8-K Pinnacle 3-14



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 8-K
 _________________________________
CURRENT REPORT
Pursuant to Section 13 OR 15 (d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 8, 2012
 _________________________________
Hudson Pacific Properties, Inc.
(Exact name of registrant as specified in its charter) 
Maryland
 
001-34789
 
27-1430478
(State or other
 
(Commission File Number)
 
(IRS Employer
jurisdiction of
 
 
 
Identification No.)
incorporation)
 
 
 
 
 
11601 Wilshire Blvd., Suite 1600
Los Angeles, California
 
90025
 
(Address of Principal Executive Offices)
 
(Zip Code)
 

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

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

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







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

Item 9.01 Financial Statements and Exhibits.

In accordance with Rule 3-14 and Article 11 of Regulation S-X, the Company hereby files the following financial statement and pro forma information relating to the acquisition of Pinnacle I, located in San Francisco, California (the “Property”). The acquisition of Pinnacle I was disclosed in our Company's 10Q filed with the Securities and Exchange Commission on November 9, 2012.

(a)     Financial Statements of Property Acquired.
Report of Independent Auditors
Statements of Revenues and Certain Expenses for the the years ended December 31, 2011 and nine months ended September 30, 2012 (unaudited)
Notes to Statements of Revenues and Certain Expenses

(b)     Unaudited Pro Forma Financial Information.
Unaudited pro forma consolidated balance sheet as of September 30, 2012
Unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2012
Unaudited pro forma consolidated statement of operations for the year ended December 31, 2011
Notes to unaudited pro forma consolidated financial statements

(d)    Exhibits.
Exhibit
No.
  
Description
23.1

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










Report of Independent Auditors

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

We have audited the accompanying statement of revenues and certain expenses of Pinnacle I (the “Property”) for the year ended December 31, 2011. This statement of revenues and certain expenses is the responsibility of the Property’s management. Our responsibility is to express an opinion on this statement based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The accompanying Statement of Revenues and Certain Expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for the inclusion in the current report on Form 8-K of Hudson Pacific Properties, Inc., as described in Note 1, and are not intended to be a complete presentation of the Property’s revenue and expenses.

In our opinion, the statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses (as defined in Note 1) of Pinnacle I for the year ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Los Angeles, California
January 17, 2013






Pinnacle I
Statements of Revenues and Certain Expenses
Year Ended December 31, 2011 and Nine-Months Ended September 30, 2012 (unaudited)
(In thousands)

 
 
Nine Months Ended
September 30, 2012
(Unaudited)
 
Year Ended
December 31, 2011
Revenues
 
 
 
 
Rental Revenue
 
$
10,289

 
$
14,250

Tenant recoveries
 
1,062

 
1,539

Parking and other
 
1,517

 
2,080

Total revenues
 
12,868

 
17,869

 
 
 
 
 
Certain expenses
 
 
 
 
Property operating expenses
 
3,632

 
4,953

Total certain expenses
 
3,632

 
4,953

Revenues in excess of expenses
 
$
9,236

 
$
12,916






















See accompanying notes





Pinnacle I
Notes to Statements of Revenues and Certain Expenses
Year Ended December 31, 2011 and Nine-Months Ended September 30, 2012 (unaudited)
(In thousands)

1. Basis of Presentation

The accompanying statements of revenues and certain expenses include the operations of Pinnacle I (“The Property”), an office building located in Los Angeles, California.

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

2. Summary of Significant Accounting Policies

Revenue Recognition

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

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, as the Property is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk.

Parking and other revenue is revenue that is derived from the tenants’ use of telecommunications, parking and the fitness center. Parking and other revenue is recognized when the related services are utilized by the tenants.

Use of Estimates

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

3. Minimum Future Lease Rentals

There are various lease agreements in place with tenants to lease space in the Property. As of September 30, 2012, the minimum future cash rents receivable under noncancelable operating leases in each of the next five years and thereafter are as follows (unaudited):

2012 (three months ending December 31, 2012)
$
3,579

2013
14,770

2014
14,580

2015
13,183

2016
12,251

2017
8,826

Thereafter
17,577

 
$
84,766


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








4. Tenant Concentrations

For the year ended December 31, 2011 and the nine-months ended September 30, 2012, two tenants represented 76.4% and 79.3% (unaudited), respectively, of the Property’s rental revenues.

5. Related Party Transactions

An affiliate of the owner of the property provides engineering services to the property. For the year ended December 31, 2011 and the nine-months ended September 30, 2012, $62 and $53 (unaudited) of engineering related services, respectively are included in the Property’s property operating expenses

6. Commitments and Contingencies

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

7. Subsequent Events

The Property evaluated subsequent events through January 17, 2013, the date the financial statements were available to be issued.








HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated balance sheet of Hudson Pacific Properties, Inc. (the “Company” or “Our”) as of September 30, 2012 and unaudited pro forma consolidated statements of operations of the Company for the year ended December 31, 2011 and the nine months ended September 30, 2012 have been prepared as if the acquisition of Pinnacle I and related financing had occurred on September 30, 2012 for the pro forma consolidated balance sheet, and as if the acquisition of Pinnacle I and concurrent financing had occurred on January 1, 2011 for both pro forma consolidated statements of operations.

Our pro forma consolidated financial statements are presented for informational purposes only and should be read in conjunction with the historical financial statements of the Pinnacle I and related notes thereto included elsewhere in this filing and our forms 10-K and 10-Q’s filed with the Securities and Exchange Commission. The adjustments to our pro forma consolidated financial statements are based on available information and assumptions that we consider reasonable. Our pro forma consolidated financial statements do not purport to (1) represent our financial position that would have actually occurred had the acquisition of the Pinnacle I and related financing occurred on September 30, 2012, (2) represent the results of our operations that would have actually occurred had the acquisition of the Pinnacle I and related financing occurred on January 1, 2011 and (3) project our financial position or results of operations as of any future date or for any future period, as applicable.






HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2012
(in thousands, except per share data)
 
Hudson Pacific Properties, Inc.
 
Financing Transactions
 
Acquisition of Pinnacle I and related financing
 
Company Pro forma
 
(A)
 
(B)
 
(C)
 
 
ASSETS
 
 
 
 
 
 
 
Investment in real estate, net
$
1,183,757

 
$

 
$
197,053

 
$
1,380,810

Cash and cash equivalents
27,288

 
87,116

 
(83,423
)
 
30,981

Restricted cash
10,697

 

 
3,356

 
14,053

Accounts receivable, net
8,833

 

 

 
8,833

Mortgage Receivable
4,000

 

 

 
4,000

Straight-line rent receivables
14,047

 

 

 
14,047

Deferred leasing costs
74,389

 

 
16,110

 
90,499

Deferred finance costs, net
6,331

 
484

 
1,015

 
7,830

Interest rate contracts
92

 

 

 
92

Goodwill
8,754

 

 

 
8,754

Prepaid expenses and other assets
6,630

 

 

 
6,630

TOTAL ASSETS
$
1,344,818

 
$
87,600

 
$
134,111

 
$
1,566,529

 
 
 
 
 
 
 
 
LIABILITES AND EQUITY
 
 
 
 
 
 
 
Notes payable
$
359,454

 
$
87,600

 
$
129,000

 
$
576,054

Accounts payable and accrued liabilities
22,882

 

 
928

 
23,810

Below-market leases and above-market ground leases
28,714

 

 
2,731

 
31,445

Security deposits
5,974

 

 

 
5,974

Prepaid rent
7,143

 

 

 
7,143

TOTAL LIABLITIES
424,167

 
87,600

 
132,659

 
644,426

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

 

 

 
12,475

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

 

 

 
145,000

Common stockholders
472

 

 

 
472

Additional paid-in capital
730,783

 

 

 
730,783

Accumulated other comprehensive loss
(1,283
)
 

 

 
(1,283
)
Accumulated deficit
(24,709
)
 

 

 
(24,709
)
Total Hudson Pacific Properties, Inc. shareholders' equity
850,263

 

 

 
850,263

 
 
 
 
 
 
 
 
Non-controlling unitholders in Operating Partnership
57,913

 

 

 
57,913

Non-controlling interest in consolidated real estate entity

 

 
1,452

 
1,452

TOTAL EQUITY
908,176

 

 
1,452

 
909,628

TOTAL LIABILITIES & EQUITY
$
1,344,818

 
$
87,600

 
$
134,111

 
$
1,566,529






HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 2012
(in thousands, except per share data)
 
Hudson Pacific Properties, Inc.
 
Financing Transactions
 
Acquisition of Pinnacle I and related financing
 
Other proforma adjustments
 
Company Pro forma
 
 
(AA)
 
(BB)
 
(CC)
 
(DD)
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
Rental
$
68,522

 
$

 
$
10,207

 
$

 
$
78,729

 
Tenant recoveries
15,942

 

 
1,062

 

 
17,004

 
Other
7,103

 

 
1,517

 

 
8,620

 
Total office revenues
91,567

 

 
12,786

 

 
104,353

 
Media & Entertainment
 
 
 
 
 
 
 
 
 
 
Rental
17,331

 

 

 

 
17,331

 
Tenant recoveries
1,071

 

 

 

 
1,071

 
Other property-related revenue
10,797

 

 

 

 
10,797

 
Other
146

 

 

 

 
146

 
Total media & entertainment revenues
29,345

 

 

 

 
29,345

 
Total revenues
120,912

 

 
12,786

 

 
133,698

 
Operating Expenses
 
 
 
 
 
 
 
 

 
Office operating expenses
38,176

 

 
3,632

 

 
41,808

 
Media & entertainment operating expenses
17,993

 

 

 

 
17,993

 
General and administrative
12,822

 

 

 

 
12,822

 
Depreciation and amortization
39,422

 

 
6,326

 

 
45,748

 
Total operating expenses
108,413

 

 
9,958

 

 
118,371

 
Income from operations
12,499

 

 
2,828

 

 
15,327

 
Other Expense (Income)
 
 
 
 
 
 
 
 
 
 
Interest expense
13,977

 
1,507

 
3,901

 

 
19,385

 
Interest income
(149
)
 

 

 

 
(149
)
 
Acquisition-related expenses
815

 

 

 

 
815

 
Other expense
(109
)
 

 

 

 
(109
)
 
 
14,534

 
1,507

 
3,901

 

 
19,942

 
Net loss
$
(2,035
)
 
$
(1,507
)
 
$
(1,073
)
 
$

 
$
(4,615
)
 
Less: Net income attributable to preferred stock and units
(9,693
)
 

 

 

 
(9,693
)
 
Less: Net income attributable to restricted shares
(226
)
 

 

 

 
(226
)
 
Less: Net (income) loss attributable to non-controlling members in consolidated real estate entities

 

 
19

 

 
19

 
Add: Net loss attributable to unitholders in the Operating Partnership
704

 

 

 
169

 
873

 
(Loss) income attributable to Hudson Pacific Properties, Inc. shareholders’ / controlling member’ s equity
$
(11,250
)
 
$
(1,507
)
 
$
(1,054
)
 
169

 
$
(13,642
)
 
Net (loss) attributable to shareholders’ per share—basic and diluted
$
(0.28
)
 
 
 
 
 
 
 
$
(0.34
)
(EE)
Pro Forma weighted average shares outstanding—basic and diluted
39,945,249

 
 
 
 
 
 
 
39,945,249

(EE)





HUDSON PACIFIC PROPERTIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2011
(in thousands, except per share data)
 
Hudson Pacific Properties, Inc.
 
Financing Transactions
 
Acquisition of Pinnacle I and related financing
 
Other proforma adjustments
 
Company Pro forma
 
 
(AA)
 
(BB)
 
(CC)
 
(DD)
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
Rental
$
75,343

 
$

 
$
14,141

 

 
$
89,484

 
Tenant recoveries
22,102

 

 
1,539

 

 
23,641

 
Other
7,763

 

 
2,080

 

 
9,843

 
Total office revenues
105,208

 

 
17,760

 

 
122,968

 
Media & Entertainment
 
 
 
 
 
 
 
 
 
 
Rental
21,617

 

 

 

 
21,617

 
Tenant recoveries
1,539

 

 

 

 
1,539

 
Other property-related revenue
13,638

 

 

 

 
13,638

 
Other
187

 

 

 

 
187

 
Total media & entertainment revenues
36,981

 

 

 

 
36,981

 
Total revenues
142,189

 

 
17,760

 

 
159,949

 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
Office operating expenses
44,740

 

 
4,953

 

 
49,693

 
Media & entertainment operating expenses
22,446

 

 

 

 
22,446

 
General and administrative
13,038

 

 

 

 
13,038

 
Depreciation and amortization
44,660

 

 
8,433

 

 
53,093

 
Total operating expenses
124,884

 

 
13,386

 

 
138,270

 
Income from operations
17,305

 

 
4,374

 

 
21,679

 
Other Expense (Income)
 
 
 
 
 
 
 
 
 
 
Interest expense
17,480

 
2,009

 
5,203

 

 
24,692

 
Interest income
(73
)
 

 

 

 
(73
)
 
Acquisition-related expenses
1,693

 

 

 

 
1,693

 
Other expense
443

 

 

 

 
443

 
 
19,543

 
2,009

 
5,203

 

 
26,755

 
Net loss
$
(2,238
)
 
$
(2,009
)
 
$
(829
)
 
$

 
$
(5,076
)
 
Less: Net income attributable to preferred stock and units
(8,108
)
 

 

 

 
(8,108
)
 
Less: Net income attributable to restricted shares
(231
)
 

 

 

 
(231
)
 
Less: Net (income) loss attributable to non-controlling members in consolidated real estate entities
(803
)
 

 
14

 

 
(789
)
 
Add: Net loss attributable to unitholders in the Operating Partnership
946

 

 

 
196

 
1,142

 
(Loss) income attributable to Hudson Pacific Properties, Inc. shareholders’ / controlling member’ s equity
$
(10,434
)
 
$
(2,009
)
 
$
(815
)
 
196

 
$
(13,062
)
 
Net loss attributable to shareholders’ per share—basic and diluted
$
(0.35
)
 
 
 
 
 
 
 
$
(0.44
)
(EE)
Pro Forma weighted average shares outstanding—basic and diluted
29,392,920

 
 
 
 
 
 
 
29,392,920

(EE)






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


1.    Balance sheet adjustments

(A)
Represents the historical balance sheet of Hudson Pacific Properties, Inc. (the “Company,” “we,” “our” or “us”) as of September 30, 2012.

(B)
Reflects a $49,600 financing secured by 901 Market Street and related loan costs of $484 and a draw of $38,000 on our unsecured revolving credit facility. The 901 Market Street loan bears interest at LIBOR plus 225 basis points per annum and will mature on October 31, 2016. The proceeds from these financing transactions were used to acquire the Pinnacle I property.

(C)
Reflects the acquisition of the Pinnacle I property. The total consideration of $209.5 million consists of investment in real estate, net ($197,053), deferred leasing costs and lease intangibles, net ($16,110) and below-market leases ($2,731) and liabilities assumed ($928). The Company recorded the purchase price of the property’s tangible and intangible assets in accordance with Financial Accounting Standards Board Accounting Standards Codification ASC Topic 805: Business Combinations. In order to acquire the Pinnacle I property, we originated approximately $129,000 of property-level debt (with loan costs of $1,015 and restricted cash of $3,356), in addition to a joint venture partner contribution of $1,452. The remaining $83,423 was paid from available cash on hand. The $129,000 secured loan bears interest at 3.954% per annum and is due on November 7, 2022.


2.    Income statement adjustments

(AA)
Reflects our historical consolidated statement of operations for the nine-month period ended September 30, 2012 and for the year ended December 31, 2011.

(BB)
The pro forma adjustments reflect the financing of 901 Market Street and the line of credit draw for the nine months ended September 30, 2012 and for the year ended December 31, 2011 as if the borrowings occurred on January 1, 2011. We used current LIBOR rates plus the respective credit spreads on the 901 Market Street loan and on our unsecured revolving credit facility.

(CC)
The pro forma adjustments reflect the acquisition and related financing of Pinnacle I for the nine months ended September 30, 2012 and for the year ended December 31, 2011 as if the property was acquired and financed on January 1, 2011.

(DD)
Reflects the incremental impact on our pro forma results of operations for the nine months ended September 30, 2012 and the year ended December 31, 2011 to reflect the income allocation to unitholders in our operating partnership as a result of the proforma adjustments described in (BB) and (CC).

(EE)
Pro forma loss per share—basic and diluted is calculated by dividing pro forma consolidated net loss allocable to common stockholders by the number of weighted average shares of common stock outstanding for the nine-month period ended September 30, 2012 and for the year ended December 31, 2011.








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

 
 
 
 
 
 
HUDSON PACIFIC PROPERTIES, INC.
 
 
Date: January 17, 2013
By: 
/s/ Mark T. Lammas
 
 
 
Mark T. Lammas
 
 
 
Chief Financial Officer
 







Exhibit Index

Exhibit
No.
  
Description
23.1

*
Consent of Ernst & Young LLP.