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Stock-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

The Company’s 2010 Incentive Plan permits the Company’s board of directors (the “Board”) to grant, among other things, restricted stock, restricted stock units, operating partnership performance units and performance-based awards. As of December 31, 2020, 2.7 million 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 operating partnership performance units, 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 $24.02.

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 the Non-Employee Director Compensation Program. The time-based awards are generally issued in the second quarter, in conjunction with the director’s election to the Board and the individual share awards vest in equal annual installments over the applicable service vesting period, which is three years.

During the year ended December 31, 2020, certain non-employee Board members elected to receive operating partnership performance units in lieu of their annual cash retainer fees. These awards were issued in the fourth quarter and were fully-vested upon their issuance.

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

During the year ended December 31, 2020, certain employees elected to receive operating partnership performance units in lieu of their annual cash bonus. These awards were issued in the fourth quarter and were fully-vested upon their issuance.

The compensation committee of our Board (the “Compensation Committee”) adopted a Hudson Pacific Properties, Inc. Outperformance Program (“OPP Plan”) under the 2010 Plan through 2019. 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 50% 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, in operating partnership performance units. Commencing with the 2017 OPP Plan, the two-year post performance vesting period was replaced with a two-year mandatory holding period upon vesting.

Beginning in 2020, the Compensation Committee adopted an annual Hudson Pacific Properties, Inc. Performance Stock Unit Plan (“PSU Plan”) under the 2010 Plan. Effective January 1, 2020, the Compensation Committee awarded to certain employees performance units (“2020 PSU Plan”). The 2020 PSU Plan awards are settled in common stock and, in the case of certain executives, in operating partnership performance units. The 2020 PSU Plan grant consists of two portions. A portion of each performance unit award, the Relative TSR Performance Unit, is eligible to vest based on the achievement of the Company’s

total shareholder return (“TSR”) compared to the TSR of the SNL U.S. REIT Office Index over a three-year performance period beginning January 1, 2020 and ending December 31, 2022, with the vesting percentage subject to certain percentage targets. The remaining portion of each Performance Unit award, the Operational Performance Unit, became eligible to vest based on the achievement of operational performance metrics over a one-year performance period beginning January 1, 2020 and ending December 31, 2020 and will vest over three years. The number of Operational Performance Units that became eligible to vest based on the achievement of operational performance metrics may be adjusted based on the Company’s achievement of absolute TSR goals over the three-year performance period commencing January 1, 2020 and ending December 31, 2022, by applying the applicable vesting percentages. The awards granted under the 2020 PSU Plan are subject to a two-year post-vesting restriction period, during which any awards earned may not be sold or transferred.

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

PSU Plan

The following table outlines key components of the 2020 PSU Plan:


	2020 PSU Plan
	Operational Performance Unit	Relative TSR Performance Unit
Maximum bonus pool, in millions	$14.9	$14.9
Performance period	1/1/2020 to 12/31/2020	1/1/2020 to 12/31/2022

The stock-based compensation cost of the 2020 PSU Plan was 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 the 2020 PSU awards granted was estimated on the date of grant using the following assumptions in the Monte Carlo simulation:


			2020
Expected price volatility for the Company			17.00%
Expected price volatility for the particular REIT index			14.00%
Risk-free rate			1.66%
Dividend yield			2.80%

OPP Plan

An award under the OPP Plan is ultimately earned to the extent the Company outperforms a predetermined 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 2019 and 2018 OPP Plans:


	2019 OPP Plan	2018 OPP Plan
Maximum bonus pool, in millions	$28.0	$25.0
Performance period	1/1/2019 to 12/31/2021	1/1/2018 to 12/31/2020

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 awards granted was estimated on the date of grant using the following assumptions in the Monte Carlo simulation:


	2019	2018
Expected price volatility for the Company	22.00%	20.00%
Expected price volatility for the particular REIT index	18.00%	18.00%
Risk-free rate	2.57%	2.37%
Dividend yield	3.00%	2.90%

One-Time Retention Awards

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. These awards were fully-vested as of December 31, 2019.

The per unit fair value of one-time retention awards granted was estimated on the date of grant using the following assumptions in the Monte Carlo simulation:


			Assumptions
Expected price volatility for the Company			23.00%
Expected price volatility for the particular REIT index			18.00%
Risk-free rate			1.63%
Dividend yield			3.20%

Summary of Unvested Share Activity

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


	2020			2019			2018
	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	459,784	$	33.67	703,796	$	32.93	1,087,186	$	33.64
Granted	404,779	24.70		247,521	35.50		190,557	29.53
Vested	(420,970)	31.61		(470,019)	32.88		(571,481)	32.74
Canceled	(948)	29.91		(21,514)	34.16		(2,466)	33.38
Unvested at December 31	442,645	$	27.44	459,784	$	33.67	703,796	$	32.93

The following table summarizes the activity and status of all unvested time-based restricted operating partnership performance units:


	2020			2019			2018
	Units	Weighted-Average Grant-Date Fair Value		Units	Weighted-Average Grant-Date Fair Value		Units	Weighted-Average Grant-Date Fair Value
Unvested at January 1	608,679	$	32.70	318,549	$	28.41	—	$	—
Granted	571,978	23.49		481,215	35.74		318,549	28.41
Vested	(409,225)	30.42		(191,085)	30.37		—	—
Canceled	—	—		—	—		—	—
Unvested at December 31	771,432	$	27.08	608,679	$	32.70	318,549	$	28.41

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,
	2020		2019		2018
Expensed stock compensation(1)	$	22,723	$	19,481	$	17,028
Capitalized stock compensation(2)	3,306		951		1,097
Total stock compensation(3)	$	26,029	$	20,432	$	18,125

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1.Amounts are recorded in general and administrative expenses on the Consolidated Statements of Operations.

2.Amounts for the years ended December 31, 2020 and 2019 are recorded in investment in real estate, at cost on the Consolidated Balance Sheets. Amounts for the year ended December 31, 2018 are recorded in deferred leasing costs and lease intangible assets, net and investment in real estate, at cost on the Consolidated Balance Sheet.

3.Amounts are recorded in additional paid-in capital and non-controlling interest—units in the operating partnership on the Consolidated Balance Sheets.

As of December 31, 2020, total unrecognized compensation cost related to unvested share-based payments was $44.8 million. It is expected to be recognized over a weighted-average period of two years.