Equity

The table below presents the effect of the Company’s derivatives on accumulated other comprehensive income (“OCI”):



	Hudson Pacific Properties, Inc. Stockholder’s Equity			Non-controlling interests			Total Equity
Balance at January 1, 2015	$	(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 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

Unrealized loss recognized in OCI due to change in fair value	3,011			18			3,029
Loss reclassified from OCI into income (as interest expense)	4,342			27			4,369
Net change in OCI	7,353			45			7,398
Reclassification related to redemption of common units in the operating partnership	(3,622		)	3,622			—
Balance at December 31, 2017	$	13,227		$	49		$	13,276

Non-controlling Interests

Common units in the operating partnership

Common units of the operating partnership and shares of common stock of the Company 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 the Company’s election, issue shares of the Company’s common stock in exchange for common units on a one-for-one basis.

The following table summarizes the ownership of common units, excluding unvested restricted units as of:



	December 31, 2017		December 31, 2016		December 31, 2015
Company-owned common units in the operating partnership	155,602,508		136,492,235		89,153,780
Company’s ownership interest percentage	99.6	%	93.5	%	61.3	%
Non-controlling common units in the operating partnership⁽¹⁾	569,045		9,450,620		56,296,315
Non-controlling ownership interest percentage⁽¹⁾	0.4	%	6.5	%	38.7	%

_____________


(1)	Represents common units held by certain of the Company’s executive officers and directors, certain of their affiliates and other outside investors.

The following table summarizes the activity related to common units from January 1, 2016 to December 31, 2017:



	Non-controlling interest in common units
Balance at January 1, 2016	56,296,315
May redemption ⁽¹⁾	(10,117,223	)
July redemption⁽¹⁾	(19,195,373	)
November redemption⁽¹⁾	(17,533,099	)
Balance at December 31, 2016	9,450,620
January redemption⁽¹⁾	(8,881,575	)
Balance at December 31, 2017	569,045

_____________


(1)	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.

Performance units are partnership interests in the operating partnership. Each performance unit awarded will be deemed equivalent to an award of one share 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.

6.25% Series A cumulative redeemable preferred units of the operating partnership

There are 407,066 Series A preferred units of partnership interest in the operating partnership, or Series A preferred units, which 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 the Company’s 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 they were 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.
	2017			2016			2015			2017			2016			2015
Net income (loss) allocation for common stock/units on the Consolidated Statements of Equity/Capital	$	68,590		$	27,984		$	(10,071	)	$	68,965		$	33,832		$	(32,040	)
Net income attributable to participating securities	(1,003		)	(766		)	(356		)	(1,003		)	(766		)	(356		)
Series B transaction costs allocation	—			—			(5,970		)	—			—			(5,970		)
Net income (loss) allocation for common stock/units on the Consolidated Statements of Operations	$	67,587		$	27,218		$	(16,397	)	$	67,962		$	33,066		$	(38,366	)

Common Stock Activity

The Company has remained capitalized since the initial public offerings through public offerings, its note purchase agreement and continuous offerings under our at-the-market, or ATM, program.

The following table summarizes the common stock offering in 2015, 2016 and 2017:



		Number of Common Shares
January 20, 2015⁽¹⁾		12,650,000
April 1, 2015 ⁽²⁾		8,626,311
May 16, 2016 ⁽³⁾		10,117,223
July 21, 2016 ⁽³⁾		19,195,373
November 28, 2016 ⁽³⁾		17,533,099
January 10, 2017 ⁽³⁾		8,881,575
March 3, 2017 ⁽⁴⁾		9,775,000

_____________


(1)	Represents a common stock offering of 11,000,000 shares of common stock and the exercise of the underwriters’ 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 underwriters’ discount, were approximately $385.6 million (before transaction costs).


(2)	Represents a common stock issuance in connection with the EOP Acquisition. The issuance of common stock is part of the consideration paid.


(3)	Proceeds from the offering were used to repurchase common units in the operating partnership.


(4)	Represents a common stock offering of 9,775,000 shares of common stock. Proceeds from the offering were used to fully repay a $255.0 million balance outstanding under its unsecured revolving credit facility.

The Company’s ATM program permits sales of up to $125.0 million of common stock. The Company did not utilize the ATM program during 2017. A cumulative total of $20.1 million has been sold as of December 31, 2017.

The following table summarizes the ATM activity:



	2017	2016	2015
Shares of common stock sold during the period	—	165,000	—
Common stock price ranges	N/A	$33.54 to $33.95	N/A

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 through December 31, 2017.

Dividends

During the year ended December 31, 2017, the Company declared dividends on its common stock and non-controlling interest in common units in the operating partnership of $1.000 per share and unit. The Company also declared dividends on its Series A preferred partnership interests of $1.5625 per unit. The fourth quarter 2017 dividends were paid on December 28, 2017 to stockholders and unitholders of record on December 18, 2017.

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, compensation expense and the basis of depreciable assets and estimated useful lives used to compute depreciation.

The Company’s dividends related to its common stock will be classified for U.S. 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
3/20/2017	3/30/2017	$	0.25000		$	0.14633		$	0.14633	$	—	$	0.04023		$	0.06345
6/20/2017	6/30/2017	0.25000			0.14633			0.14633		—		0.04023			0.06345
9/19/2017	9/29/2017	0.25000			0.14633			0.14633		—		0.04023			0.06345
12/18/2017	12/28/2017	0.25000			0.14633			0.14633		—		0.04023			0.06345
	Totals	$	1.00000		$	0.58532		$	0.58532	$	—	$	0.16092		$	0.25380
		100		%	58.532		%					16.09		%	25.38		%

_____________


(1)	$0.03000 of the $0.04023 capital gain distributions should be characterized as unrecaptured Section 1250 gain.