Hudson Pacific Properties, Inc. (HPP) September 15, 2026 Conference Transcript

All right. Good afternoon.

Welcome to Bank of America's 2026 Global Real Estate Conference.

I'm Yana Gallin, B of A's Office Reit Analyst. We're pleased to have with us from Hudson Pacific Properties, Chairman and CEO, Victor Coleman, President Mark Lamas, CFO Harut Duramerian, EVP of Leasing, Art Chouaouza, and Investor Relations, Laura Campbell. I'll turn it over to Victor for opening remarks, and then we can jump into Q&A.

Thank you for having us. It's always a pleasure to attend this conference. It's an interesting time for Hudson. We've come out of, I think, much more of a challenging window into a much more of a positive window. For those of you who are less familiar with the story, I'll give you a brief update as to who we are. We're a leading owner and operator and developer of top-tier office real estate across our high barrier markets on the West Coast, which includes San Francisco, Los Angeles, Seattle, and Vancouver. We also run a studio platform that's unique among public companies. We're the only REIT that has a studio platform in it, and we're the largest independent studio owner and operator in Los Angeles, and we have a relatively new studio that we opened a year ago almost here in New York. As of Q2, our portfolio has about 46 properties in it, combined about almost 14 and a half million square feet, high-quality tenant base, investment-grade blue-chip companies, and about 50-50 mix of tech and AI on one side and inclusive of media, and then diversified fire-related tenants, including legal, government, retail, financial, business services, health care, Our top tenants in the portfolio include, from no particular order, the city of San Francisco, which we just signed almost a million-square-foot lease with, Google, Netflix, Amazon, and then a whole host of other tech and tech-related media-related companies. Today, the story has really been consistent. In the last 10 months, we've talked about throughout our earnings calls and throughout our projections of the company where we were and where we're going. We were at one point in late 19 a 92 percent lease company and we went all the way down to 75 percent and we said by the end of this year we have an eight handle we're already at 82 we expect to be at 85 and by the end of 27 we we expect to be back up to 90 plus um the year so far for us has been record in leasing we had our largest leasing quarter last quarter at 1.3 million square feet And we are looking at sort of our same-store office growth right now from an NOI grew to 7.5%, and our core FFO also grew up 30%. So as we sit today, one of the office companies that all of us have gone through different times and challenging times, but from our standpoint, we have the largest growth potential, and we're proving it out quarter over quarter. And every market that we're in on the office side, we are ahead on leasing. We're ahead on all fundamentals in every single market with the exception of North San Jose, which we're about to go ahead to market after this quarter. On the studio side, we purchased a few companies. We slimmed those companies down. We were running a negative in those businesses at almost $20 million a year. We said by the end of this year we'd be at zero. We're on track for that. we've gone from 20 negative approximately down to 4 million negative and given the current composer of the studio business which we can get into and talk about uh we just extended our um loan that is expiring a hollywood media loan which is predominantly operated and uh it tended with um netflix to an extension that was very very um beneficial to us and to the tenant um and we're working through an extension on that tenant as we sit right now. So I think overall, mindful that the company itself has gone through some rougher times. The wind has definitely turned our back. We have capital today of almost $900 million of untapped credit facility. Our interest expense is lower by almost 20%, and we have about $200 million of dispositions in the company right now. So, with that, I think I'll send it over to you, Donna, and we can go into some questions.

You know, maybe following up on the leasing, second quarter activity was phenomenal, highlighted by the 1455 market lease with City of San Francisco. You know, just kind of curious on any new or emerging themes across tenants, sectors, sizes, or submarkets.

Sure. I'll start, and then Art can jump in. And I think the first theme is that what we're seeing is a consistent flow of tours, which correlate into interest level, then correlates into LOIs, and then to leases. Our pipeline right now is about 2.4 million square feet. So we've consistently gone at 500,000 square foot a quarter, as you mentioned, I said earlier in my comments, 1.3 million square feet last quarter. We have a couple of large deals that we're working on right now. But our core, really, throughout the whole portfolio is our average size, you know, 20,000 to 30,000 square foot tenants. Interestingly enough, in the portfolio, trending is the term of the leases have gone up. They were really hovering in the high 40-month range, and we're over 63 months now. Concessions are constant. We haven't seen any spike in that. Obviously, with cost of tenant improvements have gone up like everybody else, but not insurmountable, and lease terms are offsetting that. More importantly, our mark-to-market rents are all trending in the right direction, which is above market. And we seem to be at a pretty good space, clearly, in the Bay Area. We have the most activity we've had, I think, in the history of the company. But now that's sort of following on to some great activity in Seattle. We're starting to see that 18-month window that we said was different between the Bay Area and the Pacific Northwest. We're seeing that. I would say we're fortunate in Los Angeles. We're, I think, 93% leased in Los Angeles or in our assets there in the office. But Los Angeles is much slower. The activity is really specific to few markets and asset quality only. But overall, leasing has been a real surprise. And I think we set some lofty goals and we've achieved them and exceeded them.

Yeah, directionally, we're in a great place. As you mentioned, we're close to 2.4 million feet of deals in the pipeline, which has maintained certainly over the last three quarters, right? If you think about it, we had a quarter of 1.3 million square feet of gross leasing last quarter. We're still at close to 2.4 million feet. Why? Because the tour activity remains at peak levels for us. were 2.1 million feet of tours a quarter, which is up 20% year over year. And again, it's those tours that are driving the activity into the pipeline and through the pipeline into execution. And so we've been seeing this for, I'd say, you know, we've seen the momentum growing for some time now, but we've experienced it over the last four quarters. We have four quarters of positive absorption in our portfolio we moved occupancy 740 basis points over the last year so you know we're doing all the right things we're executing on the ground and you know as the team continues to aggressively pursue the tour activity i think we're going to see more of that growth into the future and because over the next three years expirations are at a reduced level you're going to see more absorption in the years to come.

Maybe just touching on, you know, potential larger expirations that you'd want to call out or known move outs over the next year and kind of just status of discussions on renewals and...

Yeah, the large expirations over the next, call it the next, you know, year and a half or so. We have about 75, 80% coverage, which means, you know, if it's a known vacate, we're in negotiations already to backfill the space, the largest of which is going forward is Redfin at Hill 7 in Seattle. They're 112,000 feet. They are downsizing, you know, in half. We're either, we're negotiations at Hill 7 to keep them or at Washington 1000. So one way or the other, we're going to, we're going to keep their tenancy at 50,000 feet. The large expirations coming up in San Francisco, which is Twilio at the end of the year, which is 83,000 square feet, and Salesforce in April of 27, which is also 83,000 square feet, which are full floors at Rincon Center. We are 100% covered. We're in late stage negotiations with a tenant right now for those spaces. So the large spaces are certainly accounted for and kind of deepening negotiations. And then beyond that, the smaller tenancy, we're doing a good job. We're probably at about 65% covered on the smaller tenants looking forward into 27. And that's a good number considering a lot of the smaller tenants don't communicate their needs until, you know, three to four months out.

And just, I would just make one clarification. We have one large tenant in an asset in San Francisco that is left the building and it comes due now, but we're selling that asset. So it's going to, it looks as if it will have a vacancy, but that asset is under contract to be sold. Yeah.

You might see that as Dell for 83,000 square feet at $875,000, and that's the tendency that Victor is referring to.

Thank you. And then, you know, maybe touching on Seattle a little bit more, it's great to hear that kind of the tour activities definitely picked up, and we heard a kind of similar commentary from, you know, some of your peers. You know, curious if you could just talk to some of those positive trends there and kind of also LA where it's kind of been stops and starts?

Yeah, we'll start in Seattle. I mean, listen, right now, Seattle, Puget Sound has had three consecutive quarters of positive absorption, but that has predominantly been around Bellevue and Bellevue's success. Now that Bellevue is pretty much leased, there's two buildings that have any material vacancy. It's really shifted into core Seattle. Core Seattle has had its first quarter of positive absorption last quarter. We did talk about this window of 18 months between the Bay Area and Seattle, the labor force, the overlap of tech, AI, and then ancillary businesses. And now we're seeing that come to fruition in Seattle. Seattle's biggest downturn in the past was sublease space. And now the majority of the high quality space is off the market. Our assets are seen, like our peers, the high quality assets, They're seeing a tremendous amount of flow. You've got, just to name a few, you've got Seattle Transit for over almost 200,000 square feet. You've got Apple for 150,000 square feet. You've got REI for about 150,000 square feet. You've got Disney for 200,000 square feet. These are large tenants all looking in Seattle. And that's just going to help absorb the process. You know, we have what we believe is the nicest, newest asset. We know it's the newest, so I have to say it's the nicest in the market, which is Washington 1000. We signed our first lease in that asset. We've got almost 250,000 square feet of leases and coverage that we're working on. And we have not underwritten stabilization until second quarter next year?

No, by the end of the year.

End of 27. So it looks like we'll be ahead of that pace, which is nice. I think the prime markets in Seattle, which is Denny, South Lake Union, and Pioneer Square, are seeing this attractiveness back to where it was in 19 and 20. Negativity in Seattle is the political environment, but despite what that's going on, unlike San Francisco, even with Matt Mahon in San Jose, those markets are pro-business. I think Seattle wants to attract the labor force, and tech and AI is directionally moving that way. But as you heard by the tenants that I talked about, they're not all tech tenants. They're not all AI tenants. So it's nice to see that Seattle is getting the traction that we always thought was going to happen. It's maybe a little later than we had hoped, but it's better late than never. Los Angeles is a city that has so much going for it from a standpoint of revenue coming in. We just finished World Cup like like everybody else in the country did. We've got Super Bowl in February. We've got the Olympics in 28. We've got infrastructure plays that are going on right now. And there is just this groundswell of Los Angeles should come back. Right now, though, you look at L.A. and it's really three strong markets in Los Angeles that are leading the pack. It's no particular order, but Beverly Hills, Century City, and Brentwood, we're 99% leased in an asset that I've owned twice now since 1998, never even remotely close to that level in Brentwood. It's a multi-tenant building, and we're seeing the highest rents we've seen in that asset of all time. Same story is repetitive in Century City. Same story is repetitive in Beverly Hills. But then you start looking at some of the ancillary marketplaces like the Valley, whether it's Woodland Hills, Encino, Studio City, Burbank, Glendale, Pasadena. I don't even talk about downtown because downtown is downtown and we all know what the value is of those assets. They've never really moved. But you look at Westwood, you look at Santa Monica, you look at parts of Culver City that has really done very well because of Apple and Amazon. But other than that, the growth has not been there. You know, Los Angeles has some massive headwinds, but we still feel that at the right moment in time and with what's happening, hopefully with the revival of the entertainment business over the long term, Los Angeles should attract business and it should definitely attract media and tech and hopefully some AI. high. The bright spot in industry is robotics and aerospace. And with SpaceX and all the robotic companies, you're seeing a little momentum around El Segundo. I think it's early, but I do think there'll be some follow-on around that.

Great. And then maybe just, you know, a little bit deeper in LA and your tenant, large tenant Netflix recently bought some studio space. Just kind of curious how, you know, negotiations or discussions are going with them, how they're thinking about their space needs, and maybe it's, you know, the need for more space for kind of the sports or live streaming, particularly with, you know, Olympics and other things coming up.

So we just extended our loan, our Hollywood Meadow loan, as everybody knows. We extended it for 15 months. It was a collaboration of Blackstone and Hudson and our servicer, which was a win-win-win across the board. The terms of that were extremely beneficial to us in that it was no difference in interest rate. We have 1.1% over SOFR. We had a small reserve, which we had already had cash, so nobody wrote a check. And there is a minimal cash flow sweep because there's some free rent burn off with Netflix. This enables us to continue our conversations with Netflix. They have not closed on a studio deal. They put it off, so that deal is not closed. It's now put off until the end of October at the earliest. It will not impact our conversations with Netflix. I don't want to get into the details of the conversation, but they come with an expiration in 2031. And even if they were to move 100% out of our property, they could never be completed to wherever they want to go by 31. So worst case scenario, they're going to have to renew for at least one of their option periods, which is five years. And that's the absolute downside. And from our standpoint, the rent is already baked in at market, and there's annual increases in the rent, and there's a restoration clause. That being said, we are in complete dialogue with them on multiple facets and multiple areas, and in the next 15 months, we'll be able to address that, I think, effectively, and we're confident that the resolution is going to be a win-win for both sides.

And congratulations on the extension of the Hollywood Media Portfolio loan and the terms. I know that was a major priority of the team. Can you talk to the balance sheet a little bit and kind of talk about how you're thinking about the next kind of key priority items over the next few quarters?

Yeah, we have about $200 million in potential sales proceeds coming through in the next several quarters. We've got an untapped credit facility of almost $900 million. It will be two assets of size that will be fully leased and unencumbered that we could switch out for debt. We will have the access to high-yield markets in our bonds. I think as a company, we want to maintain the flexibility of having both secured and unsecured debt, so we're committed to that. We're working on a couple of strategies right now, but as you know, if you follow our bonds, our bonds are trading at very good levels. And so we're not in a rush. I had said earlier this year, and I reiterated our last call, in earnest, we'll start talking about replacing the first two tranches at 27, which is November of 27, and then four months later in 28, the $750 million, we have just what I mentioned, we have the ability to full capacity to replace those outright without issuing any more bonds if we wanted to go the direction of what I just talked about. I think it's going to be a combination. As a company, we're working earnestly, and Haroon is taking the lion's share of the responsibility to get us rated at least another notch up from where we are today. We're confident we can get that done before we have to go back to the bond market. So we've got flexibility, we've got optionality, and we're in a very good position to make the right determination as to which direction we're going to go in. And I think we're confident that something will work in our favor on a multitude of one of those plans that we can execute on and I think will be beneficial.

And then can you kind of help investors kind of level set expectations around the CapEx and TI spend associated with the leasing that's being done and kind of walk us through the timeline to positive AFFO?

Yeah, I think, listen, the capital that's going to be out late is directly correlated to good news on leasing. And the leases that we're doing all have increases. So you're going to see a pretty nice sequential jump in FFO immediately on a straight line basis. And then you're going to see a pretty impressive AFFO jump by the end of 27. um the direction that we're looking at is pretty much all baked in uh for us to get to that 90% number at the end of 27 that's not baked in yet um and in terms of how how we're projecting um for the rest of this year and then for the for the majority of next year is all going to be correlated on leasing so the the direction of our capital outlay is going to be directly correlated to how the structure of the company's FFO and AFFO is going to come into play. As I said, I don't think anybody has as much mark-to-market movement as well as FFO growth that we do, just because of where we came from our basis by which we were. And so we're pretty excited about that and the execution. You know, the variability on that is going to be cost of construction and time delays. We can't control either one of those, but we'll be in a position, we think, to execute on the leases that are in place and the ones that we're about to sign to get these tenants in as soon as possible. And we've got the tools to do so. It's just going to be dependent upon where the economy is and the construction costs and labor costs around that.

I don't see any questions. Maybe switching gears to the studio business and just kind of latest color on kind of the number of days shooting?

Yeah, let's talk a little bit about it. Listen, I think the studio business has gone from a real high on our portfolio to a real low, and I think now it's rebounding the other way. It can't get much worse, I'll be candid, so it can only go up from here. We had a strike that was exactly three years ago, so it came into play, and it's just permeated throughout the industry. I can say on that basis, all three unions that were potential strike unions have all settled for the next go around for the next three years. There's not going to be any impact in terms of strike or impediments along that way. Specifically to, before we sort of get into the Coyote side, specifically to the actual industry itself, both California and New York have implemented a tax plan where I think it is working. It is not working to the level and the expediency that I think some would have liked because the majority of those, both those plans are below the, isn't New York below the line too as well?

They allow above the line, but it's capped above the line.

Yeah. So it's everything in California is below the line and in New York is partial above the line and California is not. This federal bill that is being proposed right now is a bipartisan bill. It's getting great traction. We're very close and affiliated to it. It will be a 20% federal tax benefit on all production in the United States. It can be increased to 30% on a couple of levels. One is if you're an independent production, it can go to extra 10% to 30%. Two is if you're a show that was filming in the United States that went somewhere else and now comes back, you get the extra 10%. That is above and beyond the state of California and the state of New York's tax incentives that are in place today. So it's an additional 20, potentially 30%. But most importantly, it's on both above and below the line. And that's going to be very helpful. It's already seen some traction. And it's just another external source that will help, I think, jumpstart the industry that is not going anywhere. The industry is definitely going to continue to survive. The majority of these production companies are spending an inordinate amount of time and money on live content, and live content is shot in studios, and that's enhancing for us. Coyote is a business that I had mentioned that we, you know, we were losing almost $20 million a year on it. We curb that now to right around four, and we think we're going to be closer to about break even by year end or somewhere around then. We've made up a massive amount of headway. We are not stopping there. We think that the business, as I mentioned, We're sort of the last man standing in the operational side of that business. So we're going to have opportunities come our way. How much we're going to jump into it, somebody's going to do well with that business. And I think we'll have a part of it because of our portfolio and what we currently own today. Our ownership of our Sunset Studio portfolio is 97% leased or something like that, right? Yeah, in Hollywood. Yeah, and our New York portfolio here is 100% leased. So we're doing well beyond what market conditions are, and we've got the stability to continue on. I do think that, as I mentioned earlier, it can't get worse than it is today. So the upside is at least somewhat brighter.

Maybe if you could talk to a little bit about the kind of right sizing of that business and how you're achieving, you know, from a negative 20 million to potentially, you know, positive down the line.

Well, what we did first and foremost is we closed our offices in Atlanta, in Albuquerque, and in Louisiana, and all of our business lines there. And we shifted our transpo vehicles to New York and Los Angeles, and we're growing businesses here in New York. In New York right now, the show counts are fairly impressive, and they continue to grow. So Los Angeles show counts are really right around that 70 number, and we kind of have to get to that 80-plus number, closer to 90, to have some real profitability. And hopefully with these tax breaks and with the momentum shifting right now, we can get there in the next year or so. So we're anticipating that. Coyote had some leases that we had in place. I think the number, Mark, is 70% of those are taken care of, 60%, 70%?

Yeah, when it's all said and done, we'll be down to six leases, down from like, you know, close to 20.

So, when that's – the majority of that is already done, we've got a couple more to go, and that's what's helped really enhance the transition between a negative cash flow and flat to – and break even top.

Yeah. I mean, we don't like to think about it, but headcount, too. Headcount's quite a bit lower than it used to be.

Great. Any questions on the studios? Maybe jumping back to Washington 1000, which sounds like you have a lot of interest. I think on the second quarter call, you discussed about nine deals totaling roughly $350,000 per feet in various stages. Maybe just, I think you mentioned you did sign your first lease there. Congratulations. Just kind of, you know, the timeline to converting more of those into signed deals.

We've got another lease that we're out for signature, so we'll be at two. We've got about 200 and another 250 behind that that's in negotiation, right?

And then, you know, kind of behind that, well, you talk about what's filling the pipeline is tour activity and discussions. And there's another six tenants, six, seven tenants that are single floor, and the floors are 36,000 square feet, single floor to three floors that are very much interested in touring the asset. We feel really good. I mean, and it's not just Washington 1000. We talked about the lift in the market. There's another 250,000 square feet that we're negotiating on in Pioneer Square, right? And so we're feeling the lift. We felt it for, you know, three quarters now in Seattle in our portfolio. We've had positive absorption for three quarters. Just this last quarter alone, we moved occupancy 350 basis points. So, you know, we're doing all the right things on the ground and starting to pay off.

Yeah, we took a look at Pioneer Square in March, and it looked fantastic. So great to hear that it's getting that reception by potential. Thank you. um you know maybe just uh before we go into the rapid fire questions just kind of curious big picture kind of you know where do you see the biggest opportunities over the next year you clearly talked about kind of leasing and occupancy improvements um anything else you know that we that you're very excited about in terms of driving the business well listen i'm excited to talk about good news um and so that's that's sort of the first and forefront but yeah leasing for sure is is is the number one you know bellwether for the for the company and you know quite frankly for all the office reads that is out there and we just have a really good traction here what people

aren't really talking about and it will come up as time as time goes by but you know the the correlation between no new product there's no new construction in any of our markets of anything i I think the whole the entire industry is like less than one half a percent of new product coming out throughout all of the United States. So really, you're really going to see best in class assets lease and have higher valuations. If you look at the company's makeup today, you know, we're probably 75 percent class A, 25 percent, you know, class B. But the value of the portfolio on a per foot basis to where we're trading at today is sub 400 a foot. I think it's closer to $360 or $370 a foot. Replacement costs today on construction, when construction will start, will be between $1,000 and $1,200 a foot. You know, we all talk about NAV and we all talk about replacement costs. You don't have to get to the full amount of replacement costs to see true valuation shift. I mean, if we're $360 or $400 even and you get to $700 or $800, that's double the valuation and you're still 50% away from being where true replacement costs are. That's where this discrepancy is. So when you're starting to see market rents get to a point where they were in 19 and 18 and 20, and you're seeing the growth and the absorption levels get to where we were at 92% at our peak or maybe 93%, and we're going to be at 90, you know, that nine handle in a little over a year from now, there is a massive discrepancy as to where valuations are currently in place and where they're going to go. And it's not just us. It's every office read. And it's, quite frankly, every office company that's out there. It's our time to come back to some level of normality. I'm not saying it's got to be massive cap rate compression, and I'm not saying it's got to be massive price per square foot and valuations. It just has to get normalized. And that's what we're excited about.

And then maybe just touching quickly on the transaction market, and you guys have been actively marketing some assets, had some very interesting transactions, like with Riot Games, and soon to close, you mentioned $200 million. If you could just kind of talk to the breadth and depth of buyers, the types of profiles.

So, I mean, we did our Riot Game deal. That was an owner-user. We just closed a deal with a 1031 exchange person. We've got another deal with a representative with an owner user that's a bill to suit for them. We've got a development opportunity, which we did a convert for 508 units, and the buyer is going to come and build multi on a resi basis. We're looking at that same model with two other assets, one in Palo Alto and one in San Francisco, that we're going to entitle and probably sell. We've got a asset that is about to close in about 10 days from now with a New York buyer who's an opportunistic buyer who came to the marketplace. So the breadth of buyers and the breadth of depth that we've come to the marketplace, and let's just be candid, they're not exactly our best assets, has been pretty diverse. And I think we're happy with it. Somebody had asked me a question earlier today of the deals that we closed or the deals that are about to close. is there been any retrading with the way the rates have gone in the 10-year, et cetera? And the answer is no. To date, we really have had none. The only one that potentially could come back is the development play, and that's going to be correlated on returns. And so we would think that even though they've gone somewhat hard on that asset, not to the extent, we're not going to lose a deal, but that may be the only one. But the market still is not frothy enough, but we've found our way with potential buyers sort of performed. And at the end of the day, that matters.

I guess, how do you think of those like on a, you know, price per square foot compared to, you know, where?

Well, let's say this. We've exceeded the range of what we, in every asset we've sold, we've exceeded the range of what we thought we would sell it for. So that's the good news. Our book value is different than our sale value but our sales um our nav value we've exceeded at every single one that we sold with the exception of one so i think we've executed exceptionally well and we've done a lot and so i think it shows to the asset quality the markets were in and our ability to you know to transact um obviously it's not going to be to where book value is because some of these assets we bought some time ago and it's close but some we bought also in in the late teens and they were a lot higher great everyone one last chance uh just one quick one thanks for the time appreciate you being here just on your conversation with the rating agencies what are they most looking to see

to maybe give you that bump up next yeah is it leverage um you know leasing momentum has been pretty strong so what are the specific you know points i mean they always start with leverage right they always look at um net debt keep it out um i feel like probably not saying anything that's too surprising sometimes the goal posts move they're just generally negative on office so even though we're hitting our expectations and doing everything we're saying we're doing the path to getting higher notches seems to move sometimes um and so that makes that conference challenging all we can do is execute and that's what we're doing uh you know they bring up oh you know we have concerns about upcoming maturities okay now we're addressing that and so ultimately, we're doing everything we can. We should be getting momentum in that direction. They just need to stop moving the goalposts.

Great. So before we finish up, we have three rapid-fire questions that we've been asking all the REITs today. Number one, if long-term rates stay higher for longer, which has the biggest impact on your sector's earnings? Higher refinancing costs, lower transaction activity, or less new supply?

Higher refinancing costs.

Over the next three years, will third-party capital become a more important source of growth for public REITs than balance sheet capital?

100% third-party capital.

And for your sector, will 2027 same-story NOI growth be higher, the same, or lower than 2026?

Well, for Hudson, it's definitely going to be higher, significantly. For the sector, I hope it's higher. because it follows suit. So, yes.

Well, thank you so much. We appreciate your time.

Thanks, everybody.