 $8.3 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, 2023.
The graph assumes a $100 investment in each of the indices on December 31, 2018 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.
41
Index
Hudson Pacific Properties, Inc.
S&P 500
MSCI U.S. REIT
Dow Jones Equity All REIT
Dow Jones U.S. Real Estate Office
FTSE NAREIT All Equity REITs
ITEM 6. [Reserved]
Period Ending
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
100.00
100.00
100.00
100.00
100.00
100.00
133.35
131.49
125.84
128.74
131.28
128.66
88.82
155.68
116.31
122.57
109.47
122.07
94.86
200.37
166.39
173.07
134.57
172.49
40.03
164.08
125.61
129.79
86.72
129.45
40.88
207.21
142.87
144.46
86.20
144.16
42
Cumulative Total ReturnTotal Return Performance100.00128.74122.57173.07129.79144.46Hudson Pacific Properties, Inc.S&P 500MSCI U.S. REITDow Jones Equity All REITDow Jones U.S. Real Estate OfficeFTSE NAREIT All Equity REITs12/31/1812/31/1912/31/2012/31/2112/31/2212/31/23100.00200.00
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 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,
2023, our portfolio of owned real estate included office properties comprising approximately 14.7 million square feet, studio
properties comprising approximately 48 sound stages and 1.7 million square feet and land properties comprising approximately
3.2 million square feet of undeveloped density rights. Our production services assets include vehicles, lighting and grip, production
supplies and other equipment and the lease rights to 27 sound stages.
As of December 31, 2023, our in-service office portfolio was 81.9% leased (including leases not yet commenced). Our
same-store studio properties average percent leased for the twelve months ended December 31, 2023 was 80.4%.
Current Year Highlights
Property Acquisitions
The Company had no acquisitions of real estate during the year ended December 31, 2023.
Property Dispositions
During the year ended December 31, 2023, the Company sold its Skyway Landing, 604 Arizona, 3401 Exposition,
Cloud10 and One Westside and Westside Two properties for $102.0 million, $32.5 million, $40.0 million, $43.5 million and
$700 million, respectively. Please refer to Part IV, Item 15 (a) “Exhibits, Financial Statement Schedules—Note 4 to the
Consolidated Financial Statements—Investment in Real Estate” for details.
43
Under Construction and Future Development Projects
The following table summarizes the properties currently under construction and future development pipelines as of
December 31, 2023:
Under Construction:
Los Angeles, California
Sunset Glenoaks Studios(2)
Seattle, Washington
Washington 1000
New York, New York
Sunset Pier 94 Studios(3)
Total Under Construction
Future Development Pipeline:
Los Angeles, California
Type
Submarket
Estimated
Square Feet(1)
Estimated
Completion
Date
Estimated
Stabilization
Date
Studio
Sun Valley
241,000
Q1-2024
Q2-2024
Office
Denny Triangle
546,000
Q1-2024
Q2-2026
Studio
Manhattan
232,000
Q4-2025
Q3-2026
1,019,000
Sunset Las Palmas Studios—Development(4)
Sunset Gower Studios—Development(4)
Sunset Bronson Studios Lot D—
Development(4)
Element LA—Development
10900/10950 Washington(5)
Studio
Hollywood
Office/Studio Hollywood
617,581
478,845
Residential
Hollywood
33 units/19,816
Office
West Los Angeles
Residential
West Los Angeles
500,000
N/A
TBD
TBD
TBD
TBD
TBD
Vancouver, British Columbia
Burrard Exchange(6)
Office
Downtown Vancouver
450,000
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
Studio
Broxbourne
TBD
1,167,347
3,233,589
4,252,589
Greater London, United Kingdom
Sunset Waltham Cross Studios(7)
Total Future Development Pipeline
TOTAL UNDER CONSTRUCTION AND
FUTURE DEVELOPMENT
_____________
1.
Estimated square footage represents management’s estimate of leasable square footage, 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. For land properties, square footage represents
management’s estimate of developable square footage, the majority of which remains subject to entitlement approvals not yet obtained.
2. We own 50% of the ownership interests in the unconsolidated joint venture that owns Sunset Glenoaks Studios.
3. We own 25.6% of the ownership interest in the unconsolidated joint venture that owns Sunset Pier 94 Studios.
4. We own 51% of the ownership interests in the consolidated joint venture that owns Sunset Bronson Studios, Sunset Gower Studios and Sunset Las Palmas
Studios.
Pending entitlement to develop approximately 500 residential units.
5.
6. We own 20% of the ownership interests in the unconsolidated joint venture that owns Burrard Exchange.
7. We own 35% of the ownership interests in the unconsolidated joint venture that owns Sunset Waltham Cross Studios.
Properties are selected for repositioning when an asset or portions of an asset are taken offline for a change of use or if the
asset requires significant base building improvements resulting in substantial downtime in occupancy. Subsequently, when the
square footage offline for a full building reaches 92.0% occupancy, it would be included in our in-service population.
44
The following table summarizes the portions of office and studio projects currently under repositioning as of
December 31, 2023:
Location
Repositioning:
899 Howard
Page Mill Center
Rincon Center
Metro Plaza
Sunset Las Palmas Studios
Palo Alto Square
Sunset Gower Studios
TOTAL REPOSITIONING
Financings
Submarket
Square Feet
San Francisco
Palo Alto
San Francisco
North San Jose
Hollywood
Palo Alto
Hollywood
96,240
79,056
36,905
28,415
18,594
12,740
6,650
278,600
During the year ended December 31, 2023, there were $193.0 million of repayments on the unsecured revolving credit
facility, net of borrowings. The Company generally uses the unsecured revolving credit facility to finance the acquisition of
properties and businesses, to provide funds for tenant improvements and capital expenditures and to provide for working capital
and other corporate purposes.
In January 2023, the Company repaid its $110.0 million Series A notes in full.
In April 2023, the Company settled the Quixote note for consideration of $150.0 million, a $10.0 million discount on the
note’s principal balance. The Company drew on its unsecured revolving credit facility to fund the settlement.
In July 2023, the Company modified the existing loan agreement secured by the Hollywood Media Portfolio, whereby the
LIBOR-based floating interest rate was replaced with a term SOFR-based floating interest rate.
In September 2023, the Company repaid its $50.0 million Series E notes in full.
In November 2023, the unconsolidated joint venture that owns Bentall Centre amended the loan secured by the property.
The amendment extended the contractual maturity date to July 1, 2027, modified the interest rate to CORRA + 2.30% and
modified the loan capacity to $501.1 million. As of December 31, 2023, there was $482.2 million outstanding. The loan was
transacted in Canadian dollars. Amounts are shown in U.S. dollars using the foreign currency exchange rate as of December 31,
2023.
In November 2023, the Company sold $179.6 million of the acquired Hollywood Media Portfolio debt and recognized a
$34.0 million loss in connection with the sale.
In December 2023, the Company entered into the Second Modification to the Fourth Amended and Restated Credit
Agreement governing its unsecured revolving credit facility, whereby certain definitions and covenant calculations were amended
and the borrowing capacity of the unsecured revolving credit facility was reduced to $900.0 million.
In December 2023, the Company repaid its $324.6 million One Westside and Westside Two construction loan in
connection with the sale of these properties.
Factors That May Influence Our Operating Results
Business and Strategy
We invest in Class-A office properties in West Coast technology hubs and world-class studio properties and studio-related
operating businesses in global media markets. This allows us to attract and retain quality companies as office tenants and/or studio
and production services clients, many in the increasingly synergistic technology and media and entertainment sectors. Our focus on
value-add opportunities, as well as selective ground-up development further facilitates our growth. We also look to
45
opportunistically recycle capital to enhance our portfolio or to otherwise further our capital allocation goals. Changes in demand
for office and/or studio space, capital markets, and other macro-economic factors may impact our business and overall
performance.
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, 2023, the percent leased for our in-service office properties was approximately 81.9%
(or 80.8%, excluding leases signed but not commenced as of that date). As of December 31, 2023, the percent leased, based on a
12-month trailing average, was approximately 80.4% 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
We own real estate primarily in California, the Pacific Northwest, Western Canada and Greater London, United Kingdom.
We operate our production services business in key US media markets in California, New Mexico, Louisiana, Atlanta and New
York. Positive or negative changes in economic or other conditions in any of the markets in which we own real estate and/or
operate, 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 lease 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
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.
46
Critical Accounting Policies and 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 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, the fair value measurement of contingent consideration, assets acquired and liabilities assumed in business
combination transactions, determining the incremental borrowing rate used in the present value calculations of our new or
modified operating lessee agreements, 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 of real estate 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.
Acquisitions that do not meet the definition of a business
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.
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.
47
The Company applies a cost accumulation and allocation model to acquisitions that meet the definition of an asset
acquisition. Under this model, the purchase price is allocated based on the relative fair value of the assets acquired and liabilities
assumed. Additionally, acquisition-related expenses associated with an asset acquisition are capitalized as part of the purchase
price.
Acquisitions that meet the definition of a business
For acquisitions that meet the definition of a business, the Company estimates the fair value of the identifiable assets and
liabilities of the acquired entity on the acquisition date. We measure goodwill as the excess of consideration transferred over the
net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. Acquisition-related expenses
arising from the transaction are expensed as incurred. The Company includes the results of operations of the businesses that it
acquires beginning on the acquisition date.
The Company tests its goodwill and indefinite-lived intangible assets for impairment at least annually, or more frequently
if events or changes in circumstances indicate that the asset may be impaired. The Company first performs a qualitative assessment
and will proceed to a quantitative impairment test only if qualitative factors indicate that it is more likely than not that the fair
value of the reporting unit or intangible asset is less than its carrying amount.
Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method, which
reflects the pattern in which the assets are consumed. The estimated useful lives for acquired intangible assets range from five to
seven years. The Company assesses its intangible assets with finite lives for impairment when indicators of impairment are
identified.
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
Estimated Useful Life (Years)
Shorter of the ground lease term or 39
15
5 to 7
Tenant and leasehold improvements
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
In accordance with GAAP, 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 over the life of the asset or its intended holding period. We evaluate our real estate assets for impairment on a
48
property-by-property basis. Indicators we consider to determine whether an impairment evaluation is necessary include, but are not
limited to, deterioration in operating cash flows, low occupancy levels, significant near-term lease expirations, default or
bankruptcy by a significant tenant and expectations that, more likely than not, a property will be sold or otherwise disposed of
before the end of its previously estimated useful life or hold period.
If impairment indicators are present for a specific real estate asset, we perform a recoverability test by comparing the
carrying value of the asset group to the asset group’s estimated undiscounted future cash flows over the anticipated hold period. If
the carrying value exceeds the estimated undiscounted future cash flows, we then compare the carrying value to the asset group’s
estimated fair value and recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The
future cash flows utilized in the evaluation of recoverability and the measurement of fair value are highly subjective and are based
on assumptions regarding anticipated hold periods, future occupancy, future rental rates, future capital requirements, discount rates
and capitalization rates, which are considered Level 2 and Level 3 inputs within the fair value hierarchy. Given the level of
sensitivity in the inputs, a change in the value of any one input, in isolation or in combination, could significantly affect the overall
estimation of the undiscounted future cash flows and fair value of an asset group.
Goodwill and Acquired Intangible Assets
Goodwill is an unidentifiable intangible asset and is recognized as a residual, generally measured as the excess of
consideration transferred in a business combination over the identifiable assets acquired and liabilities assumed. Goodwill is
assigned to reporting units that are expected to benefit from the synergies of the business combination.
We test our goodwill and indefinite-lived intangible assets for impairment at least annually, or more frequently if events
or changes in circumstances indicate that the asset may be impaired. Goodwill is tested for impairment at the reporting unit to
which it is assigned, which can be an operating segment or one level below an operating segment. We have three operating
segments: the management entity, Office and Studio, each of which is a reporting unit. The Studio reporting unit consists of Zio
and Star Waggons businesses acquired during the year ended December 31, 2021 and Quixote business acquired during the year
ended December 31, 2022. The assessment of goodwill for impairment may initially be performed based on qualitative factors to
determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value, including goodwill. If
so, a quantitative assessment is performed, and to the extent the carrying value of the reporting unit exceeds its fair value,
impairment is recognized for the excess up to the amount of goodwill assigned to the reporting unit. Alternatively, the Company
may bypass a qualitative assessment and proceed directly to a quantitative assessment.
A qualitative assessment considers various factors such as macroeconomic, industry and market conditions to the extent
they affect the earnings performance of the reporting unit, changes in business strategy and/or management of the reporting unit,
changes in composition or mix of revenues and/or cost structure of the reporting unit, financial performance and business prospects
of the reporting unit, among other factors.
In a quantitative assessment, significant judgment, assumptions and estimates are applied in determining the fair value of
reporting units. The Company generally uses the income approach to estimate fair value by discounting the projected net cash
flows of the reporting unit, and may corroborate with market-based data where available and appropriate. Projection of future cash
flows is based upon various factors, including, but not limited to, our strategic plans in regard to our business and operations,
internal forecasts, terminal year residual revenue multiples, operating profit margins, pricing of similar businesses and comparable
transactions where applicable, and risk-adjusted discount rates to present value future cash flows. Given the level of sensitivity in
the inputs, a change in the value of any one input, in isolation or in combination, could significantly affect the overall estimation of
fair value of the reporting unit.
Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method, which
reflects the pattern in which the assets are consumed. The estimated useful lives for acquired intangible assets range from five to
seven years. The Company assesses its intangible assets with finite lives for impairment when indicators of impairment are
identified.
Revenue Recognition
The recognition of revenues related to lease components is governed by ASC 842. The revenue related to non-lease
components is subject to ASC 606, Revenue from Contracts with Customers (“ASC 606”).
We capitalize direct incremental costs of signing a lease. Internal direct compensation costs and external legal fees related
to the execution of successful lease agreements that do not 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.
49
We elected the lessor’s practical expedient to present revenues on the Consolidated Statement of Operations as 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.
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. In the case of the Bentall Centre property and the Sunset Waltham Cross Studios development, the
Company owns its interest in the properties through non-U.S. entities treated as taxable REIT subsidiaries (“TRS”) for federal
income tax purposes. Accordingly, a provision for foreign income taxes has been recorded in the accompanying consolidated
financial statements based on the local tax laws and regulations of the respective tax jurisdictions.
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
50
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. 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 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.
Deferred tax assets and liabilities are recognized for the net tax effect of temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax basis. A valuation allowance is recognized when it is
determined that it is more likely than not that a deferred tax asset will not be realized.
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, 2023, we have not established a liability for uncertain tax positions.
We and certain of 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 2019. Generally, we
have assessed our tax positions for all open years, which as of December 31, 2023 include 2020 to 2022 for Federal purposes and
2019 to 2022 for state purposes, and concluded that there are no material uncertainties to be recognized.
51
Results of Operations
The following table summarizes our portfolio as of December 31, 2023 :
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 office
STUDIO
Same-store(7)
Total
Repositioning(5)(8)
Development(5)(9)
Total repositioning and development
Total office and studio properties
Future development(10)
TOTAL
80.8 %
81.6 % $
89.5
80.9
77.7
80.8
80.4
—
—
89.5
81.8
84.3
81.9
80.4
2.2
0.3
55.10
54.71
55.10
61.80
55.43
45.88
41
2
43
1
44
3
3
1
3
4
51
7
58
12,910,134
219,023
13,129,157
723,848
13,853,005
1,231,278
1,231,278
278,600
1,019,000
1,297,600
16,381,883
3,233,589
19,615,472
____________
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, 2023, 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, 2023, divided by (ii) total square feet, expressed as a percentage.
Annualized base rent per square foot for office properties is calculated by multiplying (i) cash base rents under commenced leases excluding tenant
reimbursements as of December 31, 2023 by (ii) 12. On a per square foot basis, ABR is divided by square footage under commenced leases as of
December 31, 2023. For all expiration years, ABR is calculated as (i) cash base rents at expiration under commenced leases divided by (ii) square footage
under commenced leases as of December 31, 2023. The methodology is the same when calculating ABR per square foot either in place or at expiration for
uncommenced leases. Rent data is presented without regard to cancellation options. Where applicable, rental rates converted to USD using the foreign
currency exchange rate as of December 31, 2023. Annualized base rent per square foot for studio properties reflects actual base rent for the 12 months ended
December 31, 2023, excluding tenant reimbursements. ABR per leased square foot calculated as (i) annual base rent divided by (ii) square footage under lease
as of December 31, 2023.
Includes office properties owned and included in our stabilized portfolio as of January 1, 2022 and still owned and included in the stabilized portfolio as of
December 31, 2023.
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, 2023.
Includes studio properties owned and included in our portfolio as of January 1, 2022 and still owned and included in our portfolio as of December 31, 2023.
See Repositioning table in this document for the office and studio projects under repositioning as of December 31, 2023.
Includes 546,000 square feet related to the office development Washington 1000, 241,000 square feet related to Sunset Glenoaks Studios and 232,000 square
feet related to Sunset Pier 94 Studios.
Includes pending entitlement to develop approximately 500 residential units at 10900-10950 Washington.
2.
3.
4.
5.
6.
7.
8.
9.
10.
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.
52
Comparison of the year ended December 31, 2023 to the year ended December 31, 2022
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,
2022 and still owned and included in the stabilized portfolio as of December 31, 2023; and
Non-same-store, which includes:
•
•
•
•
•
•
•
Stabilized non-same store properties
Lease-up properties
Repositioning properties
Development properties
Redevelopment properties
Held for sale properties
Operating results from studio service-related businesses
53
The following table reconciles net loss to NOI (in thousands, except percentage change):
NET LOSS
Adjustments:
Loss (income) from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Management services reimbursement income—unconsolidated real estate
entities
Management services expense—unconsolidated real estate entities
Transaction-related expenses
Unrealized loss on non-real estate investment
Gain on extinguishment of debt
Loss on sale of bonds
(Gain) loss on sale of real estate
Impairment loss
Other expense (income)
Income tax provision
General and administrative
Depreciation and amortization
NOI
Same-store NOI
Non-same-store NOI
NOI
Year Ended December 31,
2023
2022
Dollar
Change
Percentage
Change
$
(170,700) $
(16,517) $
(154,183)
933.5 %
3,902
(6,181)
214,415
(2,182)
(4,125)
4,125
(1,150)
3,120
(10,000)
34,046
(103,202)
60,158
6
6,796
74,958
397,846
(943)
(7,972)
149,901
(2,340)
(4,163)
4,163
14,356
1,440
—
—
2,164
28,548
(8,951)
—
79,501
373,219
4,845
1,791
64,514
158
38
(38)
(15,506)
1,680
(10,000)
34,046
(513.8)
(22.5)
43.0
(6.8)
(0.9)
(0.9)
(108.0)
116.7
—
—
(105,366)
(4,869.0)
31,610
8,957
6,796
(4,543)
24,627
110.7
(100.1)
—
(5.7)
6.6
$
$
$
501,832 $
612,406 $
(110,574)
(18.1) %
454,412 $
491,243 $
(36,831)
47,420
121,163
(73,743)
501,832 $
612,406 $
(110,574)
(7.5) %
(60.9)
(18.1) %
The following table summarizes certain statistics of our consolidated same-store office and studio properties:
Year Ended December 31,
2023
2022
40
40
11,389,050
11,389,050
80.5 %
79.5 %
83.4 %
88.2 %
86.8 %
89.0 %
$
58.80
$
57.15
3
3
1,231,278
1,231,278
80.4 %
84.6 %
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 % leased over period(1)
_____________
1.
Percent leased for same-store studio is the average percent leased for the 12 months ended December 31, 2023.
54
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,
Same-store
2023
Non-same-
store
Total
Same-store
2022
Non-same-
store
Total
$
685,123 $
111,972 $
797,095 $
704,832 $
129,576 $
834,408
14,182
1,098
15,280
13,895
4,397
18,292
699,305
113,070
812,375
718,727
133,973
852,700
48,422
10,854
21,981
58,665
59,276
80,646
51,980
7,692
59,672
33,417
80,435
113,852
70,403
69,519
139,922
85,397
88,127
173,524
Total revenues
769,708
182,589
952,297
804,124
222,100 1,026,224
OPERATING EXPENSES
Office operating expenses
Studio operating expenses
Total operating expenses
Office NOI
Studio NOI
NOI
274,136
37,882
312,018
263,112
45,556
308,668
41,160
97,287
138,447
49,769
55,381
105,150
315,296
135,169
450,465
312,881
100,937
413,818
425,169
75,188
500,357
455,615
88,417
544,032
29,243
(27,768)
1,475
35,628
32,746
68,374
$
454,412 $
47,420 $
501,832 $
491,243 $
121,163 $
612,406
55
The following table gives further detail on our change in consolidated NOI (in thousands, except percentage change):
REVENUES
Office
Rental
Service and other revenues
Total office revenues
Studio
Rental
Service and other revenues
Total studio revenues
Year Ended December 31, 2023 as compared to the Year Ended December 31, 2022
Same-store
Non-same-store
Total
Dollar
change
Percentage
change
Dollar
change
Percentage
change
Dollar
change
Percentage
change
$
(19,709)
(2.8) % $
(17,604)
(13.6) % $
(37,313)
(4.5) %
287
(19,422)
2.1
(2.7)
(3,299)
(20,903)
(75.0)
(15.6)
(3,012)
(40,325)
(16.5)
(4.7)
(3,558)
(11,436)
(14,994)
(6.8)
(34.2)
(17.6)
3,162
(21,770)
(18,608)
41.1
(27.1)
(21.1)
(396)
(33,206)
(33,602)
(.7)
(29.2)
(19.4)
Total revenues
(34,416)
(4.3)
(39,511)
(17.8)
(73,927)
(7.2)
OPERATING EXPENSES
Office operating expenses
Studio operating expenses
Total operating expenses
Office NOI
Studio NOI
NOI
11,024
4.2
(7,674)
(16.8)
(8,609)
(17.3)
2,415
0.8
41,906
34,232
75.7
33.9
3,350
33,297
36,647
1.1
31.7
8.9
(30,446)
(6,385)
(6.7)
(17.9)
(13,229)
(15.0)
(60,514)
(184.8)
(43,675)
(66,899)
(8.0)
(97.8)
$
(36,831)
(7.5) % $
(73,743)
(60.9) % $
(110,574)
(18.1) %
NOI decreased $110.6 million, or 18.1%, for the year ended December 31, 2023 as compared to the year ended
December 31, 2022, primarily resulting from:
•
a $73.7 million decrease in non-same-store NOI driven by:
•
•
a decrease in studio NOI of $60.5 million driven by a slowdown in production rentals activity due to the WGA
and SAG-AFTRA strikes; and
a decrease in office NOI of $13.2 million primarily due to:
•
•
•
a $17.6 million decrease in rental revenues mainly resulting from sales of our 6922 Hollywood and
Northview Center properties in 2022 and Skyway Landing, 601 Arizona and 3401 Exposition properties
in 2023, as well as lease expirations at our 10900-10950 Washington and Metro Center properties,
partially offset by higher tenant recoveries and must-take parking revenues at our One Westside
property and the collection of past due rents and the reversal of the related reserve at our Westside Two
property in 2023; and
a $3.3 million decrease in service and other revenues primarily due to non-recurring lease cancellation
fees received at our Skyway Landing property in 2022 and the aforementioned property sales, partially
offset by lease cancellation fees received at our 333 Twin Dolphin property in 2023;
partially offset by a $7.7 million decrease in operating expenses corresponding to the decrease in rental
revenues.
•
a $36.8 million decrease in same-store NOI driven by:
•
a decrease in office NOI of $30.4 million primarily due to:
•
a $19.7 million decrease in rental revenues due to a decrease in the average occupancy in our same-
store portfolio from 89.0% during the year ended December 31, 2022 to 83.4% during the year ended
December 31, 2023, primarily driven by lease expirations at our Skyport Plaza, Metro Plaza, 1455
Market, Page Mill Hill and Gateway properties, as well as higher reserves for uncollectible rents at our
901 Market property; partially offset by income from a letter of credit associated with the WeWork
lease at our Maxwell property and higher percentage rent at our Ferry Building property; and
56
•
an $11.0 million increase in operating expenses, predominantly engineering, cleaning and utilities
resulting from a colder winter in 2023, higher insurance premiums and higher repair and maintenance
expense, which was partially offset by a prior-period property tax reimbursement at our ICON property.
•
a decrease in studio NOI of $6.4 million primarily due to:
•
•
an $11.4 million decrease in service and other revenues and a $3.6 million decrease in rental revenues
due to the WGA and SAG-AFTRA strikes and a lease expiration at our Sunset Las Palmas Studios
property;
partially offset by an $8.6 million decrease in operating expenses due to the impact of the WGA and
SAG-AFTRA strikes as well as a decrease in ground rent expense arising from the acquisition of the
related land at Sunset Gower Studios in May 2022.
Other Income (Expenses)
(Loss) income from unconsolidated real estate entities
We recognized a loss from our unconsolidated real estate entities of $3.9 million for the year ended December 31, 2023
compared to $0.9 million of income for the year ended December 31, 2022. The change was primarily driven by higher interest
expense at the unconsolidated entities due to an increase in the average reference rates for variable rate debt and one-time lease
termination fees received in 2022.
Fee income
Fee income decreased by $1.8 million, or 22.5%, to $6.2 million for the year ended December 31, 2023 compared to $8.0
million for the year ended December 31, 2022. Fee income represents the management fee income earned from the unconsolidated
real estate entities. The decrease is primarily due to a slowdown in construction activity at our unconsolidated Sunset Waltham
Cross development in 2023.
Interest expense
Comparison of the year ended December 31, 2023 to the year ended December 31, 2022 is as follows (in thousands,
except percentage change):
Gross interest expense(1)
Capitalized interest
Non-cash interest expense(2)
TOTAL
Year Ended December 31,
2023
2022
Dollar Change
$
$
224,801 $
162,778 $
(32,253)
(18,031)
21,867
5,154
214,415 $
149,901 $
62,023
(14,222)
16,713
64,514
Percentage
Change
38.1 %
78.9
324.3
43.0 %
_________________
1.
2.
Includes interest on the Company’s debt and hedging activities.
Includes the amortization of deferred financing costs and fair market value adjustments for our mark-to-market interest rate derivatives.
Gross interest expense increased $62.0 million, or 38.1%, to $224.8 million for the year ended December 31, 2023
compared to $162.8 million for the year ended December 31, 2022. The increase was primarily driven by an increase in the
average reference rates for the Company’s variable rate debt, increases in the average outstanding borrowings on the Company’s
unsecured revolving credit facility and One Westside construction loan and interest incurred on the 5.95% registered senior notes,
which were issued in September 2022. The overall increase was partially offset by a decrease in interest expense due to the
repayment of the Series A notes in January 2023, Quixote note in April 2023 and Series E notes in September 2023.
Capitalized interest increased $14.2 million, or 78.9%, to $32.3 million for the year ended December 31, 2023 compared
to $18.0 million for the year ended December 31, 2022. The increase was primarily driven by development activity at Washington
1000, which was acquired in April 2022, redevelopment activities at the Westside Two and 10900-10950 Washington properties
and interest capitalized on our unconsolidated investments in the Sunset Waltham Cross Studios and Sunset Glenoaks Studios
developments. An increase in the average reference rates for the Company’s variable rate debt also contributed to the increase.
Non-cash interest expense increased $16.7 million, or 324.3% to $21.9 million for the year ended December 31, 2023
compared to $5.2 million for the year ended December 31, 2022. The increase in non-cash interest expense was due to mark-to-
57
market gains on the Hollywood Media Portfolio interest rate cap in the third quarter of 2022 that did not recur in 2023 as we began
applying hedge accounting prospectively from the fourth quarter of 2022. The increase was partially offset by a decrease in
deferred financing cost amortization primarily due to the deferred financing costs related to the Hollywood Media Portfolio debt
being fully amortized as of August 2023.
Transaction-related expenses
We recorded $1.2 million of income predominantly related to the remeasurement of the Zio earnout liability to fair value
during the year ended December 31, 2023. During the year ended December 31, 2022, we recorded $14.4 million of expenses
primarily related to the Quixote acquisition in August 2022.
Unrealized loss on non-real estate investments
We recognized an unrealized loss on non-real estate investments of $3.1 million for the year ended December 31, 2023
compared to an unrealized loss on non-real estate investments of $1.4 million for the year ended December 31, 2022. The activity
in both periods is due to the observable changes in the fair value of the investments.
Gain on extinguishment of debt
During the year ended December 31, 2023, we recognized a $10.0 million gain on extinguishment of debt due to the
settlement of the Quixote note at a discount. No gain or loss on extinguishment of debt was recognized during the year ended
December 31, 2022.
Loss on sale of bonds
During the year ended December 31, 2023, we recognized a loss on sale of bonds of $34.0 million in connection with the
partial sale of the acquired Hollywood Media Portfolio debt. No gain or loss on sale of bonds was recognized during the year
ended December 31, 2022.
Gain (loss) on sale of real estate
During the year ended December 31, 2023, we recognized a $103.2 million gain on sale of real estate attributable to the
sales of our Skyway Landing, 604 Arizona, 3401 Exposition, Cloud10, One Westside and Westside Two properties. During the
year ended December 31, 2022, we recognized a $2.2 million loss on sale of real estate in connection with the dispositions of our
Northview Center and 6922 Hollywood properties.
Impairment loss
During the year ended December 31, 2023, we recognized an impairment loss of $60.2 million due to a reduction in the
estimated fair value of our Foothill Research Center property. During the year ended December 31, 2022, we recognized an
impairment loss of $28.5 million, of which $20.0 million was due to reductions in the estimated fair values of our Del Amo, 6922
Hollywood and Northview Center properties and $8.5 million was due to the full impairment of the Zio trade name in connection
with a rebranding of the business under the Company’s Sunset Studios platform.
Other (expense) income
During the year ended December 31, 2023, we recognized other expense of $6.0 thousand compared to other income of
$9.0 million for the year ended December 31, 2022. The change was primarily due to the presentation of an income tax benefit of
$7.5 million within this line item on the Consolidated Statement of Operations for the year ended December 31, 2022. The tax
benefit recorded in 2022 primarily related to net operating losses at the studio service-related businesses.
General and administrative expenses
General and administrative expenses decreased $4.5 million, or 5.7%, to $75.0 million for the year ended December 31,
2023 compared to $79.5 million for the year ended December 31, 2022. The decrease was primarily driven by a decrease in
payroll, non-cash compensation, office and travel and entertainment expenses.
58
Depreciation and amortization expense
Depreciation and amortization expense increased $24.6 million, or 6.6%, to $397.8 million for the year ended
December 31, 2023 compared to $373.2 million for the year ended December 31, 2022. The increase was primarily related to the
depreciation and amortization of non-real estate property, plant and equipment and finite-lived intangible assets acquired as part of
the Quixote transaction in August 2022.
Income tax provision
During the year ended December 31, 2023, we recorded an income tax provision of $6.8 million primarily related to a
valuation allowance recorded against certain deferred tax assets.
Comparison of the year ended December 31, 2022 to the year ended December 31, 2021
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, 2022 to the year ended December 31, 2021” of the Form 10-
K for the fiscal year ended December 31, 2022.
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;
strategic dispositions of real estate;
sales of non-real estate investments;
proceeds from additional equity securities;
our ATM program;
borrowings under the operating partnership’s unsecured revolving credit facility;
proceeds from joint venture partners;
proceeds from the Sunset Glenoaks construction loan (unconsolidated joint venture), Sunset Pier 94 Studios construction
loan (unconsolidated joint venture) and Bentall Centre loan (unconsolidated joint venture); and
proceeds from additional secured, unsecured debt financings or offerings.
Liquidity Sources
We had approximately $100.4 million of cash and cash equivalents at December 31, 2023. 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.
During the year ended December 31, 2023 we completed the strategic disposition of five office properties for gross
proceeds totaling $918.0 million, before certain credits, prorations and closing costs, and a total gain on sale of $103.2 million.
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, $65.8 million of which has been
sold through December 31, 2023. 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.
59
The following table sets forth our borrowing capacity under various loans as of December 31, 2023 (in thousands):
Loan
Total
Borrowing Capacity
Amount Drawn
Remaining Borrowing
Capacity
Unsecured revolving credit facility
Sunset Glenoaks construction loan(1)
Bentall Centre(1)
$
Sunset Pier 94 Studios construction loan(1) $
$
$
900,000 $
50,300 $
100,215 $
46,810 $
192,000 $
41,549 $
96,440 $
26 $
708,000
8,751
3,775
46,784
_____________
1.
This loan is held by an unconsolidated joint venture. Amounts are presented at HPP’s share.
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, 2023 (in thousands, except percentage):
Market Capitalization
Unsecured and secured debt(1)
Series A redeemable preferred units
Total consolidated debt
Equity capitalization(2)
TOTAL CONSOLIDATED MARKET CAPITALIZATION
Total consolidated debt/total consolidated market capitalization
December 31, 2023
$
3,960,067
9,815
3,969,882
1,801,645
5,771,527
68.8 %
$
_____________
1.
2.
Excludes joint venture partner debt and unamortized deferred financing costs and loan discount.
Equity capitalization represents the shares of common stock outstanding (including unvested restricted shares), OP and LTIP units outstanding, restricted
performance units and dilutive shares multiplied by the closing price of $9.31, as reported by the NYSE, on December 29, 2023 as well as the aggregate value
of the Series C preferred stock liquidation preference as of December 31, 2023.
Outstanding Indebtedness
The following table sets forth information as of December 31, 2023 and December 31, 2022 with respect to our
outstanding indebtedness, excluding unamortized deferred financing costs and loan discounts (in thousands):
Unsecured debt
Secured debt
Joint venture partner debt
December 31, 2023
December 31, 2022
$
$
$
2,307,000 $
1,653,067 $
66,136 $
2,660,000
1,950,088
66,136
The operating partnership was in compliance with its financial covenants as of December 31, 2023.
Credit Ratings
The following table provides information with respect to our credit ratings at December 31, 2023:
Agency
Moody’s
Standard and Poor’s
Fitch
Credit Rating
Ba1
BB+(1)
BBB-
_____________
1.
On January 12, 2024, Standard and Poor’s downgraded our credit rating from “BB+” to “BB”.
60
Liquidity Uses
Contractual Obligations
The following table provides information with respect to our commitments at December 31, 2023, 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
$ 3,960,067 $
— $ 2,153,067 $ 907,000 $ 900,000
Principal payments on joint venture partner debt
Interest payments—fixed rate(1)(2)
Interest payments—variable rate(1)(3)
Operating leases(4)
66,136
—
—
—
467,558
126,189
198,519
123,531
73,855
715,344
51,945
41,311
21,910
79,527
—
70,702
523,804
66,136
19,319
—
TOTAL
$ 5,282,960 $ 219,445 $ 2,453,023 $ 1,101,233 $ 1,509,259
_____________
1.
2.
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, including those that are effectively fixed as a result of derivatives. Also includes $14.2 million
of projected interest related to our joint venture partner debt and debt that is effectively fixed through the use of interest rate swaps.
Reflects our projected interest obligations for variable rate debts, including instances where interest is paid based on an applicable SOFR margin. We used the
average December SOFR and the applicable margin as of December 31, 2023.
Reflects minimum lease payments through the contractual lease expiration date, including the impact of the extension options which the Company is
reasonably certain to exercise. Refer to Part IV, Item 15(a) “Exhibits, Financial Statement Schedules—Note 11 to the Consolidated Financial Statements—
Future Minimum Base Rents and Lease Payments” for details of our lease agreements.
3.
4.
The Company has entered into a number of construction agreements related to capital improvement activities at various
properties. As of December 31, 2023, the Company had $108.3 million in outstanding obligations under the agreements, of which
$82.6 million is expected to be incurred within one year from December 31, 2023.
The Company invests in several non-real estate funds with an aggregate commitment to contribute up $51.0 million. As of
December 31, 2023, the Company has contributed $38.1 million, net of recallable distributions, with $12.9 million remaining to be
contributed.
The terms of the securities purchase agreement for the acquisition of Zio require the Company to pay up to $20.0 million
of additional consideration to the business’s former shareholders in 2024 and 2025, subject to certain performance thresholds being
met (the “earnout”). $5.0 million was subsequently paid in January 2024, with a maximum potential earnout of $7.5 million and
$7.5 million remaining in 2024 and 2025, respectively.
Off-Balance Sheet Arrangements
Joint Venture Indebtedness
We have investments in unconsolidated real estate entities accounted for using the equity method of accounting. The
following table provides information about joint venture indebtedness as of December 31, 2023 (in thousands):
Ownership
Interest
Amount
Drawn
Undrawn
Capacity
Total Capacity
Interest Rate
Bentall Centre(1)
Sunset Glenoaks Studios(2)
Sunset Pier 94 Studios(3)
_____________
(1) The loan was transacted in Canadian dollars. Amounts are shown in U.S. dollars using the foreign currency exchange rate as of December 31, 2023. This loan
501,073 CORRA + 2.30%
SOFR + 3.10%
100,600
SOFR + 4.75%
183,200
18,875 $
17,502
183,100
482,198 $
83,098
100
20 % $
50 %
26 %
is interest-only through its term.
(2) This loan has an initial interest rate of SOFR + 3.10% per annum until the construction at Sunset Glenoaks Studios is complete and certain performance
targets have been met, at which time the effective interest rate will decrease to SOFR + 2.50%. This loan is interest-only through its term. The maturity date
includes the effect of extension options. The floating interest rate on the full principal amount has been effectively capped at 4.50% through the use of an
interest rate cap.
(3) This loan has an initial interest rate of SOFR + 4.75% per annum until stabilization of the project, at which time the effective interest rate will decrease to
SOFR + 4.00%. This loan is interest-only through its term. The maturity date includes the effect of extension options.
61
Contractual
Maturity Date
7/1/2027
1/9/2027
9/9/2028
Cash Flows
Comparison of the cash flow activity for the year ended December 31, 2023 to the year ended December 31, 2022 is as
follows (in thousands, except percentage change):
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash (used in) provided by financing activities
Year Ended December 31,
2023
2022
Dollar Change
232,256 $
369,501 $
(137,245)
467,841 $
(378,094) $
845,935
(866,672) $
97,448 $
(964,120)
$
$
$
Percentage
Change
(37.1) %
(223.7) %
(989.4) %
Cash and cash equivalents and restricted cash were $119.2 million and $285.7 million at December 31, 2023 and 2022,
respectively.
Operating Activities
Net cash provided by operating activities decreased by $137.2 million, or 37.1%, to $232.3 million for the year ended
December 31, 2023 as compared to $369.5 million for the year ended December 31, 2022. The decrease primarily resulted from a
slowdown in production rentals activity due to the WGA and SAG-AFTRA strikes as well as the 2022 and 2023 property
dispositions. Refer to Part IV, Item 15(a) “Financial Statement Schedules—Note 4 to the Consolidated Financial Statements—
Investment in Real Estate” for detail on the dispositions.
Investing Activities
Net cash provided by investing activities increased by $845.9 million, or 223.7%, to $467.8 million for the year ended
December 31, 2023 as compared to $378.1 million of cash used in investing activities for the year ended December 31, 2022. The
change primarily resulted from a $705.3 million increase in proceeds from the sales of real estate and a $295.6 million decrease in
expenditures for the acquisition of businesses and properties. The change was partially offset by a $129.3 million decrease in
proceeds from the maturities of U.S. Government securities, a $28.7 million increase in contributions to unconsolidated real estate
entities and a $22.0 million increase in additions to investment property.
Financing Activities
Net cash used in financing activities increased by $964.1 million, or 989.4%, to $866.7 million for the year ended
December 31, 2023 as compared to $97.4 million of cash provided by financing activities for the year ended December 31, 2022.
The change primarily resulted from a $815.2 million decrease in proceeds from unsecured and secured debt, a $560.4 million
increase in payments of debt and a $82.4 million increase in distributions to redeemable non-controlling members in consolidated
real estate entities, predominantly driven by the One Westside and Westside Two property sale in 2023. The decrease was partially
offset by a $235.8 million decrease in share repurchases in 2023 as compared to 2022, $145.5 million of proceeds from the partial
sale of the acquired Hollywood Media Portfolio debt in 2023 and a $90.5 million decrease in dividends paid to common stock and
unitholders driven by a 50% reduction in the per share dividend during the second quarter of 2023 and the suspension of the
common stock dividend for the third and fourth quarters of 2023.
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 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 of 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
62
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.
The following table presents a reconciliation of net loss to FFO (in thousands):
Net loss
Adjustments:
Depreciation and amortization—consolidated
Depreciation and amortization—non-real estate assets
Depreciation and amortization—HPP’s share from unconsolidated real estate entities
(Gain) loss on sale of real estate
Loss on sale of bonds
Impairment loss—real estate assets
Unrealized loss on non-real estate investments
FFO attributable to non-controlling interests
FFO attributable to preferred shares and units
Year Ended December 31,
2023
(170,700) $
$
2022
(16,517)
397,846
(33,389)
4,779
(103,202)
34,046
60,158
3,120
(42,335)
(20,800)
129,523 $
373,219
(23,110)
5,322
2,164
—
20,048
1,440
(71,100)
(21,043)
270,423
FFO TO COMMON STOCKHOLDERS AND UNITHOLDERS
$
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
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 9 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.
63
The following table summarizes the terms our derivative instruments used to hedge interest rate risk as of December 31,
2023 (notional amounts and fair value in thousands):
Underlying Debt Instrument
Type of
Instrument
Accounting Policy
Notional
Amount
Effective Date Maturity Date
Interest
Rate
Fair Value
Assets
(Liabilities)
Cash flow hedge
$ 172,865 February 2023 October 2025
3.75% $
1,075
1918 Eighth
1918 Eighth
1918 Eighth
Hollywood Media Portfolio
Hollywood Media Portfolio
Hollywood Media Portfolio
TOTAL
Swap
Cap
Partial cash flow
hedge(1)
Sold cap(2) Mark-to-market
Partial cash flow
hedge(1)
Cap
Sold cap(2) Mark-to-market
Cash flow hedge
Swap
$ 314,300
June 2023
December 2025
5.00%
952
$ 172,865
June 2023
December 2025
5.00%
(520)
$ 1,100,000 August 2023
August 2024
5.70%
$ 561,000 August 2023
August 2024
$ 351,186 August 2023
June 2026
5.70%
3.31%
$
59
(29)
4,355
5,892
_____________
1.
$141,435 and $539,000 of the notional amounts of the 1918 Eighth and Hollywood Media Portfolio caps, respectively, have been designated as effective cash
flow hedges for accounting purposes. The remainder of each is accounted for under mark-to-market accounting.
The sold caps serve to offset the changes in fair value of the portions of the 1918 Eighth and Hollywood Media Portfolio caps that are not designated as cash
flow hedges for accounting purposes.
2.
The following table summarizes our fixed and variable rate debt as of December 31, 2023 (in thousands):
Unsecured and Secured Debt
Joint Venture Partner Debt
Carrying Value
Fair Value
Carrying Value
Fair Value
Variable rate
Fixed rate(1)
TOTAL(2)
$
$
1,052,016 $
2,908,051
3,960,067 $
1,052,016 $
2,554,062
3,606,078 $
— $
66,136
66,136 $
—
59,966
59,966
_____________
1.
2.
Includes debt that is effectively fixed through the use of interest rate swaps.
Excludes unamortized deferred financing costs.
For sensitivity purposes, if the reference rates for our variable rate debt as of December 31, 2023 were 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
$10.5 million.
Foreign Currency Exchange Rate Risk
We have exposure to foreign currency exchange rate risk related to our unconsolidated real estate entities operating in
Canada and the United Kingdom. The unconsolidated real estate entities’ functional currency is the local currency, or Canadian
dollars and pound sterling, respectively. Any gains or losses resulting from the translation of Canadian dollars and pound sterling
to U.S. dollars are classified on our Consolidated Balance Sheets as a separate component of other comprehensive (loss) 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.
64
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.
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.
65
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, 2023. 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, 2023, 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.
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, 2023. 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, 2023, 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, 2023,
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, 2023.
66
ITEM 9B. Other Information
Disclosure of 10b5-1 plans
During the three months ended December 31, 2023, none of our officers or directors adopted or terminated any contract,
instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions
of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
67
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 2024. 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 2024.
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 2024.
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 2024.
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 2024.
68
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 (PCAOB ID: Ernst & Young LLP (42))
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Equity for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021
FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, L.P.
Report of Independent Registered Public Accounting Firm (PCAOB ID: Ernst & Young LLP (42))
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Capital for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021
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
56
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.
First Amendment to the Second Amended and Restated Bylaws of Hudson Pacific
Properties, Inc.
Fifth Amended and Restated Agreement of Limited Partnership of Hudson Pacific
Properties, L.P.
Certificate of Limited Partnership of Hudson Pacific Properties, L.P.
Articles Supplementary designating the Series C Preferred Stock of Hudson Pacific
Properties, Inc.
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.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
4.3
4.4
Incorporated by Reference
Form
File No.
S-11/A 333-164916
S-11/A 333-170751
8-K
8-K
001-34789
001-34789
8-K
001-34789
10-Q
8-K
001-34789
001-34789
S-11/A 333-164916
8-K
001-34789
Exhibit
No.
3.1
3.3
3.1
3.1
3.2
3.4
3.1
4.1
4.1
4.2
Filing Date
May 12, 2010
December 6, 2010
January 12, 2015
March 22, 2022
November 16, 2021
November 4, 2016
November 16, 2021
June 14, 2010
October 2, 2017
October 2, 2017
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.
10-Q
001-34789
10.1
May 7, 2019
69
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
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
Exhibit
No.
4.5
Description
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.
Incorporated by Reference
Form
8-K
File No.
Exhibit
No.
Filing Date
001-34789
4.2
October 3, 2019
Description of Registrant's Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934.
10-K
001-34789
8-K
001-34789
4.6
4.2
February 18, 2022
September 15, 2022
10.9
Restricted Stock Award Grant Notice and Restricted Stock Award Agreement.*
S-11/A 333-164916
Supplemental Indenture No. 4, dated as of September 15, 2022, among Hudson Pacific
Properties, L.P., as issuer, Hudson Pacific Properties, Inc., as guarantor, and U.S. Bank
Trust Company, National Association, as successor in interest to U.S. Bank National
Association, as trustee, including the form of 5.950% Senior Notes due 2028 and the
guarantee.
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 Jonathan M. Glaser.
Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific
Properties, Inc. and Mark D. Linehan.
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.
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
333-170751
10.2
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
10.11
November 22, 2010
S-11
333-170751
10.12
November 22, 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
10.25
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
70
Exhibit
No.
10.23
10.24
10.25
10.26
10.27
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
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.
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.
Equity Distribution Agreement, dated November 16, 2012, by and among Hudson
Pacific Properties, Inc., Hudson Pacific Properties, LP, and Barclays Capital Inc.
Equity Distribution Agreement, dated November 16, 2012, by and among Hudson
Pacific Properties, Inc., Hudson Pacific Properties, LP, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
Equity Distribution Agreement, dated November 16, 2012, by and among Hudson
Pacific Properties, Inc., Hudson Pacific Properties, LP, and Keybanc Capital Markets
Inc.
Equity Distribution Agreement, dated November 16, 2012, by and among Hudson
Pacific Properties, Inc., Hudson Pacific Properties, LP, and Wells Fargo Securities,
LLC.
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.
Amendment to Equity Distribution Agreement, dated June 1, 2021, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, LP, and Barclays Capital
Inc.
Amendment to Equity Distribution Agreement, dated June 1, 2021, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, LP, and BofA Securities,
Inc.
Amendment to Equity Distribution Agreement, dated June 1, 2021, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, LP, and Keybanc Capital
Markets Inc.
Amendment to Equity Distribution Agreement, dated June 1, 2021, by and among
Hudson Pacific Properties, Inc., Hudson Pacific Properties, LP, 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.
First Amended and Restated Limited Partnership Agreement of Hudson 1455 Market,
L.P.
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.
Note Purchase Agreement, dated as of November 16, 2015, by and among Hudson
Pacific Properties, L.P. and the purchasers named therein.
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award
Agreement.*
Note Purchase Agreement, dated as of July 6, 2016, by and among Hudson Pacific
Properties, L.P. and the purchasers named therein.
Indemnification Agreement, dated August 16, 2017, by and between Hudson Pacific
Properties, Inc. and Andrea Wong.
Form of Time-Based LTIP Unit Agreement.*
Indemnification Agreement, dated March 14, 2019, by and between Hudson Pacific
Properties, Inc. and Christy Haubegger.*
71
Incorporated by Reference
Form
8-K
File No.
Exhibit
No.
001-34789
10.5
Filing Date
July 1, 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
001-34789
8-K
001-34789
1.1
1.2
November 16, 2012
November 16, 2012
8-K
001-34789
1.3
November 16, 2012
8-K
001-34789
1.4
November 16, 2012
10-Q
001-34789
10.66
November 7, 2013
8-K
8-K
001-34789
001-34789
99.1
1.5
November 22, 2013
June 1, 2021
8-K
001-34789
1.6
June 1, 2021
8-K
001-34789
1.7
June 1, 2021
8-K
001-34789
1.8
June 1, 2021
8-K
001-34789
10.1
December 11, 2014
8-K
001-34789
10.2
December 11, 2014
8-K
001-34789
10.1
January 12, 2015
10-Q
001-34789
10.93
November 6, 2015
8-K
001-34789
10.2
November 20, 2015
8-K
001-34789
10.6
December 21, 2015
10-Q
001-34789
10.8
August 4, 2016
10-Q
001-34789
10.2
November 6, 2017
8-K
10-Q
001-34789
001-34789
10.1
10.2
December 14, 2018
May 7, 2019
Exhibit
No.
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
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
21.1
23.1
31.1
31.2
31.3
31.4
32.1
Description
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 Christopher J. Barton, 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.
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.
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.
Fourth Amended and Restated Credit Agreement, dated as of December 21, 2021, by
and among Hudson Pacific Properties, L.P., as borrower, each of the lenders party
thereto, Wells Fargo Bank, National Association, as administrative agent.
First Modification Agreement to the Fourth Amended and Restated Credit Agreement,
dated as of September 15, 2022, by and among Hudson Pacific Properties, L.P., as
borrower, each of the lenders party thereto, Wells Fargo Bank, National Association, as
administrative agent.
Second Modification Agreement to the Fourth Amended and Restated Credit
Agreement, dated as of December 22, 2023, by and among Hudson Pacific Properties,
L.P., as borrower, each of the lenders party thereto and Wells Fargo Bank, National
Association, as administrative agent.
Incorporated by Reference
Form
10-K
File No.
Exhibit
No.
Filing Date
001-34789
10.79
February 24, 2020
10-K
001-34789
10.80
February 24, 2020
10-K
001-34789
10.82
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
10.88
February 24, 2020
10-K
001-34789
10.89
February 24, 2020
8-K
001-34789
10.1
December 21, 2021
8-K
001-34789
10.1
September 16, 2022
8-K
001-34789
10.1
December 27, 2023
Form of Performance-Based LTIP Unit Agreement.*
10-K
001-34789
10.93
February 22, 2021
10-K
001-34789
10.96
February 18, 2022
10-K
001-34789
10.97
February 18, 2022
10-K
001-34789
10.98
February 18, 2022
10-K
8-K
10-K
10-K
10-Q
10-Q
001-34789
001-34789
10.99
10.1
February 18, 2022
March 10, 2022
001-34789
001-34789
001-34789
001-34789
10.102
10.103
10.1
10.1
February 10, 2023
February 10, 2023
May 9, 2023
August 4, 2023
Employment Agreement between Hudson Pacific Properties, Inc. and Steven Jaffe,
dated January 1, 2020.*
Indemnification Agreement, dated January 1, 2020, by and between Hudson Pacific
Properties, Inc. and Steven Jaffe.
Employment Agreement between Hudson Pacific Properties, Inc. and Arthur Suazo,
dated January 1, 2020.*
Indemnification Agreement, dated January 1, 2020, by and between Hudson Pacific
Properties, Inc. and Arthur Suazo.
Form of Performance-Based LTIP Unit Agreement.*
Indemnification Agreement, dated March 17, 2022, by and between Hudson Pacific
Properties, Inc. and Erinn Burnough.
Hudson Pacific Properties - Non-Employee Director Compensation Program.
Form of Performance-Based LTIP Unit Agreement.*
Indemnification Agreement, dated March 13, 2023, by and between Hudson Pacific
Properties, Inc. and Barry Sholem.
Indemnification Agreement, dated November 8, 2023, by and between Hudson Pacific
Properties, Inc. and Robert L. Harris II.+
Indemnification Agreement, dated January 1, 2024, by and between Hudson Pacific
Properties, Inc. and Michael Nash.+
Form of Performance-Based LTIP Unit Agreement.*+
Amended and Restated Hudson Pacific Properties, Inc. and Hudson Pacific Properties,
L.P. 2010 Incentive Award Plan*+
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.+
72
Exhibit
No.
32.2
97.1
99.1
101
104
*
**
Description
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.+
Hudson Pacific Properties, Inc. Policy for Recovery of Erroneously Awarded
Compensation+
Incorporated by Reference
Form
File No.
Exhibit
No.
Filing Date
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, 2023 formatted in iXBRL (Inline
eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive
(Loss) 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.
73
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 16, 2024
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/ EBS BURNOUGH
Ebs Burnough
/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/ MICHAEL NASH
Michael Nash
/S/ BARRY SHOLEM
Barry Sholem
/S/ ANDREA L. WONG
Andrea L. Wong
Date
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
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
74
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 16, 2024
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/ EBS BURNOUGH
Ebs Burnough
/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/ MICHAEL NASH
Michael Nash
/S/ BARRY SHOLEM
Barry Sholem
/S/ ANDREA L. WONG
Andrea L. Wong
Date
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
February 16, 2024
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
75
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, 2023. 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,
2023, 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, 2023, 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, 2023.
/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
To the Shareholders and the Board of Directors 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, 2023, 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, 2023, 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 the Company as of December 31, 2023 and 2022, the related consolidated statements
of operations, comprehensive (loss) income, equity and cash flows for each of the three years in the period ended December 31,
2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 16,
2024 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 Management’s Annual
Report 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 16, 2024
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors 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, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, equity and cash
flows for each of the three years in the period ended December 31, 2023, 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 financial position of the Company at December 31,
2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2023, 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, 2023, 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 16, 2024 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates 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 matter 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 matter below, providing a separate opinion on the critical audit matter
or on the accounts or disclosures to which it relates.
F-3
Impairment of investment in real estate
Description of the
Matter
The Company’s investment in real estate, net totaled $6.5 billion as of December 31, 2023. 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 it’s carrying amount, at which time the real estate asset is written down to its estimated fair value.
The Company recognized impairment charges of $60 million during the year ended December 31, 2023.
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. Additionally, auditing the Company’s test for recoverability and measurement of
impairment involves subjective auditor judgment in evaluating the reasonableness of management’s selected
assumptions used in estimating future cash flows and the fair value of the real estate asset.
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, review of the estimated
future cash flows, and estimation of the fair value of the real estate asset.
Our testing of the Company’s impairment assessment included, among other procedures, evaluating
significant judgments applied in determining whether indicators of impairment were present for 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 negative trends in property performance due to occupancy or
cash flow changes, concentrations of significant upcoming lease expirations, and lease renegotiations or
significant allowances for doubtful accounts for tenants that occupy a significant portion of a real estate asset.
Additionally, we involved our valuation specialists in evaluating the reasonableness of management’s
selected assumptions in the Company’s test for recoverability and measurement of impairment, if applicable,
by utilizing independently identified external market sources. We also searched for contrary or corroborating
evidence within other sources of the Company’s data as it relates to the underlying assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2009.
Los Angeles, California
February 16, 2024
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
Non-real estate property, plant and equipment, net
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Straight-line rent receivables, net
Deferred leasing costs and intangible assets, net
Operating lease right-of-use assets
Prepaid expenses and other assets, net
Investment in unconsolidated real estate entities
Goodwill
Assets associated with real estate held for sale
TOTAL ASSETS
LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net
Joint venture partner debt
Accounts payable, accrued liabilities and other
Operating lease liabilities
Intangible liabilities, net
Security deposits, prepaid rent and other
Liabilities associated with real estate held for sale
Total liabilities
Commitments and contingencies (Note 19)
December 31,
2023
December 31,
2022
$
8,212,896 $
8,716,572
(1,728,437)
6,484,459
(1,541,271)
7,175,301
118,783
100,391
18,765
24,609
220,787
326,950
376,306
94,145
252,711
264,144
—
130,289
255,761
29,970
16,820
279,910
393,842
401,051
98,837
180,572
263,549
93,238
$
8,282,050 $
9,319,140
$
3,945,314 $
4,585,862
66,136
203,736
389,210
27,751
88,734
—
66,136
264,098
399,801
34,091
83,797
665
4,720,881
5,434,450
Redeemable preferred units of the operating partnership
Redeemable non-controlling interest in consolidated real estate entities
9,815
57,182
9,815
125,044
Equity
Hudson Pacific Properties, Inc. stockholders’ equity:
4.750% Series C cumulative redeemable preferred stock, $0.01 par value, $25.00 per share liquidation preference,
18,400,000 authorized, 17,000,000 shares outstanding at December 31, 2023 and 2022
Common stock, $0.01 par value, 481,600,000 authorized, 141,034,806 and 141,054,478 shares outstanding at
December 31, 2023 and 2022, respectively
425,000
425,000
1,403
1,409
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
2,651,798
(187)
3,078,014
335,439
80,719
3,494,172
$
8,282,050 $
2,889,967
(11,272)
3,305,104
377,756
66,971
3,749,831
9,319,140
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)
REVENUES
Office
Rental
Service and other revenues
Total office revenues
Studio
Rental
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 (EXPENSES)
(Loss) income from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Management services reimbursement income—unconsolidated real estate entities
Management services expense—unconsolidated real estate entities
Transaction-related expenses
Unrealized (loss) gain on non-real estate investments
Gain (loss) on sale of real estate
Impairment loss
Gain (loss) on extinguishment of debt
Other (expense) income
Loss on sale of bonds
Total other expenses
(Loss) income before income tax provision
Income tax provision
Net (loss) income
Net income attributable to Series A preferred units
Net income attributable to Series C preferred shares
Net income attributable to participating securities
Net loss (income) attributable to non-controlling interest in consolidated real estate entities
Net (income) loss attributable to redeemable non-controlling interest in consolidated real estate entities
Net loss (income) attributable to common units in the operating partnership
Year Ended December 31,
2023
2022
2021
$
797,095 $
834,408
$
782,736
15,280
812,375
59,276
80,646
139,922
952,297
312,018
138,447
74,958
397,846
923,269
(3,902)
6,181
18,292
852,700
59,672
113,852
173,524
1,026,224
308,668
105,150
79,501
373,219
866,538
943
7,972
12,634
795,370
49,985
51,480
101,465
896,835
280,334
55,513
71,346
343,614
750,807
1,822
3,221
(214,415)
(149,901)
(121,939)
2,340
4,163
(4,163)
(14,356)
(1,440)
(2,164)
(28,548)
—
8,951
—
3,794
1,132
(1,132)
(8,911)
16,571
—
(2,762)
(6,259)
(2,553)
—
(176,203)
(117,016)
2,182
4,125
(4,125)
1,150
(3,120)
103,202
(60,158)
10,000
(6)
(34,046)
(192,932)
(163,904)
(6,796)
(16,517)
—
(170,700)
(16,517)
(612)
(20,188)
(850)
9,331
(12,520)
3,358
(612)
(20,431)
(1,194)
(23,418)
4,964
709
29,012
—
29,012
(612)
(2,281)
(1,090)
(21,806)
2,902
(61)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(192,181) $
(56,499) $
6,064
BASIC AND DILUTED PER SHARE AMOUNTS
Net (loss) income attributable to common stockholders—basic
Net (loss) income attributable to common stockholders—diluted
Weighted average shares of common stock outstanding—basic
Weighted average shares of common stock outstanding—diluted
$
$
(1.36) $
(1.36) $
(0.39) $
(0.39) $
0.04
0.04
140,953,088
143,732,433
151,618,282
140,953,088
143,732,433
151,943,360
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 (loss) income
Currency translation adjustments
Net unrealized gains (losses) on derivative instruments:
Unrealized gains
Reclassification adjustment for realized (gains) losses
Total net gains on derivative instruments:
Total other comprehensive income (loss)
Comprehensive (loss) income
Comprehensive income attributable to Series A preferred units
Comprehensive income attributable to Series C preferred stock
Comprehensive income attributable to participating securities
Comprehensive loss (income) attributable to non-controlling interest in consolidated real estate entities
Comprehensive (income) loss attributable to redeemable non-controlling interest in consolidated real estate
entities
Comprehensive loss (income) attributable to non-controlling interest in the operating partnership
Year Ended December 31,
2023
2022
2021
$
(170,700) $
(16,517) $
29,012
6,325
(12,375)
(1,064)
9,214
(4,634)
4,580
10,905
621
2,097
2,718
(9,657)
(159,795)
(26,174)
(612)
(20,188)
(850)
9,824
(12,520)
3,045
(612)
(20,431)
(1,194)
(23,442)
4,964
879
171
7,360
7,531
6,467
35,479
(612)
(2,281)
(1,090)
(21,806)
2,902
(156)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(181,096) $
(66,010) $
12,436
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
Series C
Cumulative
Redeemable
Preferred
Stock
Shares of
Common
Stock
Stock
Amount
Additional
Paid-in
Capital
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Units in the
Operating
Partnership
Members in
Consolidated
Real Estate
Entities
Total
Equity
Balance, December 31, 2020
$
—
151,401,365 $ 1,514 $ 3,469,758 $
— $
(8,133) $
37,832 $
467,009 $ 3,967,980
Contributions
Distributions
Proceeds from sale of
common stock, net of
underwriters’ discount and
transaction costs
Transaction costs
Issuance of unrestricted stock
Issuance of Series C
cumulative redeemable
preferred stock
Shares withheld to satisfy tax
withholding obligations
—
—
—
—
1,526,163
—
—
—
222,781
425,000
—
—
—
15
—
2
—
—
—
44,805
(243)
(2)
(11,993)
—
(90,843)
(1)
(2,205)
Repurchase of common stock
—
(1,934,923)
(19)
(46,118)
—
—
—
—
—
—
—
—
(145,158)
(7,154)
Declared dividend
(2,281)
Amortization of stock-based
compensation
Net income
Other comprehensive income
—
2,281
—
—
—
—
—
—
—
—
—
8,228
—
—
Balance, December 31, 2021
425,000
151,124,543 1,511
3,317,072
Contributions
Distributions
Transaction costs
Issuance of unrestricted stock
Shares withheld to satisfy tax
withholding obligations
—
—
—
—
—
—
—
—
234,741
—
—
—
2
—
—
(573)
(2)
(70,722)
(1)
(694)
Repurchase of common stock
—
(2,105,359)
(21)
(37,185)
Accelerated repurchase of
common stock
—
(8,128,725)
(82)
(199,918)
Declared dividend
(20,431)
Amortization of stock-based
compensation
Net income (loss)
Other comprehensive (loss)
income
—
20,431
—
—
—
—
—
—
—
—
—
—
—
(198,016)
55,305
9,283
—
Balance, December 31, 2022
425,000
141,054,478 1,409
2,889,967
Contributions
Distributions
Issuance of unrestricted stock
Shares withheld to satisfy tax
withholding obligations
Repurchase of common stock
—
—
—
—
—
—
—
232,358
—
—
1
—
—
(1)
(64,630)
(1)
(605)
(187,400)
(6)
(1,363)
Declared dividend
(20,188)
Amortization of stock-based
compensation
Net income (loss)
Other comprehensive income
(loss)
—
20,188
—
—
—
—
—
—
—
—
(244,552)
191,331
8,352
—
(191,331)
—
—
—
7,154
—
—
—
—
—
—
—
—
—
(55,305)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,372
(1,761)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,248)
16,459
24,718
24,718
(110,562)
(110,562)
—
44,820
—
—
(243)
—
—
413,007
—
—
—
—
(2,206)
(46,137)
(156,841)
24,687
31,302
6,467
61
95
21,806
—
52,199
402,971
4,196,992
—
—
—
—
—
—
—
23,689
23,689
(72,346)
(72,346)
—
—
—
—
(573)
—
(695)
(37,206)
—
(200,000)
(2,716)
—
(165,858)
18,367
—
27,650
(709)
23,418
(12,165)
(9,511)
(170)
24
(9,657)
(11,272)
66,971
377,756
3,749,831
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,739)
18,532
26,480
26,480
(58,973)
(58,973)
—
—
—
—
—
—
(606)
(1,369)
(75,148)
26,884
(3,358)
(9,331)
(183,832)
—
11,085
313
(493)
10,905
Balance, December 31, 2023
$
425,000
141,034,806 $ 1,403 $ 2,651,798 $
— $
(187) $
80,719 $
335,439 $ 3,494,172
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 (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Year Ended December 31,
2023
2022
2021
$
(170,700) $
(16,517) $
29,012
Depreciation and amortization
Non-cash interest expense
Amortization of stock-based compensation
Income (loss) from unconsolidated real estate entities
Unrealized loss (gain) on non-real estate investments
Straight-line rents
Straight-line rent expense
Amortization of above- and below-market leases, net
Amortization of above- and below-market ground lease, net
Amortization of lease incentive costs
Distribution of income from unconsolidated real estate entities
Impairment loss
Earnout liability fair value adjustment
(Gain) loss on sale of real estate
Loss on sale of bonds
Gain from insurance proceeds
Deferred tax provision
(Gain) loss on extinguishment of debt
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, prepaid rent and other
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of real estate
Additions to investment property
Property acquisitions
Acquisitions of businesses
Maturities of U.S. Government securities
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
Additions to non-real estate property, plant and equipment
Insurance proceeds for damaged property, plant and equipment
Net cash provided by (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 sale of common stock
Proceeds from issuance of Series C cumulative redeemable preferred stock
Transaction costs
Repurchases of common stock
Accelerated share repurchase
Dividends paid to common stock and unitholders
Dividends paid to preferred stock and 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 bonds
Payments to satisfy tax withholding obligations
Payment of loan costs
Net cash (used in) provided by financing activities
Net (decrease) increase 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
$
397,846
21,867
23,863
3,902
3,120
(701)
5,118
(6,235)
2,752
1,115
—
60,158
(4,300)
(103,202)
34,046
—
6,609
(10,000)
(5,678)
(16,145)
(10,321)
(3,115)
2,257
232,256
843,021
(298,823)
—
—
—
(4,916)
—
503
2,528
(68,732)
(5,740)
—
467,841
373,219
5,154
24,296
(943)
1,440
(38,508)
3,198
(8,032)
2,731
1,545
1,243
28,548
1,757
2,164
—
(1,167)
—
—
16,150
(33,940)
(2,240)
11,718
(2,315)
369,501
137,709
(276,798)
(96,459)
(199,098)
129,300
(17,109)
1,492
—
1,875
(40,081)
(20,209)
1,284
(378,094)
343,614
10,463
21,163
(1,822)
(16,571)
(21,895)
1,421
(11,415)
2,367
1,885
1,916
2,762
—
—
—
—
—
6,259
3,523
(19,831)
(32,669)
(38)
(5,281)
314,863
—
(338,629)
(118,907)
(209,854)
5,778
(12,397)
53
—
1,654
(75,585)
(6,321)
—
(754,208)
382,356
(1,203,632)
—
—
—
—
(1,369)
—
(54,960)
(20,800)
2,025
(82,407)
26,480
(58,973)
145,535
(88)
(839)
(866,672)
(166,575)
285,731
119,156 $
1,197,556
(515,000)
(128,212)
—
—
(573)
(37,206)
(200,000)
(145,427)
(23,324)
575
(16)
23,689
(72,346)
—
(695)
(1,573)
97,448
88,855
196,876
285,731 $
1,450,500
(1,117,903)
(3,494)
44,974
413,007
(397)
(46,137)
—
(154,560)
(612)
4,493
(16)
24,718
(110,562)
—
(2,206)
(15,124)
486,681
47,336
149,540
196,876
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Report of Independent Registered Public Accounting Firm
To the Partners of Hudson Pacific Properties, L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, L.P. (the “Operating Partnership”)
as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, capital and
cash flows for each of the three years in the period ended December 31, 2023, 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 financial position of the Operating Partnership at
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2023, 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates 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 matter 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 matter below, providing a separate opinion on the critical audit matter
or on the accounts or disclosures to which it relates.
F-10
Impairment of investment in real estate
Description of the
Matter
The Company’s investment in real estate, net totaled $6.5 billion as of December 31, 2023. 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 it’s carrying amount, at which time the real estate asset is written down to its estimated fair value.
The Company recognized impairment charges of $60 million during the year ended December 31, 2023.
How We
Addressed the
Matter in Our
Audit
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. Additionally, auditing the Company’s test for recoverability and measurement of
impairment involves subjective auditor judgment in evaluating the reasonableness of management’s selected
assumptions used in estimating future cash flows and the fair value of the real estate asset.
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, review of the estimated
future cash flows, and estimation of the fair value of the real estate asset.
Our testing of the Company’s impairment assessment included, among other procedures, evaluating
significant judgments applied in determining whether indicators of impairment were present for 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 negative trends in property performance due to occupancy or
cash flow changes, concentrations of significant upcoming lease expirations, and lease renegotiations or
significant allowances for doubtful accounts for tenants that occupy a significant portion of a real estate asset.
Additionally, we involved our valuation specialists in evaluating the reasonableness of management’s
selected assumptions in the Company’s test for recoverability and measurement of impairment, if applicable,
by utilizing independently identified external market sources. We also searched for contrary or corroborating
evidence within other sources of the Company’s data as it relates to the underlying assumptions.
/s/ Ernst & Young LLP
We have served as the Operating Partnership’s auditor since 2015.
Los Angeles, California
February 16, 2024
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
Non-real estate property, plant and equipment, net
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Straight-line rent receivables, net
Deferred leasing costs and intangible assets, net
Operating lease right-of-use assets
Prepaid expenses and other assets, net
Investment in unconsolidated real estate entities
Goodwill
Assets associated with real estate held for sale
TOTAL ASSETS
LIABILITIES AND CAPITAL
Liabilities
Unsecured and secured debt, net
Joint venture partner debt
Accounts payable, accrued liabilities and other
Operating lease liabilities
Intangible liabilities, net
Security deposits, prepaid rent and other
Liabilities associated with real estate held for sale
Total liabilities
Commitments and contingencies (Note 19)
December 31,
2023
December 31,
2022
$
8,212,896 $
8,716,572
(1,728,437)
(1,541,271)
6,484,459
7,175,301
118,783
100,391
18,765
24,609
220,787
326,950
376,306
94,145
252,711
264,144
—
130,289
255,761
29,970
16,820
279,910
393,842
401,051
98,837
180,572
263,549
93,238
$
8,282,050 $
9,319,140
$
3,945,314 $
4,585,862
66,136
203,736
389,210
27,751
88,734
—
66,136
264,098
399,801
34,091
83,797
665
4,720,881
5,434,450
Redeemable preferred units of the operating partnership
Redeemable non-controlling interest in consolidated real estate entities
9,815
57,182
9,815
125,044
Capital
Hudson Pacific Properties, L.P. partners’ capital:
4.750% Series C cumulative redeemable preferred units, $25.00 per unit liquidation preference, 17,000,000 units
outstanding at December 31, 2023 and 2022
425,000
425,000
Common units, 143,845,239 and 143,246,320 outstanding at December 31, 2023 and 2022, respectively
2,733,795
2,958,535
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
(62)
(11,460)
3,158,733
335,439
3,494,172
3,372,075
377,756
3,749,831
$
8,282,050 $
9,319,140
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
Service and other revenues
Total office revenues
Studio
Rental
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 (EXPENSES)
(Loss) income from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Management services reimbursement income—unconsolidated real estate entities
Management services expense—unconsolidated real estate entities
Transaction-related expenses
Unrealized (loss) gain on non-real estate investments
Gain (loss) on sale of real estate
Impairment loss
Gain (loss) on extinguishment of debt
Other (expense) income
Loss on sale of bonds
Total other expenses
(Loss) income before income tax provision
Income tax provision
Net (loss) income
Net loss (income) attributable to non-controlling interest in consolidated real estate entities
Net (income) loss attributable to redeemable non-controlling interest in consolidated real estate entities
Net (loss) income attributable to Hudson Pacific Properties, L.P.
Net income attributable to Series A preferred units
Net income attributable to Series C preferred units
Net income attributable to participating securities
Year Ended December 31,
2023
2022
2021
$
797,095 $
834,408 $
782,736
15,280
812,375
59,276
80,646
139,922
952,297
312,018
138,447
74,958
397,846
923,269
(3,902)
6,181
18,292
852,700
59,672
113,852
173,524
1,026,224
308,668
105,150
79,501
373,219
866,538
943
7,972
12,634
795,370
49,985
51,480
101,465
896,835
280,334
55,513
71,346
343,614
750,807
1,822
3,221
(214,415)
(149,901)
(121,939)
2,182
4,125
(4,125)
1,150
(3,120)
103,202
(60,158)
10,000
(6)
(34,046)
(192,932)
(163,904)
(6,796)
(170,700)
9,331
(12,520)
(173,889)
(612)
(20,188)
(850)
2,340
4,163
(4,163)
(14,356)
(1,440)
(2,164)
(28,548)
—
8,951
—
(176,203)
(16,517)
—
(16,517)
(23,418)
4,964
(34,971)
(612)
(20,431)
(1,194)
3,794
1,132
(1,132)
(8,911)
16,571
—
(2,762)
(6,259)
(2,553)
—
(117,016)
29,012
—
29,012
(21,806)
2,902
10,108
(612)
(2,281)
(1,090)
6,125
NET (LOSS) INCOME AVAILABLE TO COMMON UNITHOLDERS
$
(195,539) $
(57,208) $
BASIC AND DILUTED PER UNIT AMOUNTS
Net (loss) income attributable to common unitholders—basic
Net (loss) income attributable to common unitholders—diluted
Weighted average shares of common units outstanding—basic
Weighted average shares of common units outstanding—diluted
$
$
(1.36) $
(1.36) $
(0.39) $
(0.39) $
0.04
0.04
143,421,154
145,580,928
153,007,287
143,421,154
145,580,928
153,332,365
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 (loss) income
Currency translation adjustments
Net gains (losses) on derivative instruments:
Unrealized gains
Reclassification adjustment for realized (gains) losses
Total net gains on derivative instruments:
Total other comprehensive income (loss)
Comprehensive (loss) income
Comprehensive income attributable to Series A preferred units
Comprehensive income attributable to Series C preferred units
Comprehensive income attributable to participating securities
Comprehensive loss (income) attributable to non-controlling interest in consolidated real estate entities
Year Ended December 31,
2023
2022
2021
$ (170,700) $
(16,517) $
29,012
6,325
(12,375)
(1,064)
9,214
(4,634)
4,580
10,905
621
2,097
2,718
(9,657)
171
7,360
7,531
6,467
(159,795)
(26,174)
35,479
(612)
(612)
(20,188)
(20,431)
(850)
(1,194)
(612)
(2,281)
(1,090)
9,824
(23,442)
(21,806)
Comprehensive (income) loss attributable to redeemable non-controlling interest in consolidated real estate entities
(12,520)
4,964
2,902
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO PARTNERS’ CAPITAL
$ (184,141) $
(66,889) $
12,592
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
Preferred Units
Common Units Common Units
Number of
Accumulated
Other
Comprehensive
Loss
Total
Partners’
Capital
Non-controlling
Interest—
Members in
Consolidated
Real Estate
Entities
Total
Capital
152,722,448 $
3,509,217 $
(8,246) $
3,500,971 $
467,009 $ 3,967,980
—
—
—
—
—
—
—
—
—
—
1,526,163
44,820
—
744,596
(243)
—
425,000
—
(11,993)
—
—
(2,281)
—
2,281
—
(90,843)
(2,206)
(1,934,923)
—
—
—
—
(46,137)
(154,560)
24,687
7,215
—
—
—
—
—
—
—
—
—
—
—
—
6,467
—
—
24,718
24,718
(110,562)
(110,562)
44,820
(243)
—
413,007
(2,206)
(46,137)
(156,841)
24,687
9,496
6,467
—
—
—
—
—
—
—
—
21,806
—
44,820
(243)
—
413,007
(2,206)
(46,137)
(156,841)
24,687
31,302
6,467
425,000
152,967,441
3,370,800
(1,779)
3,794,021
402,971
4,196,992
—
—
—
—
—
—
—
—
—
583,685
(70,722)
(10,234,084)
(20,431)
—
20,431
—
—
—
—
—
—
—
(573)
—
(695)
(237,206)
(145,427)
27,650
(56,014)
—
—
—
—
—
—
—
—
—
—
(9,681)
—
—
(573)
—
(695)
(237,206)
(165,858)
27,650
(35,583)
(9,681)
23,689
23,689
(72,346)
(72,346)
—
—
—
—
—
—
(573)
—
(695)
(237,206)
(165,858)
27,650
23,418
(12,165)
24
(9,657)
Balance, December 31, 2020
$
Contributions
Distributions
Proceeds from sale of common units, net
of underwriters’ discount and transaction
costs
Transaction costs
Issuance of unrestricted units
Issuance of Series C cumulative
redeemable preferred units
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, 2021
Contributions
Distributions
Transaction costs
Issuance of unrestricted units
Units withheld to satisfy tax withholding
obligations
Repurchase of common units
Declared distributions
Amortization of unit-based compensation
Net income (loss)
Other comprehensive (loss) income
Balance, December 31, 2022
425,000
143,246,320
2,958,535
(11,460)
3,372,075
377,756
3,749,831
Contributions
Distributions
Issuance of unrestricted units
Units withheld to satisfy tax withholding
obligations
Repurchase of common units
Declared distributions
Amortization of unit-based compensation
Net income (loss)
Other comprehensive income (loss)
—
—
—
—
—
(20,188)
—
20,188
—
—
—
850,949
—
—
—
(64,630)
(606)
(187,400)
—
—
—
—
(1,369)
(54,960)
26,884
(194,689)
—
—
—
—
—
—
—
—
—
—
—
(606)
(1,369)
(75,148)
26,884
26,480
26,480
(58,973)
(58,973)
—
—
—
—
—
—
(606)
(1,369)
(75,148)
26,884
(174,501)
(9,331)
(183,832)
—
11,398
11,398
(493)
10,905
Balance, December 31, 2023
$
425,000
143,845,239 $
2,733,795 $
(62) $
3,158,733 $
335,439 $ 3,494,172
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 (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Year Ended December 31,
2022
2021
2023
$
(170,700) $
(16,517) $
29,012
Depreciation and amortization
Non-cash interest expense
Amortization of unit-based compensation
Income (loss) from unconsolidated real estate entities
Unrealized loss (gain) on non-real estate investments
Straight-line rents
Straight-line rent expense
Amortization of above- and below-market leases, net
Amortization of above- and below-market ground lease, net
Amortization of lease incentive costs
Distribution of income from unconsolidated real estate entities
Impairment loss
Earnout liability fair value adjustment
(Gain) loss on sale of real estate
Loss on sale of bonds
Gain from insurance proceeds
Deferred tax provision
(Gain) loss on extinguishment of debt
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, prepaid rent and other
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of real estate
Additions to investment property
Property acquisitions
Acquisitions of businesses
Maturities of U.S. Government securities
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
Additions to non-real estate property, plant and equipment
Insurance proceeds for damaged property, plant and equipment
Net cash provided by (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
Proceeds from sale of common stock
Proceeds from issuance of Series C cumulative redeemable preferred units
Transaction costs
Repurchase of common units
Distributions paid to common unitholders
Distributions 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 bonds
Payments to satisfy tax withholding obligations
Payment of loan costs
Net cash (used in) provided by financing activities
Net (decrease) increase 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
$
397,846
21,867
23,863
3,902
3,120
(701)
5,118
(6,235)
2,752
1,115
—
60,158
(4,300)
(103,202)
34,046
—
6,609
(10,000)
(5,678)
(16,145)
(10,321)
(3,115)
2,257
232,256
843,021
(298,823)
—
—
—
(4,916)
—
503
2,528
(68,732)
(5,740)
—
467,841
373,219
5,154
24,296
(943)
1,440
(38,508)
3,198
(8,032)
2,731
1,545
1,243
28,548
1,757
2,164
—
(1,167)
—
—
16,150
(33,940)
(2,240)
11,718
(2,315)
369,501
137,709
(276,798)
(96,459)
(199,098)
129,300
(17,109)
1,492
—
1,875
(40,081)
(20,209)
1,284
(378,094)
343,614
10,463
21,163
(1,822)
(16,571)
(21,895)
1,421
(11,415)
2,367
1,885
1,916
2,762
—
—
—
—
—
6,259
3,523
(19,831)
(32,669)
(38)
(5,281)
314,863
—
(338,629)
(118,907)
(209,854)
5,778
(12,397)
53
—
1,654
(75,585)
(6,321)
—
(754,208)
382,356
(1,203,632)
—
—
—
—
—
(1,369)
(54,960)
(20,800)
2,025
(82,407)
26,480
(58,973)
145,535
(88)
(839)
(866,672)
(166,575)
285,731
119,156 $
1,197,556
(515,000)
(128,212)
—
—
—
(573)
(237,206)
(145,427)
(23,324)
575
(16)
23,689
(72,346)
—
(695)
(1,573)
97,448
88,855
196,876
285,731 $
1,450,500
(1,117,903)
(3,494)
—
44,974
413,007
(397)
(46,137)
(154,560)
(612)
4,493
(16)
24,718
(110,562)
—
(2,206)
(15,124)
486,681
47,336
149,540
196,876
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 following table summarizes the Company’s portfolio as of December 31, 2023:
Segments
Consolidated portfolio
Office
Studio
Future development
Total consolidated portfolio
Unconsolidated portfolio(1)
Office(2)
Studio(3)
Future development(4)
Total unconsolidated portfolio
TOTAL
Number of
Properties
Square Feet
(unaudited)
45
3
5
53
1
2
2
5
13,131,277
1,256,522
1,616,242
16,004,041
1,521,084
473,000
1,617,347
3,611,431
58
19,615,472
_________________
1.
The Company owns 20% of the unconsolidated joint venture entity that owns the Bentall Centre property, 50% of the unconsolidated joint venture entity that
owns Sunset Glenoaks Studios, 35% of the unconsolidated joint venture entity that owns Sunset Waltham Cross Studios and approximately 26% of the
unconsolidated joint venture entity that owns the Sunset Pier 94 Studios development. The square footage shown above represents 100% of the properties.
Includes Bentall Centre.
Includes Sunset Glenoaks Studios and Sunset Pier 94 Studios.
Includes land for the Burrard Exchange and Sunset Waltham Cross Studios.
2.
3.
4.
Concentrations
As of December 31, 2023, the Company’s office properties were located in Los Angeles, the San Francisco Bay Area,
Seattle, and Vancouver, British Columbia. The Company’s owned studio properties were primarily located in Los Angeles and
New York. 68.9% of the square feet in the Company’s consolidated and unconsolidated portfolio is 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, 2023, approximately 21.4% and 17.1% of consolidated and unconsolidated rentable
square feet, excluding our under construction and future development pipeline, were related to the tenants in the technology and
media and entertainment industries, respectively.
As of December 31, 2023, the Company’s 15 largest tenants represented approximately 22.6% of consolidated and
unconsolidated rentable square feet. No single tenant accounted for more than 10%.
For the year ended December 31, 2023, Google, Inc. represented 14.3% of the Company’s revenue for the office segment
and Netflix, Inc. represented 20.0% of the Company’s revenue for the studio segment.
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
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)
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”).
The Company has reclassified a gain on derivatives of $8.7 million from gain on derivatives to non-cash interest expense
on the Consolidated Statement of Cash Flows for the year ended December 31, 2022 to conform to the presentation for the year
ended December 31, 2023.
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, 2023, the Company has
determined that its operating partnership and 20 joint ventures met the definition of a VIE. 13 of these joint ventures are
consolidated and seven are unconsolidated.
Consolidated Joint Ventures
As of December 31, 2023, the operating partnership has determined that 13 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
Hudson One Ferry REIT, L.P.
Property
1455 Market
Hill7
None(1)
Ferry Building
Sunset Bronson Entertainment Properties, LLC
Sunset Bronson Studios, ICON, CUE
Sunset Gower Entertainment Properties, LLC
Sunset Gower Studios
Sunset 1440 North Gower Street, 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.
Sunset Las Palmas Studios, Harlow
None(2)
EPIC
None(3)
6040 Sunset
1918 Eighth
__________________
1.
HPP-MAC WSP, LLC owned 100% of the One Westside and Westside Two properties prior to their sale in December 2023.
Ownership Interest
55.0 %
55.0 %
75.0 %
55.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
51.0 %
55.0 %
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)
2.
3.
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 Sunset Bronson Entertainment Properties, LLC, Sunset Gower Entertainment
Properties, LLC and Sunset Las Palmas Entertainment Properties, LLC, respectively.
Hudson Media and Entertainment Management, LLC manages the following properties: Sunset Gower Studios, Sunset Bronson Studios, Sunset Las Palmas
Studios, 6040 Sunset, ICON, CUE, EPIC and Harlow (collectively “Hollywood Media Portfolio”).
As of December 31, 2023 and 2022, 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, 2023, the Company has determined it is not the primary beneficiary of seven of its joint ventures that
are VIEs. 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.
On August 28, 2023, the Company entered into a joint venture with subsidiaries of Blackstone Property Partners and
Vornado Realty Trust to develop Sunset Pier 94 Studios in the borough of Manhattan in New York, New York. The Company
owns approximately 26% of the ownership interests in the joint venture.
The Company’s net equity investment in its unconsolidated joint ventures 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 joint ventures is
included within (loss) income from unconsolidated real estate entities on the Consolidated Statements of Operations. The
Company uses the cumulative earnings approach for determining cash flow presentation of distributions from unconsolidated joint
ventures. Under this approach, distributions up to the amount of cumulative equity in earnings recognized are classified as cash
inflows from operating activities, and those in excess of that amount are classified as cash inflows from investing activities. Refer
to Note 6 for further details regarding our investments in unconsolidated joint ventures.
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 and assessing the carrying values of its real estate
properties, the fair value measurement of contingent consideration, assets acquired and liabilities assumed in business combination
transactions, determining the incremental borrowing rate used in the present value calculations of its new or modified operating
lessee agreements, its accrued liabilities, and the valuation of performance-based equity compensation awards. The Company bases
its 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.
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.
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)
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.
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.
Business Combinations
From time to time, we may enter into business combinations. In accordance with ASC 805, Business Combinations, the
Company applies the acquisition method for acquisitions that meet the definition of a business combination. Under the acquisition
method, the Company estimates the fair value of the identifiable assets and liabilities of the acquired entity on the acquisition date.
Acquired intangible assets are valued using different methods under the income approach, including the excess earnings method
for customer relationships, the relief-from-royalty method for trade names, and the lost profits method for non-compete
agreements. The fair values of acquired “above- and below-” market leases are estimated 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. Acquired property,
plant and equipment is valued using the cost approach, including consideration of reproduction or replacement costs, economic
depreciation and obsolescence. We measure goodwill as the excess of consideration transferred over the net of the acquisition date
fair values of the identifiable assets acquired and liabilities assumed. Goodwill is assigned to each reporting unit that is expected to
benefit from the synergies of the business combination. Acquisition-related expenses and transaction costs 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 acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair value
of the identifiable assets and liabilities of the acquired entity on the acquisition date. The Company estimates the fair value using
observable inputs classified as Level 2 and unobservable inputs classified as Level 3 of the fair value hierarchy. Significant
estimates and assumptions include subjective and/or complex judgments regarding items such as revenue growth rates, long-term
growth rates, discount rates, customer retention rates, royalty rates, market rental rates and other factors, including estimating
future cash flows that we expect to generate from the acquired assets.
The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed
one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts
that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a
material impact on our financial condition and results of operations. If the subsequent actual results and updated projections of the
underlying business activity change compared with the assumptions and projections used to develop these values, we could record
future impairment charges.
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)
Investment in Real Estate Properties
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,
2023
2022
2021
$
$
16,496 $
32,253 $
18,098 $
18,031 $
16,728
21,689
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
Estimated Useful Life (Years)
Shorter of the ground lease term or 39
15
5 to 7
Tenant and leasehold improvements
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 a 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. The estimated fair value is generally based on a purchase and sale agreement, letter of intent, or a broker estimated value of
the property. The Company will recognize an impairment loss on real estate assets held for sale when the carrying value is greater
than the fair value, which is based on the estimated sales price of the property, which is classified within Level 2 of the fair value
hierarchy.
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)
The Company assesses the carrying value of real estate assets and related intangibles 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, based Level 2 inputs.
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, 2023, 2022 and 2021.
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 over the life of the asset or its intended holding period. We evaluate our real estate assets for impairment on a
property-by-property basis. Indicators we consider to determine whether an impairment evaluation is necessary include, but are not
limited to, deterioration in operating cash flows, low occupancy levels, significant near-term lease expirations, default or
bankruptcy by a significant tenant and expectations that, more likely than not, a property will be sold or otherwise disposed of
before the end of its previously estimated useful life or hold period.
If impairment indicators are present for a specific real estate asset, we perform a recoverability test by comparing the
carrying value of the asset group to the asset group’s estimated undiscounted future cash flows over the anticipated hold period. If
the carrying value exceeds the estimated undiscounted future cash flows, we then compare the carrying value to the asset group’s
estimated fair value and recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The
future cash flows utilized in the evaluation of recoverability and the measurement of fair value are highly subjective and are based
on assumptions regarding anticipated hold periods, future occupancy, future rental rates, future capital requirements, discount rates
and capitalization rates, which are considered Level 2 and Level 3 inputs within the fair value hierarchy. Given the level of
sensitivity in the inputs, a change in the value of any one input, in isolation or in combination, could significantly affect the overall
estimation of the undiscounted future cash flows and fair value of an asset group.
Goodwill and Acquired Intangible Assets
Goodwill is an unidentifiable intangible asset and is recognized as a residual, generally measured as the excess of
consideration transferred in a business combination over the identifiable assets acquired and liabilities assumed. Goodwill is
assigned to reporting units that are expected to benefit from the synergies of the business combination.
The Company tests its goodwill and indefinite-lived intangible assets for impairment at least annually, or more frequently
if events or changes in circumstances indicate that the asset may be impaired. Goodwill is tested for impairment at the reporting
unit to which it is assigned, which can be an operating segment or one level below an operating segment. The Company has three
operating segments: the management entity, Office and Studio, each of which is a reporting unit. The Studio reporting unit consists
of the Zio Entertainment Network, LLC (“Zio”) and Star Waggons, LLC (“Star Waggons”) businesses acquired during the year
ended December 31, 2021 and the Quixote Studios, LLC (“Quixote”) business acquired during the year ended December 31, 2022.
The assessment of goodwill for impairment may initially be performed based on qualitative factors to determine if it is more likely
than not that the fair value of the reporting unit is less than its carrying value, including goodwill. If so, a quantitative assessment is
performed, and to the extent the carrying value of the reporting unit exceeds its fair value, impairment is recognized for the excess
up to the amount of goodwill assigned to the reporting unit. Alternatively, the Company may bypass a qualitative assessment and
proceed directly to a quantitative assessment.
A qualitative assessment considers various factors such as macroeconomic, industry and market conditions to the extent
they affect the earnings performance of the reporting unit, changes in business strategy and/or management of the reporting unit,
changes in composition or mix of revenues and/or cost structure of the reporting unit, financial performance and business prospects
of the reporting unit, among other factors.
In a quantitative assessment, significant judgment, assumptions and estimates are applied in determining the fair value of
reporting units. The Company generally uses the income approach to estimate fair value by discounting the projected net cash
flows of the reporting unit, and may corroborate with market-based data where available and appropriate. Projection of future cash
flows is based upon various factors, including, but not limited to, our strategic plans in regard to our business and operations,
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)
internal forecasts, terminal year residual revenue multiples, operating profit margins, pricing of similar businesses and comparable
transactions where applicable, and risk-adjusted discount rates to present value future cash flows. Given the level of sensitivity in
the inputs, a change in the value of any one input, in isolation or in combination, could significantly affect the overall estimation of
fair value of the reporting unit.
As of December 31, 2023, December 31, 2022, and December 31, 2021, the carrying value of goodwill was
$264.1 million, $263.5 million and $109.4 million, respectively. During the year ended December 31, 2022, the carrying value of
goodwill increased by $154.1 million primarily due to the acquisition of Quixote. No impairment resulted during the years ended
December 31, 2023, 2022 and 2021.
Intangible assets with finite lives are amortized over their estimated useful lives using the straight-line method, which
reflects the pattern in which the assets are consumed. The estimated useful lives for acquired intangible assets range from five to
seven years. The Company assesses its intangible assets with finite lives for impairment when indicators of impairment are
identified.
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
2023
December 31,
2022
2021
$
$
$
$
255,761 $
29,970
285,731 $
96,555 $
100,321
196,876 $
100,391 $
255,761 $
18,765
29,970
119,156 $
285,731 $
113,686
35,854
149,540
96,555
100,321
196,876
The Company accounts for receivables related to rental revenues according to Accounting Standards Codification
(“ASC”) 842, Leases (“ASC 842”). The guidance requires the Company to assess, at lease commencement and subsequently,
collectability of future lease payments from its tenants. If the Company determines collectability is not probable, it recognizes an
adjustment to lower income from rentals. For amounts deemed probable of collection, the Company may also 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, 2023, accounts receivable was $25.0 million and there was a $0.4 million allowance for doubtful
accounts. As of December 31, 2022, accounts receivable was $16.9 million and there was $0.1 million allowance for doubtful
accounts.
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)
Straight-line Rent Receivables, net
As of December 31, 2023, straight-line rent receivables was $220.8 million and there was a no allowance for doubtful
accounts. As of December 31, 2022, straight-line rent receivables was $279.9 million and there was no allowance for doubtful
accounts.
Prepaid Expenses and Other Assets, net
The following table represents the Company’s prepaid expenses and other assets, net as of:
Non-real estate investments
Deferred tax assets
Interest rate derivative assets
Prepaid insurance
Deferred financing costs, net
Prepaid property tax
Stock purchase warrant
Other
December 31, 2023
December 31, 2022
$
48,581 $
47,329
2,412
6,441
10,611
4,316
2,075
—
19,709
5,317
9,292
6,530
5,824
2,041
95
22,409
98,837
PREPAID EXPENSES AND OTHER ASSETS, NET
$
94,145 $
Non-Real Estate Investments
The Company measures its investments in common stock and convertible preferred stock at fair value based on Level 1
and Level 2 inputs, respectively. The Company measures its investments in funds that do not have a readily determinable fair value
using the Net Asset Value (“NAV”) practical expedient and uses NAV reported without adjustment unless it is aware of
information indicating the NAV reported does not accurately reflect the fair value of the investment. Changes in the fair value of
these non-real estate investments are included in unrealized (loss) gain on non-real estate investments on the Consolidated
Statements of Operations. The Company recognized a net unrealized loss of $3.0 million, a net unrealized gain of $0.2 million and
a net unrealized gain of $14.9 million for the years ended December 31, 2023, 2022 and 2021, respectively, due to the observable
changes in fair value. Over the life of the investments, the Company has recognized a net unrealized gain of $10.8 million due to
the observable changes in fair value.
Stock Purchase Warrants
The Company holds investments in stock purchase warrants that give the Company rights to purchase a fixed number of
shares of common stock of a non-real estate investee. The warrants meet the definition of a derivative and are measured at fair
value based on Level 2 inputs. Changes in the fair value of the derivative assets are included in unrealized (loss) gain on non-real
estate investments on the Consolidated Statements of Operations. The Company recognized an unrealized loss of $0.1 million, an
unrealized loss of $1.6 million and an unrealized gain of $1.7 million for the years ended December 31, 2023, 2022 and 2021,
respectively, due to the observable changes in fair value.
Lease Accounting
The Company accounts for its leases under ASC 842, which 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.
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 practical expedient 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.
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)
Lessee Accounting
The Company determines if an arrangement is a lease at inception. The Company’s operating lease agreements relate to
ground leases, sound stage leases, office leases and other facility leases and are reflected in operating lease right-of-use (“ROU”)
assets and operating lease liabilities on the Consolidated Balance Sheets. For leases with a term of 12 months or less, the Company
makes 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 lease liabilities are recognized at the commencement
date based on the present value of lease payments over the lease term. 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. 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 lease liabilities was 5.6% as of December 31, 2023. ROU assets 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. ROU assets acquired in connection with
business combination transactions are also adjusted for “above- and below-” market lease terms. 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 22 years as of December 31, 2023.
Lessor Accounting
The presentation of revenues on the Consolidated Statements of Operations reflects a single lease component that
combines rental, tenant recoveries and other tenant-related revenues for the office portfolio, with the election of the lessor practical
expedient. 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 do not 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.
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 (v)
sale of real estate (vi) management fee income and (vii) management services reimbursement income.
Revenue Stream
Rental revenues
Tenant recoveries and other
tenant-related revenues
Ancillary revenues
Other revenues
Components
Office, stage and storage rentals
Reimbursement of real estate taxes, insurance, repairs and
maintenance, other operating expenses and must-take parking
revenues
Revenues derived from tenants’ use of power, HVAC and
telecommunications (i.e., telephone and internet) and lighting,
equipment and vehicle rentals
Financial Statement Location
Office and Studio segments: rental
Office segment: rental
Studio segment: rental and service and
other revenues
Studio segment: service and other
revenues
Parking revenue that is not associated with lease agreements and
other
Office and Studio segments: service and
other revenues
Sale of real estate
Gains on sales derived from cash consideration less cost basis
Gain (loss) on sale of real estate
Management fee income
Income derived from management services provided to
unconsolidated joint venture entities
Fee income
Management services
reimbursement income
Reimbursement of costs incurred by the Company in the management
of unconsolidated joint venture entities
Management services reimbursement
income—unconsolidated real estate
entities
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)
The Company recognizes 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 does not account for lease concessions related to the effects of the COVID-19 pandemic 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.
The Company recognizes tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and
maintenance and other operating expenses 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, other revenues, management fee income and management services reimbursement income 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:
Ancillary revenues
Other revenues
Studio-related tenant recoveries
Management fee income
Management services reimbursement income
Year Ended December 31,
2023
2022
2021
$
$
$
$
$
76,099 $
17,650 $
2,177 $
6,181 $
4,125 $
107,075 $
23,118 $
1,951 $
7,972 $
4,163 $
46,984
15,168
1,962
3,221
1,132
The following table summarizes the Company’s receivables that are accounted for under ASC 606:
Ancillary revenues
Other revenues
December 31, 2023
December 31, 2022
$
$
5,478 $
954 $
15,503
1,193
In regard 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
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)
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 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.
Income Taxes
In general, 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. In the case of the Bentall Centre property and
the Sunset Waltham Cross Studios development, the Company owns its interest in the properties through non-U.S. entities treated
as TRSs for federal income tax purposes. Accordingly, a provision for foreign income taxes has been recorded in the
accompanying consolidated financial statements based on the local tax laws and regulations of the respective tax jurisdictions.
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. 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 its subsidiaries, to treat each such subsidiary as a taxable REIT
subsidiary (“TRS”) 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.
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)
The Company is subject to the statutory requirements of the states in which it conducts business.
Deferred tax assets and liabilities are recognized for the net tax effect of temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax basis. A valuation allowance is recognized when it is
determined that it is more likely than not that a deferred tax asset will not be realized.
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, 2023, the Company has not established a liability for uncertain tax positions.
The Company and certain of 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 2019. The
Company has assessed its tax positions for all open years, which as of December 31, 2023 included 2020 to 2022 for Federal
purposes and 2019 to 2022 for state purposes, and concluded that there are no material uncertainties to be recognized.
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.
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;
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 November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
(“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to
improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The
amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operating
decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The
amendments are effective for the Company's annual periods beginning June 1, 2024, and interim periods beginning June 1, 2025,
with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. 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)
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax
Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and
disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the
Company’s annual periods beginning June 1, 2025, with early adoption permitted, and should be applied either prospectively or
retrospectively. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated
financial statements.
3. Business Combinations
Quixote Acquisition
On August 31, 2022 (“Quixote Acquisition Date”), the Company acquired 100% of the equity interests in Quixote, which
rents sound stages, cast trailers and trucks and other equipment essential for media content production and will expand the
Company’s service offerings for its studio platform.
The following table summarizes the Quixote Acquisition Date fair value of the consideration transferred in connection
with the acquisition:
Cash
Seller note
Total consideration
$
$
199,098
160,000
359,098
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Quixote
Acquisition Date:
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other assets
Investment in real estate(1)
Non-real estate property, plant and equipment
Intangible assets
Right-of-use assets
Total assets acquired
Accounts payable, accrued liabilities and other
Lease liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
NET ASSETS ACQUIRED
_____________
1.
Represents leasehold improvements related to Quixote’s leasehold interests in studio properties.
$
$
$
$
5,780
7,238
3,788
47,741
65,939
76,900
106,115
313,501
12,700
95,112
107,812
205,689
153,409
359,098
Of the $76.9 million of intangible assets acquired as part of the Quixote acquisition, $28.6 million was assigned to the
registered trade name, which is not subject to amortization. The remaining $48.3 million of acquired intangible assets includes
customer relationships of $45.4 million (seven-year useful life) and non-compete agreements of $2.9 million (five-year weighted-
average useful life). The finite-lived intangible assets are subject to a weighted-average useful life of approximately seven years.
Goodwill of $153.4 million for the Quixote acquisition was recognized in connection with the transaction. The goodwill
recognized is attributable to expected synergies and the assembled workforce of Quixote. The goodwill has been allocated to the
studio reporting unit. Goodwill is deductible for tax purposes and, as a result, deferred taxes have been recorded.
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)
During the year ended December 31, 2022, the Company recognized acquisition-related costs of $8.7 million for the
Quixote acquisition. These costs are included in transaction-related expenses on the Consolidated Statement of Operations.
The amounts of revenue and loss from operations of Quixote included in the Company’s Consolidated Statement of
Operations from the Quixote Acquisition Date to December 31, 2022 are as follows:
Revenue
Loss from operations
$
$
33,200
(5,290)
The following represents the pro forma Consolidated Statements of Operations as if the results of operations of Quixote
had been included in the consolidated results of the Company for the years ended December 31, 2022 and 2021:
Revenue
Net (loss) income
Year Ended
December 31, 2022
Year Ended
December 31, 2021
$
$
1,090,857 $
(17,715) $
982,985
38,508
The amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Quixote
to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to
property, plant and equipment and intangible assets had been applied on January 1, 2021.
4. Investment in Real Estate
The following table summarizes the Company’s investment in real estate, at cost as of:
Land
Building and improvements
Tenant and leasehold improvements
Furniture and fixtures
Property under development
December 31, 2023
December 31, 2022
$
1,220,339 $
5,969,364
818,653
8,609
195,931
1,397,714
6,273,655
868,193
9,639
167,371
INVESTMENT IN REAL ESTATE, AT COST
$
8,212,896 $
8,716,572
Acquisitions of Real Estate
The Company had no acquisitions of real estate during the year ended December 31, 2023.
On April 27, 2022, the Company completed its previously announced acquisition of Washington 1000, a fully entitled
office development site in Seattle, Washington for a total purchase price of $85.6 million, before certain credits, prorations and
closing costs.
On May 19, 2022, the Company purchased a parcel of land at Sunset Gower Studios that was previously encumbered by a
ground lease for a total purchase price of $22.0 million, before certain credits, prorations and closing costs.
On July 15, 2022, the Company purchased 5801 Bobby Foster Road, approximately 29 acres of land with an office/
warehouse located in Albuquerque, New Mexico, for the storage of trailers and other rental assets used to serve the surrounding
studio production industry. The property was acquired for a total purchase price of $8.0 million, before certain credits, prorations
and closing costs.
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)
The following table represents the Company’s final purchase price accounting for the asset acquisitions completed in
2022:
TOTAL ACQUISITION COST(1)
Relative fair value allocation
Land
Building and improvements
Parking easement(2)
TOTAL
_____________
1.
2.
Washington 1000
Sunset Gower
Studios Land
5801 Bobby
Foster Road
$
$
$
86,313 $
22,156 $
8,457
59,987 $
11,053
15,273
86,313 $
22,156 $
—
—
22,156 $
2,189
6,268
—
8,457
Includes capitalized transaction-related expenses.
Parking easement has an indefinite useful life and is recorded in deferred leasing costs and intangible assets, net on the Consolidated Balance Sheet.
Impairment of Long-Lived Assets
During the year ended December 31, 2023, the Company recorded an impairment charge of $48.5 million related to the
tangible assets of its Foothill Research Center property due to a reduction in the estimated fair value of the property. The estimated
fair value of $32.7 million was based on a discounted cash flow analysis, which is classified within Level 3 of the fair value
hierarchy.
During the year ended December 31, 2022, the Company recorded impairment charges of $13.0 million, $1.5 million and
$3.1 million related to the tangible assets of its Del Amo, Northview Center and 6922 Hollywood office properties, respectively,
due to reductions in the estimated fair values of the properties. The properties were subsequently sold in 2022. The estimated fair
values of $2.8 million, $46.0 million and $96.0 million for Del Amo, Northview Center and 6922 Hollywood, respectively, were
based on the sales prices of the properties. These fair value measurements are classified within Level 2 of the fair value hierarchy.
During the year ended December 31, 2021, the Company recorded $2.8 million of impairment charges related to the
tangible assets of its Del Amo office property due to a reduction in the estimated fair value of the property. The estimated fair
value of $17.4 million as of December 31, 2021 was based on then-estimated sales price of the property. This fair value
measurement is classified within Level 2 of the fair value hierarchy.
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)
Dispositions of Real Estate
The following table summarizes information on dispositions completed during the years ended December 31, 2023 and 2022.
Property
2023 Dispositions
Skyway Landing
604 Arizona
3401 Exposition
Cloud10
One Westside & Westside Two
Total
2022 Dispositions
Del Amo
Northview
6922 Hollywood
Total
Segment
Date of
Disposition
Square Feet
(unaudited)
Sales Price(1)
(in millions)
Gain (Loss) on
Sale(2) (in
millions)
Office
Office
Office
Office
Office
Office
Office
Office
2/6/2023
8/24/2023
8/25/2023
11/21/2023
12/27/2023
8/5/2022
8/30/2022
10/20/2022
246,997 $
102.0 $
44,260
63,376
350,000
686,725
32.5
40.0
43.5
700.0
7.0
10.3
5.8
19.9
60.2
$
918.0 $
103.2
113,000 $
2.8 $
179,985
205,189
46.0
96.0
$
144.8 $
—
(0.2)
(2.0)
(2.2)
_____________
1.
2.
Represents gross sales price before certain credits, prorations and closing costs.
Included within gain (loss) on sale of real estate on the Consolidated Statement of Operations.
Held for Sale
As of December 31, 2023, the Company had no properties that met the criteria to be classified as held for sale. The
Company had one property, Skyway Landing, classified as held for sale as of December 31, 2022. The property was identified as
non-strategic to the Company’s portfolio and was subsequently sold on February 6, 2023.
The following table summarizes the components of assets and liabilities associated with real estate held for sale as of
December 31, 2022:
ASSETS
Investment in real estate, net
Accounts receivable, net
Straight-line rent receivables, net
Deferred leasing costs and intangible assets, net
Prepaid expenses and other assets, net
ASSETS ASSOCIATED WITH REAL ESTATE HELD FOR SALE
LIABILITIES
Accounts payable, accrued liabilities and other
Security deposits and prepaid rent
LIABILITIES ASSOCIATED WITH REAL ESTATE HELD FOR SALE
$
92,148
112
460
501
17
93,238
400
265
665
$
$
$
F-32
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. Non-Real Estate Property, Plant and Equipment, net
The following table summarizes the Company’s non-real estate property, plant and equipment, net as of:
December 31, 2023 December 31, 2022
Trailers
Production equipment
Trucks and other vehicles
Leasehold improvements
Furniture, fixtures and equipment
Other equipment
$
70,462 $
37,100
20,044
15,888
6,112
6,959
156,565
(37,782)
118,783 $
68,973
36,019
20,306
16,993
5,849
5,693
153,833
(23,544)
130,289
Non-real estate property, plant and equipment, at cost
Accumulated depreciation
NON-REAL ESTATE PROPERTY, PLANT AND EQUIPMENT, NET
$
Non-real estate property, plant and equipment is carried at cost less accumulated depreciation. The Company computes
depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to 20 years. The
Company evaluates its non-real estate property, plant and equipment, net for impairment using the same accounting model that it
applies to its real estate assets and related intangibles. See Note 2 for details. The Company did not recognize any impairment
charges for non-real estate property, plant and equipment during the years ended December 31, 2023, 2022 and 2021.
6. Investment in Unconsolidated Real Estate Entities
The following table summarizes the Company’s investments in unconsolidated joint ventures:
Property
Property Type
Submarket
Sunset Waltham Cross Studios
Development
Broxbourne, United Kingdom
Sunset Glenoaks Studios
Development
Sun Valley
Bentall Centre
Operating Property Downtown Vancouver
Sunset Pier 94 Studios
Development
Manhattan
Ownership
Interest
Functional Currency
35%
50%
20%
51%
Pound sterling
U.S. dollar
Canadian dollar
U.S dollar
(1)
(2)(3)
(2)(4)
(4)(5)
__________________
1.
2.
3.
4.
5.
The Company owns 35% of the ownership interests in each of the joint venture entities that own the Sunset Waltham Cross Studios and the joint venture
entities formed to serve as the general partner and management services company for the property-owning joint venture entity.
The Company serves as the operating member of this joint venture.
The Company has provided various guarantees for this joint venture’s construction loan, including a completion guarantee, equity guarantee and recourse
carve-out guarantee. The likelihood of loss relating to the completion guarantee is remote as of December 31, 2023.
The Company has guaranteed the joint venture’s outstanding indebtedness in the amount of $96.4 million at Bentall Centre and $26 thousand at Sunset Pier
94 Studios, respectively. The likelihood of loss relating to the guarantees is remote as of December 31, 2023.
As of August 28, 2023, the Company owns 51% of the ownership interests in an upper-tier joint venture entity that owns 50.1% of the ownership interests in
the lower-tier joint venture entity that owns the Sunset Pier 94 Studios development. The Company’s resulting economic interest in the development is 25.6%.
The Company has provided various guarantees for the lower-tier joint venture’s construction loan, including a completion guarantee, recourse guarantee and
guaranty of interest and carry. The likelihood of loss relating to the completion guarantee is remote as of December 31, 2023.
The Company’s maximum exposure related to its unconsolidated joint ventures is limited to its investment and the
guarantees provided in relation to the joint ventures’ indebtedness. The Company’s investments in foreign real estate entities are
subject to foreign currency fluctuation risk. Such investments are translated into U.S. dollars at the exchange rate in effect as of the
financial statement date. The Company’s share of the (loss) income from foreign unconsolidated real estate entities is 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 as a separate component of total equity and are excluded from net (loss) income.
The Company held ownership interests in other immaterial unconsolidated joint ventures in the total of $0.1 million as of
December 31, 2023 and 2022, respectively.
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)
The table below presents the combined and condensed balance sheets for the Company’s unconsolidated joint ventures:
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
December 31, 2023
December 31, 2022
$
1,295,449 $
40,790
1,336,239
1,093,448
62,870
1,156,318
564,949
46,947
611,896
225,898
498,445
724,343
527,985
49,027
577,012
170,656
408,650
579,306
TOTAL LIABILITIES AND CAPITAL
$
1,336,239 $
1,156,318
_____________
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 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 (LOSS) INCOME
Year Ended December 31,
2023
2022
2021
70,200 $
83,441 $
80,901
(88,876)
(78,083)
(70,934)
(18,676) $
5,358 $
9,967
$
$
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)
7. Deferred Leasing Costs and Intangible Assets, net and Intangible Liabilities, net
The following summarizes the Company’s deferred leasing costs and intangibles as of:
December 31, 2023
December 31, 2022
Deferred leasing costs and in-place lease intangibles
$
290,969 $
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
Customer relationships
Accumulated amortization
Customer relationships, net
Non-competition agreements
Accumulated amortization
Non-competition agreements, net
Trade name
Parking easement
DEFERRED LEASING COSTS AND INTANGIBLE ASSETS, NET
Below-market leases
Accumulated amortization
Below-market leases, net
Above-market ground leases
Accumulated amortization
Above-market ground leases, net
INTANGIBLE LIABILITIES, NET
(150,457)
140,512
77,943
(20,733)
57,210
673
(376)
297
97,900
(26,363)
71,537
8,200
(3,279)
4,921
37,200
15,273
326,950 $
58,833 $
(31,785)
27,048
1,095
(392)
703
$
$
$
27,751 $
328,617
(141,353)
187,264
79,562
(17,979)
61,583
724
(324)
400
97,900
(12,346)
85,554
8,200
(1,632)
6,568
37,200
15,273
393,842
59,540
(26,195)
33,345
1,095
(349)
746
34,091
The Company recognized the following amortization related to deferred leasing costs and intangibles:
Deferred leasing costs and in-place lease intangibles(1)
Below-market ground leases(2)
Above-market leases(3)
Customer relationships(1)
Non-competition agreements(1)
Below-market leases(3)
Above-market ground leases(2)
For the Year Ended December 31,
2023
2022
2021
(36,791) $
(40,171) $
(45,128)
(2,795) $
(62) $
(14,017) $
(1,647) $
6,297 $
43 $
(2,775) $
(124) $
(9,662) $
(1,253) $
8,156 $
43 $
(2,410)
(167)
(2,684)
(379)
12,032
43
$
$
$
$
$
$
$
_____________
1.
Amortization is recorded in depreciation and amortization expenses and for lease incentive costs in office rental revenues on the Consolidated Statements of
Operations.
Amortization is recorded in office operating expenses on the Consolidated Statements of Operations.
Amortization is recorded in office rental revenues on the Consolidated Statements of Operations.
2.
3.
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)
The following table provides information regarding the Company’s estimated future amortization of deferred leasing costs
and intangibles as of December 31, 2023:
For the Year Ended
December 31,
Deferred
Leasing Costs
and In-place
Lease
Intangibles
Below-market
Ground
Leases
Above-market
Leases
Customer
relationships
Non-
competition
agreements
Below-market
Leases
Above-market
Ground
Leases
2024
2025
2026
2027
2028
Thereafter
TOTAL
$
$
(27,533) $
(21,242)
(17,978)
(15,184)
(12,982)
(45,593)
(140,512) $
(2,754) $
(2,754)
(2,754)
(2,754)
(2,754)
(43,440)
(57,210) $
(57) $
(49)
(44)
(43)
(32)
(72)
(297) $
(13,986) $
(13,986)
(13,986)
(13,986)
(11,301)
(4,292)
(71,537) $
(1,640) $
(1,640)
(1,261)
(380)
—
—
(4,921) $
5,119 $
4,157
3,981
3,913
3,832
6,046
27,048 $
43
43
43
43
43
488
703
During the year ended December 31, 2023, the Company recognized an impairment loss of $2.7 million related to the
deferred leasing costs and intangible assets of its Foothill Research Center property. See Note 4 for details. The loss is recorded
within impairment loss on the Consolidated Statements of Operations.
During the year ended December 31, 2022, the Company recognized an $8.5 million impairment of the Zio trade name
within impairment loss on the Consolidated Statement of Operations. The impairment is related to the announced rebranding and
integration of Zio into the Company’s existing Sunset Studios platform, after which the Company will no longer use the Zio trade
name.
During the year ended December 31, 2022, the Company recognized an impairment loss of $2.4 million related to the
below-market ground lease at its Del Amo office property. During the year ended December 31, 2021, the Company recognized an
impairment loss of $0.4 million related to the below-market ground lease at its Del Amo office property. See Note 4 for details.
The losses are recorded within impairment loss on the Consolidated Statements of Operations.
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)
8. Debt
The following table sets forth information with respect to our outstanding indebtedness:
UNSECURED AND SECURED DEBT
Unsecured debt
Unsecured revolving credit facility(3)(4)
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
3.25% Registered senior notes
5.95% Registered senior notes(6)
Total unsecured debt
Secured debt
Hollywood Media Portfolio
Acquired Hollywood Media Portfolio debt
Hollywood Media Portfolio, net(8)(9)
One Westside and Westside Two(10)
Element LA
1918 Eighth(11)
Hill7(12)
Quixote(13)
Total secured debt
Total unsecured and secured debt
Unamortized deferred financing costs/loan discounts(14)
TOTAL UNSECURED AND SECURED DEBT, NET
December 31,
2023
December 31,
2022
Interest Rate(1)
$
192,000 $
385,000
SOFR + 1.15% to 1.60%
—
259,000
56,000
150,000
—
400,000
500,000
400,000
350,000
110,000
259,000
56,000
150,000
50,000
400,000
500,000
400,000
350,000
2,307,000
2,660,000
4.34%
4.69%
4.79%
3.98%
3.66%
3.95%
4.65%
3.25%
5.95%
Contractual
Maturity
Date(2)
12/21/2026 (5)
1/2/2023
12/16/2025
12/16/2027
7/6/2026
9/15/2023
11/1/2027
4/1/2029
1/15/2030
2/15/2028
1,100,000
1,100,000
SOFR + 1.10%
(30,233)
(209,814)
SOFR + 2.11%
8/9/2026
8/9/2026
(7)
(7)
1,069,767
—
168,000
314,300
101,000
—
890,186
316,602
168,000
314,300
101,000
160,000
1,653,067
3,960,067
1,950,088
4,610,088
(14,753)
(24,226)
$
3,945,314 $
4,585,862
SOFR + 1.60%
4.59%
SOFR + 1.40%
3.38%
5.00%
12/18/2024
11/6/2025
12/18/2025
11/6/2028
12/31/2023
JOINT VENTURE PARTNER DEBT (15)
$
66,136 $
66,136
4.50%
10/9/2032
(16)
_____________
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, 2023,
which may be different than the interest rates as of December 31, 2022 for corresponding indebtedness.
2. Maturity dates include the effect of extension options.
3.
The annual facility fee rate ranges from 0.15% or 0.30% 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, 2023, no such election had been made and the unsecured revolving credit facility bore interest at SOFR + 1.35%.
The Company has a total capacity of $900.0 million available under its unsecured revolving credit facility, up to $225.0 million of which can be used for
borrowings in pounds sterling or Canadian dollars. 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 up to a total of $2.0 billion either in the form of an increase to an existing
unsecured revolving credit facility or a new loan, including a term loan.
Includes the option to extend the initial maturity date of December 21, 2025 twice for an additional six-month term each.
An amount equal to the net proceeds from the 5.95% registered senior notes has been allocated to new or existing eligible green projects.
Includes the option to extend the initial maturity date of August 9, 2023 three times for an additional one-year term each. The first extension option was
executed as of August 9, 2023.
As of December 31, 2023 and December 31, 2022, the Company owned bonds comprising the loan in the amounts of $30.2 million and $209.8 million,
respectively.
The floating interest rate on $539.0 million of principal has been capped at 5.70% through the use of an interest rate cap. The floating interest rate on
$351.2 million of principal is effectively fixed at 3.31% through the use of an interest rate swap.
4.
5.
6.
7.
8.
9.
10. The construction loan was settled in full in December 2023 with the proceeds from sale of the One Westside and Westside Two properties.
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)
11. This loan is interest-only through its term. The floating interest rate on $141.4 million of principal has been capped at 5.00% through the use of an interest
rate cap. The floating interest rate on the remaining $172.9 million of principal has been effectively fixed at 3.75% through the use of an interest rate swap.
12. 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.
13. The note was settled in April 2023 for consideration of $150.0 million, a $10.0 million discount on the note’s principal balance.
14. Excludes deferred financing costs related to establishing the Company’s unsecured revolving credit facility, which are reflected in prepaid expenses and other
assets, net on the Consolidated Balance Sheets. See Note 2 for details.
15. This amount relates to debt attributable to Allianz U.S. Private REIT LP (“Allianz”), the Company’s partner in the joint venture that owns the Ferry Building
property.
Includes the option to extend the initial maturity date of October 9, 2028 twice for an additional two-year term each.
16.
Current Year Activity
During the year ended December 31, 2023, there were $193.0 million of repayments on the unsecured revolving credit
facility, net of borrowings. The Company generally uses the unsecured revolving credit facility to finance the acquisition of
properties and businesses, to provide funds for tenant improvements and capital expenditures and to provide for working capital
and other corporate purposes.
In January 2023, the Company repaid its $110.0 million Series A notes in full.
In April 2023, the Company settled the Quixote note for consideration of $150.0 million, a $10.0 million discount on the
note’s principal balance, which resulted in a gain on extinguishment of debt of $10.0 million during the year ended December 31,
2023. The Company drew on its unsecured revolving credit facility to fund the settlement.
In July 2023, the Company modified the existing loan agreement secured by the Hollywood Media Portfolio, whereby the
LIBOR-based floating interest rate was replaced with a term SOFR-based floating interest rate. The Company applied the relief
provisions of ASC 848, Reference Rate Reform, and accounted for this modification as a continuation of the existing loan
agreement.
In September 2023, the Company repaid its $50.0 million Series E notes in full.
In November 2023, the Company sold $179.6 million of the acquired Hollywood Media Portfolio debt and recorded a
$34.0 million loss in connection with this sale on the Consolidated Statement of Operations for the year ended December 31, 2023.
In December 2023, the Company entered into the Second Modification to the Fourth Amended and Restated Credit
Agreement governing its unsecured revolving credit facility, whereby certain definitions and covenant calculations were amended
and the borrowing capacity of the unsecured revolving credit facility was reduced to $900.0 million.
In December 2023, the Company repaid its $324.6 million One Westside and Westside Two construction loan in
connection with the sale of these properties.
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-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 provides information regarding the Company’s future minimum principal payments due on the
Company’s debt (after the impact of extension options, if applicable) as of December 31, 2023:
For the Year Ended December 31,
Unsecured and Secured Debt
Joint Venture Partner Debt
2024
2025
2026
2027
2028
Thereafter
TOTAL
Unsecured Debt
Credit Facility
$
$
— $
741,300
1,411,767
456,000
451,000
900,000
3,960,067 $
—
—
—
—
—
66,136
66,136
The operating partnership continues to be the borrower under its 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 Standard & Poor’s (“S&P”) or Baa3 from Moody’s, in which case such guarantees are not
required except under limited circumstances. As of December 31, 2023, the Company’s S&P and Moody’s ratings were BB+ and
Ba1, respectively. On January 12, 2024, S&P downgraded our credit rating from “BB+” to “BB”.
Note Purchase Agreements
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 are 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 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 the 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 as of December 31, 2023 related to our
unsecured revolving credit facility and term loans, 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
≤ 65%
≤ 65%
≥ 1.5x
≤ 45%
≥ 2.0x
45.1%
41.8%
1.9x
19.9%
2.4x
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)
The following table summarizes existing covenants and their covenant levels as of December 31, 2023 related to our
private placement notes:
Covenant Ratio(1)
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
≤ 65%
≤ 65%
≥ 1.5x
≤ 45%
≥ 2.0x
48.5%
51.3%
1.9x
21.4%
2.4x
_________________
1.
The covenant and actual performance metrics above represent terms and definitions reflected in the indentures governing the Series B, Series C and Series D
notes.
The following table summarizes existing covenants and their covenant levels as of December 31, 2023 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
Covenant Level
Actual Performance
≤ 60%
≥ 150%
≥ 1.5x
≤ 45%
43.3%
250.5%
1.9x
18.9%
_________________
1.
The covenant and actual performance metrics above represent terms and definitions reflected in the indentures governing the 3.25% Senior Notes, 3.95%
Senior Notes, 4.65% Senior Notes and 5.95% Senior Notes.
The operating partnership was in compliance with its financial covenants as of December 31, 2023.
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 and certain of its subsidiaries guarantee the operating partnership’s unsecured debt. The likelihood of loss
relating to this guarantee is remote as of December 31, 2023.
Interest Expense
The following table represents a reconciliation from gross interest expense to interest expense on the Consolidated
Statements of Operations:
Gross interest expense(1)
Capitalized interest
Non-cash interest expense(2)
INTEREST EXPENSE
Year Ended December 31,
2023
2022
2021
$
224,801 $
162,778 $
133,165
(32,253)
(18,031)
21,867
214,415 $
5,154
149,901 $
$
(21,689)
10,463
121,939
_________________
1.
2.
Includes interest on the Company’s debt and hedging activities.
Includes the amortization of deferred financing costs and fair market value adjustments for our mark-to-market interest rate derivatives.
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)
9. Derivatives
The Company enters into derivatives in order to hedge interest rate risk. 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.
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.
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, 2023 and December 31, 2022:
Fair Value Assets (Liabilities)
Underlying
Debt
Instrument
Type of
Instrument
Accounting
Policy
Notional
Amount
Effective Date Maturity Date
Interest
Rate
December 31,
2023
December 31,
2022
Hollywood
Media Portfolio
Cap
1918 Eighth
Swap
1918 Eighth
Cap
Cash flow
hedge
Cash flow
hedge
Partial cash
flow hedge(1)
1918 Eighth
Sold cap(2) Mark-to-
market
Hollywood
Media Portfolio
Cap
Partial cash
flow hedge(1)
Hollywood
Media Portfolio
Sold cap(2) Mark-to-
market
Hollywood
Media Portfolio
Swap
Cash flow
hedge
TOTAL
$ 1,100,000 August 2021
August 2023
3.50% $
— $
9,292
$ 172,865 February 2023
October 2025
3.75%
1,075
$ 314,300
June 2023
December 2025
5.00%
952
$ 172,865
June 2023
December 2025
5.00%
(520)
$ 1,100,000 August 2023
August 2024
5.70%
59
$ 561,000 August 2023
August 2024
5.70%
(29)
$ 351,186 August 2023
June 2026
3.31%
4,355
—
—
—
—
—
—
$
5,892 $
9,292
_____________
1.
$141,435 and $539,000 of the notional amounts of the 1918 Eighth and Hollywood Media Portfolio caps, respectively, have been designated as effective cash
flow hedges for accounting purposes. The remainder of each is accounted for under mark-to-market accounting.
The sold caps serve to offset the changes in fair value of the portions of the 1918 Eighth and Hollywood Media Portfolio caps that are not designated as cash
flow hedges for accounting purposes.
2.
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, 2023, the Company expects $5.1 million of
unrealized gain included in accumulated other comprehensive loss will be reclassified as a reduction to interest expense in the next
12 months.
10. Income Taxes
The provision for income taxes comprises the following components:
Current federal
Current state
Deferred federal
Deferred state
Income tax provision
Year ended December 31, 2023
$
$
171
16
4,776
1,833
6,796
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)
The Company recognized an income tax benefit of $7.5 million for the year ended December 31, 2022 and an income tax
provision of $1.9 million for the year ended December 31, 2021 within other (expense) income on the Consolidated Statements of
Operations.
A reconciliation of the statutory federal income tax rate of 21% with the Company’s effective income tax rate is as
follows:
Year ended December 31, 2023
Income tax benefit computed at the federal statutory rate
Income tax benefit attributable to non-taxable entities
State income taxes, net of federal tax benefit
Valuation allowance
Other
Income tax provision
$
$
(34,420)
16,643
(4,810)
29,681
(298)
6,796
Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31, 2023
Deferred tax assets:
Net operating loss and tax credit carryforwards
Depreciation and amortization
Prepaid rent
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Unrealized gain on non-real estate investments
Other
Total deferred tax liabilities
Deferred tax asset, net
$
$
41,339
11,124
1,578
122
54,163
(29,477)
24,686
(21,170)
(4,640)
(169)
(25,979)
(1,293)
As of December 31, 2022, the Company had recorded a net deferred tax asset of $5.3 million, consisting of gross deferred
tax assets of $16.9 million and gross deferred tax liabilities of $11.6 million, within prepaid expenses and other assets, net on the
Consolidated Balance Sheet. Significant components of the Company’s deferred tax assets and liabilities relate to depreciation and
amortization, unrealized gains and losses on non-real estate investments and net operating loss carryforwards. As of December 31,
2022, the Company had not recorded a valuation allowance against its deferred tax assets.
11. Future Minimum Rents and Lease Payments
The Company’s properties are leased to tenants under operating leases with initial term expiration dates ranging from
2024 to 2034.
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 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, 2023:
Year Ended
2024
2025
2026
2027
2028
Thereafter
TOTAL
$
573,546
479,086
421,643
366,198
305,730
636,918
$
2,783,121
Operating Lease Agreements
The Company is party to long-term non-cancellable operating lease agreements in which it is a lessee, consisting of 12
ground leases, 10 sound stage leases, seven office leases and 17 other leases as of December 31, 2023. The Company’s operating
lease obligations have expiration dates ranging from 2024 through 2067, including extension options which the Company is
reasonably certain to exercise. Certain leases provide for variable rental payments based on third-party appraisals of fair market
land value, CPI adjustments or a percentage of annual gross income. There are no notable restrictions or covenants imposed by the
leases, nor guarantees of residual value.
As of December 31, 2023, the present value of the remaining contractual payments of $715.3 million under the
Company’s operating lease agreements was $389.2 million. The corresponding operating lease right-of-use assets amounted to
$376.3 million. During the year ended December 31, 2023 the Company recorded an impairment charge of $9.0 million related to
the right-of-use asset for the ground lease at its Foothill Research Center property. See Note 4 for details. The loss is recorded
within impairment loss on the Consolidated Statements of Operations.
The following table provides information regarding the Company’s future minimum lease payments for its operating
leases (including the impact of the extension options which the Company is reasonably certain to exercise) as of December 31,
2023:
For the Year Ended December 31,
Lease Payments(1)
2024
2025
2026
2027
2028
Thereafter
Total operating lease payments
Less: interest portion
PRESENT VALUE OF OPERATING LEASE LIABILITIES
$
$
41,311
40,551
38,976
36,303
34,399
523,804
715,344
(326,134)
389,210
_____________
1.
Future minimum lease payments for operating leases denominated in a foreign currency are translated to U.S. dollars using the exchange rate in effect as of
the financial statement date.
The following table summarizes rental expense for operating leases:
Variable rental expense
Minimum rental expense
For the Year Ended December 31,
2023
2022
2021
$ 11,005 $
9,854 $ 10,405
$ 45,145 $ 31,003 $ 21,482
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)
12. 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, 2023
December 31, 2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
— $
6,441 $
— $
6,441 $
— $
9,292 $
— $
9,292
— $
(549) $
— $
(549) $
— $
— $
— $
—
1 $
— $
— $
— $
— $
— $
— $
1 $
— $
— $
(5,000) $
(5,000) $
544 $
— $
— $
— $
95 $
— $
— $
544
95
— $
(9,300) $
(9,300)
— $
— $
— $ 48,580 $
— $
— $
— $ 46,785
$
$
$
$
$
$
Interest rate derivative assets(1)
Interest rate derivative
liabilities(2)
Non-real estate investments
measured at fair value(1)
Stock purchase warrant(1)
Earnout liability(2)
Non-real estate investments
measured at NAV(1)(3)
_____________
1.
2.
3.
Included in prepaid expenses and other assets, net on the Consolidated Balance Sheets.
Included in accounts payable, accrued liabilities and other on the Consolidated Balance Sheets.
According to the relevant accounting standards, certain investments that are measured at fair value using the NAV practical expedient have not been classified
in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the Consolidated Balance Sheets.
Level 1 items include an investment in the common stock of a publicly traded company, which is valued on a quarterly
basis using the closing stock price. Level 2 items include interest rate caps and swaps, which are valued on a quarterly basis using
a linear regression model, as well as investments in preferred stock and warrants of a publicly traded company, which are valued
on a quarterly basis using the closing stock price and a Black-Scholes model, respectively. Level 3 items include the earnout
liability, which is valued on a quarterly basis using a probability-weighted discounted cash flow model. Inputs to the model include
the discount rate and probability-weighted earnout payments based on a Monte Carlo simulation with one million trials. Fair value
measurement using unobservable inputs is inherently uncertain, and a change in significant inputs could result in different fair
values.
The following table summarizes changes in the carrying amount of the earnout liability during the year ended
December 31, 2023:
Balance, December 31, 2022
Remeasurement to fair value
Balance, December 31, 2023
$
$
(9,300)
4,300
(5,000)
The remeasurement gain of $4.3 million recognized during the year ended December 31, 2023 is recorded in transaction-
related expenses on the Consolidated Statements of Operations.
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. The
fair values of 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:
Liabilities
Unsecured debt(1)
Secured debt(1)
Consolidated joint venture partner debt
December 31, 2023
December 31, 2022
Carrying Value
Fair Value
Carrying Value
Fair Value
$
$
$
2,307,000 $
1,971,410 $
2,660,000 $
2,364,871
1,653,067 $
1,634,668 $
1,950,088 $
1,927,297
66,136 $
59,966 $
66,136 $
60,327
_____________
1.
Amounts represent debt excluding unamortized deferred financing costs and loan discounts/premiums.
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)
13. Stock-Based Compensation
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, 2023, 6.0 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, and
unvested RSUs, assuming the maximum bonus pool eligible ultimately is earned and based on a stock price of $9.31.
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. Additionally, certain non-employee Board members elect to receive operating partnership performance units
in lieu of their annual cash retainer fees. These awards are generally issued in the first quarter of the year subsequent to the year in
which they were earned and are 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
first or 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 an executive officer.
Lastly, certain employees elect to receive operating partnership performance units in lieu of their annual cash bonus. These awards
are generally issued in the first or fourth quarter and are fully-vested upon their issuance.
For the years 2020 through 2023, the compensation committee of the Board (“Compensation Committee”) adopted an
annual Hudson Pacific Properties, Inc. Performance Stock Unit Plan (“PSU Plan”). Under the PSU Plan, the Compensation
Committee awards restricted stock units or performance units in the operating partnership to certain employees. Annual PSU Plan
grants made prior to 2023 consist of two portions. A portion of each award, the Relative Total Shareholder Return (“TSR”)
Performance Unit, is eligible to vest based on the achievement of the Company’s TSR compared to the TSR of the FTSE NAREIT
All Equity REITs index over a three-year performance period, with the vesting percentage subject to certain percentage targets.
The remaining portion of each award, the Operational Performance Unit, becomes eligible to vest based on the achievement of
operational performance metrics over a one-year performance period and vests over three years. The number of Operational
Performance Units that becomes 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 a three-year performance period by applying the applicable
vesting percentages. The 2023 PSU Plan grants contain only an Operational Performance Unit, which is eligible to vest based on
the achievement of operational metrics over a one-year performance period and vests over three years. The number of Operational
Performance Units that becomes eligible to vest based on the achievement of operational performance metrics may be adjusted
based on the Company’s achievement of the Company’s TSR compared to the TSR of the FTSE NAREIT All Equity REITs index
over a three-year performance period. Certain of the awards granted under the 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 any hold restrictions 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.
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)
Performance-Based Awards
PSU Plan
The following table outlines key components of the 2023 PSU Plan:
Maximum bonus pool, in millions
Performance period
The following table outlines key components of the 2022 PSU Plan:
Operational Performance
Unit
$15.0
1/1/2023 to 12/31/2023
Maximum bonus pool, in millions
Performance period
Operational Performance
Unit
Relative TSR Performance
Unit
$15.0
$15.0
1/1/2022 to 12/31/2022
1/1/2022 to 12/31/2024
The following table outlines key components of the 2021 PSU Plan:
Maximum bonus pool, in millions
Performance period
Operational Performance
Unit
Relative TSR Performance
Unit
$16.7
$16.7
1/1/2021 to 12/31/2021
1/1/2021 to 12/31/2023
The stock-based compensation cost of the 2023, 2022 and 2021 PSU Plans 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 2023, 2022 and 2021 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
Summary of Unvested Share Activity
2023
40.00%
27.00%
3.44%
5.40%
2022
43.00%
33.00%
1.72%
3.60%
2021
41.00%
31.00%
0.17%
3.50%
The following table summarizes the activity and status of all unvested stock awards:
2023
2022
2021
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
Granted
Vested
Canceled
309,837 $
618,316
(35,888)
(198,430)
Unvested at December 31
693,835 $
23.14
7.54
7.83
23.61
9.89
507,534 $
50,915
(234,741)
(13,871)
309,837 $
25.17
20.15
26.81
24.42
23.14
442,645 $
276,800
(203,329)
(8,582)
507,534 $
27.44
23.90
28.33
26.21
25.17
F-46
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 activity and status of all unvested time-based restricted operating partnership
performance units:
2023
2022
2021
Weighted-
Average
Grant-Date
Fair Value
Units
Weighted-
Average
Grant-Date
Fair Value
Units
Weighted-
Average
Grant-Date
Fair Value
Units
Unvested at January 1
357,656 $
Granted
Vested
Canceled
1,422,893
(508,650)
—
Unvested at December 31
1,271,899 $
Share-based Compensation Recorded
22.53
8.16
14.11
—
9.82
681,394 $
25,206
(348,944)
—
357,656 $
24.91
11.98
26.42
—
22.53
771,432 $
355,551
(349,804)
(95,785)
681,394 $
27.08
24.68
29.85
23.49
24.91
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,
2023
2022
2021
$
$
23,863 $
3,021
26,884 $
24,296 $
3,354
27,650 $
21,163
3,524
24,687
_________________
1.
Amounts are recorded in general and administrative expenses, office operating expenses and studio operating expenses on the Consolidated Statements of
Operations.
Amounts are recorded in investment in real estate, at cost on the Consolidated Balance Sheets.
Amounts are recorded in additional paid-in capital and non-controlling interest—units in the operating partnership on the Consolidated Balance Sheets.
2.
3.
As of December 31, 2023, total unrecognized compensation cost related to unvested share-based payments was $24.9
million. It is expected to be recognized over a weighted-average period of two years.
14. Earnings Per Share
Hudson Pacific Properties, Inc.
The Company calculates basic earnings per share using the two-class method by dividing the net income available to
common stockholders for the period by the weighted average number of common shares outstanding during the period. Unvested
time-based restricted stock awards, unvested time-based performance unit awards and unvested restricted stock units (“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. The Company calculates diluted earnings per share using the two-class method or the treasury
stock and if-converted method, whichever results in more dilution. For the years ended December 31, 2023, 2022 and 2021, both
methods of calculation yielded the same diluted earnings per share amount. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock,
where such exercise or conversion would result in a lower earnings per share amount.
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)
The following table reconciles the numerator and denominator in computing the Company’s basic and diluted earnings
per share to net (loss) income available to common stockholders:
For the Year Ended December 31,
2023
2022
2021
Numerator:
Basic and diluted net (loss) income available to common stockholders
$
(192,181) $
(56,499) $
6,064
Denominator:
Basic weighted average common shares outstanding
Effect of dilutive instruments(1)
140,953,088
143,732,433
151,618,282
—
—
325,078
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
140,953,088
143,732,433
151,943,360
Basic earnings per common share
Diluted earnings per common share
$
$
(1.36) $
(1.36) $
(0.39) $
(0.39) $
0.04
0.04
_____________
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 or performance 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 using the two-class method by dividing the net income
available to common unitholders for the period by the weighted average number of common units outstanding during the period.
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 unit pursuant to the
two-class method. The operating partnership calculates diluted earnings per unit using the two-class method or the treasury stock
and if-converted method, whichever results in more dilution. For the years ended December 31, 2023, 2022 and 2021, both
methods of calculation yielded the same diluted earnings per unit amount. Diluted earnings per unit reflects the potential dilution
that could occur if securities or other contracts to issue common units were exercised or converted into common units, where such
exercise or conversion would result in a lower earnings per unit amount.
The following table reconciles the numerator and denominator in computing the operating partnership’s basic and diluted
earnings per unit to net (loss) income available to common unitholders:
For the Year Ended December 31,
2023
2022
2021
Numerator:
Basic and diluted net (loss) income available to common unitholders
$
(195,539) $
(57,208) $
6,125
Denominator:
Basic weighted average common units outstanding
Effect of dilutive instruments(1)
143,421,154
145,580,928
153,007,287
—
—
325,078
DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
143,421,154
145,580,928
153,332,365
Basic earnings per common unit
Diluted earnings per common unit
$
$
(1.36) $
(1.36) $
(0.39) $
(0.39) $
0.04
0.04
_____________
1.
The operating partnership includes unvested awards as contingently issuable units in the computation of diluted earnings per unit once the market or
performance 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.
15. Redeemable Non-controlling Interest
Redeemable Preferred Units of the Operating Partnership
As of December 31, 2023 and 2022, 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.
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)
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 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 Westside Two 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 probable of becoming redeemable. The One Westside and Westside
Two properties were sold on December 27, 2023.
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, 2022
Contributions
Distributions
Declared dividend
Net income
BALANCE AT DECEMBER 31, 2023
16. Equity
Series A Redeemable
Preferred Units
Consolidated Real
Estate Entities
$
$
9,815 $
—
—
(153)
153
9,815 $
125,044
2,025
(82,407)
—
12,520
57,182
The table below presents the activity related to Hudson Pacific Properties, Inc.’s accumulated other comprehensive loss
(“AOCI”):
Derivative Instruments
Currency Translation
Adjustments
Total AOCI
Balance at January 1, 2021
$
(11,378) $
Unrealized gain (loss) recognized in AOCI
Reclassification from AOCI into income(1)
Net change in AOCI
Balance at December 31, 2021
Unrealized gain (loss) recognized in AOCI
Reclassification from AOCI into income(1)
Net change in AOCI
Balance at December 31, 2022
Unrealized gain recognized in AOCI
Reclassification from AOCI into income(1)
Net change in AOCI
Balance at December 31, 2023
_____________
1.
169
7,252
7,421
(3,957)
612
2,065
2,677
(1,280)
9,462
(4,526)
4,936
3,656 $
$
F-49
3,245 $
(1,049)
—
(1,049)
2,196
(12,188)
—
(12,188)
(9,992)
6,149
—
6,149
(3,843) $
(8,133)
(880)
7,252
6,372
(1,761)
(11,576)
2,065
(9,511)
(11,272)
15,611
(4,526)
11,085
(187)
The gains and losses on the Company’s derivative instruments classified as hedges are reported in interest expense on the Consolidated Statements of
Operations.
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 AOCI:
Derivative Instruments
Currency Translation
Adjustments
Total AOCI
Balance at January 1, 2021
$
(11,485) $
Unrealized gain (loss) recognized in AOCI
Reclassification from AOCI into income(1)
Net change in AOCI
Balance at December 31, 2021
Unrealized gain (loss) recognized in AOCI
Reclassification from AOCI into income(1)
Net change in AOCI
Balance at December 31, 2022
Unrealized gain recognized in AOCI
Reclassification from AOCI into income(1)
Net change in AOCI
Balance at December 31, 2023
_____________
1.
171
7,360
7,531
(3,954)
597
2,097
2,694
(1,260)
9,729
(4,656)
5,073
3,813
3,239
(1,064)
—
(1,064)
2,175
(12,375)
—
(12,375)
(10,200)
6,325
—
6,325
(3,875) $
(8,246)
(893)
7,360
6,467
(1,779)
(11,778)
2,097
(9,681)
(11,460)
16,054
(4,656)
11,398
(62)
The gains and losses on the Company’s derivative instruments classified as hedges are reported in interest expense on the Consolidated Statements of
Operations.
Non-controlling Interests
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 at
a value equal to the then-current market value of one share of common stock. However, in lieu of such payment of cash, the
Company may, at its election, issue shares of its common stock in exchange for such 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
and unvested restricted performance units, as of:
December 31, 2023 December 31, 2022 December 31, 2021
Company-owned common units in the operating partnership
141,034,806
141,054,478
151,124,543
Company’s ownership interest percentage
Non-controlling common units in the operating partnership(1)
Non-controlling ownership interest percentage
98.0 %
98.5 %
98.8 %
2,810,433
2,191,842
1,842,898
2.0 %
1.5 %
1.2 %
_________________
1.
Represents common units held by certain of the Company’s executive officers, directors and other outside investors. As of December 31, 2023, this amount
represents both common units and performance units of 550,969 and 2,259,464, respectively. As of December 31, 2022, this amount represents both common
units and performance units of 550,969 and 1,640,873, respectively. As of December 31, 2021, this amount represents both common units and performance
units of 550,969 and 1,291,929, respectively.
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)
During the years ended December 31, 2023, 2022 and 2021, 618,591, 348,944 and 521,815 performance units,
respectively, vested related to various performance-based awards to our employees and directors.
Common Stock Activity
The Company has not completed any common stock offerings during the years ended December 31, 2023, 2022 and
2021.
The Company’s ATM program permits sales of up to $125.0 million of common stock. A cumulative total of
$65.8 million has been sold as of December 31, 2023. The Company did not utilize the ATM program during the years ended
December 31, 2023 and 2022. During the year ended December 31, 2021, the Company utilized the ATM program and sold
1,526,163 shares of common stock at sale prices ranging from $29.53 to $30.17 per share for total proceeds of $45.7 million,
before transaction costs.
Share Repurchase Program
The Company is authorized to repurchase shares of its common stock up to a total of $250.0 million under the share
repurchase program. During the year ended December 31, 2023, the Company repurchased 0.2 million shares of its common stock
at a weighted average price of $7.33 per share for $1.4 million, before transaction costs. During the year ended December 31,
2022, the Company repurchased 2.1 million shares of its common stock at a weighted average price of $17.65 per share for $37.2
million, before transaction costs. During the year ended December 31, 2021, the Company repurchased 1.9 million shares of its
common stock at a weighted average price of $23.82 per share for $46.1 million, before transaction costs. Since the
commencement of the program through December 31, 2023, a cumulative total of $214.7 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.
Accelerated Share Repurchase Agreements
On February 25, 2022, the Company entered into an uncollared accelerated share repurchase (“ASR”) agreement to
purchase $100 million of its outstanding common stock. During the first quarter 2022, the Company made an initial payment of
$100 million and received an initial delivery of approximately 3.3 million shares of common stock representing 85% of the total
$100 million agreement based on the closing price of our common stock on the transaction date. Final settlement of the agreement
occurred during the second quarter 2022 based on the daily volume-weighted average price during the measurement period, less a
negotiated discount.
On February 25, 2022, the Company entered into a collared ASR agreement to purchase $100 million of its outstanding
common stock. During the first quarter 2022, the Company made an initial payment of $100 million and received an initial
delivery of approximately 3.3 million shares of common stock based on an estimated cap price calculated using the daily volume-
weighted average price during an initial hedge period. Final settlement of the agreement occurred during the third quarter 2022
based on the daily volume-weighted average price during the measurement period, subject to a floor and cap, less a negotiated
discount.
At the conclusion of the ASR program in July 2022, a total of 8.1 million shares had been repurchased at an average
price of $24.60.
Series C Cumulative Redeemable Preferred Stock
Series C cumulative redeemable preferred stock relates to the 17,000,000 shares of our Series C preferred stock, $0.01 par
value per share. Holders of Series C preferred stock, when and as authorized by the board of directors of the Company, are entitled
to cumulative cash dividends at the rate of 4.750% per annum of the $25.00 per share, equivalent to $1.1875 per annum per share.
Dividends are payable quarterly in arrears on or about the last day of December, March, June and September of each year. In
addition to other preferential rights, the holders of Series C preferred stock are entitled to receive the liquidation preference, which
is $25.00 per share, before the holders of common stock in the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company’s affairs. Generally, shares of Series C preferred stock are not redeemable by the Company prior to
November 16, 2026. However, upon the occurrence of a change of control, holders of the Series C preferred stock will have the
right, (unless the Company has elected to redeem the Series C preferred stock) to convert into a specified number of shares of
common stock. A complete description of the Series C preferred stock is contained in the Articles Supplementary which is
included as Exhibit 3.7 to this Current Report on Form 10-K.
F-51
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)
Dividends
The Board has historically declared dividends on a quarterly basis and the Company has paid the dividends during the
quarters in which the dividends were declared. Declaration of any future dividends will be determined by the Company’s Board of
Directors after considering the Company’s obligations under its various financing agreements, projected taxable income,
compliance with its debt covenants, long-term operating projections, expected capital requirements and the risks affecting the
Company’s business. The following table summarizes dividends per share declared and paid for the periods presented:
Common stock(1)
Common units(1)
Series A preferred units
Series C preferred stock(2)
For the Year Ended December 31,
2023
2022
2021
$
$
$
$
0.375 $
0.375 $
1.5625 $
1.1875 $
1.00 $
1.00 $
1.5625 $
1.3359 $
1.00
1.00
1.5625
—
_________________
1.
In September 2023, the Company temporarily suspended its quarterly common stock dividend. As a result, the common unit and performance unit dividends
were also suspended.
Dividends paid during the year ended December 31, 2022 include a $0.2968750 per share dividend declared and paid in each of the first, second, third and
fourth quarters of 2022 and a $0.1484375 per share dividend declared during the fourth quarter of 2021.
2.
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.
The Company’s dividends related to its common stock will be classified for U.S. federal income tax purposes as follows
(unaudited):
Dividends
Capital Gains
Section 897
Record
Date
Payment
Date
Distribution
Per Share
Total
Qualified
Total
Unrecaptured
Section 1250
Ordinary
Dividends
Capital
Gains
Return of
Capital
3/20/2023
3/30/2023
$ 0.250000
$ 0.000000 $ 0.000000
$ 0.250000 $ 0.115922
$ 0.000000 $ 0.250000
$ 0.000000
6/20/2023
6/30/2023
0.125000
0.000000
0.000000
0.125000
0.057961
0.000000
0.125000
0.000000
TOTALS $ 0.375000
$ 0.000000 $ 0.000000
$ 0.375000 $ 0.173883
$ 0.000000 $ 0.375000
$ 0.000000
100.00 %
0.00 %
0.00 %
100.00 %
46.37 %
0.00 % 100.00 %
0.00 %
The Company’s dividends related to its 4.750% series C preferred stock will be classified for U.S. federal income tax
purposes as follows (unaudited):
Dividends
Capital Gains
Section 897
Record
Date
Payment
Date
Distribution
Per Share
Total
Qualified
Total
Unrecaptured
Section 1250
Ordinary
Dividends
Capital
Gains
Return of
Capital
3/20/2023
3/30/2023
$ 0.296875
$ 0.000000 $ 0.000000
$ 0.296875 $ 0.137658
$ 0.000000 $ 0.296875
$ 0.000000
6/20/2023
6/30/2023
0.296875
0.000000
0.000000
0.296875
0.137658
0.000000
0.296875
0.000000
9/19/2023
9/29/2023
0.296875
0.000000
0.000000
0.296875
0.137658
0.000000
0.296875
0.000000
12/18/2023
12/28/2023
0.296875
0.000000
0.000000
0.296875
0.137658
0.000000
0.296875
0.000000
TOTALS $ 1.187500
$ 0.000000 $ 0.000000
$ 1.187500 $ 0.550632
$ 0.000000 $ 1.187500
$ 0.000000
100.00 %
0.00 %
0.00 %
100.00 %
46.37 %
0.00 % 100.00 %
0.00 %
17. Segment Reporting
The Company’s reporting segments are based on the Company’s method of internal reporting, which classifies its
operations into two reportable segments: (i) office properties and related operations and (ii) studio properties and related
operations. The Company evaluates performance based upon net operating income of the segment operations. General and
administrative expenses and interest expense are not included in segment profit as the Company’s internal reporting addresses
F-52
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)
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 the Company’s reportable segments:
Year Ended December 31,
2023
2022
2021
Office segment
Office revenues
Office expenses
Office segment profit
Studio segment
Studio revenues
Studio expenses
Studio segment profit
TOTAL SEGMENT PROFIT
Segment revenues
Segment expenses
TOTAL SEGMENT PROFIT
$
$
$
$
812,375 $
(312,018)
500,357
139,922
(138,447)
1,475
501,832 $
952,297 $
(450,465)
501,832 $
852,700 $
(308,668)
544,032
173,524
(105,150)
68,374
612,406 $
1,026,224 $
(413,818)
612,406 $
The table below is a reconciliation of net (loss) income to total profit from all segments:
Year Ended December 31,
2023
2022
2021
$
(170,700) $
(16,517) $
NET (LOSS) INCOME
General and administrative
Depreciation and amortization
Loss (income) from unconsolidated real estate entities
Fee income
Interest expense
Interest income
Management services reimbursement income—unconsolidated
real estate entities
Management services expense—unconsolidated real estate
entities
Transaction-related expenses
Unrealized loss (gain) on non-real estate investments
(Gain) loss on sale of real estate
Impairment loss
(Gain) loss on extinguishment of debt
Other expense (income)
Loss on sale of bonds
Income tax provision
TOTAL PROFIT FROM ALL SEGMENTS
18. Related Party Transactions
Employment Agreements
$
$
74,958
397,846
3,902
(6,181)
214,415
(2,182)
(4,125)
4,125
(1,150)
3,120
(103,202)
60,158
(10,000)
6
34,046
6,796 $
501,832 $
79,501
373,219
(943)
(7,972)
149,901
(2,340)
(4,163)
4,163
14,356
1,440
2,164
28,548
—
(8,951)
—
— $
612,406 $
560,988
795,370
(280,334)
515,036
101,465
(55,513)
45,952
560,988
896,835
(335,847)
560,988
29,012
71,346
343,614
(1,822)
(3,221)
121,939
(3,794)
(1,132)
1,132
8,911
(16,571)
—
2,762
6,259
2,553
—
—
The Company has entered into employment agreements with certain of its executive officers, effective January 1, 2020,
that provide for various severance and change in control benefits and other terms and conditions of employment.
F-53
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 Reimbursements from Unconsolidated Real Estate Entities
The Company is reimbursed for certain costs incurred in managing certain of its unconsolidated real estate entities.
During the years ended December 31, 2023, 2022 and 2021, the Company recognized $4.1 million, $4.2 million and $1.1 million,
respectively, of such reimbursement income in management services reimbursement income—unconsolidated real estate entities
on the Consolidated Statement of Operations.
Related Party Leases
The Company’s wholly-owned subsidiary is party to long-term operating lease agreements with an unconsolidated joint
venture for office space and fitness and conference facilities. As of December 31, 2023, the Company’s right-of-use assets and
lease liabilities related to these lease obligations were $6.2 million and $6.4 million, respectively, as compared to right-of-use
assets and lease liabilities of $6.1 million and $6.2 million, respectively, as of December 31, 2022. During each of the years ended
December 31, 2023, 2022 and 2021, the Company recognized $1.0 million of related rental expense in management services
expense—unconsolidated real estate entities on the Consolidated Statements of Operations related to these leases.
19. Commitments and Contingencies
Fund Investments
The Company invests in several non-real estate funds with an aggregate commitment to contribute up to $51.0 million. As
of December 31, 2023, the Company has contributed $38.1 million to these funds, net of distributions, with $12.9 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, 2023, 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, 2023, the Company had $3.1 million in outstanding letters of credit under the unsecured revolving
credit facility. The letters of credit are primarily related to utility company security deposit requirements.
Contractual Obligations
The Company has entered into a number of construction agreements related to its development activities at various
properties and its obligations under executed leases. As of December 31, 2023, the Company had $108.3 million in related
commitments.
F-54
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)
20. Supplemental Cash Flow Information
Supplemental cash flow information for Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. is included as
follows:
Cash paid for interest, net of capitalized interest
Non-cash investing and financing activities
Note payable issued as consideration in a business combination
Accounts payable and accrued liabilities for real estate investments
Lease liabilities recorded in connection with right-of-use assets
Ground lease remeasurement
Earnout liability recognized as contingent consideration for business combination
Series C preferred stock dividend accrual
21. Subsequent Event
Year Ended December 31,
2023
2022
2021
197,599 $
133,869 $
112,043
— $
160,000 $
—
87,779 $
150,408 $
193,521
2,117 $
100,805 $
26,824
5,751 $
23,177 $
— $
— $
— $
— $
—
11,383
2,281
$
$
$
$
$
$
$
On February 8, 2024, the Company entered into an interest rate swap agreement to fix SOFR at a rate of 4.125% effective
as of February 9, 2024 through August 9, 2026 on $180.0 million of indebtedness, which amount corresponds to our unhedged
portion of the loan secured by the Hollywood Media Portfolio.
F-55
.
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