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HP

Hudson Pacific Properties, Inc. (HPP)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $198.5M, down 7.3% year over year, as asset sales and lower office occupancy weighed on results; GAAP diluted EPS was -$0.53, and FFO (ex-specified items) was $0.09 per diluted share .
  • The quarter missed Wall Street consensus on revenue and EPS: revenue $198.5M vs $201.2M consensus*, EPS -$0.53 vs -$0.41 consensus*; EBITDA also missed consensus ($56.4M actual vs $70.8M*)—driven by lower office NOI and one-time Quixote lease termination costs and a non-cash impairment .
  • Leasing momentum was strong: 630K sf signed, GAAP rent +4.8%, weighted average lease term 128 months; in-service office ended 75.1% occupied and 76.5% leased (down sequentially due to a known vacate at 1455 Market), while stage occupancy improved to 78.7% .
  • Guidance tightened: Q2 2025 FFO outlook set at $0.03–$0.07; full-year assumptions updated—interest expense raised by ~$12M and G&A reduced by ~$3M; debt risk moderated via $475M CMBS and subsequent hedges, and tender for full repayment of private placement notes .
  • Near-term stock catalysts: continued asset sales ($97M executed or under contract) and improving studio pipeline aided by California and potential federal incentives; office leasing pipeline expanded to 2.1M sf with >700K sf late-stage deals .

What Went Well and What Went Wrong

What Went Well

  • Strong office leasing activity: 62 leases totaling 630,295 sf; GAAP rent +4.8%; weighted average lease term 128.1 months; notable 232K sf/20-year lease with City and County of San Francisco at 1455 Market .
  • Studio progress and cost actions: sequential improvement in stage occupancy to 78.7%; Quixote cost reduction initiatives underway, lowering breakeven show count toward ~95 shows per quarter per management .
  • Balance sheet actions: closed $475M CMBS financing; post-quarter hedged SOFR (swap/cap) to lift fixed/capped debt to ~98.9% pro forma; tendered for full repayment of private placement notes, reducing near-term maturities .
  • Quote: “Our team continues to execute… we continue to see signs of improving or stabilizing fundamentals” — Victor Coleman, CEO .

What Went Wrong

  • Revenue and EPS miss vs consensus; EBITDA also below estimates; drivers included lower office occupancy, one-time Quixote lease termination fees ($5.9M), and a non-cash impairment tied to a potential asset sale .
  • Same-store cash NOI fell to $93.2M (from $103.4M YoY), primarily due to lower office occupancy; sequential office leased percent declined to 76.5% (from 78.9%) given the known vacate at 1455 Market .
  • Cash rent spreads -13.6% (driven by SF Bay Area backfills); excluding the large 1455 Market lease, cash spreads still -8.8%; AFFO compressed to $0.01 per diluted share on higher recurring capex and lower FFO .
  • Analyst concern: debt metrics/coverage and refinancing risks discussed; management reiterated covenant compliance and proactive refinancing workstreams .

Financial Results

Headline P&L and REIT Metrics

MetricQ1 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$214.0 $209.7 $198.5
GAAP Diluted EPS ($)-$0.37 -$1.18 -$0.53
FFO per diluted share ($)$0.15 -$0.64 $0.02
FFO (ex-specified items) per diluted share ($)$0.17 $0.11 $0.09
AFFO per diluted share ($)$0.19 $0.02 $0.01
Same-Store Cash NOI ($USD Millions)$103.4 $94.2 $93.2

Actual vs Consensus (Wall Street, S&P Global)

MetricQ1 2025 ConsensusQ1 2025 Actual
Revenue ($USD Millions)201.2*198.5
GAAP EPS ($)-0.41*-0.53
EBITDA ($USD Millions)70.8*56.4*

Values with asterisk retrieved from S&P Global.

Segment Breakdown (Revenue)

SegmentQ1 2024Q1 2025
Office Rental Revenues ($USD Millions)$171.4 $158.4
Office Service & Other Revenues ($USD Millions)$3.6 $6.8
Studio Rental Revenues ($USD Millions)$13.6 $13.7
Studio Service & Other Revenues ($USD Millions)$25.3 $19.6
Total Revenues ($USD Millions)$214.0 $198.5

KPIs

KPIQ3 2024Q4 2024Q1 2025
In-Service Office % Occupied79.1% 78.3% 75.1%
In-Service Office % Leased80.0% 78.9% 76.5%
In-Service Stage % Leased75.9% 76.8% 78.7%
Total Office Leases Signed (sf)539K 442K 630K
GAAP Rent Spread (new/renewals)-11.5% -6.0% +4.8%
Cash Rent Spread (new/renewals)-13.3% -9.9% -13.6%
Weighted Avg Lease Term (months, blended)——128.1
Net Effective Rent ($/sf)——$44.12
Leasing Pipeline (sf)—>2.0M 2.1M
Later-Stage Deals (sf)—~800K >700K

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
FFO per diluted shareQ1 2025$0.07–$0.11 ——
FFO per diluted shareQ2 2025—$0.03–$0.07 Lower sequentially
Interest Expense ($USD Thousands)FY 2025$(173,000)–$(183,000) $(185,000)–$(195,000) Raised
G&A Expenses ($USD Thousands)FY 2025$(70,000)–$(76,000) $(67,000)–$(73,000) Lowered
GAAP Non-Cash Revenue ($USD Thousands)FY 2025$10,000–$15,000 $8,500–$13,500 Lowered
Weighted Avg Diluted Shares (000s)FY 2025146,000–147,000 146,500–147,500 Slightly higher
Common Dividend2025Suspended (from Sep 2024) No change disclosedMaintained suspension
Preferred Dividend (Series C)Q1/Q2 2025$0.296875 per share $0.296875 per share Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 2024)Current Period (Q1 2025)Trend
AI/Tech office demandAI-related leasing and in-office mandates cited; pipeline >2.0M sf; Governor’s proposed $750M film/TV tax credit VC flows at record; Bay Area AI funding surge; AI office leasing up; optimism on pro-growth policies Improving demand narrative
Tariffs/MacroNot a major driver in Q3; balance sheet focus Monitoring tariffs; no tenant demand impact to date; preparing for downside/benefits Watchful, neutral impact
Studio demand/incentivesDemand coalescing around 2025 starts; tax credit proposal support Stage occupancy up; longer multi-stage deals; CA tax credits likely to expand; potential federal support Strengthening, policy tailwinds
Asset sales/liquidityEntered Foothill sale; liquidity $695.7M Closed $69M sales; 625 Second under contract ($28M); target $125–$150M additional Executing plan
Balance sheet/debtNo maturities until late-2025; high fixed/capped debt $475M CMBS done; swaps/caps; tender to repay private notes; covenant compliance reiterated De-risking profile
Regional trendsWest Coast tenant requirements outpacing US; SF/Seattle dynamics noted SF recovery (positive absorption, policy changes); Seattle tailwinds (public safety) Improving West Coast fundamentals

Management Commentary

  • Strategic focus: “We are also delivering on asset sales, cost savings and debt reduction to enhance our balance sheet and liquidity” — Victor Coleman .
  • Office leasing trajectory: “Starting in the second half of this year, our office lease expirations will be among the lowest in the sector” — Victor Coleman .
  • Studios momentum: “Our team continues to capture an outsized share of production… longer-term multi-stage leases” — Mark Lammas .
  • Guidance drivers: “We anticipate office NOI approximately $0.05 lower… higher interest expense ~$0.04… offset by higher studio NOI and lower G&A” — Harout Diramerian (on Q2 FFO bridge) .

Q&A Highlights

  • Cash rent spreads and concessions: Management noted cash spreads were in line with expectations; adjusted for the large 1455 Market lease, cash spreads would be -8.8% (vs -13.6% headline); net effectives holding up vs pre-pandemic .
  • Tariff impacts: No observed impact on tenant demand; potential federal support for US-based production viewed positively .
  • Private placement notes paydown: Revolver used to prepay; management views the revolver as “evergreen” and expects extension in due course .
  • Asset sale pacing: Working on ~3 non-core assets ($125–$150M); remaining selective, consistent with prior plan .
  • Studio refinancing risk: Portfolio is largely leased; refinancing discussions active; no paydown expected; JV tranche can convert to equity if needed .
  • Quixote cost cuts: ~$14M annual run-rate savings; lowers breakeven show count to ~95 shows; ongoing actions to return to profitability .

Estimates Context

  • Q1 2025 missed consensus on both revenue and EPS: $198.5M actual vs $201.2M consensus*, and -$0.53 GAAP EPS vs -$0.41 consensus*; EBITDA also below ($56.4M actual vs $70.8M*) . Values retrieved from S&P Global.
  • Primary drivers of the miss were lower office occupancy and specified items (Quixote termination fees; impairment related to potential asset sale), partly mitigated by strong leasing and studio progress .
  • Potential estimate revisions: upward for studio NOI in H2 2025 if incentives materialize and longer-term deals convert; downward for office NOI near term given occupancy trough and higher interest expense reflected in updated guidance .

Key Takeaways for Investors

  • Leasing momentum is real: 630K sf signed, GAAP rent +4.8%, longer terms; pipeline up to 2.1M sf with >700K late-stage deals—positioned for occupancy stabilization starting Q3 2025 .
  • Near-term earnings pressure persists: same-store cash NOI down YoY; Q2 FFO guided below Q1; interest expense higher post-CMBS; watch office expirations cadence .
  • Balance sheet de-risking: $475M CMBS executed and hedged; tender to retire private notes; fixed/capped debt rising to ~98.9% pro forma; covenant compliance reiterated .
  • Studios optionality improving: stage occupancy up; longer-term multi-stage leases; state and potential federal incentives are tangible tailwinds .
  • Asset sales are a credible lever: $69M closed plus $28M under contract; plan for $125–$150M in additional sales of non-core assets; proceeds used to reduce leverage .
  • Watch SF and Seattle policy/regulatory shifts: improving public safety and business climate underpin leasing narratives and potential adaptive reuse opportunities .
  • Trading implication: Near-term results likely constrained by office NOI and interest expense; medium-term thesis hinges on leasing conversion, studio recovery, and balance sheet progress—monitor guidance bridges and pipeline realization .

Values marked with asterisk retrieved from S&P Global.