Equity

12 Months Ended

Dec. 31, 2018

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, 2016	$	(1,081)	$	1,017	$	(64)
Unrealized loss (gain) recognized in OCI	4,122		(6,989)		(2,867)
Loss reclassified from OCI into income⁽¹⁾	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	3,011		18		3,029
Loss reclassified from OCI into income⁽¹⁾	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
Unrealized gain recognized in OCI	7,331		27		7,358
Gain reclassified from OCI into income⁽¹⁾	(3,287)		(13)		(3,300)
Net change in OCI	4,044		14		4,058
Cumulative adjustment related to adoption of ASU 2017-12	230		1		231
BALANCE AT DECEMBER 31, 2018	$	17,501	$	64	$	17,565

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1.The gains and losses on the Company’s derivatives are reported in the interest expense line item on the Consolidated Statements of Operations. Interest expense was $83.2 million, $90.0 million and $76.0 million for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, respectively.

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, 2018		December 31, 2017		December 31, 2016
Company-owned common units in the operating partnership	154,371,538		155,602,508		136,492,235
Company’s ownership interest percentage	99.6	%	99.6	%	93.5	%
Non-controlling common units in the operating partnership⁽¹⁾	569,045		569,045		9,450,620
Non-controlling ownership interest percentage⁽¹⁾	0.4	%	0.4	%	6.5	%

_____________

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 common unit redemptions in 2016 and 2017:


Redemption Date						Common Units
May 16, 2016						10,117,223
July 21, 2016						19,195,373
November 28, 2016						17,533,099
January 10, 2017						8,881,575

For each of the redemptions above, 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.

Common Stock Activity

The Company has not completed any common stock offerings in 2018. The following table summarizes the common stock offerings in 2016 and 2017:


Offering Date						Common Shares
May 16, 2016⁽¹⁾						10,117,223
July 21, 2016⁽¹⁾						19,195,373
November 28, 2016⁽¹⁾						17,533,099
January 10, 2017⁽¹⁾						8,881,575
March 3, 2017⁽²⁾						9,775,000

_________________

1.Proceeds from the offering were used to repurchase common units in the operating partnership.

2.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. A cumulative total of $20.1 million has been sold as of December 31, 2018.

The following table summarizes the ATM activity:


	2018	2017	2016
Shares of common stock sold during the period	—	—	165,000
Common stock price ranges	N/A	N/A	$33.54 to $33.95

Share repurchase program

On March 8, 2018, the Board increased the authorized share repurchase program to a total of $250.0 million. In November 2018, the Company repurchased 1.6 million shares for a weighted average price of $30.48 per share for $50.0 million. The Company may make repurchases under the program at any time in its discretion, subject to market conditions, applicable legal requirements and other factors.

Dividends

The Board declared dividends on a quarterly basis and the Company paid the dividends during the quarters in which the dividends were declared. The following table summarizes dividends declared and paid for the periods presented:


	For the Year Ended December 31,
	2018		2017		2016
Common stock⁽¹⁾	$	1.00	$	1.00	$	0.80
Common units ⁽¹⁾	$	1.00	$	1.00	$	0.80
Series A preferred units ⁽¹⁾	$	1.5625	$	1.5625	$	1.5625

_________________

1.The fourth quarter 2018 dividends were paid on December 27, 2018 to shareholders and unitholders of record on December 17, 2018.

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⁽¹⁾		Qualified		Capital Gain Distributions⁽²⁾			Return of Capital
3/19/2018	3/29/2018	$	0.25000		$	0.15113		$	0.15113	$	—	$	0.07595		$	0.02292
6/19/2018	6/29/2018	0.25000			0.15113			0.15113		—		0.07595			0.02292
9/18/2018	9/28/2017	0.25000			0.15113			0.15113		—		0.07595			0.02292
12/17/2018	12/27/2018	0.25000			0.15113			0.15113		—		0.07595			0.02292
	TOTALS	$	1.00000		$	0.60452		$	0.60452	$	—	$	0.30380		$	0.09168
		100.00		%	60.45		%					30.38		%	9.17		%

_____________

1.On December 22, 2017, the Tax Cuts and Jobs Act enacted Section 199A that generally allows a deduction for non-corporate taxpayers equal to 20% of ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income). Ordinary dividends eligible for the Section 199A benefit are a subset of, and included in, the taxable ordinary dividend amount. All of the non-qualified dividends listed above are eligible for the Section 199A benefit.

2.$0.02240 of the $0.07595 capital gain distributions should be characterized as unrecaptured Section 1250 gain.