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EX-23.1 - EXHIBIT - Hudson Pacific Properties, Inc.spearstreet8_kexhibit231.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 8-K
 _________________________________
CURRENT REPORT
Pursuant to Section 13 OR 15 (d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 2013
 _________________________________
Hudson Pacific Properties, Inc.
(Exact name of registrant as specified in its charter) 
Maryland
 
001-34789
 
27-1430478
(State or other
 
(Commission File Number)
 
(IRS Employer
jurisdiction of
 
 
 
Identification No.)
incorporation)
 
 
 
 
 
11601 Wilshire Blvd., Suite 1600
Los Angeles, California
 
90025
 
(Address of Principal Executive Offices)
 
(Zip Code)
 

 
(310) 445-5700
Registrant's Telephone Number, Including Area Code
 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report
_________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
 
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
 
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
 
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







This Current Report on Form 8-K is filed by Hudson Pacific Properties, Inc., a Maryland corporation (referred to herein as the “Company,” “we,” “our” and “us”), in connection with the matters described herein.

Item 9.01 Financial Statements and Exhibits.

In accordance with Rule 3-14 and Article 11 of Regulation S-X, the Company hereby files the following financial statement and pro forma information relating to the acquisition of a four-building portfolio located in Seattle, Washington (the “Seattle Portfolio”). The acquisition of the Seattle Portfolio was disclosed in our Company’s 10-Q filed with the Securities and Exchange Commission on August 8, 2013.

(a)     Financial Statements of Portfolio Acquired.
Report of Independent Auditors
Combined Statements of Revenues and Certain Expenses for the the years ended December 31, 2012 and six months ended June 30, 2013 (unaudited)
Notes to the Combined Statements of Revenues and Certain Expenses

(b)     Unaudited Pro Forma Financial Information.
Unaudited pro forma consolidated balance sheet as of June 30, 2013
Unaudited pro forma consolidated statement of operations for the six months ended June 30, 2013
Unaudited pro forma consolidated statement of operations for the year ended December 31, 2012
Notes to unaudited pro forma consolidated financial statements

(d)    Exhibits.
Exhibit
No.
  
Description
23.1

*
Consent of Ernst & Young LLP.
*
Filed herewith.










Report of Independent Auditors


The Board of Directors and Stockholders of Hudson Pacific Properties, Inc.

We have audited the accompanying combined statement of revenues and certain expenses of the four-building portfolio located in Seattle, Washington (the “Seattle Portfolio”) for the year ended December 31, 2012, and the related notes to the combined financial statement.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of the combined statement of revenues and certain expenses in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the combined statement of revenues and certain expenses that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the combined statement of revenues and certain expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined statement of revenues and certain expenses. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined statement of revenues and certain expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined statement of revenues and certain expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined statement of revenues and certain expenses.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined statement of revenues and certain expenses referred to above presents fairly, in all material respects, the combined revenues and certain expenses described in Note 1 for the year ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

Basis of Accounting

As described in Note 1 to the financial statement, the combined statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, and is not intended to be a complete presentation of the Seattle Portfolio’s combined revenues and expenses. Our opinion is not modified with respect to this matter.


/s/ ERNST & YOUNG LLP

Los Angeles, California
October 10, 2013






Seattle Portfolio
Combined Statements of Revenues and Certain Expenses
Year Ended December 31, 2012 and Six Months Ended June 30, 2013 (unaudited)
(In thousands)

 
 
Six Months Ended
June 30, 2013
(Unaudited)
 
Year Ended
December 31, 2012
Revenues
 
 
 
 
Rental Revenue
 
$
7,006

 
$
13,114

Tenant recoveries
 
2,661

 
3,858

Parking and other
 
1,578

 
1,759

Total revenues
 
11,245

 
18,731

 
 
 
 
 
Certain expenses
 
 
 
 
Property operating expenses
 
3,731

 
6,162

Total certain expenses
 
3,731

 
6,162

Revenues in excess of expenses
 
$
7,514

 
$
12,569






















See accompanying notes





Seattle Portfolio
Combined Statements of Revenues and Certain Expenses
Year Ended December 31, 2012 and Six Months Ended June 30, 2013 (unaudited)
(In thousands)

1. Basis of Presentation

The accompanying combined statements of revenues and certain expenses include the operations of the four-building, portfolio located in Seattle, Washington (the “Seattle Portfolio”). One of the four buildings was acquired in 2012. Therefore, the results of operations for this building are included in the combined statements of revenues and certain expenses from the date of acquisition.

The accompanying combined statements of revenues and certain expenses relate to the Seattle Portfolio and have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. Accordingly, the statements are not representative of the actual operations for the periods presented as revenues and certain operating expenses, which may not be directly attributable to the revenues and expenses expected to be incurred in the future operations of the Seattle Portfolio, have been excluded. Such items include depreciation, amortization, management fees, certain property administrative expenses, interest expense, interest income, acquisition expenses, and amortization of above- and below-market leases.

The four buildings are under common control and their acquisition will be conditioned on a single event. Due to common control and consistent with Accounting Standards Codification (ASC) 810-10, Consolidation, management has presented the four buildings on a combined basis.

2. Summary of Significant Accounting Policies

The combined financial statements include selected accounts of the Seattle Portfolio as described in Note 1. All significant intercompany accounts and transactions have been eliminated in the combined statements of revenues and certain expenses.

Revenue Recognition

The Seattle Portfolio recognizes rental revenue from tenants on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased asset.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, as the Seattle Portfolio 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.

Parking and other revenue is revenue that is derived from the tenants’ parking and other miscellaneous income. Parking and other revenue is recognized when the related services are utilized by the tenants.

Use of Estimates

Management has made a number of estimates and assumptions relating to the reporting and disclosure of revenues and certain expenses during the reporting periods to present the statements of revenues and certain expenses in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates.

3. Minimum Future Lease Rentals

There are various lease agreements in place with tenants to lease space in the Seattle Portfolio. As of June 30, 2013, the minimum future cash rents receivable under non-cancelable operating leases in each of the next five years and thereafter are as follows (unaudited):






2013 (six months ending December 31, 2012)
$
6,999

2014
16,716

2015
17,093

2016
16,521

2017
16,541

2018
16,691

Thereafter
42,466

 
$
133,027


Leases generally require reimbursement of the tenant’s proportional share of common area, real estate taxes and other operating expenses, which are excluded from the amounts above.

4. Tenant Concentrations

For the year ended December 31, 2012 and the six-months ended June 30, 2013, one tenant represented 26.3% and 24.6% (unaudited), respectively, of the Seattle Portfolio’s rental revenues.

5. Commitments and Contingencies

The Seattle Portfolio is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Management believes that the ultimate settlement of these actions will not have a material adverse effect on the Seattle Portfolio’s results of operations.

6. Subsequent Events

The Seattle Portfolio was evaluated with respect to subsequent events through October 10, 2013, the date the financial statements were available to be issued.








HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated balance sheet of Hudson Pacific Properties, Inc. (the “Company” or “our”) as of June 30, 2013 and unaudited pro forma consolidated statements of operations of the Company for the year ended December 31, 2012 and the six months ended June 30, 2013 have been prepared as if the acquisition of the four-building portfolio located in Seattle, Washington (the “Seattle Portfolio”) and related financing had occurred on June 30, 2013 for the pro forma consolidated balance sheet, and as if the acquisition of Seattle Portfolio and concurrent financing had occurred on January 1, 2012 for both pro forma consolidated statements of operations.

Our pro forma consolidated financial statements are presented for informational purposes only and should be read in conjunction with the historical financial statements of the Seattle Portfolio and related notes thereto included elsewhere in this filing and our forms 10-K and 10-Q filed with the Securities and Exchange Commission. The adjustments to our pro forma consolidated financial statements are based on available information and assumptions that we consider reasonable. Our pro forma consolidated financial statements do not purport to (1) represent our financial position that would have actually occurred had the acquisition of the Seattle Portfolio and related financing occurred on June 30, 2013, (2) represent the results of our operations that would have actually occurred had the acquisition of the Seattle Portfolio and related financing occurred on January 1, 2012 or (3) project our financial position or results of operations as of any future date or for any future period, as applicable.






HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 2013
(in thousands, except per share data)
 
Hudson Pacific Properties, Inc.
 
Disposition of City Plaza
 
Acquisition of Seattle Portfolio and related financing
 
Company Pro forma
 
(A)
 
(B)
 
(C)
 
 
ASSETS
 
 
 
 
 
 
 
Investment in real estate, net
$
1,510,822

 
$

 
$
370,100

 
$
1,880,922

Cash and cash equivalents
96,330

 
51,883

 
(119,183
)
 
29,030

Restricted cash
14,518

 

 

 
14,518

Accounts receivable, net
10,188

 

 

 
10,188

Straight-line rent receivables
16,673

 

 

 
16,673

Deferred leasing costs
88,893

 

 
21,619

 
110,512

Deferred finance costs, net
7,092

 

 
819

 
7,911

Interest rate contracts
123

 

 

 
123

Goodwill
8,754

 

 

 
8,754

Prepaid expenses and other assets
22,615

 

 
(20,000
)
 
2,615

Assets associated with real estate held for sale
53,152

 
(53,152
)
 

 

TOTAL ASSETS
$
1,829,160

 
$
(1,269
)
 
$
253,355

 
$
2,081,246

 
 
 
 
 
 
 
 
LIABILITES AND EQUITY
 
 
 
 
 
 
 
Notes payable
$
637,118

 
$

 
$
229,500

 
$
866,618

Accounts payable and accrued liabilities
17,528

 

 
8,664

 
26,192

Below-market leases and above-market ground leases
35,216

 

 
14,666

 
49,882

Security deposits
5,671

 

 
525

 
6,196

Prepaid rent
8,719

 

 

 
8,719

Obligations associated with real estate held for sale
1,269

 
(1,269
)
 

 

TOTAL LIABLITIES
705,521

 
(1,269
)
 
253,355

 
957,607

 
 
 
 
 
 
 
 
6.25% Series A Cumulative Redeemable Preferred units of the Operating Partnership
12,475

 
 
 

 
12,475

 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
 
Hudson Pacific Properties, Inc. shareholders’ equity
 
 
 
 
 
 
 
Series B Cumulative Redeemable Preferred Stock
145,000

 
 
 

 
145,000

Common stockholders
567

 
 
 

 
567

Additional paid-in capital
904,805

 
 
 

 
904,805

Accumulated other comprehensive loss
(1,177
)
 
 
 

 
(1,177
)
Accumulated deficit
(39,478
)
 
 
 

 
(39,478
)
Total Hudson Pacific Properties, Inc. shareholders’ equity
1,009,717

 

 

 
1,009,717

 
 
 
 
 
 
 
 
Non-controlling unitholders in Operating Partnership
46,883

 
 
 

 
46,883

Non-controlling interest in consolidated real estate entity
54,564

 
 
 

 
54,564

TOTAL EQUITY
1,111,164

 

 

 
1,111,164

TOTAL LIABILITIES & EQUITY
$
1,829,160

 
$
(1,269
)
 
$
253,355

 
$
2,081,246






HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 2013
(in thousands, except per share data)
 
Hudson Pacific Properties, Inc.
 
Acquisition of Seattle Portfolio and related financing
 
Other pro forma adjustments
 
Company Pro forma
 
 
(AA)
 
(BB)
 
(CC)
 
 
 
Revenues
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
Rental
$
56,090

 
$
7,968

 
$

 
$
64,058

 
Tenant recoveries
11,097

 
2,661

 

 
13,758

 
Other
7,046

 
1,578

 

 
8,624

 
Total office revenues
74,233

 
12,207

 

 
86,440

 
Media & Entertainment
 
 
 
 
 
 
 
 
Rental
11,185

 

 

 
11,185

 
Tenant recoveries
741

 

 

 
741

 
Other property-related revenue
8,198

 

 

 
8,198

 
Other
436

 

 

 
436

 
Total media & entertainment revenues
20,560

 

 

 
20,560

 
Total revenues
94,793

 
12,207

 

 
107,000

 
Operating Expenses
 
 
 
 
 
 

 
Office operating expenses
27,425

 
3,731

 

 
31,156

 
Media & entertainment operating expenses
11,997

 

 

 
11,997

 
General and administrative
10,175

 

 

 
10,175

 
Depreciation and amortization
32,813

 
6,311

 

 
39,124

 
Total operating expenses
82,410

 
10,042

 

 
92,452

 
Income from operations
12,383

 
2,165

 

 
14,548

 
Other Expense (Income)
 
 
 
 
 
 
 
 
Interest expense
11,354

 
2,769

 

 
14,123

 
Interest income
(240
)
 

 

 
(240
)
 
Acquisition-related expenses
509

 

 

 
509

 
Other expense
54

 

 

 
54

 
 
11,677

 
2,769

 

 
14,446

 
Income (loss) from continuing operations
$
706

 
$
(604
)
 
$

 
$
102

 
 
 
 
 
 
 
 
 
 
Income attributable to preferred stock and units
(6,462
)
 

 

 
(6,462
)
 
Income attributable to restricted shares
(158
)
 

 

 
(158
)
 
Loss attributable to non-controlling interest in Consolidated Entities
281

 

 

 
281

 
Loss attributable to common units in the Operating Partnership
394

 

 
(131
)
 
263

 
Net loss from continuing operations attributable to Hudson Pacific Properties, Inc. common stockholders’
$
(5,239
)
 
$
(604
)
 
(131
)
 
$
(5,974
)
 
 
 
 
 
 
 
 
 
 
Net loss from continuing operations attributable to common stockholders - Basic and diluted
$
(0.10
)
 
 
 
 
 
$
(0.11
)
(DD)
Pro Forma weighted average shares outstanding—basic and diluted
54,140,594

 
 
 
 
 
54,140,594

(DD)






HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2012
(in thousands, except per share data)
 
Hudson Pacific Properties, Inc.
 
Acquisition of Seattle Portfolio
 
Other Pro forma adjustments
 
Company Pro forma
 
 
(AA)
 
(BB)
 
(CC)
 
 
 
Revenues
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
Rental
$
88,460

 
$
15,038

 

 
$
103,498

 
Tenant recoveries
22,029

 
3,858

 

 
25,887

 
Other
9,840

 
1,759

 

 
11,599

 
Total office revenues
120,329

 
20,655

 

 
140,984

 
Media & Entertainment
 
 
 
 
 
 
 
 
Rental
23,598

 

 

 
23,598

 
Tenant recoveries
1,598

 

 

 
1,598

 
Other property-related revenue
14,733

 

 

 
14,733

 
Other
204

 

 

 
204

 
Total media & entertainment revenues
40,133

 

 

 
40,133

 
Total revenues
160,462

 
20,655

 

 
181,117

 
Operating Expenses
 
 
 
 
 
 
 
 
Office operating expenses
50,599

 
6,162

 

 
56,761

 
Media & entertainment operating expenses
24,340

 

 

 
24,340

 
General and administrative
16,497

 

 

 
16,497

 
Depreciation and amortization
54,758

 
12,623

 

 
67,381

 
Total operating expenses
146,194

 
18,785

 

 
164,979

 
Income from operations
14,268

 
1,870

 

 
16,138

 
Other Expense (Income)
 
 
 
 
 
 
 
 
Interest expense
19,071

 
5,539

 

 
24,610

 
Interest income
(306
)
 

 

 
(306
)
 
Acquisition-related expenses
1,051

 

 

 
1,051

 
Other expense
(92
)
 

 

 
(92
)
 
 
19,724

 
5,539

 

 
25,263

 
Loss from continuing operations
$
(5,456
)
 
$
(3,669
)
 
$

 
$
(9,125
)
 
 

 

 

 

 
Income attributable to preferred stock and units
(12,924
)
 

 

 
(12,924
)
 
Income attributable to restricted shares
(295
)
 

 

 
(295
)
 
Loss attributable to non-controlling interest in Consolidated Entities
21

 

 

 
21

 
Loss attributable to common units in the Operating Partnership
1,014

 

 
233

 
1,247

 
Net loss from continuing operations attributable to Hudson Pacific Properties, Inc. common stockholders’
$
(17,640
)
 
$
(3,669
)
 
233

 
$
(21,076
)
 
 
 
 
 
 
 
 
 
 
Net loss from continuing operations attributable to common stockholders - Basic and diluted
$
(0.42
)
 
 
 
 
 
$
(0.51
)
(DD)
Pro Forma weighted average shares outstanding—basic and diluted
41,640,691

 
 
 
 
 
41,640,691

(DD)






HUDSON PACIFIC PROPERTIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

1.    Balance sheet adjustments

(A)
Represents the historical balance sheet of Hudson Pacific Properties, Inc. (the “Company,” “we,” “our” or “us”) as of June 30, 2013.

(B)
Reflects the the disposition of City Plaza which closed on July 12, 2013. Net proceeds from the disposition were used toward the acquisition of the Seattle Portfolio pursuant to a like-kind exchange under Internal Revenue Code Section 1031.

(C)
Reflects the acquisition of the Seattle Portfolio. The total consideration of $368.7 million consists of the following:
Consideration paid
 
Cash consideration
$
119,183

Cash deposit
20,000

Mortgage loan secured by Met Park North(1)
64,500

Mortgage loan secured by First & King(2)
95,000

Unsecured Revolving Credit Facility
70,000

Total consideration
$
368,683

Allocation of consideration paid
 
Investment in real estate, net
370,100

Deferred leasing costs and lease intangibles, net
21,299

Above market lease
320

Below-market leases
(14,666
)
Deferred finance costs, net
819

Security deposits
(525
)
Other (liabilities) asset assumed, net
(8,664
)
Total consideration paid
$
368,683

 
(1)
We closed a seven-year loan totaling $64.5 million with Union Bank, N.A., secured by the Company’s Met Park North property. The loan bears interest at a rate equal to one-month LIBOR plus 155 basis points. The full loan is subject to an interest rate contract that swapped one month LIBOR to a fixed rate of 2.1644% through the loan’s maturity on August 1, 2020.
(2)
We closed a five-year loan totaling $95.0 million with Wells Fargo, secured by the Company’s First & King property. The loan bears interest at a rate equal to one-month LIBOR plus 160 basis points. The loan matures on July 31, 2018.


2.    Income statement adjustments

(AA)
Reflects our historical consolidated statement of operations for the six-month period ended June 30, 2013 and for the year ended December 31, 2012.

(BB)
The pro forma adjustments reflect the acquisition and related financing of the Seattle Portfolio for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 as if the Seattle Portfolio was acquired and financed on January 1, 2012.

(CC)
Reflects the incremental impact on our pro forma results of operations for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 to reflect the income allocation to unitholders in our operating partnership as a result of the proforma adjustments described in (BB).

(DD)
Pro forma loss per share from continuing operations attributable to common shareholders—basic and diluted is calculated by dividing pro forma consolidated net loss allocable to common stockholders by the number of weighted average shares of common stock outstanding for the six-month period ended June 30, 2013 and for the year ended December 31, 2012.





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
 
 
HUDSON PACIFIC PROPERTIES, INC.
 
 
Date: October 10, 2013
By: 
/s/ Mark T. Lammas
 
 
 
Mark T. Lammas
 
 
 
Chief Financial Officer
 







Exhibit Index

Exhibit
No.
  
Description
23.1

*
Consent of Ernst & Young LLP.