Hudson Pacific Properties Reports Second Quarter 2023 Financial Results

By: Hudson Pacific Properties, Inc. via Business Wire

August 01, 2023 at 17:00 PM EDT

Hudson Pacific Properties, Inc. (NYSE: HPP) (the "Company," "Hudson Pacific," or "HPP"), a unique provider of end-to-end real estate solutions for dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries, today announced financial results for the second quarter 2023.

"We continued to focus on the controllable aspects of our business during the quarter, which included leasing and expense management, given the industry challenges we are working to navigate," said Victor Coleman, Chairman & CEO. "Last month, the national entertainment strike expanded, with the actors joining the writers on strike for the first time since 1960. A strike of this magnitude, while rare and historically short-term, can be extremely impactful and far-reaching. We’re working diligently to mitigate its impact and to ensure our studio business is well positioned to capture the potential surge in production upon resolution. Regarding our office portfolio, a greater percentage of our tenants are starting to enforce back-to-office requirements, which we believe could ultimately result in the need for more office space as workforces have grown on a net basis over the past five years in many industries central to our leasing efforts. The timeline for tenant decision making remains extended, but increased interest is signaling that office fundamentals could begin to evolve in a more positive manner in our west coast markets. With our attention to capital preservation and addressing our debt maturities, we expect to overcome today’s challenges and capitalize on longer-term tenant activity within our attractive portfolio."

Financial Results Compared to Second Quarter 2022

Total revenue of $245.2 million compared to $251.4 million, primarily due to previously communicated vacancies at Skyport Plaza and 10900-10950 Washington and the sales of 6922 Hollywood and Skyway Landing
Net loss attributable to common stockholders of $36.2 million, or $0.26 per diluted share, compared to net loss of $7.4 million, or $0.05 per diluted share, driven by the aforementioned tenant move-outs and asset sales, higher operating expenses associated with the Quixote acquisition and increased interest expense
FFO, excluding specified items, of $34.5 million, or $0.24 per diluted share, compared to $74.6 million, or $0.51 per diluted share. Specified items consist of transaction-related income (rather than expense) of $2.5 million, or $0.02 per diluted share (includes lowering accruals for future earn-outs related to the Zio Studio Services acquisition); prior-period property tax reimbursement of $1.5 million, or $0.01 per diluted share; deferred tax asset write-off expense of $3.5 million, or $0.02 per diluted share; and, gain on debt extinguishment of $7.2 million (net of taxes), or $0.05 per diluted share. Prior year specified items consisted of transaction-related expenses of $1.1 million, or $0.01 per diluted share; and prior-period property tax expense of $0.5 million, or $0.00 per diluted share
FFO of $42.2 million, or $0.29 per diluted share, compared to $73.0 million, or $0.50 per diluted share
AFFO of $31.1 million, or $0.22 per diluted share, compared to $60.3 million, or $0.41 per diluted share
Same-store cash NOI of $127.6 million up 4.7% compared to $121.9 million, mostly attributable to significant office lease commencements at One Westside and Harlow

Leasing

Executed 61 new and renewal leases totaling 403,231 square feet, including a 56,000-square-foot renewal and extension with Rivian Automotive at Clocktower Square through 2028
GAAP and cash rents decreased 3.8% and 8.1%, respectively, from prior levels
In-service office portfolio ended the quarter at 85.2% occupied and 87.0% leased, with the change primarily attributable to small- to mid-sized expirations in the Peninsula and Silicon Valley, and to a lesser extent, Vancouver
On average over the trailing 12 months, the in-service studio portfolio was 86.5% leased, and the related 35 stages were 95.7% leased

Balance Sheet as of June 30, 2023

$581.2 million of total liquidity comprised of $109.2 million of unrestricted cash and cash equivalents and $472.0 million of undrawn capacity under the unsecured revolving credit facility
$90.0 million and $32.4 million of undrawn capacity under construction loans secured by One Westside/Westside Two and Sunset Glenoaks Studios, respectively
HPP's share of net debt to HPP's share of undepreciated book value was 38.7% with 85.3% of debt fixed or capped and no material maturities until the loan secured by One Westside, which is 100% leased to Google through 2036, matures in December 2024
Repaid the Quixote loan for $150.0 million, a $10.0 million discount on the principal balance, with funds from the unsecured revolving credit facility

Dividend

The Company's Board of Directors declared and paid dividends on its common stock of $0.125 per share, and on its 4.750% Series C cumulative preferred stock of $0.296875 per share

ESG Leadership

Issued 2022 Corporate Responsibility Report outlining achievements, including ranking #1 amongst office companies in the Americas in the GRESB Real Estate Assessment, winning Nareit’s Office Leader in the Light Award, inclusion in the Bloomberg Gender-Equality Index, and launch of HPPx2030 with ambitious targets to reduce climate impact and diversify management

2023 Outlook

Due to continued uncertainty around the duration of the studio-related union strikes, the Company will continue to provide certain assumptions relevant to its full-year 2023 office outlook, but has not reinstated its outlook for 2023 full-year FFO or studio-related assumptions. Current assumptions 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 new 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 these estimates.

Unaudited, in thousands, except share data

	Full Year 2023
	Assumptions
Metric	Low	High
Growth in office same-store cash NOI⁽¹⁾⁽²⁾	1.00%	2.00%
GAAP non-cash revenue (straight-line rent and above/below-market rents)⁽³⁾	$13,500	$23,500
GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)	$(7,100)	$(9,100)
General and administrative expenses⁽⁴⁾	$(70,000)	$(76,000)
Interest expense⁽⁵⁾	$(212,000)	$(222,000)
Non-real estate depreciation and amortization	$(34,000)	$(36,000)
FFO from unconsolidated joint ventures	$500	$2,500
FFO attributable to non-controlling interests	$(42,000)	$(46,000)
FFO attributable to preferred units/shares	$(21,000)	$(21,000)
Weighted average common stock/units outstanding—diluted⁽⁶⁾	143,000,000	144,000,000

(1)		Same-store office for the full year 2023 is defined as the 43 office properties owned and included in the Company's stabilized portfolio as of January 1, 2022, and anticipated to still be owned and included in the stabilized portfolio through December 31, 2023.
(2)		Please see non-GAAP information below for definition of cash NOI.
(3)		Includes non-cash straight-line rent associated with the office properties.
(4)		Includes non-cash compensation expense, which the Company estimates at $22,000 in 2023.
(5)		Includes non-cash interest expense, which the Company estimates at $13,000 in 2023.
(6)		Diluted shares represent ownership in the Company through shares of common stock, OP Units and other convertible or exchangeable instruments. The weighted average fully diluted common stock/units outstanding for 2023 includes an estimate for the dilution impact of stock grants to the Company's executives under its long-term incentive programs. This estimate is based on the projected award potential of such programs as of the end of the most recently completed quarter, as calculated in accordance with the ASC 260, Earnings Per Share.

The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, 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 2023 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 2023 financial results at 9:00 a.m. PT / 12:00 p.m. ET on August 2, 2023. Please dial (833) 470-1428 and enter passcode 861397 to access the call. International callers should dial (404) 975-4839 and enter the same passcode. A live, listen-only webcast and replay can be accessed via the Investors section of the Company's website at HudsonPacificProperties.com.

About Hudson Pacific Properties

Hudson Pacific Properties (NYSE: HPP) is a real estate investment trust serving dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries. Hudson Pacific’s unique and high-barrier tech and media focus leverages a full-service, end-to-end value creation platform forged through deep strategic relationships and niche expertise across identifying, acquiring, transforming and developing properties into world-class amenitized, collaborative and sustainable office and studio space. 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.

(FINANCIAL TABLES FOLLOW)

Consolidated Balance Sheets In thousands, except share data

	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Investment in real estate, at cost	$	8,856,229		$	8,716,572
Accumulated depreciation and amortization		(1,686,943	)		(1,541,271	)
Investment in real estate, net		7,169,286			7,175,301
Non-real estate property, plant and equipment, net		119,526			130,289
Cash and cash equivalents		109,220			255,761
Restricted cash		18,583			29,970
Accounts receivable, net		18,921			16,820
Straight-line rent receivables, net		294,050			279,910
Deferred leasing costs and intangible assets, net		371,525			393,842
Operating lease right-of-use assets		393,911			401,051
Prepaid expenses and other assets, net		128,836			98,837
Investment in unconsolidated real estate entities		218,422			180,572
Goodwill		263,549			263,549
Assets associated with real estate held for sale		—			93,238
TOTAL ASSETS	$	9,105,829		$	9,319,140

LIABILITIES AND EQUITY
Liabilities
Unsecured and secured debt, net	$	4,473,107		$	4,585,862
Joint venture partner debt		66,136			66,136
Accounts payable, accrued liabilities and other		274,294			264,098
Operating lease liabilities		395,170			399,801
Intangible liabilities, net		30,798			34,091
Security deposits, prepaid rent and other		92,021			83,797
Liabilities associated with real estate held for sale		—			665
Total liabilities		5,331,526			5,434,450

Redeemable preferred units of the operating partnership		9,815			9,815
Redeemable non-controlling interest in consolidated real estate entities		119,136			125,044

Equity
HPP 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 June 30, 2023 and December 31, 2022		425,000			425,000
Common stock, $0.01 par value, 481,600,000 authorized, 140,937,702 shares and 141,054,478 shares outstanding at June 30, 2023 and December 31, 2022, respectively		1,403			1,409
Additional paid-in capital		2,783,858			2,889,967
Accumulated other comprehensive income (loss)		6,413			(11,272	)
Total HPP stockholders' equity		3,216,674			3,305,104
Non-controlling interest—members in consolidated real estate entities		355,270			377,756
Non-controlling interest—units in the operating partnership		73,408			66,971
Total equity		3,645,352			3,749,831
TOTAL LIABILITIES AND EQUITY	$	9,105,829		$	9,319,140

Consolidated Statements of Operations Unaudited, in thousands, except share data

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
REVENUES
Office
Rental revenues	$	203,486		$	211,836		$	406,143		$	418,028
Service and other revenues		3,805			4,408			7,781			9,616
Total office revenues		207,291			216,244			413,924			427,644
Studio
Rental revenues		16,374			13,438			32,627			26,832
Service and other revenues		21,503			21,748			50,880			41,467
Total studio revenues		37,877			35,186			83,507			68,299
Total revenues		245,168			251,430			497,431			495,943
OPERATING EXPENSES
Office operating expenses		76,767			78,558			150,821			152,189
Studio operating expenses		34,679			20,686			71,923			39,669
General and administrative		18,941			21,871			37,665			42,383
Depreciation and amortization		98,935			91,438			196,074			183,631
Total operating expenses		229,322			212,553			456,483			417,872
OTHER INCOME (EXPENSES)
(Loss) income from unconsolidated real estate entities		(715	)		1,780			(1,460	)		2,083
Fee income		2,284			1,140			4,686			2,211
Interest expense		(54,648	)		(33,719	)		(108,455	)		(64,555	)
Interest income		236			920			607			1,830
Management services reimbursement income—unconsolidated real estate entities		1,059			1,068			2,123			2,176
Management services expense—unconsolidated real estate entities		(1,059	)		(1,068	)		(2,123	)		(2,176	)
Transaction-related expenses		2,530			(1,126	)		1,344			(1,382	)
Unrealized loss on non-real estate investments		(843	)		(1,818	)		(4	)		(168	)
Gain on extinguishment of debt		10,000			—			10,000			—
Gain on sale of real estate		—			—			7,046			—
Impairment loss		—			(3,250	)		—			(23,753	)
Other income (expense)		138			(21	)		135			(9	)
Total other expenses		(41,018	)		(36,094	)		(86,101	)		(83,743	)
(Loss) income before income tax (provision) benefit		(25,172	)		2,783			(45,153	)		(5,672	)
Income tax (provision) benefit		(6,302	)		763			(1,140	)		1,603
Net (loss) income		(31,474	)		3,546			(46,293	)		(4,069	)
Net income attributable to Series A preferred units		(153	)		(153	)		(306	)		(306	)
Net income attributable to Series C preferred shares		(5,047	)		(5,047	)		(10,094	)		(10,337	)
Net income attributable to participating securities		(297	)		(300	)		(850	)		(594	)
Net income attributable to non-controlling interest in consolidated real estate entities		(346	)		(7,081	)		(1,377	)		(15,642	)
Net loss attributable to redeemable non-controlling interest in consolidated real estate entities		508			1,506			1,402			3,396
Net loss attributable to common units in the operating partnership		646			93			928			323
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(36,163	)	$	(7,436	)	$	(56,590	)	$	(27,229	)

BASIC AND DILUTED PER SHARE AMOUNTS
Net loss attributable to common stockholders—basic	$	(0.26	)	$	(0.05	)	$	(0.40	)	$	(0.19	)
Net loss attributable to common stockholders—diluted	$	(0.26	)	$	(0.05	)	$	(0.40	)	$	(0.19	)
Weighted average shares of common stock outstanding—basic		140,910			143,817			140,967			146,487
Weighted average shares of common stock outstanding—diluted		140,910			143,817			140,967			146,487

Funds from Operations⁽¹⁾ Unaudited, in thousands, except per share data

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
RECONCILIATION OF NET (LOSS) INCOME TO FUNDS FROM OPERATIONS (“FFO”)⁽¹⁾:
Net (loss) income	$	(31,474	)	$	3,546		$	(46,293	)	$	(4,069	)
Adjustments:
Depreciation and amortization—consolidated		98,935			91,438			196,074			183,631
Depreciation and amortization—non-real estate assets		(8,832	)		(4,485	)		(17,224	)		(8,917	)
Depreciation and amortization—HPP's share from unconsolidated real estate entities⁽²⁾		1,195			1,320			2,458			2,689
Gain on sale of real estate		—			—			(7,046	)		—
Impairment loss—real estate assets		—			3,250			—			15,253
Unrealized loss on non-real estate investments		843			1,818			4			168
FFO attributable to non-controlling interests		(13,239	)		(18,687	)		(26,862	)		(38,687	)
FFO attributable to preferred shares and units		(5,200	)		(5,200	)		(10,400	)		(10,643	)
FFO to common stock/unit holders		42,228			73,000			90,711			139,425
Specified items impacting FFO:
Transaction-related expenses		(2,530	)		1,126			(1,344	)		1,382
Impairment loss—trade name		—			—			—			8,500
Prior period net property tax adjustment—Company’s share		(1,469	)		477			(1,469	)		451
Deferred tax asset valuation allowance		3,516			—			3,516			—
One-time gain on debt extinguishment		(10,000	)		—			(10,000	)		—
One-time tax impact of gain on debt extinguishment		2,751			—			2,751			—
FFO (excluding specified items) to common stock/unit holders	$	34,496		$	74,603		$	84,165		$	149,758

Weighted average common stock/units outstanding—diluted		143,428			146,344			143,379			149,249
FFO per common stock/unit—diluted	$	0.29		$	0.50		$	0.63		$	0.93
FFO (excluding specified items) per common stock/unit—diluted	$	0.24		$	0.51		$	0.59		$	1.00

(1)		We calculate Funds from Operations ("FFO") in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts. 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 the HPP’s share of real estate-related depreciation and amortization, excluding amortization of deferred financing costs and depreciation of non-real estate assets. The calculation of FFO includes the HPP’s share of amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets.

		FFO is a non-GAAP financial measure we believe is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.

		Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide. We use FFO per share to calculate annual cash bonuses for certain employees.

		However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.

(2)		HPP's share is a Non-GAAP financial measure 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.

Adjusted Funds from Operations⁽¹⁾ Unaudited, in thousands, except per share data

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
FFO (excluding specified items)	$	34,496		$	74,603		$	84,165		$	149,758
Adjustments:
GAAP non-cash revenue (straight-line rent and above/below-market rents)		(2,660	)		(9,770	)		(11,796	)		(21,760	)
GAAP non-cash expense (straight-line rent expense and above/below-market ground rent)		1,814			970			3,637			1,936
Non-real estate depreciation and amortization		8,832			4,485			17,224			8,917
Non-cash interest expense		5,025			2,407			9,701			4,810
Non-cash compensation expense		6,229			5,993			11,385			11,322
Recurring capital expenditures, tenant improvements and lease commissions		(22,599	)		(18,386	)		(48,124	)		(35,885	)
AFFO	$	31,137		$	60,302		$	66,192		$	119,098

(1)

Adjusted Funds from Operations ("AFFO") is a non-GAAP financial measure we believe is a useful supplemental measure of our performance. We compute AFFO by adding to FFO (excluding specified items) HPP's share of non-cash compensation expense and amortization of deferred financing costs, and subtracting recurring capital expenditures related to HPP's share of tenant improvements and leasing commissions (excluding pre-existing obligations on contributed or acquired properties funded with amounts received in settlement of prorations), and eliminating the net effect of HPP’s share of straight-line rents, amortization of lease buy-out costs, amortization of above-and below-market lease intangible assets and liabilities, amortization of above-and below-market ground lease intangible assets and liabilities and amortization of loan discounts/premiums. AFFO is not intended to represent cash flow for the period. We believe that AFFO provides useful information to the investment community about our financial position as compared to other REITs since AFFO is a widely reported measure used by other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs.

Net Operating Income⁽¹⁾ Unaudited, in thousands

	Three Months Ended June 30,
	2023			2022
Net (loss) income	$	(31,474	)	$	3,546
Adjustments:
Loss (income) from unconsolidated real estate entities		715			(1,780	)
Fee income		(2,284	)		(1,140	)
Interest expense		54,648			33,719
Interest income		(236	)		(920	)
Management services reimbursement income—unconsolidated real estate entities		(1,059	)		(1,068	)
Management services expense—unconsolidated real estate entities		1,059			1,068
Transaction-related expenses		(2,530	)		1,126
Unrealized loss on non-real estate investment		843			1,818
Impairment loss		—			3,250
Gain on extinguishment of debt		(10,000	)		—
Other (income) expense		(138	)		21
Income tax provision (benefit)		6,302			(763	)
General and administrative		18,941			21,871
Depreciation and amortization		98,935			91,438
NOI	$	133,722		$	152,186

NOI Detail
Same-store office cash revenues		189,190			181,225
Straight-line rent		3,049			12,640
Amortization of above/below-market leases, net		1,589			1,891
Amortization of lease incentive costs		(262	)		(398	)
Same-store office revenues		193,566			195,358

Same-store studios cash revenues		17,153			20,025
Straight-line rent		417			646
Amortization of lease incentive costs		(9	)		(9	)
Same-store studio revenues		17,561			20,662

Same-store revenues		211,127			216,020

Same-store office cash expenses		69,322			67,196
Straight-line rent		399			402
Non-cash compensation expense		35			25
Amortization of above/below-market ground leases, net		676			675
Same-store office expenses		70,432			68,298

Same-store studio cash expenses		9,396			12,152
Non-cash compensation expense		113			69
Same-store studio expenses		9,509			12,221

Same-store expenses		79,941			80,519

Same-store NOI		131,186			135,501
Non-same-store NOI		2,536			16,685
NOI	$	133,722		$	152,186

(1)

We evaluate performance based upon property Net Operating Income ("NOI") from continuing operations. 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 income from continuing operations, 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 income from continuing operations. 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 (rental revenues, other property-related revenue, tenant recoveries and other operating revenues), less property-level operating expenses (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.

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Contacts

Investor Contact

Laura Campbell

Executive Vice President, Investor Relations & Marketing

(310) 622-1702

lcampbell@hudsonppi.com

Media Contact

Laura Murray

Senior Director, Communications

(310) 622-1781

lmurray@hudsonppi.com