Hudson Pacific Properties Inc.

11/06/2025 | Press release | Distributed by Public on 11/06/2025 16:27

Quarterly Report for Quarter Ending September 30, 2025 (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, 2025, our portfolio of owned real estate included office properties comprising approximately 14.2 million square feet, studio properties comprising approximately 45 sound stages and 1.7 million square feet and land properties comprising approximately 3.7 million square feet of undeveloped density rights. Our production services assets include vehicles, lighting and grip, production supplies and other equipment and the lease rights to 20 sound stages.
As of September 30, 2025, our in-service office portfolio was 76.5% leased (including leases not yet commenced). Our same-store studio properties were 75.9% leased for the average percent leased for the 12 months ended September 30, 2025.
The following table summarizes our consolidated and unconsolidated portfolio as of September 30, 2025:
Number of Properties
Rentable Square Feet(1)
Percent Occupied(2)
Percent Leased(2)
Annualized Base Rent per Square Foot(3)
OFFICE
Same-store(4)
39 11,929,972 74.0 % 74.7 % $ 57.11
Non-same store 1 1,524,575 90.7 91.0 29.24
Total in-service office 40 13,454,547 75.9 % 76.5 % $ 53.34
STUDIO
Same-store(5)
3 1,204,666 75.9 % 75.9 % $ 47.36
Non-same store 1 243,300 8.4 8.4 36.21
Total in-service studio 4 1,447,966 64.6 % 64.6 % $ 47.10
Total 44 14,902,513
Repositioning(6)
1 240,569 - % - % $ -
Development(7)
2 778,000 0.4 0.4 3.72
Held-for-sale 0 0 - - -
Total repositioning, development and held-for-sale 3 1,018,569 0.3 % 0.3 % $ 3.72
Total office and studio properties 47 15,921,082
Future development(8)
7 3,662,212
TOTAL 54 19,583,294
__________________
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, 2025, 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, 2025, divided by (ii) total square feet, expressed as a percentage.
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, 2025by (ii) 12. On a per square foot basis, ABR is divided by square footage under commenced leases as of September 30, 2025. 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, 2025. 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, 2025. Annualized base rent per square foot for studio propertiesreflects actual base rent for the 12 months ended September 30, 2025, 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, 2025.
4.Same-store office for the three months ended September 30, 2025defined as all properties owned and included in our stabilized office portfolio as of July 1, 2024 and still owned and included in the stabilized office portfolio as of September 30, 2025.
5.Includes studio properties owned and included in our portfolio as of July 1, 2024 and still owned and included in our portfolio as of September 30, 2025.
6.Refer to Repositioning table in this document for the office and studio projects under repositioning as of September 30, 2025.
7.Includes 546,000 square feet related to the office development Washington 1000 and 232,000 square feet related to Sunset Pier 94 Studios.
8.Includes entitlement to develop up to 428,623 square feet (508 residential units) at 10900-10950 Washington.
The following table provides information regarding the 15 largest tenants in our office portfolio based on HPP's share of annualized base rent as of September 30, 2025:
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)
$ 39,150,826 8.6 %
2 Netflix, Inc. 3 9/30/31 722,305
(3)
27,065,312 5.9
3 Amazon 2 2030-2031 850,964
(4)
24,649,423 5.4
4 Riot Games, Inc. 1 3/31/30 284,037 20,106,092 4.4
5 City and County of San Francisco 2 2033-2067 429,595
(5)
17,769,342 3.9
6 Nutanix, Inc. 1 5/31/30 215,857 12,031,216 2.6
7 Salesforce.com 1 2027-2028 176,400
(6)
10,589,189 2.3
8 Dell EMC Corporation 2 2026-2027 130,021
(7)
9,299,037 2.0
9 Coupa Software Incorporated 1 11/30/33 100,654 7,841,953 1.7
10 X.AI, LLC 1 9/30/31 105,536 6,838,733 1.5
11 PayPal, Inc. 1 7/17/26 131,701
(8)
6,549,823 1.4
12 Weil, Gotshal & Manges LLP 1 8/31/26 76,278 6,469,157 1.4
13 Glu Mobile, Inc. 1 11/30/27 61,381 5,485,949 1.2
14 Redfin Corporation 2 2026-2027 115,968
(9)
5,017,802 1.1
15 Rivian Automotive, LLC 1 4/30/28 55,805 4,980,956 1.1
TOTAL 3,914,556 $ 203,844,810 44.5 %
_____________
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, 2025, 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, 2025.
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 (early termination right between December 2026-February 2027) and (iii) 41,354 square feet at Ferry Building on October 31, 2029.
3.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.
4.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.
5.City and County of San Francisco expirations: (i) 39,573 square feet at 1455 Market on September 19, 2033, (ii) 389,316 square feet at 1455 Market on April 30, 2045 and (iii) 706 square feet at Ferry Building on April 30, 2067.
6.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 currently subleases 182,378 feet at Rincon Center to Twilio Inc. and pays us 50% of cash rents received pursuant to the sublease at a current average of $280,000 per month with annual growth thereafter, in addition to contractual base rent.
7.Dell EMC Corporation expirations: (i) 83,549 square feet at 875 Howard on June 30, 2026 and (ii) 46,472 square feet at 505 First on January 31, 2027.
8.PayPal, Inc. has exercised their early termination right at Fourth & Traction for July 2026.
9.Redfin Corporation expirations: (i) 2,978 square feet at Gateway on September 30, 2026 and (ii) 112,990 square feet at Hill7 on July 31, 2027.
Overview
Property Dispositions
During the nine months ended September 30, 2025, the Company sold its Maxwell, Foothill Research Center and 625 Second properties for $46.0 million, $23.0 million and $28.0 million, respectively. See Part I, Item 1 "Note 3 to the Consolidated Financial Statements-Investment in Real Estate" for details. A portion of the net proceeds from these sales was used to repay outstanding amounts on the unsecured revolving credit facility.
In Process and Future Development Projects
The following table summarizes the properties currently under construction and future development projects as of September 30, 2025:
Type Submarket
Estimated Square Feet (Units)(1)
Estimated Completion Date Estimated Stabilization Date
Under Construction:
New York, New York
Sunset Pier 94 Studios(2)
Studio Manhattan 232,000 Q4-2025 Q3-2026
TOTAL 232,000
Recently Completed:
Seattle, Washington
Washington 1000 Office Denny Triangle 546,000 Q4-2024 Q1-2027
TOTAL 546,000
Future Development Pipeline:
Los Angeles, California
Sunset Las Palmas Studios-Development(3)
Studio Hollywood 617,581 TBD TBD
Sunset Gower Studios-Development(3)
Office/Studio Hollywood 478,845 TBD TBD
Sunset Bronson Studios Lot D-Development(3)
Residential Hollywood 19,816 (33 units) TBD TBD
Element LA-Development Office West Los Angeles 500,000 TBD TBD
10900/10950 Washington Residential West Los Angeles 428,623 (508 units) TBD TBD
Vancouver, British Columbia
Burrard Exchange(4)
Office Downtown Vancouver 450,000 TBD TBD
Greater London, United Kingdom
Sunset Waltham Cross Studios(5)
Studio Broxbourne 1,167,347 TBD TBD
TOTAL 3,662,212
TOTAL UNDER CONSTRUCTION, RECENTLY COMPLETED AND FUTURE DEVELOPMENT 4,440,212
__________________
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 25.6% of the ownership interest in the unconsolidated joint venture that owns Sunset Pier 94 Studios.
3.We own 51% of the ownership interests in the consolidated joint venture that owns Sunset Bronson Studios, Sunset Gower Studios and Sunset Las Palmas Studios.
4.We own 20% of the ownership interests in the unconsolidated joint venture that owns Burrard Exchange.
5.We own 35% of the ownership interests in the unconsolidated joint venture that owns Sunset Waltham Cross Studios.
Properties are selected for repositioning when an asset or portions of an asset are taken offline for a change of use or if the asset requires significant base building improvements resulting in substantial 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, 2025:
Location Submarket
Square Feet
Repositioning:
899 Howard San Francisco 96,240
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 240,569
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, 2025, 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 Lease Square Foot at Expiration(2)
Vacant 3,916,655
Q4-2025 34 141,816 4,428,987 1.0 50.27 4,431,696 50.30
Total 2025 34 141,816 4,428,987 1.0 50.27 4,431,696 50.30
2026 139 1,022,988 51,392,903 11.2 56.88 51,305,459 56.79
2027 149 1,236,585 68,653,281 14.9 59.44 71,567,441 61.96
2028 127 1,518,106 90,369,586 19.6 69.54 95,944,643 73.83
2029 89 742,778 36,010,820 7.8 64.71 40,094,305 72.05
2030 79 1,809,624 78,635,256 17.1 55.87 88,910,082 63.17
2031 47 1,425,473 59,477,442 12.9 60.08 71,800,783 72.52
2032 14 144,214 6,236,607 1.4 58.29 7,290,184 68.13
2033 25 642,258 27,110,163 5.9 52.26 33,783,261 65.13
2034 14 173,266 6,169,239 1.3 36.27 10,838,792 63.73
Thereafter 37 964,942 28,293,544 6.2 41.29 44,908,434 65.53
Building management use(3)
62 357,594 - - - - -
Signed leases not commenced 19 87,044 3,171,796 .7 38.88 3,924,381 48.10
Portfolio Total/Weighted Average 835 14,183,343 $ 459,949,624 100.0 % $ 55.57 $ 524,799,461 $ 63.41
__________________
1.Does not include 37 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, 2025by (ii) 12. On a per square foot basis, ABR is divided by square footage under commenced leases as of September 30, 2025. 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, 2025. 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, 2025.
3.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,
2025 2024 2025 2024
Renewals(1)
Number of leases 34 39 92 109
Square feet 167,851 237,151 606,131 636,182
Tenant improvement costs per square foot(2)(3)
$ 3.19 $ 13.18 $ 13.69 $ 21.49
Leasing commission costs per square foot(2)
6.37 6.40 8.87 10.13
Total tenant improvement and leasing commission costs(2)
$ 9.56 $ 19.58 $ 22.56 $ 31.62
New leases(4)
Number of leases 41 46 117 128
Square feet 347,599 302,121 1,097,669 951,236
Tenant improvement costs per square foot(2)(3)
$ 85.29 $ 70.41 $ 70.95 $ 55.87
Leasing commission costs per square foot(2)
17.12 19.72 15.15 14.47
Total tenant improvement and leasing commission costs(2)
$ 102.41 $ 90.13 $ 86.10 $ 70.34
TOTAL
Number of leases 75 85 209 237
Square feet 515,450 539,272 1,703,800 1,587,418
Tenant improvement costs per square foot(2)(3)
$ 55.47 $ 44.20 $ 49.64 $ 42.32
Leasing commission costs per square foot(2)
13.21 13.62 12.82 12.76
TOTAL TENANT IMPROVEMENT AND LEASING COMMISSION COSTS(2)
$ 68.68 $ 57.82 $ 62.46 $ 55.08
__________________
1.Excludes retained tenants that have relocated or expanded into new space within our portfolio.
2.Assumes all tenant improvement 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, 2025, there were $320.0 million of repayments on the unsecured revolving credit facility, net of borrowings. The Company generally uses the unsecured revolving credit facility to finance the acquisition of properties and businesses, to provide funds for tenant improvements and capital expenditures and to provide for working capital and other corporate purposes.
During the nine months ended September 30, 2025, the Company secured the Office Portfolio CMBS loan with an aggregate principal amount of $475.0 million. The loan is secured by six office properties, bears interest at SOFR + 3.76% and matures on April 9, 2027, with three optional one-year extensions permitting certain financial and other covenants are met. The Company used the proceeds from the loan to repay $259.0 million on its unsecured revolving credit facility and to repay the $168.0 million loan secured by the Element LA property.
During the nine months ended September 30, 2025, the Company amended its unsecured revolving credit facility agreement to adjust certain definitions and covenant calculations beginning with the period ending December 31, 2024. The amendment also resulted in a decrease in the total capacity from $900.0 million to $775.0 million. The Company then amended the agreement a second time, which resulted in an increase in the total capacity to $795.3 million and extended the maturity date for $462.0 million of the total commitments to December 31, 2028, with two optional six-month extensions at the sole discretion of the Company.
During the nine months ended September 30, 2025, the Company fully repaid its Series B, Series C and Series D notes.
During the nine months ended September 30, 2025, the Company issued in an underwritten public offering 237,553,442 shares of common stock and pre-funded warrants to purchase 71,863,597 shares of common stock. The gross proceeds from the offering amounted to $689.3 million.
During the nine months ended September 30, 2025, the Company refinanced its 1918 Eighth loan with a CMBS loan secured by the 1918 Eighth property with an aggregate principal balance of $285.0 million. The refinanced loan bears interest at a weighted average rate of 6.16% and matures on September 11, 2030.
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 2024 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 2024 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, 2025 to the Three Months Ended September 30, 2024
Net Loss
Net loss increased $37.1 million, or 34.6%, to $144.1 million for the three months ended September 30, 2025 compared to $107.0 million for the three months ended September 30, 2024. The reasons for the change are discussed below with respect to the decrease in net operating income for the same period.
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). NOI on a cash basis is NOI adjusted to exclude the effect of straight-line rent and other non-cash adjustments required by GAAP. We believe that NOI on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent and other non-cash adjustments to revenue and expenses.
Management further analyzes NOI by evaluating the performance from the following groups:
•Same-store, which includes all of the properties owned and included in our stabilized portfolio as of July 1, 2024 and still owned and included in the stabilized portfolio as of September 30, 2025; 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:
Three Months Ended September 30, Dollar Change Percent Change
2025 2024
Net loss $ (144,086) $ (107,013) $ (37,073) 34.6 %
Adjustments:
Loss from unconsolidated real estate entities 744 3,219 (2,475) (76.9)
Fee income (1,082) (1,437) 355 (24.7)
Interest expense 41,726 45,005 (3,279) (7.3)
Interest income (2,212) (542) (1,670) 308.1
Management services reimbursement income-unconsolidated real estate entities (1,084) (989) (95) 9.6
Management services expense-unconsolidated real estate entities 1,084 989 95 9.6
Transaction-related expenses 139 269 (130) (48.3)
Unrealized loss on non-real estate investments 2,098 1,081 1,017 94.1
Impairment loss - 36,543 (36,543) (100.0)
Loss on deconsolidation of real estate entity 77,907 - 77,907 -
Loss on extinguishment of debt 207 - 207 -
Other (income) expense (601) 28 (629) (2,246.4)
Income tax provision 24 2,183 (2,159) (98.9)
General and administrative 13,709 19,544 (5,835) (29.9)
Depreciation and amortization 94,085 86,672 7,413 8.6
NOI $ 82,658 $ 85,552 $ (2,894) (3.4) %
Same-store NOI $ 88,199 $ 89,007 $ (808) (0.9) %
Non-same-store NOI (5,541) (3,455) (2,086) 60.4
NOI $ 82,658 $ 85,552 $ (2,894) (3.4) %
The following table summarizes certain statistics of our consolidated same-store office and studio properties:
Three Months Ended September 30,
2025 2024
Same-store office
Number of properties 39 39
Rentable square feet 11,929,972 11,862,465
Ending % leased 74.7 % 79.2 %
Ending % occupied 74.0 % 78.4 %
Average % occupied for the period 72.8 % 77.4 %
Average annual rental rate per square foot $ 57.11 $ 58.54
Same-store studio
Number of properties 3 3
Rentable square feet 1,204,666 1,204,666
Average % leased for the period(1)
75.9 % 73.8 %
__________________
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:
Three Months Ended September 30,
2025 2024
Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total
Revenues
Office
Rental revenues $ 148,232 $ 58 $ 148,290 $ 155,195 $ 7,713 $ 162,908
Service and other revenues 6,272 17 6,289 3,792 242 4,034
Total office revenues 154,504 75 154,579 158,987 7,955 166,942
Studio
Rental revenues 10,604 2,963 13,567 10,268 3,452 13,720
Service and other revenues 4,333 14,138 18,471 4,501 15,230 19,731
Total studio revenues 14,937 17,101 32,038 14,769 18,682 33,451
Total revenues 169,441 17,176 186,617 173,756 26,637 200,393
Operating expenses
Office operating expenses 71,694 (117) 71,577 74,936 4,566 79,502
Studio operating expenses 9,548 22,834 32,382 9,813 25,526 35,339
Total operating expenses 81,242 22,717 103,959 84,749 30,092 114,841
Office NOI 82,810 192 83,002 84,051 3,389 87,440
Studio NOI 5,389 (5,733) (344) 4,956 (6,844) (1,888)
NOI $ 88,199 $ (5,541) $ 82,658 $ 89,007 $ (3,455) $ 85,552
The following table gives further detail on our change in NOI:
Three Months Ended September 30, 2025 as compared to
Three Months Ended September 30, 2024
Same-Store Non-Same-Store Total
Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change
Revenues
Office
Rental revenues $ (6,963) (4.5) % $ (7,655) (99.2) % $ (14,618) (9.0) %
Service and other revenues 2,480 65.4 (225) (93.0) 2,255 55.9
Total office revenues (4,483) (2.8) (7,880) (99.1) (12,363) (7.4)
Studio
Rental revenues 336 3.3 (489) (14.2) (153) (1.1)
Service and other revenues (168) (3.7) (1,092) (7.2) (1,260) (6.4)
Total studio revenues 168 1.1 (1,581) (8.5) (1,413) (4.2)
Total revenues (4,315) (2.5) (9,461) (35.5) (13,776) (6.9)
Operating expenses
Office operating expenses (3,242) (4.3) (4,683) (102.6) (7,925) (10.0)
Studio operating expenses (265) (2.7) (2,692) (10.5) (2,957) (8.4)
Total operating expenses (3,507) (4.1) (7,375) (24.5) (10,882) (9.5)
Office NOI (1,241) (1.5) (3,197) (94.3) (4,438) (5.1)
Studio NOI 433 8.7 1,111 (16.2) 1,544 (81.8)
NOI $ (808) (0.9) % $ (2,086) 60.4 % $ (2,894) (3.4) %
NOI decreased $2.9 million, or 3.4%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily resulting from:
•a $2.1 million decrease in non-same-store NOI driven by:
•a decrease in office NOI of $3.2 million resulting from the sales of our 3176 Porter property in 2024 and our Foothill Research Center and Maxwell properties in 2025, partially offset by an increase due to the sale of 625 Second in 2025; further offset by
•an increase in studio NOI of $1.1 million due to cost savings initiatives at Quixote.
•a $0.8 million decrease in same-store NOI driven by:
•a decrease in office NOI of $1.2 million primarily due to:
•a $7.0 million decrease in rental revenues driven by lease terminations at our 1455 Market, Met Park North, Hill7, Concourse and 83 King properties, partially offset by a prior year non-recurring straight-line rent reserve related to transitioning a tenant to cash basis reporting; partially offset by
•a $3.2 million decrease in office operating expenses primarily due to employee retention credit tax refunds received in 2025; and
•a $2.5 million increase in service and other revenues due to a lease termination fee received at our Fourth & Traction property.
•partially offset by an increase in studio NOI of $0.4 million driven by higher production activity at our Sunset Las Palmas Studios property.
Other (Expenses) Income
Loss from unconsolidated real estate entities
We recorded a $0.7 million loss from unconsolidated real estate entities for the three months ended September 30, 2025 compared to a loss of $3.2 million for the three months ended September 30, 2024. The change was primarily driven by mark-to-
market adjustments for an interest rate swap that does not qualify for hedge accounting.
Fee income
We recognized fee income of $1.1 million for the three months ended September 30, 2025 compared to $1.4 million for the three months ended September 30, 2024. Fee income represents the management fee income earned from our unconsolidated real estate entities.
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,
2025 2024 Dollar Change Percent Change
Gross interest expense(1)
$ 48,743 $ 53,539 $ (4,796) (9.0) %
Capitalized interest (9,589) (10,521) 932 (8.9)
Non-cash interest expense(2)
2,572 1,987 585 29.4
TOTAL $ 41,726 $ 45,005 $ (3,279) (7.3) %
_________________
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 $4.8 million or 9.0%, to $48.7 million for the three months ended September 30, 2025 compared to $53.5 million for the three months ended September 30, 2024. The decrease was primarily related to a lower outstanding balance on the unsecured line of credit, the 2025 repayments of the Element LA loan and Series B, C and D notes, a decrease in both the principal amount and the interest rate on the 1918 Eighth loan as a result of its refinancing and lower reference rates on our floating rate debt. The decrease was partially offset by the interest expense related to the Office Portfolio CMBS loan, which was obtained in March 2025.
Capitalized interest decreased by $0.9 million or 8.9%, to $9.6 million for the three months ended September 30, 2025 compared to $10.5 million for the three months ended September 30, 2024 primarily due to the completion of our Sunset Glenoaks Studios development during 2024. The decrease was partially offset by an increase in development activity at our Washington 1000 and 10900-10950 Washington properties.
Non-cash interest expense increased by $0.6 million, or 29.4%, to $2.6 million for the three months ended September 30, 2025 compared to $2.0 million for the three months ended September 30, 2024. The increase was primarily related to an increase in the amortization of deferred financing costs driven by the Office Portfolio CMBS loan, which was obtained in March 2025.
Interest income
Interest income increased by $1.7 million, or 308.1%, to $2.2 million for the three months ended September 30, 2025 compared to $0.5 million for the three months ended September 30, 2024. The increase was driven by an increase in cash deposits in interest-bearing accounts.
Transaction-related expenses
During the three months ended September 30, 2025, we recorded transaction-related expenses of $0.1 million primarily related to legal expenses incurred in connection with early lease terminations at Quixote. During the three months ended September 30, 2024, we recognized transaction-related expenses of $0.3 million primarily related to dead deals.
Unrealized loss on non-real estate investments
We recognized an unrealized loss on non-real estate investments of $2.1 million for the three months ended September 30, 2025 compared to an unrealized loss of $1.1 million for the three months ended September 30, 2024, which were due to the observable changes in the fair value of the investments.
Impairment loss
During the three months ended September 30, 2024, we recorded an impairment loss of $36.5 million due to a reduction in
the estimated holding periods for our Maxwell, Foothill Research Center and 3176 Porter properties, which were subsequently sold. 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 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 assets at the date of the deconsolidation. No gain or loss on deconsolidation was recognized during the three months ended September 30, 2024.
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, 2024.
Other income (expense)
During the three months ended September 30, 2025, we recognized other income of $0.6 million, which was primarily related to a gain on insurance proceeds received for damaged property. During the three months ended September 30, 2024 we recognized other expense of $28 thousand.
Income tax provision
We recorded an income tax provision of $24 thousand for the three months ended September 30, 2025 compared to $2.2 million for the three months ended September 30, 2024. The amount recorded for the three months ended September 30, 2024 related to a valuation allowance recorded against certain deferred tax assets. As of September 30, 2025, the Company has recorded a valuation allowance against substantially all of its deferred tax assets
General and administrative expenses
General and administrative expenses decreased by $5.8 million, or 29.9%, to $13.7 million for the three months ended September 30, 2025 compared to $19.5 million for the three months ended September 30, 2024. The decrease was primarily due to a reduction in bonus and stock-based compensation expense during the three months ended September 30, 2025.
Depreciation and amortization expense
Depreciation and amortization expense increased by $7.4 million, or 8.6%, to $94.1 million for the three months ended September 30, 2025 compared to $86.7 million for the three months ended September 30, 2024. The increase was driven by accelerated depreciation 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 accelerated depreciation of tenant improvements related to an early lease termination at our Fourth & Traction property. The increase was partially offset by the effect of the sales of our 3176 Porter property in 2024 and our Foothill Research, Maxwell and 625 Second properties in 2025.
Comparison of the Nine Months Ended September 30, 2025 to the Nine Months Ended September 30, 2024
Net Loss
Net loss increased $104.2 million, or 50.1%, to $312.1 million for the nine months ended September 30, 2025 compared to $207.9 million for the nine months ended September 30, 2024. The reasons for the change are discussed below with respect to the decrease in net operating income for the same period.
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, 2024 and still owned and included in the stabilized portfolio as of September 30, 2025; 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 Percent Change
2025 2024
Net loss $ (312,124) $ (207,925) $ (104,199) 50.1 %
Adjustments:
Loss from unconsolidated real estate entities 2,203 6,443 (4,240) (65.8)
Fee income (3,917) (3,933) 16 (0.4)
Interest expense 133,368 133,253 115 0.1
Interest income (4,770) (1,975) (2,795) 141.5
Management services reimbursement income-unconsolidated real estate entities (3,182) (3,187) 5 (0.2)
Management services expense-unconsolidated real estate entities 3,182 3,187 (5) (0.2)
Transaction-related expenses 590 2,306 (1,716) (74.4)
Unrealized loss on non-real estate investments 2,335 3,024 (689) (22.8)
Gain on sale of real estate, net (10,007) - (10,007) -
Impairment loss 18,476 36,543 (18,067) (49.4)
Loss on deconsolidation of real estate entity 77,907 - 77,907 -
Loss on extinguishment of debt 3,702 - 3,702 -
Other income (516) (1,449) 933 (64.4)
Income tax provision 672 2,693 (2,021) (75.0)
General and administrative 59,968 59,959 9 -
Depreciation and amortization 281,921 265,324 16,597 6.3
NOI $ 249,808 $ 294,263 $ (44,455) (15.1) %
Same-store NOI 275,155 298,128 (22,973) (7.7) %
Non-same-store NOI (25,347) (3,865) (21,482) 555.8
NOI $ 249,808 $ 294,263 $ (44,455) (15.1) %
The following table summarizes certain statistics of our same-store office and studio properties:
Nine Months Ended September 30,
2025 2024
Same-store office
Number of properties 39 39
Rentable square feet 11,929,972 11,862,465
Ending % leased 74.7 % 79.2 %
Ending % occupied 74.0 % 78.4 %
Average % occupied for the period 73.3 % 77.6 %
Average annual rental rate per square foot $ 57.11 $ 58.54
Same-store studio
Number of properties 3 3
Rentable square feet 1,204,666 1,204,666
Average % occupied for the period(1)
75.9 % 73.8 %
_____________
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,
2025 2024
Same-Store Non-Same-Store Total Same-Store Non-Same-Store Total
Revenues
Office
Rental revenues $ 453,692 $ 3,524 $ 457,216 $ 482,697 $ 24,234 $ 506,931
Service and other revenues 18,254 153 18,407 10,526 599 11,125
Total office revenues 471,946 3,677 475,623 493,223 24,833 518,056
Studio
Rental revenues 31,209 9,899 41,108 31,677 10,084 41,761
Service and other revenues 16,352 41,995 58,347 22,705 49,894 72,599
Total studio revenues 47,561 51,894 99,455 54,382 59,978 114,360
Total revenues 519,507 55,571 575,078 547,605 84,811 632,416
Operating expenses
Office operating expenses 213,223 2,132 215,355 215,492 12,261 227,753
Studio operating expenses 31,129 78,786 109,915 33,985 76,415 110,400
Total operating expenses 244,352 80,918 325,270 249,477 88,676 338,153
Office NOI 258,723 1,545 260,268 277,731 12,572 290,303
Studio NOI 16,432 (26,892) (10,460) 20,397 (16,437) 3,960
NOI $ 275,155 $ (25,347) $ 249,808 $ 298,128 $ (3,865) $ 294,263
The following table gives further detail on our change in NOI:
Nine Months Ended September 30, 2025 as compared to
Nine Months Ended September 30, 2024
Same-Store Non-Same-Store Total
Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change
Revenues
Office
Rental revenues $ (29,005) (6.0) % $ (20,710) (85.5) % $ (49,715) (9.8) %
Service and other revenues 7,728 73.4 (446) (74.5) 7,282 65.5
Total office revenues (21,277) (4.3) (21,156) (85.2) (42,433) (8.2)
Studio
Rental revenues (468) (1.5) (185) (1.8) (653) (1.6)
Service and other revenues (6,353) (28.0) (7,899) (15.8) (14,252) (19.6)
Total studio revenues (6,821) (12.5) (8,084) (13.5) (14,905) (13.0)
Total revenues (28,098) (5.1) (29,240) (34.5) (57,338) (9.1)
Operating expenses
Office operating expenses (2,269) (1.1) (10,129) (82.6) (12,398) (5.4)
Studio operating expenses (2,856) (8.4) 2,371 3.1 (485) (0.4)
Total operating expenses (5,125) (2.1) (7,758) (8.7) (12,883) (3.8)
Office NOI (19,008) (6.8) (11,027) (87.7) (30,035) (10.3)
Studio NOI (3,965) (19.4) (10,455) 63.6 (14,420) (364.1)
NOI $ (22,973) (7.7) % $ (21,482) 555.8 % $ (44,455) (15.1) %
NOI decreased $44.5 million, or 15.1%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily resulting from:
•a $23.0 million decrease in same-store NOI driven by:
•a decrease in office NOI of $19.0 million primarily due to:
•a $29.0 million decrease in rental revenues driven by lease terminations at our Met Park North, Concourse, 1455 Market, 83 King, 901 Market, Towers at Shore Center and 857 Howard properties; partially offset by
•a $7.7 million increase in service and other revenues due to lease termination fees received at our 6040 Sunset, Fourth & Traction, Shorebreeze and Rincon Center properties; and
•a $2.3 million decrease in operating expenses due to an employee retention credit tax refund received in 2025.
•a decrease in studio NOI of $4.0 million primarily due to lower production activity at our Sunset Gower Studios property, partially offset by higher production activity at our Sunset Las Palmas Studios property.
•a $21.5 million decrease in non-same-store NOI driven by:
•a decrease in office NOI of $11.0 million resulting from the sales of our 3176 Porter property in late 2024 and our Foothill Research, 625 Second and Maxwell properties in 2025; and
•a decrease in studio NOI of $10.5 million primarily due to:
•a $7.9 million decrease in service and other revenues due to lower stage and production activity at Quixote; and
•a $2.4 million increase in studio operating expenses driven by the substantial completion of our Sunset Glenoaks Studios property in the second quarter of 2024.
Other (Expenses) Income
Loss from unconsolidated real estate entities
We recorded a $2.2 million loss from unconsolidated real estate entities for the nine months ended September 30, 2025 compared to a loss of $6.4 million for the nine months ended September 30, 2024. The change was primarily driven by mark-to-market adjustments for an interest rate swap that does not qualify for hedge accounting.
Fee income
We recognized fee income of $3.9 million for the nine months ended September 30, 2025 compared to $3.9 million for the nine months ended September 30, 2024. Fee income represents the management fee income earned from our unconsolidated real estate entities.
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,
2025 2024 Dollar Change Percent Change
Gross interest expense(1)
$ 151,007 $ 157,272 $ (6,265) (4.0) %
Capitalized interest (29,941) (29,915) (26) 0.1
Non-cash interest expense(2)
12,302 5,896 6,406 108.6
TOTAL $ 133,368 $ 133,253 $ 115 0.1 %
_________________
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 $6.3 million, or 4.0%, to $151.0 million for the nine months ended September 30, 2025 compared to $157.3 million for the nine months ended September 30, 2024. The decrease was primarily related to lower outstanding borrowings on the unsecured line of credit, the 2025 repayments of the Element LA loan and Series B, C and D notes and as lower reference rates on our floating rate debt. The decrease was partially offset by the interest expense related to the Office Portfolio CMBS loan, which was obtained in March 2025.
Capitalized interest increased by $26 thousand, or 0.1%, to $29.9 million for the nine months ended September 30, 2025 compared to $29.9 million for the nine months ended September 30, 2024. The increase was primarily driven by development activity at our Washington 1000, Sunset Las Palmas Studios, Sunset Waltham Cross Studios and Sunset Pier 94 Studios properties, offset by the completion of our Sunset Glenoaks Studios development in 2024
Non-cash interest expense increased by $6.4 million, or 108.6%, to $12.3 million for the nine months ended September 30, 2025 compared to $5.9 million for the nine months ended September 30, 2024. The increase was primarily related to the amortization of cash premiums paid to obtain new interest rate caps during the nine months ended September 30, 2025 and an increase in the amortization of deferred financing costs driven by the Office Portfolio CMBS loan, which was obtained in March 2025
Interest income
Interest income increased by $2.8 million, or 141.5%, to $4.8 million for the nine months ended September 30, 2025 compared to $2.0 million for the nine months ended September 30, 2024. The increase is due to an increase in cash deposits in interest-bearing accounts and interest income earned on an employee retention credit tax refund received in 2025.
Transaction-related expenses
During the nine months ended September 30, 2025, we recognized transaction-related expenses of $0.6 million primarily related to legal expenses incurred in connection with early lease terminations at Quixote. During the nine months ended September 30, 2024, we recognized transaction-related expenses of $2.3 million primarily related to dead deals.
Unrealized loss on non-real estate investments
We recognized an unrealized loss on our non-real estate investments of $2.3 million for the nine months
ended September 30, 2025 compared to a loss of $3.0 million for the nine months ended September 30, 2024, which were due to the observable changes in the fair value of the investments.
Gain on sale of real estate, net
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 and Maxwell properties. No gain or loss on sale was recognized during the nine months ended September 30, 2024.
Impairment loss
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. During the nine months ended September 30, 2024, we recorded an impairment loss of $36.5 million due to a reduction in the estimated holding periods for our Maxwell, Foothill Research Center and 3176 Porter properties, which were 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 assets at the date of the deconsolidation. No gain or loss on deconsolidation was recognized during the nine months ended September 30, 2024.
Loss on extinguishment of debt
During the nine months ended September 30, 2025, we recognized a $3.7 million loss on extinguishment of debt related to the early repayment of the loan secured by our Element LA property and the Series B, C and D notes, as well as the refinancing of the loan secured by our 1918 Eighth property. No gain or loss on extinguishment of debt was recognized during the nine months ended September 30, 2024.
Other income
During the nine months ended September 30, 2025, we recognized other income of $0.5 million, which was primarily related to a gain on insurance proceeds received for damaged property. During the nine months ended September 30, 2024, we recognized other income of $1.4 million related to the sale of a non-real estate investment.
Income tax provision
We recorded an income tax provision of $0.7 million for the nine months ended September 30, 2025 compared to $2.7 million for the nine months ended September 30, 2024. The amount recorded for the nine months ended September 30, 2024 related to a valuation allowance recorded against certain deferred tax assets. As of September 30, 2025, the Company has recorded a valuation allowance against substantially all of its deferred tax assets.
General and administrative expenses
General and administrative expenses remained flat at $60.0 million for the nine months ended September 30, 2025 and nine months ended September 30, 2024. During the nine months ended September 30, 2025, the there was an increase in compensation-related expenses 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 most highly compensated executive officers, which was offset by the impact of Company-wide cost savings initiatives.
Depreciation and amortization expense
Depreciation and amortization expense increased by $16.6 million, or 6.3%, to $281.9 million for the nine months ended September 30, 2025 compared to $265.3 million for the nine months ended September 30, 2024. The increase was primarily related to the following activity during the nine months ended September 30, 2025: accelerated depreciation of tenant improvements related to early lease terminations at our 6040 Sunset, Quixote, Hill7 and Fourth & Traction properties; disposals of transportation assets at Quixote; accelerated amortization of a non-competition agreement intangible asset at Quixote; and accelerated depreciation related to the demolition of an unused building structure at our Sunset Las Palmas Studios property for its conversion to a parking lot. The increase was partially offset by the effect of the sales of our 3176 Porter property in 2024 and Foothill Research, Maxwell and 625 Second properties in 2025.
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 $190.4 million of cash and cash equivalents at September 30, 2025. Our principal source of operating cash flow is related to leasing and operating the properties in our portfolio. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend and distribution requirements.
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.
In June 2025, we issued in an underwritten public offering 237,553,442 shares of common stock and pre-funded warrants to purchase 71,863,597 shares of common stock. The gross proceeds from the offering amounted to $689.3 million.
We have an ATM program that allows us to sell up to $125.0 million of common stock, $65.8 million of which has been sold through September 30, 2025. 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, 2025 (in thousands):
Loan Total
Borrowing Capacity 		Amount Drawn Remaining Borrowing Capacity
Unsecured revolving credit facility
$ 795,250 $ - $ 795,250
Sunset Glenoaks Studios construction loan(1)(2)
50,300 50,300 -
Bentall Centre(1)(2)(3)
95,016 94,164 852
Sunset Pier 94 Studios construction loan(1)(2)
46,810 30,900 15,910
TOTAL $ 987,376 $ 175,364 $ 812,012
__________________
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, 2025.
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. In addition, our ability to incur additional debt may be affected by our senior unsecured debt ratings as provided by the major credit rating agencies in the United States. Certain of the major U.S. credit rating agencies have previously downgraded our senior unsecured debt rating to non-investment grade. These and any further ratings downgrades could adversely impact our ability to access debt markets in the future and increase the cost of future debt. As of September 30, 2025, 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, 2025 (in thousands, except percentage):
Market Capitalization
Unsecured and secured debt(1)
$ 3,576,600
Series A redeemable preferred units
2,795
Total consolidated debt 3,579,395
Equity capitalization(2)
1,702,578
TOTAL CONSOLIDATED MARKET CAPITALIZATION $ 5,281,973
Total consolidated debt/total consolidated market capitalization 67.8 %
__________________
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 $2.76, as reported by the NYSE, on September 30, 2025, as well as the aggregate value of the Series C preferred stock liquidation preference as of September 30, 2025.
Outstanding Indebtedness
The following table sets forth information as of September 30, 2025 and December 31, 2024 with respect to our outstanding indebtedness, excluding unamortized deferred financing costs and loan discounts/premiums (in thousands):
September 30, 2025 December 31, 2024
Unsecured debt $ 1,650,000 $ 2,435,000
Secured debt $ 1,926,600 $ 1,752,667
Joint venture partner debt $ 66,136 $ 66,136
The operating partnership was in compliance with its financial covenants as of September 30, 2025, although there can be no assurance that it will continue to be in compliance with these financial covenants. Our ability to maintain compliance with our debt covenants is subject to numerous risks and uncertainties, many of which are outside of our control, including general economic conditions; fluctuations in interest rates and increased operating costs; our failure to obtain necessary outside financing, including as a result of further downgrades in the credit ratings of our unsecured indebtedness; our failure to generate sufficient cash flows to service our outstanding indebtedness, repay indebtedness when due and maintain dividend payments; and strikes or work stoppages. Failure to meet any of these covenants could cause an event of default under the agreements governing our indebtedness and/or accelerate some or all of our indebtedness. In addition, certain of our indebtedness contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some circumstances.
Liquidity Uses
Contractual Obligations
During the nine months ended September 30, 2025, there were no material changes outside the ordinary course of business in the information regarding specified contractual obligations contained in our 2024 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.
Cash Flows
Comparison of the cash flow activity for the nine months ended September 30, 2025 to the nine months ended September 30, 2024 is as follows (in thousands, except percentage change):
Nine Months Ended September 30,
2025 2024 Dollar Change Percent Change
Net cash provided by operating activities
$ 61,673 $ 164,495 $ (102,822) (62.5) %
Net cash used in investing activities $ (64,096) $ (195,756) $ 131,660 (67.3) %
Net cash provided by financing activities $ 117,693 $ 26,040 $ 91,653 352.0 %
Cash and cash equivalents and restricted cash were $214.4 million and $99.2 million at September 30, 2025 and December 31, 2024, respectively.
Operating Activities
Net cash provided by operating activities decreased by $102.8 million, or 62.5%, to $61,673 for the nine months ended September 30, 2025 compared to $164.5 million for the nine months ended September 30, 2024. The decrease primarily resulted from the dispositions of our Foothill Research, Maxwell and 625 Second properties in 2025 and our 3176 Porter property in late 2024, lease terminations at our Met Park North, 1455 Market, Concourse, 83 King and 901 Market properties, lower production activity at Quixote and our Sunset Gower Studios property and one-time lease termination fees paid to exit several operating leases at Quixote.
Investing Activities
Net cash used in investing activities decreased by $131.7 million, or 67.3%, to $64.1 million for the nine months ended September 30, 2025 compared to $195.8 million for the nine months ended September 30, 2024. The decrease primarily resulted from an $88.3 million increase in proceeds from sales of real estate, a $27.6 million decrease in additions to investment in real estate and a $26.9 million decrease in contributions to unconsolidated entities during the nine months ended September 30, 2025.
Financing Activities
Net cash provided by financing activities increased by $91.7 million, or 352.0%, to $117.7 million for the nine months ended September 30, 2025 compared to $26.0 million for the nine months ended September 30, 2024. The increase primarily resulted from $656.2 million of net proceeds raised in our offering of common stock and pre-funded warrants in June 2025, which was partially offset by a $617.2 million increase in repayments of notes payable, net of proceeds, during the nine months ended September 30, 2025. Additionally, during the nine months ended September 30, 2024, we purchased our former partner's interest in our 1455 Market property for $40.9 million, which contributed to the comparative increase in net cash provided by financing activities during the nine months ended September 30, 2025.
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, 2025 (in thousands, except for percentages):
Ownership Interest Amount Drawn Undrawn Capacity Total Capacity Interest Rate Contractual Maturity Date
Bentall Centre(1)
20 % $ 470,821 $ 4,258 $ 475,079 CORRA + 2.30% 7/1/2027
Sunset Glenoaks Studios(2)
50 % $ 100,600 $ - $ 100,600 SOFR + 3.10% 1/9/2027
Sunset Pier 94 Studios(3)
26 % $ 120,934 $ 62,266 $ 183,200 SOFR + 4.75% 9/9/2028
__________________
(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, 2025. This loan is interest-only through its term.
(2)This loan has an initial interest rate of SOFR + 3.10% per annum until the construction at Sunset Glenoaks Studios is complete and certain performance targets have been met, at which time the effective interest rate will decrease to SOFR + 2.50%. This loan is interest-only through its term. The maturity date includes the effect of extension options. The floating interest rate on the full principal amount has been effectively capped at 4.50% through the use of an interest rate cap.
(3)This loan has an initial interest rate of SOFR + 4.75% per annum until stabilization of the project, at which time the effective interest rate will decrease to SOFR + 4.00%. This loan is interest-only through its term. The maturity date includes the effect of extension options.
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,
2025 2024 2025 2024
Net loss $ (144,086) $ (107,013) $ (312,124) $ (207,925)
Adjustments:
Depreciation and amortization-consolidated 94,085 86,672 281,921 265,324
Depreciation and amortization-non-real estate assets (8,919) (8,031) (27,353) (24,223)
Depreciation and amortization-HPP's share from unconsolidated real estate entities 1,250 1,231 3,408 4,388
Gain on sale of real estate, net - - (10,007) -
Loss on deconsolidation of real estate entity 77,907 - 77,907 -
Impairment loss-real estate assets - 36,543 18,476 36,543
Unrealized loss on non-real estate investments 2,098 1,081 2,335 3,024
FFO attributable to non-controlling interests (2,611) 1,508 (12,616) (9,601)
FFO attributable to preferred shares and units (5,100) (5,200) (15,461) (15,600)
FFO TO COMMON STOCK/UNIT HOLDERS $ 14,624 $ 6,791 $ 6,486 $ 51,930
Hudson Pacific Properties Inc. published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 22:27 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]