Hudson Pacific Properties Lifts Outlook Amid Turnaround

Hudson Pacific Properties ((HPP)) has held its Q1 earnings call. Read on for the main highlights of the call.

Hudson Pacific Properties’ latest earnings call struck a cautiously optimistic tone as management highlighted tangible progress on leasing, liquidity and cost controls despite lingering revenue pressure. Executives emphasized sequential occupancy gains, a stronger leasing pipeline and an upgraded outlook, while also acknowledging ongoing headwinds from prior tenant move-outs, studio softness at Coyote and weak Los Angeles fundamentals.

Occupancy and Leasing Momentum

Hudson Pacific reported a solid pickup in office demand, signing more than 554,000 square feet of leases in the first quarter and lifting in-service occupancy to 77.8%, up 150 basis points sequentially. The lease rate climbed to 78.4%, while the leasing pipeline expanded to 2.4 million square feet with tours up over 30% year on year, signaling healthier activity ahead.

FFO Growth and Upgraded Outlook

Core funds from operations rose to $16.5 million in the quarter, giving management confidence to raise full-year core FFO guidance to a range of $1.10 to $1.18 per diluted share from the prior $0.96 to $1.06. The improved outlook reflects about $0.04 of Q1 outperformance and a roughly $0.09 benefit from reclassifying Coyote operations as discontinued, effectively removing a key drag.

Strong Studio Performance at Prime Assets

While some studio assets underperformed, Hudson Pacific’s flagship Hollywood portfolio continued to shine with Sunset Bronson, Gower and Las Palmas 97% leased over the past three months. The new Sunset Pier 94 project hit 100% leased in its first full quarter, helping push Sunset Studio NOI, excluding Coyote, to $7.4 million, up both sequentially and year on year.

Cost Reductions and G&A Savings

Management underscored significant progress on expense discipline, with general and administrative costs falling 32% year over year to $12.6 million. The company attributed this drop to streamlined overhead and deliberate cost controls, which are helping offset revenue pressure and support the higher FFO guidance without relying solely on top-line growth.

Liquidity Strength and Lower Interest Expense

Hudson Pacific highlighted a solid balance sheet, ending the quarter with $933 million of total liquidity, including $138 million of cash and $795 million available on its credit facility. Interest expense declined 13% year over year, saving about $5.5 million, and management noted that the company’s debt is either fixed or capped, limiting exposure to further rate volatility.

Tech and AI Capital Driving Market Tailwinds

The company sees macro support from a resurgence in tech and artificial intelligence funding, with a record $267 billion of venture capital deployed in the first quarter. San Francisco, a key market for Hudson Pacific, posted 2.3 million square feet of positive absorption and roughly 4% rent growth, while AI-related tenants represented nearly 60% of recent San Francisco leasing and about a quarter of the tech pipeline company-wide.

Active Capital Recycling and Dispositions

Hudson Pacific is leaning into portfolio optimization, targeting $200 million of non-core asset sales in 2026 that management expects will be FFO-accretive. The company has already identified a buyer and agreed price for 10950 Washington and has another asset under contract, with proceeds earmarked to reduce risk and recycle capital into stronger opportunities.

Coyote Wind-Down to Reduce Drag

The underperforming Coyote leased soundstages and related Atlanta operations are being wound down, a move management expects will improve annual cash NOI by roughly $5.8 million. These operations have been classified as discontinued, which removes their drag from continuing core FFO and should help earnings trends normalize once transition costs roll off.

Revenue and Same-Store NOI Declines

Despite operational progress, total revenues slipped to $181.9 million from $198.5 million a year ago, an 8.3% decline driven by prior asset sales and key tenant departures such as Uber at 1455 Market. Same-store cash NOI fell about 7.5% to $85.2 million, underscoring that higher occupancy and leasing momentum are still in the early stages of offsetting the impact of move-outs.

Studio Revenue and NOI Headwinds

Studio revenues decreased $2.4 million sequentially, and although expenses were trimmed by $2.1 million, studio NOI still fell by about $0.3 million to $1.5 million. The shortfall was largely tied to Coyote operations, which underperformed expectations and prompted the decision to exit those leases, bringing short-term disruption but a cleaner earnings base longer term.

Cash Rent Pressure and Rate Dynamics

Rental metrics painted a mixed picture, with GAAP rents up 1.8% sequentially even as cash rents fell 2.4%, reflecting the impact of concessions and leasing incentives. Net effective rents were down 2% versus last year, though they improved 4% sequentially, suggesting that pricing is stabilizing but still not fully recovering in cash terms.

AFFO and Elevated Recurring CapEx

Adjusted funds from operations turned negative in the period as recurring capital expenditures and tenant improvement costs remained elevated. Management signaled that recurring TI, leasing commissions and CapEx are likely to stay near the first-quarter run rate for the rest of the year, which will weigh on cash metrics even as accounting-based FFO improves.

Los Angeles Fundamentals Remain Soft

Executives described the Los Angeles market as particularly challenged relative to other West Coast cities, with weaker fundamentals and slower leasing. While Hudson Pacific’s exposure is somewhat limited and certain LA assets remain well leased, the broader softness adds risk to recovery timelines and heightens the importance of selective asset management.

Wind-Down and Execution Risks

The company acknowledged that exiting Coyote and terminating related leases will bring one-time payments and wind-down expenses, injecting some near-term volatility into results. Management also flagged revenue pressure from past disposals and tenant departures, as well as ongoing negotiations around a Hollywood Media loan and long-term space for a major streaming tenant, all of which introduce execution and timing risk.

Forward-Looking Guidance and Outlook

Hudson Pacific lifted full-year core FFO guidance to $1.10 to $1.18 per diluted share, supported by stronger first-quarter performance and the reclassification of Coyote as discontinued operations. Management expects same-store NOI trends to improve after a soft start, with better results in the second quarter, a modest dip in the third and stronger momentum in the fourth, while targeting $200 million of accretive dispositions and maintaining a conservative balance sheet.

Hudson Pacific’s earnings call painted a picture of a company in transition but moving in the right direction, balancing leasing gains, cost cuts and capital recycling against lingering revenue declines and market challenges. For investors, the key takeaway is that management has laid out a credible path to stabilizing earnings and unlocking value, though execution on disposals, wind-downs and leasing in weaker markets will remain under close watch.