Hudson Pacific Properties Inc.

11/06/2026 | Press release | Distributed by Public on 11/06/2026 13:34

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, refer to Part I, Item 1 "Financial Statements of Hudson Pacific Properties, Inc.," "Financial Statements of Hudson Pacific Properties, L.P." and "Notes to Unaudited Consolidated Financial Statements." Statements in this Item 2 contain forward-looking statements. 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, refer to Part II, Item 1A "Risk Factors." In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
Forward-looking Statements
Certain written and oral statements made or incorporated by reference from time to time by us or our representatives in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q, 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.
The risks set forth above are not exhaustive. Other sections of this report may include additional 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. Investors should also refer to our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Current Reports on Form 8-K or otherwise, for a discussion of risks and uncertainties that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report.
Executive Summary
Through our interest in Hudson Pacific Properties, L.P. (our operating partnership) and its subsidiaries, at September 30, 2026, our portfolio of owned real estate included office properties comprising approximately 13.4 million square feet, studio properties comprising approximately 45 sound stages and 1.7 million square feet, and land properties comprising approximately 3.3 million square feet of undeveloped density rights. Our production services assets primarily consist of our vehicle fleet, following our decision to wind down leased stage, pro-supplies, and ancillary equipment businesses as part of Quixote's restructuring.
The following table summarizes our consolidated and unconsolidated portfolio as of September 30, 2026:
Number of Properties
Rentable Square Feet(1)
Percent Occupied(2)
Percent Leased(2)
Annualized Base Rent per Square Foot(3)
OFFICE
Same-store(4)
34 10,530,113 84.9 % 85.5 % $ 56.28
Non-same store 1 1,532,709 90.0 90.7 30.52
Total in-service office 35 12,062,822 85.6 % 86.1 % $ 52.84
STUDIO
Same-store(5)
3 1,204,939 83.0 % 83.0 % $ 46.01
Non-same store(6)
2 477,615 37.2 37.2 35.14
Total in-service studio 5 1,682,554 70.0 % 70.0 % $ 46.01
Total 40 13,745,376
Repositioning(7)
2 390,988 0.2 % 0.2 % $ 18.00
Development(8)
1 546,000 1.9 1.9 34.17
Held-for-sale(9)
1 419,142 11.5 11.5 27.99
Total repositioning, development and held-for-sale 4 1,356,130 4.4 % 4.4 % $ 28.94
Total office and studio properties 44 15,101,506
Future development(10)
7 3,326,035
TOTAL 51 18,427,541
__________________
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.
2.Percent occupied for office properties is calculated as (i) square footage under commenced leases as of September 30, 2026, 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 September 30, 2026, divided by (ii) total square feet, expressed as a percentage. Percent occupied/leased for studio properties is calculated based on the average percent occupied during the three months ended September 30, 2026.
3.Annualized base rent ("ABR") per square foot for office properties is calculated by multiplying (i) cash base rents under commenced leases excluding tenant reimbursements as of September 30, 2026 by (ii) 12. On a per square foot basis, ABR is divided by square footage under commenced leases as of September 30, 2026. 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 September 30, 2026. 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 September 30, 2026. Annualized base rent per square foot for studio properties reflects actual base rent for the 12 months ended September 30, 2026, excluding tenant reimbursements. ABR per leased square foot calculated as (i) annual base rent divided by (ii) square footage under lease as of September 30, 2026.
4.Same-store office for the three months ended September 30, 2026 defined as all properties owned and included in our stabilized office portfolio as of July 1, 2025 and still owned and included in the stabilized office portfolio as of September 30, 2026.
5.Includes studio properties owned and included in our portfolio as of July 1, 2025 and still owned and included in our portfolio as of September 30, 2026.
6.Includes 234,315 square feet related to recently completed development Sunset Pier 94 studios and 243,300 square feet related to Sunset Glenoaks Studios.
7.Refer to Repositioning table in this document for the office and studio projects under repositioning as of September 30, 2026.
8.Includes 546,000 square feet related to the office development Washington 1000.
9.Skyport Plaza classified as held-for-sale as of September 30, 2026 and sold on October 15, 2026.
10.Includes entitlement to develop up to 428,623 square feet (508 residential units) at 10900-10950 Washington and 163,823 square feet (136 residential units) at 901 Market (secured subsequent to the quarter).
The following table provides information regarding the 15 largest tenants in our office portfolio based on HPP's share annualized base rent as of September 30, 2026:
Tenant # of Properties Lease Expiration Total Occupied Square Feet HPP's Share
Annualized Base Rent(1)
Percent of Annualized Base Rent
1 Google, Inc. 3 2028-2029 458,054
(2)
$ 40,325,813 8.8 %
2 City and County of San Francisco 2 2033-2067 904,363
(3)
37,294,675 8.2
3 Netflix, Inc. 3 9/30/31 722,305
(4)
27,880,491 6.1
4 Amazon 2 2030-2031 850,964
(5)
25,279,450 5.5
5 Nutanix, Inc. 2 2030 229,755
(6)
13,014,227 2.8
6 Salesforce.com 1 2027-2028 176,400
(7)
10,805,808 2.4
7 Coupa Software Incorporated 1 11/30/33 100,654 8,077,212 1.8
8 Weil, Gotshal & Manges LLP 1 2026-2038 89,249
(8)
6,925,193 1.5
9 X.AI Corp. 1 10/31/31 105,536 6,838,733 1.5
10 Rivian and Volkswagen Group Technologies, LLC 1 4/30/33 65,039 5,199,966 1.1
11 Redfin Corporation 2 2027-2029 115,968
(9)
5,135,569 1.1
12 Covington & Burling LLP 1 8/31/28 40,779 4,618,191 1.0
13 White & Case LLP 1 1/31/28 39,873 4,394,363 1.0
14 Company 3 Method Inc 1 2032-2033 129,931
(10)
4,372,776 1.0
15 Regus 3 2027-2031 76,155
(11)
4,144,801 0.9
TOTAL 4,105,025 $ 204,307,268 44.7 %
_____________
1.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 September 30, 2026, 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 September 30, 2026.
2.Google, Inc. expirations: (i) 208,843 square feet at Rincon Center on February 29, 2028, (ii) 207,857 square feet at 3400 Hillview on November 30, 2028 and (iii) 41,354 square feet at Ferry Building on October 31, 2029.
3.City and County of San Francisco expirations: (i) 39,573 square feet at 1455 Market on September 19, 2033, (ii) 864,084 square feet at 1455 Market on April 30, 2049 and (iii) 706 square feet at Ferry Building on April 30, 2067. City and County of San Francisco will backfill an additional 27,314 square feet at 1455 Market on January 1, 2028.
4.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.
5.Amazon expirations: (i) 659,150 square feet at 1918 Eighth on September 30, 2030 and (ii) 191,814 square feet at 5th & Bell on May 31, 2031.
6.Nutanix expirations: (i) 215,857 square feet at 1740 Technology on May 31, 2030 and (ii) 13,898 square feet at Metro Plaza on August 31, 2030.
7.Salesforce.com expirations at Rincon Center: (i) 83,372 square feet on April 30, 2027 and (ii) 93,028 square feet on October 31, 2028. Salesforce.com subleases to Twilio Inc. and pays base rent plus 50% of sublease rent (currently an additional $290,000 per month).
8.Weil, Gotshal & Manges expirations at Towers at Shore Center: (i) 38,420 square feet on October 5, 2026 and (ii) 50,829 square feet on February 28, 2038. Adjusted for the 38,420 square feet that expired on October 5, 2026, Weil, Gotshal & Manges would comprise 0.9% of HPP's share of annualized base rent, dropping to #14 on the top 15 largest office tenants list.
9.Redfin Corporation expirations: (i) 112,990 square feet at Hill7 on July 31, 2027 and (ii) 2,978 square feet at Gateway on December 31, 2029.
10.Company 3 Method Inc expirations: (i) 59,646 square feet at Harlow on October 31, 2032 and (ii) 70,285 square feet at Harlow on March 31, 2033.
11.Regus expirations: (i) 45,120 square feet at Gateway on September 30, 2027, (ii) 21,296 square feet at 450 Alaskan on October 31, 2030 and (iii) 9,739 square feet at Palo Alto Square on April 30, 2031. Subsequent to the quarter, executed a renewal with Regus at Gateway for 45,120 square feet through 2033.
Overview
Property Acquisitions
We had no property acquisitions during the nine months ended September 30, 2026.
Property Dispositions
During the nine months ended September 30, 2026, we sold our 2001 Gateway Place and 875/899 Howard properties for $25.0 million and $65.5 million, respectively. See Part I, Item 1, "Note 3 to the Consolidated Financial Statements-Investment in Real Estate," for details. The net proceeds from these sales were used to finance the subsequent repurchase of the senior notes. See Part I, Item 1, "Note 22 to the Consolidated Financial Statements-Subsequent Events," for details.
Held for Sale
As of September 30, 2026, we classified our Skyport Plaza office property, located in the North San Jose submarket, and a studio facility located in Albuquerque, New Mexico, as held for sale. The properties were identified as non-strategic to our portfolio and were subsequently sold on October 15, 2026. See Part I, Item 1, "Note 3 to the Consolidated Financial Statements-Investment in Real Estate," for details.
In Process and Future Development Projects
The following table summarizes the properties currently under construction and future development projects as of September 30, 2026:
Type Submarket
Estimated Square Feet (Units)(1)
Estimated Completion Date Estimated Stabilization Date
Completed Development:
Seattle, Washington
Washington 1000 Office Denny Triangle 546,000 Q4 2024 Q4 2027
Future Development Pipeline:
Los Angeles, California
Sunset Las Palmas Studios-Development(2)
Office/Studio Hollywood 617,581 TBD TBD
Sunset Gower Studios-Development(2)
Office/Studio Hollywood 478,845 TBD TBD
Sunset Bronson Studios Lot D-Development(2)
Residential Hollywood 19,816 (33 units) TBD TBD
10900/10950 Washington Residential West Los Angeles 428,623 (508 units) TBD TBD
San Francisco Bay Area, California
901 Market-Development Residential San Francisco 163,823 (136 units) TBD TBD
Vancouver, British Columbia
Burrard Exchange(3)
Office Downtown Vancouver 450,000 TBD TBD
Greater London, United Kingdom
Sunset Waltham Cross Studios(4)
Studio Broxbourne 1,167,347 TBD TBD
TOTAL 3,326,035
TOTAL COMPLETED DEVELOPMENT AND FUTURE DEVELOPMENT 3,872,035
__________________
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 51.0% of the ownership interests in the consolidated joint venture that owns Sunset Bronson Studios, Sunset Gower Studios and Sunset Las Palmas Studios.
3.We own 20.0% of the ownership interests in the unconsolidated joint venture that owns Burrard Exchange.
4.We own 35.0% 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 down time in occupancy. Studio development properties are incorporated into the in-service portfolio on the earlier of the one year anniversary of completion or the project's estimated stabilization date. Office development properties are incorporated into the in-service portfolio on the earlier of reaching 92% occupancy or the project's estimated stabilization date.
The lease up of our recently completed and under construction office and studio developments requires no additional capital investment and provides an opportunity for near-to-mid-term cash flow growth.
The following table summarizes the portions of office and studio projects currently under repositioning as of September 30, 2026:
Location Submarket
Square Feet
Repositioning:
Fourth & Traction Downtown Los Angeles 131,701
6040 Sunset Hollywood 114,958
1455 Market San Francisco 49,272
Rincon Center San Francisco 38,514
Sunset Las Palmas Studios Hollywood 18,594
Bentall Centre Downtown Vancouver 18,559
Palo Alto Square Palo Alto 12,740
Sunset Gower Studios Hollywood 6,650
TOTAL REPOSITIONING 390,988
This Quarterly Report on Form 10-Q 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 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.
Office Lease Expirations
The following table summarizes the lease expirations for leases in place as of September 30, 2026, plus available space, at the properties in our office portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that tenants did not exercise any renewal options.
HPP's Share
Year of Lease Expiration
# of
Leases Expiring(1)
Square Feet Expiring
Annualized Base Rent(2)
Percent of Office Portfolio Annualized Base Rent
Annualized Base Rent Per Leased Square Foot(2)
Annualized Base Rent at Expiration(2)
Annualized Base Rent Per Leased Square Foot at Expiration(2)
Vacant(3)
2,944,042
Q4-2026 26 143,847 6,252,668 1.4 50.42 6,260,501 50.48
Total 2026 26 143,847 6,252,668 1.4 50.42 6,260,501 50.48
2027 152 1,074,636 56,798,191 12.4 56.35 57,803,004 57.35
2028 149 1,454,046 91,203,676 19.9 71.11 95,376,026 74.36
2029 118 831,682 42,567,389 9.2 65.72 45,579,236 70.37
2030 88 1,608,562 63,621,475 13.8 53.26 69,978,279 58.59
2031 84 1,648,361 71,539,163 15.5 59.96 82,543,981 69.18
2032 42 369,505 17,934,645 3.9 56.06 20,385,933 63.72
2033 39 780,170 36,369,733 7.9 56.04 43,692,530 67.32
2034 19 210,512 9,695,468 2.1 48.56 12,685,078 63.53
2035 22 444,668 10,692,728 2.3 44.49 13,277,576 55.25
Thereafter 39 1,347,077 49,947,297 10.8 43.00 79,890,584 68.78
Building management use(4)
63 446,052 - - - - -
Signed leases not commenced 10 68,502 3,744,299 0.8 62.43 4,319,739 72.02
Portfolio Total/Weighted Average 851 13,371,662 $ 460,366,732 100.0 % $ 54.23 $ 531,792,467 $ 62.65
__________________
1.Does not include 32 month-to-month leases.
2.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 September 30, 2026 by (ii) 12. On a per square foot basis, ABR is divided by square footage under commenced leases as of September 30, 2026. 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 September 30, 2026. 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 September 30, 2026.
3.Includes 371,066 square feet related to Skyport Plaza. This property was sold October 15, 2026.
4.Reflects management offices occupied by the Company with various expiration dates.
Historical Office Tenant Improvements and Leasing Commissions
The following table summarizes historical information regarding tenant improvement and leasing commission costs for tenants at our office properties:
Three Months Ended September 30, Nine Months Ended September 30,
2026 2025 2026 2025
Renewals(1)
Number of leases 34 34 97 92
Square feet 270,312 167,851 1,059,812 606,131
Tenant improvement costs per square foot(2)(3)
$ 19.01 $ 3.19 $ 18.82 $ 13.69
Leasing commission costs per square foot(2)
11.20 6.37 6.76 8.87
Total tenant improvement and leasing commission costs(2)
$ 30.21 $ 9.56 $ 25.58 $ 22.56
New leases(4)
Number of leases 40 41 118 117
Square feet 263,396 347,599 1,321,811 1,097,669
Tenant improvement costs per square foot(2)(3)
$ 52.08 $ 85.29 $ 83.63 $ 70.95
Leasing commission costs per square foot(2)
14.33 17.12 16.13 15.15
Total tenant improvement and leasing commission costs(2)
$ 66.41 $ 102.41 $ 99.76 $ 86.10
TOTAL
Number of leases 74 75 215 209
Square feet 533,708 515,450 2,381,623 1,703,800
Tenant improvement costs per square foot(2)(3)
$ 34.28 $ 55.47 $ 53.93 $ 49.64
Leasing commission costs per square foot(2)
12.65 13.21 11.83 12.82
TOTAL TENANT IMPROVEMENT AND LEASING COMMISSION COSTS(2)
$ 46.93 $ 68.68 $ 65.76 $ 62.46
__________________
1.Excludes retained tenants that have relocated or expanded into new space within our portfolio.
2.Assumes all tenant improvement costs and leasing commissions are paid in the calendar year in which the lease is executed, which may be different than the year in which they were actually paid.
3.Tenant improvement costs are based on negotiated tenant improvement allowances set forth in leases, or, for any lease in which a tenant improvement allowance was not specified, the aggregate cost originally budgeted at the time the lease commenced.
4.Includes retained tenants that have relocated or expanded into new space within our portfolio.
Financings
During the nine months ended September 30, 2026, there were no repayments or borrowings on the unsecured revolving credit facility. We generally use the unsecured revolving credit facility to finance the acquisitions of properties and businesses, to provide funds for tenant improvements and capital expenditures and to provide for working capital and other corporate purposes.
During the nine months ended September 30, 2026, we amended our Hollywood Media Portfolio loan to extend the maturity date to November 9, 2027. The loan continues to bear interest at SOFR + 1.10% and no principal paydown was required in connection with the amendment. Pursuant to the amendment, $20.0 million of partnership funds were reallocated to a leasing reserve and excess cash flow from the Hollywood Media Portfolio will be swept to the reserve through maturity. In connection with the amendment, we entered into an interest rate swap to effectively fix SOFR at 3.50% on $1.1 billion of principal through the extended maturity.
Historical Results of Operations
This Quarterly Report on Form 10-Q of Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. represents an update to the more detailed and comprehensive disclosures included in the 2025 Annual Report on Form 10-K of Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. Accordingly, you should read the following discussion in conjunction with the
information included in our 2025 Annual Report on Form 10-K, as well as the unaudited financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
In addition, some of the statements and assumptions in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act or Section 21E of the Exchange Act, including, in particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the quarter and beyond. Refer to "Forward-looking Statements".
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 Part I, Item 1 of this Quarterly 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.
Comparison of the Three Months Ended September 30, 2026 to the Three Months Ended September 30, 2025
Net Loss
Net loss increased $78.1 million, or 54.2%, to $222.2 million for the three months ended September 30, 2026 compared to $144.1 million for the three months ended September 30, 2025. The reasons for the change are discussed below with respect to impairment loss and loss on sale of real estate, net, for the three months ended September 30, 2026, partially offset by the non-recurring loss on deconsolidation of real estate entity recognized during the three months ended September 30, 2025 and decreases in depreciation and amortization expense and studio operating expenses for the three months ended September 30, 2026.
Net Operating Income
We evaluate performance based upon 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, interest income, 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).
Management further analyzes NOI by evaluating the performance from the following groups:
•Same-store properties, which include all of the properties owned and included in our stabilized portfolio as of July 1, 2025 and still owned and included in the stabilized portfolio as of September 30, 2026; 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
The following table reconciles net loss to NOI (in thousands, except percentage change):
Three Months Ended September 30, Dollar Change Percentage Change
2026 2025
NET LOSS $ (222,202) $ (144,086) $ (78,116) 54.2 %
Adjustments:
Loss from unconsolidated real estate entities 503 744 (241) (32.4)
Fee income (1,049) (1,082) 33 (3.0)
Interest expense 40,938 41,726 (788) (1.9)
Interest income (713) (2,212) 1,499 (67.8)
Management services reimbursement income-unconsolidated real estate entities (1,071) (1,084) 13 (1.2)
Management services expense-unconsolidated real estate entities 1,071 1,084 (13) (1.2)
Transaction-related expenses 262 139 123 88.5
Unrealized loss on non-real estate investments 9,189 2,098 7,091 338.0
Loss on sale of real estate, net 20,284 - 20,284 -
Impairment loss 147,825 - 147,825 -
Loss on deconsolidation of real estate entity - 77,907 (77,907) (100.0)
Loss on extinguishment of debt - 207 (207) (100.0)
Gain on lease terminations, sale of assets and other (3,153) (601) (2,552) 424.6
Income tax provision 331 24 307 1,279.2
General and administrative 12,341 13,709 (1,368) (10.0)
Depreciation and amortization 77,859 94,085 (16,226) (17.2)
NOI $ 82,415 $ 82,658 $ (243) (0.3) %
Same-store NOI $ 86,418 $ 79,684 $ 6,734 8.5 %
Non-same-store NOI (4,003) 2,974 (6,977) (234.6)
NOI $ 82,415 $ 82,658 $ (243) (0.3) %
The following table summarizes certain statistics of our consolidated same-store office and studio properties:
Three Months Ended September 30,
2026 2025
Same-store office
Number of properties 34 34
Rentable square feet 10,530,113 10,792,548
Ending % leased 85.5 % 75.9 %
Ending % occupied 84.9 % 75.1 %
Average % occupied for the period 83.9 % 73.8 %
Average annual rental rate per square foot $ 56.28 $ 57.08
Same-store studio
Number of properties 3 3
Rentable square feet 1,204,939 1,204,666
Average % leased for the period(1)
83.0 % 81.4 %
__________________
1.Percent leased for same-store studio is the average percent leased for the 12 months ended.
The following table gives further detail on our NOI (in thousands):
Three Months Ended September 30,
2026 2025
Same-store Non-same-store Total Same-store Non-same-store Total
REVENUES
Office
Rental revenues $ 142,254 $ 2,489 $ 144,743 $ 135,696 $ 12,594 $ 148,290
Service and other revenues 3,838 30 3,868 3,832 2,457 6,289
Total office revenues 146,092 2,519 148,611 139,528 15,051 154,579
Studio
Rental revenues 10,910 1,582 12,492 10,604 2,963 13,567
Service and other revenues 7,702 12,088 19,790 4,333 14,138 18,471
Total studio revenues 18,612 13,670 32,282 14,937 17,101 32,038
Total revenues 164,704 16,189 180,893 154,465 32,152 186,617
OPERATING EXPENSES
Office operating expenses 66,965 4,101 71,066 65,233 6,344 71,577
Studio operating expenses 11,321 16,091 27,412 9,548 22,834 32,382
Total operating expenses 78,286 20,192 98,478 74,781 29,178 103,959
Office NOI 79,127 (1,582) 77,545 74,295 8,707 83,002
Studio NOI 7,291 (2,421) 4,870 5,389 (5,733) (344)
NOI $ 86,418 $ (4,003) $ 82,415 $ 79,684 $ 2,974 $ 82,658
The following table gives further detail on our change in NOI (in thousands, except percentage change):
Three Months Ended September 30, 2026 as compared to
Three Months Ended September 30, 2025
Same-store Non-same-store Total
Dollar change Percentage change Dollar change Percentage change Dollar change Percentage change
REVENUES
Office
Rental revenues $ 6,558 4.8 % $ (10,105) (80.2) % $ (3,547) (2.4) %
Service and other revenues 6 0.2 (2,427) (98.8) (2,421) (38.5)
Total office revenues 6,564 4.7 (12,532) (83.3) (5,968) (3.9)
Studio
Rental revenues 306 2.9 (1,381) (46.6) (1,075) (7.9)
Service and other revenues 3,369 77.8 (2,050) (14.5) 1,319 7.1
Total studio revenues 3,675 24.6 (3,431) (20.1) 244 0.8
Total revenues 10,239 6.6 (15,963) (49.6) (5,724) (3.1)
OPERATING EXPENSES
Office operating expenses 1,732 2.7 (2,243) (35.4) (511) (0.7)
Studio operating expenses 1,773 18.6 (6,743) (29.5) (4,970) (15.3)
Total operating expenses 3,505 4.7 (8,986) (30.8) (5,481) (5.3)
Office NOI 4,832 6.5 (10,289) (118.2) (5,457) (6.6)
Studio NOI 1,902 35.3 3,312 (57.8) 5,214 (1,515.7)
NOI $ 6,734 8.5 % $ (6,977) (234.6) % $ (243) (0.3) %
NOI decreased $0.2 million, or 0.3%, for the three months ended September 30, 2026 as compared to the three months ended September 30, 2025, primarily resulting from:
•a $6.7 million increase in same-store NOI driven by:
•an increase in office NOI of $4.8 million primarily driven by the commencement of the third phase of the City of San Francisco lease at our 1455 Market property in the second quarter of 2026, partially offset by higher operating expenses at our 1455 Market property; and
•an increase in studio NOI of $1.9 million driven by higher production activity at our Sunset Las Palmas Studios and Sunset Gower Studios properties during the third quarter of 2026.
•offset by a $7.0 million decrease in non-same-store NOI driven by:
•a decrease in office NOI of $10.3 million primarily resulting from the sale of our Element LA property in the fourth quarter of 2025, the expiration of the PayPal lease at our Fourth & Traction property in July 2026, the sale of our 875/899 Howard property in the third quarter of 2026 and increased operating expenses at our Washington 1000 property after it was placed in service in the first quarter of 2026; partially offset by
•an increase in studio NOI of $3.3 million due to cost-savings initiatives at Quixote and the deconsolidation of our Sunset Glenoaks Studios property during the third quarter of 2025.
Other (Expenses) Income
Loss from unconsolidated real estate entities
We recorded a $0.5 million loss from unconsolidated real estate entities for the three months ended September 30, 2026 compared to a loss of $0.7 million for the three months ended September 30, 2025. The change was primarily driven by mark-to-market adjustments for an interest rate swap that does not qualify for hedge accounting, as well as our Sunset Pier 94 Studios property becoming operational during the first quarter of 2026.
Fee income
We recognized fee income of $1.0 million for the three months ended September 30, 2026 compared to $1.1 million for the three months ended September 30, 2025. The change was primarily due to a reduction in development fees associated with our Sunset Pier 94 Studios development project, which was substantially completed during the first quarter of 2026.
Interest expense
The following table presents a reconciliation from gross interest expense to the interest expense line item on the Consolidated Statements of Operations:
Three Months Ended September 30,
2026 2025 Dollar Change Percentage Change
Gross interest expense(1)
$ 44,380 $ 48,743 $ (4,363) (9.0) %
Capitalized interest (5,763) (9,589) 3,826 (39.9)
Non-cash interest expense(2)
2,321 2,572 (251) (9.8)
TOTAL $ 40,938 $ 41,726 $ (788) (1.9) %
_________________
1.Includes interest on the Company's debt and hedging activities.
2.Includes the amortization of deferred financing costs and fair market value adjustments for our mark-to-market interest rate derivatives.
Gross interest expense decreased by $4.4 million, or 9.0%, to $44.4 million for the three months ended September 30, 2026 compared to $48.7 million for the three months ended September 30, 2025. The decrease was primarily due to the partial repayment of our CMBS loan in the fourth quarter of 2025, the deconsolidation of our Sunset Glenoaks Studios property in the third quarter of 2025, as well as lower interest rates on our floating rate debt in 2026.
Capitalized interest decreased by $3.8 million, or 39.9%, to $5.8 million for the three months ended September 30, 2026 compared to $9.6 million for the three months ended September 30, 2025 primarily due to the cessation of interest capitalized at our Washington 1000 property after it was placed in service during the first quarter of 2026 and the completion of our Sunset Pier 94 Studios development project during the first quarter of 2026. The decrease was partially offset by an increase in construction activity at our 6040 Sunset property.
Non-cash interest expense decreased by $0.3 million, or 9.8%, to $2.3 million for the three months ended September 30, 2026 compared to $2.6 million for the three months ended September 30, 2025. The decrease was primarily related to lower amortization of deferred financing costs following the partial repayment of our CMBS loan in the fourth quarter of 2025 and the deconsolidation of our Sunset Glenoaks Studios property in the third quarter of 2025, partially offset by changes in the fair value of our derivative instruments not accounted for as cash flow hedges.
Interest income
Interest income decreased by $1.5 million, or 67.8%, to $0.7 million for the three months ended September 30, 2026 compared to $2.2 million for the three months ended September 30, 2025. The change was driven by lower cash balances held in interest-bearing accounts in 2026 as well as interest income received in 2025 on employee retention credit tax refunds.
Transaction-related expenses
Transaction-related expenses increased by $0.2 million, or 88.5%, to $0.3 million for the three months ended September 30, 2026 compared to $0.1 million for the three months ended September 30, 2025. The increase was primarily related to costs incurred in connection with the termination of certain leases as part of the phased wind-down of leased sound stage facilities and Atlanta-area operations at Quixote.
Unrealized loss on non-real estate investments
We recognized an unrealized loss on non-real estate investments of $9.2 million for the three months ended September 30, 2026 compared to an unrealized loss of $2.1 million for the three months ended September 30, 2025, which were due to the observable changes in the fair value of the investments.
Loss on sale of real estate, net
During the three months ended September 30, 2026, we recognized a net loss on sale of real estate of $20.3 million attributable to the sales of our 2001 Gateway Place and 875/899 Howard office properties. We did not record a net loss on sale of
real estate during the three months ended September 30, 2025.
Impairment loss
During the three months ended September 30, 2026, we recorded an impairment loss of $147.8 million related to our Hill7 and Skyport Plaza office properties. The impairments resulted from shortened expected holding periods for both properties and reduced their carrying values to their estimated fair value, less estimated costs to sell for Skyport Plaza. Skyport Plaza was classified as held for sale as of September 30, 2026 and subsequently sold on October 15, 2026. We did not record any impairment charges during the three months ended September 30, 2025.
Loss on deconsolidation of real estate entity
During the three months ended September 30, 2025, we recognized a $77.9 million loss related to the deconsolidation of our Sunset Glenoaks Studios property. The loss was calculated as the difference between the 1) sum of the fair value of the Company's related noncontrolling investment in the joint venture and the carrying amount of the noncontrolling interest in the joint venture at the date of the deconsolidation; and 2) the carrying amount of the joint venture's net assets at the date of the deconsolidation. No gain or loss on deconsolidation was recognized during the three months ended September 30, 2026.
Loss on extinguishment of debt
During the three months ended September 30, 2025, we recognized a loss on extinguishment of debt of $0.2 million related to the refinancing of the loan secured by our 1918 Eighth property. No gain or loss on extinguishment of debt was recognized during the three months ended September 30, 2026.
Gain on lease terminations, sale of assets and other
Gain on lease terminations, sale of assets and other increased by $2.6 million, or 424.6%, to $3.2 million for the three months ended September 30, 2026 compared to $0.6 million for the three months ended September 30, 2025. The increase was primarily related to the termination of certain leases in connection with the phased wind-down of leased sound stage facilities and Atlanta-area operations at Quixote, as well as a $0.6 million gain on the sale of equipment at Quixote during the third quarter of 2026.
General and administrative expenses
General and administrative expenses decreased by $1.4 million, or 10.0%, to $12.3 million for the three months ended September 30, 2026 compared to $13.7 million for the three months ended September 30, 2025. The decrease was primarily due to continued cost-saving initiatives.
Depreciation and amortization expense
Depreciation and amortization expense decreased by $16.2 million, or 17.2%, to $77.9 million for the three months ended September 30, 2026 compared to $94.1 million for the three months ended September 30, 2025. The decrease was primarily driven by accelerated depreciation recorded during the third quarter of 2025 related to the demolition of an unused building structure at our Sunset Las Palmas Studios property for its conversion to a parking lot and the Quixote impairment charges recorded during the fourth quarter of 2025 and the second quarter of 2026, which resulted in a lower depreciable basis for our non-real estate property, plant and equipment and the sale of our Element LA property in the fourth quarter of 2025.
Comparison of the Nine Months Ended September 30, 2026 to the Nine Months Ended September 30, 2025
Net Loss
Net loss increased $65.7 million, or 21.0%, to $377.8 million for the nine months ended September 30, 2026 compared to $312.1 million for the nine months ended September 30, 2025. The reasons for the change are discussed below with respect to the increases in impairment loss, loss on sale of real estate, net, unrealized loss on non-real estate investments and loss on lease terminations, sale of assets and other during the nine months ended September 30, 2026, partially offset by decreases in
depreciation and amortization expense, general and administrative expenses and interest expense and the non-recurring loss on deconsolidation of real estate entity recognized during the nine months ended September 30, 2025.
Net Operating Income
Management further analyzes NOI by evaluating the performance from the following groups:
•Same-store, which includes all of the properties owned and included in our stabilized portfolio as of January 1, 2025 and still owned and included in the stabilized portfolio as of September 30, 2026; 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
The following table reconciles net loss to NOI:
Nine Months Ended September 30, Dollar Change Percentage Change
2026 2025
NET LOSS $ (377,794) $ (312,124) $ (65,670) 21.0 %
Adjustments:
Loss from unconsolidated real estate entities 1,899 2,203 (304) (13.8)
Fee income (3,120) (3,917) 797 (20.3)
Interest expense 117,408 133,368 (15,960) (12.0)
Interest income (2,928) (4,770) 1,842 (38.6)
Management services reimbursement income-unconsolidated real estate entities (3,293) (3,182) (111) 3.5
Management services expense-unconsolidated real estate entities 3,293 3,182 111 3.5
Transaction-related expenses 1,045 590 455 77.1
Unrealized loss on non-real estate investments 11,991 2,335 9,656 413.5
Loss (gain) on sale of real estate, net 20,284 (10,007) 30,291 (302.7)
Impairment loss 198,265 18,476 179,789 973.1
Loss on deconsolidation of real estate entity - 77,907 (77,907) (100.0)
Loss on extinguishment of debt - 3,702 (3,702) (100.0)
Loss (gain) on lease terminations, sale of assets and other 1,605 (516) 2,121 (411.0)
Income tax provision 1,073 672 401 59.7
General and administrative 36,918 59,968 (23,050) (38.4)
Depreciation and amortization 240,714 281,921 (41,207) (14.6)
NOI $ 247,360 $ 249,808 $ (2,448) (1.0) %
Same-store NOI 253,963 249,724 4,239 1.7 %
Non-same-store NOI (6,603) 84 (6,687) (7,960.7)
NOI $ 247,360 $ 249,808 $ (2,448) (1.0) %
The following table summarizes certain statistics of our same-store office and studio properties:
Nine Months Ended September 30,
2026 2025
Same-store office
Number of properties 34 34
Rentable square feet 10,530,113 10,792,548
Ending % leased 85.5 % 75.9 %
Ending % occupied 84.9 % 75.1 %
Average % occupied for the period 81.1 % 74.4 %
Average annual rental rate per square foot $ 56.28 $ 57.08
Same-store studio
Number of properties 3 3
Rentable square feet 1,204,939 1,204,666
Average % occupied for the period(1)
83.5 % 76.7 %
_____________
1.Percent occupied for same-store studio is the average percent occupied for the 12 months ended.
The following table gives further detail on our NOI:
Nine Months Ended September 30,
2026 2025
Same-store Non-same-store Total Same-store Non-same-store Total
REVENUES
Office
Rental revenues $ 419,663 $ 19,907 $ 439,570 $ 415,259 $ 41,957 $ 457,216
Service and other revenues 10,766 70 10,836 12,021 6,386 18,407
Total office revenues 430,429 19,977 450,406 427,280 48,343 475,623
Studio
Rental revenues 33,103 6,675 39,778 31,209 9,899 41,108
Service and other revenues 24,632 36,227 60,859 16,352 41,995 58,347
Total studio revenues 57,735 42,902 100,637 47,561 51,894 99,455
Total revenues 488,164 62,879 551,043 474,841 100,237 575,078
OPERATING EXPENSES
Office operating expenses 198,541 11,882 210,423 193,988 21,367 215,355
Studio operating expenses 35,660 57,600 93,260 31,129 78,786 109,915
Total operating expenses 234,201 69,482 303,683 225,117 100,153 325,270
Office NOI 231,888 8,095 239,983 233,292 26,976 260,268
Studio NOI 22,075 (14,698) 7,377 16,432 (26,892) (10,460)
NOI $ 253,963 $ (6,603) $ 247,360 $ 249,724 $ 84 $ 249,808
The following table gives further detail on our change in NOI (in thousands, except percentage change):
Nine Months Ended September 30, 2026 as compared to
Nine Months Ended September 30, 2025
Same-Store Non-Same-Store Total
Dollar change Percentage change Dollar change Percentage change Dollar change Percentage change
REVENUES
Office
Rental revenues $ 4,404 1.1 % $ (22,050) (52.6) % $ (17,646) (3.9) %
Service and other revenues (1,255) (10.4) (6,316) (98.9) (7,571) (41.1)
Total office revenues 3,149 0.7 (28,366) (58.7) (25,217) (5.3)
Studio
Rental revenues 1,894 6.1 (3,224) (32.6) (1,330) (3.2)
Service and other revenues 8,280 50.6 (5,768) (13.7) 2,512 4.3
Total studio revenues 10,174 21.4 (8,992) (17.3) 1,182 1.2
Total revenues 13,323 2.8 (37,358) (37.3) (24,035) (4.2)
OPERATING EXPENSES
Office operating expenses 4,553 2.3 (9,485) (44.4) (4,932) (2.3)
Studio operating expenses 4,531 14.6 (21,186) (26.9) (16,655) (15.2)
Total operating expenses 9,084 4.0 (30,671) (30.6) (21,587) (6.6)
Office NOI (1,404) (0.6) (18,881) (70.0) (20,285) (7.8)
Studio NOI 5,643 34.3 12,194 (45.3) 17,837 (170.5)
NOI $ 4,239 1.7 % $ (6,687) (7,960.7) % $ (2,448) (1.0) %
NOI decreased $2.4 million, or 1.0%, for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, primarily resulting from:
•a $6.7 million decrease in non-same-store NOI driven by:
•a decrease in office NOI of $18.9 million primarily resulting from the sales of our Element LA and Foothill Research Center properties in 2025, the sale of our 875/899 Howard office property in the third quarter of 2026, increased operating expenses at our Washington 1000 property after it was placed in service during the first quarter of 2026 and the commencement of a repositioning project at our 6040 Sunset property in the first quarter of 2026, partially offset by prior period real estate tax refunds received at our Skyport Plaza property in 2026; partially offset by
•an increase in studio NOI of $12.2 million primarily related to a significant reduction in operating expenses at Quixote due to cost-savings initiatives and the commencement of the phased wind-down of leased sound stage facilities and Atlanta-area operations in 2026, as well as the deconsolidation of our Sunset Glenoaks Studios property in the third quarter of 2025.
•partially offset by a $4.2 million increase in same-store NOI driven by:
•an increase in studio NOI of $5.6 million primarily due to higher production activity at our Sunset Las Palmas and Sunset Gower Studios properties in 2026; partially offset by
•a decrease in office NOI of $1.4 million primarily due to lease expirations at our Hill7 property in mid-2025, lower occupancy at certain of our Peninsula and Silicon Valley properties and higher ground rent expense at our Palo Alto Square property due to a ground rent true-up credit recognized in 2025, partially offset by the commencement of the third phase of the City of San Francisco lease at our 1455 Market property in the second quarter of 2026.
Other (Expenses) Income
Loss from unconsolidated real estate entities
We recorded a $1.9 million loss from unconsolidated real estate entities for the nine months ended September 30, 2026 compared to a loss of $2.2 million for the nine months ended September 30, 2025. The change was primarily driven by mark-to-market adjustments for an interest rate swap that does not qualify for hedge accounting, partially offset by losses at our Sunset Pier 94 Studios property after it became operational during the first quarter of 2026, including fewer expenses being capitalized.
Fee income
We recognized fee income of $3.1 million for the nine months ended September 30, 2026 compared to $3.9 million for the nine months ended September 30, 2025. The change was primarily due to a reduction in development fees associated with our Sunset Pier 94 Studios development project, which was substantially completed during the first quarter of 2026.
Interest expense
The following table presents a reconciliation from gross interest expense to the interest expense line item on the Consolidated Statements of Operations:
Nine Months Ended September 30,
2026 2025 Dollar Change Percentage Change
Gross interest expense(1)
$ 128,964 $ 151,007 $ (22,043) (14.6) %
Capitalized interest (16,900) (29,941) 13,041 (43.6)
Non-cash interest expense(2)
5,344 12,302 (6,958) (56.6)
TOTAL $ 117,408 $ 133,368 $ (15,960) (12.0) %
_________________
1.Includes interest on the Company's debt and hedging activities.
2.Includes the amortization of deferred financing costs and fair market value adjustments for our mark-to-market interest rate derivatives.
Gross interest expense decreased by $22.0 million, or 14.6%, to $129.0 million for the nine months ended September 30, 2026 compared to $151.0 million for the nine months ended September 30, 2025. The decrease was primarily due to the repayments of the loan secured by Element LA and the Series B, C and D notes in 2025, no outstanding balance on our unsecured line of credit during 2026, the partial repayment of our Office CMBS loan in the fourth quarter of 2025, the deconsolidation of our Sunset Glenoaks Studios property in the third quarter of 2025 and lower reference rates on our floating rate debt during 2026.
Capitalized interest decreased by $13.0 million, or 43.6%, to $16.9 million for the nine months ended September 30, 2026 compared to $29.9 million for the nine months ended September 30, 2025 primarily due to the completion of our Washington 1000 and Sunset Pier 94 Studios development projects and the cessation of interest capitalization at our Sunset Glenoaks Studios property in the second quarter of 2025. The decrease was partially offset by an increase in construction activity at our 6040 Sunset property.
Non-cash interest expense decreased by $7.0 million, or 56.6%, to $5.3 million for the nine months ended September 30, 2026 compared to $12.3 million for the nine months ended September 30, 2025. The decrease was primarily related to lower amortization of deferred financing costs following the partial repayment of our CMBS loan in the fourth quarter of 2025 and the deconsolidation of our Sunset Glenoaks Studios property in the third quarter of 2025, partially offset by changes in the fair value of our derivative instruments not accounted for as cash flow hedges.
Interest income
Interest income decreased by $1.8 million, or 38.6%, to $2.9 million for the nine months ended September 30, 2026 compared to $4.8 million for the nine months ended September 30, 2025. The change was driven by lower cash deposits in interest-bearing accounts and interest earned on a refundable payroll tax credit during the nine months ended September 30, 2025 that did not recur.
Transaction-related expenses
Transaction-related expenses increased by $0.5 million, or 77.1%, to $1.0 million for the nine months ended September 30, 2026 compared to $0.6 million for the nine months ended September 30, 2025. The increase was primarily related to costs incurred in connection with the termination of certain leases and legal expenses incurred as part of the phased wind-down of leased sound stage facilities and Atlanta-area operations at Quixote.
Unrealized loss on non-real estate investments
We recognized an unrealized loss on our non-real estate investments of $12.0 million for the nine months ended September 30, 2026 compared to a loss of $2.3 million for the nine months ended September 30, 2025, which were due to the observable changes in the fair value of the investments.
Loss (gain) on sale of real estate, net
During the nine months ended September 30, 2026, we recognized a loss on sale of real estate of $20.3 million attributable to the sales of our 2001 Gateway Place and 875/899 Howard office properties. During the nine months ended September 30, 2025, we recognized a net gain on sale of real estate of $10.0 million attributable to the sales of our Foothill Research Center and Maxwell office properties.
Impairment loss
During the nine months ended September 30, 2026, we recorded an impairment loss of $198.3 million primarily related to our Hill7 office property, our Skyport Plaza office property, which was classified as held for sale as of September 30, 2026 and subsequently sold on October 15, 2026, the phased wind-down of leased sound stage facilities at Quixote, and our 2001 Gateway Place office property, which was sold on July 1, 2026. During the nine months ended September 30, 2025, we recorded an impairment loss of $18.5 million due to a reduction in the estimated holding period for our 625 Second office property, which was subsequently sold.
Loss on deconsolidation of real estate entity
During the nine months ended September 30, 2025, we recognized a $77.9 million loss related to the deconsolidation of our Sunset Glenoaks Studios property. The loss was calculated as the difference between 1) the sum of the fair value of the Company's retained noncontrolling investment in the joint venture and the carrying amount of the noncontrolling interest in the joint venture at the date of the deconsolidation; and 2) the carrying amount of the joint venture's net asset at the date of the deconsolidation. No gain or loss on deconsolidation was recognized during the nine months ended September 30, 2026.
Loss on extinguishment of debt
During the nine months ended September 30, 2025, we recognized a loss on extinguishment of debt of $3.7 million mostly related to the early repayment of the loan secured by our Element LA property and the Series B, C and D notes. No gain or loss on extinguishment of debt was recognized during the nine months ended September 30, 2026.
Loss (gain) on lease terminations, sale of assets and other
We recognized a net loss on lease terminations, sale of assets and other of $1.6 million for the nine months ended September 30, 2026 compared to a net gain of $0.5 million for the nine months ended September 30, 2025. The change was primarily related to the termination of certain leases in connection with the phased wind-down of leased sound stage facilities and Atlanta-area operations at Quixote, partially offset by indemnification income from a third party in connection with the lease terminations, as well as a $0.6 million gain on the sale of equipment at Quixote during the third quarter of 2026.
General and administrative expenses
General and administrative expenses decreased by $23.1 million, or 38.4%, to $36.9 million for the nine months ended September 30, 2026 compared to $60.0 million for the nine months ended September 30, 2025. The decrease was primarily due to the accelerated recognition of $14.3 million of compensation expense related to the cancellation of the 2024 performance unit equity awards by the Company's top three executive officers during the nine months ended September 30, 2025, as well as continued cost-saving initiatives.
Depreciation and amortization expense
Depreciation and amortization expense decreased by $41.2 million, or 14.6%, to $240.7 million for the nine months ended September 30, 2026 compared to $281.9 million for the nine months ended September 30, 2025. The decrease was primarily due to a lower depreciable basis for non-real estate property, plant and equipment at Quixote resulting from impairment charges recorded in the fourth quarter of 2025 and the second quarter of 2026, as well as the repositioning of our 6040 Sunset property in 2026. The decrease was also due to accelerated depreciation recorded in 2025 related to the demolition of an unused building structure at our Sunset Las Palmas Studios property for its conversion to a parking lot, the sale of our Element LA property in the fourth quarter of 2025 and the deconsolidation of our Sunset Glenoaks Studios property in the third quarter of 2025. The decrease was partially
offset by the commencement of depreciation and amortization at our Washington 1000 property, which was placed in service in 2026.
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 Pier 94 Studios construction loan (unconsolidated joint venture); and
•proceeds from additional secured, unsecured debt financings or offerings.
Liquidity Sources
We had approximately $160.5 million of cash and cash equivalents at September 30, 2026. 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 and debt service and fund quarterly dividend and distribution requirements.
Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
We have an ATM program that allows us to sell up to $125.0 million of common stock. We did not utilize the ATM program during the nine months ended September 30, 2026. A cumulative total of $65.8 million has been sold from inception of the program through September 30, 2026. 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.
The following table sets forth our borrowing capacity under various loans as of September 30, 2026 (in thousands):
Loan Total
Borrowing Capacity 		Amount Drawn Remaining Borrowing Capacity
Unsecured revolving credit facility
$ 795,250 $ - $ 795,250
Bentall Centre(1)(2)(3)
93,225 93,225 -
Sunset Pier 94 Studios construction loan(1)(2)
46,810 43,378 3,432
TOTAL $ 935,285 $ 136,603 $ 798,682
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1.Amounts are presented at HPP's share.
2.This loan is held by an unconsolidated joint venture.
3.The loan was transacted in Canadian dollars. Amounts are shown in U.S. dollars using the foreign currency exchange rate as of September 30, 2026.
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. As of September 30, 2026, the credit ratings for our senior unsecured debt were B2, B and B+ from Moody's, Standard and Poor's and Fitch, respectively.
The following table sets forth our ratio of debt to total market capitalization (counting Series A redeemable preferred units as debt) as of September 30, 2026 (in thousands, except percentage):
Market Capitalization
Unsecured and secured debt(1)
$ 3,360,350
Series A redeemable preferred units
2,795
Total consolidated debt 3,363,145
Equity capitalization(2)
1,195,544
TOTAL CONSOLIDATED MARKET CAPITALIZATION $ 4,558,689
Total consolidated debt/total consolidated market capitalization 73.8 %
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1.Excludes joint venture partner debt and unamortized deferred financing costs and loan discounts/premiums.
2.Equity capitalization represents the shares of common stock outstanding (including unvested restricted shares), pre-funded warrants, OP and LTIP units outstanding, restricted performance units and dilutive shares multiplied by the closing price of $11.54, as reported by the NYSE, on September 30, 2026, as well as the aggregate value of the Series C preferred stock liquidation preference as of September 30, 2026.
Outstanding Indebtedness
The following table sets forth information as of September 30, 2026 and December 31, 2025 with respect to our outstanding indebtedness, excluding unamortized deferred financing costs and loan discounts/premiums (in thousands):
September 30, 2026 December 31, 2025
Unsecured debt $ 1,650,000 $ 1,650,000
Secured debt $ 1,710,350 $ 1,717,850
Joint venture partner debt $ 66,136 $ 66,136
The operating partnership was in compliance with its financial covenants as of September 30, 2026.
Liquidity Uses
Contractual Obligations
During the nine months ended September 30, 2026, there were no material changes outside the ordinary course of business in the information regarding specified contractual obligations contained in our 2025 Annual Report on Form 10-K. Refer to Part I, Item 1 "Note 9 to the Consolidated Financial Statements-Debt" for information regarding our future minimum principal payments due on our outstanding debt. Refer to Part I, Item 1 "Note 12 to the Consolidated Financial Statements-Future Minimum Rents and Lease Payments" for information regarding our future minimum operating lease payments. Refer to Part I, Item 1 "Note 20 to the Consolidated Financial Statements-Commitments and Contingencies" for more detail.
We may from time to time seek to repurchase our outstanding debt securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Cash Flows
Comparison of the cash flow activity for the nine months ended September 30, 2026 to the nine months ended September 30, 2025 is as follows (in thousands, except percentage change):
Nine Months Ended September 30,
2026 2025 Dollar Change Percentage Change
Net cash provided by operating activities
$ 77,651 $ 61,673 $ 15,978 25.9 %
Net cash used in investing activities $ (9,543) $ (64,096) $ 54,553 (85.1) %
Net cash (used in) provided by financing activities $ (25,668) $ 117,693 $ (143,361) (121.8) %
Cash and cash equivalents and restricted cash were $204.6 million and $162.1 million as of September 30, 2026 and December 31, 2025, respectively.
Operating Activities
Net cash provided by operating activities increased by $16.0 million, or 25.9%, to $77.7 million for the nine months ended September 30, 2026 compared to $61.7 million for the nine months ended September 30, 2025. The increase primarily resulted from lower cash paid for interest and favorable working capital movements during the nine months ended September 30, 2026, partially offset by higher payments related to deferred leasing costs and lease incentives.
Investing Activities
Net cash used in investing activities decreased by $54.6 million, or 85.1%, to $9.5 million for the nine months ended September 30, 2026 compared to $64.1 million for the nine months ended September 30, 2025. The decrease primarily resulted from a $25.6 million decrease in additions to investment in real estate, $15.3 million of proceeds from the sale of non-real estate property, plant and equipment in connection with the phased wind-down of operations at Quixote, $12.4 million of cash disposed upon the deconsolidation of our Sunset Glenoaks Studios property during the nine months ended September 30, 2025 and a $10.1 million decrease in additions to non-real estate property, plant and equipment, partially offset by a $7.4 million decrease in proceeds from sales of real estate.
Financing Activities
Net cash used in financing activities was $25.7 million for the nine months ended September 30, 2026, a change of $143.4 million, or 121.8%, compared to $117.7 million of cash provided by financing activities for the nine months ended September 30, 2025. The change was primarily driven by $656.2 million of net proceeds raised in our offering of common stock and pre-funded warrants in June 2025. The activity was partially offset by a year-over-year decrease in debt financing activity, including a $503.0 million decrease in payments of notes payable, net of proceeds from notes payable, and an $18.8 million decrease in loan costs.
Off-Balance Sheet Arrangements
Unconsolidated 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 our unconsolidated joint venture indebtedness as of September 30, 2026 (in thousands, except for percentages):
Ownership Interest Amount Drawn Undrawn Capacity Total Capacity Interest Rate Contractual Maturity Date
Bentall Centre(1)
20.0 % $ 466,123 $ - $ 466,123 CORRA + 2.30% 7/1/2027
Sunset Glenoaks Studios(2)(3)
50.0 % $ 107,833 $ - $ 107,833 SOFR + 3.10% 1/9/2027
Sunset Pier 94 Studios(4)(5)
25.6 % $ 169,771 $ 13,429 $ 183,200 SOFR + 4.75% 9/9/2028
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(1)The loan was transacted in Canadian dollars. Amounts are shown in U.S. dollars using the foreign currency exchange rate as of September 30, 2026. This loan is interest-only through its term.
(2)This loan has an initial interest rate of SOFR + 3.10% per annum until 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.
(3)Amount drawn includes principal of $100.6 million and accrued payment-in-kind interest of $7.2 million as of September 30, 2026.
(4)The floating interest rate on $169.8 million of principal has been capped at 4.00% through the use of an interest rate cap.
(5)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.
Critical Accounting Policies
Our discussion and analysis of our historical financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements in conformity with GAAP requires us to make estimates of certain items and judgments as to certain future events, for example with respect to the assignment of the purchase price of an acquired property among land, buildings, improvements, equipment and any related intangible assets and liabilities, or the effect of a property tax reassessment of our properties. These determinations, even though inherently subjective and prone to change, affect the reported amounts of our assets, liabilities, revenues and expenses. While we believe that our estimates are based on reasonable assumptions and judgments at the time they are made, some of our assumptions, estimates and judgments will inevitably prove to be incorrect. As a result, actual outcomes will likely differ from our accruals and those differences-positive or negative-could be material. Some of our accruals are subject to adjustment, as we believe appropriate, based on revised estimates and reconciliation to the actual results when available.
Refer to Part I, Item 1 "Note 2 to the Consolidated Financial Statements-Summary of Significant Accounting Policies," for information regarding our critical accounting policies.
Non-GAAP Supplemental Financial Measure: Funds From Operations
We calculate FFO in accordance with the White Paper issued in December 2018 on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). The White Paper defines FFO as net income or loss calculated in accordance with 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 the 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 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):
Three Months Ended September 30, Nine Months Ended September 30,
2026 2025 2026 2025
Net loss $ (222,202) $ (144,086) $ (377,794) $ (312,124)
Adjustments:
Depreciation and amortization-consolidated 77,859 94,085 240,714 281,921
Depreciation and amortization-non-real estate assets (3,516) (8,919) (10,555) (27,353)
Depreciation and amortization-HPP's share from unconsolidated real estate entities 1,719 1,250 4,922 3,408
Loss (gain) on sale of real estate, net 20,284 - 20,284 (10,007)
Loss on deconsolidation of real estate entity - 77,907 - 77,907
Impairment loss-real estate assets 147,825 - 198,265 18,476
Unrealized loss on non-real estate investments 9,189 2,098 11,991 2,335
FFO attributable to non-controlling interests (4,647) (2,611) (17,522) (12,616)
FFO attributable to preferred shares and units (5,091) (5,100) (15,273) (15,461)
FFO TO COMMON STOCK/UNIT HOLDERS $ 21,420 $ 14,624 $ 55,032 $ 6,486
Hudson Pacific Properties Inc. published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 19:35 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]