Subsequent Events

3 Months Ended

Mar. 31, 2023

On April 18, 2023, we drew on our unsecured revolving credit facility to settle the Quixote note for consideration of $150.0 million, a $10.0 million discount on the note’s principal balance.

On May 2, 2023, the Writers Guild of America (WGA) labor union elected to strike due to a lack of agreement between the WGA and the Alliance of Motion Picture and Television Producers. The strike has resulted in a halt in domestic film and TV production, and has impacted independent studios and service providers, including the Company’s. Productions at all studios have been disrupted, and there is no indication of when the strike will end.

On May 4, 2023, the Compensation Committee approved the grant under the Second Amended and Restated Hudson Pacific Properties, Inc. and Hudson Pacific Properties, L.P. 2010 Incentive Award Plan (the “Plan”) to Victor J. Coleman, Mark T.

Lammas, Harout K. Diramerian, Arthur X. Suazo, Steven Jaffe and Kay L. Tidwell (collectively, the “Executives”) of performance units of the operating partnership, of which the Company serves as the sole general partner (such units, the “Performance Units”), as well as distribution rights. The Performance Units were granted effective May 4, 2023; the following is a brief description of the material terms and conditions of the Performance Units.

General Description of Performance Units

Performance Units may be issued to eligible participants for the performance of services to or for the benefit of the operating partnership. Performance Units that have not vested generally receive quarterly per-unit distributions equal to ten percent of the distributions made with respect to an equivalent number of common units in the operating partnership (“Common Units”), which equal the per-share distributions on the common stock of the Company (“Common Stock”).

Initially, Performance Units do not have full parity with Common Units with respect to liquidating distributions. If such parity is reached, vested Performance Units may be converted into an equal number of Common Units at any time thereafter, and, upon conversion, enjoy all the rights of Common Units. Common Units are redeemable for cash based on the fair market value of an equivalent number of shares of Common Stock, or, at the election of the Company, an equal number of shares of Common Stock, each subject to adjustment in the event of stock splits, specified extraordinary distributions or similar events.

A partner’s initial capital account balance is equal to the amount the partner paid (or contributed) to the operating partnership for its units and is subject to subsequent adjustments, including with respect to the partner’s share of income, gain or loss of the operating partnership. Because a holder of Performance Units generally will not pay for such units, the initial capital account balance attributable to such units will be zero. However, the operating partnership is required to allocate income, gain, loss and deduction to the partners’ capital accounts in accordance with the terms of the Fifth Amended and Restated Agreement of Limited Partnership of the operating partnership (as may be amended from time to time, the “Partnership Agreement”), subject to applicable Treasury Regulations. The Partnership Agreement provides that holders of Performance Units generally will receive special allocations of gain in the event of an actual sale or “hypothetical sale” of assets of the operating partnership ahead of the allocation of gain to the Company or other limited partners with respect to their Common Units. The amount of such allocation will, to the extent of any such gain, be equal to the difference between the capital account balance of a holder of Performance Units attributable to such units and the Company’s capital account balance attributable to an equivalent number of Common Units. If and when such gain allocation is fully made, a holder of Performance Units will have achieved full parity with holders of Common Units. To the extent that, upon an actual sale or a “hypothetical sale” of the operating partnership’s assets as described above, there is not sufficient gain to allocate to a holder’s capital account with respect to Performance Units, or if such actual sale or “hypothetical sale” does not occur, such units will not achieve parity with Common Units. In order to achieve full parity with Common Units, Performance Units must be fully vested and the holder’s capital account balance in respect of each such Performance Unit must be equal to the per-unit capital account balance with respect to the Common Units owned, directly and indirectly, by the Company.

The term “hypothetical sale” refers to circumstances that are not actual sales of the operating partnership’s assets but that require certain book adjustments to the value of the operating partnership’s assets and the partners’ capital account balances. Specifically, the Partnership Agreement provides that, from time to time, in accordance with applicable Treasury Regulations, the operating partnership will adjust the book value of its assets to equal their respective fair market values, and adjust the partners’ capital accounts, in accordance with the terms of the Partnership Agreement, as if the operating partnership sold its assets for an amount equal to their value. Times for making such adjustments generally include the liquidation of the operating partnership, the acquisition of an additional interest in the operating partnership by a new or existing partner in exchange for more than a de minimis capital contribution, the distribution by the operating partnership to a partner of more than a de minimis amount of partnership property as consideration for an interest in the operating partnership, or in connection with the grant of an interest in the operating partnership (other than a de minimis interest) as consideration for the performance of services to or for the benefit of the operating partnership (including the grant of a Performance Unit).

Performance Units

Vesting. Each Performance Unit award is eligible to vest based on the achievement of operational performance metrics over a one-year performance period beginning January 1, 2023 and ending December 31, 2023.

The following table shows the dollar-denominated value of the Performance Units awarded to each Executive; the number of Performance Units actually granted will be determined by dividing the dollar-denominated value by the per share grant-date fair value, at maximum, of the applicable portion.


Name						Performance Units
Victor J. Coleman						$2,000,000
Mark T. Lammas						$875,000
Harout K. Diramerian						$312,500
Arthur X. Suazo						$250,000
Steven Jaffe						$250,000
Kay L. Tidwell						$250,000

The operational performance metrics that apply to the Performance Units, and their respective weightings, are as follows:


Operational Goal	Percentage of Performance Units
Leasing Volume	40	%
Annual Net Debt to Annual Gross Asset Value	30	%
G&A to Consolidated Gross Assets	30	%

With respect to each operational performance metric, the applicable portion of the Performance Units is eligible to vest based on the achievement of performance goals at the “Threshold”, “Target” and “Maximum” levels, as follows:


	Operational Performance Vesting Percentage
“Below Threshold”	0	%
“Threshold Level”	25	%
“Target Level”	50	%
“Maximum Level”	100	%

If performance with respect to an operational performance metric falls between the “Threshold”, “Target” and “Maximum” levels, then the percentage that is eligible to vest will be determined using straight-line interpolation between the applicable levels.

The number of Performance Units that become eligible to vest based on the achievement of operational performance metrics may be adjusted downwards based on the achievement of our total shareholder return compared to the total shareholder return of the FTSE NAREIT Equity Office Index over the three-year performance period commencing January 1, 2023 and ending December 31, 2025, by applying the applicable vesting percentage as set forth in the following table.


	Relative TSR Performance Vesting Percentage
“Threshold Level”	60	%
“Target Level”	80	%
“Maximum Level”	100	%

If our relative total shareholder return falls between the “Threshold”, “Target” and “Maximum” levels, then the vesting percentage will be determined using straight-line interpolation between the applicable levels.

Certain Terminations of Employment; Change in Control. If an Executive’s employment is terminated by the Company other than for “cause”, by the Executive for “good reason” or due to death or “disability” (each, as defined in the Executive’s employment agreement), or the performance period ends upon a change in control, then the number of Performance Units that vest will equal the greater of (x) 50% of the Performance Units and (y) the number of Performance Units that would vest based on actual achievement of each operational performance goal and the relative TSR performance through the qualifying termination.

Any Performance Units that do not become fully vested will automatically be cancelled and forfeited as of the date of the qualifying termination without payment of any consideration therefor, and the Executive will have no further right to or interest in such Performance Units. Upon an Executive’s termination of employment for any other reason, any then-unvested Performance Units automatically will be cancelled and forfeited by the Executive.

In addition to these Performance Units, each award entitles its holder to a cash payment equal to the aggregate distributions that would have been paid during the three-year performance period on the total number of Performance Units that vest, had such Performance Units been vested throughout the performance period, but reduced by the aggregate amount of the distributions received during the performance period on the total number of Performance Units granted.

The foregoing description of the awards of the Performance Units is a summary only and does not describe all terms and conditions applicable to these awards. The description is subject to and qualified in its entirety by the terms of the form of Performance Unit Agreement, a copy of which is filed herewith as Exhibit 10.1.