Hudson Pacific Properties Reports Second Quarter 2021 Financial Results

Net Income of $0.02 per Diluted Share

FFO of $0.49 per Diluted Share (Excluding Specified Items)

Same-store office and studio cash NOI increased 4.9% and 29.3%, respectively

Over 510,000 Square Feet of Office Leases Executed

GAAP and cash rent growth of 18.7% and 12.1%, respectively

Stabilized and in-service office portfolios 92.7% and 91.4% leased, respectively

Remaining 2021 office lease expirations just 4.4% of Company's Share of ABR

$0.9 Billion Total Liquidity

No material maturities until 2023

Provided Full-Year and Q3 2021 FFO Outlook

$1.90 to $1.96 per diluted share (excluding specified items) for full-year

$0.47 to $0.49 per diluted share (excluding specified items) for Q3

Hudson Pacific Properties, Inc. (the "Company" or "Hudson Pacific") (NYSE: HPP) today announced financial results for the second quarter 2021.

Management Comments & Industry Outlook

Victor Coleman, Hudson Pacific Properties' Chairman and CEO, said:

"Our second quarter performance remained strong. We saw growing momentum around a return to in-person work for most companies, which led to increased office leasing and production activity within our portfolio and markets. For the second quarter in a row, we signed over 500,000 square feet of office leases, which is in line with our long-term average activity, at healthy 12% cash rent spreads. We collected 99% of our contractual rents. We achieved same-store cash NOI growth of nearly 5% within our office portfolio, and nearly 30% within our studio portfolio, the latter of which underscores the acceleration in production relative to the onset of the pandemic. In light of all these trends, we've reinstated our full-year guidance, even while certain variables, like parking, remain challenging to predict.

"I'm thrilled that we've recently announced two major transactions in furtherance of our Sunset Studios platform expansion—one in Los Angeles, the other in the UK. Both deals afford us the opportunity to develop and operate large-scale, state-of-the-art, purpose-built facilities. We're leveraging our deep expertise in this sector to align our plans with what today's and tomorrow's leading productions will require and desire, be it exceptional design, high-tech infrastructure or sustainable construction and operations."

Consolidated Financial & Operating Results

For second quarter 2021 compared to second quarter 2020:

• Net income attributable to common stockholders of $2.3 million, or $0.02 per diluted share, compared to net income of $3.7 million, or $0.02 per diluted share;
• FFO, excluding specified items, of $74.4 million, or $0.49 per diluted share, compared to $76.8 million, or $0.50 per diluted share;
  • Specified items consisting of transaction-related expenses of $1.1 million, or $0.01 per diluted share, and a one-time, prior-period supplemental property tax expense related to Sunset Gower of $0.3 million, or $0.00 per diluted share, compared to transaction-related expenses of $0.2 million, or $0.00 per diluted share;
• FFO, including specified items, of $73.0 million, or $0.48 per diluted share, compared to $76.6 million, or $0.49 per diluted share;
• Total revenue increased 8.6% to $215.6 million;
• Total operating expenses increased 11.5% to $182.9 million; and
• Interest expense increased 9.9% to $30.7 million.

Office Segment Results

Financial & operating

For second quarter 2021 compared to second quarter 2020:

• Total revenue increased 6.2% to $195.7 million. Primary factors include:
  • Revenue from the acquisition of 1918 Eighth, revenue associated with a lease at Clocktower Square, the reversal of reserves against uncollected cash rents and straight-line rent receivables from a tenant at 901 Market, and commencement of operations at Harlow, all partially offset by lease expirations in prior quarters;
• Operating expenses increased 7.0% to $69.1 million. Primary factors include:
  • Expenses associated with the aforementioned acquisition of 1918 Eighth and commencement of operations at Harlow; and
• Net operating income and cash net operating income for the 44 consolidated same-store office properties decreased 2.1% and increased 4.9%, respectively.

Leasing

• Stabilized and in-service office portfolios were 92.7% and 91.4% leased, respectively. The in-service leased percentage would have been 91.8% (40 basis points higher than the 91.4% reported in the second quarter) but for the addition of recently completed Harlow (54.1% leased) to the in-service portfolio; and
• Executed 73 new and renewal leases totaling 510,197 square feet with GAAP and cash rent growth of 18.7% and 12.1%, respectively.

Studio Segment Results

Financial & operating

For second quarter 2021 compared to second quarter 2020:

• Total revenue increased 39.1% to $19.9 million. Primary factors include:
  • Higher service and other revenue stemming from the resumption of production activity, largely at Sunset Gower and Sunset Las Palmas, as shelter-in-place restrictions eased;
• Total operating expenses increased 56.8% to $12.5 million, primarily due to the aforementioned increase in production activity; and
• Net operating income and cash net operating income for the three same-store studio properties increased 17.0% and 29.3%, respectively. Adjusted for the one-time supplemental property tax expense at Sunset Gower, net operating income and cash net operating income for the same-store studio properties would have increased by 22.8% and 35.8%, respectively.

Leasing

• Trailing 12-month occupancy for the three same-store studio properties was 88.0%.

Leasing Activity

Executed significant leases across the portfolio

• Absolute Software Corporation renewed its 49,813-square-foot lease through November 2024 at Bentall Centre in Downtown Vancouver.
• Dell EMC Corporation renewed 46,472 square feet commencing October 2021 through January 2027 at 505 First in Pioneer Square. Effective as of the commencement of the renewal, they will surrender 138,820 square feet, resulting in 89,426 square feet of ongoing occupancy.
• Califia Farms signed a 29,440-square-foot lease commencing July 2021 through October 2032 at Maxwell in the Los Angeles Arts District.

Balance Sheet

As of the end of the second quarter 2021:

• $2.9 billion of the Company's share of unsecured and secured debt and preferred units (net of cash and cash equivalents) resulting in a leverage ratio of 39.3%.
• Approximately $0.9 billion of total liquidity comprised of:
  • $111.0 million of unrestricted cash and cash equivalents;
  • $600.0 million of undrawn capacity under the unsecured revolving credit facility; and
  • $221.7 million of undrawn capacity under the construction loan secured by One Westside and 10850 Pico.
• Investment grade credit rated with 65.3% unsecured and 85.7% fixed-rate debt and a weighted average maturity of 5.2 years.

Capital Transactions

Raised $46 million under ATM program

• During the second quarter of 2021, the Company sold 1.5 million shares under its at-the-market ("ATM") program, generating $45.7 million of proceeds for an average sales price of $29.92.

Dividend

Paid common dividend

• The Company's Board of Directors declared a dividend on its common stock of $0.25 per share, equivalent to an annual rate of $1.00 per share.

ESG Leadership

Issued 2020 Corporate Responsibility Report

On April 22, Hudson Pacific published its 2020 Corporate Responsibility Report, which details the Company's accomplishments across its Better Blueprint^TM focus areas of Sustainability, Health and Equity.

Activities Subsequent to Second Quarter 2021

Unveiled plans to build Los Angeles-area studio facility

On July 29, Hudson Pacific and Blackstone announced plans to develop through a 50/50 joint venture a fully entitled, state-of-the-art, purpose-built studio facility in Sun Valley, California. The approximately 241,000-square-foot, seven-stage facility, which will be known as Sunset Glenoaks Studios and operate as part of the Sunset Studios platform, will be the first large-scale, purpose-built studio developed in Los Angeles in over 20 years. The project, which could start construction as early as fourth quarter 2021 with delivery in third quarter 2023, will represent a total $170-190 million investment. The site is 20 minutes from Hollywood and 10 minutes from Burbank, where Disney, NBC Universal and Warner Brothers are headquartered, and numerous other production companies, including Netflix, are located.

Purchased London-area studio development site

On July 29, Hudson Pacific and Blackstone acquired a 91-acre site, 17 miles north of central London in Broxbourne, Hertfordshire, through a 35/65 (Hudson Pacific/Blackstone) joint venture for £120 million. The proposed development, which is subject to planning permission, would transform the site into a world-class film and television studio campus, becoming one of the UK's largest hubs for national and international production. The acquisition, with an expected total investment of approximately £700 million, is the partnership's first expansion of their Sunset Studios platform into the UK and outside the US.

In anticipation of the transaction closing, on July 22, Hudson Pacific drew down $50 million on its unsecured revolving credit facility, resulting in $550 million of undrawn capacity, with the balance of the Company's pro rata share of acquisition costs funded through cash on hand.

2021 Outlook

The Company is providing 2021 full-year and third-quarter guidance in the range of $1.90 to $1.96 per diluted share, excluding specified items, and $0.47 to $0.49 per diluted share, excluding specified items, respectively. Specified items for the full year are transaction-related expenses of $1.1 million and prior-period supplemental property tax expenses of $1.4 million as referenced in the Company's second quarter SEC filings. There are no specified items in connection with third quarter guidance.

The FFO estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this press release and in earlier announcements. It otherwise excludes any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital markets activity or similar matters. There can be no assurance that actual results will not differ materially from this estimate.

Below are some of the assumptions the Company used in providing this guidance (dollars and share data in thousands):

The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, including the information under "FFO Guidance" above, where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted share, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, acquisition costs and other non-core items that have not yet occurred, are out of the Company's control and/or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Supplemental Information

Supplemental financial information regarding Hudson Pacific's second quarter 2021 results may be found on the Investors section of the Company's website at HudsonPacificProperties.com. This supplemental information provides additional detail on items such as property occupancy, financial performance by property and debt maturity schedules.

Conference Call

The Company will hold a conference call to discuss second quarter 2021 financial results at 11:00 a.m. PT / 2:00 p.m. ET on August 4, 2021. Please dial (877) 407-0784 to access the call. International callers should dial (201) 689-8560. A live, listen-only webcast can be accessed via the Investors section of the Company's website at HudsonPacificProperties.com, where a replay of the call will be available. A replay will also be available beginning August 4, 2021 at 2:00 p.m. PT / 5:00 p.m. ET, through August 18, 2021 at 8:59 p.m. PT / 11:59 p.m. ET, by dialing (844) 512-2921 and entering the passcode 13720804. International callers should dial (412) 317-6671 and enter the same passcode.

About Hudson Pacific Properties

Hudson Pacific is a real estate investment trust with a portfolio of office and studio properties totaling nearly 20 million square feet, including land for development. Focused on premier West Coast epicenters of innovation, media and technology, its anchor tenants include Fortune 500 and leading growth companies such as Google, Netflix, Riot Games, Square, Uber and more. Hudson Pacific is publicly traded on the NYSE under the symbol HPP and listed as a component of the S&P MidCap 400 Index. For more information visit HudsonPacificProperties.com.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events, or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company's control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. All forward-looking statements reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company's future results to differ materially from any forward-looking statements, see the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

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