Equity

The tables below present the effect of the Company’s derivative financial instruments on accumulated other comprehensive loss (“OCI”):



	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 value	1,870			69			1,939
Loss reclassified from OCI into income (as interest expense)	(424		)	(16		)	(440		)
Net Change in OCI	1,446			53			1,499
Balance at December 31, 2014	2,443			218			2,661

Unrealized loss recognized in OCI due to change in fair value	4,976			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, 2015	1,081			(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 partnership

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. Investors who own common units have the right to cause the operating partnership to repurchase 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. The following table summarizes the activity related to common units from January 1, 2015 to December 31, 2016:



	Non-controlling interest in common units
Balance at January 1, 2015	2,382,563
April issuance ⁽¹⁾	54,848,480
April redemption⁽²⁾	(934,728	)
Balance at December 31, 2015	56,296,315
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.

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, 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 A cumulative redeemable preferred units of the operating partnership

6.25% Series A cumulative redeemable preferred units of the operating partnership are 407,066 Series A preferred units of partnership interest in the operating partnership, or Series A preferred units, that are not owned by the Company. These Series 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 Series 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

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, were outstanding in 2014 and until it was redeemed in 2015. Dividends on the Series B preferred stock were 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.

On December 10, 2015, the Company redeemed its Series B preferred stock in whole for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends to, but not including, the date of redemption. During the year ended December 31, 2015, the Company recognized a non-recurring non-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 unitholder for the operating partnership for the original issuance costs related to the Series B preferred stock.

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:



		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

_____________


(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 January 10, 2017, the Company, certain entities affiliated with Blackstone and the Farallon Funds completed an common stock offering of 8,881,575 shares of common stock of the Company. Immediately following this transaction, Blackstone and the Farallon Funds no longer hold any ownership interests in the Company or the operating partnership. Refer to Note 15 for additional details.

The Company’s ATM program permits sales of up to $125.0 million of stock. A cumulative total of $20.1 million has been sold as of December 31, 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

Share repurchase program

On January 20, 2016, the Board 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, 2016.

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) 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		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		%

_____________


(1)	$0.00540 of the $0.02447 capital gain distributions should be characterized as unrecaptured Section 1250 gain.