Hudson Pacific Properties, Inc. (the “Company”) (NYSE: HPP) today announced it has entered into a joint venture with M. David Paul & Associates/Worthe Real Estate Group (“MDP/Worthe”) to acquire The Pinnacle, a two-building (Pinnacle I and Pinnacle II), 625,640 square foot, Class-A property located in the heart of the Burbank Media District. The MDP/Worthe entities will be contributing their existing ownership in The Pinnacle to the newly formed joint venture. “The Pinnacle will be extremely complimentary to our portfolio and will provide Hudson with an immediate foothold in one of the top media and entertainment submarkets in Los Angeles,” said Victor J. Coleman, Chairman and Chief Executive Officer of Hudson Pacific Properties, Inc. “The quality of the asset, its location and tenancy exemplifies the Company’s acquisition strategy to own and operate best-in-class office properties, with a strong media and entertainment tenancy. The joint venture enables us to preserve capital while establishing a strategic alliance with MDP/Worthe, the successful developer of The Pinnacle.” The acquisition of the 393,776 square foot Pinnacle I building by the joint venture closed on November 8, 2012 for a purchase price of $212.5 million, $129.0 million of which was financed with a new ten-year project loan. In connection with the acquisition of Pinnacle I, the Company contributed $83.9 million in exchange for approximately 98 percent of the joint venture (reflecting certain credits and adjustments among the partners). The Company funded its contribution to the joint venture with a combination of available cash on hand and a $38.0 million draw on its unsecured credit facility, leaving approximately $164.2 million of undrawn availability under its unsecured credit facility. MDP/Worthe currently owns 100 percent of the 231,864 square foot Pinnacle II building which it has agreed to contribute to the joint venture for a purchase price of $130.0 million by the end of the first quarter of 2013, subject to certain closing conditions, including the assumption of an existing approximately $89.6 million loan. Other than for purposes of funding closing costs or prorations, the Company will not be required to make a capital contribution in connection with the Pinnacle II contribution, but its ownership interest in Pinnacle I will be adjusted to reflect the contribution by MDP/Worthe of Pinnacle II to the joint venture.
Upon completion of the transaction, the joint venture will own both buildings for a combined purchase price of $342.5 million, subject to $218.6 million of project-level financing. The Company expects to own approximately 65 percent of the joint venture and will serve as its managing member. The Company will also assume day-to-day property management responsibilities, with Worthe Real Estate Group overseeing leasing, subject to the Company’s approval of final leases.The $129.0 million loan secured by Pinnacle I bears interest at a fixed annual rate of 3.954% per annum and will mature on November 7, 2022. Beginning with the November 6, 2017 payment date, monthly debt service will include principal amortization payments based on a 30-year amortization schedule. The approximately $89.6 million loan secured by Pinnacle II bears interest at a fixed annual rate of 6.31% per annum and will mature on September 30, 2016. Monthly debt service includes principal amortization payments based on a 30-year amortization schedule. Situated on a 4.3 acre campus, directly adjacent to Warner Bros. Studios and Burbank Studios and blocks away from Walt Disney Studios, The Pinnacle’s prime location has made it the premiere office building in the submarket. The property is currently 95% leased to some of the highest quality media and entertainment companies in southern California, including Warner Bros. Entertainment, NBC Universal, Sony and Clear Channel Communications. With few expiring leases over the next few years, and limited non-reoccurring capital improvements, The Pinnacle is expected to provide the Company with secure long-term cash flow. The Pinnacle’s renowned media tenancy has demonstrated a long-term commitment to the property, with the six largest tenants (approximately 94.0% of net rentable area) having been in occupancy since completion of the property. Pinnacle I is a multi-tenant building that is currently 91.7% leased, with leases from Warner Music Group and Clear Channel Communication comprising approximately 77.0% of the building. Pinnacle II is currently 100% leased to Warner Bros. Entertainment through December 2021, which includes the company’s film and television digital marketing group and the CW Network.
The Company expects that its joint venture with MDP/Worthe could serve as a long-term platform for the acquisition of additional Class-A office properties within the MDP/Worthe portfolio. The MDP/Worthe portfolio currently consists of interests in 21 properties totaling over 5.0 million square feet, with 3.0 million square feet of development rights and includes Burbank Studios, the only major independent studio in the San Fernando Valley.2012 Outlook In light of this transaction, the Company is revising its full-year 2012 FFO guidance from its previously announced range of $0.83 to 0.87 per diluted share (excluding specified items) to a revised range of $0.86 to $0.89 per diluted share (excluding specified items). This guidance reflects the acquisition of the ownership interest in the joint venture holding Pinnacle I and $38.0 million draw under its unsecured credit facility, but excludes acquisition-related expenses associated with the acquisition, which are estimated to be $0.5 million or $0.01 per diluted share. This guidance also reflects the Company’s FFO for the nine months ended September 30, 2012 of $0.68 per diluted share (excluding specified items). The full-year 2012 FFO estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this release, but otherwise exclude any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital market activity, or similar matters. About Hudson Pacific Properties Hudson Pacific Properties, Inc. is a full-service, vertically integrated real estate company focused on owning, operating and acquiring high-quality office properties and state-of-the-art media and entertainment properties in select growth markets primarily in Northern and Southern California. The Company's strategic investment program targets high barrier-to-entry, in-fill locations with favorable, long-term supply-demand characteristics in select target markets, including Los Angeles, Orange County, San Diego and San Francisco. The Company’s portfolio currently consists of approximately 5.5 million square feet, not including undeveloped land that the Company believes can support an additional 2.0 million square feet. The Company has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. Hudson Pacific Properties is a component of the Russell 2000® and the Russell 3000® indices. For additional information, please visit www.hudsonpacificproperties.com. Forward-Looking Statements This press release may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond the Company’s control, which may cause actual results to differ significantly from those expressed in any forward-looking statement. All forward-looking statements reflect the Company’s good faith beliefs, assumptions and expectations, but they are not guarantees of future performance. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the Company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 14, 2012, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.