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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 1)10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20152016
Commission File Number 001-34789

Hudson Pacific Properties, Inc.
Hudson Pacific Properties, L.P.
(Exact name of Registrantregistrant as specified in its charter)
Hudson Pacific Properties, Inc.

 
Maryland
(State or other jurisdiction of incorporation or organization)
 
27-1430478
(I.R.S. Employer Identification Number)
Hudson Pacific Properties, L.P.

 
Maryland
(State or other jurisdiction of incorporation or organization)
 
80-0579682
(I.R.S. Employer Identification Number)
     
11601 Wilshire Blvd., Ninth Floor, Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (310) 445-5700

Securities registered pursuant to Section 12(b) of the Act:
Registrant Title of Each Classeach class Name of Each Exchangeeach exchange on Which Registeredwhich registered
Hudson Pacific Properties, Inc. Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Classeach class Name of Each Exchangeeach exchange on Which Registeredwhich registered
Hudson Pacific Properties, L.P. Common Units Representing Limited Partnership Interests None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Hudson Pacific Properties, Inc.  Yes  x   No  o     Hudson Pacific Properties, L.P.   Yes  o   No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Hudson Pacific Properties, Inc.  Yes  o    No  x    Hudson Pacific Properties, L.P. Yes  xo   No  ox
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Hudson Pacific Properties, Inc.  Yes  x   No  o     Hudson Pacific Properties, L.P.  Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Hudson Pacific Properties, Inc.  Yes  x   No  o     Hudson Pacific Properties, L.P.   Yes  x   No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Hudson Pacific Properties, Inc.
Large accelerated filer x   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o

Hudson Pacific Properties, L.P.
Large accelerated filer o   Accelerated filer o   Non-accelerated filer x   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)
Hudson Pacific Properties, Inc.  Yes  o    No  x    Hudson Pacific Properties, L.P. Yes  o    No  x

As of June 30, 2015,2016, the aggregate market value of common stock held by non-affiliates of the registrant (assuming for these purposes, but without conceding, that all executive officers, directors and funds affiliated with Farallon Capital Management, LLC and The Blackstone Group L.P. are “affiliates” of the registrant) was $2.00$2.49 billion based upon the last sales price on June 30, 20152016 for the registrant’s Common Stock.

There is no public trading market for the common units of limited partnership interest of Hudson Pacific Properties, L.P. As a result, the aggregate market value of the common units of limited partnership interest held by non-affiliates of Hudson Pacific Properties, L.P. cannot be determined.

As of February 24, 2016, theThe number of shares of common stock of Hudson Pacific Properties, Inc. outstanding at February 10, 2017 was 89,920,148.146,275,476.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant’s 20162017 Annual Meeting of Stockholders to be held May 18, 201624, 2017 are incorporated by reference in Part III of this Annual Report on Form 10-K. The proxy statement will be filed by the registrant with the U.S.United States Securities and Exchange Commission, or the SEC, not later than 120 days after the end of the registrant’s fiscal year.

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EXPLANATORY NOTE

Due to a scrivener’s error,This report combines the Annual Reportannual reports on Form 10-K filedfor the year ended December 31, 2016 of Hudson Pacific Properties, Inc., a Maryland corporation, and Hudson Pacific Properties, L.P., a Maryland limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” or “our Company” refer to Hudson Pacific Properties, Inc. together with its consolidated subsidiaries, including Hudson Pacific Properties, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our operating partnership” or “the operating partnership” refer to Hudson Pacific Properties, L.P. together with its consolidated subsidiaries.

Hudson Pacific Properties, Inc. is a real estate investment trust, or REIT, and the sole general partner of our operating partnership. As of December 31, 2016, Hudson Pacific Properties, Inc. owned approximately 93.6% of the outstanding common units of partnership interest (including unvested restricted units) in our operating partnership, or common units. The remaining approximately 6.4% of outstanding common units at December 31, 2016 were owned by certain of our executive officers and directors, certain of their affiliates, and other outside investors, including funds affiliated with The Blackstone Group L.P. (“Blackstone”) and Farallon Capital Management, LLC (“Farallon Funds”). On January 10, 2017, Blackstone and Farallon Funds sold their ownership interests in the Company and the operating partnership following the completion of a common stock offering and a common unit repurchase. Immediately following this transaction, Hudson Pacific Properties, Inc. owned approximately 99.6% of the outstanding common units of partnership interest (including unvested restricted units) in our operating partnership, or common units. As the sole general partner of our operating partnership, Hudson Pacific Properties, Inc. has the full, exclusive and complete responsibility for our operating partnership’s day-to-day management and control.

We believe combining the annual reports on Form 10-K of Hudson Pacific Properties, Inc. and the operating partnership into this single report results in the following benefits:

enhancing investors’ understanding of our Company and our operating partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminating duplicative disclosure and providing a more streamlined and readable presentation because a substantial portion of the disclosure applies to both our Company and our operating partnership; and

creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

There are a few differences between our Company and our operating partnership, which are reflected in the disclosures in this report. We believe it is important to understand the differences between our Company and our operating partnership in the context of how we operate as an interrelated, consolidated company. Hudson Pacific Properties, Inc. is a REIT, the only material assets of which are the units of partnership interest in our operating partnership. As a result, Hudson Pacific Properties, Inc. does not conduct business itself, other than acting as the sole general partner of our operating partnership, issuing equity from time to time and guaranteeing certain debt of our operating partnership. Hudson Pacific Properties, Inc. itself does not issue any indebtedness but guarantees some of the debt of our operating partnership. Our operating partnership, which is structured as a partnership with no publicly traded equity, holds substantially all of the assets of our Company and conducts substantially all of our business. Except for net proceeds from equity issuances by Hudson Pacific Properties, L.P. withInc., which are generally contributed to our operating partnership in exchange for units of partnership interest in our operating partnership, our operating partnership generates the SEC on February 26, 2016 (the “Original Form 10-K”) included incorrect totalscapital required by our Company’s business through its operations, its incurrence of indebtedness or through the issuance of units of partnership interest in our operating partnership.

Non-controlling interest, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of our Company and those of our operating partnership. The common units in our operating partnership are accounted for the comprehensive (loss) income attributable to common unit holders within the Consolidated Statements of Comprehensive (Loss) Income for Hudson Pacific Properties, L.P. for all periods presented. This Amendment No. 1as partners’ capital in our operating partnership’s consolidated financial statements and, to the Original Form 10-K (the “Form 10-K/A”), containing an amended Part IV, Item 15(a) “Financial Statementextent not held by our Company, as a non-controlling interest in our Company’s consolidated financial statements. The differences between stockholders’ equity, partners’ capital and Schedules,” is being filed solely fornon-controlling interest result from the purpose of correcting such scrivener’s error.differences in the equity issued by our Company and our operating partnership.

This Form 10-K/A is asTo help investors understand the significant differences between our Company and our operating partnership, this report presents the consolidated financial statements separately for our Company and our operating partnership. All other sections of the filing datethis report, including “Selected Financial Data,” “Management’s Discussion and Analysis of the Original Form 10-KFinancial Condition and should be read in conjunction with the Original Form 10-KResults of Operations” and Hudson Pacific Properties, L.P.’s other filings made with the SEC subsequent to the filing of the Original Form 10-K. This Form 10-K/A does not reflect any subsequent information or events“Quantitative and no other information included in the Original Form 10-K has been modified or updated in any way, except as described above.

Table of ContentsQualitative Disclosures About Market Risk,” are presented together for our Company and our operating partnership.




In order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that our Company and our operating partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, or the Exchange Act and 18 U.S.C. §1350, this report also includes separate Part II, Item 9A “Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of Hudson Pacific Properties, Inc. and our operating partnership.

HUDSON PACIFIC PROPERTIES, INC.
HUDSON PACIFIC PROPERTIES, L.P.
 
ANNUAL REPORT ON FORM 10-K
 
TABLE OF CONTENTS
   Page
PART I
Item 1.��
Business
5
Item 1A.
Risk Factors
10
Item 1B.
Unresolved Staff Comments
27
Item 2.
Properties
27
Item 3.
Legal Proceedings
36
Item 4.
Mine Safety Disclosures
36
PART II
Item 5.
Market for Hudson Pacific Properties, Inc.’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
37

Market for Hudson Pacific Properties, L.P.’s Common Capital, Related Unitholder Matters and Issuer Purchases of Units
39

Item 6.
Selected Financial Data
42
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
68
Item 8.
Financial Statements and Supplementary Data
69
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
69
Item 9A.
Controls and Procedures
69
Item 9B.
Other Information
71
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
72
Item 11.
Executive Compensation
72
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
72
Item 13.
Certain Relationships and Related Transactions, and Director Independence
72
Item 14.
Principal Accountant Fees and Services
72
PART IV
Item 15. 
Exhibits, and Financial Statement Schedules
472
                       SIGNATURES
678



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PART IV

I
Item 15.    Exhibits and Financial Statement Schedules1. Business

(a)(1) and (2) Financial Statements and Schedules
The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:
FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, INC.
Report of Management on Internal Control Over Financial Reporting
F- 1
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
F- 2
Report of Independent Registered Public Accounting Firm
F- 3
Consolidated Balance Sheets as of December 31, 2015 and 2014
F- 4
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014, and 2013
F- 5
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, and 2013
F- 6
Consolidated Statements of Equity for the Years Ended December 31, 2015, 2014, and 2013
F- 7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
F- 9
FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, L.P.
Report of Independent Registered Public Accounting Firm
F- 11
Consolidated Balance Sheets as of December 31, 2015 and 2014
F- 12
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014, and 2013
F- 13
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, and 2013
F- 14
Consolidated Statements of Capital for the Years Ended December 31, 2015, 2014, and 2013
F- 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013
F- 16
Notes to Consolidated Financial Statements
F- 18
Schedule III - Real Estate and Accumulated Depreciation
F- 53
Schedule IV - Mortgage Loan on Real Estate
F- 56
All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.Company Overview

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(3)  Exhibits
Exhibit NumberDescription
23.1
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.
31.3
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, L.P.
31.4
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Hudson Pacific Properties, L.P.
32.1
Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.
32.2
Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, L.P.
101
The following financial information from Hudson Pacific Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statement of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements *
*Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934 , as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

PursuantWe are a vertically integrated real estate company focused on acquiring, repositioning, developing and operating high-quality office and state-of-the-art media and entertainment properties in high-growth, high-barrier-to-entry submarkets throughout Northern and Southern California and the Pacific Northwest. We invest across the risk-return spectrum, favoring opportunities where we can employ leasing, capital investment expertise to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Hudson Pacific Properties, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HUDSON PACIFIC PROPERTIES, INC.
December 23, 2016
/s/ VICTOR J. COLEMAN
VICTOR J. COLEMAN
Chief Executive Officer (principal executive officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/S/    VICTOR J. COLEMAN        
Chief Executive Officer, President and
Chairman of the Board of Directors (Principal Executive Officer)
December 23, 2016
Victor J. Coleman
/S/    MARK T. LAMMAS    
Chief Operating Officer, Chief Financial Officer and Treasurer (Principal
Financial Officer)
December 23, 2016
Mark T. Lammas
/S/HAROUT K. DIRAMERIAN  
Chief Accounting Officer (Principal Accounting Officer)December 23, 2016
Harout K. Diramerian
*DirectorDecember 23, 2016
Theodore R. Antenucci
*DirectorDecember 23, 2016
Frank Cohen
*DirectorDecember 23, 2016
Richard B. Fried
*DirectorDecember 23, 2016
Jonathan M. Glaser
*DirectorDecember 23, 2016
Robert L. Harris II
*DirectorDecember 23, 2016
Mark D. Linehan
*DirectorDecember 23, 2016
Robert M. Moran, Jr.
*DirectorDecember 23, 2016
Michael Nash
*DirectorDecember 23, 2016
Barry A. Porter
*By:
/S/    MARK T. LAMMAS 
                                  Attorney-in-Fact

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Hudson Pacific Properties, L.P. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HUDSON PACIFIC PROPERTIES, L.P.
December 23, 2016
/s/ VICTOR J. COLEMAN
VICTOR J. COLEMAN
Chief Executive Officer (principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/S/    VICTOR J. COLEMAN        
Chief Executive Officer, President and
Chairman of the Board of Directors (Principal Executive Officer)
December 23, 2016
Victor J. Coleman
/S/    MARK T. LAMMAS    
Chief Operating Officer and Chief Financial Officer and Treasurer (Principal
Financial Officer)
December 23, 2016
Mark T. Lammas
/S/    HAROUT K. DIRAMERIAN  Chief Accounting Officer (Principal Accounting Officer)December 23, 2016
Harout K. Diramerian
*DirectorDecember 23, 2016
Theodore R. Antenucci
*DirectorDecember 23, 2016
Frank Cohen
*DirectorDecember 23, 2016
Richard B. Fried
*DirectorDecember 23, 2016
Jonathan M. Glaser
*DirectorDecember 23, 2016
Robert L. Harris II
*DirectorDecember 23, 2016
Mark D. Linehan
*DirectorDecember 23, 2016
Robert M. Moran, Jr.
*DirectorDecember 23, 2016
Michael Nash
*DirectorDecember 23, 2016
Barry A. Porter
*By:/S/    MARK T. LAMMAS    
                                  Attorney-in-Fact

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Report of Management on Internal Control over Financial Reporting


The management of Hudson Pacific Properties, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Our system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external reporting purposes in accordance with United States generally accepted accounting principles. Our management, including the undersigned Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting ascreate additional value. As of December 31, 2015. In conducting its assessment, management used the criteria issued by the Committee2016, our portfolio included office properties, comprising an aggregate of Sponsoring Organizationsapproximately 14.1 million square feet, and media and entertainment properties, comprising approximately 0.9 million square feet of the Treadway Commission on Internal Control—Integrated Framework (2013 Framework). Based on this assessment, management concluded that, assound-stage, office and supporting production facilities. We also own undeveloped density rights for approximately 2.5 million square feet of December 31, 2015, our internal control over financial reporting was effective based on those criteria.future office and residential space.

Management, includingWe were formed as a Maryland corporation in 2009 to succeed to the business of Hudson Capital, LLC, a Los Angeles-based real estate investment firm founded by Victor J. Coleman, our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

The effectiveness of our internal control over financial reporting as of December 31, 2015, has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this annual report, as stated in their report appearing on page F-2, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2015.

/S/    VICTOR J. COLEMAN        
Victor J. Coleman
Chief Executive Officer, President and
Chairman of the Board of Directors

/S/    MARK T. LAMMAS    
Mark T. Lammas
Chief Operating Officer, Chief Financial Officer and Treasurer


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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting


To the Board of Directors and Stockholders of
Hudson Pacific Properties, Inc.


We have audited Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Hudson Pacific Properties, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatOfficer. On June 29, 2010, we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Hudson Pacific Properties, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Hudson Pacific Properties, Inc. as of December 31, 2015 and2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period endedDecember 31, 2015, and our report dated February 26, 2016 expressed an unqualified opinion thereon.


/s/    ERNST & YOUNG LLP

Irvine, California
February 26, 2016







F- 2
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Report of Independent Registered Public Accounting Firm

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


We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, Inc. (the “Company”), as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hudson Pacific Properties, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method for reporting discontinued operations effective January 1, 2014.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 26, 2016 expressed an unqualified opinion thereon.


/s/    ERNST & YOUNG LLP

Irvine, California
February 26, 2016



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HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 December 31,
2015		 December 31,
2014
ASSETS   
REAL ESTATE ASSETS   
Land$1,283,751
 $620,805
Building and improvements3,964,630
 1,284,602
Tenant improvements293,131
 116,317
Furniture and fixtures9,586
 13,721
Property under development218,438
 135,850
Total real estate held for investment5,769,536
 2,171,295
Accumulated depreciation and amortization(269,074) (134,657)
Investment in real estate, net5,500,462
 2,036,638
Cash and cash equivalents53,551
 17,753
Restricted cash18,010
 14,244
Accounts receivable, net21,159
 16,247
Notes receivable28,684
 28,268
Straight-line rent receivables59,636
 33,006
Deferred leasing costs and lease intangible assets, net318,031
 102,023
Interest rate contracts2,061
 3
Goodwill8,754
 8,754
Prepaid expenses and other assets27,292
 10,039
Assets associated with real estate held for sale216,395
 68,165
TOTAL ASSETS$6,254,035
 $2,335,140
LIABILITIES AND EQUITY   
Notes payable, net$2,260,716
 $912,683
Accounts payable and accrued liabilities84,048
 36,844
Lease intangible liabilities, net95,208
 40,969
Security deposits21,302
 6,257
Prepaid rent38,245
 8,600
Interest rate contracts2,010
 1,750
Liabilities associated with real estate held for sale13,292
 42,845
TOTAL LIABILITIES2,514,821
 1,049,948
6.25% series A cumulative redeemable preferred units of the Operating Partnership10,177
 10,177
EQUITY   
Hudson Pacific Properties, Inc. stockholders’ equity:   
Preferred stock, $0.01 par value, 10,000,000 authorized; 8.375% series B cumulative redeemable preferred stock, $25.00 per unit liquidation preference, no outstanding shares at December 31, 2015, 5,800,000 shares outstanding at December 31, 2014.—
 145,000
Common stock, $0.01 par value, 490,000,000 authorized, 89,153,780 shares and 66,797,816 shares outstanding at December 31, 2015 and 2014, respectively.891
 668
Additional paid-in capital1,710,979
 1,070,833
Accumulated other comprehensive deficit(1,081) (2,443)
Accumulated deficit(44,955) (34,884)
Total Hudson Pacific Properties, Inc. stockholders’ equity1,665,834
 1,179,174
Non-controlling interest—members in Consolidated Entities262,625
 42,990
Non-controlling common units in the Operating Partnership1,800,578
 52,851
TOTAL EQUITY3,729,037
 1,275,015
TOTAL LIABILITIES AND EQUITY$6,254,035
 $2,335,140


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HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
 Year Ended December 31,
 2015 2014 2013
Revenues     
Office     
Rental$394,543
 $156,806
 $124,839
Tenant recoveries66,235
 34,509
 25,870
Parking and other20,940
 22,471
 14,732
Total office revenues481,718
 213,786
 165,441
Media & Entertainment     
Rental23,027
 22,138
 23,003
Tenant recoveries943
 1,128
 1,807
Other property-related revenue14,849
 15,751
 15,072
Other313
 612
 235
Total Media & Entertainment revenues39,132
 39,629
 40,117
Total revenues520,850
 253,415
 205,558
Operating expenses     
Office operating expenses166,131
 78,372
 63,434
Media & Entertainment operating expenses23,726
 25,897
 24,149
General and administrative38,534
 28,253
 19,952
Depreciation and amortization245,071
 72,216
 70,063
Total operating expenses473,462
 204,738
 177,598
Income from operations47,388
 48,677
 27,960
Other expense (income)     
Interest expense50,667
 25,932
 25,470
Interest income(124) (30) (272)
Acquisition-related expenses43,336
 4,641
 1,446
Other expense (income)62
 (14) (99)
Total other expenses93,941
 30,529
 26,545
(Loss) income from continuing operations before gain on sale of real estate(46,553) 18,148
 1,415
Gain on sale of real estate30,471
 5,538
 —
(Loss) income from continuing operations(16,082) 23,686
 1,415
(Loss) income from discontinued operations—
 (164) 1,571
Impairment loss from discontinued operations—
 —
 (5,580)
Net (loss) income from discontinued operations—
 (164) (4,009)
Net (loss) income$(16,082) $23,522
 $(2,594)
Net income attributable to preferred stock and units(12,105) (12,785) (12,893)
Original issuance costs of redeemed Series B preferred stock (note 9)(5,970) —
 —
Net income attributable to restricted shares(356) (274) (300)
Net (income) loss attributable to non-controlling interest in consolidated entities(3,853) (149) 321
Net loss (income) attributable to common units in the Operating Partnership21,969
 (359) 633
Net (loss) income attributable to Hudson Pacific Properties, Inc. common stockholders$(16,397) $9,955
 $(14,833)
Basic and diluted per share amounts:     
Net (loss) income from continuing operations attributable to common stockholders$(0.19) $0.15
 $(0.20)
Net (loss) income from discontinued operations—
 —
 (0.07)
Net (loss) income attributable to common stockholders’ per share—basic$(0.19) $0.15
 $(0.27)
Net (loss) income attributable to common stockholders’ per share—diluted(0.19) 0.15
 (0.27)
Weighted average shares of common stock outstanding—basic85,927,216
 65,792,447
 55,182,647
Weighted average shares of common stock outstanding—diluted85,927,216
 66,509,447
 55,182,647

The accompanying notes are an integral part of these consolidated financial statements.
F- 5

Table of Contents





HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)

 Year Ended December 31,
 2015 2014 2013
Net (loss) income$(16,082) $23,522
 $(2,594)
Other comprehensive income (loss): cash flow hedge adjustment2,597
 (1,499) 303
Comprehensive (loss) income(13,485) 22,023
 (2,291)
Comprehensive income attributable to preferred stock and units(12,105) (12,785) (12,893)
Comprehensive income attributable to redemption of series B preferred stock (note 9)(5,970) —
 —
Comprehensive income attributable to restricted shares(356) (274) (300)
Comprehensive (income) loss attributable to non-controlling interest in consolidated real estate entities(3,853) (149) 321
Comprehensive (income) loss attributable to common units in the Operating Partnership20,734
 (306) 620
Comprehensive (loss) income attributable to Hudson Pacific Properties, Inc. common stockholders$(15,035) $8,509
 $(14,543)

The accompanying notes are an integral part of these consolidated financial statements.
F- 6

HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)


 Hudson Pacific Properties, Inc. Stockholders’ Equity   
 
Common
Shares
Stock
Amount
Series B Cumulative Redeemable Preferred Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Deficit)
Income
Non-
controlling
Interests —
Common units
in the
Operating
Partnership
Non-controlling Interest —
 Members in Consolidated Entities
Total Equity
Balance, January 1, 201347,496,732
$475
$145,000
$726,605
$(30,580)$(1,287)$55,549
$1,460
$897,222
Contributions—
—
—
—
—
—
—
45,704
45,704
Distributions—
—
—
—
—
—
—
(1,160)(1,160)
Proceeds from sale of common stock, net of underwriters’ discount9,812,644
98
—
202,444
—
—
—
—
202,542
Common stock issuance transaction costs—
—
—
(577)—
—
—
—
(577)
Issuance of unrestricted stock5,756
—
—
—
—
—
—
—
—
Issuance of restricted stock44,219
—
—
—
—
—
—
—
—
Forfeiture of restricted stock(3,415)—
—
—
—
—
—
—
—
Shares repurchased(125,737)(1)—
(2,755)—
—
—
—
(2,756)
Declared Dividend—
—
(12,144)(28,415)—
—
(1,192)—
(41,751)
Amortization of stock-based compensation—
—
—
6,682
—
—
—
—
6,682
Net income (loss)—
—
12,144
—
(14,533)—
(633)(321)(3,343)
Cash Flow Hedge Adjustment—
—
—
—
—
290
13
—
303
Balance, December 31, 201357,230,199
$572
$145,000
$903,984
$(45,113)$(997)$53,737
$45,683
$1,102,866
Distributions—
—
—
—
—
—
—
(2,842)(2,842)
Proceeds from sale of common stock, net of underwriters’ discount9,563,500
96
—
197,372
—
—
—
—
197,468
Common stock issuance transaction costs—
—
—
(1,599)—
—
—
—
(1,599)
Issuance of unrestricted stock6,922
—
—
—
—
—
—
—
—
Shares repurchased(2,805)—
—
(3,129)—
—
—
—
(3,129)
Declared Dividend—
—
(12,144)(33,774)—
—
(1,192)—
(47,110)
Amortization of stock-based compensation—
—
—
7,979
—
—
—
—
7,979
Net income (loss)—
—
12,144
—
10,229
—
359
149
22,881
Cash Flow Hedge Adjustment—
—
—
—
—
(1,446)(53)—
(1,499)
Balance, December 31, 201466,797,816
$668
$145,000
$1,070,833
$(34,884)$(2,443)$52,851
$42,990
$1,275,015
Contributions—
—
—
—
—
—
—
217,795
217,795
Distributions—
—
—
—
—
—
—
(2,013)(2,013)
Proceeds from sale of common stock, net of underwriters’ discount12,650,000
127
—
385,462
—
—
—
—
385,589
Common stock issuance transaction costs—
—
—
(4,969)—
—
—
—
(4,969)
Redemption of Series B Preferred Stock—
—
(145,000)—
—
—
—
—
(145,000)

The accompanying notes are an integral part of these consolidated financial statements.
F- 7

Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY—(Continued)
(in thousands, except share and per share amounts)

 Hudson Pacific Properties, Inc. Stockholders’ Equity   
 
Common
Shares
Stock
Amount
Series B Cumulative Redeemable Preferred Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Deficit)
Income
Non-
controlling
Interests —
Common units
in the
Operating
Partnership
Non-controlling Interest —
 Members in Consolidated Entities
Total Equity
Issuance of common units for acquisition properties—
—
—
—
—
—
1,814,936
—
1,814,936
Issuance of unrestricted stock8,820,482
87
—
285,358
—
—
—
—
285,445
Issuance of restricted stock36,223
—
—
—
—
—
—
—
—
Shares repurchased(85,469)—
—
(5,128)—
—
—
—
(5,128)
Declared Dividend—
—
(11,469)(50,244)—
—
(25,631)—
(87,344)
Amortization of stock-based compensation—
—
—
8,832
—
—
—
—
8,832
Net income (loss)—
—
11,469
—
(10,071)—
(21,969)3,853
(16,718)
Cash Flow Hedge Adjustment—
—
—
—
—
1,362
1,235
—
2,597
Exchange of Non-controlling Interests — Common units in the Operating Partnership for common stock934,728
9
—
20,835
—
—
(20,844)—
—
Balance, December 31, 201589,153,780
$891
$—
$1,710,979
$(44,955)$(1,081)$1,800,578
$262,625
$3,729,037

The accompanying notes are an integral part of these consolidated financial statements.
F- 8

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HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,
 2015 2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES     
Net (loss) income$(16,082) $23,522
 $(2,594)
Adjustments to reconcile net loss to net cash provided by operating activities:     
Depreciation and amortization245,071
 72,216
 70,852
Amortization of deferred financing costs and loan premium, net4,746
 949
 486
Amortization of stock based compensation8,421
 7,559
 6,454
Straight-line rent receivables(29,392) (13,362) (10,383)
Amortization of above-market leases12,534
 2,026
 2,542
Amortization of below-market leases(34,607) (7,661) (8,570)
Amortization of lease incentive costs581
 425
 36
Bad debt expense170
 (97) 959
Amortization of ground lease intangible2,050
 248
 247
Amortization of discount and net origination fees on purchased and originated loans(416) (156) —
(Gain) loss on real estate(30,471) (5,538) 5,580
Change in operating assets and liabilities:     
Restricted cash(927) (333) 807
Accounts receivable(5,734) (7,375) 3,557
Lease intangibles(28,980) (12,266) (24,213)
Prepaid expenses and other assets(17,032) (1,602) (803)
Accounts payable and accrued liabilities18,342
 3,114
 957
Security deposits15,351
 485
 (500)
Prepaid rent31,231
 1,014
 (3,867)
Net cash provided by operating activities$174,856
 $63,168
 $41,547
CASH FLOWS FROM INVESTING ACTIVITIES     
Additions to investment property$(170,590) $(123,298) $(87,153)
Property acquisitions(1,804,597) (113,580) (389,883)
Acquisition of Notes receivable—
 (28,112) —
Proceeds from sale of real estate177,488
 18,629
 52,994
Net cash used in investing activities$(1,797,699) $(246,361) $(424,042)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from notes payable$2,234,687
 $448,972
 $444,927
Payments of notes payable(913,694) (417,508) (202,122)
Proceeds from issuance of common stock385,589
 197,468
 202,542
Redemption of Series B preferred stock(145,000) —
 —
Common stock issuance transaction costs(4,969) (1,599) (577)
Dividends paid to common stock and unit holders(75,875) (34,966) (29,607)
Dividends paid to preferred stock and unit holders(12,071) (12,785) (12,893)
Contributions by members217,795
 —
 —
Redemption of 6.25% series A cumulative redeemable preferred units—
 (298) (2,000)
Distribution to non-controlling member in consolidated real estate entity(2,013) (2,842) (1,160)
Repurchase of vested restricted stock(5,128) (3,129) (2,756)
Payments of loan costs(20,680) (2,723) (2,407)
Net cash provided by financing activities$1,658,641
 $170,590
 $393,947
Net increase (decrease) in cash and cash equivalents35,798
 (12,603) 11,452
Cash and cash equivalents —  beginning of period
$17,753
 $30,356
 $18,904
Cash and cash equivalents-end of period$53,551
 $17,753
 $30,356

The accompanying notes are an integral part of these consolidated financial statements.
F- 9

Table of Contents





HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(in thousands)


 Year Ended December 31,
 2015 2014 2013
Supplemental disclosure of cash flow information     
Cash paid for interest, net of amounts capitalized$50,208
 $32,107
 $28,894
NON-CASH INVESTING AND FINANCING ACTIVITIES:     
Accounts payable and accrued liabilities for investment in property$(27,972) $(4,720) $(2,554)
Issuance of Common stock in connection with property acquisition (note 3)$87
 $—
 $—
Additional paid-in capital in connection with property acquisition (note 3)$285,358
 $—
 $—
Assumption of secured debt in connection with property acquisitions$—
 $—
 $102,299
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 3)$—
 $(449) $(2,423)
Non-controlling common units in the Operating Partnership in connection with property acquisition$1,814,936
 $—
 $—
Non-controlling interest in consolidated real estate entity$—
 $—
 $45,704


The accompanying notes are an integral part of these consolidated financial statements.
F- 10

Table of Contents






Report of Independent Registered Public Accounting Firm

The Partners of Hudson Pacific Properties, L.P.

We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, L.P. (the “Operating Partnership”), as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Operating Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Operating Partnership at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Operating Partnership changed its method for reporting discontinued operations effective January 1, 2014.


/s/    ERNST & YOUNG LLP

Irvine, California
February 26, 2016



The accompanying notes are an integral part of these consolidated financial statements.
F- 11

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HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per unit data)
 December 31,
2015		 December 31,
2014
ASSETS   
REAL ESTATE ASSETS   
Land$1,283,751
 $620,805
Building and improvements3,964,630
 1,284,602
Tenant improvements293,131
 116,317
Furniture and fixtures9,586
 13,721
Property under development218,438
 135,850
Total real estate held for investment5,769,536
 2,171,295
Accumulated depreciation and amortization(269,074) (134,657)
Investment in real estate, net5,500,462
 2,036,638
Cash and cash equivalents53,551
 17,753
Restricted cash18,010
 14,244
Accounts receivable, net21,159
 16,247
Notes receivable28,684
 28,268
Straight-line rent receivables59,636
 33,006
Deferred leasing costs and lease intangible assets, net318,031
 102,023
Interest rate contracts2,061
 3
Goodwill8,754
 8,754
Prepaid expenses and other assets27,292
 10,039
Assets associated with real estate held for sale216,395
 68,165
TOTAL ASSETS$6,254,035
 $2,335,140
Liabilities   
Notes payable$2,260,716
 $912,683
Accounts payable and accrued liabilities84,048
 36,844
Deferred leasing costs and lease intangible liabilities95,208
 40,969
Security deposits21,302
 6,257
Prepaid rent38,245
 8,600
Interest rate collar liability2,010
 1,750
Obligations associated with real estate held for sale13,292
 42,845
TOTAL LIABILITIES2,514,821
 1,049,948
6.25% series A cumulative redeemable preferred units of the Operating Partnership10,177
 10,177
Capital   
Partners' Capital:   
8.375% series B cumulative redeemable preferred stock, $25.00 per unit liquidation preference, no outstanding shares at December 31, 2015, 5,800,000 shares outstanding at December 31, 2014.—
 145,000
Common units, 145,450,095 and 69,180,379 issued and outstanding at December 31, 2015 and 2014, respectively3,466,412
 1,087,025
Total Hudson Pacific Properties, L.P. Capital3,466,412
 1,232,025
Non-controlling interest—members in Consolidated Entities262,625
 42,990
TOTAL CAPITAL3,729,037
 1,275,015
TOTAL LIABILITIES AND CAPITAL$6,254,035
 $2,335,140


The accompanying notes are an integral part of these consolidated financial statements.
F- 12

Table of Contents





HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit and per unit amounts)
 Year Ended December 31,
 2015 2014 2013
Revenues     
Office     
Rental$394,543
 $156,806
 $124,839
Tenant recoveries66,235
 34,509
 25,870
Parking and other20,940
 22,471
 14,732
Total office revenues481,718
 213,786
 165,441
Media & Entertainment     
Rental23,027
 22,138
 23,003
Tenant recoveries943
 1,128
 1,807
Other property-related revenue14,849
 15,751
 15,072
Other313
 612
 235
Total Media & Entertainment revenues39,132
 39,629
 40,117
Total revenues520,850
 253,415
 205,558
Operating expenses     
Office operating expenses166,131
 78,372
 63,434
Media & Entertainment operating expenses23,726
 25,897
 24,149
General and administrative38,534
 28,253
 19,952
Depreciation and amortization245,071
 72,216
 70,063
Total operating expenses473,462
 204,738
 177,598
Income from operations47,388
 48,677
 27,960
Other expense (income)     
Interest expense50,667
 25,932
 25,470
Interest income(124) (30) (272)
Acquisition-related expenses43,336
 4,641
 1,446
Other expense (income)62
 (14) (99)
 93,941
 30,529
 26,545
(Loss) income from continuing operations before gain on sale of real estate(46,553) 18,148
 1,415
Gain on sale of real estate30,471
 5,538
 —
(Loss) income from continuing operations(16,082) 23,686
 1,415
(Loss) income from discontinued operations—
 (164) 1,571
Impairment loss from discontinued operations—
 —
 (5,580)
Net (loss) income from discontinued operations—
 (164) (4,009)
Net (loss) income$(16,082) $23,522
 $(2,594)
Net loss (income) attributable to non-controlling interest in consolidated entities(3,853) (149) 321
Net (loss) income attributable to Hudson Pacific Properties, L.P.$(19,935) $23,373
 $(2,273)
Preferred distributions—Series A units(636) (641) (749)
Preferred distributions—Series B units(11,469) (12,144) (12,144)
Original issuance costs of redeemed Series B preferred units (note 9)(5,970) —
 —
Total preferred distributions$(18,075) $(12,785) $(12,893)
Net income attributable to restricted shares$(356) $(274) $(300)
Net (loss) income available to common unitholders$(38,366) $10,314
 $(15,466)
Basic and diluted per unit amounts:     
Net (loss) income from continuing operations attributable to common unitholders$(0.30) $0.15
 $(0.20)
Net income (loss) from discontinued operations—
 —
 (0.07)
Net (loss) income attributable to common unitholders per unit—basic and diluted$(0.30) $0.15
 $(0.27)
Net (loss) income attributable to common unitholders per unit—diluted$(0.30) 0.15
 (0.27)
Weighted average shares of common units outstanding—basic and diluted128,948,077
 68,175,010
 57,565,210
Weighted average shares of common units outstanding—diluted128,948,077
 68,721,339
 57,565,210

The accompanying notes are an integral part of these consolidated financial statements.
F- 13

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HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)

 Year Ended December 31,
 2015 2014 2013
Net (loss) income$(16,082) $23,522
 $(2,594)
Other comprehensive income (loss): cash flow hedge adjustment2,597
 (1,499) 303
Comprehensive (loss) income(13,485) 22,023
 (2,291)
Comprehensive income attributable to Series A preferred units(636) (641) (749)
Comprehensive income attributable to Series B preferred units(11,469) (12,144) (12,144)
Comprehensive income attributable to original issuance costs related to redeemed Series B preferred units (note 9)(5,970) —
 —
Comprehensive income attributable to restricted shares(356) (274) (300)
Comprehensive (income) loss attributable to non-controlling interest in consolidated real estate entities(3,853) (149) 321
Comprehensive (loss) income attributable to common unit holders(35,769) 8,815
 (15,163)


The accompanying notes are an integral part of these consolidated financial statements.
F- 14

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)

 
Partners’ Capital
   
 Preferred UnitsNumber of Common UnitsCommon UnitsTotal Partners' Capital
Non-controlling Interest —
 Members in Consolidated Entities
Total Capital
Balance, January 1, 2013145,000
49,879,295
750,762
895,762
1,460
897,222
Contributions—
—
—
—
45,704
45,704
Distributions—
—
—
—
(1,160)(1,160)
Proceeds from sale of common units, net of underwriters’ discount—
9,812,644
202,542
202,542
—
202,542
Common unit issuance transaction costs—
—
(577)(577)—
(577)
Issuance of unrestricted units—
5,756
—
—
—
—
Issuance of restricted units—
44,219
—
—
—
—
Forfeiture of restricted units—
(3,415)—
—
—
—
Units repurchased—
(125,737)(2,756)(2,756)—
(2,756)
Declared Distributions(12,144)—
(29,607)(41,751)—
(41,751)
Amortization of unit based compensation—
—
6,682
6,682
—
6,682
Net income (loss)12,144
—
(15,166)(3,022)(321)(3,343)
Cash Flow Hedge Adjustment—
—
303
303
—
303
Balance at December 31, 2013145,000
59,612,762
912,183
1,057,183
45,683
1,102,866
Distributions—
—
—
—
(2,842)(2,842)
Proceeds from sale of common units, net of underwriters’ discount—
9,563,500
197,468
197,468
—
197,468
Equity offering transaction costs—
—
(1,599)(1,599)—
(1,599)
Issuance of unrestricted units—
6,922
—
—
—
—
Units repurchased—
(2,805)(3,129)(3,129)—
(3,129)
Declared distributions(12,144)—
(34,966)(47,110)—
(47,110)
Amortization of unit based compensation—
—
7,979
7,979
—
7,979
Net income12,144
—
10,588
22,732
149
22,881
Cash flow hedge adjustment—
—
(1,499)(1,499)—
(1,499)
Balance, December 31, 2014145,000
69,180,379
1,087,025
1,232,025
42,990
1,275,015
Contributions—
—
—
—
217,795
217,795
Distributions—
—
—
—
(2,013)(2,013)
Proceeds from sale of common units, net of underwriters’ discount—
12,650,000
385,589
385,589
—
385,589
Equity offering transaction costs—
—
(4,969)(4,969)—
(4,969)
Issuance of unrestricted units—
63,668,962
2,100,381
2,100,381
—
2,100,381
Issuance of restricted units—
36,223
—
—
—
—
Units repurchased—
(85,469)(5,128)(5,128)—
(5,128)
Declared distributions(11,469)—
(75,875)(87,344)—
(87,344)
Amortization of unit based compensation—
—
8,832
8,832
—
8,832
Net income11,469
—
(32,040)(20,571)3,853
(16,718)
Cash Flow Hedge Adjustment—
—
2,597
2,597
—
2,597
Redemption of Series B Preferred Stock(145,000)—
—
(145,000)—
(145,000)
Balance, December 31, 2015—
145,450,095
3,466,412
3,466,412
262,625
3,729,037


The accompanying notes are an integral part of these consolidated financial statements.
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HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,
 2015 2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES     
Net (loss) income$(16,082) $23,522
 $(2,594)
Adjustments to reconcile net loss to net cash provided by operating activities:     
Depreciation and amortization245,071
 72,216
 70,852
Amortization of deferred financing costs and loan premium, net4,746
 949
 486
Amortization of stock based compensation8,421
 7,559
 6,454
Straight-line rent receivables(29,392) (13,362) (10,383)
Amortization of above-market leases12,534
 2,026
 2,542
Amortization of below-market leases(34,607) (7,661) (8,570)
Amortization of lease incentive costs581
 425
 36
Bad debt expense170
 (97) 959
Amortization of ground lease2,050
 248
 247
Amortization of discount and net origination fees on purchased and originated loans(416) (156) —
(Gain) loss from sale of real estate(30,471) (5,538) 5,580
Change in operating assets and liabilities:     
Restricted cash(927) (333) 807
Accounts receivable(5,734) (7,375) 3,557
Lease intangibles(28,980) (12,266) (24,213)
Prepaid expenses and other assets(17,032) (1,602) (803)
Accounts payable and accrued liabilities18,342
 3,114
 957
Security deposits15,351
 485
 (500)
Prepaid rent31,231
 1,014
 (3,867)
Net cash provided by operating activities$174,856
 $63,168
 $41,547
CASH FLOWS FROM INVESTING ACTIVITIES     
Additions to investment property$(170,590) $(123,298) $(87,153)
Property acquisitions(1,804,597) (113,580) (389,883)
Acquisition of notes receivable—
 (28,112) —
Proceeds from sale of real estate177,488
 18,629
 52,994
Net cash used in investing activities$(1,797,699) $(246,361) $(424,042)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from notes payable$2,234,687
 $448,972
 $444,927
Payments of notes payable(913,694) (417,508) (202,122)
Proceeds from issuance of common stock385,589
 197,468
 202,542
Redemption of Series B preferred stock(145,000) —
 —
Common stock issuance transaction costs(4,969) (1,599) (577)
Dividends paid to common stock and unitholders(75,875) (34,966) (29,607)
Dividends paid to preferred stock and unitholders(12,071) (12,785) (12,893)
Contributions by members217,795
 —
 —
Redemption of 6.25% series A cumulative redeemable preferred units—
 (298) (2,000)
Distribution to member in consolidated real estate entity(2,013) (2,842) (1,160)
Treasury stock repurchase(5,128) (3,129) (2,756)
Payments of loan costs(20,680) (2,723) (2,407)
Net cash provided by financing activities$1,658,641
 $170,590
 $393,947
Net increase (decrease) in cash and cash equivalents35,798
 (12,603) 11,452
Cash and cash equivalents — beginning of period$17,753
 $30,356
 $18,904
Cash and cash equivalents — end of period$53,551
 $17,753
 $30,356







The accompanying notes are an integral part of these consolidated financial statements.
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HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(in thousands)


 Year Ended December 31,
 2015 2014 2013
Supplemental disclosure of cash flow information     
Cash paid for interest, net of amounts capitalized$50,208
 $32,107
 $28,894
NON-CASH INVESTING AND FINANCING ACTIVITIES:     
Accounts payable and accrued liabilities for investment in property$(27,972) $(4,720) $(2,554)
Assumption of secured debt in connection with property acquisitions (note 3)$—
 $—
 $102,299
Assumption of other (assets) and liabilities in connection with property acquisitions, net (note 3)$—
 $(449) $(2,423)
Common units in the Operating Partnership in connection with property acquisition (note 3)$2,100,381
 $—
 $—
Non-controlling interest in consolidated real estate entity$—
 $—
 $45,704


The accompanying notes are an integral part of these consolidated financial statements.
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Hudson Pacific Properties, Inc. And Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements
(In thousands, except square footage and share data or as otherwise noted)

1. Organization

Hudson Pacific Properties, Inc. (which is referred to in these financial statements as the “Company,” “we,” “us,” or “our”) is a Maryland corporation formed on November 9, 2009 that did not have any meaningful operating activity until the consummation ofcompleted our initial public offering and the related acquisition(“IPO”). We own our interests in all of our predecessorproperties and certain other entities on June 29, 2010 (“IPO”).conduct substantially all of our business through our operating partnership, of which we serve as the sole general partner.
Business and Growth Strategies

Since the completion of the IPO, the concurrent private placement, and the related formation transactions, we have been a fully integrated, self-administered, and self-managed real estate investment trust (“REIT”). Through our controlling interestWe invest in Hudson Pacific Properties, L.P. (“our operating partnership” or the “Operating Partnership” and is also referred to in these financial statements as the “Company,” “we,” “us,” or “our”) and its subsidiaries, we own, manage, lease, acquire and develop real estate, consisting primarily ofClass-A office and media and entertainment properties located in high barrier-to-entry, innovation-centric submarkets with significant growth potential. Our positioning within these submarkets allows us to attract and retain quality, growth companies as tenants, many in the technology, media and entertainment sectors. The purchase of properties with a value-add component, typically through off-market transactions, also facilitates our growth. These types of assets afford us the opportunity to capture embedded rent growth and occupancy upside, and to strategically invest capital to reposition and redevelop assets to generate additional cash flow. We take a more measured approach to ground-up development, with most under construction, planned or potential projects located on ancillary sites part of existing operating assets. Management expertise across disciplines supports execution at all levels of the company’s operations. In particular, aggressive leasing and proactive asset management, combined with a focus on conservatively managing our balance sheet, are central to our strategy. 

Our Competitive Position

We believe the following competitive strengths distinguish us from other real estate owners and operators and will enable us to capitalize on opportunities in the market to successfully expand and operate our portfolio.
Experienced Management Team with a Proven Track Record of Acquiring and Operating Assets and Managing a Public Office REIT. Our senior management team has an average of over 25 years of experience in the commercial real estate industry, with a focus on acquiring, repositioning, developing and operating office properties in Northern and Southern California and the Pacific Northwest.

Committed and Incentivized Management Team. Our senior management team is dedicated to our successful operation and growth, with no competing real estate business interests outside of our Company. Additionally, as of December 31, 2016, our senior management team owned approximately 1.4% of our common stock on a fully diluted basis, thereby aligning management’s interests with those of our stockholders.

Northern and Southern California and the Pacific Northwest Focus with Local and Regional Expertise. We are primarily focused on acquiring and managing office properties in Northern and Southern California and the Pacific Northwest, where our senior management has significant expertise and relationships. Our markets are supply-constrained as a result of the scarcity of available land, high construction costs and restrictive entitlement processes. We believe our experience, in-depth market knowledge and meaningful industry relationships with brokers, tenants, landlords, lenders and other market participants enhance our ability to identify and capitalize on attractive acquisition opportunities, particularly those that arise in Northern and Southern California and the Pacific Northwest.

Long-Standing Relationships that Provide Access to an Extensive Pipeline of Investment and Leasing Opportunities. We have an extensive network of long-standing relationships with real estate developers, individual and institutional real estate owners, national and regional lenders, brokers, tenants and other

participants in the Northern and Southern California and Pacific Northwest real estate markets. These relationships have historically provided us with access to attractive acquisition opportunities, including opportunities with limited or no prior marketing by sellers. We believe they will continue to provide us access to an ongoing pipeline of attractive acquisition opportunities and additional growth capital, both of which may not be available to our competitors. Additionally, we focus on establishing strong relationships with our tenants in order to understand their long-term business needs, which we believe enhances our ability to retain quality tenants, facilitates our leasing efforts and maximizes cash flows from our properties.

Growth-Oriented, Flexible and Conservative Capital Structure. We have remained well-capitalized since our IPO, including through 11 offerings (including two public offerings of 8.375% Series B Cumulative Preferred Stock, eight public offerings of our common stock and one private placement of our common stock) and continuous offering under our at-the-market, or ATM, program for aggregate total proceeds of approximately $2.77 billion (before underwriters’ discounts and transaction costs) as of December 31, 2016. Available cash on hand and our unsecured credit facility provide us with a significant amount of capital to pursue acquisitions and execute our growth strategy, while maintaining a flexible and conservative capital structure. As of December 31, 2016, we had total borrowing capacity of approximately $400.0 million under our unsecured revolving credit facility, $300.0 million of which had been drawn. Based on the closing price of our common stock of $34.78 on December 31, 2016, we had a debt-to-market capitalization ratio (counting Series A preferred units in our operating partnership, or Series A preferred units, as debt) of approximately 34.5%. We believe our access to capital and flexible and conservative capital structure provide us with an advantage over many of our private and public competitors as we look to take advantage of growth opportunities.

We have access to and are actively pursuing a pipeline of potential acquisitions consistent with our investment strategy. We believe our significant expertise in operating in the Northern and Southern California and Pacific Northwest office sectors and extensive, long-term relationships with real estate owners, developers and lenders, coupled with our conservative capital structure and access to capital, will allow us to capitalize on current market opportunities.

On April 1, 2015, the Companywe completed the acquisition of the EOP Northern California Portfolio (“EOP(the “EOP Acquisition”) from Blackstone Real Estate Partners V and VI (“Blackstone”).certain affiliates of Blackstone. The EOP Acquisition consisted of 26 high-quality office assets totaling approximately 8.2 million square feet and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto, Silicon Valley and North San Jose submarkets. The total consideration paid for the EOP Acquisition, before certain credits, proration,prorations and closing costs, included a cash payment of $1.75 billion and an aggregate of 63,474,791 shares of common stock of the CompanyHudson Pacific Properties, Inc. and common units in our operating partnership. Following a common stock offering and common unit repurchase on January 10, 2017, Blackstone no longer holds an ownership interest in the Operating Partnership.  See Note 3, “InvestmentCompany or the operating partnership.

Competition

We compete with a number of developers, owners and operators of office and commercial real estate, many of which own properties similar to ours in Real Estate”the same markets in which our properties are located and some of which have greater financial resources than we do. In operating and managing our portfolio, we compete for tenants based on a number of factors, including location, rental rates, security, flexibility and expertise to design space to meet prospective tenants’ needs and the manner in which our properties are operated, maintained and marketed. As leases at our properties expire, we may encounter significant competition to renew or re-let space in light of competing properties within the markets in which we operate. As a result, we may be required to provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination rights or below-market renewal options, or we may not be able to timely lease vacant space. In that case, our financial condition, results of operations and cash flows may be adversely affected.

We also face competition when pursuing acquisition and disposition opportunities. Our competitors may be able to pay higher property acquisition prices, may have private access to acquisition opportunities not available to us and may otherwise be in a better position to acquire a property. Competition may also increase the price required to consummate an acquisition opportunity and generally reduce the demand for commercial office space in our markets. Likewise, competition with sellers of similar properties to locate suitable purchasers may result in us receiving lower proceeds from a sale or in us not being able to dispose of a property at a time of our choosing due to the lack of an acceptable return.

For further discussion of the potential impact of competitive conditions on our business, see Item 1A “Risk Factors.”

Segment and Geographic Financial Information

We report our results of operations through two segments: (i) office properties and (ii) media and entertainment properties. As of December 31, 2016, the office properties reporting segment included 54 properties totaling approximately 14.1 million square feet strategically located in many of our target markets, while the media and entertainment reporting segment included two properties, the Sunset Gower Studios property and the Sunset Bronson Studios property, totaling approximately 0.9 million square feet located in the heart of Hollywood, California.

All of our business is conducted in Northern and Southern California and the Pacific Northwest. For information about our revenues and other financial information, see our consolidated financial statements included in this report and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

Employees
At December 31, 2016, we had 257 employees. At December 31, 2016, two of our employees were subject to collective bargaining agreements. Both of these employees are on-site at the Sunset Bronson Studios property. We believe that relations with our employees are good.

Principal Executive Offices

Our principal executive offices are located at 11601 Wilshire Blvd., Ninth Floor, Los Angeles, California 90025 and our telephone number is (310) 445-5700. We believe that our current facilities are adequate for our present operations.

Regulation

General

Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that each of the properties in our portfolio has the necessary permits and approvals to operate its business.

Americans with Disabilities Act

Our properties must comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We have developed and undertaken continuous capital improvement programs at certain properties in the past. These capital improvement programs will continue to progress and certain ADA upgrades will continue to be integrated into the planned improvements, specifically at the media and entertainment properties where we are able to utilize in-house construction crews to minimize costs for required ADA-related improvements. However, some of our properties may currently be in noncompliance with the ADA. Such noncompliance could result in the incurrence of additional details.costs to attain compliance, the imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.

Environmental Matters

Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under, or migrating from such property, including costs to investigate and clean up such contamination and liability for natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines, or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.

Some of our properties contain, have contained, or are adjacent to or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. Similarly, some of our properties were used in the past for commercial or industrial purposes, or are currently used for commercial purposes, that involve or involved the use of petroleum products or other hazardous or toxic substances, or are adjacent to or near properties that have been or are used for similar commercial or industrial purposes. As a result, some of our properties have been or may be impacted by contamination arising from the release of such hazardous substances or petroleum products. Where we have deemed appropriate, we have taken steps to address identified contamination or mitigate risks associated with such contamination; however, we are unable to ensure that further actions will not be necessary. As a result of the foregoing, we could potentially incur material liabilities.

Independent environmental consultants have conducted Phase I Environmental Site Assessments at all of the properties in our portfolio using the American Society for Testing and Materials (ASTM) Practice E 1527-05. A Phase I Environmental Site Assessment is a report prepared for real estate holdings that identifies potential or existing environmental contamination liabilities. Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. These assessments do not generally include soil samplings, subsurface investigations or asbestos or lead surveys. None of the recent site assessments identified any known past or present contamination that we believe would have a material adverse effect on our business, assets or operations. However, the assessments are limited in scope and may have failed to identify all environmental conditions or concerns. A prior owner or operator of a property or historic operations at our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability.

Environmental laws also govern the presence, maintenance and removal of asbestos-containing building materials, or ACBM, or lead-based paint, or LBP, and may impose fines and penalties for failure to comply with these requirements or expose us to third party liability (e.g., liability for personal injury associated with exposure to asbestos). Such laws require that owners or operators of buildings containing ACBM and LBP (and employers in such buildings) properly manage and maintain the asbestos and lead, adequately notify or train those who may come into contact with asbestos or lead, and undertake special precautions, including removal or other abatement, if asbestos or lead would be disturbed during renovation or demolition of a building. Some of our properties contain ACBM and/or LBP and we could be liable for such damages, fines or penalties.

In addition, the properties in our portfolio also are subject to various federal, state, and local environmental and health and safety requirements, such as state and local fire requirements. Moreover, some of our tenants routinely handle and use hazardous or regulated substances and waste as part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make rental payments to us. In addition, changes in laws could increase the potential liability for noncompliance. We sometimes require our tenants to comply with environmental and health and safety laws and regulations and to indemnify us for any related liabilities. But in the event of the bankruptcy or inability of any of our tenants to satisfy such obligations, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims regardless of whether we knew of, or were responsible for, the presence or disposal of hazardous or toxic substances or waste and irrespective of tenant lease provisions. The costs associated with such liability could be substantial and could have a material adverse effect on us.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties.

Corporate Sustainability and Giving

We are committed to high performance sustainable operations. All of our office properties are benchmarked in the U.S. Environmental Protection Agency’s ENERGY STAR Portfolio Manager, with 53% of the portfolio achieving an ENERGY

STAR certification, and all developments are or will be Leadership in Energy & Environmental Design (LEED) certified. We are keenly focused on developing and operating innovative, energy and water efficient world class properties that also incorporate robust recycling and green cleaning best practices. In keeping with our continuous process improvement approach, we have completed a Sustainability Assessment and are in the process of evaluating a Sustainability Strategic Plan to ensure the appropriate evolution of sustainability execution, with a focus on ways to drive positive financial and environmental outcomes for shareholders, tenants, employees and the communities in which we invest.

We are also committed to corporate social responsibility as part of our culture and value proposition to stakeholders. We uphold the highest business ethics, are committed to best-in-class standards for the health and safety for our employees, tenants and service provider partners, and have a robust community-giving program. Specifically, we support and encourage our employees’ contributions to charitable organizations. To assist employees’ charitable giving and augment the impact of their charitable dollars, we created the Hudson Pacific Properties Charitable Program. This program encourages employees to contribute to qualifying charitable organizations by matching donations and providing additional paid time off for volunteerism and providing donations to qualifying nonprofit organizations to which our employees volunteer.

Available Information
On the Investor Relations page on our Company’s Website at investors.hudsonpacificproperties.com we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings are available to be viewed on our Investor Relations page on our Website free of charge. Also available on our Investor Relations page on our Website, free of charge, are our corporate governance guidelines, the charters of the nominating and corporate governance, audit and compensation committees of our board of directors and our code of business conduct and ethics (which applies to all directors and employees, including our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer). Information contained on or hyperlinked from our Website is not incorporated by reference into, and should not be considered part of, this Annual Report on Form 10-K or our other filings with the SEC. A copy of this Annual Report on Form 10-K is available without charge upon written request to: Investor Relations, Hudson Pacific Properties, Inc., 11601 Wilshire Blvd., Ninth Floor, Los Angeles, California 90025.


Item 1A. Risk Factors

Forward-looking Statements

Certain written and oral statements made or incorporated by reference from time to time by us or our representatives in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K, 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 or maintain an investment grade rating;

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 and completing acquisitions;

our failure to successfully operate acquired properties and operations;

our failure to maintain our status as a REIT;

environmental uncertainties and risks related to adverse weather conditions and natural disasters;

financial market 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 real estate and zoning laws and increases in real property tax rates; and

other factors affecting the real estate industry generally.

Set forth below are some (but not all) of the 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.

Risks Related to Our Properties and Our Business

Our properties are located in Northern and Southern California and the Pacific Northwest, and we are susceptible to adverse economic conditions, local regulations and natural disasters affecting those markets.

Our properties are located in Northern and Southern California and the Pacific Northwest, which exposes us to greater economic risks than if we owned a more geographically dispersed portfolio. Further, our properties are concentrated in certain areas, including Los Angeles, San Francisco, Silicon Valley and Seattle, exposing us to risks associated with those specific areas. We are susceptible to adverse developments in the economic and regulatory environments of Northern and Southern California and the Pacific Northwest (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation), as well as to natural disasters that occur in our markets (such as earthquakes, wind, landslides, droughts, fires and other events). In addition, the State of California has had historical periods of budgetary constraints and is regarded as more litigious and more highly regulated and taxed than many other states, all of which may reduce demand for office space in California. Any adverse developments in the economy or real estate market in Northern and Southern California or the Pacific Northwest, or any decrease in demand for office space resulting from the California regulatory or business environment, could adversely impact our financial condition, results of operations, cash flow and the per share trading price of our securities.

We derive a significant portion of our rental revenue from tenants in the technology and media and entertainment industries, which makes us particularly susceptible to demand for rental space in those industries.

A significant portion of our rental revenue is derived from tenants in the technology and media and entertainment industries. Consequently, we are susceptible to adverse developments affecting the demand by tenants in these industries for office, production and support space in Northern and Southern California and the Pacific Northwest and, more particularly, in Hollywood and the South of Market submarket of San Francisco. As we continue our development and potential acquisition activities in markets populated by knowledge-and creative-based tenants in the technology and media and entertainment industries, our tenant mix could become more concentrated, further exposing us to risks in those industries. Any adverse development in the technology and media and entertainment industries could adversely affect our financial condition, results of operations, cash flow and the per share trading price of our securities.

We may be unable to identify and complete acquisitions of properties that meet our criteria, which may impede our growth.

Our business strategy includes the acquisition of underperforming office properties. These activities require us to identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategies. We continue to evaluate the market of available properties and may attempt to acquire properties when strategic opportunities exist. However, we may be unable to acquire any of the properties that we may identify as potential acquisition opportunities in the future. Our ability to acquire properties on favorable terms, or at all, may be exposed to the following significant risks:

potential inability to acquire a desired property because of competition from other real estate investors with significant capital, including publicly traded REITs, private equity investors and institutional investment funds, which may be able to accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments and the payment of higher acquisition prices;

we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete;

even if we enter into agreements for the acquisition of properties, these agreements are typically subject to customary conditions to closing, including the satisfactory completion of our due diligence investigations; and

we may be unable to finance the acquisition on favorable terms or at all.

If we are unable to finance property acquisitions or acquire properties on favorable terms, or at all, our financial condition, results of operations, cash flow and the per share trading price of our securities could be adversely affected. In addition, failure to identify or complete acquisitions of suitable properties could slow our growth.

Our future acquisitions may not yield the returns we expect.

Our future acquisitions and our ability to successfully operate the properties we acquire in such acquisitions may be exposed to the following significant risks:

even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;

we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;

our cash flow may be insufficient to meet our required principal and interest payments;

we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result our results of operations and financial condition could be adversely affected;

market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

If we cannot operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow and the per share trading price of our securities could be adversely affected.

We may acquire properties or portfolios of properties through tax deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.

In the future we may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for partnership interests in our operating partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.

In order to maintain our qualification as a REIT, we are required to meet various requirements under the Internal Revenue Code of 1986, as amended, or the Code, including that we distribute annually at least 90% of our net taxable income, excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we

distribute less than 100% of our net taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely on third-party sources to fund our capital needs. We may not be able to obtain the financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:

general market conditions;

the market’s perception of our growth potential;

our current debt levels;

our current and expected future earnings;

our cash flow and cash distributions; and

the market price per share of our common stock.

The credit markets can experience significant disruptions. If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.

Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of
operations, cash flow, cash available for distribution, including cash available for payment of dividends on and the per share trading price of our securities.

If interest rates increase, then so will the interest costs on our unhedged variable rate debt, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our stockholders. Further, rising interest rates could limit our ability to refinance existing debt when it matures. We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate changes. Failure to hedge effectively against interest rate changes may materially adversely affect our financial condition, results of operations, cash flow, cash available for distribution, including cash available for payment of dividends on and the per share trading price of our securities. In addition, while such agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging.

Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.

Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties. For tax purposes, a foreclosure of any of our properties that is subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds.

Our unsecured revolving credit facility, term loan facility and note purchase agreement restrict our ability to engage in some business activities.

Our unsecured revolving credit facility, term loan facility and note purchase agreement contain customary negative covenants and other financial and operating covenants that, among other things:

restrict our ability to incur additional indebtedness;


restrict our ability to make certain investments;

restrict our ability to merge with another company;

restrict our ability to make distributions to stockholders; and

require us to maintain financial coverage ratios.

These limitations restrict our ability to engage in some business activities, which could adversely affect our financial condition, results of operations, cash flow, cash available for distributions to our stockholders, and per share trading price of our securities. In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us. Furthermore, our unsecured revolving credit facility and term loan facility 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.

Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse effect on our financial condition, results of operations, cash flow and per share trading price of our securities.

Volatility in the United States and international capital markets and concern over a return to recessionary conditions in global economies, and the California economy in particular, may adversely affect our financial condition, results of operations, cash flow and the per share trading price of our securities as a result of the following potential consequences, among others:

significant job losses in the financial and professional services industries may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;

our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense;

reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and

one or more lenders under our unsecured revolving credit facility could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.

We have a limited operating history with respect to some of our properties and may not be able to operate them successfully.

Our 11601 Wilshire, Hill7 and Page Mill Hill properties have only been under our management since they were acquired in 2016. These properties may have characteristics or deficiencies unknown to us that could affect such properties’ valuation or revenue potential. In addition, there can be no assurance that the operating performance of such properties will not decline under our management. We cannot assure you that we will be able to operate these properties successfully.

We face significant competition, which may decrease or prevent increases in the occupancy and rental rates of our properties.

We compete with numerous developers, owners and operators of office properties, many of which own properties similar to ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, results of operations, cash flow and the per share trading price of our securities could be adversely affected.


We depend on significant tenants, and several of our properties are single-tenant properties or are currently occupied by single tenants.

As of December 31, 2016, the 15 largest tenants in our office portfolio represented approximately 34.0%
of the total annualized base rent generated by our office properties. The inability of a significant tenant to pay rent or the bankruptcy or insolvency of a significant tenant may adversely affect the income produced by our properties. If a tenant becomes bankrupt or insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease with us. Any claim against such tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. As of December 31, 2016, our two largest tenants were Google, Inc. and Uber Technologies, Inc., which together accounted for 7.2% of the annualized base rent generated by our office properties. If Google, Inc. and Uber Technologies, Inc. were to experience a downturn or a weakening of financial condition resulting in a failure to make timely rental payments or causing a lease default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment. Any such event described above could have an adverse effect on our financial condition, results of operations, cash flow and the per share trading price of our securities.
We may be unable to renew leases, lease vacant space or re-let space as leases expire.

As of December 31, 2016, approximately 11.2% of the square footage of the office properties in our portfolio was available (taking into account uncommenced leases signed as of December 31, 2016), and an additional approximately 11.3% of the square footage of the office properties in our portfolio is scheduled to expire in 2017 (including leases scheduled to expire as of, but including, December 31, 2016). Furthermore, substantially all of the square footage of the media and entertainment properties in our portfolio (other than KTLA and Netflix leases at Sunset Bronson Studios) are typically short-term leases of one year or less. We cannot assure you that leases will be renewed or that our properties will be re-let at net effective rental rates equal to or above the current average net effective rental rates or that substantial rent abatements, tenant improvements, early termination rights or below-market renewal options will not be offered to attract new tenants or retain existing tenants. If the rental rates for our properties decrease, our existing tenants do not renew their leases or we do not re-let a significant portion of our available space and space for which leases will expire, our financial condition, results of operations, cash flow and per share trading price of our securities could be adversely affected.

We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, causing our financial condition, results of operations, cash flow and per share trading price of our securities to be adversely affected.

To the extent adverse economic conditions continue in the real estate market and demand for office space remains low, we expect that, upon expiration of leases at our properties, we will be required to make rent or other concessions to tenants, accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants in sufficient numbers. Additionally, we may need to raise capital to make such expenditures. If we are unable to do so or capital is otherwise unavailable, we may be unable to make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases, which could cause an adverse effect to our financial condition, results of operations, cash flow and the per share trading price of our securities.

The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience lease roll-down from time to time.

As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the Northern or Southern California or the Pacific Northwest real estate markets, a general economic downturn and the desirability of our properties compared to other properties in our submarkets, we may be unable to realize the asking rents across the properties in our portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain rental rates that are on average comparable to our asking rents across our portfolio, then our ability to generate cash flow growth will be negatively impacted. In addition, depending on asking rental rates at any given time as compared to expiring leases in our portfolio, from time to time rental rates for expiring leases may be higher than starting rental rates for new leases.


Some of our properties are subject to ground leases, the termination or expiration of which could cause us to lose our interest in, and the right to receive rental income from, such properties.

Thirteen of our properties are subject to ground leases (including properties with a portion of the land subject to a ground lease). See Part IV, Item 15(a) “Financial Statement and Schedules—Note 7 to the Consolidated Financial Statements—Future Minimum Base Rents and Lease Payments Future Minimum Rents” for more information regarding our ground lease agreements. If any of these ground leases are terminated following a default or expire without being extended, we may lose our interest in the related property and may no longer have the right to receive any of the rental income from such property, which would adversely affect our financial condition, results of operations, cash flow and the per share trading price of our securities.

The ground sublease for the Del Amo Office property is subject and subordinate to a ground lease, the termination of which could result in a termination of the ground sublease.

The property on which the Del Amo Office building is located is subleased by Del Amo Fashion Center Operating Company, L.L.C., or Del Amo, through a long-term ground sublease. The ground sublease is subject and subordinate to the terms of a ground lease between the fee owner of the Del Amo Office property and the sub-landlord under the ground sublease. The fee owner has not granted to the subtenant under the ground sublease any rights of non-disturbance. Accordingly, a termination of the ground lease for any reason, including a rejection thereof by the ground tenant under the ground lease in a bankruptcy proceeding, could result in a termination of the ground sublease. In the event of a termination of the ground sublease, we may lose our interest in the Del Amo Office building and may no longer have the right to receive any of the rental income from the Del Amo Office building. In addition, our lack of any non-disturbance rights from the fee owner may impair our ability to obtain financing for the Del Amo Office building.

Our success depends on key personnel whose continued service is not guaranteed.

Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key personnel who have extensive market knowledge and relationships and exercise substantial influence over our operational, financing, acquisition and disposition activity. Many of our other senior executives have extensive experience and strong reputations in the real estate industry, which aid us in identifying opportunities, having opportunities brought to us, and negotiating with tenants and build-to-suit prospects. The loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could adversely affect our financial condition, results of operations, cash flow and the per share trading price of our securities.

Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance.

We carry commercial property (including earthquake), liability and terrorism coverage on all the properties in our portfolio (most are covered under a blanket insurance policy while a few are under individual policies), in addition to other coverages, such as trademark and pollution coverage, that may be appropriate for certain of our properties. We have selected policy specifications and insured limits that we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. However, we do not carry insurance for losses such as loss from riots or war because such coverage is not available or is not available at commercially reasonable rates. Some of our policies, like those covering losses due to terrorism or earthquakes, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses, which could affect certain of our properties that are located in areas particularly susceptible to natural disasters. All of the properties we currently own are located in Northern and Southern California and the Pacific Northwest, areas especially susceptible to earthquakes. In addition, we may discontinue earthquake, terrorism or other insurance on some or all of our properties in the future if the cost of premiums for any such policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. As a result, we may be required to incur significant costs in the event of adverse weather conditions and natural disasters. If we or one or more of our tenants experiences a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costs in the future as the costs associated with property and casualty renewals may be higher than anticipated. In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications. Further reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements.


Future terrorist activity or engagement in war by the United States may have an adverse effect on our financial condition and operating results.

Terrorist attacks in the United States and other acts of terrorism or war may result in declining economic activity, which could harm the demand for and the value of our properties. A decrease in demand could make it difficult for us to renew or re-lease our properties at these sites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our properties through damage, destruction, or loss, and the availability of insurance for these acts may be less, and cost more, which could adversely affect our financial condition. To the extent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.

Terrorist attacks and engagement in war by the United States also may adversely affect the markets in which our securities trade and may cause further erosion of business and consumer confidence and spending and may result in increased volatility in national and international financial markets and economies. Any one of these events may cause decline in the demand for our office and media and entertainment leased space, delay the time in which our new or renovated properties reach stabilized occupancy, increase our operating expenses, such as those attributable to increased physical security for our properties, and limit our access to capital or increase our cost of raising capital.

We may become subject to litigation, which could have an adverse effect on our financial condition, results of operations, cash flow and the per share trading price of our securities.

In the future we may become subject to litigation, including claims relating to our operations, offerings, and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to vigorously defend ourselves; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our securities. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers.

On November 8, 2012, we entered into a joint venture with M. David Paul & Associates/Worthe Real Estate Group, or MDP/Worthe, to acquire The Pinnacle, a two-building (Pinnacle I and Pinnacle II), 625,640 square-foot office property located in Burbank, California. On January 7, 2015, we entered into a joint venture with the Canada Pension Plan Investment Board (“CPPIB”), through which CPPIB purchased a 45% interest in our 1455 Market Street office property. On October 7, 2016, we entered into another joint venture with CPPIB to acquire the Hill7 property, a 285,680 square-foot office property located in Seattle, Washington. In addition to our joint ventures with MDP/Worthe and CPPIB, we may co-invest in the future with other third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. These investments may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives, and they may have competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. In addition, prior consent of our joint venture partners may be required for a sale or transfer to a third party of our interests in the joint venture, which would restrict our ability to dispose of our interest in the joint venture. If we become a limited partner or non-managing member in any partnership or limited liability company and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. Our joint ventures may be subject to debt and, in the current volatile credit market, the refinancing of such debt may require equity capital calls.


If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal controls we may discover material weaknesses or significant deficiencies in our internal controls. As a result of weaknesses that may be identified in our internal controls, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe require remediation. If we discover weaknesses, we will make efforts to improve our internal and disclosure controls. However, there is no assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the NYSE. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the per share trading price of our securities.

Risks Related to the Real Estate Industry

Our performance and value are subject to risks associated with real estate assets and the real estate industry.

Our ability to pay expected dividends to our stockholders depends on our ability to generate revenues in excess of expenses, pay scheduled principal payments on debt and pay capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties. These events include many of the risks set forth above under “—Risks Related to Our Properties and Our Business,” as well as the following:

local oversupply or reduction in demand for office or media and entertainment-related space;

adverse changes in financial conditions of buyers, sellers and tenants of properties;

vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options, and the need to periodically repair, renovate and re-let space;

increased operating costs, including insurance premiums, utilities, real estate taxes and state and local taxes;

civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes and floods, which may result in uninsured or underinsured losses;

decreases in the underlying value of our real estate; and

changing submarket demographics.

In addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flow and per share trading price of our securities.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

The real estate investments made, and to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, our ability to dispose of one or more properties within a specific time period is subject to certain limitations imposed by our tax protection agreements, as well as weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, such as the current economic downturn, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest.

Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable terms, which may adversely affect our financial condition, results of operations, cash flow and per share trading price of our securities.

We could incur significant costs related to government regulation and litigation over environmental matters.

Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean up such contamination and liability for harm to natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Some of our properties have been or may be impacted by contamination arising from current or prior uses of the property, or adjacent properties, for commercial or industrial purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials. As a result, we could potentially incur material liability for these issues, which could adversely impact our financial condition, results of operations, cash flow and the per share trading price of our securities.

Environmental laws also govern the presence, maintenance and removal of ACBM and LBP and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos or lead). Such laws require that owners or operators of buildings containing ACBM and LBP (and employers in such buildings) properly manage and maintain the asbestos and lead, adequately notify or train those who may come into contact with asbestos or lead, and undertake special precautions, including removal or other abatement, if asbestos or lead would be disturbed during renovation or demolition of a building. Some of our properties contain ACBM and/or LBP and we could be liable for such damages, fines or penalties.
In addition, the properties in our portfolio also are subject to various federal, state and local environmental and health and safety requirements, such as state and local fire requirements. Moreover, some of our tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make rental payments to us. In addition, changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have an adverse effect on us.

We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our stockholders or that such costs or other remedial measures will not have an adverse effect on our financial condition, results of operations, cash flow and the per share trading price of our securities. If we do incur material environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any affected properties.

Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants

above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury is alleged to have occurred.

We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are applicable to our properties.

The properties in our portfolio are subject to various covenants and federal, state and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from local officials of community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs. Our growth strategy may be affected by our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief or to comply with applicable laws could have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our securities.

In addition, federal and state laws and regulations, including laws such as the ADA, impose further restrictions on our properties and operations. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with the ADA. If one or more of the properties in our portfolio is not in compliance with the ADA or any other regulatory requirements, we may be required to incur additional costs to bring the property into compliance and we might incur governmental fines or the award of damages to private litigants. In addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flow and per share trading price of our securities.

We are exposed to risks associated with property development.
We may engage in development and redevelopment activities with respect to certain of our properties. To the extent that we do so, we will be subject to certain risks, including the availability and pricing of financing on favorable terms or at all; construction and/or lease-up delays; cost overruns, including construction costs that exceed our original estimates; contractor and subcontractor disputes, strikes, labor disputes or supply disruptions; failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all; and delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, land use and other governmental permits, and changes in zoning and land use laws. These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our securities.

Risks Related to Our Organizational Structure

The Series A preferred units that were issued to some contributors in connection with our IPO in exchange for the contribution of their properties have certain preferences, which could limit our ability to pay dividends or other distributions to the holders of our securities or engage in certain business combinations, recapitalizations or other fundamental changes.

In exchange for the contribution of properties to our portfolio in connection with our IPO, some contributors received Series A preferred units in our operating partnership, which units have an aggregate liquidation preference of approximately $10.2 million and have a preference as to distributions and upon liquidation that could limit our ability to pay dividends on common stock. The Series A preferred units are senior to any other class of securities our operating partnership may issue in the future without the consent of the holders of the Series A preferred units. As a result, we will be unable to issue partnership units in our operating partnership senior to the Series A preferred units without the consent of the holders of Series A preferred units. Any preferred stock in our Company that we issue will be subordinate to the Series A preferred units. In addition, we may only engage in a fundamental change, including a recapitalization, a merger and a sale of all or substantially all of our assets, as a result of which our common stock ceases to be publicly traded or common units cease to be exchangeable (at our option) for

publicly traded shares of our stock, without the consent of holders of Series A preferred units if following such transaction we will maintain certain leverage ratios and equity requirements, and pay certain minimum tax distributions to holders of our outstanding Series A preferred units. Alternatively, we may redeem all or any portion of the then outstanding Series A preferred units for cash (at a price per unit equal to the redemption price). In addition, these provisions could increase the cost of any such fundamental change transaction, which may discourage a merger, combination or change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests.

Conflicts of interest exist or could arise in the future between the interests of our stockholders and the interests of holders of units in our operating partnership, which may impede business decisions that could benefit our stockholders.

Conflicts of interest exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any partner thereof, on the other. Our directors and officers have duties to our Company under applicable Maryland law in connection with their management of our Company. At the same time, we, as the general partner of our operating partnership, have fiduciary duties and obligations to our operating partnership and its limited partners under Maryland law and the partnership agreement of our operating partnership in connection with the management of our operating partnership. Our fiduciary duties and obligations as general partner to our operating partnership and its partners may come into conflict with the duties of our directors and officers to our Company.

Additionally, the partnership agreement provides that we and our directors and officers will not be liable or accountable to our operating partnership for losses sustained, liabilities incurred or benefits not derived if we, or such director or officer acted in good faith. The partnership agreement also provides that we will not be liable to the operating partnership or any partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by the operating partnership or any limited partner, except for liability for our intentional harm or gross negligence. Moreover, the partnership agreement provides that our operating partnership is required to indemnify us and our directors, officers and employees, officers and employees of the operating partnership and our designees from and against any and all claims that relate to the operations of our operating partnership, except (i) if the act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) for any transaction for which the indemnified party received an improper personal benefit, in money, property or services or otherwise, in violation or breach of any provision of the partnership agreement or (iii) in the case of a criminal proceeding, if the indemnified person had reasonable cause to believe that the act or omission was unlawful. No reported decision of a Maryland appellate court has interpreted provisions similar to the provisions of the partnership agreement of our operating partnership that modify and reduce our fiduciary duties or obligations as the general partner or reduce or eliminate our liability for money damages to the operating partnership and its partners, and we have not obtained an opinion of counsel as to the enforceability of the provisions set forth in the partnership agreement that purport to modify or reduce the fiduciary duties that would be in effect were it not for the partnership agreement.

Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay, defer or prevent a change of control transaction, even if such a change in control may be in your interest, and as a result may depress the market price of our securities.

Our charter contains certain ownership limits. 54Our charter contains various provisions that are intended to preserve our qualification as a REIT and, subject to certain exceptions, authorize our directors to take such actions as are necessary or appropriate to preserve our qualification as a REIT. For example, our charter prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock, and more than 9.8% in value of the aggregate outstanding shares of all classes and series of our stock. Our board of directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. The restrictions on ownership and transfer of our stock may:

discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or

result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval. Our board of directors has the power under our charter to amend our charter to increase the aggregate number ofshares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorizeus to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassifyany

unissued shares of our common stock or preferred stock into one or more classes or series of stock and setthe terms of such newly classified or reclassified shares. Although our board of directors has no such intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our securities or that our stockholders otherwise believe to be in their best interest.
Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that our stockholders otherwise believe to be in their best interest. Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could be in the best interest of our stockholders, including:

“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within the two-year period immediately prior to the date in question) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose fair price and/or supermajority and stockholder voting requirements on these combinations; and

“control share” provisions that provide that “control shares” of our Company (defined as shares that, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the MGCL, we have elected, by resolution of our board of directors, to exempt from the business combination provisions of the MGCL, any business combination that is first approved by our disinterested directors and, pursuant to a provision in our bylaws, to exempt any acquisition of our stock from the control share provisions of the MGCL. However, our board of directors may by resolution elect to repeal the exemption from the business combination provisions of the MGCL and may by amendment to our bylaws opt into the control share provisions of the MGCL at any time in the future.

Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain corporate governance provisions, some of which (for example, a classified board) are not currently applicable to us. These provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a change in control of us under circumstances that otherwise could be in the best interest of our stockholders. Our charter contains a provision whereby we have elected to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of directors.

Certain provisions in the partnership agreement of our operating partnership may delay or prevent unsolicited acquisitions of us. Provisions in the partnership agreement of our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable. These provisions include, among others:

redemption rights of qualifying parties;

transfer restrictions on units;

our ability, as general partner, in some cases, to amend the partnership agreement and to cause the operating partnership to issue units with terms that could delay, defer or prevent a merger or other change of control of us or our operating partnership without the consent of the limited partners;

the right of the limited partners to consent to transfers of the general partnership interest and mergers or other transactions involving us under specified circumstances; and


restrictions on debt levels and equity requirements pursuant to the terms of our Series A preferred units, as well as required distributions to holders of Series A preferred units of our operating partnership, following certain changes of control of us.

Our charter, bylaws, the partnership agreement of our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that our stockholders otherwise believe to be in their best interest.

Our board of directors may change our investment and financing policies without stockholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our stockholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged, which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regards to the foregoing could adversely affect our financial condition, results of operations, cash flow and per share trading price of our securities.

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

Our charter eliminates the liability of our directors and officers to us and our stockholders for monetary damages, except for liability resulting from:

actual receipt of an improper benefit or profit in money, property or services; or
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.

In addition, our charter authorizes us to obligate our Company, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of our Company, your ability to recover damages from such director or officer will be limited.

Tax protection agreements could limit our ability to sell or otherwise dispose of certain properties.

In connection with our formation transactions for our IPO, we entered into tax protection agreements with certain third-party contributors that provide that if we dispose of any interest with respect to certain properties in a taxable transaction during the period from the closing of our IPO on June 29, 2010 through certain specified dates ranging until 2027, we will indemnify the third-party contributors for certain tax liabilities payable as a result of the sale (as well as tax liabilities payable as a result of the reimbursement payment). Certain contributors’ rights under the tax protection agreements with respect to these properties will, however, expire at various times (depending on the rights of such partner) during the period beginning in 2017 and prior to the expiration, in 2027, of the maximum period for indemnification. If we were to trigger the tax protection provisions under these agreements, we would be required to pay damages, if any, in the amount of certain taxes payable by these contributors (plus additional damages in the amount of the taxes incurred as a result of such payment). In addition, although it may otherwise be in our stockholders’ best interest that we sell one of these properties, it may be economically prohibitive for us to do so because of these obligations.

Our tax protection agreements may require our operating partnership to maintain certain debt levels that otherwise would not be required to operate our business.

Our tax protection agreements provide that during the period from the closing of our IPO on June 29, 2010, through certain specified dates ranging from 2017 to 2027, our operating partnership will offer certain holders of units who continue to hold the units received in respect of the formation transactions the opportunity to guarantee debt. If we fail to make such opportunities available, we will be required to indemnify such holders for certain tax liabilities, if any, resulting from our failure to make such opportunities available to them (and any tax liabilities payable as a result of the indemnity payment). We

agreed to these provisions in order to assist certain contributors in deferring the recognition of taxable gain as a result of and after the formation transactions. These obligations may require us to maintain more or different indebtedness than we would otherwise require for our business.

We are a holding company with no direct operations and, as such, we rely on funds received from our operating partnership to pay liabilities, and the interests of our stockholders are structurally subordinated to all liabilities and obligations of our operating partnership and its subsidiaries.

We are a holding company and conduct substantially all of our operations through our operating partnership. We do not have, apart from an interest in our operating partnership, any independent operations. As a result, we rely on distributions from our operating partnership to pay any dividends we might declare on our common stock. We also rely on distributions from our operating partnership to meet our obligations, including any tax liability on taxable income allocated to us from our operating partnership. In addition, because we are a holding company, claims of our equity holders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries and subordinate to the rights of holders of Series A preferred units. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be available to satisfy the claims of our stockholders only after all of our and our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

Risks Related to Our Status as a REIT

Failure to qualify as a REIT would have significant adverse consequences to us and the value of our stock.
We have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2010. We believe that we have operated in a manner that has allowed us to qualify as a REIT for federal income tax purposes commencing with such taxable year, and we intend to continue operating in such manner. We have not requested and do not plan to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, and the statements in this Annual Report are not binding on the IRS or any court. Therefore, we cannot assure you that we have qualified as a REIT, or that we will remain qualified as such in the future. If we lose our REIT status, we will face serious tax consequences that would substantially reduce the funds available for distribution to you for each of the years involved because:

we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates;

we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and

unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to stockholders. In addition, if we fail to qualify as a REIT, we would not be required to make distributions to our stockholders. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could materially and adversely affect the value of our securities.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code, or the Treasury Regulations, is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock and requirements regarding the composition of our assets and our gross income. Also, we must make distributions to stockholders aggregating annually at least 90% of our net taxable income, excluding net capital gains.

We own and may acquire direct or indirect interests in one or more entities that have elected or will elect to be taxed as REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that we would fail certain

of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.

In addition, legislation, new regulations, administrative interpretations or court decisions may materially adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, our taxable REIT subsidiaries will be subject to tax as regular corporations in the jurisdictions they operate.

If our operating partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.

We believe that our operating partnership is properly treated as a partnership for federal income tax purposes. As a partnership, our operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including us, is allocated, and may be required to pay tax with respect to, its share of our operating partnership’s income. We cannot assure you, however, that the IRS will not challenge the status of our operating partnership or any other subsidiary partnership in which we own an interest as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of our operating partnership or any subsidiary partnerships to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which could reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions that would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, such characterization is a factual determination and we cannot assure you that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors, which, if met, would prevent any such sales from being treated as prohibited transactions.

Our ownership of taxable REIT subsidiaries is subject to certain restrictions, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not conducted on arm’s length terms.

We currently own an interest in one taxable REIT subsidiary and may acquire securities in additional taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis. A REIT’s ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset tests applicable to REITs. Not more than 25% of our total assets may be represented by securities, including securities of taxable REIT subsidiaries, other than those securities includable in the 75% asset test. Further, for taxable years beginning after December 31, 2017, not more than 20% of our total assets may be represented by securities of taxable REIT subsidiaries. We anticipate that the aggregate value of the stock and securities of any taxable REIT subsidiaries and other nonqualifying assets that we own will be less than 25% of the value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable ownership limitations. In addition, we intend to structure our transactions with any taxable REIT subsidiaries that we own to ensure that they are entered into on arm’s length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with these limitations or avoid application of the 100% excise tax discussed above.

To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions.

To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. In order to maintain our REIT status and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among other things, differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the market price of our common stock, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flow, cash available for distributions to our stockholders, and per share trading price of our securities.

Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.

To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on unfavorable terms; or (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our business results, profitability and ability to execute our business plan. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

Income from “qualified dividends” payable to United States stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the per share trading price of our securities.

The power of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders and unitholders.

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to United States federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders and accordingly, distributions Hudson Pacific Properties, L.P. makes to its unitholders could be similarly reduced.


Legislative or other actions affecting REITs could have a negative effect on our investors and us.

The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the United States Department of the Treasury. Changes to the tax laws, with or without retroactive application, could adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT, the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

Item 1B. Unresolved Staff Comments
None.

Item 2. Properties
As of December 31, 2016, our portfolio consisted of 56 properties (52 wholly-owned properties and four properties owned by joint ventures), located in 13 California submarkets and in three Seattle submarkets, totaling approximately 15.0 million square feet.

Our in-service office properties include stabilized office properties and lease-up office properties. Stabilized office properties consist of Same-Store properties and Non-Same-Store properties. Lease-up properties are defined as those properties we recently purchased, developed, or redeveloped that have not yet reached 92.0% occupancy and are within one year following purchase and cessation of major construction activities, as applicable.

The following table sets forth certain information relating to each of the in-service office properties, redevelopment, development and held-for-sale properties owned as of December 31, 2016:
      
Percent Leased(2)
 
Annualized Base Rent(3)
 
Annualized Base Rent Per Square Foot(4)
Location Submarket 
Square Feet(1)
   
SAME-STORE(5)
          
Greater Seattle, Washington          
Northview Center Lynnwood 182,009
 84.4% $3,290,522
 $21.41
Met Park North South Lake Union 190,748
 95.7
 5,157,599
 28.25
Merrill Place Pioneer Square 163,768
 92.6
 4,095,027
 28.66
505 First Avenue Pioneer Square 288,140
 97.4
 6,223,470
 22.17
83 King Street Pioneer Square 184,083
 90.0
 4,604,500
 27.81
Subtotal   1,008,748
 92.6% 23,371,118
 25.25
San Francisco Bay Area, California          
1455 Market Street(6)
 San Francisco 1,025,833
 99.7% 34,738,947
 34.07
275 Brannan Street San Francisco 54,673
 100.0
 3,166,361
 57.91
625 Second Street San Francisco 138,080
 99.4
 7,476,121
 54.46
875 Howard Street San Francisco 230,443
 99.4
 5,994,025
 26.17
Rincon Center San Francisco 580,850
 91.9
 24,330,869
 45.73
Subtotal   2,029,879
 97.4% 75,706,323
 38.37
Los Angeles, California          
Pinnacle I(7)
 Burbank 393,777
 97.0% 15,203,019
 41.16
Pinnacle II(7)
 Burbank 230,000
 100.0
 9,099,401
 39.56
6922 Hollywood Hollywood 205,523
 87.7
 8,227,961
 46.52
Technicolor Building Hollywood 114,958
 100.0
 5,043,851
 43.88
3401 Exposition West Los Angeles 63,376
 100.0
 2,702,871
 42.65
10900 Washington West Los Angeles 9,919
 100.0
 403,505
 40.68
10950 Washington West Los Angeles 159,025
 100.0
 6,414,707
 40.34
604 Arizona West Los Angeles 44,260
 100.0
 1,944,237
 43.93

      
Percent Leased(2)
 
Annualized Base Rent(3)
 
Annualized Base Rent Per Square Foot(4)
Location Submarket 
Square Feet(1)
   
9300 Wilshire West Los Angeles 61,224
 90.8
 2,403,385
 46.13
Del Amo Office Torrance 113,000
 100.0
 3,327,208
 29.44
Subtotal   1,395,062
 96.9% 54,770,145
 41.90
Total Same-Store   4,433,689
 96.2% 153,847,586
 36.36
           
NON-SAME-STORE          
San Francisco Bay Area, California          
901 Market Street San Francisco 206,218
 100.0
 10,034,130
 48.66
Towers at Shore Center Redwood Shores 334,483
 84.3
 15,725,500
 55.80
Skyway Landing Redwood Shores 247,173
 99.8
 10,806,037
 43.82
Lockheed Palo Alto 42,899
 100.0
 2,923,996
 68.16
2180 Sand Hill Road Palo Alto 45,613
 97.2
 4,108,486
 92.70
3400 Hillview Palo Alto 207,857
 100.0
 13,334,941
 64.15
Clocktower Square Palo Alto 100,344
 71.0
 5,199,587
 72.99
Foothill Research Center Palo Alto 195,376
 100.0
 12,544,286
 64.21
Embarcadero Place Palo Alto 197,402
 94.2
 8,143,825
 43.79
Page Mill Center Palo Alto 176,245
 99.9
 11,738,492
 66.64
Page Mill Hill Palo Alto 182,676
 97.4
 11,382,043
 63.99
Campus Center Milpitas 471,580
 100.0
 15,279,192
 32.40
1740 Technology North San Jose 206,876
 99.3
 7,049,130
 34.30
Concourse North San Jose 944,386
 96.8
 28,110,231
 31.00
Skyport Plaza North San Jose 418,086
 96.5
 13,148,205
 32.59
Subtotal   3,977,214
 96.3% 169,528,081
 44.31
Los Angeles, California          
Element LA West Los Angeles 284,037
 100.0% 15,409,645
 54.25
Subtotal   284,037
 100.0% 15,409,645
 54.25
Total Non-Same-Store   4,261,251
 96.6% 184,937,726
 44.99
Total Stabilized   8,694,940
 96.4% 338,785,312
 40.63
           
LEASE-UP          
Greater Seattle, Washington          
Hill7(8)
 South Lake Union 285,680
 80.4% 4,312,961
 36.93
Subtotal   285,680
 80.4% 4,312,961
 36.93
San Francisco Bay Area, California          
Peninsula Office Park San Mateo 510,789
 77.7% 17,423,165
 45.57
Metro Center Foster City 730,215
 74.9
 21,993,418
 46.64
333 Twin Dolphin Plaza Redwood Shores 182,789
 80.3
 7,741,898
 52.73
555 Twin Dolphin Plaza Redwood Shores 198,936
 91.8
 9,041,965
 49.50
Shorebreeze Redwood Shores 230,932
 65.0
 8,031,283
 53.47
Palo Alto Square Palo Alto 328,251
 95.0
 21,521,012
 75.32
Techmart Commerce Center Santa Clara 284,440
 74.4
 8,551,906
 40.81
Gateway North San Jose 609,093
 82.5
 14,606,280
 30.72
Metro Plaza North San Jose 456,921
 83.9
 11,738,413
 32.16
Subtotal   3,532,366
 80.2% 120,649,340
 45.20
Los Angeles, California          
11601 Wilshire West Los Angeles 500,475
 85.9% 16,109,529
 38.85
Subtotal   500,475
 85.9% 16,109,529
 38.85

      
Percent Leased(2)
 
Annualized Base Rent(3)
 
Annualized Base Rent Per Square Foot(4)
Location Submarket 
Square Feet(1)
   
Total Lease-up   4,318,521
 80.9% 141,071,830
 $44.07
Total In-Service   13,013,461
 91.2% $479,857,142
 $41.58
REDEVELOPMENT          
Greater Seattle, Washington          
Merrill Place Theater Building Pioneer Square 29,385
 —% $—
 $—
Subtotal   29,385
 —% $—
 $—
San Francisco Bay Area, California          
875 Howard Street (1st Floor) San Francisco 55,827
 —% $—
 $—
Subtotal   55,827
 —% $—
 $—
Los Angeles, California          
405 Mateo Downtown Los Angeles 83,285
 —% $—
 $—
4th & Traction Downtown Los Angeles 120,937
 —
 —
 —
3402 Pico (Existing)(9)
 West Los Angeles 50,687
 —
 —
 —
Subtotal   254,909
 —% $—
 $—
Total Redevelopment   340,121
 —% $—
 $—
           
DEVELOPMENT          
Greater Seattle, WA          
450 Alaskan Way Pioneer Square 166,800
 54.8% $—
 $—
Subtotal   166,800
 54.8% $—
 $—
Los Angeles, California          
Icon Hollywood 323,273
 100.0% $—
 $—
CUE Hollywood 91,953
 100.0
 —
 —
Subtotal   415,226
 100.0% $—
 $—
Total Development   582,026
 87.0% $—
 $—
           
HELD-FOR-SALE          
San Francisco Bay Area, California          
222 Kearny Street(10)
 San Francisco 148,797
 88.7% $6,930,440
 $55.13
Total Held-for-Sale   148,797
 88.7% $6,930,440
 $55.13
Total Redevelopment, Development and Held-for-Sale   1,070,944
 59.6% $6,930,440
 $55.13
_____________
(1)Determined by management based upon estimated leasable square feet, which may be less or more than the Building Owners and Managers Association, or BOMA, rentable area. Square footage may change over time due to re-measurement or re-leasing.
(2)Calculated as (i) square footage under commenced and uncommenced leases as of December 31, 2016, divided by (ii) total square feet, expressed as a percentage.
(3)Presented on an annualized basis and is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) under commenced and uncommenced leases as of December 31, 2016, by (ii) 12. Annualized base rent does not reflect tenant reimbursements.
(4)Calculated as (i) annualized base rent divided by (ii) square footage under commenced and uncommenced leases as of December 31, 2016.
(5)Defined as all of the properties owned and included in our stabilized portfolio as of January 1, 2015 and still owned and included in the stabilized portfolio as of December 31, 2016.
(6)We own 55% of the ownership interests in the consolidated joint venture that owns the 1455 Market Street property.
(7)We own 65% of the ownership interests in the consolidated joint venture that owns the Pinnacle I and II properties.
(8)We own 55% of the ownership interests in the consolidated joint venture that owns the Hill7 property.
(9)On January 20, 2017, we entered into an agreement to sell our 3402 Pico (Existing) property.
(10)On February 14, 2017, we sold our 222 Kearny Street property.



The following table sets forth certain information relating to each of the land properties owned as of December 31, 2016:
Location Submarket 
Square Feet(1)
 Percent of Total
San Francisco Bay Area, California      
Skyport Plaza North San Jose 350,000
 13.8%
Campus Center Milpitas 946,350
 37.2
Subtotal   1,296,350
 51.0
       
Los Angeles, California      
Epic (Sunset Bronson—Lot A) Hollywood 300,000
 11.8
Sunset Bronson—Lot D(2)
 Hollywood 19,816
 0.8
Sunset Gower—Redevelopment Hollywood 423,396
 16.7
Element LA West Los Angeles 500,000
 19.7
3402 Pico (Residential)(3)
 West Los Angeles TBD
 —
Subtotal   1,243,212
 49.0
       
TOTAL   2,539,562
 100.0%
_____________
(1)Represents management’s estimate of developable square feet, the majority of which remains subject to entitlement approvals that have not yet been obtained.
(2)Square footage for Sunset Bronson Lot D represents management’s estimate of developable square feet for 33 residential units.
(3)Management estimates that 3402 Pico (Residential) could be improved with up to 26 residential units. On January 20, 2017, we entered into an agreement to sell our 3402 Pico (Residential) property.

Leases at our media and entertainment properties are typically short-term leases of one year or less, other than the KTLA and Netflix leases at our Sunset Bronson Studios property. The following table sets forth certain information relating to each of the media and entertainment properties owned as of December 31, 2016:
Property Square Feet 
Percent Leased(1)
 
Annual Base Rent(2)
 
Annual Base Rent Per Leased Square Foot(3)
Sunset Gower Studios 571,626
 89.0% $16,474,771
 $32.39
Sunset Bronson Studios 308,026
 89.4
 9,519,585
 34.57
TOTAL 879,652
 89.1% $25,994,356
 $33.16
_____________
(1)Represents the average percent leased for the 12 months ended December 31, 2016.
(2)Reflects actual base rent for the 12 months ended December 31, 2016, excluding tenant reimbursements.
(3)Calculated as (i) annual base rent divided by (ii) square footage under lease as of December 31, 2016.

Office Portfolio

Our office portfolio consists of 54 office properties comprising an aggregate of approximately 14.1 million square feet. As of December 31, 2016, our in-service office properties were approximately 91.2% leased (giving effect to leases signed but not commenced as of that date). All of our office properties are located in Northern and Southern California and the Pacific Northwest. As of December 31, 2016, the weighted average remaining lease term for our stabilized office portfolio was 4.6 years.


Tenant Diversification of Office Portfolio

Our office portfolio is currently leased to a variety of companies. The following table sets forth information regarding the 15 largest tenants in our office portfolio based on annualized base rent as of December 31, 2016:
Tenant Number of Properties 
Lease
Expiration
 
Total
Leased
Square
Feet
 
Percentage
of Office
Portfolio
Square
Feet
 
Annualized
Base Rent(1)
 
Percentage
of Office
Portfolio
Annualized
Base Rent
Google, Inc.(2)
 2 Various 305,729
 2.2% $19,564,885
 4.0%
Uber Technologies, Inc.(3)
 2 Various 330,057
 2.3
 15,680,394
 3.2
Riot Games, Inc.(4)
 2 Various 286,629
 2.0
 15,563,610
 3.2
Cisco Systems, Inc.(5)
 2 Various 474,576
 3.4
 15,377,341
 3.2
Qualcomm 1 7/31/2022 376,817
 2.7
 12,887,141
 2.6
Salesforce.com(6)
 1 Various 261,250
 1.9
 12,771,888
 2.6
Square, Inc. 1 9/27/2023 338,910
 2.4
 11,425,384
 2.3
Stanford(7)
 3 Various 151,249
 1.1
 10,306,167
 2.1
Warner Bros. Entertainment 1 12/31/2021 230,000
 1.6
 9,099,401
 1.9
Warner Music Group 1 12/31/2019 195,166
 1.4
 8,169,569
 1.7
NetSuite, Inc.(8)
 1 Various 166,667
 1.2
 7,798,348
 1.6
EMC Corporation(9)
 2 Various 294,756
 2.1
 7,787,478
 1.6
NFL Enterprises(10)
 2 6/30/2021 167,606
 1.2
 6,818,212
 1.4
GSA(11)
 5 Various 202,097
 1.4
 6,473,190
 1.3
AIG, Inc. 1 7/31/2017 132,600
 0.9
 6,232,200
 1.3
Total     3,914,109
 27.8% $165,955,208
 34.0%
_____________
(1)Calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) under commenced leases as of December 31, 2016, by (ii) 12. Annualized base rent does not reflect tenant reimbursements.
(2)Google, Inc. expirations by property and square footage: (i) 207,857 square feet at 3400 Hillview expiring on November 30, 2021 and (ii) 97,872 square feet at Foothill Research Center expiring on February 28, 2025.
(3)Uber Technologies, Inc. expirations by property and square footage: (i) 20,246 square feet at Skyway Landing expiring March 31, 2017 and (ii) 309,811 square feet at 1455 Market Street expiring on February 28, 2025.
(4)Riot Games, Inc. expirations by property and square footage: (i) 2,592 square feet at Shorebreeze expiring on November 30, 2017 and (ii) 284,037 square feet at Element LA expiring on March 31, 2030. This tenant may elect to exercise their early termination right at Element LA effective March 31, 2025.
(5)Cisco Systems, Inc. expirations by property and square footage: (i) 2,996 square feet at Concourse expiring March 31, 2018 and (ii) 471,580 square feet at Campus Center expiring on December 31, 2019. This tenant may elect to exercise their early termination right at Campus Center effective December 31, 2017.
(6)Salesforce.com is expected to take possession of an additional 4,144 square feet during the second quarter of 2017. Expirations by square footage: (i) 78,872 square feet expiring on July 31, 2025; (ii) 83,372 square feet expiring on April 30, 2027; (iii) 93,028 square feet expiring on October, 31, 2028; and (iv) 5,978 square feet of month-to-month storage space. This tenant may elect to exercise their early termination right with respect to 74,966 square feet between August 1, 2021 and September 30, 2021.
(7)Stanford expirations by property and square footage: (i) Board of Trustees Stanford 18,753 square feet at Page Mill Hill expiring February 28, 2019; (ii) Stanford Healthcare 63,201 square feet at Page Mill Center expiring June 30, 2019; (iii) Stanford University 26,080 square feet at Palo Alto Square expiring on December 31, 2019; and (iv) Board of Trustees Stanford 43,215 square feet at Page Mill Center expiring December 31, 2022.
(8)NetSuite, Inc. expirations by square footage: (i) 37,597 square feet expiring on August 31, 2019 and (ii) 129,070 square feet expiring May 31, 2022.
(9)EMC expirations by property and square footage: (i) 66,510 square feet at 875 Howard Street expiring on June 30, 2019; (ii) 185,292 square feet at 505 First expiring on October 18, 2021; and (iii) 42,954 square feet at 505 First expiring on December 31, 2023.
(10)NFL Enterprises by property and square footage: (i) 157,687 square feet at 10950 Washington and (ii) 9,919 square feet at 10900 Washington. This tenant may elect to exercise their early termination right with respect to 167,606 square feet effective June 30, 2020.
(11)GSA expirations by property and square footage: (i) 71,729 square feet at 1455 Market Street expiring on February 19, 2019; (ii) 28,993 square feet at Northview Center expiring on April 4, 2020; (iii) 33,582 square feet at Rincon Center expiring May 31, 2020; (iv) 49,405 square feet at 901 Market Street expiring on July 31, 2021; and (v) 18,388 square feet at Concourse expiring on May 7, 2024.


Lease Distribution of Office Portfolio

The following table sets forth information relating to the distribution of leases in our office portfolio, based on net rentable square feet under lease as of December 31, 2016:
Square Feet Under Lease 
Number
of
Leases
 
Percentage
of All
Leases
 
Total Leased
Square Feet
 
Percentage
of Office
Portfolio
Leased
Square Feet
 
Annualized
Base Rent(1)
 
Percentage
of Office
Portfolio
Annualized
Base Rent
2,500 or Less 243
 27.5% 357,917
 2.9% $14,821,498
 2.8%
2,501-10,000 372
 42.2
 1,924,427
 15.4
 84,287,724
 16.1
10,001-20,000 89
 10.1
 1,243,109
 9.9
 56,975,262
 10.9
20,001-40,000 70
 7.9
 1,914,803
 15.3
 86,338,664
 16.4
40,001-100,000 34
 3.9
 1,962,938
 15.7
 89,861,177
 17.1
Greater than 100,000 21
 2.4
 4,108,967
 32.8
 154,503,256
 29.4
Building management use 25
 2.8
 153,181
 1.2
 —
 —
Signed leases not commenced 28
 3.2
 845,630
 6.8
 38,184,513
 7.3
Office Portfolio Total: 882
 100.0% 12,510,972
 100.0% $524,972,094
 100.0%
_____________
(1)Annualized base rent is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)), including uncommenced leases, as of December 31, 2016 (ii) by 12. Annualized base rent does not reflect tenant reimbursements.














Lease Expirations of Office Portfolio

The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, 2016 plus available space, for each of the ten full calendar years beginning January 1, 2016 at the properties in our office portfolio. Unless otherwise stated in the footnotes, the information set forth in the table assumes that tenants exercise no renewal options.
Year of Lease Expiration Expiring Leases 
Square
Footage
of
Expiring
Leases
 
Percentage
of Office
Portfolio
Square Feet
 
Annualized
Base Rent(1)
 
Percentage
of Office
Portfolio
Annualized
Base Rent
 
Annualized
Base Rent
Per Leased
Square Foot(2)
Vacant   1,573,433
 11.2% 
 
 
2016 8
 77,452
 0.6
 $2,944,623
 0.6% $38.02
2017 182
 1,504,130
 10.7
 61,667,751
 11.8
 41.00
2018 163
 1,241,556
 8.8
 49,658,316
 9.5
 40.00
2019 141
 2,255,198
 16.0
 88,826,633
 16.9
 39.39
2020 102
 1,096,289
 7.8
 51,155,104
 9.8
 46.66
2021 83
 1,707,194
 12.1
 70,444,725
 13.4
 41.26
2022 37
 864,404
 6.2
 36,669,233
 7.0
 42.42
2023 27
 798,745
 5.7
 30,597,416
 5.8
 38.31
2024 22
 373,629
 2.7
 16,464,163
 3.1
 44.07
2025 12
 656,042
 4.7
 31,667,839
 6.0
 48.27
Thereafter 25
 904,868
 6.4
 46,003,682
 8.8
 50.84
Building management use 25
 153,181
 1.1
 —
 —
 —
Signed leases not commenced(3)
 28
 845,630
 6.0
 38,184,513
 7.3
 45.16
Total/Weighted Average(4)
 855
 14,051,751
 100.0% $524,283,998
 100.0% $42.02
_____________
(1)Presented on an annualized basis without regard to cancellation options and is calculated by multiplying (i) base rental payments (defined as cash base rents (before abatements)) as of December 31, 2016, by (ii) 12. Annualized base rent does not reflect tenant reimbursements.
(2)Calculated for all lease expiration years as (i) base rental payments (defined as cash base rents (before abatements)) under commenced leases, divided by (ii) square footage under commenced leases as of December 31, 2016.
(3)Annualized base rent per leased square foot for signed leases but not yet commenced reflects uncommenced leases and is calculated as (i) base rental payments (defined as cash base rents (before abatements)) under uncommenced leases for vacant space as of December 31, 2016, divided by (ii) square footage under uncommenced leases as of December 31, 2016.
(4)Total expiring square footage does not include 32,654 square feet of month-to-month leases.


Historical Office Tenant Improvements and Leasing Commissions
The following table sets forth certain historical information regarding tenant improvement and leasing commission costs for tenants at our office properties:
  Year Ended December 31,
  2016 2015 2014
Renewals (1)
      
Number of leases 124
 90
 22
Square feet 1,588,437
 661,724
 233,332
Tenant improvement costs per square foot (2)(3)
 $9.19
 $12.00
 $0.70
Leasing commission costs per square foot (2)
 7.59
 6.71
 2.82
Total tenant improvement and leasing commission costs (2)
 $16.78
 $18.71
 $3.52
       
New leases (4)
      
Number of leases 140
 135
 29
Square feet 1,321,824
 924,832
 398,402
Tenant improvement costs per square foot (2)(3)
 $52.56
 $34.55
 $43.26
Leasing commission costs per square foot (2)
 16.28
 13.70
 13.21
Total tenant improvement and leasing commission costs (2)
 $68.84
 $48.25
 $56.47
       
Total      
Number of leases 264
 225
 51
Square feet 2,910,261
 1,586,556
 631,734
Tenant improvement costs per square foot (2)(3)
 $28.89
 $25.14
 $27.54
Leasing commission costs per square foot (2)
 11.53
 10.78
 9.38
Total tenant improvement and leasing commission costs (2)
 $40.42
 $35.92
 $36.92
_____________
(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.


Historical Office Leasing Activity
The following table sets forth certain historical information regarding leasing activity for our office properties:
  Total Square Feet
  Year Ended December 31,
  2016 2015 2014
Vacant space available at the beginning of period 2,150,780
 806,559
 311,164
Expirations as of the last day of the prior period 241,474
 61,586
 208,299
Adjustment for remeasured square footage on new leases (3,631) (3,633) 491
Properties acquired vacant space 256,611
 1,561,081
 183,972
Properties placed in-service —
 166,800
 413,000
Properties disposed vacant space (231,589) (54,268) (8,900)
Leases expiring or terminated during the period 1,252,708
 683,567
 241,494
Total space available for lease 3,666,353
 3,221,692
 1,349,520
Leases with new tenants 798,026
 533,577
 359,077
Lease renewals 650,133
 139,188
 47,549
Leases signed (uncommenced) at the end of the period 644,761
 398,147
 136,335
Total space leased 2,092,920
 1,070,912
 542,961
Vacant space available for lease at the end of the period 1,573,433
 2,150,780
 806,559

Media and Entertainment Portfolio

Our portfolio of operating properties includes two properties that we consider to be media and entertainment properties, comprising an aggregate of 879,652 square feet. We define our media and entertainment properties as those properties in our portfolio that are primarily used for the physical production of media content, such as television programs, feature films, commercials, music videos and photographs. These properties generally also feature a traditional office component that is leased to production companies and content providers. The 12 month average percent leased for 2016 was approximately 89.1% for our media and entertainment properties. TheseOur media and entertainment properties are located in prime Southern California submarkets.

Leasing Characteristics of Media and Entertainment Properties

The duration of typical lease terms for tenants of media and entertainment properties tends to be shorter than those of traditional office properties. Generally, lease terms are one year or less, as tenants are never certain as to whether their productions will continue to be carried by networks or cable channels. However, historically, many entertainment tenants have exercised renewal options such that their actual tenancy is extended for multiple years. Additionally, occupancy levels for sound stage space and office and support space tend to run in parallel, as a majority of stage users also require office and support space. In addition, we require tenants at our media and entertainment properties to use our facilities for items such as lighting, equipment rental, parking, power, HVAC and telecommunications (telephone and internet). Accordingly, our other property-related revenues tend to track overall occupancy of our media and entertainment properties. As a result of the Pacific Northwest.short-term nature of the leases into which we enter at our media and entertainment properties, and because entertainment industry tenants generally do not shoot on weekends due to higher costs, we believe stabilized occupancy rates at our media and entertainment properties are lower than those rates achievable at our traditional office assets, where tenants enter into longer-term lease arrangements.

Description of Our Media and Entertainment Properties

Sunset Gower Studios, Hollywood, California

Sunset Gower Studios is a 15.7-acre media and entertainment property located in the heart of Hollywood, four blocks west of the Hollywood (101) Freeway. The property encompasses almost an entire city block, bordered by Sunset Boulevard to the north, Gower Street to the west, Gordon Street to the east and Fountain Avenue to the south. The property, a fixture in the Los Angeles-based entertainment industry since it was built in the 1920s, served as Columbia Pictures’ headquarters through 1972 and is now one of the largest independent media and entertainment properties in the United States. Sunset Gower Studios provides a fully-integrated environment for its media and entertainment-focused tenants within which they can access creative

and technical talent for film and television production as well as post-production. Sunset Gower Studios typically serves as home to single-camera television and motion picture production tenants. The 12 month average percent leased for 2016 was approximately 89.0% at Sunset Gower Studios.

In addition to Sunset Gower Studios’ existing facilities, the current zoning designation for Sunset Gower Studios, M1-1—Limited Industrial, City of Los Angeles, permits a floor area ratio, or FAR, of 1.5x, which implies a maximum allowable density of 1,022,933 square feet, or an incremental 423,436 square feet above the existing 599,497 floor area ratio, including the Technicolor Building. However, as of December 31, 2016, we had no immediate plans to develop additional facilities on the property.

Sunset Bronson Studios, Hollywood, California

Sunset Bronson Studios is a 10.6 acre media and entertainment property located in the heart of Hollywood, one block west of the Hollywood (101) Freeway and in close proximity to the Sunset Gower Studios property. The property encompasses a full city block, bordered by Sunset Boulevard to the north, Bronson Avenue to the west, Van Ness Avenue to the east and Fernwood Avenue to the south. The property, which was built in phases from 1924 through 1981, formerly served as Warner Brothers Studios’ headquarters and has been continuously operated as a media and entertainment property since the 1920s. The property includes a Historical-Cultural Monument designation for the Site of the Filming of the First Talking Film (The Jazz Singer) that is specific to the building structure that fronts Sunset Boulevard. Similar to nearby Sunset Gower Studios, Sunset Bronson Studios is a multi-use property with a full complement of production, post-production and support facilities that enable its media and entertainment focused tenants to conduct their business in a collaborative and efficient setting. In contrast to Sunset Gower Studios, which typically serves single-camera television and motion picture productions, Sunset Bronson Studios caters to multi-camera television productions, such as game shows, talk shows or courtroom shows that record in video and require a control room to manage and edit the productions’ multiple cameras. The 12 month average percent leased for 2016 was approximately 89.4% at Sunset Bronson Studios.

In addition to Sunset Bronson Studios' existing facilities, the current zoning designation for Sunset Bronson Studios, M1-1—Limited Industrial, City of Los Angeles, permits a FAR of 1.5x, which implies a maximum allowable density of 689,565 square feet or an incremental 391,836 square feet above the existing 297,729 total FAR, including the KTLA portion of the property.
Sunset Bronson Studios Lot A

In connection with our purchase of Sunset Bronson Studios in 2008, we acquired a 67,381-square-foot undeveloped lot located on the northwest corner of Sunset Boulevard and Bronson Avenue. The lot is located two blocks west of the I-101 Freeway, between the Sunset Gower Studios and Sunset Bronson Studios properties. The site is currently used as a surface parking lot and can be developed to include up to 60,855 square feet of retail and office space based on current zoning, with the opportunity to add additional developable square footage through certain municipal land entitlement approvals. We estimate that with further entitlements, we could increase the developable square footage to approximately 273,913 square feet. While we are holding this property for its development potential, we do not currently have any plans for its development.

2. SummaryItem 3. Legal Proceedings
From time to time, we are a party to various lawsuits, claims and other legal proceedings arising out of, Significant Accounting Policiesor incident to, our ordinary course of business. We are not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or that, individually or in the aggregate, would be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows if determined adversely to us.

Basis
Item 4. Mine Safety Disclosures

Not applicable.


PART II

Item 5. Market for Hudson Pacific Properties, Inc. Common Equity, Related Stockholder Matters and Issuer Purchases of PresentationEquity Securities
Overview
As of February 10, 2017, Hudson Pacific Properties, Inc. had approximately 146,275,476 shares of common stock outstanding, including unvested restricted stock grants. Hudson Pacific Properties, Inc. common stock has traded on the NYSE under the symbol “HPP” since June 24, 2010. The quarterly high, low and closing prices of our common stock from January 1, 2015 through December 31, 2016, as reported by the NYSE, are set forth below for the periods indicated.
Distributions
We intend to make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of our taxable income. We intend to pay regular quarterly dividend distributions to our stockholders. Currently, we pay distributions to our stockholders quarterly in March, June, September and December. Dividends are made to those stockholders who are stockholders as of the dividend record date. Dividends are paid at the discretion of our board of directors and dividend amounts depend on our available cash flows, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our board of directors deem relevant.
On December 31, 2016, the reported closing sale price per share of our common stock on the NYSE was $34.78. The following table shows our dividends declared, and the high, low and closing sale prices for our common stock as reported by the NYSE for the periods indicated:

Fiscal year 2016 High Low Close 
Per Share of Common
Stock Dividends
Declared
First quarter $29.60
 $22.77
 $28.92
 $0.200
Second quarter 30.18
 26.79
 29.18
 0.200
Third quarter 34.38
 28.85
 32.87
 0.200
Fourth quarter 35.84
 31.58
 34.78
 0.200
         
Fiscal year 2015 High Low Close 
Per Share of Common
Stock Dividends
Declared
First quarter $33.85
 $29.82
 $33.19
 $0.125
Second quarter 34.25
 28.09
 28.37
 0.125
Third quarter 31.84
 27.57
 28.79
 0.125
Fourth quarter 30.97
 26.66
 28.14
 0.200

The accompanyingclosing sale price for our common stock on February 10, 2017, as reported by the NYSE, was $35.65. As of February 10, 2017, there were 62 stockholders of record of our common stock.

Issuer Purchases of Equity Securities
During the three months ended December 31, 2016, certain employees surrendered common shares owned by them to satisfy their statutory federal income tax obligation associated with the vesting of restricted common shares of beneficial interest issued under our 2010 Incentive Award Plan.


The following table summarizes all of the repurchases of Hudson Pacific Properties, Inc. equity securities during the fourth quarter of 2016:
Period Total Number of Shares Purchased 
Average Price Paid Per 
Share(1)
 
Total Number Of
Shares Purchased
As Part Of Publicly
Announced Plans
Or Programs
 
Maximum Number
Of Shares That May
Yet Be Purchased
Under The Plans Or
Programs
October 1 - October 31, 2016 —
 $—
 N/A N/A
November 1 - November 30, 2016 —
 $—
 N/A N/A
December 1 - December 31, 2016 191,203
 $34.50
 N/A N/A
Total 
 191,203
 $34.50
 N/A N/A
_____________
(1)The price paid per share is based on the closing price of Company common shares as of the date of the determination of the statutory federal tax income.

Equity Compensation Plan Information

Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.

Market for Hudson Pacific Properties, L.P. Common Capital, Related Unitholder Matters and Issuer Purchases of Units

There is no established public trading market for our operating partnership’s common units. As of the date this report was filed, there were six holders of record of common units (including through our general partnership interest).

As of February 10, 2017, our operating partnership had 569,045 common units outstanding that were not owned by us. There is no active trading market for our operating partnership units.

The following table reports the distributions per common unit declared during the years ended December 31, 2016 and 2015, respectively.
Fiscal year 2016 
Per Unit Distributions
Declared
First quarter $0.200
Second quarter 0.200
Third quarter 0.200
Fourth quarter 0.200
   
Fiscal year 2015 
Per Unit Distributions
Declared
First quarter $0.125
Second quarter 0.125
Third quarter 0.125
Fourth quarter 0.200

Recent Sales of Unregistered Securities
During the fourth quarter of December 31, 2016, our operating partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:

During the fourth quarter of December 31, 2016, the Company issued an aggregate of 403,768 shares of its common stock in connection with restricted stock awards for no cash consideration, out of which 191,203 shares of common stock were forfeited to the Company in connection with restricted stock awards for a net issuance of 212,565 shares of common stock. For each share of common stock issued by the Company in connection with such an award, our operating partnership issued a restricted common unit to the Company as provided in our operating partnership’s partnership agreement. During the fourth quarter of December 31, 2016, our operating partnership issued an aggregate of 403,768 common units to the Company.

All other issuances of unregistered equity securities of our operating partnership during the year ended December 31, 2016 have previously been disclosed in filings with the SEC. For all issuances of units to the Company, our operating partnership relied on the Company’s status as a publicly traded NYSE-listed company with over $6.68 billion in total consolidated assets and as our operating partnership’s majority owner and sole general partner as the basis for the exemption under Section 4(a)(2) of the Securities Act.


Issuer Purchases of Equity Securities

The following table summarizes all of the repurchases of operating partnership equity securities during the fourth quarter of 2016:
Period Total Number of Units Purchased 
Average Price Paid Per 
Unit(1)
 
Total Number Of
Units Purchased
As Part Of Publicly
Announced Plans
Or Programs
 
Maximum Number
Of Units That May
Yet Be Purchased
Under The Plans Or
Programs
October 1 - October 31, 2016 —
 $—
 N/A N/A
November 1 - November 30, 2016 17,533,099
 $32.50
 N/A N/A
December 1 - December 31, 2016 191,203
 $34.50
 N/A N/A
Total 
 17,724,302
 $32.52
 N/A N/A
_____________
(1)The price paid per unit is based on the closing price of Company common shares as of the date of the determination of the statutory federal tax income.

Equity Compensation Plan Information

Our equity compensation plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.


Stock Performance Graph

The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.
The following graph shows our cumulative total stockholder return for the five-year period ending on December 31, 2016. The graph assumes a $100 investment in each of the indices on December 31, 2011 and the reinvestment of all dividends. The graph also shows the cumulative total returns of the Standard & Poor’s 500 Stock Index, or S&P 500, and industry peer groups. Our stock price performance shown in the following graph is not indicative of future stock price performance.
  Period Ending
Index 12/31/11
 12/31/12
 12/31/13
 12/31/14
 12/31/15
 12/31/16
Hudson Pacific Properties, Inc. 100.00
 153.02
 162.64
 227.96
 217.58
 276.01
S&P 500 100.00
 116.00
 153.57
 174.60
 177.01
 198.18
SNL U.S. REIT Equity 100.00
 120.23
 124.71
 159.00
 163.39
 177.90
MSCI US REIT 100.00
 117.77
 120.68
 157.34
 161.30
 175.17
NAREIT All Equity REITs 100.00
 119.70
 123.12
 157.63
 162.10
 176.08


Item 6. Selected Financial Data

The following tables set forth selected consolidated financial and operating data. The financial information has been derived from our historical Consolidated Balance Sheets and Statements of Operations, and is adjusted for the impact of subsequent accounting changes that require retrospective applications, if any. The following data should be read in conjunction with our financial statements and the related notes, see Part IV, Item 15(a) and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included below in this report.
HUDSON PACIFIC PROPERTIES, INC. and HUDSON PACIFIC PROPERTIES, L.P.
(in thousands)
 Year Ended December 31,
 2016 
2015(1)
 2014 2013 2012
Statements of Operations Data:         
Total office revenues593,236
 481,718
 213,786
 165,441
 120,328
Total Media & Entertainment revenues46,403
 39,132
 39,629
 40,117
 40,133
Income from operations89,407
 47,388
 48,677
 27,960
 14,267
_____________
(1)Reflects our ownership of the properties acquired in the EOP Acquisition for the period from April 1, 2015 to December 31, 2015.

HUDSON PACIFIC PROPERTIES, INC.
 Year Ended December 31,
 2016 
2015(1)
 2014 2013 2012
Basic and diluted per share amounts:         
Net income (loss) attributable to common stockholders—basic$0.26
 $(0.19) $0.15
 $(0.27) $(0.41)
Net income (loss) attributable to common stockholders—diluted$0.25
 $(0.19) $0.15
 $(0.27) $(0.41)
Weighted average shares of common stock outstanding—basic106,188,902
 85,927,216
 65,792,447
 55,182,647
 41,640,691
Weighted average shares of common stock outstanding—diluted110,369,055
 85,927,216
 66,509,447
 55,182,647
 $41,640,691
Dividends declared per common share$0.800
 $0.575
 $0.500
 $0.500
 $0.500
_____________
(1)Reflects our ownership of the properties acquired in the EOP Acquisition for the period from April 1, 2015 to December 31, 2015.



 
HUDSON PACIFIC PROPERTIES, INC. and HUDSON PACIFIC PROPERTIES, L.P.
(in thousands)
 
  As of December 31,
  2016 2015 2014 2013 2012
 Balance Sheet Data:         
 
Investment in real estate, net(1)
$6,050,933
 $5,359,600
 $2,036,638
 $1,844,614
 $1,340,361
 Total assets6,678,998
 6,254,035
 2,335,140
 1,553,321
 1,147,638
 
Notes payable, net(1)
2,688,010
 2,260,716
 912,683
 575,714
 394,718
 Total liabilities2,966,071
 2,514,821
 1,049,948
 643,624
 446,495
 6.25% Series A cumulative redeemable preferred units of the operating partnership10,177
 10,177
 10,177
 10,475
 12,475
 Series B cumulative redeemable preferred stock—
 —
 145,000
 145,000
 145,000
        
  
 Other data:         
 Cash flows provided by (used in)         
 Operating activities$219,607
 $174,856
 $63,168
 $41,547
 $42,821
 Investing activities$(524,897) $(1,797,699) $(246,361) $(424,042) $(423,470)
 Financing activities$334,754
 $1,658,641
 $170,590
 $393,947
 $385,848
 
Stabilized office properties leased rate as of end of period(2)
96.4% 95.3% 94.6% 95.4% 93.5%
 
In-Service office properties leased rate as of end of period(3)
91.2% 90.1% 94.6% 95.4% 93.5%
 
Media & Entertainment occupied rate as of end of period(4)
89.1% 78.5% 71.6% 69.9% 73.7%
_____________
(1)Balance for the years ended December 31, 2012, 2013 and 2014 does not reflect the classification related to the held for sale properties at December 31, 2016.
(2)Stabilized office properties include Same-Store properties and Non-Same-Store properties.
(3)In-service office properties include stabilized and lease-up office properties.
(4)Percent occupied for media and entertainment properties is the average percent leased for the 12 months ended as of the year indicated.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion relates to our consolidated financial statements ofand should be read in conjunction with the Company are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements and the related notes, see Part IV, Item 15(a). Statements contained in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Some of the Companyinformation presented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, property development timing and investment amounts. Although the information is based on our current expectations, actual results could vary from expectations stated in this report. Numerous factors will affect our actual results, some of which are beyond our control. These include the accountsbreadth and duration of the Company,current economic recession and its impact on our tenants, the Operating Partnershipstrength of commercial and all ofindustrial real estate markets, market conditions affecting tenants, competitive market conditions, interest rate levels, volatility in our wholly ownedstock price and controlled subsidiaries. The consolidated financial statementscapital market conditions. You are cautioned not to place undue reliance on this information, which speaks only as of the Operating Partnership includedate of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information, future events, or otherwise, except to the accountsextent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information. For a discussion of the Operating Partnership,important risks related to our business, and all wholly ownedrelated to investing in our securities, including risks that could cause actual results and controlled subsidiaries of the Operating Partnership. All intercompany balancesevents to differ materially from results and transactions have been eliminatedevents referred to in the consolidated financial statements.forward-looking information, see Part I, Item 1A, “Risk Factors” and the discussion under the captions “Forward-looking Statements”above and “Liquidity and Capital Resources” contained in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

Any reference to the number
Executive Summary

Through our interest in Hudson Pacific Properties, L.P. (our operating partnership) and its subsidiaries, at December 31, 2016, our consolidated office portfolio consisted of approximately 14.1 million square feet of in-service, redevelopment, development and held-for-sale properties, and our media and entertainment portfolio consisted of 0.9 million square footage are unauditedfeet. As of December 31, 2016, our consolidated in-service office portfolio was 91.2% leased (including leases not yet commenced). Our media and outsideentertainment properties were 89.1% leased for the scope of the Company’s independent registered public accounting firm’s audit of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board (“PCAOB”).trailing 12-month period ended December 31, 2016.

Current Year Acquisitions, Dispositions, Held for Sale, Redevelopment/Development and Financings

Certain amountsAcquisitions

The following table summarizes the properties acquired in 2016:
Property Submarket Date of Acquisition Square Feet 
Purchase Price(1) (in millions)
11601 Wilshire(2)
 West Los Angeles 7/1/2016 500,475
 $311.0
Hill7(3)
 South Lake Union 10/7/2016 285,680
 179.8
Page Mill Hill(4)
 Palo Alto 12/12/2016 182,676
 150.0
Total     968,831
 $640.8
_____________
(1)Represents purchase price before certain credits, prorations and closing costs.
(2)Previously owned by an affiliate of Blackstone, the property has served as our corporate headquarters since its IPO. We funded this acquisition with proceeds from the unsecured revolving credit facility.
(3)We purchased the property through a joint venture with the Canadian Pension Plan Investment Board. We own 55% of the ownership interest in the consolidated joint venture. In conjunction with the acquisition, the joint venture closed a secured non-recourse loan in the amount of $101.0 million. Refer to Part IV, Item 15(a) “Financial Statement and Schedules—Note 5 to the Consolidated Financial Statements—Notes Payable, net” for details.
(4)We funded this acquisition with proceeds from the unsecured revolving credit facility.

Dispositions

The following table summarizes the properties sold in 2016. These properties were non-strategic assets to our portfolio:
Property Date of Disposition Square Feet 
Sales Price(1) (in millions)
Bayhill Office Center 1/14/2016 554,328
 $215.0
Patrick Henry Drive 4/7/2016 70,520
 19.0
One Bay Plaza 6/1/2016 195,739
 53.4
12655 Jefferson 11/4/2016 100,756
 80.0
Total(2)
   921,343
 $367.4
_____________
(1)Represents gross sales price before certain credits, prorations and closing costs.
(2)Excludes our sale of an option to acquire land at 9300 Culver on December 6, 2016.

Held for Sale

On December 30, 2016, we entered into an agreement to sell our 222 Kearny Street property for $51.8 million (before certain credits, prorations and closing costs). We determined that this property met the criteria to be classified as held for sale and reclassified the balances related to this property within the Consolidated Balance Sheets as of December 31, 2016 and 2015.
222 Kearny Street was subsequently sold on February 14, 2017. We applied $45.0 million of proceeds from the sale to pay down amounts outstanding under the unsecured revolving credit facility.


Redevelopment/Development

Properties are selected for prior periodsredevelopment when we believe the result of doing so will render a higher economic return. We may engage in the development or redevelopment of office properties when market conditions support a favorable risk-adjusted return. A redevelopment can consist of a range of improvements to a property, and may constitute a complete structural renovation of a building or remodeling select areas to make the property more attractive to tenants. Redevelopment and development properties are excluded from our in-service portfolio to maintain consistency in evaluating our performance from period to period. The redevelopment and development process is generally capital-intensive and occurs over the course of several months or years. Commonly associated with newly-acquired properties, redevelopment efforts may also occur at properties we currently own. At December 31, 2016, there were a total of eight properties included in property under development in our Consolidated Balance Sheets: Merrill Place Theater Building, 875 Howard Street (1st Floor), 405 Mateo, 4th & Traction, 3402 Pico (Existing), 450 Alaskan Way, Icon and CUE.
Financings
On May 3, 2016, we drew on the $175.0 million 5-Year Term Loan due November 2020 and $125.0 million 7-Year Term Loan due November 2022, both of which were entered into on November 17, 2015. Amounts drawn were used to fully pay down $30.0 million of the 901 Market mortgage loan that was set to mature on October 31, 2016, to partially pay down $110.0 million of the Sunset Gower Studios & Sunset Bronson Studios mortgage loans and $100.0 million of the 5-Year Term Loan due April 2020.

On June 7, 2016, Pinnacle II Hudson MC Partners, our consolidated joint venture, entered into a $87.0 million ten-year mortgage loan secured by our Pinnacle II office property. This new loan has a maturity date of June 11, 2026 and bears a fixed rate of 4.30% per annum with interest only payable every month during the term of the loan and principal payment at maturity. Proceeds were used to fully pay down the previous loan secured by our Pinnacle II office property that was scheduled to mature on September 6, 2016.

On July 6, 2016, we entered into a private placement of debt for $150.0 million of 3.98% guaranteed senior notes due July 6, 2026. The $150.0 million was drawn on July 6, 2016. Proceeds were used to pay down the unsecured revolving credit facility. We also secured an additional $50.0 million of funds from a private placement of 3.66% guaranteed senior notes due September 15, 2023, which was drawn on September 15, 2016. Proceeds were used to pay down the unsecured revolving credit facility.

On October 7, 2016, we acquired Hill7 property through a consolidated joint venture. In conjunction with the acquisition, the joint venture closed a $101.0 million mortgage loan with a fixed interest rate of 3.38% per annum. This loan bears interest only payable every month during the term of the loan and principal payment at maturity.

Factors That May Influence Our Operating Results

Business and Strategy

We invest in Class-A office and media and entertainment properties located in high barrier-to-entry, innovation-centric submarkets with significant growth potential. Our positioning within these submarkets allows us to attract and retain quality, growth companies as tenants, many in the technology, media and entertainment sectors. The purchase of properties with a value-add component, typically through off-market transactions, also facilitates our growth. These types of assets afford us the opportunity to capture embedded rent growth and occupancy upside, and to strategically invest capital to reposition and redevelop assets to generate additional cash flow. We take a more measured approach to ground-up development, with most under construction, planned or potential projects located on ancillary sites part of existing operating assets. Management expertise across disciplines supports execution at all levels of the company’s operations. In particular, aggressive leasing and proactive asset management, combined with a focus on conservatively managing our balance sheet, are central to our strategy. 


Rental Revenue

The amount of net rental revenue generated by the properties in our portfolio depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. As of December 31, 2016, the percent leased for our in-service office properties was approximately 91.2% (or 88.7%, excluding leases signed but not commenced as of that date), and the percent leased for the media and entertainment properties (based on 12-month trailing average) was approximately 89.1%. The amount of rental revenue generated by us also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental rates for our office properties are generally below the current average quoted market rate. We believe the average rental rates for our media and entertainment properties are generally equal to current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns or regional downturns affecting our submarkets or downturns in our tenants’ industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.

Conditions in Our Markets

The properties in our portfolio are all located in Northern and Southern California and the Pacific Northwest submarkets. Positive or negative changes in economic or other conditions in Northern and Southern California or the Pacific Northwest, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance.

Operating Expenses

Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants’ base years are generally passed on to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net lease properties. Certain of our properties have been reclassifiedreassessed for property tax purposes as a result of our IPO or their subsequent acquisition and other reassessments remain pending. In the case of completed reassessments, the amount of property taxes we pay reflects the valuations established with the county assessors for the relevant locations of each property as of IPO or their subsequent acquisition. With respect to pending reassessments, we similarly expect the amount of property taxes we pay to reflect the adoption of Accounting Standards Update (“ASU”) 2015-03, valuations established with such county assessors.Interest—Imputation of Interest (“ASU 2015-03”). The Company has reclassified $5.4 million of deferred financing fees from an asset

Taxable REIT Subsidiary

Hudson Pacific Services, Inc., or our services company, is a Maryland corporation that is wholly owned by our operating partnership. We have elected, together with our services company, to treat our services company as a reductiontaxable REIT subsidiary for federal income tax purposes, and we may form additional taxable REIT subsidiaries in the carrying amountfuture. Our services company generally may provide both customary and non-customary services to our tenants and engage in other activities that we may not engage in directly without adversely affecting our qualification as a REIT. Our services company and its wholly owned subsidiaries provide a number of services to certain tenants at our media and entertainment properties and, from time to time, one or more taxable REIT subsidiaries may provide services to our tenants at these and other properties. In addition, our operating partnership has contributed some or all of its interests in certain wholly owned subsidiaries or their assets to our services company. We currently lease space to wholly owned subsidiaries of our services company at our media and entertainment properties and may, from time to time, enter into additional leases with one or more taxable REIT subsidiaries. Any income earned by our taxable REIT subsidiaries will not be included in our taxable income for purposes of the Company’s notes payable. In accordance with ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at 18 June 2015 EITF Meeting, deferred financing fees of $3.3 million related75% or 95% gross income tests, except to the Company’s unsecured revolving credit facilityextent such income is distributed to us as a dividend, in which case such dividend income will qualify under the 95%, but not the 75%, gross income test. Because a taxable REIT subsidiary is subject to federal income tax, and undrawn term loans are included in Prepaid expensesstate and local income tax (where applicable), as a regular C corporation, the income earned by our taxable REIT subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other assets within the Company’s Consolidated Balance Sheets.
Use of Estimatessubsidiaries.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate properties, its accrued liabilities, and its performance-based equity compensation awards. The Company bases its estimates on historical experience, current market conditions, and various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from these estimates.Critical Accounting Policies

F- 18
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



Investment in Real Estate Properties

Acquisitions

Our acquisitions are accounted for using the acquisition method. The results of operations for each of these acquisitions are included in our Consolidated Statements of Operations from the date of acquisition.

During the fourth quarter of 2016 we early adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which changes the definition of a business. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as an asset acquisition.

We evaluate each acquisition of real estate to determine if the integrated set of assets and activities acquired meet the definition of a business and need to be accounted for as a business combination. An integrated set of assets and activities would fail to qualify as a business if either (i) substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii) the integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e. revenue generated before and after the transaction). An acquired process is considered substantive if (i) the process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and experienced in performing the process, (ii) the process cannot be replaced without significant cost, effort, or delay or (iii) the process is considered unique or scarce.

Acquisitions of real estate will generally not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings and improvements and related intangible assets or liabilities) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
When the Company acquireswe acquire properties that are considered business combinations, the purchase price is allocated to various components ofassets acquired and liabilities assumed are fair valued at the acquisition based upon the fair value of each component. The componentsdate. Assets acquired and liabilities assumed include, but are not limited to, land, building and improvements, intangible assets related to above-and below-market leases, intangible assets related to in-place leases, debt and other assumed assets and liabilities. The initial allocation of the purchase priceaccounting for a business combination is based on management’s preliminary assessment, which may differ when final information becomes available. Subsequent adjustments made to the initial purchase price allocationassignment are made within the allocationmeasurement period, which typically does not exceed one year, within the Consolidated Balance Sheets. Acquisition-related expenses associated with business combinations are expensed in the period incurred.

The Company assessesWhen we acquire properties that are considered asset acquisitions, the purchase price is allocated based on relative fair value of the assets acquired and liabilities assumed. There is no measurement period concept for asset acquisitions, with the purchase price accounting being final in the period of acquisition. Additionally, acquisition-related expenses associated with asset acquisition are capitalized as part of the purchase price.

We assess fair value based on levelLevel 2 and levelLevel 3 inputs within the fair value hierarchy,framework, which includes estimated cash flow projections that utilize appropriate discount, and/or capitalization rates, renewal probability and available market information.information, which includes market rental rate and market rent growth rates. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions.

The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant. The fair value of acquired “above-and“above- and below-” market leases isare based on the estimated cash flow projections utilizing discount rates that reflect the risks associated with the leases acquired. The amount recorded is based on the present value of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the extended term for any leases with below-market renewal options. Other intangible assets acquired include amounts for in-place lease values that are based on the Company’sour evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company includeswe include estimates of lost rents at market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions. In estimating costs to execute similar leases, the Company considerswe consider leasing commissions, legal and other related costs. Acquisition-related expenses associated with acquisition of operating properties are expensed in the period incurred.


Cost Capitalization

Cost Capitalization

The Company capitalizesWe capitalize direct construction and development costs, including predevelopment costs, interest, property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a real estate project. Indirect development costs, including salaries and benefits, office rent, and associated costs for those individuals directly responsible for and who spend their time on development activities are also capitalized and allocated to the projects to which they relate. Capitalized personnel costs were approximately $7.3 million and $3.1 million for the years ended December 31, 2015 and 2014, respectively. Interest is capitalized on the construction in progress at a rate equal to the Company’s weighted average cost of debt. Capitalized interest was approximately $6.5 million and $6.9 million for the years ended December 31, 2015 and 2014, respectively. Construction and development costs are capitalized while substantial activities are ongoing to prepare an asset for its intended use. The Company considersWe consider a construction project as substantially complete and held available for occupancy upon the completion of tenant improvements but no later than one year after cessation of major construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as they are incurred. Costs previously capitalized related to abandoned acquisitions or developments are charged to earnings. Expenditures for repairs and maintenance are expensed as they are incurred.

Operating Properties

The properties are generally carried at cost less accumulated depreciation and amortization. The Company computesWe compute depreciation and amortization using the straight-line method over the estimated useful lives of 39 years for building and improvements, 15 years for land improvements, five or seven years for furniture and fixtures and equipment, and over the shorter of asset life or life ofassets as represented in the lease for tenant improvements. Above-table below:
Asset DescriptionEstimated useful life (years)
Building and improvementsShorter of the ground lease term or 39 years
Land improvements15
Furniture and fixtures5 to 7
Tenant improvementsShorter of the estimated useful life or the lease term
We amortize above- and below-market lease intangibles are amortized to revenuethe rental line item of the Consolidated Statements of Operations over the remaining non-cancellable lease terms and bargain renewal periods, if applicable. OtherThe in-place lease intangibles are amortized to expensethe depreciation and amortization line item of the Consolidated Statements of Operations over the remaining non-cancellable lease term. Depreciation is discontinued when a property is identified as held for sale.

F- 19
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
NotesWhen tenants vacate prior to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



Held for sale

The Company classifies properties as held for sale when certain criteria set forth in Accounting Standard Codification (ASC) Topic 360, Property, Plant, and Equipment, are met. At the time a property is classified as held for sale,expiration of their lease, the Company reclassifies itsamortization of intangible assets and liabilities is accelerated. We amortize above- and below-market ground lease intangibles to held for sale inthe office operating expense and media and entertainment operating expense line items of the Consolidated Balance Sheets forStatements of Operations over the periods presented and cease recognizing depreciation expense. Properties held for sale are reported at the lower of their carrying value or their estimated fair value, less estimated costs to sell. At December 31, 2015 and 2014, the Company classified one property as held for sale.remaining non-cancellable lease terms.

Impairment of Long-Lived Assets

The Company assessesWe assess the carrying value of real estate assets and related intangibles for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in accordance with GAAP.generally accepted accounting principles in the United States (“GAAP”). Impairment losses are recorded on real estate assets held for investment when indicators of impairment are present and the future undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. The Company recognizesWe recognize impairment losses to the extent the carrying amount exceeds the fair value of the properties. The Company recorded no impairment charges during the years ended December 31, 2015 and 2014.

Goodwill

Goodwill represents the excess of acquisition cost over the fair value of net tangible and identifiable intangible assets acquired and liabilities assumed in business acquisitions. The Company’s goodwill balance as of December 31, 2015 and 2014, respectively, was $8.8 million. We do not amortize this asset but instead analyze it on an annual basis for impairment. No impairment indicators have been noted during the years ended December 31, 2015 and 2014, respectively.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased.

The Company maintains some of its cash in bank deposit accounts that, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.

Restricted Cash

Restricted cash consists of amounts held by lenders to provide for future real estate taxes and insurance expenditures, repairs and capital improvements reserves, general and other reserves and security deposits.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts due for monthly rents and other charges. The Company maintainsWe maintain an allowance for doubtful accounts for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. The Company monitorsWe monitor the liquidity and creditworthiness of its tenants and operators on an ongoing basis. This evaluation considers industry and economic conditions, property performance, credit enhancements and other factors. The Company evaluatesWe evaluate the collectability of accounts receivable based on a combination of factors. The allowance for doubtful accounts is based on specific identification of uncollectible accounts and the Company’sour historical collection experience. The Company recognizesWe recognize an allowance for doubtful accounts based on the length of time the receivables are past due, the current business environment and the Company’sour historical experience. Historical experience has been within management’s expectations. The Company recognized $0.2 million, $(0.1) million and $1.0 million of bad debt (recovery) expense for the years ended December 31, 2015, 2014 and 2013, respectively.

The following table represents the Company’s accounts receivable net of allowance for doubtful accounts as of:
  December 31, 2015 December 31, 2014
Accounts receivable $22,180
 $17,287
Allowance for doubtful accounts (1,021) (1,040)
Accounts receivable, net $21,159
 $16,247

F- 20
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



Straight line rent receivable and Allowance for Doubtful Accounts
For straight-line rent amounts, the Company’sour assessment is based on amounts estimated to be recoverable over the term of the lease. The Company evaluatesWe evaluate the collectability of straight linestraight-line rent receivablereceivables based on length of time the related rental receivables are past due, the current business environment and the Company’s historical experience.

The following table represents the Company’s straightRevenue Recognition-line rent receivables net of allowance for doubtful accounts as of:
  December 31, 2015 December 31, 2014
Straight—line rent receivables $60,606
 $33,560
Allowance for doubtful accounts (970) (554)
Straight—line rent receivables, net $59,636
 $33,006

Notes Receivable

On August 19, 2014, the Company entered into a loan participation agreement for a loan with a maximum principal of $140.0 million. The Company’s share was 23.77%, or $33.3 million. The receivable under this agreement was classified as a Note Receivable on the Consolidated Balance Sheets. The Note Receivable is secured by a real estate property and bears interest at 11.0% and matures on August 22, 2016. Interest is payable monthly with the principal due at maturity. The Company received a $0.4 million commitment fee as a result of this transaction. The balance as of December 31, 2015, net of the accretion of commitment fee, was $28.7 million.

Revenue Recognition

The Company recognizesWe recognize 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. If the lease provides for tenant

improvements, the Company determineswe determine whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company.us. When the Company iswe are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

whether the tenant or landlord retains legal title to the improvements at the end of the lease term;

whether the tenant improvements are unique to the tenant or general-purpose in nature; and

whether the tenant improvements are expected to have any residual value at the end of the lease.

Certain leases provide for additional rents contingent upon a percentage of the tenant’s revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant, or estimates of tenant results, exceed the base amount or other thresholds. Such revenue is recognized only after the contingency has been removed (when the related thresholds are achieved), which may result in the recognition of rental revenue in periods subsequent to when such payments are received.

Other property-related revenue is revenue that is derived from the tenants’ use of lighting, equipment rental, parking, power, HVAC and telecommunications (telephone and internet). Other property-related revenue is recognized when these items are provided.

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

F- 21
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



The Company recognizesWe recognize gains on sales of properties upon the closing of the transaction with the purchaser. Gains on properties sold are recognized using the full accrual method when (i) the collectability of the sales price is reasonably assured, (ii) the Company iswe are not obligated to perform significant activities after the sale, (iii) the initial investment from the buyer is sufficient and (iv) other profit recognition criteria have been satisfied. Gains on sales of properties may be deferred in whole or in part until the requirements for gain recognition have been met.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the respective loans and are reported net of accumulated amortization as of December 31, 2015 and 2014 in the Notes payable, net and Prepaid expenses and other assets line item of the Consolidated Balance Sheets pursuant to the adoption of ASU 2015-03 and ASU 2015-15.    

Interest Rate Contracts

The Company manages interest rate risk associated with borrowings by entering into interest rate contracts. The Company recognizes all interest rate contracts on the consolidated balance sheet on a gross basis at fair value. Interest rate contracts that are not effective hedges are adjusted to fair value and the changes in fair value are reflected as income or expense. If the interest rate contract is an effective hedge, depending on the nature of the hedge, changes in the fair value are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income (loss), which is a component of equity. The ineffective portion of an interest rate contract’s change in fair value is immediately recognized in earnings.

The Company held seven and three interest rate contracts as of December 31, 2015 and 2014, respectively, all of which have been accounted for as effective cash flow hedges.

Stock-Based Compensation

The Company recognizes the expense for the fair value of equity-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (referred to as ASC Topic 718). Grants cost of restricted stock, restricted stock units and performance units under the Company’sour equity incentive award plans are accounted for under ASC Topic 718. The Company’s718, Compensation-Stock Compensation (“ASC 718”). During the fourth quarter of 2016, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), and elected to account for forfeitures of awards as they occur.

Our compensation committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs.

Income Taxes

The Company’sOur property-owning subsidiaries are limited liability companies and are treated as pass-through entities or disregarded entities (or, in the case of the entityentities that ownsown the 1455 Market Street property, a REIT)and Hill7 properties, REITs) for federal income tax purposes. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements for the activities of these entities.

We have elected to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 2010. We believe that we have operated in a manner that has allowed us to qualify as a REIT for federal income tax purposes commencing with such taxable year, and we intend to continue operating in such manner. To qualify as a REIT, we are required to distribute at least 90% of our net taxable income, excluding net capital gains, to our stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership.

Provided that we continue to qualify for taxation as a REIT, we are generally not subject to corporate level income tax on the earnings distributed currently to our stockholders. If we fail to qualify as a REIT in any taxable year, and are unable to avail ourselves of certain savings provisions set forth in the Code, all of our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax. Unless entitled to relief under specific statutory provisions, we would be ineligible to elect to be treated as a REIT for the four taxable years following the year for which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.

We own and may acquire direct or indirect interests in one or more Subsidiary REITs. A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii) shares in such REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs and (iii) it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions.    

We believe that our operating partnership is properly treated as a partnership for federal income tax purposes. As a partnership, our operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including us, is allocated, and may be required to pay tax with respect to, its share of our operating partnership’s income. As such, no provision for federal income taxes has been included for the operating partnership.

We have elected, together with one of our subsidiaries, to treat such subsidiary as a taxable REIT subsidiary (“TRS”) for federal income tax purposes. Certain activities that we may undertake, such as non-customary services for our tenants and holding assets that we cannot hold directly, will be conducted by a TRS. A TRS is subject to federal and, where applicable, state income taxes on its net income.

We are subject to the statutory requirements of the states in which we conduct business.

We periodically evaluate our tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of December 31, 2016, we have not established a liability for uncertain tax positions.

We and our TRS file income tax returns with the United States federal government and various state and local jurisdictions. We and our TRS are no longer subject to tax examinations by tax authorities for years prior to 2012. Generally, we have assessed our tax positions for all open years, which include 2012 to 2016, and concluded that there are no material uncertainties to be recognized.

Results of Operations

The following table identifies each of the properties in our portfolio acquired through December 31, 2016 (excluding properties sold prior to January 1, 2016):
Properties Acquisition Date Square Feet 
Consideration Paid
(In thousands)
Predecessor properties:      
875 Howard Street 2/15/2007 286,270
 $—
Sunset Gower Studios 8/17/2007 545,673
 —
Sunset Bronson Studios 1/30/2008 308,026
 —
Technicolor Building 6/1/2008 114,958
 —
Properties acquired after IPO:      
Del Amo Office 8/13/2010 113,000
 27,327
9300 Wilshire 8/24/2010 61,224
 14,684
222 Kearny Street 10/8/2010 148,797
 34,174

1455 Market Street(1)
 12/16/2010 1,025,833
 92,365
Rincon Center 12/16/2010 580,850
 184,571
10950 Washington 12/22/2010 159,024
 46,409
604 Arizona 7/26/2011 44,260
 21,373
275 Brannan Street 8/19/2011 54,673
 12,370
625 Second Street 9/1/2011 138,080
 57,119
6922 Hollywood 11/22/2011 205,523
 92,802
6050 Sunset Blvd. & 1445 N. Beachwood Drive 12/16/2011 20,032
 6,502
10900 Washington 4/5/2012 9,919
 2,605
901 Market Street 6/1/2012 206,199
 90,871
Element LA 9/5/2012 247,545
 88,436
1455 Gordon Street 9/21/2012 5,921
 2,385
Pinnacle I(2)
 11/8/2012 393,777
 209,504
3401 Exposition 5/22/2013 63,376
 25,722
Pinnacle II(2)
 6/14/2013 230,000
 136,275
Seattle Portfolio (First & King, Met Park North and Northview Center) 7/31/2013 844,980
 368,389
1861 Bundy 9/26/2013 36,492
 11,500
Merrill Place 2/12/2014 193,153
 57,034
3402 Pico (Existing) 2/28/2014 50,687
 18,546
12655 Jefferson(3)
 10/14/2014 100,756
 38,000
EOP Northern California Portfolio (see table on next page for property list)(4)
 4/1/2015 7,941,273
 3,767,869
4th & Traction 5/22/2015 120,937
 49,250
405 Mateo 8/17/2015 83,285
 40,000
11601 Wilshire 7/1/2016 500,475
 311,000
Hill7 10/7/2016 285,680
 179,800
Page Mill Hill 12/12/2016 182,676
 150,000
Properties under development(5):
      
Icon(6)
 N/A 323,273
 N/A
CUE(7)
 N/A 91,953
 N/A
450 Alaskan Way(8)
 N/A 166,800
 N/A
Total   15,885,380
 $6,136,882
_____________
(1)We sold a 45% joint venture interest in the 1455 Market Street property on January 7, 2015.
(2)We acquired a 98.25% joint venture interest in the Pinnacle I property on November 8, 2012. On June 14, 2013 our joint venture partner contributed its interest in Pinnacle II, which reduced our entire interest in the joint venture to 65.0%.
(3)This property was sold during the fourth quarter of 2016.
(4)Includes Bayhill Office Center, which was sold on January 14, 2016, Patrick Henry Drive, which was sold on April 7, 2016, and One Bay Plaza, which was sold on June 1, 2016.
(5)The properties under development were included within acquisitions listed above.
(6)This development was completed in the fourth quarter of 2016 and is estimated to be stabilized in the second quarter of 2017.
(7)We estimate this development will be completed in the third quarter of 2017 and stabilized in the second quarter of 2019.
(8)We estimate this development will be completed in the fourth quarter of 2017 and stabilized in the second quarter of 2018.



The following table identifies each of the properties that were acquired as part of the EOP Acquisition (excluding properties sold prior to January 1, 2016):
PropertiesSquare Feet
Properties currently owned:
Metro Center730,215
2180 Sand Hill Road45,613
Campus Center471,580
Palo Alto Square328,251
Lockheed42,899
3400 Hillview207,857
Foothill Research Center195,376
Clocktower Square100,344
Page Mill Center176,245
555 Twin Dolphin Plaza198,936
Shorebreeze230,932
333 Twin Dolphin Plaza182,789
Towers at Shore Center334,483
Skyway Landing247,173
Gateway609,093
Metro Plaza456,921
1740 Technology206,876
Skyport Plaza418,086
Peninsula Office Park510,789
Concourse944,386
Techmart Commerce Center284,440
Embarcadero Place197,402
Properties sold:
Bayhill Office Center554,328
One Bay Plaza195,739
Patrick Henry Drive70,520
Total7,941,273

The following table identifies each of the properties that were disposed through December 31, 2016:
Property Disposition Date Square Feet 
Sales Price(1) (in millions)
City Plaza 7/12/2013 333,922
 $56.0
Tierrasanta 7/16/2014 112,300
 19.5
First Financial 3/6/2015 223,679
 89.0
Bay Park Plaza 9/29/2015 260,183
 90.0
Bayhill Office Center 1/14/2016 554,328
 215.0
Patrick Henry Drive 4/7/2016 70,520
 19.0
One Bay Plaza 6/1/2016 195,739
 53.4
12655 Jefferson 11/4/2016 100,756
 80.0
Total(2)(3)
   1,851,427
 $621.9

_____________
(1)Represents gross sales price before certain credits, prorations and closing costs.
(2)Excludes the disposition of a 45% interest in the 1455 Market Street office property on January 7, 2015.
(3)Excludes our sale of an option to acquire land at 9300 Culver on December 6, 2016.
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 this 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 year ended December 31, 2016 to the year ended December 31, 2015

Net Operating Income

We evaluate performance based upon property net operating income (“NOI”) from continuing operations. NOI is not a measure of operating results or cash flows from operating activities as measured by GAAP and should not be considered an alternative to income from continuing operations, 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 income from continuing operations. We calculate net operating income as net income (loss) excluding corporate general and administrative expenses, depreciation and amortization, impairments, gains/losses on sales of real estate, interest expense, acquisition-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 on a GAAP basis, 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 evaluates NOI by evaluating the performance from the following property groups:

Same-Store Properties—which includes all of the properties owned and included in our stabilized portfolio as of January 1, 2015 and still owned and included in the stabilized portfolio as of December 31, 2016,

Non-Same-Store properties, development projects, redevelopment properties, and lease-up properties as of December 31, 2016; and other properties not owned or in operation from January 1, 2015 through December 31, 2016. The activity from the EOP acquisition is included in non-same store properties.

The following table presents our NOI for the years ended December 31, 2016 and 2015 and a reconciliation of net income (loss) to NOI:
  Year Ended December 31,    
  2016 2015 Dollar Change Percentage Change
Net income (loss) $43,758
 $(16,082) $59,840
 372.1 %
Adjustments:        
Interest expense 76,044
 50,667
 25,377
 50.1
Interest income (260) (124) (136) 109.7
Unrealized loss on ineffective portion of derivative instruments 1,436
 —
 1,436
 100.0
Acquisition-related expenses 376
 43,336
 (42,960) (99.1)
Other (income) expense (1,558) 62
 (1,620) (2,612.9)
Gains on sales (30,389) (30,471) 82
 (0.3)
Income from operations 89,407
 47,388
 42,019
 88.7
Adjustments:        
General and administrative 52,400
 38,534
 13,866
 36.0
Depreciation and amortization 269,087
 245,071
 24,016
 9.8
Net Operating Income $410,894
 $330,993
 $79,901
 24.1 %
         
Same-Store net operating income $155,989
 $137,148
 $18,841
 13.7 %
Non-Same-Store net operating income 254,905
 193,845
 61,060
 31.5
Net Operating Income $410,894
 $330,993
 $79,901
 24.1 %

The following table summarizes certain statistics of our same-store office and media and entertainment properties for the years ended December 31, 2016 and 2015:
 Year Ended December 31,
 2016 2015
Number of properties20
 20
Rentable square feet4,433,689
 4,433,689
Ending % leased96.2% 94.0%
Ending % occupied95.4% 92.4%
Average % occupied for the period93.0% 92.8%
Average annual rental rate per square foot$36.36
 $34.01

The following table gives further detail on our NOI for the years ended December 31, 2016 and 2015:
 Year Ended December 31,
 2016 2015
 Same-StoreNon-Same-StoreTotal Same-StoreNon-Same-StoreTotal
Revenues       
Office  
   
Rental$156,258
$330,698
$486,956
 $144,822
$249,721
$394,543
Tenant recoveries28,463
55,923
84,386
 27,703
38,532
66,235
Parking and other16,096
5,798
21,894
 15,450
5,490
20,940
Total office revenues200,817
392,419
593,236
 187,975
293,743
481,718
        
Media & Entertainment  

    
Rental26,837
—
26,837
 23,027
—
23,027
Tenant recoveries1,884
—
1,884
 943
—
943
Other property-related revenue17,380
—
17,380
 14,849
—
14,849
Other302
—
302
 313
—
313
Total Media & Entertainment revenues46,403
—
46,403
 39,132
—
39,132
        
Total revenues247,220
392,419
639,639
 227,107
293,743
520,850
        
Operating expenses       
Office operating expenses65,421
137,514
202,935
 66,233
99,898
166,131
Media & Entertainment operating expenses25,810
—
25,810
 23,726
—
23,726
Total operating expenses91,231
137,514
228,745
 89,959
99,898
189,857
        
Office Net Operating Income135,396
254,905
390,301
 121,742
193,845
315,587
Media & Entertainment Net Operating Income20,593
—
20,593
 15,406
—
15,406
Net Operating Income$155,989
$254,905
$410,894
 $137,148
$193,845
$330,993


The following table gives further detail on our change to NOI for the years ended December 31, 2016 and 2015:
 Year Ended December 31, 2016 as compared to the Year Ended December 31, 2015
 Same-Store Non-Same-Store Total
 Dollar ChangePercent Change Dollar ChangePercent Change Dollar ChangePercent Change
Revenues        
Office        
Rental$11,436
7.9 % $80,977
32.4% $92,413
23.4 %
Tenant recoveries760
2.7
 17,391
45.1
 18,151
27.4
Parking and other646
4.2
 308
5.6
 954
4.6
Total office revenues12,842
6.8
 98,676
33.6
 111,518
23.2
         
Media & Entertainment        
Rental3,810
16.5
 $—
—
 3,810
16.5
Tenant recoveries941
99.8
 —
—
 941
99.8
Other property-related revenue2,531
17.0
 —
—
 2,531
17.0
Other(11)(3.5) —
—
 (11)(3.5)
Total Media & Entertainment revenues7,271
18.6
 —
—
 7,271
18.6
         
Total revenues20,113
8.9
 98,676
33.6
 118,789
22.8
         
Operating expenses        
Office operating expenses(812)(1.2) 37,616
37.7
 36,804
22.2
Media & Entertainment operating expenses2,084
8.8
 —
—
 2,084
8.8
Total operating expenses1,272
1.4
 37,616
37.7
 38,888
20.5
         
Office Net Operating Income13,654
11.2
 61,060
31.5
 74,714
23.7
Media & Entertainment Net Operating Income5,187
33.7
 —
—
 5,187
33.7
Net Operating Income$18,841
13.7 % $61,060
31.5% $79,901
24.1 %

NOI increased $79.9 million, or 24.1%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily resulting from:

A $13.7 million or 11.2% increase in NOI from our same-store office properties resulting primarily from higher rents, in turn resulting primarily from rental income related to new leases signed at our 1455 Market Street (Uber and Vevo) and 625 Second Street (Anaplan, Metamarkets and Github) properties at higher rents than expiring leases, and increased tenant recoveries due to increased property tax recoveries arising from the reassessment of the Technicolor Building and Element LA. The increase was partially offset by straight-line rent write-off related to our 875 Howard Street property (Heald College) recognized in the second quarter of 2015 and decreased tenant recoveries due to lower property tax recoveries resulting from the reassessment of the 1455 Market Street property.

A $61.1 million or 31.5% increase in net operating income from our non-same-store properties driven primarily by the EOP Acquisition and 2016 acquisitions. The increase was also related to higher rents and occupancy due to lease-up of our Element LA (Riot Games), 901 Market Street (Saks), Page Mill Center (Toyota Research Institute and Stanford), Skyport Plaza (Qualcomm), Lockheed, and Metro Center (BrightEdge) properties. The increase was partially offset by the sale of our First Financial (sold in March 2015), Bay Park Plaza (sold in September 2015), Bayhill Office Center (sold in January 2016) and One Bay Plaza (sold in June 2016) properties.

A $5.2 million or 33.7% increase in NOI from our same-store media and entertainment properties resulting primarily from higher occupancy at Sunset Bronson Studios and Sunset Gower Studios. In the first quarter of 2015, we decided to take certain buildings and stages offline to facilitate our Icon and CUE developments and other longer-term plans for the Sunset Bronson Studios property. In addition, other property-related revenues increased primarily due to the completion of parking structures at Sunset Bronson Studios and Sunset Gower Studios in the fourth quarter of 2015. The increase in other property-related revenue largely resulted from higher production activity and revenues associated with lighting and grip at Sunset Bronson Studios.


Office NOI

Same-Store

Same-Store office rental revenue increased $11.4 million or 7.9% to $156.3 million for the year ended December 31, 2016 compared to $144.8 million for the year ended December 31, 2015. The increase is primarily due to rental income relating to new leases signed at our 1455 Market Street (Uber and Vevo) and 625 Second Street (Anaplan, Metamarkets and Github) properties at higher rents than expiring leases. The increase was partially offset by a straight-line rent write-off related to the 875 Howard Street property (Heald College) recognized in the second quarter of 2015.

Same-Store office tenant recoveries increased by $0.8 million or 2.7% to $28.5 million for the year ended December 31, 2016 compared to $27.7 million for the year ended December 31, 2015. The increase is primarily related to increased property tax recovery resulting from reassessments of the Technicolor Building and Element LA properties, partially offset by lower property tax recovery resulting from a reassessment of the 1455 Market Street property.

Same-Store office parking and other revenue was $16.1 million for the year ended December 31, 2016, relatively flat as compared to $15.5 million for the year ended December 31, 2015.

Same-Store office operating expenses were $65.4 million for the year ended December 31, 2016, relatively flat as compared to $66.2 million for the year ended December 31, 2015.

Non-Same-Store

Non-Same-Store office rental revenue increased $81.0 million, or 32.4%, to $330.7 million for the year ended December 31, 2016 compared to $249.7 million for the year ended December 31, 2015, driven primarily by the EOP Acquisition and 11601 Wilshire acquisition. The increase was also related to higher rents and occupancy attributable to lease-up of our Element LA (Riot Games), 901 Market Street (Saks), Page Mill Center (Toyota Research Institute and Stanford), Skyport Plaza (Qualcomm), Lockheed and Metro Center (BrightEdge) properties. The increase was partially offset by the sale of our First Financial (sold in March 2015), Bay Park Plaza (sold in September 2015), Bayhill Office Center (sold in January 2016) and One Bay Plaza (sold in June 2016) properties.

Non-Same-Store office tenant recoveries increased $17.4 million, or 45.1%, to $55.9 million for the year ended December 31, 2016 compared to $38.5 million for the year ended December 31, 2015. The increase is primarily attributable to the EOP Acquisition, 11601 Wilshire acquisition, and 100% occupancy at our Element LA property, partially offset by the sale of our First Financial (sold in March 2015), Bay Park Plaza (sold in September 2015), Bayhill Office Center (sold in January 2016), and One Bay Plaza (sold in June 2016) properties.

Non-Same-Store office parking and other revenue was $5.8 million for the year ended December 31, 2016, relatively flat as compared to $5.5 million for the year ended December 31, 2015.

Non-Same-Store office operating expenses increased by $37.6 million, or 37.7%, to $137.5 million for the year ended December 31, 2016 compared to $99.9 million for the year ended December 31, 2015. The increase is primarily attributable to the EOP Acquisition, 11601 Wilshire acquisition, and 100% occupancy at our Element LA property, partially offset by the sale of our First Financial (sold in March 2015), Bay Park Plaza (sold in September 2015), Bayhill Office Center (sold in January 2016) and One Bay Plaza (sold in June 2016) properties.

Same-Store Media & Entertainment

Media and entertainment rental revenue, tenant recoveries and other property-related revenue increased by $7.3 million or 18.6% to $46.4 million for the year ended December 31, 2016 compared to $39.1 million for the year ended December 31, 2015. The increase is primarily attributable to a $3.8 million increase in rental revenues to $26.8 million and a $2.5 million increase in other property-related revenue to $17.4 million. The increase in rental revenue is primarily due to higher occupancy at Sunset Gower Studios and Sunset Bronson Studios. The increase in other property-related revenue largely resulted from higher production activity and revenues associated with lighting and grip at Sunset Bronson Studios during the year ended December 31, 2016 as compared to the same period in 2015.

Media and entertainment operating expenses increased by $2.1 million, or 8.8%, to $25.8 million for the year ended December 31, 2016 compared to $23.7 million for the year ended December 31, 2015. The increase is primarily attributable to higher occupancy at Sunset Gower Studios and Sunset Bronson Studios

Other Expense (Income)

General and administrative expenses include wages and salaries for corporate level employees, accounting, legal and other professional services, office supplies, entertainment, travel, and automobile expenses, telecommunications and computer-related expenses, and other miscellaneous items. General and administrative expenses increased $13.9 million, or 36.0%, to $52.4 million for the year ended December 31, 2016 compared to $38.5 million for the year ended December 31, 2015. The increase in general and administrative expenses was primarily attributable to stock-compensation awards, office expenses, shareholder relations costs and increased staffing to meet operational needs arising from growth related to the EOP Acquisition.

Depreciation and amortization expense increased $24.0 million, or 9.8%, to $269.1 million for the year ended December 31, 2016 compared to $245.1 million for the year ended December 31, 2015. The increase was primarily related to depreciation expenses associated with properties in the EOP Acquisition and acquisitions in 2016. The remaining increase is related to tenant improvement depreciation expense associated with the lease-up of our Element LA and 1455 Market Street properties, lease termination at our Rincon Center property, and increase in depreciation expense at Sunset Gower Studios related to the recently completed parking garage, partially offset by the reduction of depreciation expense as a result of the sale of our 2015 and 2016 disposed properties, and increased depreciation expense related to our 875 Howard Street property (Heald College) due to an early termination in the second quarter of 2015.

Interest expense increased $25.4 million, or 50.1%, to $76.0 million for the year ended December 31, 2016 compared to $50.7 million for the year ended December 31, 2015. At December 31, 2016, we had $2.71 billion, before deferred loan costs recorded as a net against the loan balance, of notes payable, compared to $2.28 billion at December 31, 2015. The increase was primarily attributable to $400.0 million of term loans and private placement borrowings and additional borrowings related to our Hill7 loan, partially offset by interest savings related to our paydown of our five-year term loan due April 2020, repayment of our indebtedness associated with our 901 Market Street property, and paydown on our indebtedness associated with our Sunset Gower Studios/Sunset Bronson Studios property. The increase in interest expense was further offset by increased capitalized interest primarily due to the Icon, CUE, 4th & Traction, and 405 Mateo developments, partially offset by lower capitalized interest primarily due to Element LA redevelopment during the year ended December 31, 2016 compared to the same period in 2015.

We recognized unrealized loss of $1.4 millionrelated to a portion of our derivative instruments that was evaluated to be ineffective in 2016. In July 2016, we amended the interest rate swaps to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swaps as a hedge in order to minimize the ineffective portion of the original derivative instruments.
Acquisition-related expenses decreased $43.0 million, or 99.1%, to $0.4 million for the year ended December 31, 2016 compared to $43.3 million for the year ended December 31, 2015. We incurred $43.3 million of acquisition-related expenses associated with the EOP Acquisition and incurred $0.4 million of acquisition-related expenses associated with the acquisition of our 11601 Wilshire property purchased on July 1, 2016.

During 2016 we completed the sale of our Bayhill Office Center, Patrick Henry Drive, One Bay Plaza, and 12655 Jefferson properties and sale related to our option to acquire land at 9300 Culver, which generated gains of $30.4 million for the year ended December 31, 2016 compared to a $30.5 million gain on sale of real estate for the year ended December 31, 2015 resulting from the sale of our First Financial and Bay Park Plaza properties.




Comparison of the year ended December 31, 2015 to the year ended December 31, 2014

Management evaluates NOI by evaluating the performance from the following property groups for the comparison of the year ended December 31, 2015 to 2014 results of operations:

Same-Store Properties—which includes all of the properties owned and included in our stabilized portfolio as of January 1, 2014 and still owned and included in the stabilized portfolio as of December 31, 2015,

Non-Same-Store properties, development projects, redevelopment properties, and lease-up properties as of December 31, 2015; and other properties not owned or in operation from January 1, 2014 through December 31, 2015.

The following table presents our NOI for the years ended December 31, 2015 and 2014 and a reconciliation of net (loss) income to NOI:
  Year Ended December 31,    
  2015 2014 Dollar Change Percentage Change
Net (loss) income $(16,082) $23,522
 $(39,604) (168.4)%
Adjustments:     
 
Interest expense 50,667
 25,932
 24,735
 95.4
Interest income (124) (30) (94) 313.3
Acquisition-related expenses 43,336
 4,641
 38,695
 833.8
Other expense (income) 62
 (14) 76
 542.9
Gains on sales (30,471) (5,538) (24,933) 450.2
Net loss from discontinued operations —
 164
 (164) (100.0)
Income from operations 47,388
 48,677
 (1,289) (2.6)
Adjustments:     
 
General and administrative 38,534
 28,253
 10,281
 36.4
Depreciation and amortization 245,071
 72,216
 172,855
 239.4
Net Operating Income $330,993
 $149,146
 $181,847
 121.9 %
         
Same-Store net operating income $134,020
 $133,186
 $834
 0.6 %
Non-Same-Store net operating income 196,973
 15,960
 181,013
 1,134.2
Net Operating Income $330,993
 $149,146
 $181,847
 121.9 %
The following table summarizes certain statistics of our same-store office and media and entertainment properties for the years ended December 31, 2015 and 2014:
 Year Ended December 31,
 2015 2014
Number of properties19
 19
Rentable square feet4,355,341
 4,355,341
Ending % leased93.8% 95.6%
Ending % occupied92.4% 93.4%
Average % occupied for the period92.6% 90.6%
Average annual rental rate per square foot$34.48
 $33.07


The following tables give further detail on the Net Operating Income from continuing operations, as defined, for our total portfolio for the years ended December 31, 2015 and 2014:
 Year Ended December 31,
 2015 2014
 Same-StoreNon-Same-StoreTotal Same StoreNon-Same-StoreTotal
Revenues       
Office  
   
Rental$142,928
$251,615
$394,543
 $136,723
$20,083
$156,806
Tenant recoveries27,505
38,730
66,235
 32,722
1,787
34,509
Parking and other15,322
5,618
20,940
 19,478
2,993
22,471
Total office revenues185,755
295,963
481,718
 188,923
24,863
213,786
        
Media & Entertainment       
Rental23,027
—
23,027
 22,138
—
22,138
Tenant recoveries943
—
943
 1,128
—
1,128
Other property-related revenue14,849
—
14,849
 15,751
—
15,751
Other313
—
313
 612
—
612
Total Media & Entertainment revenues39,132
—
39,132
 39,629
—
39,629
        
Total revenues224,887
295,963
520,850
 228,552
24,863
253,415
        
Operating expenses       
Office operating expenses67,141
98,990
166,131
 69,469
8,903
78,372
Media & Entertainment operating expenses23,726
—
23,726
 25,897
—
25,897
Total operating expenses90,867
98,990
189,857
 95,366
8,903
104,269
        
Office Net Operating Income118,614
196,973
315,587
 119,454
15,960
135,414
Media & Entertainment Net Operating Income15,406
—
15,406
 13,732
—
13,732
Net Operating Income$134,020
$196,973
$330,993
 $133,186
$15,960
$149,146


 Year Ended December 31, 2015 as compared to the Year Ended December 31, 2014
 Same-Store Non-Same-Store Total
 Dollar ChangePercent Change Dollar ChangePercent Change Dollar ChangePercent Change
Revenues        
Office        
Rental$6,205
4.5 % $231,532
1,152.9% $237,737
151.6 %
Tenant recoveries(5,217)(15.9) 36,943
2,067.3
 31,726
91.9
Parking and other(4,156)(21.3) 2,625
87.7
 (1,531)(6.8)
Total office revenues(3,168)(1.7) 271,100
1,090.4
 267,932
125.3
         
Media & Entertainment        
Rental889
4.0
 —
—
 889
4.0
Tenant recoveries(185)(16.4) —
—
 (185)(16.4)
Other property-related revenue(902)(5.7) —
—
 (902)(5.7)
Other(299)(48.9) —
—
 (299)(48.9)
Total Media & Entertainment revenues(497)(1.3) —
—
 (497)(1.3)
         
Total revenues(3,665)(1.6) 271,100
1,090.4
 267,435
105.5
         
Operating expenses        
Office operating expenses(2,328)(3.3) 90,087
1,011.9
 87,759
112.0
Media & Entertainment operating expenses(2,171)(8.4) —
—
 (2,171)(8.4)
Total operating expenses(4,499)(4.7) 90,087
1,011.9
 85,588
82.1
         
Office Net Operating Income(840)(0.7) 181,013
1,134.2
 180,173
133.1
Media & Entertainment Net Operating Income1,674
12.2
 —
—
 1,674
12.2
Net Operating Income$834
0.6 % $181,013
1,134.2% $181,847
121.9 %

Net Operating Income increased $181.8 million, or 121.9%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014, primarily resulting from:

A $181.0 million or 1,134.2% increase in net operating income from our non-same-store properties resulting primarily from the EOP Acquisition on April 1, 2015. The remaining increase is a result of lease-up of our Element LA (Riot Games), 901 Market Street (Nordstrom Rack, Saks and Company, Nerdwallet), 3401 Exposition (Deluxe Entertainment Services) properties and income from our purchase of the Broadway properties-secured note receivable, which we purchased on August 19, 2014. This increase was partially offset by the sale of our First Financial property on March 5, 2015 and the sale of our Tierrasanta property on July 16, 2014.

A $0.8 million or 0.7% decrease in net operating income from our same-store office properties resulting primarily from a decrease in lease termination fees in the current year as compared to the prior year. During the year ended December 31, 2014 we received one-time lease termination fees from Fox Interactive ($3.1 million) and The Children’s Place ($1.2 million). The decrease was partially offset by the lease-up of our 1455 Market Street (Uber and Square) and Rincon Center (Sales Force) properties.

A $1.7 million or 12.2% increase in NOI from our same-store media and entertainment properties resulting primarily from the higher rental revenue generated by strong occupancy and heightened production activity at the Sunset Gower Studios property, partially offset by our decision to take certain buildings and stages offline to facilitate our Icon development and other longer-term plans for the Sunset Bronson Studios property.

The year-over-year changes in the items that comprise same-store net operating income are primarily attributable to the factors discussed below.

Same-Store Office

Same-Store office rental revenue increased $6.2 million or 4.5% to $142.9 million for the year ended December 31, 2015 compared to $136.7 million for the year ended December 31, 2014. The increase is primarily due to rental income relating

to new leases signed at our 1455 Market Street (Uber and Square) and Rincon Center (Sales Force) properties at higher rents than expiring leases, partially offset by a one-time GAAP straight line rent write-off at our 875 Howard Street property (Heald College).

Same-Store office tenant recoveries decreased by $5.2 million or 15.9% to $27.5 million for the year ended December 31, 2015 compared to $32.7 million for the year ended December 31, 2014. The decrease is primarily related to $3.6 million of
one-time property tax recoveries resulting from the reassessment of the 1455 Market Street and Rincon Center properties, and
to a lesser extent other assets within the San Francisco portfolio, for all applicable periods prior to the third quarter of 2014.

Same-Store office parking and other revenue decreased by $4.2 million or 21.3% to $15.3 million for the year ended December 31, 2015 compared to $19.5 million for the year ended December 31, 2014. The decrease is primarily due to a one time termination fee at our 625 Second Street (Fox Interactive) and 222 Kearny Street (The Children’s Place) properties recognized in 2014.

Same-Store office operating expenses decreased by $2.3 million or 3.3% to $67.1 million for the year ended December 31, 2015 compared to $69.5 million for the year ended December 31, 2014. The decrease is primarily due to one time property tax expenses of $4.7 million resulting from the reassessment of the 1455 Market Street and Rincon Center properties, and to a lesser extent other assets within the San Francisco portfolio, for all applicable periods prior to the third quarter of 2014, partially offset by increases in operating expenses across all same store properties.

Same-Store Media & Entertainment

Media and entertainment rental revenue, tenant recoveries and other property-related revenue decreased by $0.5 million or 1.3% to $39.1 million for the year ended December 31, 2015 compared to $39.6 million for the year ended December 31, 2014. The decrease is primarily due to the decision to take certain buildings and stages offline to facilitate the Icon development and other longer-term plans for the Sunset Bronson Studios property, partially offset by higher tenant recoveries generated by strong occupancy at the Sunset Gower Studios property.

Media and entertainment operating expenses decreased $2.2 million, or 8.4%, to $23.7 million for the year ended December 31, 2015 compared to $25.9 million for the year ended December 31, 2014. The decrease is the result of our decision to take certain buildings and stages offline to facilitate the Icon development and other longer-term plans for the Sunset Bronson Studios property, partially offset by additional lighting expense in connection with the heightened production activity at the Sunset Gower Studios property.

Other Expense (Income)

General and administrative expenses include wages and salaries for corporate level employees, accounting, legal and other professional services, office supplies, entertainment, travel, and automobile expenses, telecommunications and computer-related expenses, and other miscellaneous items. General and administrative expenses increased $10.3 million, or 36.4%, to $38.5 million for the year ended December 31, 2015 compared to $28.3 million for the year ended December 31, 2014. The increase in general and administrative expenses was primarily attributable to the adoption of the 2015 OPP Plan and increased staffing to meet operational needs stemming from growth related to the EOP Acquisition, which was completed on April 1, 2015.

Depreciation and amortization expense increased $172.9 million, or 239.4%, to $245.1 million for the year ended December 31, 2015 compared to $72.2 million for the year ended December 31, 2014. The increase was primarily related to depreciation expenses associated with the EOP Acquisition on April 1, 2015. The remaining increase is a result of the assets associated with the early termination of a tenant at our Howard Street property, lease-up of our Element LA, 1455 Market Street, 901 Market Street and 3401 Exposition properties, partially offset by the reduction of depreciation expense as a result of the sale of our First Financial property on March 5, 2015 and sale of our Tierrasanta property on July 16, 2014.

Interest expense increased $24.7 million, or 95.4%, to $50.7 million for the year ended December 31, 2015 compared to $25.9 million for the year ended December 31, 2014. At December 31, 2015, we had $2,278.4 million, before deferred loan costs recorded as a net against the loan balance, of notes payable, compared to $957.5 million at December 31, 2014. The increase was primarily attributable to $1.3 billion of term loan borrowings used to finance the EOP Acquisition, partially offset by interest savings related to our repayment of indebtedness associated with our 6922 Hollywood, 275 Brannan Street and First & King properties and repayment of debt associated with the sale of our First Financial property on March 5, 2015.


Acquisition-related expenses increased $38.7 million, or 833.8%, to $43.3 million for the year ended December 31, 2015 compared to $4.6 million for the year ended December 31, 2014. The increase is primarily a result of acquisition costs related to the EOP Acquisition.

Gain on sale of real estate increase by $24.9 million, or 450.2% to $30.5 million for the year ended December 31, 2015 compared to $5.5 million or the year ended December 31, 2014. The increase in gain on sale is a result of the sales of First Financial on March 5, 2015 for $89.0 million (before certain credits, prorations and closing costs) and Bay Park Plaza on September 29, 2015 for $90.0 million (before certain credits, prorations and closing costs) generating $30.5 million of gain on sale of real estate for the year ended December 31, 2015 as compared to a $5.5 million gain on sale of real estate for the year ended December 31, 2014 resulting from the sale of our Tierrasanta property for $19.5 million (before certain credits, prorations and closing costs) on July 16, 2014.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $83.0 million of cash and cash equivalents at December 31, 2016.

As of December 31, 2016, we had total borrowing capacity of $400.0 million under our unsecured revolving credit facility, $300.0 million of which had been drawn.

We have an ATM program which allows us to sell up to $125.0 million of common stock, $20.1 million of which has been sold through December 31, 2016.

On January 20, 2016, our board of directors authorized a share repurchase program to buy up to $100.0 million of our outstanding common stock. No share repurchases were made during 2016.

We intend to use the unsecured revolving credit facility and ATM program, among other things, to finance the acquisition of other properties, to provide funds for tenant improvements and capital expenditures, and to provide for working capital and other corporate purposes.

Based on the closing price of our common stock of $34.78 as of December 31, 2016, our ratio of debt to total market capitalization was approximately 34.5% (counting Series A preferred units as debt) as of December 31, 2016. Our total market capitalization is defined as the sum of the market value of our outstanding common stock (which may decrease, thereby increasing our debt to total capitalization ratio), including restricted stock that we may issue to certain of our directors and executive officers, plus the aggregate value of common units not owned by us, plus the liquidation preference of outstanding Series A preferred units, plus the book value of our total consolidated indebtedness.

Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and dividend payments to our stockholders required to maintain our REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through cash on hand, net cash provided by operations, reserves established from existing cash and, if necessary, by drawing upon our unsecured revolving credit facility.

Our long-term liquidity needs consist primarily of funds necessary to pay for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness and the issuance of equity and debt securities. We also may fund property acquisitions and non-recurring capital improvements using our unsecured revolving credit facility pending permanent financing.

We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity. However, 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. 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.



Outstanding Indebtedness

Our indebtedness creates the possibility that we may be unable to generate cash sufficient to pay the principal of, interest on or other amounts in respect of our indebtedness and other obligations. In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase.

As of December 31, 2016, we had outstanding notes payable of $2.71 billion (before $19.8 million of deferred finance costs), of which $1.47 billion, or 54.3%, was variable rate debt. $839.5 million of the variable rate debt is subject to derivative instruments described in Part IV, Item 15(a) “Financial Statement and Schedules—Note 6 to the Consolidated Financial Statements—Derivative Instruments.”

The following table summarizes the balances of our indebtedness as of:
 December 31, 2016 December 31, 2015
Notes payable$2,707,839
 $2,278,445
Less: unamortized loan premium and deferred financing costs, net(1)
(19,829) (17,729)
Notes payable, net$2,688,010
 $2,260,716
_____________
(1)Excludes deferred financing costs related to establishing our unsecured revolving credit facility and undrawn term loans of $1.5 million and $4.1 million as of December 31, 2016 and December 31, 2015, respectively, which are included in prepaid expenses and other assets, net in the Consolidated Balance Sheets. 



The following table sets forth information as of December 31, 2016 and December 31, 2015 with respect to our outstanding indebtedness.
 December 31, 2016 December 31, 2015     
 Principal Amount Deferred Financing Costs, net Principal Amount Unamortized Loan Premium and Deferred Financing Costs, net 
Interest Rate(1)
 Contractual Maturity Date 
UNSECURED LOANS            
Unsecured Revolving Credit Facility(2)
$300,000
 $—
 $230,000
 $—
 LIBOR + 1.15% to 1.85% 4/1/2019
(3) 
5-Year Term Loan due April 2020(2)(4)
450,000
 (3,513) 550,000
 (5,571) LIBOR + 1.30% to 2.20% 4/1/2020 
5-Year Term Loan due November 2020(2)
175,000
 (745) —
 —
 LIBOR + 1.30% to 2.20% 11/17/2020 
7-Year Term Loan due April 2022(2)(5)
350,000
 (2,265) 350,000
 (2,656) LIBOR + 1.60% to 2.55% 4/1/2022 
7-Year Term Loan due November 2022(2)(6)
125,000
 (931) —
 —
 LIBOR + 1.60% to 2.55% 11/17/2022 
Series A Notes110,000
 (930) 110,000
 (1,011) 4.34% 1/2/2023 
Series E Notes50,000
 (300) —
 —
 3.66% 9/15/2023 
Series B Notes259,000
 (2,271) 259,000
 (2,378) 4.69% 12/16/2025 
Series D Notes150,000
 (898) —
 —
 3.98% 7/6/2026 
Series C Notes56,000
 (539) 56,000
 (509) 4.79% 12/16/2027 
TOTAL UNSECURED LOANS2,025,000
 (12,392) 1,555,000
 (12,125)     
             
MORTGAGE LOANS            
Mortgage Loan secured by Rincon Center(7)
100,409
 (198) 102,309
 (355) 5.13% 5/1/2018 
Mortgage Loan secured by Sunset Gower Studios/Sunset Bronson Studios5,001
 (1,534) 115,001
 (2,232) LIBOR + 2.25% 3/4/2019
(3) 
Mortgage Loan secured by Met Park North(8)
64,500
 (398) 64,500
 (509) LIBOR + 1.55% 8/1/2020 
Mortgage Loan secured by 10950 Washington(7)
27,929
 (354) 28,407
 (421) 5.32% 3/11/2022 
Mortgage Loan secured by Pinnacle I(9)(10)
129,000
 (593) 129,000
 (694) 3.95% 11/7/2022 
Mortgage Loan secured by Element LA168,000
 (2,321) 168,000
 (2,584) 4.59% 11/6/2025 
Mortgage Loan secured by Pinnacle II(10)
87,000
 (720) 86,228
 1,310
(11) 
4.30% 6/11/2026 
Mortgage Loan secured by Hill7(12)
101,000
 (1,319) —
 —
 3.38%
(13) 
11/6/2028
(13) 
Mortgage Loan secured by 901 Market Street—
 —
 30,000
 (119) N/A N/A 
TOTAL MORTGAGE LOANS682,839
 (7,437) 723,445
 (5,604)     
TOTAL$2,707,839
 $(19,829) $2,278,445
 $(17,729)     
_____________
(1)Interest rate with respect to indebtedness is calculated on the basis of a 360-day year for the actual days elapsed. Interest rates are as of December 31, 2016, which may be different than the interest rates as of December 31, 2015 for corresponding indebtedness.
(2)We have the option to make an irrevocable election to change the interest rate depending on our credit rating. As of December 31, 2016, no such election had been made.
(3)The maturity date may be extended once for an additional one-year term.
(4)Effective May 1, 2015, $300.0 million of the term loan has been effectively fixed at 2.66% to 3.56% per annum through the use of an interest rate swap. In July 2016, we amended this interest rate swap to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative instruments related to this loan. Therefore, the effective interest rate with respect to $300.0 million of the term loan increased to a range of 2.75% to 3.65% per annum. See Part IV, Item 15(a) “Financial Statement and Schedules—Note 6 to the Consolidated Financial Statements—Derivative Instruments for details.
(5)Effective May 1, 2015, the outstanding balance of the term loan has been effectively fixed at 3.21% to 4.16% per annum through the use of an interest rate swap. In July 2016, we amended this interest rate swap to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative instruments related to this loan. Therefore, the effective interest rate increased to a range of 3.36% to 4.31% per annum. See Part IV, Item 15(a) “Financial Statement and Schedules—Note 6 to the Consolidated Financial Statements—Derivative Instruments for details.
(6)Effective June 1, 2016, the outstanding balance of the term loan has been effectively fixed at 3.03% to 3.98% per annum through the use of an interest rate swap. See Part IV, Item 15(a) “Financial Statement and Schedules—Note 6 to the Consolidated Financial Statements—Derivative Instruments for details.
(7)Monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
(8)This loan bears interest only. Interest on the full loan amount has been effectively fixed at 3.71% per annum through use of an interest rate swap. See Part IV, Item 15(a) “Financial Statement and Schedules—Note 6 to the Consolidated Financial Statements—Derivative Instruments for details.

(9)This loan bears interest only for the first five years. Beginning with the payment due December 6, 2017, monthly debt service will include annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
(10)We own 65% of the ownership interests in the consolidated joint venture that owns the Pinnacle I and II properties. The full amount of the loan is shown.
(11)Represents unamortized premium amount of the non-cash mark-to-market adjustment.
(12)We own 55% of the ownership interest in the consolidated joint venture that owns the Hill7 property. The full amount of the loan is shown.
(13)The maturity date can be extended for an additional two years at a higher interest rate and with principal amortization.

Contractual Obligations

The following table provides information with respect to our commitments at December 31, 2016 for each of the next five years and thereafter, including any guaranteed or minimum commitments under contractual obligations.
  Payments Due by Period
Contractual Obligation Total 2017 2018 2019 2020 2021 More than 5 years
Principal payments on mortgage loans $2,707,839
 $2,714
 $101,157
 $307,886
 $692,493
 $3,142
 $1,600,447
Interest payments-fixed rate(1)
 417,103
 54,117
 50,542
 48,742
 48,634
 48,485
 166,583
Interest payments-variable rate(2)
 155,762
 38,463
 38,463
 34,152
 22,861
 15,547
 6,276
Capital improvements(3)
 197,639
 197,639
 —
 —
 —
 —
 —
Ground leases(4)
 537,585
 13,989
 15,588
 15,638
 15,638
 15,659
 461,073
Total $4,015,928
 $306,922

$205,750
 $406,418
 $779,626
 $82,833
 $2,234,379
_____________
(1)Interest rates with respect to indebtedness are calculated on the basis of a 360-day year for the actual days elapsed. Reflects our projected interest obligations for fixed rate debts.
(2)Interest rates with respect to indebtedness are calculated on the basis of a 360-day year for the actual days elapsed. Reflects our projected interest obligations for variable rate debts, including those that are effectively fixed as a result of derivative instruments and in instances where interest is paid based on a LIBOR margin, we used the average December LIBOR and current margin based on the leverage ratio as of December 31, 2016.
(3)Amount represents capital improvement commitments related to development and redevelopment projects and contractual obligations related to tenant improvements as of December 31, 2016.
(4)Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options. Refer to Part IV, Item 15(a) “Financial Statement and Schedules—Note 7 to the Consolidated Financial Statements—Future Minimum Rent and Lease Payments” for details of our ground lease agreements.

Off-Balance Sheet Arrangements

At December 31, 2016, we did not have any off-balance sheet arrangements.

Cash Flows

Comparison of the year ended December 31, 2016 to the year ended December 31, 2015 is as follows:
 Year Ended December 31,
 2016 2015 Dollar Change Percentage Change
Net cash provided by operating activities$219,607
 $174,856
 $44,751
 25.6 %
Net cash used in investing activities(524,897) (1,797,699) 1,272,802
 (70.8)
Net cash provided by financing activities334,754
 1,658,641
 (1,323,887) (79.8)

Cash and cash equivalents were $83.0 million and $53.6 million at December 31, 2016 and 2015, respectively.

Operating Activities

Net cash provided by operating activities increased by $44.8 million or 25.6% to $219.6 million for the year ended December 31, 2016 as compared to $174.9 million for the year ended December 31, 2015. The increase was primarily attributable to an increase in cash NOI, as defined, from our office properties, arising primarily from the EOP Acquisition and 11601 Wilshire acquisition, increased occupancy and higher rental revenue across our portfolio. In addition, in 2016 we had lower acquisition-related costs.


Investing Activities

Net cash used in investing activities decreased by $1.27 billion or 70.8% to $524.9 million for the year ended December 31, 2016 as compared to $1.80 billion for year ended December 31, 2015. The decrease was primarily attributable to less cash used for acquisitions, increased proceeds from sales of real estate investments in the current year, and cash proceeds from the repayment of notes receivable, partially offset by increased cash used for additions to investment in real estate and contributions to our unconsolidated entities.

Financing Activities

Net cash provided by financing activities decreased by $1.32 billion or 79.8% to $334.8 million for the year ended December 31, 2016 as compared to $1.66 billion for the year ended December 31, 2015. The decrease was primarily due to repurchases of common units in our operating partnership in 2016, decrease in proceeds from notes payable and increase in dividends paid to common stockholders and unitholders, partially offset by an increase in proceeds from sale of common stock. Additionally, in 2015 we redeemed our Series B preferred stock.

Non-GAAP Supplemental Financial Measure: Funds From Operations

We calculate FFO in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, 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. 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 cost 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 our FFO for the years ended December 31, 2016 and 2015 and a reconciliation of net income (loss) to FFO:
 Year Ended December 31,
 2016 2015
Net income (loss)$43,758
 $(16,082)
Adjustments:   
Depreciation and amortization of real estate assets267,245
 244,182
Gains on sales(30,389) (30,471)
FFO attributable to non-controlling interest(18,817) (14,216)
Net income attributable to preferred stock and units(636) (12,105)
FFO to common stockholders and unit holders$261,161
 $171,308
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

The primary market risk we face is interest rate risk. Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. As more fully described below, we use derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings. We only enter into contracts with major financial institutions based on their credit rating and other factors. For a summary of our outstanding indebtedness, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” For a summary of our derivative instruments, refer to Part IV, Item 15(a) “Financial Statement and Schedules—Note 6 to the Consolidated Financial Statements—Derivative Instruments.”

Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

As of December 31, 2016, we had a $64.5 million mortgage loan secured by our Met Park North property. The full loan is subject to a derivative instrument that swaps one-month LIBOR to a fixed rate of 2.16% through the loan’s maturity on August 1, 2020. Therefore, the interest rate is effectively hedged at 3.71%.

An additional $300.0 million of our $450.0 million 5-Year Term Loan due April 2020 has been effectively hedged through two interest rate swaps, each with a notional amount of $150.0 million. Both derivative instruments swap one-month LIBOR, which include a 0.00% floor, to a fixed rate of 1.45% through the loan’s maturity. Therefore, the interest rate is effectively hedged within a range of 2.75% to 3.65%. The unhedged portion bears interest at a rate equal to one-month LIBOR plus 1.30% to 2.20%, depending on our leverage ratio.

An additional $350.0 million of the 7-Year Term Loan due April 2022 has been effectively hedged through two interest rate swaps. Both derivative instruments swap one-month LIBOR, which includes a 0.00% floor, to a fixed rate of 1.76% through the loan’s maturity. Therefore, the interest rate is effectively hedged within a range of 3.36% to 4.31%.

An additional $125.0 million of the 7-Year Term Loan due November 2022 has been effectively hedged through an interest rate swap. The derivative instrument swapped one-month LIBOR, which includes a 0.00% floor, to a fixed rate of 1.43% through the loan’s maturity. Therefore, the interest rate is effectively hedged within a range of 3.03% to 3.98%.

The remaining variable debt rate, which consists of our unsecured revolving credit facility and unsecured term loans, are not subject to derivative instruments.

For sensitivity purposes, with respect to the $300.0 million drawn under our unsecured revolving credit facility, the $450.0 million drawn under our 5-Year Term Loan due April 2020 ($150.0 million of which is not subject to a derivative instrument), the 175.0 million loan drawn under our 5-Year Term Loan due November 2020, and the $5.0 million on our mortgage loan secured by Sunset Gower Studios/Sunset Bronson Studios, if one-month LIBOR as of December 31, 2016 was to increase by 100 basis points, or 1.0%, the resulting increase in annual interest expense would impact our future earnings and cash flows by $6.3 million.

As of December 31, 2016, we had outstanding notes payable of $2.71 billion (before $19.8 million of net deferred financing costs), of which $1.47 billion, or 54.3%, was variable rate debt. $839.5 million of the variable rate debt is subject to derivative instruments. As of December 31, 2016, the estimated fair value of our fixed rate secured mortgage loans was $1.21 billion. The estimated fair value of our variable rate debt equals the carrying value.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements included in this Annual Report on Form 10-K are listed in Part IV, Item 15(a) of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures (Hudson Pacific Properties, Inc.)

Hudson Pacific Properties, Inc. maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in Hudson Pacific Properties, Inc.’s reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, Hudson Pacific Properties, Inc. carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of the end of the period covered by this report.

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded, as of that time, that Hudson Pacific Properties, Inc.’s disclosure controls and procedures were effective in providing a reasonable level of assurance that information Hudson Pacific Properties, Inc. is required to disclose in reports that Hudson Pacific Properties, Inc. files under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Disclosure Controls and Procedures (Hudson Pacific Properties, L.P.)

Hudson Pacific Properties, L.P. maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in Hudson Pacific Properties, L.P.’s reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, Hudson Pacific Properties, L.P. carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), of the effectiveness of the design and operation of the disclosure controls and procedures as of the end of the period covered by this report.


Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.) concluded, as of that time, that Hudson Pacific Properties, L.P.’s disclosure controls and procedures were effective in providing a reasonable level of assurance that information Hudson Pacific Properties, L.P. is required to disclose in reports that Hudson Pacific Properties, L.P. files under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), as appropriate, to allow for timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting (Hudson Pacific Properties, Inc.)

There have been no changes that occurred during the fourth quarter of the year covered by this report in Hudson Pacific Properties, Inc.’s internal control over financial reporting identified in connection with the evaluation referenced above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting (Hudson Pacific Properties, L.P.)

There have been no changes that occurred during the fourth quarter of the year covered by this report in Hudson Pacific Properties, L.P.’s internal control over financial reporting identified in connection with the evaluation referenced above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting (Hudson Pacific Properties, Inc.)

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Hudson Pacific Properties, Inc.’s system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of Hudson Pacific Properties, Inc.’s financial statements for external reporting purposes in accordance with GAAP. Hudson Pacific Properties, Inc.’s management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2016. In conducting its assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission on Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that, as of December 31, 2016, Hudson Pacific Properties, Inc.’s internal control over financial reporting was effective based on those criteria.

Management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc., does not expect that Hudson Pacific Properties, Inc.’s disclosure controls and procedures, or Hudson Pacific Properties, Inc.’s internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Management’s Annual Report on Internal Control over Financial Reporting (Hudson Pacific Properties, L.P.)

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Hudson Pacific Properties, L.P.’s system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of Hudson Pacific Properties, L.P.’s financial statements for external reporting purposes in accordance with GAAP. Hudson Pacific Properties, L.P.’s management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), assessed the effectiveness of Hudson Pacific Properties, L.P.’s internal control over financial reporting as of December 31, 2016. In conducting its assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission on Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that, as of December 31, 2016, Hudson Pacific Properties, L.P.’s internal control over financial reporting was effective based on those criteria.


Management, including the Chief Executive Officer and Chief Financial Officer of Hudson Pacific Properties, Inc. (the sole general partner of Hudson Pacific Properties, L.P.), does not expect that Hudson Pacific Properties, L.P.’s disclosure controls and procedures, or Hudson Pacific Properties, L.P.’s internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Attestation Report of theRegistered Accounting Firm (Hudson Pacific Properties, Inc.)

The effectiveness of Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2016, has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this annual report, as stated in their report appearing on page F-2, which expresses an unqualified opinion on the effectiveness of Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2016.

Item 9B.  Other Information

Not applicable.


PART III

Item 10.    Directors, Executive Officers and Corporate Governance

The information required by Item 10 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May 2017. We intend to disclose any amendment to, or waiver from, our code of ethics within four business days following the date of the amendment or waiver.

Item 11.    Executive Compensation

The information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May 2017.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May 2017.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May 2017.

Item 14.    Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May 2017.

PART IV


Item 15.    Exhibits, Financial Statement Schedules

(a)(1) and (2) Financial Statements and Schedules
The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:

FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, INC.
Report of Management on Internal Control Over Financial Reporting
F- 1
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
F- 2
Report of Independent Registered Public Accounting Firm
F- 3
Consolidated Balance Sheets as of December 31, 2016 and 2015
F- 4
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014
F- 5
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014
F- 6
Consolidated Statements of Equity for the Years Ended December 31, 2016, 2015 and 2014
F- 7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
F- 9
FINANCIAL STATEMENTS OF HUDSON PACIFIC PROPERTIES, L.P.
Report of Independent Registered Public Accounting Firm
F- 11
Consolidated Balance Sheets as of December 31, 2016 and 2015
F- 12
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014
F- 13
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014
F- 14
Consolidated Statements of Capital for the Years Ended December 31, 2016, 2015 and 2014
F- 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
F- 16
Notes to Consolidated Financial Statements
F- 18
Schedule III - Real Estate and Accumulated Depreciation
F- 57

All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.

(3)  Exhibits
    Incorporated by Reference
Exhibit No. Description Form File No. Exhibit No. Filing Date
           
3.1 Articles of Amendment and Restatement of Hudson Pacific Properties, Inc.  S-11/A 333-164916 3.1 May 12, 2010
3.2 Form of Articles Supplementary of Hudson Pacific Properties, Inc.  S-11/A 333-170751 3.3 December 6, 2010
3.3 Second Amended and Restated Bylaws of Hudson Pacific Properties, Inc. 8-K 001-34789 3.1 January 12, 2015
3.4 Fourth Amended and Restated Agreement of Limited Partnership of Hudson Pacific Properties, L.P. dated as of December 17, 2015. 10-K 001-34789 10.1 February 26, 2016
3.5 Certificate of Limited Partnership of Hudson Pacific Properties, L.P. 10-Q 001-34789 3.4 November 4, 2016
4.1 Form of Certificate of Common Stock of Hudson Pacific Properties, Inc.  S-11/A 333-164916 4.1  June 14, 2010
4.2 Form of Certificate of Series B Preferred Stock of Hudson Pacific Properties, Inc.  S-11/A 333-170751 4.2 December 6, 2010
10.1 Registration Rights Agreement among Hudson Pacific Properties, Inc. and the persons named therein. S-11 333-170751 10.2 November 22, 2010
10.2 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Victor J. Coleman. S-11 333-170751 10.3 November 22, 2010
10.3 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Mark T. Lammas. S-11 333-170751 10.5 November 22, 2010
10.4 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Christopher Barton. S-11 333-170751 10.6 November 22, 2010
10.5 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Dale Shimoda. S-11 333-170751 10.7 November 22, 2010
10.6 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Theodore R. Antenucci. S-11 333-170751 10.8 November 22, 2010
10.7 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Richard B. Fried. S-11 333-170751 10.1 November 22, 2010
10.8 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Jonathan M. Glaser. S-11 333-170751 10.11 November 22, 2010
10.9 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Mark D. Linehan. S-11 333-170751 10.12 November 22, 2010
10.10 Indemnification Agreement, dated June 29, 2010, by and between Hudson Pacific Properties, Inc. and Robert M. Moran, Jr. S-11 333-170751 10.13 November 22, 2010
10.11 Indemnification Agreement, dated June 29, 1010, by and between Hudson Pacific Properties, Inc. and Barry A. Porter. S-11 333-170751 10.14 November 22, 2010
10.12 Restricted Stock Award Grant Notice and Restricted Stock Award Agreement.*  S-11/A 333-164916 10.5  June 14, 2010
10.13 Hudson Pacific Properties, Inc. Director Stock Plan.*  S-11/A 333-170751 10.17 December 6, 2010
10.14 Contribution Agreement by and among Victor J. Coleman, Howard S. Stern, Hudson Pacific Properties, L.P. and Hudson Pacific Properties, Inc., dated as of February 15, 2010.  S-11/A 333-164916 10.11  April 9, 2010
10.15 Contribution Agreement by and among SGS investors, LLC, HFOP Investors, LLC, Soma Square Investors, LLC, Hudson Pacific Properties, L.P. and Hudson Pacific Properties, Inc., dated as of February 15, 2010.  S-11/A 333-164916 10.12  April 9, 2010
10.16 Contribution Agreement by and among TMG-Flynn SOMA, LLC, Hudson Pacific Properties, L.P. and Hudson Pacific Properties, Inc., dated as of February 15, 2010.  S-11/A 333-164916 10.13  April 9, 2010
10.17 Contribution Agreement by and among Glenborough Fund XIV, L.P., Glenborough Acquisition, LLC, Hudson Pacific Properties, L.P. and Hudson Pacific Properties, Inc. dated as of February 15, 2010.  S-11/A 333-164916 10.14 April 9, 2010
10.18 Representation, Warranty and Indemnity Agreement by and among Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and the persons named therein as nominees of TMG-Flynn SOMA, LLC, dated as of February 15, 2010.  S-11/A 333-164916 10.16 April 9, 2010
10.19 Representation, Warranty and Indemnity Agreement by and among Hudson Pacific Properties, Inc. Hudson Pacific Properties, L.P., and the persons named therein as nominees of Glenborough Fund XIV, L.P. dated as of February 15, 2010.  S-11/A 333-164916 10.17 April 9, 2010
10.20 Tax Protection Agreement between Hudson Pacific Properties, L.P. and the persons named therein, dated June 29, 2010. 8-K 001-34789 10.3 July 1, 2010
10.21 Agreement of Purchase and Sale and Joint Escrow Instructions between Del Amo Fashion Center Operating Company and Hudson Capital, LLC dated as of May 18, 2010.  S-11/A 333-164916 10.2 June 11, 2010
10.22 Amended and Restated First Modification Agreement between Sunset Bronson Entertainment Properties, LLC and Wells Fargo Bank, N.A. dated as of June 20, 2010. 8-K 001-34789 10.4 July 1, 2010

    Incorporated by Reference
Exhibit No. Description Form File No. Exhibit No. Filing Date
10.23 Loan Agreement among Sunset Bronson Entertainment Properties, L.L.C., as Borrower, Wachovia Bank, National Association, as Administrative Agent, Wachovia Capital Markets, LLC, as Lead Arranger and Sole Bookrunner, and lenders party thereto, dated as of May 12, 2008.  S-11/A 333-164916 10.23 June 22, 2010
10.24 Conditional Consent Agreement between GLB Encino, LLC, as Borrower, and SunAmerica Life Insurance Company, as Lender, dated as of June 10, 2010.  S-11/A 333-164916 10.24  June 22, 2010
10.25 Amended and Restated Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents between GLB Encino, LLC, as Trustor, SunAmerica Life Insurance Company, as Beneficiary, and First American Title Insurance Company, as Trustee, dated as of January 26, 2007.  S-11/A 333-164916 10.25 June 22, 2010
10.26 Amended and Restated Promissory Note by GLB Encino, as Maker, to SunAmerica Life Insurance Company, as Holder, dated as of January 26, 2007.  S-11/A 333-164916 10.26  June 22, 2010
10.27 Approval Letter from Wells Fargo, as Master Servicer, and CWCapital Asset Management, LLC, as Special Servicer to Hudson Capital LLC, dated as of June 8, 2010.  S-11/A 333-164916 10.27  June 22, 2010
10.28 Loan and Security Agreement between Glenborough Tierrasanta, LLC, as Borrower, and German American Capital Corporation, as Lender, dated as of November 28, 2006.  S-11/A 333-164916 10.28  June 22, 2010
10.29 Note by Glenborough Tierrasanta, LLC, as Borrower, in favor of German American Capital Corporation, as Lender, dated as of November 28, 2006.  S-11/A 333-164916 10.29 June 22, 2010
10.30 Reaffirmation, Consent to Transfer and Substitution of Indemnitor, by and among Glenborough Tierrasanta, LLC, Morgan Stanley Real Estate Fund V U.S., L.P., MSP Real Estate Fund V, L.P. Morgan Stanley Real Estate Investors, V U.S., L.P., Morgan Stanley Real Estate Fund V Special U.S., L.P., MSP Co-Investment Partnership V, L.P., MSP Co-Investment Partnership V, L.P., Glenborough Fund XIV, L.P., Hudson Pacific Properties, L.P., and US Bank National Association, dated June 29, 2010. 8-K 001-34789 10.5 July 1, 2010
10.31 First Amendment to Purchase and Sale Agreement, dated October 1, 2010, by and between ECI Washington LLC and Hudson Pacific Properties, L.P.  S-11/A 333-170751 10.45 December 6, 2010
10.32 Term Loan Agreement by and between Sunset Bronson Entertainment Properties, LLC and Sunset Gower Entertainment Properties, LLC, as Borrowers, and Wells Fargo Bank, National Association, as Lender, dated February 11, 2011. 8-K 001-34789 10.1 February 15, 2011
10.33 Contract for Sale dated as of December 15, 2010 by and between Hudson 1455 Market, LLC and Bank of America, National Association. 8-K 001-34789 10.1 December 21, 2010
10.34 Contribution Agreement by and between BCSP IV U.S. Investments, L.P. and Hudson Pacific Properties, L.P., dated as of December 15, 2010. S-11 333-173487 10.48 April 14, 2011
10.35 Limited Liability Company Agreement of Rincon Center JV LLC by and between Rincon Center Equity LLC and Hudson Rincon, LLC, dated as of December 16, 2010. S-11 333-173487 10.49 April 14, 2011
10.36 Second Amendment to Credit Agreement among Hudson Pacific Properties, Inc., Hudson Pacific Properties L.P., Barclays Capital and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as successor in interest to Banc of America Securities LLC), as Joint Lead Arrangers, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, as Administrative Agent, and the other lenders party thereto, dated April 4, 2011. 8-K 001-34789 10.1  April 5, 2011
10.37 First Amendment to Registration Rights Agreement by and among Hudson Pacific Properties, Inc., Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P. and Farallon Capital Institutional Partners III, L.P., dated May 3, 2011. 8-K 001-34789 4.1 May 4, 2011
10.38 Loan Agreement by and between Hudson Rincon Center, LLC, as Borrower, and JPMorgan Chase Bank, National Association, as Lender, dated April 29, 2011. 8-K 001-34789 10.1 May 4, 2011
10.39 2012 Outperformance Award Agreement.* 8-K 001-34789 10.1 January 6, 2012
10.40 Limited Liability Company Agreement of Hudson MC Partners, LLC, dated as of November 8, 2012. 10-Q 001-34789 10.58 November 9, 2012
10.41 Acquisition and Contribution Agreement between Media Center Development, LLC and P2 Hudson Partners, LLC for Pinnacle 2 Property Located at 3300 West Olive Avenue, Burbank, California. 10-Q 001-34789 10.59 November 9, 2012
10.42 Loan Agreement dated as of November 8, 2012 between P1 Hudson MC Partners, LLC, as Borrower and Jefferies Loancore LLC, as Lender. 10-Q 001-34789 10.6 November 9, 2012
10.43 2013 Outperformance Award Agreement.* 8-K 001-34789 10.1  January 7, 2013
10.44 Purchase Agreement between 1220 Howell LLC, a Delaware limited liability company, King & Dearborn LLC, a Delaware limited liability company, and Northview Corporate Center LLC, a Delaware limited liability company, as Sellers, and Hudson Pacific Properties, L.P., a Maryland limited partnership, as Buyer. 8-K 001-34789 10.1 July 1, 2013
10.45 First Modification and Additional Advance Agreement by and among Wells Fargo Bank, N.A., as Lender, and Sunset Bronson Entertainment Properties, LLC, and Sunset Gower Entertainment Properties, LLC as Borrower. 10-Q 001-34789 10.66 November 7, 2013

    Incorporated by Reference
Exhibit No. Description Form File No. Exhibit No. Filing Date
10.46 Supplemental Federal Income Tax Considerations. 8-K 001-34789 99.1 November 22, 2013
10.47 2014 Outperformance Award Agreement.* 8-K 001-34789 10.1  January 3, 2014
10.48 Addendum to Outperformance Agreement.* 10-K 001-34789   March 3, 2014
10.49 Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and Barclays Capital Inc. 10-Q 001-34789 10.76 August 7, 2014
10.50 Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. 10-Q 001-34789 10.77 August 7, 2014
10.51 Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and KeyBanc Capital Markets Inc. 10-Q 001-34789 10.78 August 7, 2014
10.52 Amendment to Equity Distribution Agreement, dated as of July 21, 2014, by and among Hudson Pacific Properties, Inc., Hudson Pacific Properties, L.P. and Wells Fargo Securities, LLC. 10-Q 001-34789 10.79 August 7, 2014
10.53 Bridge Commitment Letter, dated as of December 6, 2014, by and among the Operating Partnership, Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs Bank USA. 8-K 001-34789 10.1  December 11, 2014
10.54 Backstop Commitment Letter, dated as of December 6, 2014, by and among the Operating Partnership, Wells Fargo Bank, National Association and Wells Fargo Securities, LLC. 8-K 001-34789 10.2  December 11, 2014
10.55 Indemnification Agreement, dated December 15, 2014, by and between Hudson Pacific Properties, Inc. and Robert L. Harris II. 10-K 001-34789 10.84 March 2, 2015
10.56 2015 Outperformance Award Agreement.* 8-K 001-34789 10.1 January 2, 2015
10.57 First Amended and Restated Limited Partnership Agreement of Hudson 1455 Market, L.P. 8-K 001-34789 10.1 January 12, 2015
10.58 Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. 2010 Incentive Award Plan (2012 Outperformance program) Restricted Stock Unit Award Agreement. 8-K 001-34789 10.1 March 12, 2015
10.59 Addendum to 2014 Outperformance Award Agreement. 8-K 001-34789 10.2 March 12, 2015
10.60 Hudson Pacific Properties, Inc. Revised Non-Employee Director Compensation Program. 10-Q 001-34789 10.91 August 10, 2015
10.61 Loan Agreement dated as of October 9, 2015 between Hudson Element LA, LLC, as Borrower and Cantor Commercial Real Estate Lending, L.P. and Goldman Sachs Mortgage Company, collectively, as Lender. 10-Q 001-34789 10.93 November 6, 2015
10.62 Note Purchase Agreement, dated as of November 16, 2015, by and among Hudson Pacific Properties, L.P. and the purchasers named therein. 8-K 001-34789 10.2 November 20, 2015
10.63 Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as of November 17, 2015, by and among Hudson Pacific Properties, L.P., as borrower, each of the financial institutions a signatory thereto, as lenders, and Wells Fargo Bank, National Association, as administrative agent. 8-K 001-34789 10.3 November 20, 2015
10.64 Amendment No. 2 to Term Loan Credit Agreement, dated as of November 17, 2015, by and among Hudson Pacific Properties, L.P., as borrower, each of the financial institutions a signatory thereto, as lenders, and Wells Fargo Bank, National Association, as administrative agent. 8-K 001-34789 10.4 November 20, 2015
10.65 Amended and Restated Employment Agreement between Hudson Pacific Properties, Inc. and Victor J. Coleman, dated January 1, 2016.* 8-K 001-34789 10.2 December 21, 2015
10.66 Amended and Restated Employment Agreement between Hudson Pacific Properties, Inc. and Mark T. Lammas, dated January 1, 2016.* 8-K 001-34789 10.3 December 21, 2015
10.67 Amended and Restated Employment Agreement between Hudson Pacific Properties, Inc. and Christopher Barton, dated January 1, 2016.* 8-K 001-34789 10.4 December 21, 2015
10.68 Amended and Restated Employment Agreement between Hudson Pacific Properties, Inc. and Alex Vouvalides, dated January 1, 2016.* 8-K 001-34789 10.5 December 21, 2015
10.69 Restricted Stock Award Grant Notice and Restricted Stock Award Agreement.* 8-K 001-34789 10.6 December 21, 2015
10.70 Employment Agreement between Hudson Pacific Properties, Inc. and Joshua Hatfield* 10-K 001-34789 10.95 February 26,2016
10.71 Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement (2013 Outperformance Program)* 10-K 001-34789 10.96 February 26,2016
10.72 2016 Outperformance Award Agreement (REIT Shares)* 8-K 001-34789 10.1 March 21, 2016
10.73 2016 Outperformance Program OPP Unit Agreement (LTIP Units)* 8-K 001-34789 10.2 March 21, 2016
10.74 Note Purchase Agreement, dated as of July 6, 2016, by and among Hudson Pacific Properties, L.P. and the purchasers named therein 10-Q 001-34789 10.8 August 4, 2016

    Incorporated by Reference
Exhibit No. Description Form File No. Exhibit No. Filing Date
10.75 Second Amendment to Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. 2010 Incentive Award Plan*        
10.76 2017 Outperformance Award Agreement (REIT Shares)* 8-K 001-34789 10.1 February 10, 2017
10.77 2017 Outperformance Award Agreement (LTIP Units)* 8-K 001-34789 10.2 February 10, 2017
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends        
21.1 Subsidiaries of the Registrant        
23.1 Consent of Independent Registered Public Accounting Firm        
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.        
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.        
31.3 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, L.P.        
31.4 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Hudson Pacific Properties, L.P.        
32.1 Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, Inc.        
32.2 Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Hudson Pacific Properties, L.P.        
99.1 Certificate of Correction 8-K 001-34789 99.1 January 23, 2012
101 The following financial information from Hudson Pacific Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements **        
* Denotes a management contract or compensatory plan or arrangement.        
** Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Hudson Pacific Properties, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HUDSON PACIFIC PROPERTIES, INC.
February 17, 2017
/s/ VICTOR J. COLEMAN
VICTOR J. COLEMAN
Chief Executive Officer (Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Victor J. Coleman and Mark T. Lammas, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Hudson Pacific Properties, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission in connection therewith, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/S/    VICTOR J. COLEMAN        
Chief Executive Officer, President and
Chairman of the Board of Directors (Principal Executive Officer)
February 17, 2017
Victor J. Coleman
/S/    MARK T. LAMMAS    
Chief Operating Officer, Chief Financial Officer and Treasurer (Principal
Financial Officer)
February 17, 2017
Mark T. Lammas
/S/HAROUT K. DIRAMERIAN  
Chief Accounting Officer (Principal Accounting Officer)February 17, 2017
Harout K. Diramerian
/S/    THEODORE R. ANTENUCCI
DirectorFebruary 17, 2017
Theodore R. Antenucci
/S/    FRANK COHEN
DirectorFebruary 17, 2017
Frank Cohen
/S/    RICHARD B. FRIED
DirectorFebruary 17, 2017
Richard B. Fried
/S/    JONATHAN M. GLASER
DirectorFebruary 17, 2017
Jonathan M. Glaser
/S/    ROBERT L. HARRIS II
DirectorFebruary 17, 2017
Robert L. Harris II
/S/    MARK D. LINEHAN 
DirectorFebruary 17, 2017
Mark D. Linehan
/S/    ROBERT M. MORAN, JR.
DirectorFebruary 17, 2017
Robert M. Moran, Jr.
/S/    MICHAEL NASH    
DirectorFebruary 17, 2017
Michael Nash
/S/    BARRY A. PORTER     
DirectorFebruary 17, 2017
Barry A. Porter


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Hudson Pacific Properties, L.P. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HUDSON PACIFIC PROPERTIES, L.P.
February 17, 2017
/s/ VICTOR J. COLEMAN
VICTOR J. COLEMAN
Chief Executive Officer (Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Victor J. Coleman and Mark T. Lammas, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Hudson Pacific Properties, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission in connection therewith, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/S/    VICTOR J. COLEMAN        
Chief Executive Officer, President and
Chairman of the Board of Directors (Principal Executive Officer)
February 17, 2017
Victor J. Coleman
/S/    MARK T. LAMMAS    
Chief Operating Officer, Chief Financial Officer and Treasurer (Principal
Financial Officer)
February 17, 2017
Mark T. Lammas
/S/    HAROUT K. DIRAMERIAN  Chief Accounting Officer (Principal Accounting Officer)February 17, 2017
Harout K. Diramerian
/S/    THEODORE R. ANTENUCCIDirectorFebruary 17, 2017
Theodore R. Antenucci
/S/    FRANK COHENDirectorFebruary 17, 2017
Frank Cohen
/S/    RICHARD B. FRIEDDirectorFebruary 17, 2017
Richard B. Fried
/S/    JONATHAN M. GLASERDirectorFebruary 17, 2017
Jonathan M. Glaser
/S/    ROBERT L. HARRIS IIDirectorFebruary 17, 2017
Robert L. Harris II
/S/    MARK D. LINEHAN DirectorFebruary 17, 2017
Mark D. Linehan
/S/    ROBERT M. MORAN, JR.     DirectorFebruary 17, 2017
Robert M. Moran, Jr.
/S/    MICHAEL NASH    DirectorFebruary 17, 2017
Michael Nash
/S/    BARRY A. PORTER     DirectorFebruary 17, 2017
Barry A. Porter


Report of Management on Internal Control over Financial Reporting


The management of Hudson Pacific Properties, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Our system of internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external reporting purposes in accordance with United States generally accepted accounting principles. Our management, including the undersigned Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In conducting its assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission on Internal Control—Integrated Framework (2013 Framework). Based on this assessment, management concluded that, as of December 31, 2016, our internal control over financial reporting was effective based on those criteria.

Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

The effectiveness of our internal control over financial reporting as of December 31, 2016, has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this annual report, as stated in their report appearing on page F-2, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2016.

/S/    VICTOR J. COLEMAN        
Victor J. Coleman
Chief Executive Officer, President and
Chairman of the Board of Directors

/S/    MARK T. LAMMAS    
Mark T. Lammas
Chief Operating Officer, Chief Financial Officer and Treasurer


Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting


To the Board of Directors and Stockholders of
Hudson Pacific Properties, Inc.


We have audited Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Hudson Pacific Properties, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Hudson Pacific Properties, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Hudson Pacific Properties, Inc. as of December 31, 2016 and2015, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period endedDecember 31, 2016, and our report dated February 17, 2017 expressed an unqualified opinion thereon.


/s/    ERNST & YOUNG LLP

Los Angeles, California
February 17, 2017







Report of Independent Registered Public Accounting Firm

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


We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, Inc. (the “Company”), as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hudson Pacific Properties, Inc. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for property acquisitions effective October 1, 2016 when the Company adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hudson Pacific Properties, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 17, 2017 expressed an unqualified opinion thereon.


/s/    ERNST & YOUNG LLP

Los Angeles, California
February 17, 2017



F- 3
Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)


 December 31,
2016		 December 31,
2015
ASSETS   
REAL ESTATE ASSETS   
Land$1,281,809
 $1,244,921
Building and improvements4,502,235
 3,907,807
Tenant improvements373,778
 288,146
Furniture and fixtures4,276
 9,578
Property under development308,203
 173,007
Total real estate held for investment6,470,301
 5,623,459
Accumulated depreciation and amortization(419,368) (263,859)
Investment in real estate, net6,050,933
 5,359,600
Cash and cash equivalents83,015
 53,551
Restricted cash25,177
 18,010
Accounts receivable, net6,852
 20,996
Notes receivable, net—
 28,684
Straight-line rent receivables, net87,281
 58,783
Deferred leasing costs and lease intangible assets, net310,062
 312,930
Derivative assets5,935
 2,061
Goodwill8,754
 8,754
Prepaid expenses and other assets, net27,153
 27,156
Investment in unconsolidated entities37,228
 —
Assets associated with real estate held for sale36,608
 363,510
TOTAL ASSETS$6,678,998
 $6,254,035
LIABILITIES AND EQUITY   
Notes payable, net$2,688,010
 $2,260,716
Accounts payable and accrued liabilities120,572
 81,658
Lease intangible liabilities, net80,130
 94,395
Security deposits31,495
 20,363
Prepaid rent40,755
 38,104
Derivative liabilities1,303
 2,010
Liabilities associated with real estate held for sale3,806
 17,575
TOTAL LIABILITIES2,966,071
 2,514,821
6.25% Series A cumulative redeemable preferred units of the operating partnership10,177
 10,177
EQUITY   
Hudson Pacific Properties, Inc. stockholders’ equity:   
Common stock, $0.01 par value, 490,000,000 authorized, 136,492,235 shares and 89,153,780 shares outstanding at December 31, 2016 and 2015, respectively.1,364
 891
Additional paid-in capital3,109,394
 1,710,979
Accumulated other comprehensive income (loss)9,496
 (1,081)
Accumulated deficit(16,971) (44,955)
Total Hudson Pacific Properties, Inc. stockholders’ equity3,103,283
 1,665,834
Non-controlling interest—members in consolidated entities304,608
 262,625
Non-controlling interest—units in the operating partnership294,859
 1,800,578
TOTAL EQUITY3,702,750
 3,729,037
TOTAL LIABILITIES AND EQUITY$6,678,998
 $6,254,035


F- 4
Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)


 Year Ended December 31,
 2016 2015 2014
REVENUES     
Office     
Rental$486,956
 $394,543
 $156,806
Tenant recoveries84,386
 66,235
 34,509
Parking and other21,894
 20,940
 22,471
Total office revenues593,236
 481,718
 213,786
Media & Entertainment     
Rental26,837
 23,027
 22,138
Tenant recoveries1,884
 943
 1,128
Other property-related revenue17,380
 14,849
 15,751
Other302
 313
 612
Total Media & Entertainment revenues46,403
 39,132
 39,629
TOTAL REVENUES639,639
 520,850
 253,415
OPERATING EXPENSES     
Office operating expenses202,935
 166,131
 78,372
Media & Entertainment operating expenses25,810
 23,726
 25,897
General and administrative52,400
 38,534
 28,253
Depreciation and amortization269,087
 245,071
 72,216
TOTAL OPERATING EXPENSES550,232
 473,462
 204,738
INCOME FROM OPERATIONS89,407
 47,388
 48,677
OTHER EXPENSE (INCOME)     
Interest expense76,044
 50,667
 25,932
Interest income(260) (124) (30)
Unrealized loss on ineffective portion of derivative instruments1,436
 —
 —
Acquisition-related expenses376
 43,336
 4,641
Other (income) expense(1,558) 62
 (14)
TOTAL OTHER EXPENSES76,038
 93,941
 30,529
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE GAINS ON SALES13,369
 (46,553) 18,148
Gains on sales30,389
 30,471
 5,538
INCOME (LOSS) FROM CONTINUING OPERATIONS43,758
 (16,082) 23,686
Loss from discontinued operations—
 —
 (164)
NET INCOME (LOSS)43,758
 (16,082) 23,522
Net income attributable to preferred stock(636) (12,105) (12,785)
Original issuance costs of redeemed Series B preferred stock (note 11)—
 (5,970) —
Net income attributable to participating securities(766) (356) (274)
Net income attributable to non-controlling interest in consolidated entities(9,290) (3,853) (149)
Net (income) loss attributable to common units in the operating partnership(5,848) 21,969
 (359)
Net income (loss) attributable to Hudson Pacific Properties, Inc. common stockholders$27,218
 $(16,397) $9,955
Basic and diluted per share amounts:     
Net income (loss) attributable to common stockholders—basic$0.26
 $(0.19) $0.15
Net income (loss) attributable to common stockholders—diluted$0.25
 $(0.19) $0.15
Weighted average shares of common stock outstanding—basic106,188,902
 85,927,216
 65,792,447
Weighted average shares of common stock outstanding—diluted110,369,055
 85,927,216
 66,509,447

The accompanying notes are an integral part of these consolidated financial statements.
F- 5

Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)




 Year Ended December 31,
 2016 2015 2014
Net income (loss)$43,758
 $(16,082) $23,522
Other comprehensive income (loss): change in fair value of derivative instruments5,942
 2,597
 (1,499)
Comprehensive income (loss)49,700
 (13,485) 22,023
Comprehensive income attributable to preferred stock and units(636) (12,105) (12,785)
Comprehensive income attributable to redemption of Series B preferred stock—
 (5,970) —
Comprehensive income attributable to participating securities(766) (356) (274)
Comprehensive income attributable to non-controlling interest in consolidated entities(9,290) (3,853) (149)
Comprehensive (income) loss attributable to common units in the operating partnership(1,213) 20,734
 (306)
Comprehensive income (loss) attributable to Hudson Pacific Properties, Inc. common stockholders$37,795
 $(15,035) $8,509

The accompanying notes are an integral part of these consolidated financial statements.
F- 6

Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share data)

 Hudson Pacific Properties, Inc. Stockholders’ Equity   
 
Common
Shares
Stock
Amount
Series B Cumulative Redeemable Preferred Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Compreh-ensive
Income (Loss)
Non-
controlling
Interests —
Common units
in the
Operating
Partnership
Non-controlling Interest —
 Members in Consolidated Entities
Total Equity
Balance, December 31, 201357,230,199
$572
$145,000
$903,984
$(45,113)$(997)$53,737
$45,683
$1,102,866
Distributions—
—
—
—
—
—
—
(2,842)(2,842)
Proceeds from sale of common stock, net of underwriters’ discount and transaction costs9,563,500
96
—
195,773
—
—
—
—
195,869
Issuance of unrestricted stock6,922
—
—
—
—
—
—
—
—
Shares withheld to satisfy tax withholding(2,805)—
—
(3,129)—
—
—
—
(3,129)
Declared dividend—
—
(12,144)(33,774)—
—
(1,192)—
(47,110)
Amortization of stock-based compensation—
—
—
7,979
—
—
—
—
7,979
Net income—
—
12,144
—
10,229
—
359
149
22,881
Change in fair value of derivatives—
—
—
—
—
(1,446)(53)—
(1,499)
Balance, December 31, 201466,797,816
668
145,000
1,070,833
(34,884)(2,443)52,851
42,990
1,275,015
Contributions—
—
—
—
—
—
—
217,795
217,795
Distributions—
—
—
—
—
—
—
(2,013)(2,013)
Proceeds from sale of common stock, net of underwriters’ discount and transaction costs12,650,000
127
—
380,493
—
—
—
—
380,620
Redemption of Series B Preferred Stock—
—
(145,000)—
—
—
—
—
(145,000)
Issuance of common units for acquisition properties—
—
—
—
—
—
1,814,936
—
1,814,936
Issuance of unrestricted stock8,820,482
87
—
285,358
—
—
—
—
285,445
Issuance of restricted stock36,223
—
—
—
—
—
—
—
—
Shares withheld to satisfy tax withholding(85,469)—
—
(5,128)—
—
—
—
(5,128)
Declared dividend—
—
(11,469)(50,244)—
—
(25,631)—
(87,344)
Amortization of stock-based compensation—
—
—
8,832
—
—
—
—
8,832
Net income (loss)—
—
11,469
—
(10,071)—
(21,969)3,853
(16,718)
Change in fair value of derivatives—
—
—
—
—
1,362
1,235
—
2,597
Exchange of Non-controlling Interests — common units in the operating partnership for common stock934,728
9
—
20,835
—
—
(20,844)—
—

The accompanying notes are an integral part of these consolidated financial statements.
F- 7

HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF EQUITY—(Continued)
(in thousands, except share data)


 Hudson Pacific Properties, Inc. Stockholders’ Equity   
 
Common
Shares
Stock
Amount
Series B Cumulative Redeemable Preferred Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Compreh-ensive
Income (Loss)
Non-
controlling
Interests —
Common units
in the
Operating
Partnership
Non-controlling Interest —
 Members in Consolidated Entities
Total Equity
Balance, December 31, 201589,153,780
891
—
1,710,979
(44,955)(1,081)1,800,578
262,625
3,729,037
Contributions—
—
—
—
—
—
—
33,996
33,996
Distributions—
—
—
—
—
—
—
(1,303)(1,303)
Proceeds from sale of common stock, net of underwriters’ discount and transaction costs47,010,695
470
—
1,449,111
—
—
—
—
1,449,581
Issuance of unrestricted stock590,520
6
—
—
—
—
—
—
6
Shares withheld to satisfy tax withholding(262,760)(3)—
(8,424)—
—
—
—
(8,427)
Declared dividend—
—
—
(90,005)—
—
(27,814)—
(117,819)
Amortization of stock-based compensation—
—
—
13,609
—
—
1,045
—
14,654
Net income—
—
—
—
27,984
—
5,848
9,290
43,122
Change in fair value of derivatives—
—
—
—
—
10,577
(4,635)—
5,942
Redemption of common units in the operating partnership—
—
—
34,124
—
—
(1,480,163)—
(1,446,039)
Balance, December 31, 2016136,492,235
$1,364
$—
$3,109,394
$(16,971)$9,496
$294,859
$304,608
$3,702,750

The accompanying notes are an integral part of these consolidated financial statements.
F- 8

Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)



 Year Ended December 31,
 2016 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income (loss)$43,758
 $(16,082) $23,522
Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
Depreciation and amortization269,087
 245,071
 72,216
Amortization of deferred financing costs and loan premium, net4,464
 4,746
 949
Amortization of stock-based compensation14,144
 8,421
 7,559
Straight-line rents(29,079) (29,392) (13,362)
Straight-line rent expenses1,023
 408
 —
Amortization of above- and below-market leases, net(19,734) (22,073) (5,635)
Amortization of above- and below-market ground lease, net2,160
 1,642
 248
Amortization of lease incentive costs1,388
 581
 425
Bad debt (recovery) expense(521) 170
 (97)
Amortization of discount and net origination fees on purchased and originated loans(208) (416) (156)
Unrealized loss on ineffective portion of derivative instruments1,436
 —
 —
Gains from sales(30,389) (30,471) (5,538)
Change in operating assets and liabilities:     
Restricted cash(7,167) (927) (333)
Accounts receivable15,088
 (5,734) (7,375)
Deferred leasing costs and lease intangibles(43,476) (28,980) (12,266)
Prepaid expenses and other assets(7,312) (17,032) (1,602)
Accounts payable and accrued liabilities(4,426) 18,342
 3,114
Security deposits10,054
 15,351
 485
Prepaid rent(683) 31,231
 1,014
Net cash provided by operating activities219,607
 174,856
 63,168
CASH FLOWS FROM INVESTING ACTIVITIES     
Additions to investment property(258,718) (170,590) (123,298)
Property acquisitions(630,145) (1,804,597) (113,580)
Contributions to unconsolidated entities(37,228) —
 —
Proceeds from repayment of notes receivable28,892
 —
 —
Acquisition of notes receivable—
 —
 (28,112)
Proceeds from sales of real estate investments372,302
 177,488
 18,629
Net cash used in investing activities(524,897) (1,797,699) (246,361)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from notes payable1,318,000
 2,234,687
 448,972
Payments of notes payable(888,607) (913,694) (417,508)
Proceeds from issuance of common stock, net1,449,581
 380,620
 195,869
Payments for redemption of common units in the operating partnership(1,446,039) —
 —
Redemption of Series B preferred stock—
 (145,000) —
Dividends paid to common stock and unitholders(117,819) (75,875) (34,966)
Dividends paid to preferred stock and unitholders(636) (12,071) (12,785)
Redemption of 6.25% Series A cumulative redeemable preferred units—
 —
 (298)
Contributions from non-controlling member in consolidated real estate entities33,996
 217,795
 —
Distributions to non-controlling member in consolidated real estate entities(1,303) (2,013) (2,842)
Payments to satisfy tax withholding(8,427) (5,128) (3,129)
Payments of loan costs(3,992) (20,680) (2,723)
Net cash provided by financing activities334,754
 1,658,641
 170,590
Net increase (decrease) in cash and cash equivalents29,464
 35,798
 (12,603)
Cash and cash equivalents — beginning of period
53,551
 17,753
 30,356
Cash and cash equivalents — end of period
$83,015
 $53,551
 $17,753




The accompanying notes are an integral part of these consolidated financial statements.
F- 9

Table of Contents
HUDSON PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(in thousands)


 Year Ended December 31,
 2016 2015 2014
Supplemental disclosure of cash flow information     
Cash paid for interest, net of amounts capitalized$82,491
 $50,208
 $32,107
NON-CASH INVESTING AND FINANCING ACTIVITIES:     
Accounts payable and accrued liabilities for investment in property$(37,364) $(27,972) $(4,720)
Issuance of common stock in connection with property acquisition (note 3)$—
 $87
 $—
Additional paid-in capital in connection with property acquisition (note 3)$—
 $285,358
 $—
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net$—
 $—
 $(449)
Non-controlling common units in the Operating Partnership in connection with property acquisition (note 3)$—
 $1,814,936
 $—


The accompanying notes are an integral part of these consolidated financial statements.
F- 10

Table of Contents


Report of Independent Registered Public Accounting Firm

The Partners of Hudson Pacific Properties, L.P.

We have audited the accompanying consolidated balance sheets of Hudson Pacific Properties, L.P. (the “Operating Partnership”), as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Operating Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Operating Partnership at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for property acquisitions effective October 1, 2016 when the Company adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.


/s/    ERNST & YOUNG LLP

Los Angeles, California
February 17, 2017



The accompanying notes are an integral part of these consolidated financial statements.
F- 11

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)

 December 31,
2016		 December 31,
2015
ASSETS   
REAL ESTATE ASSETS   
Land$1,281,809
 $1,244,921
Building and improvements4,502,235
 3,907,807
Tenant improvements373,778
 288,146
Furniture and fixtures4,276
 9,578
Property under development308,203
 173,007
Total real estate held for investment6,470,301
 5,623,459
Accumulated depreciation and amortization(419,368) (263,859)
Investment in real estate, net6,050,933
 5,359,600
Cash and cash equivalents83,015
 53,551
Restricted cash25,177
 18,010
Accounts receivable, net6,852
 20,996
Notes receivable, net—
 28,684
Straight-line rent receivables, net87,281
 58,783
Deferred leasing costs and lease intangible assets, net310,062
 312,930
Derivative assets5,935
 2,061
Goodwill8,754
 8,754
Prepaid expenses and other assets, net27,153
 27,156
Investment in unconsolidated entities37,228
 —
Assets associated with real estate held for sale36,608
 363,510
TOTAL ASSETS$6,678,998
 $6,254,035
LIABILITIES   
Notes payable, net$2,688,010
 $2,260,716
Accounts payable and accrued liabilities120,572
 81,658
Lease intangible liabilities, net80,130
 94,395
Security deposits31,495
 20,363
Prepaid rent40,755
 38,104
Derivative liabilities1,303
 2,010
Liabilities associated with real estate held for sale3,806
 17,575
TOTAL LIABILITIES2,966,071
 2,514,821
6.25% Series A cumulative redeemable preferred units of the operating partnership10,177
 10,177
CAPITAL   
Partners' Capital:   
Common units, 145,942,855 and 145,450,095 issued and outstanding at December 31, 2016 and 2015, respectively3,398,142
 3,466,412
Total Hudson Pacific Properties, L.P. capital3,398,142
 3,466,412
Non-controlling interest—members in consolidated entities304,608
 262,625
TOTAL CAPITAL3,702,750
 3,729,037
TOTAL LIABILITIES AND CAPITAL$6,678,998
 $6,254,035


The accompanying notes are an integral part of these consolidated financial statements.
F- 12

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)

 Year Ended December 31,
 2016 2015 2014
REVENUES     
Office     
Rental$486,956
 $394,543
 $156,806
Tenant recoveries84,386
 66,235
 34,509
Parking and other21,894
 20,940
 22,471
Total office revenues593,236
 481,718
 213,786
Media & Entertainment     
Rental26,837
 23,027
 22,138
Tenant recoveries1,884
 943
 1,128
Other property-related revenue17,380
 14,849
 15,751
Other302
 313
 612
Total Media & Entertainment revenues46,403
 39,132
 39,629
TOTAL REVENUES639,639
 520,850
 253,415
OPERATING EXPENSES
    
Office operating expenses202,935
 166,131
 78,372
Media & Entertainment operating expenses25,810
 23,726
 25,897
General and administrative52,400
 38,534
 28,253
Depreciation and amortization269,087
 245,071
 72,216
TOTAL OPERATING EXPENSES550,232
 473,462
 204,738
INCOME FROM OPERATIONS89,407
 47,388
 48,677
OTHER EXPENSE (INCOME)     
Interest expense76,044
 50,667
 25,932
Interest income(260) (124) (30)
Unrealized loss on ineffective portion of derivative instruments1,436
 —
 —
Acquisition-related expenses376
 43,336
 4,641
Other (income) expense(1,558) 62
 (14)
TOTAL OTHER EXPENSES76,038
 93,941
 30,529
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE GAINS ON SALES13,369
 (46,553) 18,148
Gains on sales30,389
 30,471
 5,538
INCOME (LOSS) FROM CONTINUING OPERATIONS43,758
 (16,082) 23,686
Loss from discontinued operations—
 —
 (164)
NET INCOME (LOSS)43,758
 (16,082) 23,522
Net income attributable to non-controlling interest in consolidated entities(9,290) (3,853) (149)
Net income (loss) attributable to Hudson Pacific Properties, L.P.34,468
 (19,935) 23,373
      Series A and B preferred units distributions(636) (12,105) (12,785)
Original issuance costs of redeemed Series B preferred units (note 11)—
 (5,970) —
Total preferred distributions(636) (18,075) (12,785)
Net income attributable to participating securities(766) (356) (274)
Net income (loss) available to common unitholders$33,066
 $(38,366) $10,314
Basic and diluted per unit amounts:     
Net income (loss) attributable to common unitholders—basic$0.23
 $(0.30) $0.15
Net income (loss) attributable to common unitholders—diluted$0.23
 $(0.30) $0.15
Weighted average shares of common units outstanding—basic145,595,246
 128,948,077
 68,175,010
Weighted average shares of common units outstanding—diluted146,739,246
 128,948,077
 68,721,339

The accompanying notes are an integral part of these consolidated financial statements.
F- 13

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

 Year Ended December 31,
 2016 2015 2014
Net income (loss)$43,758
 $(16,082) $23,522
Other comprehensive income (loss): change in fair value of derivative instruments5,942
 2,597
 (1,499)
Comprehensive income (loss)49,700
 (13,485) 22,023
Comprehensive income attributable to Series A and B preferred units(636) (12,105) (12,785)
Comprehensive income attributable to original issuance costs related to redeemed Series B preferred units—
 (5,970) —
Comprehensive income attributable to participating securities(766) (356) (274)
Comprehensive income attributable to non-controlling interest in consolidated entities(9,290) (3,853) (149)
Comprehensive income (loss) attributable to common unitholders$39,008
 $(35,769) $8,815


The accompanying notes are an integral part of these consolidated financial statements.
F- 14

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CAPITAL
(in thousands, except unit data)

 
Partners’ Capital
   
 Preferred UnitsNumber of Common UnitsCommon Units
Total Partners’ Capital
Non-controlling Interest —
 Members in Consolidated Entities
Total Capital
Balance at December 31, 2013145,000
59,612,762
$912,183
$1,057,183
$45,683
$1,102,866
Distributions—
—
—
—
(2,842)(2,842)
Proceeds from sale of common units, net of underwriters’ discount and transaction costs—
9,563,500
195,869
195,869
—
195,869
Issuance of unrestricted units—
6,922
—
—
—
—
Units repurchased—
(2,805)(3,129)(3,129)—
(3,129)
Declared distributions(12,144)—
(34,966)(47,110)—
(47,110)
Amortization of unit-based compensation—
—
7,979
7,979
—
7,979
Net income12,144
—
10,588
22,732
149
22,881
Change in fair value of derivative instruments—
—
(1,499)(1,499)—
(1,499)
Balance, December 31, 2014145,000
69,180,379
1,087,025
1,232,025
42,990
1,275,015
Contributions—
—
—
—
217,795
217,795
Distributions—
—
—
—
(2,013)(2,013)
Proceeds from sale of common units, net of underwriters’ discount and transaction costs—
12,650,000
380,620
380,620
—
380,620
Issuance of unrestricted units—
63,668,962
2,100,381
2,100,381
—
2,100,381
Issuance of restricted units—
36,223
—
—
—
—
Units repurchased—
(85,469)(5,128)(5,128)—
(5,128)
Declared distributions(11,469)—
(75,875)(87,344)—
(87,344)
Amortization of unit-based compensation—
—
8,832
8,832
—
8,832
Net income (loss)11,469
—
(32,040)(20,571)3,853
(16,718)
Change in fair value of derivative instruments—
—
2,597
2,597
—
2,597
Redemption of Series B Preferred Stock(145,000)—
—
(145,000)—
(145,000)
Balance, December 31, 2015—
145,450,095
3,466,412
3,466,412
262,625
3,729,037
Contributions—
—
—
—
33,996
33,996
Distributions—
 —
—
(1,303)(1,303)
Proceeds from sale of common units, net of underwriters’ discount and transaction costs—
47,010,695
1,449,581
1,449,581
—
1,449,581
Issuance of unrestricted units—
590,520
6
6
—
6
Units withheld to satisfy tax withholding—
(262,760)(8,427)(8,427)—
(8,427)
Declared distributions—
—
(117,819)(117,819)—
(117,819)
Amortization of unit-based compensation—
—
14,654
14,654
—
14,654
Net income—
—
33,832
33,832
9,290
43,122
Change in fair value of derivative instruments—
—
5,942
5,942
—
5,942
Redemption of common units—
(46,845,695)(1,446,039)(1,446,039)—
(1,446,039)
Balance, December 31, 2016—
145,942,855
$3,398,142
$3,398,142
$304,608
$3,702,750


The accompanying notes are an integral part of these consolidated financial statements.
F- 15

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Year Ended December 31,
 2016 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income (loss)$43,758
 $(16,082) $23,522
Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
Depreciation and amortization269,087
 245,071
 72,216
Amortization of deferred financing costs and loan premium, net4,464
 4,746
 949
Amortization of unit-based compensation14,144
 8,421
 7,559
Straight-line rents(29,079) (29,392) (13,362)
Straight-line rent expenses1,023
 408
 —
Amortization of above- and below-market leases, net(19,734) (22,073) (5,635)
Amortization of above- and below-market ground lease, net2,160
 1,642
 248
Amortization of lease incentive costs1,388
 581
 425
Bad debt (recovery) expense(521) 170
 (97)
Amortization of discount and net origination fees on purchased and originated loans(208) (416) (156)
Unrealized loss on ineffective portion of derivative instruments1,436
 —
 —
Gains from sales(30,389) (30,471) (5,538)
Change in operating assets and liabilities:     
Restricted cash(7,167) (927) (333)
Accounts receivable15,088
 (5,734) (7,375)
Deferred leasing costs and lease intangibles(43,476) (28,980) (12,266)
Prepaid expenses and other assets(7,312) (17,032) (1,602)
Accounts payable and accrued liabilities(4,426) 18,342
 3,114
Security deposits10,054
 15,351
 485
Prepaid rent(683) 31,231
 1,014
Net cash provided by operating activities219,607
 174,856
 63,168
CASH FLOWS FROM INVESTING ACTIVITIES     
Additions to investment property(258,718) (170,590) (123,298)
Property acquisitions(630,145) (1,804,597) (113,580)
Contributions to unconsolidated entities(37,228) —
 —
Proceeds from repayment of notes receivable28,892
 —
 —
Acquisition of notes receivable—
 —
 (28,112)
Proceeds from sales of real estate investments372,302
 177,488
 18,629
Net cash used in investing activities(524,897) (1,797,699) (246,361)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from notes payable1,318,000
 2,234,687
 448,972
Payments of notes payable(888,607) (913,694) (417,508)
Proceeds from issuance of common units, net1,449,581
 380,620
 195,869
Payments for redemption of common units(1,446,039) —
 —
Redemption of Series B preferred units—
 (145,000) —
Distributions paid to common unitholders(117,819) (75,875) (34,966)
Distributions paid to preferred unitholders(636) (12,071) (12,785)
Redemption of 6.25% Series A cumulative redeemable preferred units—
 —
 (298)
Contributions from non-controlling member in consolidated real estate entities33,996
 217,795
 —
Distributions to non-controlling member in consolidated real estate entities(1,303) (2,013) (2,842)
Payments to satisfy tax withholding(8,427) (5,128) (3,129)
Payments of loan costs(3,992) (20,680) (2,723)
Net cash provided by financing activities334,754
 1,658,641
 170,590
Net increase (decrease) in cash and cash equivalents29,464
 35,798
 (12,603)
Cash and cash equivalents — beginning of period53,551
 17,753
 30,356
Cash and cash equivalents — end of period$83,015
 $53,551
 $17,753





The accompanying notes are an integral part of these consolidated financial statements.
F- 16

Table of Contents
HUDSON PACIFIC PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(in thousands)



 Year Ended December 31,
 2016 2015 2014
Supplemental disclosure of cash flow information     
Cash paid for interest, net of amounts capitalized$82,491
 $50,208
 $32,107
NON-CASH INVESTING AND FINANCING ACTIVITIES:     
Accounts payable and accrued liabilities for investment in property$(37,364) $(27,972) $(4,720)
Assumption of other (assets) and liabilities in connection with property acquisitions, net (note 3)$—
 $—
 $(449)
Common units in the operating partnership in connection with property acquisition (note 3)$—
 $2,100,381
 $—


The accompanying notes are an integral part of these consolidated financial statements.
F- 17

Table of Contents

Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except square footage and share data)

1. Organization

Hudson Pacific Properties, Inc. is a Maryland corporation formed on November 9, 2009 that did not have any meaningful operating activity until the consummation of its initial public offering and the related acquisition of its predecessor and certain other entities on June 29, 2010 (“IPO”). Since the completion of the IPO, the concurrent private placement, and the related formation transactions, Hudson Pacific Properties, Inc. has been a fully integrated, self-administered and self-managed real estate investment trust (“REIT”). Through its controlling interest in the operating partnership and its subsidiaries, Hudson Pacific Properties, Inc. owns, manages, leases, acquires and develops real estate, consisting primarily of office and media and entertainment properties. Unless otherwise indicated or unless the context requires otherwise, all references in these financial statements to the “Company” refer to Hudson Pacific Properties, Inc. together with its consolidated subsidiaries, including Hudson Pacific Properties, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to the “our operating partnership” or “the operating partnership” refer to Hudson Pacific Properties, L.P. together with its consolidated subsidiaries.

On April 1, 2015, the Company completed the acquisition of the EOP Northern California Portfolio (“EOP Acquisition”) from Blackstone Real Estate Partners V and VI (“Blackstone”). The EOP Acquisition consisted of 26 high-quality office assets totaling approximately 8.2 million square feet and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto, Silicon Valley and North San Jose submarkets. The total consideration paid for the EOP Acquisition before certain credits, prorations and closing costs included a cash payment of $1.75 billion and an aggregate of 63,474,791 shares of common stock of Hudson Pacific Properties, Inc. and common units in the operating partnership. Following a common stock offering and common unit repurchase on January 10, 2017, Blackstone no longer holds an ownership interest in the Company or the operating partnership.

As of December 31, 2016, the Company owned a portfolio of 54 office properties and two media and entertainment properties. These properties are located throughout Northern and Southern California and the Pacific Northwest.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of the Company and the operating partnership are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Any reference to the number of properties and square footage are unaudited and outside the scope of the Company’s independent registered public accounting firm’s audit of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board (“PCAOB”).

Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current year presentation. Specifically, in the Consolidated Balance Sheets for the prior period, certain amounts have been reclassified to held for sale. These amounts are related to Patrick Henry Drive, One Bay Plaza and 12655 Jefferson, which were sold in 2016, and to 222 Kearny Street, which was determined to be held for sale as of December 31, 2016.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the Company, the operating partnership and all wholly owned subsidiaries and variable interest entities (“VIEs”), of which the Company is the primary beneficiary. The consolidated financial statements of the operating partnership include the accounts of the operating partnership, and all wholly owned subsidiaries and VIEs of which the operating partnership is the primary beneficiary. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

During the first quarter of 2016, the Company adopted ASU 2015-02, Consolidation (“Topic 810”): Amendments to the Consolidation Analysis, to amend the accounting guidance for consolidation. The standard simplifies the current guidance for consolidation and reduces the number of consolidation models through the elimination of the indefinite deferral of the previous guidance under ASC 810. Additionally, the standard places more emphasis on risk of loss when determining a controlling financial interest. The Company consolidates all entities that the Company controls through either majority ownership or voting rights. In addition, the Company consolidates all VIEs of which the Company is considered the primary

F- 18
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


beneficiary. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. As a result of the adoption, the Company concluded that two of the Company’s joint ventures and its operating partnership met the definition of a VIE. The Company is the primary beneficiary of these VIEs and continued to consolidate these entities. Substantially all of the assets and liabilities of the Company are related to these VIEs.

During the second quarter of 2016, the Company entered into a joint venture to co-originate a loan secured by land in Santa Clara, California. This joint venture met the definition of a VIE, however the Company is not the primary beneficiary and is not consolidating the joint venture, but due to its significant influence over this entity, the Company accounts for it using the equity method of accounting.

During the third quarter of 2016, the Company entered into an agreement with an unaffiliated third party related to the land on which its 11601 Wilshire property is located. The agreement does not meet the definition of a VIE and the Company is not consolidating the land interest. The Company accounts for the interest in the land using the equity method of accounting. On December 27, 2016, the Company entered into an agreement to purchase the land underlying the ground lease portion on the 11601 Wilshire property. The transaction is expected to close in the second quarter of 2017, however there can be no guaranty that it will close as expected.

During the fourth quarter of 2016, the Company entered into a joint venture to purchase Hill7 (refer to Note 3 for details). This joint venture met the definition of a VIE and the Company concluded that it is the primary beneficiary of this VIE and is consolidating this entity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate properties, its accrued liabilities, and its performance-based equity compensation awards. The Company bases its estimates on historical experience, current market conditions, and various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from these estimates.

Investment in Real Estate Properties

Acquisitions

The Company’s acquisitions are accounted for using the acquisition method. The results of operations for each of these acquisitions are included in the Company’s Consolidated Statements of Operations from the date of acquisition.
During the fourth quarter of 2016 the Company early adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which changes the definition of a business. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as an asset acquisition.

The Company evaluates each acquisition of real estate to determine if the integrated set of assets and activities acquired meet the definition of a business and need to be accounted for as a business combination. An integrated set of assets and activities would fail to qualify as a business if either (i) substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets or (ii) the integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction). An acquired process is considered substantive if (i) the process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and experienced in performing the process (ii) the process cannot be replaced without significant cost, effort, or delay or (iii) the process is considered unique or scarce.

Acquisitions of real estate will generally not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings and

F- 19
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


improvements and related intangible assets or liabilities) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

When the Company acquires properties that are considered business combinations, assets acquired and liabilities assumed are fair valued at the acquisition date. Assets acquired and liabilities assumed include, but are not limited to, land, building and improvements, intangible assets related to above-and below-market leases, intangible assets related to in-place leases, debt and other assumed assets and liabilities. The initial accounting for a business combination is based on management’s preliminary assessment, which may differ when final information becomes available. Subsequent adjustments made to the initial purchase price assignment are made within the measurement period, which typically does not exceed one year, within the Consolidated Balance Sheets. Acquisition-related expenses associated with business combinations are expensed in the period incurred.

When the Company acquires properties that are considered asset acquisitions, the purchase price is allocated based on relative fair value of the assets acquired and liabilities assumed. There is no measurement period concept for asset acquisitions, with the purchase price accounting being final in the period of acquisition. Additionally, acquisition-related expenses associated with asset acquisitions are capitalized as part of the purchase price.
The Company assesses fair value based on Level 2 and Level 3 inputs within the fair value framework, which includes estimated cash flow projections that utilize appropriate discount, capitalization rates, renewal probability and available market information, which includes market rental rate and market rent growth rates. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions.

The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant. The fair value of acquired “above- and below-” market leases are based on the estimated cash flow projections utilizing discount rates that reflect the risks associated with the leases acquired. The amount recorded is based on the present value of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the extended term for any leases with below-market renewal options. Other intangible assets acquired include amounts for in-place lease values that are based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related costs.

Cost Capitalization

The Company capitalizes direct construction and development costs, including redevelopment costs, interest, property taxes, insurance and other costs directly related and essential to the acquisition, development or construction of a real estate project. Indirect development costs, including salaries and benefits, office rent, and associated costs for those individuals directly responsible for and who spend their time on development activities are also capitalized and allocated to the projects to which they relate. Construction and development costs are capitalized while substantial activities are ongoing to prepare an asset for its intended use. The Company considers a construction project as substantially complete and held available for occupancy upon the completion of tenant improvements but no later than one year after cessation of major construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as they are incurred. Costs previously capitalized that related to abandoned acquisitions or developments are charged to earnings. Expenditures for repairs and maintenance are expensed as they are incurred.

The Company recognized the following capitalized costs the years ended December 31, 2016, 2015 and 2014:
  Year Ended December 31,
  2016 2015 2014
Capitalized personnel costs $9,347
 $7,349
 $3,061
Capitalized interest 11,307
 6,516
 6,938


F- 20
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Operating Properties

The properties are generally carried at cost, less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets as represented in the table below:
Asset DescriptionEstimated useful life (years)
Building and improvementsShorter of the ground lease term or 39 years
Land improvements15
Furniture and fixtures5 to 7
Tenant improvementsShorter of the estimated useful life or the lease term

The Company amortizes above- and below-market lease intangibles to the rental line item of the Consolidated Statements of Operations over the remaining non-cancellable lease terms and bargain renewal periods, if applicable. The in-place lease intangibles are amortized to the depreciation and amortization line item of the Consolidated Statements of Operations over the remaining non-cancellable lease term. When tenants vacate prior to the expiration of lease, the amortization of intangible assets and liabilities are accelerated. The Company amortizes above- and below-market ground lease intangibles to the office operating expense and media and entertainment operating expense line items of the Consolidated Statements of Operations over the remaining non-cancellable lease terms.

Held for sale

The Company classifies properties as held for sale when certain criteria set forth in Accounting Standard Codification (“ASC”) Topic 360, Property, Plant, and Equipment, are met. These criteria include (i) whether the Company is committed to a plan to sell, (ii) whether the asset or disposal group is available for immediate sale, (iii) whether an active program to locate a buyer and other actions required to complete the plan to sell have been initiated, (iv) whether the sale of the asset or disposal group is probable (i.e., likely to occur) and the transfer is expected to qualify for recognition as a completed sale within one year, (v) whether the long-lived asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value, (vi) whether actions necessary to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn. At the time a property is classified as held for sale, the Company reclassifies its assets and liabilities to held for sale in the Consolidated Balance Sheets for the periods presented and ceases recognizing depreciation expense. Properties held-for-sale are reported at the lower of their carrying value or their estimated fair value, less estimated costs to sell.

According to ASC Topic 205 Presentation of Financial Statements, the Company does not present the operating results in net loss from discontinued operations for disposals if they do not represent a strategic shift in the Company’s business. The Company reclassified City Plaza’s results of operations to net loss from discontinued operations on its Consolidated Statements of Operations and recorded $0.2 million of loss from discontinued operations in 2014. There were no discontinued operations for the years ended December 31, 2016 and 2015.

Impairment of Long-Lived Assets

The Company assesses the carrying value of real estate assets and related intangibles for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in accordance with GAAP. Impairment losses are recorded on real estate assets held for investment when indicators of impairment are present and the future undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. The Company recognizes impairment losses to the extent the carrying amount exceeds the fair value of the properties. No impairment indicators have been noted and the Company recorded no impairment charges during the years ended December 31, 2016, 2015 and 2014.


F- 21
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Goodwill

Goodwill represents the excess of acquisition cost over the fair value of net tangible and identifiable intangible assets acquired and liabilities assumed in business acquisitions. The Company does not amortize this asset but instead analyzes it on a quarterly basis for impairment. No impairment indicators have been noted during the years ended December 31, 2016 and 2015, respectively.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased.

The Company maintains some of its cash in bank deposit accounts that, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.

Restricted Cash

Restricted cash primarily consists of amounts held by lenders to fund reserves such as capital improvements, taxes, insurance, debt service and operating expenditures.

Accounts Receivable, net

Accounts receivable consist of amounts due for monthly rents and other charges. The Company maintains an allowance for doubtful accounts for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. The Company monitors the liquidity and creditworthiness of its tenants and operators on an ongoing basis. This evaluation considers industry and economic conditions, property performance, credit enhancements, length of time the receivables are past due, specific identification of uncollectible amounts, historical experience and other relevant factors. Historical experience has been within management’s expectations.

The following table represents the Company’s accounts receivable, net of allowance for doubtful accounts as of:
  December 31, 2016 December 31, 2015
Accounts receivable $8,697
 $22,008
Allowance for doubtful accounts (1,845) (1,012)
Accounts receivable, net $6,852
 $20,996

Straight-line rent receivables, net
For straight-line rent amounts, the Company’s assessment is based on amounts estimated to be recoverable over the term of the lease. The Company evaluates the collectability of straight-line rent receivables based on the length of time the related rental receivables are past due, the current business environment and the Company’s historical experience.
The following table represents the Company’s straight-line rent receivables, net of allowance for doubtful accounts as of:
  December 31, 2016 December 31, 2015
Straight-line rent receivables $87,417
 $59,753
Allowance for doubtful accounts (136) (970)
Straight-line rent receivables, net $87,281
 $58,783


F- 22
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Notes Receivable, net
On August 19, 2014, the Company entered into a loan participation agreement for a loan with a maximum principal of $140.0 million. The Company’s share was 23.77%, or $33.3 million. The notes receivable under this agreement was classified as a notes receivable on the Consolidated Balance Sheets. The notes receivable is secured by a real estate property, bears interest at 11.0% and was to mature on August 22, 2016. Interest is payable monthly with the principal due at maturity. The Company received a $0.4 million commitment fee as a result of this transaction. The balance as of December 31, 2015, net of the accretion of commitment fee, was $28.7 million. The notes receivable under the loan participation agreement were fully repaid during the second quarter of 2016.

Segment Reporting

The Company’s reporting segments are based on the Company’s method of internal reporting, which classifies its operations into two reporting segments: (i) office properties, and (ii) media and entertainment properties. The Company evaluates performance based upon net operating income of the combined properties in each segment. The media and entertainment segment is not material, and therefore separate income information by segment has not been presented. Asset information by segment is not reported because the Company does not use this measure to assess performance or make decisions to allocate resources.
Revenue Recognition

The Company 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. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

whether the tenant or landlord retains legal title to the improvements at the end of the lease term;

whether the tenant improvements are unique to the tenant or general-purpose in nature; and

whether the tenant improvements are expected to have any residual value at the end of the lease.

Certain leases provide for additional rents contingent upon a percentage of the tenant’s revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant, or estimates of tenant results, exceed the base amount or other thresholds. Such revenue is recognized only after the contingency has been removed (when the related thresholds are achieved), which may result in the recognition of rental revenue in periods subsequent to when such payments are received.

Other property-related revenue is revenue that is derived from the tenants’ use of lighting, equipment rental, parking, power, HVAC and telecommunications (telephone and Internet). Other property-related revenue is recognized when these items are provided.

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

The Company recognizes gains on sales of properties upon the closing of the transaction with the purchaser. Gains on properties sold are recognized using the full accrual method when (i) the collectability of the sales price is reasonably assured, (ii) the Company is not obligated to perform significant activities after the sale, (iii) the initial investment from the buyer is sufficient and (iv) other profit recognition criteria have been satisfied. Gains on sales of properties may be deferred in whole or in part until the requirements for gain recognition have been met.

F- 23
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



Deferred Financing Costs

Deferred financing costs are amortized over the term of the respective loans into interest expense on the Consolidated Statements of Operations. Deferred financing costs, and related amortization, related to the unsecured revolving credit facility and undrawn term loans are presented within prepaid expenses and other assets, net in the Consolidated Balance Sheets. All other deferred financing costs, and related amortization, are included in the notes payable, net line item in the Consolidated Balance Sheets.

Derivative Instruments

The Company manages interest rate risk associated with borrowings by entering into derivative instruments. The Company recognizes all derivative instruments on the Consolidated Balance Sheets on a gross basis at fair value. Derivative instruments that are not effective hedges are adjusted to fair value and the changes in fair value are reflected as income or expense. If the derivative instrument is an effective hedge, depending on the nature of the hedge, changes in the fair value are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income (loss), which is a component of equity. The ineffective portion of a derivative instrument’s change in fair value is immediately recognized in earnings.
Stock-Based Compensation

Compensation cost of restricted stock, restricted stock units and performance units under the Company’s equity incentive award plans are accounted for under ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). During the fourth quarter of 2016, the Company early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), and elected to account for forfeitures of awards as they occur. If the Company had adopted ASU 2016-09 on January 1, 2016, the cumulative effect on additional paid-in capital and non-controlling interest in the operating partnership would have been $0.7 million.

Income Taxes

The Company’s property-owning subsidiaries are limited liability companies and are treated as pass-through entities or disregarded entities (or, in the case of the entities that own the 1455 Market Street and Hill7 properties, REITs) for federal income tax purposes. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements for the activities of these entities.

Hudson Pacific Properties, Inc. has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with the Company’sits taxable year ended December 31, 2010. The Company believes that the Companyit has operated in a manner that has allowed the Company to qualify as a REIT for federal income tax purposes commencing with such taxable year, and the Company intends to continue operating in such manner.  To qualify as a REIT, the Company is required to distribute at least 90% of its net taxable income, excluding net capital gains, to the Company’s stockholders and to meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership.

Provided that the Companyit continues to qualify for taxation as a REIT, the CompanyHudson Pacific Properties, Inc. is generally not subject to corporate level income tax on the earnings distributed currently to its stockholders. If the CompanyHudson Pacific Properties, Inc. fails to qualify as a REIT in any taxable year, and is unable to avail itself of certain savings provisions set forth in the Code, all of the Company’sits taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax. Unless entitled to relief under specific statutory provisions, the CompanyHudson Pacific Properties, Inc. would be ineligible to elect to be treated as a REIT for the four taxable years following the year for which the Company loses its qualification. It is not possible to state whether in all circumstances the CompanyHudson Pacific Properties, Inc. would be entitled to this statutory relief.

The Company may acquire direct or indirect interests in one or more Subsidiary REITs. A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to the Company. If a subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii) shares in such REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs and (iii) it is possible that the Company would fail certain of the asset tests applicable to REITs, in which event the Company would fail to qualify as a REIT unless the Company could avail itself of certain relief provisions.    


F- 2224
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


The Company believes that its operating partnership is properly treated as a partnership for federal income tax purposes. As a partnership, the Company’s operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including the Company, is allocated, and may be required to pay tax with respect to, its share of the operating partnership’s income. As such, no provision for federal income taxes has been included for the operating partnership.     

The Company has elected, together with one of the Company’s subsidiaries, to treat such subsidiary as a taxable REIT subsidiary (“TRS”) for federal income tax purposes. Certain activities that the Company may undertake, such as non-customary services for the Company’s tenants and holding assets that the Company cannot hold directly, will be conducted by a TRS. A TRS is subject to federal and, where applicable, state income taxes on its net income. The Company'sCompany’s TRS did not have significant tax provisions or deferred income tax items for 2016, 2015 2014, 2013, or 2012.2014.

The Company is subject to the statutory requirements of the states in which it conducts business.

The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of December 31, 2015,2016, the Company has not established a liability for uncertain tax positions.

The Company and its TRS file income tax returns with the U.S. federal government and various state and local jurisdictions. The Company and its TRS are no longer subject to tax examinations by tax authorities for years prior to 2011.2012. Generally, the Company has assessed its tax positions for all open years, which include 20112012 to 2015,2016, and concluded that there are no material uncertainties to be recognized.

Fair Value of Assets and Liabilities

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time

F- 25
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there

F- 23
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market).

The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities.

Investment in Unconsolidated Entities

Investment in unconsolidated real estate in which the Company has the ability to exercise significant influence (but not control) is accounted for under the equity method of investment. Under the equity method, the Company initially records the investment at cost, and subsequently adjusts for equity in earnings or losses and cash contributions and distributions. The Company’s net equity investment is reflected within investment in unconsolidated entities on the Consolidated Balance Sheets, and the Company’s share of net income or loss from the entity is included within other expense (income) on the Consolidated Statements of Operations.

On June 16, 2016, the Company entered into a joint venture to co-originate a loan secured by land in Santa Clara, California. The Company holds a 21% interest in the joint venture. The assets of the joint venture consist of notes receivable. The Company’s investment in this joint venture at December 31, 2016 was $29.4 million, which represents the maximum exposure for loss for the Company. The joint venture meets the criteria of a VIE and the Company accounts for this investment under the equity method of accounting since the Company is not the primary beneficiary.

On July 1, 2016, the Company entered into an agreement with an unaffiliated third party related to the land on which its 11601 Wilshire property is located. The Company holds a 28% interest in the land. The agreement does not meet the definition of a VIE and the Company accounts for its interest in the land under the equity method of accounting. The Company’s interest rate contract agreements are classified as Level 2 and their fair value is derived from estimated values obtained from observable market data for similar instruments.

Credit-Risk-Related Contingent Features

As ofin the land at December 31, 2015,2016 was $7.8 million. On December 27, 2016, the Company had sevenentered into an agreement to purchase the remaining interest rate contracts that were in a net asset position.

Recently Issued Accounting Literature
Changes to GAAP are established by Financial Accounting Standards Board (“FASB”), in the form of ASUs.land. The Company considers the applicability and impact of all ASUs. Recently issued ASUs not listed below are not expected to have a material impact on the Company’s consolidated financial statements, because either the ASU is not applicable or the impacttransaction is expected to close in the second quarter of 2017, however there can be immaterial.no guaranty that it will close as expected.

On February 25, 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires all lessees to record a lease liability at lease inception, with a corresponding right of use asset, except for short-term leases. Lessor accounting will not be fundamentally changed. ASU 2016-02 is effective for fiscals years beginning after December 15, 2018 and for annual and interim periods thereafter with early adoption permitted. The Company is currently assessing the impact on Company’s consolidated financial statements and notes to the consolidated financial statements.

On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The guidance specifically notes that lease contracts with customers are a scope exception. The standard outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. This update is effective for annual reporting periods (including interim periods) beginning after December 15, 2016, and early adoption is not permitted. The Company will adopt the guidance effective January 1, 2017 and is currently assessing the impact on the Company's consolidated financial statements and notes to the consolidated financial statements.

On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, to defer the effective date of ASU 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers and notes that lease contracts with customers are a scope exception. Public business entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact on its consolidated financial statements and notes to the consolidated financial statements.

On February 18, 2015 the FASB issued ASU 2015-02, Consolidation (“Topic 810”): Amendments to the Consolidation Analysis”, to amend the accounting guidance for consolidation. The standard simplifies the current guidance for consolidation and reduces the number of consolidation models through the elimination of the indefinite deferral of Statement 167. Additionally, the standard places more emphasis on risk of loss when determining a controlling financial interest. This update is effective for all entities for reporting periods (including interim periods) beginning after December 15, 2015, and early adoption is permitted. The Company expects to adopt the guidance effective January 1, 2016, and the adoption of the guidance is not anticipated to have a material impact on the Company’s consolidated financial statements and notes to the consolidated financial statements.

On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update requires an entity to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern

F- 2426
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued, when applicable) and to provide related footnote disclosures in certain circumstances. This update is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter with early adoption permitted. The implementation of this update is not expected to have a material effect on the Company’s consolidated financial statements and notes to the consolidated financial statements.Recently Issued Accounting Literature

3. InvestmentChanges to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in Real Estate

A summarythe form of ASUs. The following ASUs were adopted by the activity of our investmentCompany in real estate including investment in real estate held for sale (Bayhill, First Financial and Tierrasanta) is as follows:
2016:
  Year Ended 
 December 31, 2015		 Year Ended 
 December 31, 2014		 Year Ended 
 December 31, 2013
Investment in real estate      
Beginning balance $2,239,741
 $2,035,330
 $1,475,955
Acquisitions 3,699,289
 114,008
 538,322
Improvements, capitalized costs 198,561
 128,018
 89,707
Disposal (13,556) (23,977) (9,638)
Cost of property sold (147,509) (13,638) (59,016)
Ending Balance 5,976,526
 2,239,741
 2,035,330
Reclassification to assets associated with real estate held for sale (206,990) (68,446) (82,305)
Total Investment in real estate $5,769,536
 $2,171,295
 $1,953,025
       
Accumulated depreciation      
Beginning balance $(142,561) $(116,342) $(85,184)
Depreciation expense (151,066) (50,044) (41,454)
Disposals 12,999
 22,310
 4,837
Cost of property sold 7,904
 1,515
 5,459
Ending Balance (272,724) (142,561) (116,342)
Reclassification to assets associated with real estate held for sale 3,650
 7,904
 7,931
Total Accumulated depreciation $(269,074) $(134,657) $(108,411)
Acquisitions

When the Company acquires properties that are considered business combinations, the purchase price is allocate to various components of the acquisition based upon the fair value of each component. The initial allocation of the purchase price is based on management’s preliminary assessment, which may differ when final information becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the allocation period, which typically does not exceed one year. The Company assesses fair value based on level 2 and level 3 inputs within the fair value hierarchy, which includes estimated cash flow projections that utilize discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. Acquisition-related expenses are expensed in the period incurred. The results of operations of each acquisition have been included in the Company’s financial statements from the date of acquisition.
During 2015, the Company early adopted ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which amends ASC 805, Business Combinations.

On April 1, 2015, the Company completed the EOP Acquisition which consisted of 26 high-quality office assets totaling approximately 8.2 million square feet and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto Silicon Valley and North San Jose submarkets. The total consideration paid before certain credits, proration, and closing costs was a cash payment equal to $1.75 billion (financed with proceeds received from the Company’s January 2015 common equity offering and $1.3 billion of new term debt), an aggregate of 63,474,791 shares of our common of the Company and common units in the Operating Partnership.
StandardDescriptionAdoption periodEffect on the financial statements or other significant matters
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a BusinessThis guidance amends ASC 805 to provide a more robust framework to use in determining when a set of assets and activities is a business.Fourth quarter of 2016The adoption had an impact on the accounting treatment for two of the property acquisitions, which were made during the fourth quarter of 2016, resulting in the capitalization of acquisition costs incurred. Additionally, the purchase price was assigned to various components of the acquisition based on relative fair value. Refer to Note 2 and 3 for details.
ASU 2016-09, Improvements to Employee Share-Based Payment AccountingThis guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, classification of excess tax benefits on the statement of cash flows and forfeitures.Fourth quarter of 2016The adoption had an impact on the Company’s consolidated financial statements. Refer to Note 2 for discussion.
ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period AdjustmentsThe guidance eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement period adjustment during the period in which it determines the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date.First quarter of 2016The adoption had an impact on the measurement-period adjustment related to 11601 Wilshire. Refer to Note 3.
ASU 2015-02, Consolidation (Topic 810), Amendments to the Consolidation AnalysisThe guidance simplifies the current guidance for consolidation and reduces the number of consolidation models through the elimination of the indefinite deferral of the previous guidance under ASC 810.First quarter of 2016The adoption did not have a material impact on the Company’s consolidated financial statements as the conclusion for consolidation did not change. Additional disclosures have been included in Notes 2 and 11.

F- 2527
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


StandardDescriptionAdoption PeriodEffect on the financial statements or other significant matters
ASU 2015-01, Income Statement — Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating
the Concept of Extraordinary Items		The guidance simplifies income statement presentation by eliminating the need to determine whether to classify an item as an extraordinary item. Current presentation and disclosure requirements for an event or transaction that is of an unusual nature or of a type that indicates infrequency of occurrence
have been retained.		First quarter of 2016The adoption did not have an impact on the Company’s consolidated financial statements.
ASU 2014-16, Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form
of a Share Is More Akin to Debt or to Equity
The guidance outlines the considerations for hybrid financial instruments issued in the form of a share. An entity (an issuer or an investor) should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and
circumstances.
First quarter of 2016The adoption did not have a material impact on the Company’s consolidated financial statements.
ASU 2014-15, Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.This update requires an entity to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued, when applicable) and to provide related footnote disclosures in certain circumstances.First quarter of 2016The adoption did not have a material impact on the Company’s consolidated financial statements.
The Company considers the applicability and impact of all ASUs. The ASUs not listed in the tables below are not expected to have a material impact on the Company’s consolidated financial statements, because either the ASU is not applicable or the impact is expected to be immaterial. The ASUs that are not yet adopted by the Company are listed as below:    
StandardDescriptionEffective DateEffect on the financial statements or other significant matters
ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ImpairmentThis guidance removes step two from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Effective for annual reporting periods (including interim periods) beginning after December 15, 2019

The Company does not currently anticipate a material impact of this update on its consolidated financial statements.

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)This guidance requires entities to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows.Effective for annual reporting periods (including interim periods) beginning after December 15, 2017The adoption of this new guidance will impact the presentation of the Consolidated Statement of Cash Flows as well as require additional footnote disclosure to reconcile the totals in the revised cash flow statement presentation to the related captions in the Consolidated Balance Sheets.
ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common ControlThis guidance outlines how a single decision-maker of a VIE should treat indirect interests held through other related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE.Effective for annual reporting periods (including interim periods) beginning after December 15, 2016The adoption of this new guidance will not impact our conclusions related to consolidation of the Company’s VIE’s.

On May 22, 2015,
F- 28
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


StandardDescriptionEffective DateEffect on the financial statements or other significant matters
ASU 2016-15, Classification of Certain Cash Receipts and Cash PaymentsThis guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows.Effective for annual reporting periods (including interim periods) beginning after December 15, 2017The Company does not currently anticipate an impact of this update on its Consolidated Statement of Cash Flows.
ASU 2016-13, Financial Instruments — Credit LossesThis guidance sets forth a new impairment model for financial instruments, the current expected credit loss (“CECL”) model, which is based on expected losses rather than incurred losses. Under the CECL model, an entity recognizes as an allowance its estimate of expected credit losses.Effective for annual reporting periods (including interim periods) beginning after December 15, 2019The Company does not currently anticipate a material impact of this update on its consolidated financial statements.
ASU related to Revenue from Contracts with Customers (Topic 606)The new revenue standard was amended through various ASU’s. The ASU’s that impact the Company are ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) and ASU 2014-09, Revenue from Contracts with Customers. ASU 2016-08 clarifies certain aspects of the principal-versus-agent guidance in its new revenue recognition standard related to the determination of whether an entity is a principal-versus-agent and the determination of the nature of each specified good or service. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers and specifically notes that lease contracts with customers are a scope exception.Effective for annual reporting periods (including interim periods) beginning after December 15, 2017
The Company does not expect this guidance to have a material effect on revenue recognition as it relates to its leasing contracts until the adoption of ASU 2016-02, at which time the standard may effect revenue recognition as it relates to certain non-lease revenues that are part of its leasing contracts. The Company is currently evaluating this standard as part of its evaluation of the adoption of ASU 2016-02 (see below) as it relates to its other revenue from its media and entertainment properties where the Company generates substantially all of its revenue from leasing contracts that are scoped out of this standard.

The Company has the option of adopting this standard on either the full retrospective basis (to the beginning of its contracts) or modified retrospective method (from the beginning of the latest fiscal year of adoption). The Company plans on adopting the standard January 1, 2018 using the modified retrospective method.

F- 29
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


StandardDescriptionEffective DateEffect on the financial statements or other significant matters
ASU 2016-02, LeasesThis guidance requires all lessees to record a lease liability at lease inception, with a corresponding right of use asset, except for short-term leases. Lessor accounting will not be fundamentally changed.Effective for annual reporting periods (including interim periods) beginning after December 15, 2018
The Company is currently in the process of evaluating the amount of assets and liabilities relating to right of use that will need to be record with respect to its leases where it is the lessee.

Additionally, the standard will impact the way the Company will record revenue and leasing costs where it is the lessor. For leasing costs, the Company will no longer be able to capitalize internal leasing costs to the extent they are not directly attributable to the lease transaction. Accordingly, payroll and payroll-related costs that the Company currently capitalizes in connection with leasing its space will be required to be expensed.

With respect to the lease revenue, the Company will need to break down its current revenue streams between leasing and non-leasing components. To the extent there are non-leasing components the Company will need to record them in accordance with ASC 606 (see above). The Company is still in the process of evaluating its existing leasing components to determine what effect, if any, this standard will have on its revenue recognition as it relates to its leases. The Company will adopt the standard using the retrospective method to the beginning of the first year presented on the consolidated statement of operations which is January 1, 2017.
ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities.This guidance provides a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient. Under this alternative, these investments can be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.Effective for annual reporting periods (including interim periods) beginning after December 15, 2017The Company does not currently anticipate a material impact of this update on its consolidated financial statements.


F- 30
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


3. Investment in Real Estate
Acquisitions

During 2016, the Company acquired a three-story, 120,937-square-foot former manufacturing facility known as 4th & Traction in Los Angeles, California for $49.3 million (before certain credits, prorations11601 Wilshire, Hill7 and closing costs). The Company funded this off-market transaction with proceeds from its unsecured revolving credit facility.

On August 17,Page Mill Hill. During 2015, the Company completed the acquisition ofEOP Acquisition, and acquired 4th & Traction and 405 Mateo, a three-building, 83,285-square-foot redevelopment projectMateo. The following table summarizes the information on our acquisitions completed in Downtown Los Angeles’ Arts District for $40.0 million (before credits, prorations,2016 and closing costs). 2015:
Property Submarket Date of Acquisition Square Feet (unaudited) 
Purchase Price(1) (in millions)
11601 Wilshire(2)
 West Los Angeles 7/1/2016 500,475
 $311.0
Hill7(3)
 South Lake Union 10/7/2016 285,680
 179.8
Page Mill Hill(4)
 Palo Alto 12/12/2016 182,676
 150.0
Total acquisitions in 2016     968,831
 640.8
         
EOP Acquisition(5)
 Various 4/1/2015 8,201,456
 3,815.7
4th & Traction Downtown Los Angeles 5/22/2015 120,937
 49.3
405 Mateo Downtown Los Angeles 8/17/2015 83,285
 40.0
Total acquisitions in 2015 
     8,405,678
 $3,905.0
_____________
(1)Represents purchase price before certain credits, prorations and closing costs.
(2)Previously owned by an affiliate of Blackstone, the property has served as the Company’s corporate headquarters since its IPO. The Company funded this acquisition with proceeds from the unsecured revolving credit facility.
(3)The Company purchased the property through a joint venture with the Canadian Pension Plan Investment Board. The Company owns 55% of the ownership interest in the consolidated joint venture. In conjunction with the acquisition, the joint venture closed a secured non-recourse loan in the amount of $101.0 million. Refer to Note 5 for details.
(4)The Company funded this acquisition with proceeds from the unsecured revolving credit facility.
(5)The EOP Acquisition consisted of 26 office assets and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto, Silicon Valley and North San Jose submarkets.

The Company funded this transaction with proceeds from its unsecured revolving credit facility.evaluated the Hill7 and Page Mill Hill acquisitions under the new framework for determining whether an integrated set of assets and activities meet the definition of a business (pursuant to ASU 2017-01). Substantially all of the fair value of the gross assets is concentrated in either a single identifiable asset or group of similar identifiable assets (e.g., operating property). Accordingly, Hill7 and Page Mill Hill did not meet the definition of a business and were accounted for as asset acquisitions.

In previous reporting periods, the purchase price accounting for 11601 Wilshire was preliminary because the Company was in the process of evaluating the terms of certain contracts related to the Company’s interest in the land, which affected the identification and valuation of assets acquired and liabilities assumed. The fair value of the Company’s interest in the land has reflected below in the final purchase price accounting. If the measurement-period adjustment was made as of the acquisition date, the Company would have recognized an additional $33 thousand of depreciation and amortization expense in the third quarter of 2016. The following table represents the final aggregate purchase price accounting for each of the Company’s acquisitions completed in 2016:
 11601 Wilshire Hill7 Page Mill Hill Total
Investment in real estate, net$292,382
 $173,967
 $131,402
 $597,751
Land interest(1)
7,836
 —
 —
 7,836
Above-market leases(2)
167
 —
 307
 474
Below-market ground leases(3)
212
 —
 12,125
 12,337
Deferred leasing costs and in-place intangibles(4)
13,884
 7,617
 14,697
 36,198
Below-market leases(5)
(6,562) (1,417) (8,636) (16,615)
Net asset and liabilities assumed$307,919
 $180,167
 $149,895
 $637,981
_____________
(1)Represents the fair value of the Company’s interest in the land which is included in investment in unconsolidated entities in the Consolidated Balance Sheets.
(2)Represents weighted-average amortization period of 5.4 years.
(3)Represents weighted-average amortization period of 33.2 years.

F- 31
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


(4)Represents weighted-average amortization period of 5.8 years.
(5)Represents weighted-average amortization period of 6.4 years.
Included in the Company’s consolidated financial statements for the year ended December 31, 20152016 were revenues and net loss totaling $14.0 million and $3.5 million, respectively, from the EOP Acquisition totaling $254.9 million and $0.1 million, respectively. There was no revenue generated by 405 Mateo or 4th & Traction as they are redevelopment projects with no current revenue stream.acquisitions completed in 2016.    

The Company is intable below shows the process of finalizing the purchase price allocationpro forma financial information (unaudited) for the years ended December 31, 2016 and 2015 as if the acquisitions made in 2015. The determination2016 had completed as of the final values may result in adjustments to the values presented. January 1, 2015:
 Year Ended December 31,
 2016 2015
Total revenues$677,313
 $572,482
Net income (loss)41,685
 (21,652)

The following table represents our aggregate preliminarythe final purchase price allocationaccounting for each of these acquisitions:
the Company’s acquisitions completed in 2015:
EOP Northern California Portfolio 4th & Traction 405 Mateo  EOP Northern California Portfolio 4th & Traction 405 Mateo Total
Date of AcquisitionApril 1, 2015 May 22, 2015 August 17, 2015 Total
Consideration paid              
Cash consideration$1,715,346
 $49,250
 $40,000
 $1,804,596
$1,715,346
 $49,250
 $40,000
 $1,804,596
Common stock87
 —
 —
 87
87
 —
 —
 87
Additional paid-in capital285,358
 —
 —
 285,358
285,358
 —
 —
 285,358
Non-controlling common units in the Operating Partnership1,814,936
 —
 —
 1,814,936
1,814,936
 —
 —
 1,814,936
Total consideration$3,815,727
 $49,250
 $40,000
 $3,904,977
3,815,727
 49,250
 40,000
 3,904,977
Allocation of consideration paid              
Investment in real estate, net$3,610,039
 $49,250
 40,000
 $3,699,289
3,610,039
 49,250
 40,000
 3,699,289
Above-market leases(1)
28,759
 —
 —
 28,759
28,759
 —
 —
 28,759
Below-market ground leases(2)
52,065
 —
 —
 52,065
52,065
 —
 —
 52,065
Deferred leasing costs and in-place intangibles(3)
225,431
 —
 —
 225,431
225,431
 —
 —
 225,431
Below-market leases(4)
(99,472) —
 —
 (99,472)(99,472) —
 —
 (99,472)
Above-market ground leases(5)
(1,095) —
 —
 (1,095)(1,095) —
 —
 (1,095)
Total consideration paid$3,815,727
 $49,250
 $40,000
 $3,904,977
$3,815,727
 $49,250
 $40,000
 $3,904,977
_____________________________
(1)Represents weighted-average amortization period of 3.0 years.
(2)Represents weighted-average amortization period of 27.7 years.
(3)Represents weighted-average amortization period of 3.6 years.
(4)Represents weighted-average amortization period of 4.3 years.
(5)Represents weighted-average amortization period of 25.4 years.




F- 2632
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


During 2014, we acquired the following properties: Merrill Place, 3402 Pico Blvd. and 12655 Jefferson. The results of operations for each of these acquisitions are included in our consolidated statements of operations from the date of acquisition. Dispositions
The following table represents our final purchase price accounting for each of these acquisitions:

summarizes the properties sold in 2016, 2015 and 2014. These properties were considered non-strategic to the Company’s portfolio:
 Merrill Place 3402 Pico Blvd. 12655 Jefferson  
Date of AcquisitionFebruary 12, 2014 February 28, 2014 October 17, 2014 Total
Consideration paid       
Cash consideration$57,034
 $18,546
 $38,000
 $113,580
Total consideration$57,034
 $18,546
 $38,000
 $113,580
Allocation of consideration paid       
Investment in real estate, net$57,508
 $18,500
 $38,000
 $114,008
Above-market leases(1)
173
 —
 —
 173
Deferred leasing costs and lease intangibles(2)
3,163
 —
 —
 3,163
Below-market leases(3)
(3,315) —
 —
 (3,315)
Other (liabilities) asset assumed, net(495) 46
 —
 (449)
Total consideration paid$57,034
 $18,546
 $38,000
 $113,580
Property Date of Disposition Square Feet (unaudited) 
Sales Price(1) (in millions)
Bayhill Office Center 1/14/2016 554,328
 $215.0
Patrick Henry Drive 4/7/2016 70,520
 19.0
One Bay Plaza 6/1/2016 195,739
 53.4
12655 Jefferson 11/4/2016 100,756
 80.0
Total dispositions in 2016(2)
   921,343
 $367.4
       
First Financial 3/6/2015 223,679
 $89.0
Bay Park Plaza 9/29/2015 260,183
 90.0
Total dispositions in 2015(3)
   483,862
 $179.0
       
Tierrasanta 7/16/2014 112,300
 $19.5
Total disposition in 2014   112,300
 $19.5
_____________________________
(1)Represents weighted-average amortization period of 7.6 years.gross sales price before certain credits, prorations and closing costs.
(2)Represents weighted-average amortization periodExcludes the sale of 4.8 years.an option to acquire land at 9300 Culver on December 6, 2016.
(3)Represents weighted-average amortization periodExcludes the disposition of 5.8 years.45% interest in 1455 Market Street office property on January 7, 2015.

The table below shows the pro forma financial information (unaudited)disposition of these properties resulted in a gain of $22.9 million, $30.5 million and $5.5 million for the years ended December 31, 2016, 2015 and 2014, as ifrespectively. The gains on sale of real estate is included in the EOP Northern California Properties had been acquired asgains on sales in the Consolidated Statements of January 1, 2014.Operations. Also included in gains on sales in 2016 is a gain of $7.5 million related to a sale of an option to purchase land at 9300 Culver.
    
 Year Ended December 31,
 2015 2014
Total revenues$599,441
 $572,277
Net loss$(6,252) $26,293
DispositionsHeld for sale
    
On September 29, 2015,December 30, 2016, the Company soldentered into an agreement to sell its Bay Park Plaza office property in Burlingame, California for $90.0 million (before certain credits, prorations and closing costs). This property was part of the EOP Acquisition, therefore, no reclassification to held for sale for the prior period balances are necessary. The Company recognized a gain on sale of $8.4 million related to this disposition.

On March 6, 2015, the Company sold its First Financial office222 Kearny Street property for $89.0$51.8 million (before certain credits, prorations, and closing costs) and therefore, reclassified First Financial’s asset and liabilities to held for sale. The Company recognized a gain on sale of $22.1 million related to this disposition.

On July 16, 2014, the Company sold its Tierrasanta property for $19.5 million (before certain credits, prorations, and closing costs) and therefore, reclassified Tierrasanta’s assets and liabilities to held for sale. The Company recognized a gain on sale of $5.5 million.

On July 12, 2013, the Company sold its City Plaza property for approximately $56.0 million (before certain credits, prorations and closing costs). The Company reclassified City Plaza’s results of operations fordetermined that this property met the years ended December 31, 2015, 2014 and 2013criteria to discontinued operations on its consolidated statements of operations. The Company recognized an impairment loss of $5.6 million for the year ended December 31, 2013.

Pursuant to the Company’s adoption of ASU No. 2014-08 in 2014, the Company has not presented the operating results in net income (loss) from discontinued operations for disposals listed above except for the City Plaza property. The following table sets forth the discontinued operations for the years ended December 31, 2015, 2014 and 2013 for the City Plaza:

F- 27
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


  Year Ended December 31,
  2015 2014 2013
Total office revenues $—
 $—
 $4,321
Office operating expenses —
 (164) (1,961)
Depreciation and amortization —
 —
 (789)
(Loss) income from discontinued operations $—
 $(164) $1,571

Held for sale
On December 10, 2015, the Company entered into a purchase and sale agreement to sell its Bayhill property for $215.0 million (before certain credits, prorations, and closing costs), which is included in our office property segment.
As a result, the Company has reclassified its assets and liabilities tobe classified as held for sale and reclassified the balances related to such property within the Consolidated Balance Sheets as of December 31, 2015. This property was part of the EOP Acquisition, therefore, no reclassification of prior period balances are necessary. The transaction closed on January 14, 2016 and has been included in Note 13, “Subsequent Events.”2015. 222 Kearny Street was subsequently sold on February 14, 2017.

The following table summarizes the components that comprise theof assets and liabilities associated with real estate held for sale as of December 31, 2015 and 2014:

of:
 Year Ended December 31,
 2015 2014 December 31, 2016 December 31, 2015
ASSETS        
Investment in real estate, net $203,340
 $60,542
 $32,601
 $344,202
Restricted cash —
 2,839
Straight-line rent receivables 1,788
 2,151
Deferred leasing costs and lease intangibles, net 10,867
 2,457
Straight-line rent receivables, net 777
 2,641
Deferred leasing costs and lease intangible assets, net 1,945
 15,968
Other 400
 176
 1,285
 699
Assets associated with real estate held for sale $216,395
 $68,165
 $36,608
 $363,510
        
LIABILITIES AND EQUITY    
Liabilities:    
Notes payable $—
 $42,080
LIABILITIES    
Accounts payable and accrued liabilities 2,188
 322
 $2,918
 $4,578
Lease intangible liabilities, net 27
 10,233
Other 11,104
 443
 861
 2,764
Liabilities associated with real estate held for sale $13,292
 $42,845
 $3,806
 $17,575


F- 2833
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


4. Deferred Leasing Costs and Lease Intangibles, net

The following summarizes ourthe Company’s deferred leasing costs and lease intangibles, net as of:
December 31,
2015		 December 31,
2014		December 31,
2016		 December 31,
2015
Above-market leases$38,481
 $10,891
$23,430
 $38,392
Accumulated amortization(17,210) (5,743)(12,989) (17,166)
Above-market leases, net21,271
 5,148
10,441
 21,226
Deferred leasing costs and in-place lease intangibles352,276
 130,370
378,640
 345,434
Accumulated amortization(112,337) (39,939)(145,551) (110,116)
Deferred leasing costs and in-place lease intangibles, net239,939
 90,431
233,089
 235,318
Below-market ground leases59,578
 7,513
71,423
 59,085
Accumulated amortization(2,757) (1,069)(4,891) (2,699)
Below-market ground leases, net56,821
 6,444
66,532
 56,386
Deferred leasing costs and lease intangibles assets, net$318,031
 $102,023
Deferred leasing costs and lease intangible assets, net$310,062
 $312,930
      
Below-market leases140,041
 57,420
141,676
 138,699
Accumulated amortization(45,882) (16,451)(62,552) (45,353)
Below-market leases, net94,159
 40,969
79,124
 93,346
Above-market ground leases1,095
 —
1,095
 1,095
Accumulated amortization(46) —
(89) (46)
Above-market ground leases, net1,049
 —
1,006
 1,049
Lease intangible liabilities, net$95,208
 $40,969
$80,130
 $94,395

The companyCompany recognized the following amortization related to deferred leasing costcosts and lease intangibles:
 For the Year Ended Consolidated Financial
 2015 2014 2013 Statement Classification
Above-market lease12,534
 2,026
 2,542
 Rental Revenue
Below-market lease(34,607) (7,661) (8,570) Rental Revenue
Deferred lease costs and in-place lease intangibles91,965
 20,879
 24,374
 Depreciation and amortization expense
Above-market ground lease(46) —
 —
 Office operating expenses
Below-market ground lease1,688
 248
 247
 Office operating expenses
 For the Year Ended December 31,
 2016 2015 2014
Above-market leases(1)
$11,259
 $12,534
 $2,026
Below-market leases(1)
30,993
 34,607
 7,661
Deferred leasing costs and in-place lease intangibles(2)
84,492
 91,965
 20,879
Above-market ground leases(3)
43
 46
 —
Below-market ground leases(3)
2,203
 1,688
 248
_____________
(1)Amortization is recorded in office rental income in the Consolidated Statements of Operations.
(2)Amortization is recorded in depreciation and amortization expense and office rental income in the Consolidated Statements of Operations.
(3)Amortization is recorded in office operating expenses in the Consolidated Statements of Operations.

As of December 31, 2015,2016, the estimated aggregate amortization of deferred leasing costs and lease intangible assets net for each of the next five years and thereafter are as follows:

Year ended Above-market leases Deferred lease cost and in-place lease intangibles Below-market ground leases Above-market leases Deferred leasing costs and in-place lease intangibles Below-market ground leases
2016 $11,242
 $76,208
 $2,182
2017 3,700
 49,994
 2,182
 $3,780
 $62,686
 $2,544
2018 3,030
 30,275
 2,182
 3,113
 40,425
 2,544
2019 2,515
 23,355
 2,182
 2,598
 31,731
 2,544
2020 386
 13,099
 2,182
 466
 20,447
 2,544
2021 329
 15,974
 2,544
Thereafter 398
 47,008
 45,911
 155
 61,826
 53,812
 $21,271
 $239,939
 $56,821
Total $10,441
 $233,089
 $66,532

F- 2934
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)




As of December 31, 20152016 the estimated aggregate amortization of below-market leases, netlease intangible liabilities for each of the next five years and thereafter are as follows:

Year endedBelow-market lease Above-market ground leases Below-market leases Above-market ground leases
2016$30,319
 $43
201721,663
 43
 $24,394
 $43
201813,669
 43
 16,400
 43
201910,778
 43
 12,907
 43
20207,450
 43
 9,460
 43
2021 6,953
 43
Thereafter10,280
 834
 9,010
 791
$94,159
 $1,049
Total $79,124
 $1,006

5. Notes Payable, net

The following table summarizes the balancebalances of the Company’s indebtedness as of December 31, 2015 and December 31, 2014.
of:
  December 31, 2015 December 31, 2014
Notes Payable $2,278,445
 $915,003
Less: unamortized loan premium and deferred financing costs, net(1)
 (17,729) (2,320)
Notes Payable, net $2,260,716
 $912,683
 December 31, 2016 December 31, 2015
Notes payable$2,707,839
 $2,278,445
Less: unamortized loan premium and deferred financing costs, net(1)
(19,829) (17,729)
Notes payable, net$2,688,010
 $2,260,716
_____________________________
(1)Unamortized loan premium andExcludes deferred financing costs exclude debt issuance costs, net related to establishing the Company’s unsecured revolving credit facility and undrawn term loans. These costsloans of $1.5 million and $4.1 million as of December 31, 2016 and December 31, 2015, respectively, which are presented withinincluded in prepaid expenses and other assets, net in the consolidated balance sheets. See the discussion of the adoption of ASU 2015-03 and ASU 2015-15 in Note 2.Consolidated Balance Sheets. 
 

F- 3035
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


The following table sets forth information as of December 31, 20152016 and December 31, 20142015 with respect to the Company’s outstanding indebtedness.indebtedness, excluding net deferred financing costs related to unsecured revolving credit facility and undrawn term loans:
 December 31, 2015 December 31, 2014   
 Principal Amount Unamortized Loan Premium and Deferred Financing Costs, net Principal Amount Unamortized Loan Premium and Deferred Financing Costs, net 
Interest Rate(1)
 Contractual Maturity Date
Unsecured Loans           
Unsecured Revolving Credit Facility(2)
$230,000
 $—
 $130,000
 $—
 LIBOR+1.15% to 1.85% 
4/1/2019(10)
5-Year Term Loan due April 2020(2)(3)
550,000
 (5,571) 150,000
 (870) LIBOR+1.30% to 2.20% 4/1/2020
5-Year Term Loan due November 2020(2)
—
 —
 —
 —
 LIBOR +1.30% to 2.20% 11/17/2020
7-Year Term Loan due April 2022(2)(4)
350,000
 (2,656) —
 —
 LIBOR +1.60% to 2.55% 4/1/2022
7-Year Term Loan due November 2022(2)
—
 —
 —
 —
 LIBOR + 1.60% to 2.55% 11/17/2022
Series A Notes110,000
 (1,011) —
 —
 4.34% 1/2/2023
Series B Notes259,000
 (2,378) —
 —
 4.69% 12/16/2025
Series C Notes56,000
 (509) —
 —
 4.79% 12/16/2027
    Total Unsecured Loans$1,555,000
 $(12,125) $280,000
 $(870)    
            
Mortgage Loans           
Mortgage loan secured by Pinnacle II(5)
$86,228
 $1,310
(6) 
$87,421
 3,056
(6) 
6.31% 9/6/2016
Mortgage loan secured by 901 Market30,000
 (119) 49,600
 (434) LIBOR+2.25% 10/31/2016
Mortgage loan secured by Rincon Center(7)
102,309
 (355) 104,126
 (518) 5.13% 5/1/2018
Mortgage loan secured by Sunset Gower/Sunset Bronson(8)(9)
115,001
 (2,232) 97,000
 (678) LIBOR+2.25% 3/4/2019
Mortgage loan secured by Met Park North(10)
64,500
 (509) 64,500
 (521) LIBOR+1.55% 8/1/2020
Mortgage loan secured by 10950 Washington(7)
28,407
 (421) 28,866
 (493) 5.32% 3/11/2022
Mortgage loan secured by Pinnacle I(11)
129,000
 (694) 129,000
 (796) 3.95% 11/7/2022
Mortgage loan secured by Element L.A.168,000
 (2,584) 59,490
 (1,066) 4.59% 11/6/2025
Mortgage loan secured by 275 Brannan—
 —
 15,000
 —
 LIBOR+2.00% N/A
Total mortgage loans before mortgage loan on real estate held for sale$723,445
 $(5,604) $635,003
 $(1,450)    
Total$2,278,445
 $(17,729) $915,003
 $(2,320)    
            
Mortgage loan on real estate held for sale           
Mortgage loan secured by First Financial(12)
$—
 $—
 $42,449
 $(369) 4.58% N/A
 December 31, 2016 December 31, 2015     
 Principal Amount Deferred Financing Costs, net Principal Amount Unamortized Loan Premium and Deferred Financing Costs, net 
Interest Rate(1)
 Contractual Maturity Date 
UNSECURED LOANS            
Unsecured Revolving Credit Facility(2)
$300,000
 $—
 $230,000
 $—
 LIBOR + 1.15% to 1.85% 4/1/2019
(3) 
5-Year Term Loan due April 2020(2)(4)
450,000
 (3,513) 550,000
 (5,571) LIBOR + 1.30% to 2.20% 4/1/2020 
5-Year Term Loan due November 2020(2)
175,000
 (745) —
 —
 LIBOR + 1.30% to 2.20% 11/17/2020 
7-Year Term Loan due April 2022(2)(5)
350,000
 (2,265) 350,000
 (2,656) LIBOR + 1.60% to 2.55% 4/1/2022 
7-Year Term Loan due November 2022(2)(6)
125,000
 (931) —
 —
 LIBOR + 1.60% to 2.55% 11/17/2022 
Series A Notes110,000
 (930) 110,000
 (1,011) 4.34% 1/2/2023 
Series E Notes50,000
 (300) —
 —
 3.66% 9/15/2023 
Series B Notes259,000
 (2,271) 259,000
 (2,378) 4.69% 12/16/2025 
Series D Notes150,000
 (898) —
 —
 3.98% 7/6/2026 
Series C Notes56,000
 (539) 56,000
 (509) 4.79% 12/16/2027 
TOTAL UNSECURED LOANS2,025,000
 (12,392) 1,555,000
 (12,125)     
MORTGAGE LOANS            
Mortgage Loan secured by Rincon Center(7)
100,409
 (198) 102,309
 (355) 5.13% 5/1/2018 
Mortgage Loan secured by Sunset Gower Studios/Sunset Bronson Studios5,001
 (1,534) 115,001
 (2,232) LIBOR + 2.25% 3/4/2019
(3) 
Mortgage Loan secured by Met Park North(8)
64,500
 (398) 64,500
 (509) LIBOR + 1.55% 8/1/2020 
Mortgage Loan secured by 10950 Washington(7)
27,929
 (354) 28,407
 (421) 5.32% 3/11/2022 
Mortgage Loan secured by Pinnacle I(9)(10)
129,000
 (593) 129,000
 (694) 3.95% 11/7/2022 
Mortgage Loan secured by Element LA168,000
 (2,321) 168,000
 (2,584) 4.59% 11/6/2025 
Mortgage Loan secured by Pinnacle II(10)
87,000
 (720) 86,228
 1,310
(11) 
4.30% 6/11/2026 
Mortgage Loan secured by Hill7(12)
101,000
 (1,319) —
 —
 3.38%
(13) 
11/6/2026
(13) 
Mortgage Loan secured by 901 Market Street—
 —
 30,000
 (119) N/A N/A 
TOTAL MORTGAGE LOANS682,839
 (7,437) 723,445
 (5,604)     
TOTAL$2,707,839
 $(19,829) $2,278,445
 $(17,729)     
______________________________
(1)Interest rate with respect to indebtedness is calculated on the basis of a 360-day year for the actual days elapsed, excluding the amortization of loan fees and costs.elapsed. Interest rates are as of December 31, 2015,2016, which may be different than the interest rates as of December 31, 20142015 for corresponding indebtedness.
(2)The Company has the option to make an irrevocable election to change the interest rate depending on the Company’s credit rating. As of December 31, 2015,2016, no such election had been made.
(3)The maturity date may be extended once for an additional one-year term.
(4)Effective May 1, 2015, $300.0 million of the term loan has been made.effectively fixed at 2.66% to 3.56% per annum through the use of an interest rate swap. In July 2016, the Company amended this interest rate swap to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative instrument related to this loan. Therefore, the effective interest rate with respect to $300.0 million of the term loan increased to a range of 2.75% to 3.65% per annum. See Note 6 for details.
(5)Effective May 1, 2015, the outstanding balance of the term loan has been effectively fixed at 3.21% to 4.16% per annum through the use of an interest rate swap. In July 2016, the Company amended this interest rate swap to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative instrument related to this loan. Therefore, the effective interest rate increased to a range of 3.36% to 4.31% per annum. See Note 6 for details.
(6)Effective June 1, 2016, the outstanding balance of the term loan has been effectively fixed at 3.03% to 3.98% per annum through the use of an interest rate swap. See Note 6 for details.
(7)Monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.

F- 3136
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


(3)Effective May 1, 2015, $300.0 million of the $550.0 million term loan has been effectively fixed at 2.66% to 3.56% per annum through the use of an interest rate swap. See Note 6 for details.
(4)Effective May 1, 2015, the outstanding balance of the term loan has been effectively fixed at 3.21% to 4.16% per annum through the use of an interest rate swap. See Note 6 for details.
(5)This loan bore interest only for the first five years. Beginning with the payment due October 6, 2011, monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
(6)Represents unamortized amount of the non-cash mark-to-market adjustment.
(7)Monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
(8)Interest on $92.0 million of the outstanding loan balance has been effectively capped at 5.97% and 4.25% per annum on $50.0 million and $42.0 million, respectively, of the loan through the use of two interest rate caps through February 11, 2016. See Note 6 for details.
(9)The maturity date may be extended once for an additional one-year term.
(10)This loan bears interest only. Interest on the full loan amount has been effectively fixed at 3.71% per annum through use of an interest rate swap. See Note 6 for details.
(11)(9)This loan bears interest only for the first five years. Beginning with the payment due December 6, 2017, monthly debt service will include annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
(12)(10)This loan has been recorded as partThe Company owns 65% of the liabilities associatedownership interests in the consolidated joint venture that owns the Pinnacle I and II properties. The full amount of the loan is shown.
(11)Represents unamortized premium amount of the non-cash mark-to-market adjustment.
(12)The Company owns 55% of the ownership interest in the consolidated joint venture that owns the Hill7 property. The full amount of the loan is shown.
(13)The maturity date can be extended for an additional two years at a higher interest rate and with real estate held for sale as of December 31, 2014. The property was sold in 2015.principal amortization.

Current Year Activity

On May 3, 2016, the Company drew on the $175.0 million 5-Year Term Loan due November 2020 and $125.0 million 7-Year Term Loan due November 2022, both of which were entered into on November 17, 2015. Amounts drawn were used to fully pay down $30.0 million of the 901 Market Street mortgage loan that was set to mature on October 31, 2016, to partially pay down $110.0 million of the Sunset Gower and Studios/Sunset Bronson Studios mortgage loans and $100.0 million of the 5-Year Term Loan due April 2020.

On March 4, 2015,June 7, 2016, Pinnacle II Hudson MC Partners, the CompanyCompany’s consolidated joint venture, entered into an amended and restated loan agreement to enable it to draw up to an additional $160.0$87.0 million for budgeted construction costs associated with our ICON development and to extend the maturity date from February 11, 2018 to March 4, 2019 with a one-year extension option.

Element LA Loan

On October 9, 2015, the Company entered into and closed a ten-year mortgage loan insecured by its Pinnacle II office property. This new loan has a maturity date of June 11, 2026 and bears a fixed rate of 4.30% per annum with interest only payable every month during the amountterm of $168.0 million,the loan and principal payment at maturity. Proceeds were used to fully pay down the previous loan secured by the Company’s Element L.A. campus. The proceeds from this loan was used to repay the then existing Element LA loan, whichPinnacle II office property that was scheduled to mature on November 1, 2017.September 6, 2016.

On July 6, 2016, the Company entered into a private placement of debt for $150.0 million of 3.98% guaranteed senior notes due July 6, 2026. The remaining proceeds$150.0 million was drawn on July 6, 2016. Proceeds were used to pay down the unsecured revolving credit facility. The Company also secured an additional $50.0 million of funds from a portionprivate placement of 3.66% guaranteed senior notes due September 15, 2023, which was drawn on September 15, 2016. Proceeds were used to repay amounts outstanding under its unsecured revolving credit facility and for general corporate purposes.

On October 7, 2016, the Company acquired Hill7 property through a consolidated joint venture. In conjunction with the acquisition, the joint venture closed a $101.0 million mortgage loan with a fixed interest rate of 3.38% per annum. This loan bears interest only payable every month during the term of the Two-Year Term Loan. Interest only under the loan is payable monthlyand principal payment at a fixed rate of 4.59%. No prepayment is allowed until three months prior to the maturity date. Defeasance is permitted (at Borrower’s cost) after the earlier of: (x) two years after securitization or (y) three years after the closing of the Loan. The loan is non-recourse, subject to customary carve-outs.

The repayment discussed above resulted in early extinguishment costs of $753 thousand recognized in Interest Expense within the Consolidated Statements of Operations.maturity.
    
Indebtedness

The Company presents its financial statements on a consolidated basis. Notwithstanding such presentation, except to the extent expressly indicated, such as in the case of the project financing for our Sunset Gower Studios and Sunset Bronson properties, ourStudios, the Company’s separate property-owning subsidiaries are not obligors of or under the debt of their respective affiliates and each property-owning subsidiary’s separate liabilities do not constitute obligations of its respective affiliates.

Loan agreements include events of default that the Company believes are usual for loan and transactions of this type. As of the date of this filing, there hashave been no events of default associated with the Company’s loans.
 
    TheCertain loan agreements for Rincon Center, 10950 Washington, Pinnacle I, Pinnacle II and Element LA require that some or all receipts collected from these properties beare deposited in lockbox accounts under the control of the lenders to fund reserves such as capital improvements, taxes, insurance, debt service and operating expenditures. Included in restricted cash on the Company’s consolidated balance sheetsConsolidated Balance Sheets at December 31, 20152016 and December 31, 2014,2015 are lockbox and reserve funds as follows:
Property December 31, 2016 December 31, 2015
Rincon Center $16,291
 $14,237
Element LA 2,627
 1,149
Pinnacle I 1,811
 1,792
Hill7 1,643
 —
Pinnacle II 1,382
 722
10950 Washington 1,249
 1,014
  $25,003
 $18,914


F- 3237
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Property December 31, 2015 December 31, 2014
Rincon Center $14,237
 $10,936
Pinnacle I 1,792
 2,099
Element LA 1,149
 —
10950 Washington 1,014
 775
Pinnacle II 722
 434
  $18,914
 $14,244

The minimum future annual principal payments due on the Company’s secured and unsecured notes payable at December 31, 2015, excluding2016 for each of the non-cash loan premium amortization,next five years and thereafter were as follows:follows (before the impact of extension options, if applicable):
Year endedAnnual Principal Payments Annual Principal Payments
2016$118,452
20172,705
 $2,714
2018216,322
 101,157
20192,885
 307,886
2020847,493
 692,493
2021 3,142
Thereafter1,090,588
 1,600,447
Total$2,278,445
 $2,707,839

Senior Unsecured Revolving Credit Facility and Term Loan FacilitiesAgreement
    
New Term Loan Agreement

On November 17, 2015, the Operating Partnershipoperating partnership entered into a new term loan credit agreement (the “New Term Loan Agreement”) with a group of lenders for an unsecured $175.0 million five-year delayed draw term loan with a maturity date of November 2020 (“5-Year Term Loan due November 2020”) and an unsecured $125.0 million seven-year delayed draw term loan with a maturity date of November 2022 (“7-Year Term Loan due November 2022”). These term loans were undrawn as of December 31, 2015.fully drawn on May 3, 2016.

Interest on the New Term Loan Agreementterm loan agreement is generally to be paid based upon, at our option, either (i) LIBOR plus the applicable LIBOR margin or (ii) a specified base rate plus the applicable base rate margin, dependent on the Operating Partnership’soperating partnership’s leverage ratio. The applicable LIBOR margin will range from 1.30% to 2.20% for the 5-year5-Year Term Loan due November 2020, depending on our Leverage Ratio (as defined in the New Term Loan Agreement)term loan agreement) and 1.60% to 2.55% for the 7-Year Term Loan due November 2022, depending on our Leverage Ratio (as defined in the New Term Loan Agreement)term loan agreement). Beginning on February 13, 2016, each term loan is subject to an unused commitment fee of .20%.

The Operating Partnershipoperating partnership has the right to terminate or reduce unused commitments under either term loan in the New Term Loan Agreementterm loan agreement without penalty or premium. Subject to the satisfaction of certain conditions, the Operating Partnershipoperating partnership has the right to increase the availability of either or both of the term loans so long as the aggregate commitments under both term loans do not exceed $475.0 million.

If the Company obtains a credit rating for the Company’s senior unsecured long termlong-term indebtedness, the Operating Partnershipoperating partnership may make an irrevocable election to change the interest rate. During 2015,2016, our senior unsecured long termlong-term indebtedness was assigned an investment grade rating. The Company has not made the credit rating election.

A&R Credit Agreement

The Operating Partnershipoperating partnership maintains and periodically amends its A&R Credit Agreement with a group of lenders. On April 1, 2015, the agreement governing the credit facility was amended and restated to, among other things, (i) extend the maturity date of the A&R Credit Agreement with a one-year extension option, (ii) increase available revolving credit from $300.0 million to $400.0 million, (iii) increase the five-year term loan facility from $150.0 million to $550.0 million and extended the maturity date to April 2020 (“5-Year Term Loan due April 2020”) and (iv) add a $350.0 million seven-year term loan with a maturity date of April 2022 (“7-Year Term Loan due April 2022”). On November 17, 2015, the operating partnership amended and restated the Credit Facility (“Amended and Restated Credit Facility”) to align certain terms therein with the less restrictive terms of the term loan agreement. The 5-Year Term Loan due April 2020 and the 7-Year Term Loan due April 2022 were used towards the EOP Acquisition. The A&R Credit Agreement is available for other purposes, including for payment of redevelopment and development costs incurred in connection with properties owned by the operating partnership or any subsidiary, to finance capital expenditures and the repayment of indebtedness of the Company, the operating partnership and its subsidiaries, to provide for general working capital needs of the Company, the operating partnership and its subsidiaries and for the general corporate purposes of the Company, the operating partnership and its subsidiaries, and to pay fees and expenses incurred in connection with the Amended and Restated Credit Facility.


F- 3338
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


date to April 2020 (“5-Year Term Loan due April 2020) and (iv) add a $350.0 million seven-year term loan with a maturity date of April 2022 (“7-Year Term Loan due April 2022”). On November 17, 2015, the Operating Partnership amended and restated the Credit Facility (“Amended and Restated Credit Facility”) to align certain terms therein with the less restrictive terms of the New Term Loan Agreement. The 5-Year Term Loan due 2020 and the 7-Year Term Loan due 2022 were used towards the EOP Acquisition. The A&R Credit Agreement is available for other purposes, including for payment of pre-development and development costs incurred in connection with properties owned by the Operating Partnership or any subsidiary, to finance capital expenditures and the repayment of indebtedness of the Company, the Operating Partnership and its subsidiaries, to provide for general working capital needs of the Company, the Operating Partnership and its subsidiaries and for the general corporate purposes of the Company, the Operating Partnership and its subsidiaries, and to pay fees and expenses incurred in connection with the Amended and Restated Credit Facility.

Interest on the Amended Credit Facility is generally to be paid based upon, at our option, either (i) LIBOR plus the applicable LIBOR margin or (ii) a specified base rate plus the applicable base rate margin, dependent on the Operating Partnership’soperating partnership’s leverage ratio. The applicable LIBOR margin will range from 1.15% to 1.85% (previously 1.15% to 1.55%) for the A&R Credit Agreement, 1.30% to 2.20% (previously 1.30% to 1.90%) for the 5-year5-Year Term Loan due April 2020, depending on our Leverage Ratio (as defined in the Amended and Restated Credit Facility) and 1.60% to 2.55% for the 7-year7-Year Term Loan due April 2022, depending on our Leverage Ratio (as defined in the Amended and Restated Credit Facility). The Amended Facility requires a facility fee in an amount equal to 0.20% or 0.35% of the Operating Partnership’soperating partnership’s revolving credit commitments depending on the Operating Partnership’soperating partnership’s leverage ratio. Unused amounts under the Amended and Restated Credit Facility are not subject to a separate fee.

Subject to the satisfaction of certain conditions and lender commitments, the Operating Partnershipoperating partnership may increase the availability of the Amended and Restated Credit Facility so long as the aggregate commitments under the Amended and Restated Credit Facility do not exceed $2.0 billion.

If the Company obtains a credit rating for the Company’s senior unsecured long-term indebtedness, the Operating Partnershipoperating partnership may make an irrevocable election to change the interest rate and facility fee. During 2015,2016, our senior unsecured long termlong-term indebtedness was assigned an investment grade rating. The Company has not made the credit rating election.

Unsecured Term Loan Facility

On April 1, 2015, the Operating Partnership entered into a new credit agreement with a group of lenders for an unsecured $550.0 million two-year term loan credit facility (“2-Year Term Loan”). The 2-Year Term Loan was fully drawn and repaid during 2015. Amounts paid down are no longer available for re-borrowing. The Company recognized $851 thousand of costs related to an early extinguishment of debt recognized in Interest Expense within the consolidated statements of operations.

The Operating Partnershipoperating partnership continues to be the borrower under the New Credit Agreement and the Amended and Restated Credit Facility, and the Company and all subsidiaries that own unencumbered properties will continue to provide guaranties unless the Company obtains and maintains a credit rating of at least BBB- from S&P or Baa3 from Moody’s, in which case such guaranties are not required except under limited circumstances. 

Guaranteed Senior Notes

On November 16, 2015, the Operating Partnershipoperating partnership entered into a Note Purchase Agreement (the “Note Purchase Agreement”)note purchase agreement with various purchasers, which provides for the private placement of $425.0 million of guaranteed senior guaranteed notes by the Operating Partnership,operating partnership, of which (i) $110.0 million are designated as 4.34% Series A Guaranteed Senior Notesguaranteed senior notes due January 2, 2023 (the “Series A Notes”), (ii) $259.0 million are designated as 4.69% Series B Guaranteed Senior Notesguaranteed senior notes due December 16, 2025 (the “Series B Notes”) and (iii) $56.0 million are designated as 4.79% Series C Guaranteed Senior Notesguaranteed senior notes due December 16, 2027 (the “Series C Notes, ”and collectively with the Series A Notes and Series B Notes, the “Notes”Notes”). The NotesThese notes were issued on December 16, 2015 and upon issuance, the Notesnotes pay interest semi-annually on the 16th day of June and December in each year until their respective maturities. Additional guaranteed senior notes were issued in 2016; for further detail, refer to the current activity section above.

The Operating Partnershipoperating partnership may prepay at any time all or, from time to time, any part of the Notes,guaranteed senior notes in an amount not less than 5% of the aggregate principal amount of any series of the Notesguaranteed senior notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid plus a make-whole premium.    

The Operating Partnership’soperating partnership’s obligations under the Notesguaranteed senior notes will be fully and unconditionally guaranteed by the Company. Subsidiaries of the Company will also issue unconditional guarantees upon the occurrence of certain conditions, including such

F- 34
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


subsidiaries providing guarantees under the New Credit Agreement and Amended and Restated Credit Facility, by and among the Operating Partnership,operating partnership, the financial institutions party thereto, and Wells Fargo Bank, National Association as administrative agent.

Debt Covenants

The Company’soperating partnership’s ability to borrow under the New Term Loan Agreement,term loan agreement, the Amended and Restated Credit Facility, and the Note Purchase Agreementguaranteed senior notes remains subject to ongoing compliance with financial and other covenants as defined in the respective agreements, including, when considering the most restrictive terms, maintaining a leverage ratio (maximum of 0.60:1.00), unencumbered leverage ratio (maximum of 0.60:1.00), fixed charge coverage ratio (minimum of 1.50:1.00), secured indebtedness leverage ratio (maximum of 0.55:0.45:1.00), and unsecured interest coverage ratio (minimum 2.00:1.00). Certain financial covenant ratios are subject to change in the occurrence of material acquisitions as defined in the respective agreements. Other covenants include certain limitations on dividend payouts and distributions, limits on certain types of investments outside of the Operating Partnership’soperating partnership’s primary business, and other customary affirmative and negative covenants.

The Companyoperating partnership was in compliance with its financial covenants at December 31, 2015.2016.


F- 39
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Repayment Guaranties

Sunset Gower Studios and Sunset Bronson Studios Loan    

In connection with the loan secured by ourthe Sunset Gower Studios and Sunset Bronson Studios properties, the Company has guaranteed in favor of and promised to pay to the lender 19.5% of the principal payable under the loan in the event the borrower, a wholly-owned entity of the Company’s Operating Partnership,operating partnership, does not do so. At December 31, 2015,2016, the outstanding balance was $115.0$5.0 million, which results in a maximum guarantee amount for the principal under this loan of $22.4$1.0 million. Furthermore, the Company agreed to guarantee the completion of the construction improvements, including tenant improvements, as defined in the agreement, in the event of any default of the borrower. If the borrower fails to complete the remaining required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the agreement. As of the date of this filing, there has been no event of default associated with this loan.

901 Market Loan

In connection with our 901 Market Street loan, we have guaranteed in favor of and promised to pay to the lender 35.0% of the principal under the loan in the event the borrower, a wholly-owned entity of our Operating Partnership, does not do so. At December 31, 2015, the outstanding balance was $30.0 million, which results in a maximum guarantee amount for the principal under this loan of $10.5 million. Furthermore, we agreed to guarantee the completion of the construction improvements, including tenant improvements, as defined in the agreement, in the event of any default of the borrower. The borrower has completed various of the improvements subject to this completion guaranty. If the borrower fails to complete the remaining required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the agreement. As of the date of this filing, there has been no event of default associated with this loan.

Other Loans

Although the rest of ourthe operating partnership’s loans are secured and non-recourse, to the Company and the Operating Partnership, the Operating Partnershipoperating partnership provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.


6. Interest Rate ContractsDerivative Instruments

The Company enters into derivative instruments in order to hedge interest rate risk. As of December 31, 2016, the Company had six interest rate swaps with aggregate notional amounts of $839.5 million. As of December 31, 2015, the Company had two interest rate caps and five interest rate swaps in order to hedge interest rate risk with aggregate notional amounts of $92.0 million and $714.5 million, respectively. WeThese derivatives instruments were designated each of these interest rate contracts as effective cash flow hedges for accounting purposes.

The Company’s derivative instruments are classified as Level 2 and their fair values are derived from estimated values obtained from observable market data for similar instruments.

5-Year Term Loan due April 2020 and 7-year7-Year Term Loan due April 2022

On April 1, 2015, the Company entered into an interest rate contract with respect toeffectively hedged $300.0 million of the $550.0 million 5-Year Term Loan due April 2020 through two interest rate swaps, each with a notional amount of $150.0 million, which, effective as of May 1, 2015, swapped one-month LIBOR to a fixed rate of 1.36% through the loan’s maturity. Therefore the interest rate is effectively fixed at 2.66% to 3.56%. The unhedged portion bears interest at a rate equal to one-month LIBOR plus 1.30% to 2.20%, depending on the Company’s leverage ratio. The Company also effectively hedged its $350.0 million 7-Year Term Loan due April 2022 through two interest rate swaps, which, effective as of May 1, 2015, swapped one-month LIBOR to a fixed rate of 1.61% through the loan’s maturity. Therefore the interest rate is effectively fixed at 3.21% to 4.16%.

In July 2016, the derivative instruments as described above were amended to include a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative instruments. Therefore, the effective interest rate increased to a range of 2.75% to 3.65% with respect to $300.0 million of the 5-Year Term Loan due April 2020 and 3.36% to 4.31% with respect to the 7-Year Term Loan due April 2022, per annum based on the Company’s operating partnership’s leverage ratio. The amount included in accumulated other comprehensive income (loss) prior to the de-designation is amortized into interest expense over the remaining original respective terms of the derivative instruments.

During the year ended December 31, 2016, the Company recognized an unrealized loss of $1.4 million on the Consolidated Statement of Operations related to the ineffective portion of these derivative instruments. This amount is also presented on the unrealized loss on ineffective portion of derivative instruments line item on the Consolidated Statements of Cash Flow. There was no recognized unrealized loss or gain during the years ended December 31, 2015 and 2014.

7-Year Term Loan due November 2022

On May 3, 2016, the Company entered into a derivative instrument with respect to $125.0 million of the 7-Year Term Loan due November 2022. This derivative instrument became effective on June 1, 2016 and swapped one-month LIBOR, which includes a 0.00% floor, to a fixed rate of 1.43% through the loan’s maturity.


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Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


1.36% through the loan’s maturity. The remaining $250.0 million bears interest at a rate equal to LIBOR plus 1.30% to 2.20% depending on the Company’s leverage ratio.

On April 1, 2015, the Company also entered into an interest rate contract with respect to the $350.0 million 7-year Term Loan due April 2022, which, effective as of May 1, 2015, swapped one-month LIBOR to a fixed rate of 1.61% through the loan’s maturity.

Sunset Gower Studios and Sunset Bronson Studios Mortgage

On February 11, 2011, the Company closed a five-year term loan totaling $92.0 million with Wells Fargo Bank, N.A., secured by ourthe Sunset Gower Studios and Sunset Bronson.Bronson Studios properties. The loan initially bore interest at a rate equal to one-month LIBOR plus 3.50%. On March 16, 2011, wethe Company purchased an interest rate cap in order to cap one-month LIBOR at 3.715% on $50.0 million of the loan through February 11, 2016. On January 11, 2012, wethe Company purchased an interest rate cap in order to cap one-month LIBOR at 2.00% with respect to $42.0 million of the loan through February 11, 2016.loan.
    
Effective August 22, 2013, the terms of this loan were amended to, among other changes, increase the outstanding balance from $92.0 million to $97.0 million, reduce the interest to a rate equal to one-month LIBOR plus 2.25%, and extend the maturity date from February 11, 2016 to February 11, 2018. The interest rate contractsderivative instruments described above were not changed in connection with this loan amendment. Therefore, the interest rate is effectively fixed at 5.97% on $50.0 million of the loan and 4.25% with respect to $42.0 million of the loan.

Effective March 4, 2015, the terms of this loan were amended and restated to introduce the ability to draw up to an additional $160.0 million for budgeted construction costs associated with our ICON developmentthe Icon and CUE developments and to extend the maturity date from February 11, 2018 to March 4, 2019. The interest rate contractsderivative instruments described above were not changed in connection with this loan amendment. These derivative instruments matured on February 11, 2016.

Met Park North

On July 31, 2013, the Company closed a seven-year loan totaling $64.5 million with Union Bank, N.A., secured by ourthe Met Park North property. The loan bears interest at a rate equal to one-month LIBOR plus 1.55%. The full loan is subject to an interest rate contract that swappedswaps one-month LIBOR to a fixed rate of 2.16% through the loan’s maturity on August 1, 2020.
    
Overall
    
The fair market value of the interest rate contractsderivative instruments are presented on a gross basis in the Consolidated Balance Sheets. The interest rate contractderivative assets as of December 31, 2016 and 2015 were $5.9 million and 2014 were $2.1 million, and $3 thousand, respectively. The interest rate contractderivative liabilities as of December 31, 2016 and 2015 were $1.3 million and 2014 were $2.0 million, and $1.8respectively.

The Company reclassifies into earnings in the same period during which the hedged forecasted transaction affects earnings. As of December 31, 2016, the Company expects $5.3 million respectively.of unrealized loss included in accumulated other comprehensive loss will be reclassified to interest expense in the next 12 months.

7. Future Minimum Base Rents and Lease Payments Future Minimum Lease PaymentsRents

OurThe Company’s properties are leased to tenants under operating leases with initial term expiration dates ranging from 20162017 to 2031. Approximate future combinedFuture minimum rentalsbase rents (excluding tenant reimbursements for operating expenses and without regard to cancellation options) for properties at December 31, 20152016 for each of the next five years and thereafter are presented below for the years/periods ended December 31. The table below does not include rents under leases at our media and entertainment properties with terms of one year or less.as follows:

Year ended Non-cancellable Subject to early termination options 
Total(1)
2017 $485,078
 $1,572
 $486,650
2018 441,962
 21,695
 463,657
2019 392,495
 24,858
 417,353
2020 320,117
 10,901
 331,018
2021 265,552
 16,371
 281,923
Thereafter 811,945
 97,900
 909,845
Total 
 $2,717,149
 $173,297
 $2,890,446
_____________
(1)Excludes rents under leases at the Company’s media and entertainment properties with terms of one year or less.

F- 3641
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Future minimum base rents under our operating leases in each of the next five years and thereafter are as follows:

Year Ended Non-cancelable Subject to early termination options Total
2016 $454,744
 $2,828
 $457,572
2017 386,814
 7,682
 394,496
2018 302,046
 26,175
 328,221
2019 252,028
 28,477
 280,505
2020 184,297
 7,569
 191,866
Thereafter 634,613
 24,982
 659,595
Total 
 $2,214,542
 $97,713
 $2,312,255

Future Minimum Lease Payments

The following table summarizes ourthe Company’s ground lease terms related to properties that are held subject to long-term noncancellablenon-cancellable ground lease obligations:

obligations as of December 31, 2016:
Property Expiration Date Notes
Sunset Gower Studios 3/31/2060 
Every 7 years rent adjusts to 7.5% of Fair Market Value (“FMV”) of the land.
Del Amo Office 6/30/2049 Rent under the ground sublease is $1.00 per year, with the sublessee being responsible for all impositions, insurance premiums, operating charges, maintenance charges, construction costs and other charges, costs and expenses that arise or may be contemplated under any provisions of the ground sublease.
9300 Wilshire Blvd. 8/14/2032 Additional rent is the sum by which 6% of gross rental from the prior calendar year exceeds the Minimum Rent.
222 Kearny Street 6/14/2054 
Minimum annual rent is the greater of $975 thousand or 20% of the first $8.0 million of the tenant’stenant’s “Operating Income” during any “Lease Year,” as such terms are defined in the ground lease.
This property was subsequently sold on February 14, 2017.
1500 Page Mill Center 11/30/2041 
Minimum annual rent (adjusted on 1/1/2019 and 1/1/2029) plus 25% of adjusted gross income (“AGI”(“AGI”), less minimum annual rent.
Clocktower Square 9/26/2056 Minimum annual rent (adjusted every 10 years) plus 25% of AGI less minimum annual rent.
Palo Alto Square 11/30/2045 Minimum annual rent (adjusted every 10 years starting 1/1/2022) plus 25% of AGI less minimum annual rent.
Lockheed Building 7/31/2040 
The ground rent is the greater of the minimum annual rent or percentage annual rent. The minimum annual rent is the lesser of 10% of FMV of the land or the previous year’s minimum annual rent plus 75% of consumer price index, or CPI, increase. Percentage annual rent is improvements lessee’s base rent x 24.125%.
Foothill Research Center��6/30/2039 The ground rent is the greater of the minimum annual rent or percentage annual rent. The minimum annual rent is the lesser of 10% of FMV of the land or the previous year’s minimum annual rent plus 75% of CPI increase. Percentage annual rent is gross income x 24.125%.
3400 Hillview 10/31/2040 The ground rent is the greater of the minimum annual rent or percentage annual rent. The minimum annual rent until October 31, 2017 is the lesser of 10% of FMV of the land or $1.0 million grown at 75% of the cumulative increases in CPI from October 1989. Thereafter, minimum annual rent is the lesser of 10% of FMV of the land or the minimum annual rent as calculated as of November 1, 2017 plus 75% of subsequent cumulative CPI changes. Percentage annual rent is gross income x 24.125%. This lease has been prepaid through October 31, 2017.
Metro Center 9894/29/2054Every 10 years rent adjusts to 7.233% of FMV of the land (since 2008) and rent also adjusts every 10 years to reflect the change in CPI from the preceding FMV adjustment date (since 2013).
Metro Center Retail4/29/2054Every 10 years rent adjusts to 7.233% of FMV of the land (since 2008) and rent also adjusts every 10 years to reflect the change in CPI from the preceding FMV adjustment date (since 2013).
Metro Center Tower 4/29/2054 Every 10 years rent adjusts to 7.233% of FMV of the land (since 2008) and rent also adjusts every 10 years to reflect the change in CPI from the preceding FMV adjustment date (since 2013).
Techmart Commerce Center 5/31/2053 Subject to a 10% increase every 5 years.
11601 Wilshire10/31/2064Subject to a $50 thousand increase every 5 years. Commencing on August 1, 2026, minimum rent is adjusted to reflect changes in CPI. On December 27, 2016, the Company entered into an agreement to purchase the land related to this ground lease. The transaction is expected to close in the second quarter of 2017, however there can be no guaranty that the transaction will close as expected.
Page Mill Hill11/17/2049Minimum annual rent (adjusted every 10 years) plus 60% of the average of the percentage annual rent for the previous 7 lease years.

Contingent rental expense is recorded in the period in which the contingent event becomes probable. The Company recognized the following contingent rental expense and minimum rental expense for our ground leases and corporate office lease:
 For the Year Ended December 31,
 2016 2015 2014
Contingent rental expense$8,651
 $3,843
 $125
Minimum rental expense12,085
 9,196
 1,360

The following table provides information regarding the Company’s future minimum lease payments for its ground lease at December 31, 2016 for each of the next five years and thereafter (before the impact of extension options, if applicable):
 

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Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


For the Year Ended December 31, 
Ground Leases (1)(2)(3)(4)
2017 $13,989
2018 15,588
2019 15,638
2020 15,638
2021 15,659
Thereafter 461,073
Total $537,585
_____________ 
(1)In situations where ground lease obligation adjustments are based on third-party appraisals of fair market land value, the future minimum lease amounts above include the lease rental obligations in effect as of December 31, 2016.
(2)In situations where ground lease obligation adjustments are based on CPI adjustment, the future minimum lease amounts above include the lease rental obligations in effect as of December 31, 2016.
(3)In situations where ground lease obligation adjustments are based on the percentage of gross income that exceeds the minimum annual rent, the future minimum lease amounts above include the lease rental obligations in effect as of December 31, 2016.
(4)Balance includes future minimum ground lease obligation for 222 Kearny Street, which was sold on February 14, 2017 and the obligation for 11601 Wilshire. On December 27, 2016, the Company entered into an agreement to purchase the land related to the 11601 Wilshire ground lease. This transaction is expected to close in the second quarter of 2017, however there can be no guaranty that the transaction will close.

8. Fair Value of Financial Instruments

The Company measures fair value of financial instruments using Level 2 inputs categorized within the fair value framework. The Company’s financial assets and liabilities measured and reported at fair value on a recurring basis include the following as of:
 December 31, 2016 December 31, 2015
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Derivative assets$—
 $5,935
 $—
 $5,935
 $—
 $2,061
 $—
 $2,061
Derivative liabilities—
 1,303
 —
 1,303
 —
 2,010
 —
 2,010
Other Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of fair value, using Level 1 inputs, because of the short-term nature of these instruments. Fair values for notes payable and notes receivable are estimates based on rates currently prevailing for similar instruments of similar maturities using Level 2 inputs. The table below represents the carrying value and fair value of assets and liabilities as of:
 December 31, 2016 December 31, 2015
 Carrying Value Fair Value Carrying Value Fair Value
Notes payable, net(1)
$2,707,839
 $2,681,134
 $2,279,755
 $2,284,429
Notes receivable, net—
 —
 28,684
 28,684
_____________
(1)Amounts represent total notes payable includes unamortized loan premium and excludes net deferred financing fees.

9. Stock-Based Compensation

The Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. 2010 Incentive Plan, as amended (the “2010 Plan”), permits us to grant, among other things, restricted stock, restricted stock units and performance-based awards. Each restricted share, restricted stock unit and common share issued reduces the share reserve by 2.95 shares. As of December 31, 2016, 1,930,668 common shares were available for grant under the 2010 Plan. The calculation of shares available for grant is determined after taking into account unvested restricted stock, unvested RSUs, awards under our one-time retention performance-based awards, and awards under our outstanding outperformance programs, assuming the maximum bonus pool eligible ultimately is earned and based on a stock price of $34.78.

The board of directors of Hudson Pacific Properties Inc. (the “Board”) awards restricted shares to non-employee board members on an annual basis as part of such board members’ annual compensation and to newly elected non-employee board members in accordance with our Board compensation program. The time-based awards are generally issued in the second

F- 43
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which is three years.

The Board awards time-based restricted shares to employees on an annual basis as part of the employees’ annual compensation. The time-based awards are generally issued in the fourth quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which is generally three years. Additionally, certain restricted share awards are subject to holding restrictions upon vesting if the employee is a named executive officer.

The Compensation Committee of our Board annually adopts a Hudson Pacific Properties, Inc. Outperformance Program (“OPP Plan”) under our 2010 Plan. With respect to OPP Plan awards granted through 2016, to the extent an award is earned following the completion of a three-year performance period, 50% of the earned award will vest in full at the end of the three-year performance period and 25% of the earned award will vest in equal annual installments over the two years thereafter, subject to the participant’s continued employment. OPP Plan awards are settled in common stock and in the case of certain executives, awards are settled in performance units in our operating partnership.

In December 2015, the Compensation Committee of our Board awarded a one-time special retention award to certain executives. The grants consist of time-based awards and performance-based awards. The time-based awards vest in equal 25% installments over four years, subject to the participant’s continued employment. The performance-based awards vest over a four-year period, subject to the achievement of applicable performance goals and the participant’s continued employment.

Time-Based Awards

The stock-based compensation is valued based on the quoted closing price of the Company’s common stock on the applicable grant date and discounted for the hold restriction in accordance with ASC 718. The stock-based compensation is amortized through the final vesting period on a straight-line basis. Forfeitures of awards are recognized as they occur.

Performance-Based Awards

OPP Plan

An award under the OPP Plan is ultimately earned to the extent the Company outperforms a predetermined total shareholder return (“TSR”) goal and/or achieves goals with respect to the outperformance of its peers in a particular REIT index. The ultimate aggregate award cannot exceed the predetermined maximum bonus pool. The following table outlines key components of the 2016 and 2015 OPP Plans:
 2016 OPP Plan 2015 OPP Plan
Maximum bonus pool, in millions$17.5 $15.0
Performance period1/1/2016 to 12/31/2018 1/1/2015 to 12/31/2017

The stock-based compensation costs of the OPP Plans were valued in accordance with ASC 718, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The stock-based compensation is amortized through the final vesting period under a graded vesting expense recognition schedule. Forfeitures of awards are recognized as they occur. The per unit fair value of OPP award granted was estimated on the date of grant using the following assumptions in the Monte Carlo valuation:
 2016 2015 2014
Expected price volatility for the Company24.00% 22.00% 28.00%
Expected price volatility for the particular REIT index17.00% 22.00% 26.00%
Risk-free rate1.09% 1.13% 0.77%
Dividend yield2.40 1.50 1.50

One-Time Retention Awards


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Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


At the end of each year in the four-year performance period and over the four-year performance period, the ultimate award is earned if the Company outperforms a predetermined TSR goal and/or achieves goals with respect to its outperformance of its peers in a particular REIT index.

The stock-based compensation costs were valued in accordance with ASC 718, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The stock-based compensation is amortized through the final vesting period under a graded vesting expense recognition schedule. Forfeitures of awards are recognized as they occur. The per unit fair value of one-time retention award granted was estimated on the date of grant using the following assumptions in the Monte Carlo valuation:
Assumptions
Expected price volatility for the Company23.00%
Expected price volatility for the particular REIT index18.00%
Risk-free rate1.63%
Dividend yield3.20
Summary of Unvested Share Activity

The following table summarizes the activity and status of all unvested awards:

  2016 2015 2014
  Shares Weighted-Average Grant-Date Fair Value Shares Weighted-Average Grant-Date Fair Value Shares Weighted-Average Grant-Date Fair Value
Unvested at January 1 827,950
 $28.92
 543,707
 $26.43
 541,180
 $19.98
Granted 489,826
 30.95
 629,504
 29.01
 281,491
 29.38
Vested (430,597) 26.75
 (335,544) 24.80
 (275,051) 16.83
Canceled —
 —
 (9,717) 38.17
 (3,913) 20.44
Unvested at December 31 887,179
 $31.09
 827,950
 $28.92
 543,707
 $26.43

Year Ended December 31, Non-Vested Shares Issued Weighted Average Grant - Date Fair Value Vested Shares Total Vest-Date Fair Value (in thousands)
2016 489,826
 $30.95
 (430,597) $14,736
2015 629,504
 29.01
 (335,544) 9,606
2014 281,491
 29.38
 (275,051) 9,794
Share-based Compensation Recorded

The following table presents the classification and amount recognized for stock-based compensation related to the Company’s awards:    

 For the Year Ended December 31, Consolidated Financial
 2016 2015 2014 Statement Classification
Expensed stock compensation$14,144
 $8,421
 $7,559
 General and administrative expenses
Capitalized stock compensation510
 411
 420
 Deferred leasing costs and lease intangibles, net and tenant improvements
Total stock compensation$14,654
 $8,832
 $7,979
 
Additional paid-in capital and non-controlling interest—units in the operating partnership

As of December 31, 2016, total unrecognized compensation cost related to unvested share-based payments was $28.5 million, and is expected to be recognized over a weighted-average period of three years.

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Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



During
10. Earnings Per Share

The Company calculates basic earnings per share by dividing the years ended December 31, 2015, 2014net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period. The Company calculates diluted earnings per share by dividing the diluted net income (loss) available to common stockholders for the period by the weighted average number of common shares and 2013,dilutive instruments outstanding during the Company recognized $3.8 million, $0.1 million,period using the treasury stock method or the if-converted method. Unvested time-based RSUs and $0.1 million, respectively of ground lease contingent rental expense. Contingent rental expense is recordedunvested OPP awards that contain nonforfeitable rights to dividends are participating securities and are included in the period in whichcomputation of earnings per share pursuant to the contingent event becomes probable. The Company recognized $9.2 million, $1.4 million, and $1.4 million of minimum rent expense during the years ended December 31, 2015, 2014 and 2013. During the years ended December 31, 2015, 2014 and 2013, the Company recognized $0.7 million, $0.8 million and $0.2 million, respectively of rental expense on our corporate office lease.

two-class method. The following table provides information regarding our future minimum lease paymentsreconciles the numerator and denominator in computing the Company’s basic and diluted earnings per share for our ground leases and corporate office lease at December 31, 2015 (before the impact of extension options, if applicable):
net income (loss) available to common stockholders:
Year Ended 
Ground Leases (1)(2)(3)
 Operating Leases
2016 $12,085
 $1,662
2017 12,208
 2,072
2018 14,070
 2,134
2019 14,120
 2,198
2020 14,120
 2,264
Thereafter 413,927
 11,487
Total $480,530
 $21,817
 For the Year Ended December 31,
 2016 2015 2014
Numerator:     
Net income (loss)$43,758
 $(16,082) $23,522
Income attributable to preferred stock(636) (12,105) (12,785)
Original issuance costs of redeemed Series B preferred stock—
 (5,970) —
Income attributable to participating securities(766) (356) (274)
Income attributable to non-controlling interest in consolidated entities(9,290) (3,853) (149)
(Income) loss attributable to non-controlling units of the operating partnership(5,848) 21,969
 (359)
Basic net income (loss) available to common stockholders27,218
 (16,397) 9,955
Effect of dilutive instruments451
 —
 —
Diluted net income (loss) available to common stockholders27,669
 (16,397) 9,955
Denominator:     
Basic weighted average common shares outstanding106,188,902
 85,927,216
 65,792,447
Effect of dilutive instruments(1)
4,180,153
 —
 717,000
Diluted weighted average common shares outstanding110,369,055
 85,927,216
 66,509,447
Basic earnings per common share(2)
$0.26
 $(0.19) $0.15
Diluted earnings per common share(2)
$0.25
 $(0.19) $0.15
__________________ _____________
(1)The Company includes unvested awards and convertible common units as contingently issuable shares in the computation of diluted EPS once the market criteria are met, assuming that the end of the reporting period is the end of the contingency period.  Any anti-dilutive securities are excluded from the diluted EPS calculation.
(2)In 2014, the Company had a $164 thousand loss from discontinued operations which resulted in $0.00 basic and diluted earnings per share from discontinued operations.
(1)In situations where ground lease obligation adjustments are based on third-party appraisals of fair market land value, the future minimum lease amounts
above include the lease rental obligations in affect as of December 31, 2015.
(2)In situations where ground lease obligation adjustments are based on CPI adjustment, the future minimum lease amounts above include the lease rental
obligations in affect as of December 31, 2015.
(3)In situations where ground lease obligation adjustments are based on the percentages of gross income that exceeds the minimum annual rent, the future
minimum lease amounts above include the lease rental obligations in affect as of December 31, 2015.

8. Fair Value of Financial Instruments

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.


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Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities are reasonable estimates of fair value because of the short-term nature of these instruments. Fair values for notes payable, notes receivable and interest rate contract assets and liabilities are estimates based on rates currently prevailing for similar instruments of similar maturities using Level 2 inputs.

 December 31, 2015 December 31, 2014
 Carrying Value Fair Value Carrying Value Fair Value
Notes payable (1)
$2,279,755
 $2,284,429
 $960,508
 $969,259
Notes receivable28,684
 28,684
 28,268
 28,268
Interest rate contract assets2,061
 2,061
 3
 3
Interest rate contract liabilities2,010
 2,010
 1,750
 1,750
_________________
(1)Amounts represent total notes payable including amounts reclassified to held for sale and unamortized loan premium, excluding deferred financing fees, net.
9.11. Equity

Accumulated Other Comprehensive Deficit

The tables below present the effect of the Company’s interest rate contractsderivative financial instruments on the Consolidated Statements of Comprehensive Income (expense) for the years ended December 31, 2015, 2014, and 2013.

accumulated other comprehensive loss (“OCI”):
  Year Ended December 31,
  2015 2014 2013
Beginning Balance of OCI related to interest rate contracts $2,661
 $1,162
 $1,465
Unrealized Loss Recognized in OCI Due to Change in Fair Value of interest rate contracts 7,663
 1,939
 (121)
Loss Reclassified from OCI into Income (as Interest Expense) (10,260) (440) (182)
Net Change in OCI $(2,597) $1,499
 $(303)
       
Ending Balance of Accumulated OCI Related to Derivatives $64
 $2,661
 $1,162
Allocation of OCI, non-controlling interests 1,017
 (218) (165)
Accumulated other comprehensive deficit $1,081
 $2,443
 $997
 Hudson Pacific Properties, Inc. Stockholder’s Equity Non-controlling interests Total Equity
Balance at January 1, 2014$997
 $165
 $1,162
Unrealized loss recognized in OCI due to change in fair value1,870
 69
 1,939
Loss reclassified from OCI into income (as interest expense)(424) (16) (440)
Net Change in OCI1,446
 53
 1,499
Balance at December 31, 20142,443
 218
 2,661
      
Unrealized loss recognized in OCI due to change in fair value4,976
 2,687
 7,663
Loss reclassified from OCI into income (as interest expense)(6,338) (3,922) (10,260)
Net Change in OCI(1,362) (1,235) (2,597)
Balance at December 31, 20151,081
 (1,017) 64
      
Unrealized (income) loss recognized in OCI due to change in fair value(4,122) 6,989
 2,867
Loss reclassified from OCI into income (as interest expense)(6,455) (2,354) (8,809)
Net change in OCI(10,577) 4,635
 (5,942)
Balance at December 31, 2016$(9,496) $3,618
 $(5,878)

Non-controlling Interests

Common units in the Operating Partnershipoperating partnership

Common units in the Operating Partnership consisted of 56,296,315 common units of partnership interests, or common units, not owned by us. Common units and shares of our common stock have essentially the same economic characteristics, as they share equally in the total net income or loss distributions of the Operating Partnership.operating partnership. Investors who own common units have the right to cause the Operating Partnershipoperating partnership to redeemrepurchase any or all of their common units for cash equal to the then-current market value of one share of common stock or, at our election, issue shares of our common stock in exchange for common units on a one-for-one basis. In April 2015,The following table summarizes the Company issued 54,848,480 ofactivity related to common units to Blackstone as consideration for the EOP Acquisition. In addition, one of our common unitholders required us to redeem 934,728 common units and the Company elected, in accordance with our limited partnership agreement, to issue shares of our common stock in exchange for the common units to satisfy the redemption notice. Accordingly, our outstanding common units increased from 2,382,563 atJanuary 1, 2015 to December 31, 2014 to 56,296,315 at December 31, 2015.2016:
Non-controlling interest in common units
Balance at January 1, 20152,382,563
April issuance (1)
54,848,480
April redemption (2)
(934,728)
Balance at December 31, 201556,296,315
May redemption (3)
(10,117,223)
July redemption (3)
(19,195,373)
November redemption (3)
(17,533,099)
Balance at December 31, 2016 (4)
9,450,620
_____________
(1)The Company issued common units to Blackstone as consideration for the EOP Acquisition.
(2)
One of our common unitholders required us to repurchase common units and the Company elected, in accordance with our limited partnership agreement, to issue shares of our common stock in exchange for the common units to satisfy the redemption notice.
(3)The common unitholders requested the operating partnership repurchase common units and the Company elected, in accordance with the limited partnership agreement of the operating partnership, to settle in cash to satisfy the redemption. The Company funded the redemptions using the proceeds from registered underwritten public offering of common stock.
(4)On January 10, 2017, Blackstone and Farallon Capital Management, LLC (“Farallon Funds”) sold their ownership interests in the operating partnership following the completion of a common stock offering and common unit repurchase. Refer to Note 15 for additional details.


F- 3947
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Performance units are partnership interests in the operating partnership. Each performance unit awarded will be deemed equivalent to an award of one unit of common stock under the 2010 Plan, reducing the availability for other equity awards on a one-for-one basis. Under the terms of the performance units, the operating partnership will revalue its assets for tax purposes upon the occurrence of certain specified events, and any increase in valuation from the time of grant until such event will be allocated first to the holders of performance units to equalize the capital accounts of such holders with the capital accounts of common unitholders. Subject to any agreed upon exceptions, once vested and having achieved parity with common unitholders, performance units are convertible into common units in the operating partnership on a one-for-one basis.

The operating partnership meets the criteria of a VIE and the Company is the primary beneficiary of the operating partnership.

Non-controlling interest—members in consolidated entities

The Company has an interest in a joint venture with Media Center Partners, LLC. The Pinnacle JV owns the Pinnacle, a two-building (Pinnacle I and Pinnacle II), 625,640 square-foot office property located in Burbank, California. The Company initially owned a 98.25% interest in the Pinnacle JV, but its interest decreased to 65.0% when the Pinnacle JV acquired Pinnacle II on June 14, 2013. As of December 31, 2015,2016, the Company owns a 65.0% interest in the Pinnacle JV.

On January 5, 2015, the Company entered into a joint venture with Canada Pension Plan Investment Board, (“CPPIB”) through which CPPIB purchased a 45% interest in 1455 Market Street office property located in San Francisco, California, for a purchase price of $219.2 million (before certain credits, proration and closing costs).

On October 7, 2016, the Company entered into another joint venture with CPPIB to purchase the Hill7 office property located in Seattle, Washington for $179.8 million (before credits, prorations and closing costs). The Company owns a 55% interest in the Hill7 office property, refer to Note 3 for details of the acquisition.

6.25% series Series A cumulative redeemable preferred units of the Operating Partnershipoperating partnership

6.25% seriesSeries A cumulative redeemable preferred units of the Operating Partnershipoperating partnership are 407,066 seriesSeries A preferred units of partnership interest in the Operating Partnership,operating partnership, or seriesSeries A preferred units, that are not owned by the Company. These seriesSeries A preferred units are entitled to preferential distributions at a rate of 6.25% per annum on the liquidation preference of $25.00 per unit and became convertible at the option of the holder into common units or redeemable into cash or, at the Company’s election, exchangeable for registered shares of common stock, after June 29, 2013. For a description of the conversion and redemption rights of the seriesSeries A preferred units, please see “Description of the Partnership Agreement of Hudson Pacific Properties, L.P.—Material Terms of Our Series A Preferred Units” in our June 23, 2010 Prospectus.

8.375% Series B cumulative redeemable preferred stock

8.375% series B cumulative redeemable preferred stock are 5,800,000 shares of 8.375% Series B cumulative redeemable preferred stock of Hudson Pacific Properties, Inc., with a liquidation preference of $25.00 per share, $0.01 par value per share. In December 2010, we completedshare, were outstanding in 2014 and until it was redeemed in 2015. Dividends on the public offering of 3,500,000 shares of our seriesSeries B preferred stock (including 300,000 shares of series B preferred stock issued and sold pursuant to the exercise of the underwriters’ option to purchase additional shares in part). Total proceeds from the offering, after deducting underwriting discount, were approximately $83.9 million (before transaction costs). On January 23, 2012, we completed the public offering of 2,300,000 of our series B cumulative preferred stock (including 300,000 shares of series B preferred stock issued and sold pursuant to the exercise of the underwriters’ option to purchase additional shares in full). Total proceeds from the offering, after deducting underwriting discount, were approximately $57.5 million (before transaction costs).

Dividends on our series B preferred stock are cumulative from the date of original issue and payable quarterly on or about the last calendar day of each March, June, September and December at the rate of 8.375% per annum of its $25.00 per share liquidation preference (equivalent to $2.0938 per share per annum). If, following a change of control of the Company, either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not listed on the New York Stock Exchange, or NYSE, or quoted on the NASDAQ Stock Market, or NASDAQ (or listed or quoted on a successor exchange or quotation system), holders of our series B preferred stock will be entitled to receive cumulative cash dividends from, and including, the first date on which both the change of control occurred and either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not so listed or quoted, at the increased rate of 12.375% per annum per share of the liquidation preference of our series B preferred stock (equivalent to $3.09375 per annum per share) for as long as either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not so listed or quoted. Except in instances relating to preservation of our qualification as a REIT or in connection with a change of control of the Company, our series B preferred stock is not redeemable prior to December 10, 2015.preference.

On December 10, 2015, the Company redeemed its seriesSeries B preferred stock in whole for cash at a redemption price of $25.00$25.00 per share, plus accrued and unpaid dividends to, but not including, the date of redemption. During the year ended December 31, 2015, wethe Company recognized a non-recurring noncashnon-cash allocation of additional loss for purposes of computing earnings per share of $6.0 million as a reduction to net income available to common stockholders for the Company and common unitholdersunitholder for the Operating Partnershipoperating partnership for the original issuance costs related to the seriesSeries B preferred stock.

The following table reconciles the net (loss) income allocated to common stock and Operating Partnership units on the Consolidated Statements of Equity to the common stock and Operating Partnership unit net (loss) income allocation on the Consolidated Statements of Operations for the year ended:

F- 4048
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


The following table reconciles the net income (loss) allocated to common stock and operating partnership units on the Consolidated Statements of Equity to the common stock and the common unit net income (loss) allocation on the Consolidated Statements of Operations for the years ended:
  Hudson Pacific Properties, Inc. Hudson Pacific Properties, L.P.
  2016 2015 2014 2016 2015 2014
Net income (loss) allocation for common stock or common units on the Consolidated Statements of Equity $27,984
 $(10,071) $10,229
 $33,832
 $(32,040) $10,588
Net income attributable to participating securities (766) (356) (274) (766) (356) (274)
Series B transaction costs allocation —
 (5,970) —
 —
 (5,970) —
Net income (loss) allocation for common stock/common units on the Consolidated Statements of Operations $27,218
 $(16,397) $9,955
 $33,066
 $(38,366) $10,314
Common Stock Activity

The Company has remained well-capitalized since the initial public offerings through public offerings, private placements and continuous offerings under our at-the-market, or ATM, program.

The following table summarizes the common stock offering in 2014, 2015 and 2016:
  Hudson Pacific Properties, Inc. Hudson Pacific Properties, L.P.
  2015 2014 2013 2015 2014 2013
Net (loss) income allocation for common stock or common units on the Consolidated Statements of Equity $(10,071) $10,229
 $(14,533) $(32,040) $10,588
 $(15,166)
Net income attributable to restricted shares (356) (274) (300) (356) (274) (300)
Series B transaction costs allocation (5,970) —
 —
 (5,970) —
 —
Net (loss) income allocation for common stock or common units on the Consolidated Statements of Operations $(16,397) $9,955
 $(14,833) $(38,366) $10,314
 $(15,466)
Number of Common Shares
January 28, 2014 (1)
9,487,500
January 20, 2015 (2)
12,650,000
April 1, 2015 (3)
8,626,311
May 16, 2016 (4)
10,117,223
July 21, 2016 (4)
19,195,373
November 28, 2016 (4)
17,533,099
_____________
April 2015 Common Stock Secondary Offering

On April 10, 2015, certain funds affiliated with Farallon Capital Management completed a public offering of 6,037,500 shares of the Company’s common stock. The Company did not receive any proceeds from the offering.

April 2015 Common Stock Issuance
(1)Represents a common stock offering of 8,250,000 shares of common stock and the exercise of the underwriter’s option to purchase an additional 1,237,500 shares of our common stock at the public offering price of $21.50 per share. Total proceeds from the public offering, after underwriter’s discount, were approximately $195.8 million (before transaction costs).
(2)Represents a common stock offering of 11,000,000 shares of common stock and the exercise of the underwriter’s option to purchase an additional 1,650,000 shares of our common stock at the public offering price of $31.75 per share. Total proceeds from the public offering, after underwriter’s discount, were approximately $385.6 million (before transaction costs).
(3)Represents a common stock issuance in connection with the EOP Acquisition. The issuance of common stock is part of the consideration paid.
(4)Proceeds from the offering were used to repurchase common units in the operating partnership.
 
On April 1, 2015, in connection with the acquisition of the EOP Northern California Portfolio from Blackstone,January 10, 2017, the Company, issued 8,626,311 shares of itscertain entities affiliated with Blackstone and the Farallon Funds completed an common stock as part of the consideration paid.
January 2015 Common Stock Offering

On January 20, 2015, we completed the public offering of 11,000,0008,881,575 shares of common stock of the Company. Immediately following this transaction, Blackstone and the exercise ofFarallon Funds no longer hold any ownership interests in the underwriters’ over-allotment optionCompany or the operating partnership. Refer to purchase anNote 15 for additional 1,650,000 shares of our common stock at the public offering price of $31.75 per share. Total proceeds from the public offering, after underwriters’ discount, were approximately $385.6 million (before transaction costs).     details.

February 2013 Common Stock Offering

On February 12, 2013, we completed the public offering of 8,000,000 shares of common stock and the exercise of the underwriters’ option to purchase an additional 1,200,000 shares of our common stock at the public offering price of $21.50 per share. Total proceeds from the public offering, after underwriters’ discount, were approximately $189.9 million (before transaction costs).

At-the-market, or ATM, program

The Company’s at-the-market (“ATM”)ATM program permits sales of up to $125.0 million of stock. During 2015, we did not utilize the ATM program. During the year ended December 31, 2014, we sold 76,000 shares of common stock at prices ranging from $21.92 to $22.07 per share under this ATM program. During the year ended December 31, 2013, we sold 612,644 shares of common stock at prices ranging from $20.55 to $22.27 per share under this ATM program. A cumulative total of $14.5$20.1 million has been sold as of December 31, 2015.2016. The following table summarizes the ATM activity:
  2016 2015 2014
Shares of common stock sold during the period 165,000 — 76,000
Common stock price ranges $33.54 to $33.95 N/A $21.92 to $22.07

DividendsShare repurchase program

DuringOn January 20, 2016, the year endedBoard authorized a share repurchase program to buy up to $100.0 million of the outstanding common stock of Hudson Pacific Properties, Inc. No share repurchases have been made as of December 31, 2015, the Company declared dividends on its common stock and non-controlling common partnership interests of $0.575 per share and unit. the Company also declared dividends on its series A preferred partnership interests of $1.5625 per unit. The fourth quarter 2015 dividends were declared on December 20, 2015 and paid to holders of record on December 30, 2015.

During the three months ended, the Company also declared dividends on its series B preferred shares of $1.97744 per share which reflects the period of time that the shares were outstanding during 2015. The dividend was paid at the time of redemption.2016.


F- 4149
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Dividends

During the year ended December 31, 2016, the Company declared dividends on its common stock and non-controlling common partnership interests of $0.800 per share and unit. The Company also declared dividends on its Series A preferred partnership interests of $1.5625 per unit. The fourth quarter 2016 dividends were declared on December 19, 2016 and paid to holders of record on December 29, 2016.

Taxability of Dividends

Earnings and profits, which determine the taxability of distributions to stockholders, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of loss on extinguishment of debt, revenue recognition, and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation.

The Company’s dividends related to its common stock (CUSIP #444097109) and described above under “Dividends,” will be classified for United States federal income tax purposes as follows (unaudited):

      Ordinary Dividends  
Record Date Payment Date Distributions per Share Total Non-qualified Qualified Return of Capital
3/20/2015 3/30/2015 $0.12500
 $0.12500
 $0.12500
 $—
 $—
6/20/2015 6/30/2015 0.12500
 0.12500
 0.12500
 —
 —
9/20/2015 9/30/2015 0.12500
 0.12500
 0.12500
 —
 —
12/20/2015 12/30/2015 0.20000
 0.20000
 0.20000
 —
 —
  Total $0.57500
 $0.57500
 $0.57500
 $—
 $—
    100% 100%     —%
      Ordinary Dividends    
Record Date Payment Date Distributions Per Share Total Non-qualified Qualified 
Capital Gain Distributions(1)
 Return of Capital
3/20/2016 3/30/2016 $0.20000
 $0.14542
 $0.14542
 $—
 $0.02447
 $0.03011
6/20/2016 6/30/2016 0.20000
 0.14542
 0.14542
 —
 0.02447
 0.03011
9/20/2016 9/30/2016 0.20000
 0.14542
 0.14542
 —
 0.02447
 0.03011
12/19/2016 12/29/2016 0.20000
 0.14542
 0.14542
 —
 0.02447
 0.03011
  Totals $0.80000
 $0.58168
 $0.58168
 $—
 $0.09788
 $0.12044
    100% 72.71%     12.24% 15.05%

_____________
The Company’s dividends related to its 8.375% Series B Cumulative Preferred Stock (CUSIP #444097208) and described above under “Dividends” will be classified for United States federal income tax purposes as follows (unaudited):

      Ordinary Dividends
Record Date Payment Date Distributions per Share Total Non-qualified Qualified
3/20/2015 3/30/2015 $0.52344
 $0.52344
 $0.52344
 $—
6/20/2015 6/30/2015 0.52344
 0.52344
 0.52344
 —
9/20/2015 9/30/2015 0.52344
 0.52344
 0.52344
 —
11/9/2015 12/10/2015 0.40712
 0.40712
 0.40712
 —
  Total $1.97744
 $1.97744
 $1.97744
 $—

Stock-Based Compensation

The Board of Directors awards restricted shares to non-employee board members on an annual basis as part of such board members’ annual compensation and to newly elected non-employee board members in accordance with our Board of Directors compensation program. The share-based awards are generally issued in the second quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which is three years.

In addition, the Board of Directors awards restricted shares to employees on an annual basis as part of the employees’ annual compensation. The share-based awards are generally issued in the fourth quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which is three years. Additionally these awards are subject to a two-year hold upon vesting if the employee is a named executive office.
The following table summarizes the restricted share activity for the year ended December 31, 2015 and status of all unvested restricted share awards to our non-employee board members and employees at December 31, 2015:


F- 42
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Unvested Shares Shares Weighted-Average Grant-Date Fair Value
Balance at December 31, 2013 541,180
 $19.98
Granted 281,491
 29.38
Vested (275,051) 16.83
Canceled (3,913) 20.44
Balance at December 31, 2014 543,707
 $26.43
Granted 629,504
 29.01
Vested (335,544) 24.80
Canceled (9,717) 38.17
Balance at December 31, 2015 827,950
 $28.92

Year Ended December 31, Non-Vested Shares Issued Weighted Average Grant - dated Fair Value Vested Shares Total Vest-Date Fair Value (in thousands)
2015 629,504
 $29.01
 (335,544) $9,606
2014 281,491
 29.38
 (275,051) 9,794
2013 263,039
 22.16
 (350,788) 7,664

We recognize the total compensation expense for time-vested shares on a straight-line basis over the vesting period based on the fair value of the award on the date of grant, which reflects an adjustment for awards with the two-year hold restriction in accordance with ASC 718.

Hudson Pacific Properties, Inc. Outperformance Programs

In each of 2012, 2013, 2014 and 2015, the Compensation Committee of our Board of Directors adopted a Hudson Pacific Properties, Inc. Outperformance Program (individually, the “2012 OPP”, “2013 OPP”, the “2014 OPP” and the “2015 OPP” and, together, the “OPPs”). Participants in the 2012 OPP, 2013 OPP, 2014 OPP and 2015 OPP may earn, in the aggregate, up to $10 million, $11 million, $12 million and $15 million, respectively, of stock-settled awards based on our Total stockholder Return (“TSR”), for the three-year period beginning January 1 of the year in which the applicable OPP was adopted and ending December 31 of 2014, 2015, 2016, or 2017, respectively.

Under each OPP, participants will be entitled to share in a performance pool with a value, subject to the applicable dollar-denominated cap described above, equal to the sum of: (i) 4% of the amount by which our TSR during the applicable performance period exceeds 9% simple annual TSR (the “absolute TSR component”), plus (ii) 4% of the amount by which our TSR during the applicable performance period exceeds that of the SNL Equity REIT Index (determined on a percentage basis that is then multiplied by the sum of (A) our market capitalization on that date, plus (B) the aggregate per share dividend over the applicable performance period through such date) (the “relative TSR component”), except that the relative TSR component will be reduced on a linear basis from 100% to zero percent for absolute TSR ranging from 7% to zero percent simple annual TSR over the applicable performance period. In addition, the relative TSR component may be a negative value equal to 4% of the amount by which we underperform the SNL Equity REIT Index by more than 3% per year during the applicable performance period (if any).

At the end of the applicable three-year performance period, participants who remain employed with the Company are paid their percentage interest in the bonus pool as stock awards based on the value of our common stock at the end of the performance period. Half of each such participant’s bonus pool interest is paid in fully vested shares of our common stock and the other half is paid in RSUs that vest in equal annual installments over the two years immediately following the applicable performance period (based on continued employment) and which carry tandem dividend equivalent rights. However, if the applicable performance period is terminated in connection with a change in control, OPP awards will be paid entirely in fully vested shares of our common stock immediately prior to the change in control. In addition to these share/RSU payments, each OPP award entitles its holder to a cash payment equal to the aggregate dividends that would have been paid during the applicable performance period on the total number of shares and RSUs ultimately issued or granted in respect of such OPP award, had such shares and RSUs been outstanding throughout the performance period.

F- 43
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



If a participant’s employment is terminated without “cause,” for “good reason” or due to the participant’s death or disability during the applicable performance period (referred to as qualifying terminations), the participant will be paid his or her OPP award at the end of the performance period entirely in fully vested shares (except for the performance period dividend equivalent, which will be paid in cash at the end of the performance period). Any such payment will be pro-rated in the case of a termination without “cause” or for “good reason” by reference to the participant’s period of employment during the applicable performance period. If we experience a change in control or a participant experiences a qualifying termination of employment, in either case, after the end of the applicable performance period, any unvested RSUs that remain outstanding will accelerate and vest in full upon such event.

The cost of the 2012 OPP, 2013 OPP, 2014 OPP and 2015 OPP (approximately $3.5 million, $4.1 million, $3.2 million and $4.3 million, respectively, subject to a forfeiture adjustment equal to 6% of the total cost) will be amortized through the final vesting period under a graded vesting expense recognition schedule. The costs were valued in accordance with ASC 718, utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run 100,000 times. For each simulation, the payoff is calculated at the settlement date, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included (1) factors associated with the underlying performance of the Company’s stock price and total stockholder return over the term of the performance awards, including total stock return volatility and risk-free interest. and (2) factors associated with the relative performance of the Company’s stock price and total stockholder return when compared to the SNL Equity REIT Index. The valuation was performed in a risk-neutral framework, so no assumption was made with respect to an equity risk premium. The fair value of the OPP awards is based on the sum of: (1) the present value of the expected payoff to the awards on the measurement date, if the TSR over the applicable measurement period exceeds performance hurdles of the absolute and the relative TSR components; and (2) the present value of the distributions payable on the awards. The ultimate reward realized on account of the OPP awards by the holders of the awards is contingent on the TSR achieved on the measurement date, both in absolute terms and relative to the TSR of the SNL Equity REIT Index. The per unit fair value of each 2012 OPP award, 2013 OPP award, 2014 OPP award and 2015 OPP award was estimated on the date of grant using the following assumptions in the Monte Carlo valuation:
 2015 OPP 2014 OPP 2013 OPP 2012 OPP
Expected price volatility for the Company22.00% 28.00% 33.00% 36.00%
Expected price volatility for the SNL Equity REIT index22.00% 26.00% 25.00% 35.00%
Risk-free rate1.13% 0.77% 0.38% 0.40%
Total dividend payments over the measurement period per share1.50% 1.50% 1.50% 1.62%

The following table presents the classification and amount recognized for stock compensation related to the Company's OPP plans and restricted stock awards:    

 For the Year Consolidated Financial
 2015 2014 2013 Statement Classification
Expensed stock compensation8,421
 7,559
 6,454
 General and administrative expenses
Capitalized stock compensation411
 420
 228
 Deferred leasing costs and lease intangibles, net and Tenant improvements
Total stock compensation8,832
 7,979
 6,682
 Additional paid-in capital

As of December 31, 2015, total unrecognized compensation cost related to unvested share-based payments totaled $27.3 million, before the impact of forfeitures, and is expected to be recognized over a weighted-average period of 3.0 years.

One-Time Retention Awards

On December 29, 2015, the Company awarded a one-time grant of restricted stock and restricted stock unit awards that are intended to align the interests of the participants with those of the Company’s stockholders and to motivate them to achieve specified performance hurdles.


F- 44
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


The restricted stock retention awards vest in equal 25% installments on January 1 of each of 2017, 2018, 2019 and 2020, subject to the participant’s continued employment. The RSU retention awards are eligible to vest in substantially equal annual installments on January 1 of each of 2017, 2018, 2019 and 2020, based on the achievement of one of the two following annual performance goals for each calendar year during the four-year performance period beginning January 1, 2016 and ending December 31, 2019, subject to the participant’s continued employment through each vesting date: (1) achievement of an annual TSR equal to at least 7% for the applicable calendar year, or (2) achievement of a TSR that exceeds the total shareholder return for the MSCI U.S. REIT Index for the applicable calendar year. In addition, to the extent the RSU retention award is unvested as of the end of calendar year 2019, it will vest in full on January 1, 2020 if the Company’s TSR during the entire performance period is equal to at least 28%, subject to the participant’s continued employment.
(1)$0.00540 of the $0.02447 capital gain distributions should be characterized as unrecaptured Section 1250 gain.

10.12. Related Party Transactions

222 Kearny Street Lease with FJM Investments, LLC

Effective July 31, 2012, we consented to the assignment of a lease with a tenant of our 222 Kearny Street property to its subtenant, FJM Investments, LLC. The lease comprises approximately 3,707 square feet of the property’s space and had an initial lease term through May 31, 2014, which was subsequently extended to May 31, 2015. On June 1, 2015, we agreed to extend the lease on a month-to-month basis. The monthly rental obligation under the lease is $12 thousand, the base rent component. FJM Investments, LLC was co-founded by and is co-owned by one of our independent directors, Robert M. Moran, Jr.

Employment Agreements

The Company has entered into employment agreements with certain of our executive officers, effective June 27, 2014 and subsequently amended effective January 1, 2016, that provide for various severance and change in control benefits and other terms and conditions of employment.

Lease and Subsequent Purchase of Corporate Headquarters Lease withfrom Blackstone

On July 26, 2006, ourthe Company’s predecessor, Hudson Capital, LLC, entered into a lease agreement and subsequent amendments with landlord Trizec Holdings Cal, LLC (an affiliate of Blackstone Real Estate Partners V and VI)Blackstone) for ourthe Company’s corporate headquarters at 11601 Wilshire Boulevard. We currently occupy approximatelyThe Company amended the lease to increase its occupancy to 40,120 square feet of the property’s space.space as a tenant commencing on September 1, 2015. On December 16, 2015, wethe Company entered into an amendment of that lease to expand the space to approximately 42,371 square feet of the property’s space and to extend the term by an additional three years, to a total of ten years, through August 31, 2025. The lease commencement date was SeptemberOn July 1, 2015. The minimum future rents payable under2016, the new lease is $21.8 million.Company purchased the 11601 Wilshire property from funds managed by Blackstone for $311.0 million (before credits, prorations and closing costs).

JMG Capital Lease at 11601 Wilshire

JMG Capital Management LLC leases approximately 6,638 square feet at 11601 Wilshire property pursuant to an eight-year lease at an aggregate rate of approximately $279 thousand annualized rent per year. Jonathan M. Glaser, a member of the Company’s board of directors, is the founder and managing member of JMG Capital Management LLC. JMG Capital Management LLC was a tenant of the property at the time it was purchased by the Company.


F- 50
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


222 Kearny Street Disposition

On December 30, 2016, the Company entered into an agreement to sell its 222 Kearny Street property to a joint venture, a partner of which are affiliates of the Farallon Funds. Richard B. Fried, an independent director on our Board, is a managing member of the Farallon Funds. 222 Kearny Street was subsequently sold on February 14, 2017.
Agreement Related to EOP Acquisition

On April 1, 2015, the Company completed the EOP Acquisition from certain affiliates of Blackstone, which consisted of 26 high-quality office assets totaling approximately 8.2 million square feet and two development parcels located throughout the San Francisco Peninsula, Redwood Shores, Palo Alto, Silicon Valley and North San Jose submarkets. The total consideration paid for the EOP Acquisition before certain credits, proration,prorations and closing costs included a cash payment of $1.75 billion and an aggregate of 63,474,791 shares of common stock of the CompanyHudson Pacific Properties, Inc. and common units in the Operating Partnership.operating partnership. Following a common stock offering and common unit repurchase on January 10, 2017, Blackstone no longer holds an ownership interest in the Company or the operating partnership and the Stockholders Agreement between the Company, the operating partnership and Blackstone automatically terminated.

The Stockholders Agreement

On April 1, 2015, in connection with the closing of the acquisitionEOP Acquisition as described below,above, the Company entered into athe Stockholders Agreement (the “Stockholders Agreement”) by and among the Company, the Operating Partnership,operating partnership, Blackstone Real Estate Advisors L.P. (“BREA”) and the other affiliates of The Blackstone Group L.P. (the “Sponsor Stockholders”).Blackstone. The Stockholders Agreement sets forth various arrangements and restrictions with respect to the governance of the Company and certain rights of the Sponsor StockholdersBlackstone with respect to the shares of common stock of the CompanyHudson Pacific Properties, Inc. and common units of in the Operating Partnershipoperating partnership received by the Sponsor StockholdersBlackstone in connection with the EOP Acquisition (the “Equity Consideration”).

Pursuant to the terms of the Stockholders Agreement, in April 2015 the Board of Directors of the Company (the “Board”) haswas expanded from eight to eleven directors, and three director nominees designated by the Sponsor StockholdersBlackstone to the Board have beenwere elected. On January 13, 2016, one of Blackstone’s nominees resigned from the Board, and Blackstone indicated that it would not designate an individual to replace him. Subsequently, the Board voted to decrease its size to ten directors. Subject to certain exceptions, the Board will continue to include the Sponsor Stockholders’Blackstone’ designees in its slate of nominees, and will continue to recommend such nominees, and will otherwise use its reasonable best efforts to solicit the vote of the Company’s stockholders of Hudson Pacific Properties, Inc. to elect to the Board the slate of nominees which includes those designated by the Sponsor Stockholders. The Sponsor StockholdersBlackstone. Blackstone will have the right to designate three nominees for so long as the Sponsor Stockholders continueit continues to beneficially own,

F- 45
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


in the aggregate, greater than 50% of the Equity Consideration. If the Sponsor Stockholders’Blackstone’ beneficial ownership of the Equity Consideration decreases, then the number of director nominees that the Sponsor StockholdersBlackstone will have the right to designate will be reduced (i) to two, if the Sponsor StockholdersBlackstone beneficially ownowns greater than or equal to 30% but less than or equal to 50% of the Equity Consideration and (ii) to one, if the Sponsor StockholdersBlackstone beneficially ownowns greater than or equal to15%to 15% but less than 30% of the Equity Consideration. The Board nomination rights of the Sponsor StockholdersBlackstone will terminate at such time as the Sponsor StockholdersBlackstone beneficially ownowns less than 15% of the Equity Consideration or upon written notice of waiver or termination of such rights by the Sponsor Stockholders.Blackstone. So long as the Sponsor Stockholders retainBlackstone retains the right to designate at least one nominee to the Board, the CompanyHudson Pacific Properties, Inc. will not be permitted to increase the total number of directors comprising the Board to more than twelve12 persons without the prior written consent of the Sponsor Stockholders.Blackstone.

For so long as the Sponsor Stockholders haveBlackstone has the right to designate at least two director nominees, subject to the satisfaction of applicable NYSE independence requirements, the Sponsor StockholdersBlackstone will also be entitled to appoint one such nominee then serving on the Board to serve on each committee of the Board (other than certain specified committees).

The Stockholders Agreement also includes: (i)includes standstill provisions, which require that, until such time as the Sponsor StockholdersBlackstone beneficially ownowns shares of common stock representing less than 10% of the total number of issued and outstanding shares of common stock on a fully-diluted basis, the Sponsor StockholdersBlackstone and BREA are restricted from, among other things, acquiring additional equity or debt securities (other than non-recourse debt and certain other debt) of the Company and its subsidiaries without the Company’s prior written consent; and (ii) transfer restriction provisions, which restrict the Sponsor Stockholders from transferring any of the Equity Consideration (including shares of common stock issued to the Sponsor Stockholders in exchange of common units pursuant to the terms of the Fourth Amended and Restated Limited Partnership Agreement) (collectively, the “Covered Securities”) until November 1, 2015 (other than pursuant to certain specified exceptions), at which time such transfer restrictions will cease to be applicable to 50% of the Covered Securities. The transfer restrictions applicable to the remaining 50% of the Covered Securities will cease to be applicable on March 1, 2016 (or, if earlier, 30 days following written notice of waiver or termination by the Sponsor Stockholders of their board nomination rights described above). If, prior to November 1, 2015, the Sponsor Stockholders provide written notice waiving and terminating their director nomination rights described above, the transfer restrictions applicable to all the Covered Securities will cease to be applicable on November 1, 2015 and, if such written notice of waiver and termination is provided after November 1, 2015, then the transfer restrictions will cease to be applicable as of the earlier of March 1, 2016 and 30 days following the Issuer’s receipt of such written notice.consent.

In addition, pursuant to the Stockholders Agreement, until April 1, 2017, the Company is required to obtain the prior written consent of the Sponsor StockholdersBlackstone prior to the issuance of common equity securities by it or any of its subsidiaries other than up to an aggregate of 16,843,028 shares of common stock (and certain other exceptions).

Further, until such time as the Sponsor StockholdersBlackstone beneficially own,owns, in the aggregate, less than 15% of the Equity Consideration, each Sponsor StockholderBlackstone will cause all common stock held by it to be voted by proxy (i) in favor of all persons nominated to serve as directors of the Company

F- 51
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


by the Board (or the Nominating and Corporate Governance Committee thereof) in any slate of nominees which includes the Sponsor Stockholders’Blackstone’ nominees and (ii) otherwise in accordance with the recommendation of the Board (to the extent the recommendation is not inconsistent with the rights of the Sponsor StockholdersBlackstone under the Stockholders Agreement) with respect to any other action, proposal or other matter to be voted upon by the Company’s stockholders of Hudson Pacific Properties, Inc., other than in connection with (A) any proposed transaction relating to a change of control of the Company,Hudson Pacific Properties, Inc., (B) any amendments to the Company’s charter or bylaws of Hudson Pacific Properties, Inc., (C) any other transaction that the CompanyHudson Pacific Properties, Inc. submits to a vote of its stockholders pursuant to Section 312.03 of the NYSE Listed Company Manual or (D) any other transaction that the CompanyHudson Pacific Properties, Inc. submits to a vote of its stockholders for approval.

As required by the Stockholders Agreement, the Company has agreed that the Sponsor StockholdersBlackstone and certain of theirits affiliates may engage in investments, strategic relationships or other business relationships with entities engaged in other business, including those that compete with the Company, or any of its subsidiaries, and will have no obligation to present any particular investment or business opportunity to the Company, even if the opportunity is of a character that, if presented to the Company, could be undertaken by the Company. As required by the Stockholders Agreement, to the maximum extent permitted under Maryland law, the Company has renounced any interest or expectancy in, or in being offered an opportunity to participate in, any such investment, opportunity or activity presented to or developed by the Sponsor Stockholders, theirBlackstone, its nominees for election as directors and certain of theirits affiliates, other than any opportunity expressly offered to a director nominated at the direction of the Sponsor StockholdersBlackstone in his or her capacity as a director of the Company.Hudson Pacific Properties, Inc.

Further, without the prior written consent of the Sponsor Stockholders, the CompanyBlackstone, Hudson Pacific Properties, Inc. may not amend certain provisions of its Bylawsbylaws relating to the ability of its directors and officers to engage in other business or to adopt qualification for directors other than those in effect as of the date of the Stockholders Agreement or as are generally applicable to all directors, respectively.

F- 46
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



The Stockholders Agreement also includes certain provisions that, together, are intended to enhance the liquidity of common units to be held by the Sponsor Stockholders.Blackstone.

Redemption Rights of Sponsor StockholdersBlackstone

Under the terms of the Stockholders Agreement, the Company (in its capacity as the general partner of the Operating Partnership)operating partnership) has waived the 14-month holding period set forth in the Fourth Amended and Restated Limited Partnership Agreement (as defined below) before the Sponsor StockholdersBlackstone may require the Operating Partnershipoperating partnership to redeemrepurchase the common units and grants certain additional rights to the Sponsor StockholdersBlackstone in connection with such redemptions. Among other things, the Company generally must give the Sponsor StockholderBlackstone notice before 9:30 a.m. Eastern time on the business day after the business day on which a Sponsor StockholderBlackstone gives the Company notice of redemption of any common units of the Company’s election, in its sole and absolute discretion, to either (A)(a) cause the Operating Partnershipoperating partnership to redeem all of the tendered common units in exchange for a cash amount per common units equal to the value of one share of common stock on the date that the Sponsor StockholderBlackstone provided its notice of redemption, calculated in accordance with and subject to adjustment as provided in the Fourth Amended and Restated Limited Partnership Agreement and the Stockholders Agreement, or (B)(b) subject to the restrictions on ownership and transfer of the Company’s stock set forth in its charter, acquire all of the tendered common units from the Sponsor StockholderBlackstone in exchange for shares of common stock, based on an exchange ratio of one share of common stock for each OP Unit,common unit, subject to adjustment as provided in the Fourth Amended and Restated Limited Partnership Agreement. If the Company fails to timely provide such notice, the Company will be deemed to have elected to cause the Operating Partnershipoperating partnership to redeem all such tendered common units in exchange for shares of common stock. Blackstone redeemed 46,250,000 common units in the operating partnership in exchange for cash in 2016.

The Company may also elect to cause the Operating Partnershipoperating partnership to redeem all common units tendered by a Sponsor StockholderBlackstone with the proceeds of a public or private offering of common stock under certain circumstances as discussed more fully below.


F- 52
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Restrictions on Transfer of Common Units by Sponsor StockholdersBlackstone

Under the terms of the Stockholders Agreement, the Company (in its capacity as the general partner of the Operating Partnership)operating partnership) has waived the 14-month holding period set forth in the Fourth Amended and Restated Limited Partnership Agreement before the Sponsor StockholdersBlackstone may transfer any common units, and has agreed to admit any permitted transferee of a Sponsor StockholderBlackstone as a substituted limited partner of the Operating Partnershipoperating partnership upon the satisfaction of certain conditions described in the Fourth Amended and Restated Limited Partnership Agreement and the Stockholders Agreement. Nevertheless, the Covered Securities are subject to the transfer restrictions described above.

Amendments to the Fourth Amended and Restated Limited Partnership Agreement

The Stockholders Agreement prohibits the Company, without the prior written consent of the Sponsor Stockholders, from amending certain provisions of the Fourth Amended and Restated Limited Partnership Agreement in a manner adverse in any respect to the Sponsor Stockholders (in their capacity as limited partners of the Operating Partnership), or to add any new provision to the Fourth Amended and Restated Limited Partnership Agreement that would have a substantially identical effect or from taking any action that is intended to or otherwise would have a substantially identical effect.

Ownership LimitsLimit Waiver

In connection with the issuance of the Equity Consideration, the Board has granted to the Sponsor StockholdersBlackstone and certain of theirits affiliates a limited exception to the restrictions on ownership and transfer of common stock set forth in the Company’s charter of Hudson Pacific Properties, Inc. (the “Charter”) that will allow the Sponsor Stockholdersallows Blackstone and suchcertain of its affiliates to own, directly or indirectly, in the aggregate, up to 17,707,056 shares of common stock of Hudson Pacific Properties, Inc. (the “Excepted Holder Limit”). The grant of thisThis exception is conditioned upon the receiptcontinued accuracy of various representations and covenants set forth in the Sponsor Stockholders’Blackstone’s waiver request delivered on April 1, 2015, confirming, among other things, that neither the Sponsor StockholdersBlackstone nor certain of theirits affiliates may own, directly or indirectly, (i) more than 9.9% of the interests in a tenant of the Company (other than a tenant of the 1455 Market Street office property) or (ii) more than 5.45% of the interests in a tenant of the 1455 Market Street office property, in each case subject to certain exceptions that may reduce such ownership percentage, but not below 2% The request also includesand representations intended to confirm that the Sponsor Stockholders’Blackstone’s and certain of theirits affiliates’ ownership of common stock of Hudson Pacific Properties, Inc. will not cause the CompanyHudson Pacific Properties, Inc. to otherwise fail to qualify as a REIT.


F- 47
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


The Board will provide the exception to the Sponsor Stockholdersfor Blackstone and certain of theirits affiliates will apply until (i) Blackstone or any such Sponsor Stockholder or affiliate violates any of the representations or covenants in the Sponsor Stockholders’Blackstone’s waiver request or (ii) (a) Blackstone or any such Sponsor Stockholder or affiliate owns, directly or indirectly, more than the applicable ownership percentage (as described above) of the interests in any tenant(s) and (b) the maximum rental income expected to be produced by such tenant(s) exceeds (x) 0.5% of the Company’s gross income (in the case of tenants other than tenants of the 1455 Market Street office property) or (y)0.5% of the 1455 Market Street Joint Venture’s gross income (in the case of tenants of the 1455 Market Street office property) for any taxable year (the “Rent Threshold”), at which time the number of shares of common stock that the Sponsor StockholdersBlackstone and certain of theirits affiliates may directly or indirectly own will be reduced to the number of shares of common stock which would result in the amount of rent from such tenant(s) (that would be treated as related party rents under certain tax rules) representing no more than the Rent Threshold.

In addition, due to the Sponsor Stockholders’ ownership of common units of limited partnership interest in the Operating Partnership and the application of certain constructive ownership rules, the Operating Partnership will be considered to own the common stock that is directly or indirectly owned by the Sponsor Stockholders and certain of their affiliates. For this reason, the Board has also granted the Operating Partnership an exception to the restrictions on ownership and transfer of common stock set forth in the Charter.

The Registration Rights Agreement

On April 1, 2015, in connection with the closing of the EOP Acquisition, the Company entered into a Registration Rights Agreement, dated April 1, 2015 (the “Registration Rights Agreement”), by and among the Company and the Sponsor Stockholders.Blackstone. The Registration Rights Agreement provides for customary registration rights with respect to the Equity Consideration, including the following:

Shelf Registration. On October 27, 2015, the Company filed a resale shelf registration statementprospectus covering the Sponsor Stockholders’Blackstone’s shares of common stock received as part of the Equity Consideration as well as shares issuable upon redemption of common units received as part of the Equity Consideration, andwhich was replaced by a subsequent prospectus filed by the Company on July 21, 2016. The Company is required to use its reasonable best efforts to causekeep such resale shelf registration statement effective for as long as Blackstone continues to become effective prior to the terminationhold such shares of the transfer restrictions under the Stockholders Agreement (as described above).common stock.

Demand Registrations. Beginning November 1, 2015 (or earlier if transfer restrictions under the Stockholders Agreement are terminated earlier), the Sponsor StockholdersBlackstone may cause the Company to register their shares if the foregoing resale shelf registration statement is not effective or if the Company is not eligible to file a shelf registration statement.

 Qualified Offerings. Any registered offerings requested by the Sponsor StockholdersBlackstone that are to an underwriter on a firm commitment basis for reoffering and resale to the public, in an offering that is a “bought deal” with one or more investment banks or in a block trade with a broker-dealer will be (subject to certain specified exceptions): (i) no more frequent than once in any 120-day period, (ii) subject to underwriter lock-ups from prior offerings then in effect, and (iii) subject to a minimum offering size of $50.0 million.
 

F- 53
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Piggy-Back Rights. Beginning November 1, 2015 (or earlier if transfer restrictions under the Stockholders Agreement are terminated earlier), the Sponsor Stockholders will beBlackstone is permitted to, among other things, participate in offerings for the Company’s account or the account of any other security holder of the Company (other than in certain specified cases). If underwriters advise that the success of a proposed offering would be significantly and adversely affected by the inclusion of all securities in an offering initiated by the Company for the Company’s own account, then the securities proposed to be included by the Sponsor StockholdersBlackstone together with other stockholders exercising similar piggy-back rights are cut back first.

Limited Partnership Agreement

On April 1, 2015, in connection with the closing of the EOP Acquisition, the Company, as the general partner of the Operating Partnership,operating partnership, entered into the Third Amended and Restated Agreement of Limited Partnership of the Operating Partnershipoperating partnership dated April 1, 2015 along with the Sponsor StockholdersBlackstone and the other limited partners of the Operating Partnership.operating partnership. The principal changes to the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership,operating partnership, as amended and as in effect immediately prior to the closing of the EOP Acquisition, made by the Third Amended and Restated Limited Partnership Agreement were to add the provisions described below. The Third Amended and Restated Limited Partnership Agreement was subsequently amended and restated subsequently on December 17, 2015.2015 by the Fourth Amended and Restated Limited Partnership Agreement of the operating partnership.

F- 48
Hudson Pacific Properties, Inc.The Stockholders Agreement prohibits the Company, without the prior written consent of Blackstone, from amending certain provisions of the Fourth Amended and Hudson Pacific Properties, L.P.
NotesRestated Limited Partnership Agreement in a manner adverse in any respect to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footageBlackstone (in its capacity as limited partners of the operating partnership), or to add any new provision to the Fourth Amended and share data)


Restated Limited Partnership Agreement that would have a substantially identical effect or from taking any action that is intended to or otherwise would have a substantially identical effect.

Restrictions on Mergers, Sales, Transfers and Other Significant Transactions of the Company

Prior to the date on which the Sponsor StockholdersBlackstone and any of theirits affiliates own less than 9.8% of the Equity Consideration, the Company may not consummate any of (a) a merger, consolidation or other combination of the Company’s or the Operating Partnership’soperating partnership’s assets with another person, (b) a sale of all or substantially all of the assets of the Operating Partnership,operating partnership, (c) sellsale of all or substantially all of the Company’s assets not in the ordinary course of the Operating Partnership’soperating partnership’s business or (d) a reclassification, recapitalization or change in the Company’s outstanding equity securities (other than in connection with a stock split, reverse stock split, stock dividend, change in par value, increase in authorized shares, designation or issuance of new classes of equity securities or any event that does not require the approval of the Company’s stockholders), in each case, which is submitted to the holders of the common stock of Hudson Pacific Properties, Inc. for approval, unless such transaction is also approved by the partners of the Operating Partnershipoperating partnership holding common units on a “pass through” basis, which, in effect, affords the limited partners of the Operating Partnershipoperating partnership that hold common units the right to vote on such transaction as though such limited partners held the number of shares of common stock into which their common units were then exchangeable and voted together with the holders of the Company’s outstanding common stock of Hudson Pacific Properties, Inc. with respect to such transaction.

Stock Offering Funding of Redemption

If any Sponsor StockholderBlackstone or any of its affiliates who become limited partners of the Operating Partnershipoperating partnership (“Specified Limited Partners”) delivers a notice of redemption with respect to common units that, if exchanged for common stock, would result in a violation of the Excepted Holder Limit (as defined below) or otherwise violate the restrictions on ownership and transfer of the Company’s stock set forth in its charter and that have an aggregate value in excess of $50.0 million as calculated pursuant to the terms of the Fourth Amended and Restated Limited Partnership Agreement, then, if the Company is then eligible to register the offering of its securities on Form S-3 (or any successor form similar thereto), the Company may elect to cause the Operating Partnershipoperating partnership to redeem such common units with the net proceeds from a public or private offering of the number of shares of common stock that would be deliverable in exchange for such common units but for the application of the Excepted Holder Limit and other restrictions on ownership and transfer of the Company’s stock. If the Company elects to fund the redemption of any common units with such an offering, it will allow all Specified Limited Partners the opportunity to include additional common units held by such Specified Limited Partners in such redemption.
    
Blackstone Margin Loan

On December 31, 2015, the Company was informed by HPP BREP V Holdco A LLC, an affiliate of investment funds associated with or designated by The Blackstone Group L.P. that are common stockholders of the Company and limited partners of the Operating Partnership, that HPP BREP V Holdco A LLC (“Borrower”), has entered into (i) a Margin Loan Agreement (the “Loan Agreement”) dated as of December 29, 2015 with the lenders party thereto (each, a “Lender” and, collectively, the “Lenders”) and the administrative agent party thereto and (ii) Pledge and Security Agreements dated as of December 31, 2015, in each case, between one of the Lenders, as secured party, and Borrower, as pledgor (the “Borrower Pledge Agreements”), and certain of HPP BREP V Holdco A LLC’s affiliates (each, a “Holdco A Guarantor” and collectively, the “Holdco A Guarantors”) have each entered into (i) with each Lender, a Pledge and Security Agreement dated as of December 31, 2015 (each, a “Holdco A Guarantor Pledge Agreement” and, collectively with the Borrower Pledge Agreements, the “Pledge Agreements”) and (ii) with the administrative agent and the Lenders, a Guarantee dated as of December 31, 2015 of the Borrower’s obligations under the Loan Agreement (each, a “Holdco A Guarantee” and collectively the “Holdco A Guarantees”). In addition, certain of HPP BREP V Holdco A LLC’s other affiliates (each, a “Holdco B Guarantor” and collectively, the “Holdco B Guarantors”) have each entered into, with the administrative agent and the Lenders, a Guarantee dated as of December 31, 2015 of the Borrower’s obligations under the Loan Agreement (each, a “Holdco B Guarantee” and, collectively with the Holdco A Guarantees, the Loan Agreement, and the Pledge Agreements, the “Loan Documents”). Each of the Borrower, the Holdco A Guarantors and the Holdco B Guarantors is affiliated with The Blackstone Group L.P.

As of December 31, 2015, the Borrower has borrowed an aggregate of $350.0 million under the Loan Agreement. Subject to the satisfaction of certain conditions, including the pledge of Common Units by the Holdco B Guarantors referenced below, the Borrower may borrow up to an additional $150.0 million on or after March 1, 2016. The scheduled maturity date of the loans under the Loan Agreement is December 31, 2017, which may be extended at the election of the Borrower until December 31, 2018. Pursuant to the Pledge Agreements, to secure borrowings under the Loan Agreement, the Borrower and the Guarantors have collectively pledged 8,276,945 shares of common stock, par value $0.01 per share (“Common Stock”) of the Company and 23,460,446 common units of partnership interest (“Common Units”) in Hudson Pacific Properties, L.P., as well as their respective rights under the Registration Rights Agreement dated as of April 1, 2015 by and among the Company and the holders listed on Schedule I thereto (the “Registration Rights Agreement”). In addition, the Holdco B Guarantors have agreed to pledge an additional

F- 4954
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


29,166,672 Common Units, and their respective rights under the Registration Rights Agreement, within 10 business days following March 1, 2016,pursuant to pledge and security agreements substantially similar to the Pledge Agreements.

Upon the occurrence of certain events that are customary for this type of loan, the Lenders may exercise their rights to require the Borrower to pre-pay the loan proceeds, post additional collateral, or foreclose on, and dispose of, the pledged shares of Common Stock and pledged Common Units in accordance with the Loan Documents.

The Company did not independently verify the foregoing disclosure. In addition, the Company is not a party to the Loan Documents and has no obligations thereunder, but has delivered an Issuer Agreement to each of the Lenders in which it has, among other things, agreed to certain obligations relating to the pledged Common Stock and pledged Common Units and, subject to applicable law and stock exchange rules, agreed not to take any actions that are intended to materially hinder or delay the exercise of any remedies with respect to the pledged Common Stock and pledged Common Units.
11.13. Commitments and Contingencies

Legal

From time to time, the Company is party to various lawsuits, claims and other legal proceedings arising out of, or incident to, ourthe ordinary course of business. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s results of operations, financial position or cash flows. As of December 31, 2015,2016, the risk of material loss from such legal actions impacting the Company’s financial condition or results from operations has been assessed as remote.

Concentrations

As of December 31, 2015,2016, the majority of the Company’s properties were located in California, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

A significant portion of the Company'sCompany’s rental revenue is derived from tenants in the media and entertainment and technology industries. As of December 31, 20152016 approximately 15.8%14.0% and 32.0%27.9% of our rentable square feet were related to the media and entertainment and technology industries, respectively.

As of December 31, 2015, our2016, the Company’s 15 largest tenants represented approximately 24.8%22.4% of ourits rentable square feet. During 2015,feet and no single tenant accounted for more than 10%.
    
Letters of Credit

As of December 31, 2015,2016, the Company has outstanding letters of credit totaling approximately $3.3$2.6 million under the unsecured revolving credit facility. The letters of credit are primarily related to utility company security deposit requirements.

12.14. Quarterly Financial Information (unaudited)

The tables below presentspresent selected quarterly information for 20152016 and 20142015 for the Company:
 
Three months ended(1)
 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015
Total revenues$154,651
 $151,556
 $151,819
 $62,824
Income from operations13,803
 4,165
 16,094
 13,326
Net income (loss)(2,745) (1,828) (36,083) 24,574
Net (loss) income attributable to Hudson Pacific Properties, Inc. stockholders’$(6,460) $(3,905) $(25,243) $19,211
Net loss (income) from continuing operations attributable to common stockholders’ per share—basic and diluted$(0.07) $(0.04) $(0.28) $0.25
Net loss attributable to common stockholders’ per share—basic and diluted$(0.07) $(0.04) $(0.28) $0.25
Weighted average shares of common stock outstanding—basic and diluted88,990,612
 88,984,236
 88,894,258
 76,783,351
 
For the Three Months Ended(1)
 December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016
Total revenues$167,198
 $164,583
 $154,321
 $153,537
Income from operations26,845
 23,740
 19,811
 19,011
Net income28,530
 5,217
 4,035
 5,976
Net income attributable to Hudson Pacific Properties, Inc. stockholders22,279
 1,847
 839
 2,253
Net income attributable to common stockholders’ per share—basic0.18
 0.02
 0.01
 0.03
Net income attributable to common stockholders’ per share—diluted0.18
 0.02
 0.01
 0.03

 
For the Three Months Ended(1)
 December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015
Total revenues$154,651
 $151,556
 $151,819
 $62,824
Income from operations13,803
 4,165
 16,094
 13,326
Net (loss) income(2,745) (1,828) (36,083) 24,574
Net (loss) income attributable to Hudson Pacific Properties, Inc. stockholders(6,460) (3,905) (25,243) 19,211
Net (loss) income attributable to common stockholders’ per share—basic(0.07) (0.04) (0.28) 0.25
Net (loss) income attributable to common stockholders’ per share— diluted(0.07) (0.04) (0.28) 0.25
_____________
(1)The summation of the quarterly financial data may not equal the annual number reported on the consolidated statements of operations due to rounding.

F- 5055
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)



 
Three months ended(1)
 December 31, 2014 September 30, 2014 June 30, 2014 March 31, 2014
Total revenues$68,787
 $68,155
 $62,129
 $55,596
Income from operations11,640
 12,622
 13,195
 11,220
Net (loss) income from discontinued operations—
 (38) (60) (66)
Net income (loss)885
 11,415
 6,689
 4,533
Net loss attributable to Hudson Pacific Properties, Inc. stockholders’$(2,290) $7,620
 $3,365
 $1,260
Net loss (income) from continuing operations attributable to common stockholders’ per share—basic and diluted$(0.03) $0.11
 $0.05
 $0.02
Net loss attributable to common stockholders’ per share—basic and diluted$(0.03) $0.11
 $0.05
 $0.02
Weighted average shares of common stock outstanding—basic and diluted
66,512,651
 66,506,179
 66,485,639
 63,625,751
________________
(1)The summation of the quarterly financial data may not equal the annual number reported on the consolidated statements of operations due to rounding.

13.15. Subsequent Events

Bayhill dispositionCommon Stock Offering and Common Unit Repurchase

On January 14, 2016,10, 2017, the Company, soldBlackstone and the Farallon Funds completed a public offering of 18,673,808 shares of common stock of Hudson Pacific Properties, Inc., including 8,881,575 shares offered by the Company and 9,792,233 shares by Blackstone and the Farallon Funds. The Company’s proceeds from the offering were used to repurchase 8,881,575 common units in the operating partnership held by Blackstone and the Farallon Funds. Following the completion of these transactions, Blackstone and the Farallon Funds no longer hold any ownership interests in the Company or the operating partnership and the Stockholders Agreement between the Company, the operating partnership and Blackstone automatically terminated.
3402 Pico Disposition

On January 20, 2017, the Company entered into an agreement to sell its Bayhill office3402 Pico property for $215.0$34.0 million (before certain credits, prorations and closing costs). Proceeds received were usedThe Company expects this transaction to partially paydown ourclose in the first quarter of 2017, and intends to use proceeds to pay down amounts outstanding under its unsecured revolving credit facility.

2013 OPP Plan Payout222 Kearny Street Disposition

On February 23, 2016, our compensation committee determined14, 2017, the final bonus poolCompany sold its 222 Kearny Street property for $51.8 million (before certain credits, prorations and closing costs). The Company applied $45.0 million of proceeds from the sale to pay down amounts outstanding under the Company's 2013 OPP Plan, and approved the grant of fully vested common stock and RSUs, which is an aggregate amount of $11.0 million, to the participants in accordance with the 2013 OPP. The RSUs will vest in equal annual installments on December 31, 2016 and December 31, 2017 based on continued employment, and carry tandem dividend equivalent rights. If we experience a change in control or a participant experiences a qualifying termination of employment, in either case, any unvested RSUs that remain outstanding will accelerate and vest in full upon such event. The following table sets forth the number of shares of common stock and the number of RSUs granted to each named executive officer:
  Common Stock Restricted Stock Units
Victor Coleman 41,593
 41,592
Mark Lammas 27,448
 27,448
Christopher Barton 18,299
 18,298
Alexander Vouvalides 13,724
 13,724
Dale Shimoda 10,559
 10,558

Obtained Board Approval For Share Repurchase Program

Effective January 20, 2016, the Company’s Board of Directors authorized a share repurchase program to buy up to
$100.0 million of the Company’s outstanding common stock. The program may be implemented at the Company’s
discretion at any time for up to one year from the date of approval. Repurchases, if and when made, would be compliant
with the SEC’s Rule 10b-18, and subject to market conditions, applicable legal requirements and other factors. The
repurchase program serves as another capital allocation tool for the Company, a means to return capital to shareholders
from asset dispositions, which will be weighed against other potential investment opportunities.


F- 51
Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P.
Notes to Consolidated Financial Statements—(Continued)
(Tables in thousands, except square footage and share data)


Significant Leasing Activity

In February 2016 Netflix, the world’s leading Internet television network, executed a right of first refusal to lease the remaining five floors, or another 123,221 square feet, at the Company’s ICON development in Hollywood, California. As a result, the 323,000-square-foot ICON office tower is now 100.0% pre-leased to Netflix with tenant build-out expected to commence in the third quarter of 2016.


F- 52
Table of Contents




unsecured revolving credit facility.

Hudson Pacific Properties, Inc. And Hudson Pacific Properties, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 20152016
(In thousands)
    Initial Costs Cost Capitalized Subsequent to Acquisition Gross Carrying Amount at
December 31, 2015		 
Accumulated Depreciation at December 31, 2015(3)
 Year Built / Renovated Year Acquired
Property name Encumbrances at December 31, 2015 Land Building & Improvements Improvements Carrying Costs Land Building & All Improvements Total      
Office                      
Technicolor Building(1)
 $—
 $6,599
 $27,187
 $25,206
 $3,088
 $6,599
 $55,481
 $62,080
 $(15,441) 2008 2007
875 Howard Street Property(1)
 —
 18,058
 41,046
 9,568
 1,270
 18,058
 51,884
 69,942
 (13,437) Various 2007
Del Amo —
 —
 18,000
 1,749
 —
 —
 19,749
 19,749
 (3,330) 1986 2010
9300 Wilshire —
 —
 10,718
 1,036
 —
 —
 11,754
 11,754
 (2,901) 1965/2001 2010
222 Kearny(1)
 —
 7,563
 23,793
 3,497
 —
 7,563
 27,290
 34,853
 (3,996) Various 2010
Rincon Center 102,309
 58,251
 110,656
 14,579
 —
 58,251
 125,235
 183,486
 (19,367) 1985 2010
1455 Market(1)
 —
 41,226
 34,990
 43,618
 —
 41,226
 78,608
 119,834
 (5,838) 1977 2010
10950 Washington 28,407
 17,979
 25,110
 586
 —
 17,979
 25,696
 43,675
 (4,174) Various 2010
604 Arizona(1)
 —
 5,620
 14,745
 1,396
 —
 5,620
 16,141
 21,761
 (1,912) 1950 2011
275 Brannan Street —
 4,187
 8,063
 14,018
 1,115
 4,187
 23,196
 27,383
 (3,291) 1906 2011
625 Second Street(1)
 —
 10,744
 42,650
 1,877
 —
 10,744
 44,527
 55,271
 (5,238) 1905 2011
6922 Hollywood —
 16,608
 72,392
 4,781
 —
 16,608
 77,173
 93,781
 (10,334) 1965 2011
10900 Washington —
 1,400
 1,200
 735
 —
 1,400
 1,935
 3,335
 (359) 1973 2012
901 Market Street 30,000
 17,882
 79,305
 15,818
 —
 17,882
 95,123
 113,005
 (9,764) 1912/1985 2012
Element LA 168,000
 79,769
 19,755
 85,057
 10,391
 79,769
 115,203
 194,972
 (2,439) 1949 2012, 2013
Pinnacle I 129,000
 28,518
 171,657
 4,567
 —
 28,518
 176,224
 204,742
 (15,745) 2002 2012
Pinnacle II 86,228
 15,430
 115,537
 217
 —
 15,430
 115,754
 131,184
 (8,658) 2005 2013
3401 Exposition —
 14,120
 11,319
 11,351
 1,028
 14,120
 23,698
 37,818
 (969) 1961 2013
First & King —
 35,899
 184,437
 7,078
 —
 35,899
 191,515
 227,414
 (13,669) 1904/2009 2013
Met Park North 64,500
 28,996
 71,768
 538
 —
 28,996
 72,306
 101,302
 (5,341) 2000 2013
Northview —
 4,803
 41,191
 78
 —
 4,803
 41,269
 46,072
 (3,878) 1991 2013
3402 Pico (Existing) —
 16,410
 2,136
 3,698
 1,275
 16,410
 7,109
 23,519
 —
 1950 2014
Merrill Place —
 27,684
 29,824
 4,712
 63
 27,684
 34,599
 62,283
 (2,892) Various 2014
Alaskan Way —
 —
 —
 3,143
 43
 —
 3,186
 3,186
 —
 Ongoing 2014
Jefferson —
 6,040
 31,960
 4,193
 1,158
 6,040
 37,311
 43,351
 —
 1985 2014
Icon —
 —
 —
 78,146
 1,181
 —
 79,327
 79,327
 —
 Ongoing 2008
4th & Traction —
 12,140
 37,110
 4,274
 877
 12,140
 42,261
 54,401
 —
 1939 2015
405 Mateo —
 13,040
 26,960
 566
 428
 13,040
 27,954
 40,994
 —
 Various 2015
Palo Alto —
 —
 326,033
 1,107
 —
 —
 327,140
 327,140
 (9,326) 1971 2015

F- 53
Table of Contents




      Initial Costs Cost Capitalized Subsequent to Acquisition Gross Carrying Amount 
 
 
Property name Location Encumbrances Land Building & Improvements Improvements Carrying Costs Land Building & Improvements Total 
Accumulated Depreciation(3)
 Year Built / Renovated Year Acquired
Office                        
875 Howard Street Property(1)
 San Francisco Bay Area, CA $—
 $18,058
 $41,046
 $11,230
 $1,736
 $18,058
 $54,012
 72,070
 $(14,594) Various 2007
Technicolor Building(1)
 Los Angeles, CA —
 6,599
 27,187
 25,032
 3,088
 6,599
 55,307
 61,906
 (17,158) 2008 2008
Icon & CUE Los Angeles, CA —
 —
 —
 137,937
 5,320
 —
 143,257
 143,257
 —
 Ongoing 2008
Del Amo Office Los Angeles, CA —
 —
 18,000
 2,371
 —
 —
 20,371
 20,371
 (4,020) 1986 2010
9300 Wilshire Los Angeles, CA —
 —
 10,718
 1,293
 —
 —
 12,011
 12,011
 (3,553) 1964/2002 2010
1455 Market Street(1)
 San Francisco Bay Area, CA —
 41,226
 34,990
 52,242
 —
 41,226
 87,232
 128,458
 (9,112) 1976 2010
Rincon Center San Francisco Bay Area, CA 100,409
 58,251
 110,656
 18,871
 —
 58,251
 129,527
 187,778
 (23,533) 1940/1989 2010
10950 Washington Los Angeles, CA 27,929
 17,979
 25,110
 608
 —
 17,979
 25,718
 43,697
 (4,688) 1957/1974 2010
604 Arizona(1)
 Los Angeles, CA —
 5,620
 14,745
 1,522
 —
 5,620
 16,267
 21,887
 (2,440) 1950/2005 2011
275 Brannan Street(1)
 San Francisco Bay Area, CA —
 4,187
 8,063
 14,029
 1,115
 4,187
 23,207
 27,394
 (4,772) 1905 2011
625 Second Street(1)
 San Francisco Bay Area, CA —
 10,744
 42,650
 3,159
 —
 10,744
 45,809
 56,553
 (7,207) 1906/1999 2011
6922 Hollywood(1)
 Los Angeles, CA —
 16,608
 72,392
 5,573
 —
 16,608
 77,965
 94,573
 (12,391) 1967 2011
10900 Washington(1)
 Los Angeles, CA —
 1,400
 1,200
 738
 —
 1,400
 1,938
 3,338
 (510) 1973 2012
901 Market Street(1)
 San Francisco Bay Area, CA —
 17,882
 79,305
 16,285
 —
 17,882
 95,590
 113,472
 (13,465) 1912/1985 2012
Element LA Los Angeles, CA 168,000
 79,769
 19,755
 85,152
 10,391
 79,769
 115,298
 195,067
 (6,458) 1949 2012, 2013
Pinnacle I Los Angeles, CA 129,000
 28,518
 171,657
 10,157
 —
 28,518
 181,814
 210,332
 (20,168) 2002 2012
3401 Exposition(1)
 Los Angeles, CA —
 14,120
 11,319
 11,409
 1,028
 14,120
 23,756
 37,876
 (1,920) 1961 2013
Pinnacle II Los Angeles, CA 87,000
 15,430
 115,537
 334
 —
 15,430
 115,871
 131,301
 (12,019) 2005 2013
First & King(1)
 Greater Seattle, WA —
 35,899
 184,437
 7,349
 —
 35,899
 191,786
 227,685
 (19,865) Various 2013
Met Park North Greater Seattle, WA 64,500
 28,996
 71,768
 573
 —
 28,996
 72,341
 101,337
 (7,678) 2000 2013
Northview Center(1)
 Greater Seattle, WA —
 4,803
 41,191
 (60) —
 4,803
 41,131
 45,934
 (4,516) 1991 2013
Merrill Place(1)
 Greater Seattle, WA —
 27,684
 29,824
 8,373
 379
 27,684
 38,576
 66,260
 (3,650) Various 2014
450 Alaskan Way Greater Seattle, WA —
 —
 —
 30,725
 453
 —
 31,178
 31,178
 —
 Ongoing 2014
3402 Pico (Existing)(1)
 Los Angeles, CA —
 16,410
 2,136
 8,571
 2,257
 16,410
 12,964
 29,374
 —
 1950 2014
Palo Alto Square(1)
 San Francisco Bay Area, CA —
 —
 326,033
 6,068
 —
 —
 332,101
 332,101
 (21,302) 1971 2015

    Initial Costs Cost Capitalized Subsequent to Acquisition Gross Carrying Amount at
December 31, 2015		 
Accumulated Depreciation at December 31, 2015(3)
 Year Built / Renovated Year Acquired
Property name Encumbrances at December 31, 2015 Land Building & Improvements Improvements Carrying Costs Land Building & All Improvements Total      
Hillview —
 —
 159,641
 2,216
 —
 —
 161,857
 161,857
 (5,397) Various 2015
Embarcadero —
 41,050
 77,006
 2,027
 —
 41,050
 79,033
 120,083
 (2,261) 1984 2015
Foothill —
 —
 133,994
 7,271
 —
 —
 141,265
 141,265
 (5,200) Various 2015
Page Mill —
 —
 147,625
 583
 —
 —
 148,208
 148,208
 (4,912) 1970/2016 2015
Clocktower —
 —
 93,949
 80
 —
 —
 94,029
 94,029
 (2,403) 1983 2015
Lockheed —
 —
 34,561
 29
 —
 —
 34,590
 34,590
 (1,470) 1991 2015
2180 Sand Hill —
 13,663
 50,559
 368
 —
 13,663
 50,927
 64,590
 (1,131) 1973 2015
Towers at Shore Center —
 72,673
 144,188
 2,278
 —
 72,673
 146,466
 219,139
 (3,585) 2001 2015
Skyway Landing —
 37,959
 63,559
 (106) —
 37,959
 63,453
 101,412
 (2,091) 2001 2015
Shorebreeze —
 69,448
 59,806
 (78) —
 69,448
 59,728
 129,176
 (1,715) 1985/1989 2015
555 Twin Dolphin —
 40,614
 73,457
 514
 —
 40,614
 73,971
 114,585
 (2,027) 1989 2015
333 Twin Dolphin —
 36,441
 64,892
 2,565
 —
 36,441
 67,457
 103,898
 (1,712) 1985 2015
Peninsula Office Park —
 109,906
 104,180
 3,981
 —
 109,906
 108,161
 218,067
 (3,717) Various 2015
Metro Center —
 —
 313,683
 6,175
 —
 —
 319,858
 319,858
 (8,163) Various 2015
One Bay Plaza —
 16,076
 33,743
 912
 —
 16,076
 34,655
 50,731
 (1,228) 1980 2015
Concourse —
 45,085
 224,271
 1,463
 —
 45,085
 225,734
 270,819
 (7,118) Various 2015
Gateway —
 33,117
 121,217
 2,836
 —
 33,117
 124,053
 157,170
 (6,328) Various 2015
Metro Plaza —
 16,038
 106,156
 1,921
 —
 16,038
 108,077
 124,115
 (3,238) 1986 2015
1740 Technology —
 8,052
 49,486
 1,734
 —
 8,052
 51,220
 59,272
 (1,841) 1985 2015
Skyport Plaza —
 29,033
 153,844
 207
 —
 29,033
 154,051
 183,084
 (5,574) N/A 2015
Techmart Commerce —
 —
 66,660
 2,507
 —
 —
 69,167
 69,167
 (2,491) 1986 2015
Patrick Henry —
 9,151
 7,351
 323
 319
 9,151
 7,993
 17,144
 —
 1982 2015
Campus Center —
 59,460
 79,604
 13
 —
 59,460
 79,617
 139,077
 (3,107) N/A 2015
Media & Entertainment               
      
Sunset Gower(2)
 —
 79,321
 64,697
 26,296
 139
 79,321
 91,132
 170,453
 (18,577) Various 2007, 2011, 2012
Sunset Bronson(2)
 —
 77,698
 32,374
 9,639
 422
 77,698
 42,435
 120,133
 (11,489) Various 2008
Total $608,444
 $1,283,751
 $4,040,045
 $422,943
 $22,797
 $1,283,751
 $4,485,785
 $5,769,536
 $(269,074)    
Real estate held for sale:               
      
Bayhill —
 90,083
 113,656
 3,248
 
 90,083
 116,907
 206,990
 (3,650) Various 2015
  $608,444
 $1,373,834
 $4,153,701
 $426,191
 $22,797
 $1,373,834
 $4,602,692
 $5,976,526
 $(272,724)    
      Initial Costs Cost Capitalized Subsequent to Acquisition Gross Carrying Amount 
 
 
Property name Location Encumbrances Land Building & Improvements Improvements Carrying Costs Land Building & Improvements Total 
Accumulated Depreciation(3)
 Year Built / Renovated Year Acquired
3400 Hillview(1)
 San Francisco Bay Area, CA —
 —
 159,641
 2,425
 —
 —
 162,066
 162,066
 (12,711) 1991 2015
Embarcadero Place(1)
 San Francisco Bay Area, CA —
 41,050
 77,006
 3,833
 —
 41,050
 80,839
 121,889
 (5,095) 1984 2015
Foothill Research Center(1)
 San Francisco Bay Area, CA —
 —
 133,994
 2,803
 —
 —
 136,797
 136,797
 (12,193) 1991 2015
Page Mill Center(1)
 San Francisco Bay Area, CA —
 —
 147,625
 5,245
 —
 —
 152,870
 152,870
 (11,884) 1970/2016 2015
Clocktower Square(1)
 San Francisco Bay Area, CA —
 —
 93,949
 267
 —
 —
 94,216
 94,216
 (5,282) 1983 2015
Lockheed(1)
 San Francisco Bay Area, CA —
 —
 34,561
 (668) —
 —
 33,893
 33,893
 (2,372) 1991 2015
2180 Sand Hill Road(1)
 San Francisco Bay Area, CA —
 13,663
 50,559
 586
 —
 13,663
 51,145
 64,808
 (2,812) 1973 2015
Towers at Shore Center(1)
 San Francisco Bay Area, CA —
 72,673
 144,188
 6,620
 —
 72,673
 150,808
 223,481
 (8,265) 2001 2015
Skyway Landing(1)
 San Francisco Bay Area, CA —
 37,959
 63,559
 1,076
 —
 37,959
 64,635
 102,594
 (4,498) 2001 2015
Shorebreeze(1)
 San Francisco Bay Area, CA —
 69,448
 59,806
 3,249
 —
 69,448
 63,055
 132,503
 (3,533) 1985/1989 2015
555 Twin Dolphin(1)
 San Francisco Bay Area, CA —
 40,614
 73,457
 1,933
 —
 40,614
 75,390
 116,004
 (4,392) 1989 2015
333 Twin Dolphin(1)
 San Francisco Bay Area, CA —
 36,441
 64,892
 6,029
 —
 36,441
 70,921
 107,362
 (4,201) 1985 2015
Peninsula Office Park(1)
 San Francisco Bay Area, CA —
 109,906
 104,180
 5,787
 —
 109,906
 109,967
 219,873
 (8,071) Various 2015
Metro Center(1)
 San Francisco Bay Area, CA —
 —
 313,683
 19,416
 —
 —
 333,099
 333,099
 (19,182) Various 2015
Concourse(1)
 San Francisco Bay Area, CA —
 45,085
 224,271
 3,983
 —
 45,085
 228,254
 273,339
 (15,496) Various 2015
Gateway(1)
 San Francisco Bay Area, CA —
 33,117
 121,217
 15,914
 —
 33,117
 137,131
 170,248
 (11,496) Various 2015
Metro Plaza(1)
 San Francisco Bay Area, CA —
 16,038
 106,156
 5,610
 —
 16,038
 111,766
 127,804
 (7,207) 1986 2015
1740 Technology(1)
 San Francisco Bay Area, CA —
 8,052
 49,486
 2,235
 —
 8,052
 51,721
 59,773
 (4,220) 1985 2015
Skyport Plaza(1)
 San Francisco Bay Area, CA —
 29,033
 153,844
 890
 —
 29,033
 154,734
 183,767
 (12,751) 2000/2001 2015
Techmart Commerce Center(1)
 San Francisco Bay Area, CA —
 —
 66,660
 6,505
 —
 —
 73,165
 73,165
 (5,228) 1986 2015
Campus Center(1)
 San Francisco Bay Area, CA —
 59,460
 79,604
 444
 —
 59,460
 80,048
 139,508
 (7,249) N/A 2015
4th & Traction(1)
 Los Angeles, CA —
 12,140
 37,110
 25,100
 3,077
 12,140
 65,287
 77,427
 —
 Various 2015
405 Mateo(1)
 Los Angeles, CA —
 13,040
 26,960
 3,127
 1,949
 13,040
 32,036
 45,076
 —
 Various 2015


      Initial Costs Cost Capitalized Subsequent to Acquisition Gross Carrying Amount 
 
 
Property name Location Encumbrances Land Building & Improvements Improvements Carrying Costs Land Building & Improvements Total 
Accumulated Depreciation(3)
 Year Built / Renovated Year Acquired
11601 Wilshire(1)
 Los Angeles, CA —
 —
 292,382
 2,755
 —
 —
 295,137
 295,137
 (5,271) 1983 2016
Hill7 Greater Seattle, WA 101,000
 36,888
 137,079
 60
 —
 36,888
 137,139
 174,027
 (971) 2015 2016
Page Mill Hill(1)
 San Francisco Bay Area, CA —
 —
 131,402
 438
 —
 —
 131,840
 131,840
 (188) 1975 2016
Media & Entertainment         
   
 

 
      
Sunset Gower Studios(2)
 Los Angeles, CA 5,001
 79,320
 64,697
 26,805
 139
 79,320
 91,641
 170,961
 (20,387) Various 2007, 2011, 2012
Sunset Bronson Studios(2)
 Los Angeles, CA —
 77,698
 32,374
 41,070
 422
 77,698
 73,866
 151,564
 (9,394) Various 2008
Total   $682,839
 $1,281,808
 $4,504,061
 $653,078
 $31,354
 $1,281,808
 $5,188,493
 $6,470,301
 $(419,368)    
Real estate held for sale:                 
      
222 Kearny Street(1)
 San Francisco Bay Area, CA —
 7,563
 23,793
 5,827
 —
 7,563
 29,620
 37,183
 (4,582) 1901/1986 2010
    $682,839
 $1,289,371
 $4,527,854
 $658,905
 $31,354
 $1,289,371
 $5,218,113
 $6,507,484
 $(423,950)    
_____________
(1)These properties are securedencumbered under our line of credit, which, as of December 31, 2015,2016, has an outstanding balance of $230.0$300.0 million.
(2)Interest on $92.0 millionThe encumbrance amount relates to both Sunset Gower Studios and Sunset Bronson Studios. See description of notes payable in Part IV, Item 15(a) “Financial Statement and Schedules-Note 5 to the outstanding loan balance has been effectively capped at 5.97% and 4.25% per annum on $50.0 million and $42.0 million, respectively, of the loan through the use of two interest rate caps through February 11, 2016. On March 4, 2015, the terms of the loan were amended to enable the Company to draw up to an additional $160.0 million and to extend the maturity date from February 11, 2018 to March 4, 2019 with a one-year extension option.Consolidated Financial Statements-Notes Payable.”

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(3)The Company computes depreciation using the straight-line method over the estimated useful lives over the shorter of the ground lease term or 39 years for building and improvements, 15 years for land improvements, and over the shorter of asset life or life of the lease for tenant improvements.

The aggregate gross cost of property included above for federal income tax purposes approximated $5.1$6.0 billion, unaudited as of December 31, 2015.2016.


The following table reconciles the historical cost of total real estate held for investment and accumulated depreciation from January 1, 20132014 to December 31, 2015:2016:
 Year Ended December 31, Year Ended December 31,
 2015 2014 2013 2016 2015 2014
Total Investment in real estate, beginning of year $2,239,741
 $2,035,330
 $1,475,955
Total investment in real estate, beginning of year $5,976,526
 $2,239,741
 $2,035,330
Additions during period:            
Acquisitions 3,699,289
 114,008
 538,322
 597,751
 3,699,289
 114,008
Improvements, capitalized costs 198,561
 128,018
 89,707
 296,399
 198,561
 128,018
Total additions during period 3,897,850
 242,026
 628,029
 894,150
 3,897,850
 242,026
Deductions during period            
Disposal (fully depreciated assets and early terminations) (13,556) (23,977) (9,638) (27,451) (13,556) (23,977)
Cost of property sold (147,509) (13,638) (59,016) (335,741) (147,509) (13,638)
Total deductions during period (161,065) (37,615) (68,654) (363,192) (161,065) (37,615)
      
Ending balance, before reclassification to assets associated with real estate held for sale 5,976,526
 2,239,741
 2,035,330
 6,507,484
 5,976,526
 2,239,741
Reclassification to assets associated with real estate held for sale (206,990) (68,446) (82,305) (37,183) (353,067) (68,446)
Total Investment in real estate, end of year $5,769,536
 $2,171,295
 $1,953,025
Total investment in real estate, end of year $6,470,301
 $5,623,459
 $2,171,295
            
Total accumulated depreciation, beginning of year $(142,561) $(116,342) $(85,184) $(272,724) $(142,561) $(116,342)
Additions during period:            
Depreciation of real estate (151,066) (50,044) (41,454) (182,219) (151,066) (50,044)
Total additions during period (151,066) (50,044) (41,454) (182,219) (151,066) (50,044)
Deductions during period:            
Deletions 12,999
 22,310
 4,837
 25,622
 12,999
 22,310
Write-offs due to sale 7,904
 1,515
 5,459
 5,371
 7,904
 1,515
Total deductions during period 20,903
 23,825
 10,296
 30,993
 20,903
 23,825
      
Ending balance, before reclassification to assets associated with real estate held for sale (272,724) (142,561) $(116,342) (423,950) (272,724) (142,561)
Reclassification to assets associated with real estate held for sale 3,650
 7,904
 7,931
 4,582
 8,865
 7,904
Total accumulated depreciation, end of year $(269,074) $(134,657) $(108,411) $(419,368) $(263,859) $(134,657)




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Hudson Pacific Properties, Inc. And Hudson Pacific Properties, L.P.
Schedule IV - Mortgage Loan on Real Estate
December 31, 2015
(In thousands)

Description Interest Rate Final Maturity Date Periodic Payment Terms Prior Liens Face Amount of Mortgage Carrying Amount of Mortgage Principal Amount of Loans Subject to Delinquent Principal or Interest
Subordinated debt:              
Office - Los Angeles, CA 11% 8/22/2016 Interest Only — $28,528
 $28,684
 —
Total         $28,528
 $28,684
  



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