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Hudson Pacific Properties Inc (HPP) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...

GuruFocus Research
·5 min read

  • Revenue: Q1 2024 revenue was $214 million, down from $252.3 million in Q1 2023.

  • Net Income: First quarter FFO, excluding specified items, was $24.2 million or $0.17 per diluted share, compared to $49.7 million or $0.35 per diluted share in the previous year.

  • Earnings Per Share (EPS): Q1 2024 EPS was $0.17 per diluted share, down from $0.35 in Q1 2023.

  • Free Cash Flow: AFFO for Q1 2024 was $28.5 million or $0.19 per diluted share, compared to $35 million or $0.24 per diluted share in Q1 2023.

  • Gross Margin: Same-store cash NOI was $108.3 million, down from $124.4 million, primarily due to tenant move-outs.

  • Studio Revenue: Increased by 36% quarter-over-quarter, driven largely by Quixote.

  • Leasing Activity: Signed over 500,000 square feet of leases in Q1 2024, with significant new and renewal leases.

  • Occupancy Rates: In-service office portfolio was 80.5% leased at the end of Q1 2024.

  • Debt Metrics: Net debt to undepreciated book value was 37%, with 91.9% of debt fixed or capped.

  • Liquidity: Total liquidity at the end of Q1 2024 was $734 million.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Hudson Pacific Properties Inc (NYSE:HPP) reported strong office leasing momentum, signing over 500,000 square feet of leases in the first quarter, with significant activity in San Francisco Peninsula and Silicon Valley.

  • The company has successfully adapted and renovated its portfolio to meet modern needs, with over 70% of its in-service portfolio built or substantially renovated after 2010, featuring amenities like functional outdoor spaces, fitness centers, and EV charging.

  • Hudson Pacific Properties Inc (NYSE:HPP) has seen a stabilization in sublease markets with backfills exceeding new additions, which is a positive sign for the office market.

  • The company's studio operations showed improvement with the resolution of industry strikes, leading to resumed filming and increased revenue across various segments of the studio business.

  • Hudson Pacific Properties Inc (NYSE:HPP) continues to focus on sustainability, achieving a 36% reduction in Scope 1 and 2 carbon emissions from their 2018 baseline and maintaining high LEED and ENERGY STAR certifications.

Negative Points

  • The company faces macroeconomic pressures with the Federal Reserve contemplating keeping rates higher for longer, which could impact borrowing costs and investment activities.

  • Vacancy and negative net absorption rates remain high across the markets, indicating ongoing challenges in fully leasing out office spaces.

  • The film and television industry's recovery has been slower than anticipated post-strikes, affecting the demand for the company's studio stages and services.

  • Hudson Pacific Properties Inc (NYSE:HPP) reported a decrease in first quarter 2024 revenue to $214 million from $252.3 million in the same quarter last year, primarily due to asset sales and lower occupancy in studio stages.

  • The company's financial outlook remains uncertain with limited visibility on production normalization, particularly due to potential industry strikes affecting their Quixote business.

Q & A Highlights

Q: Michael, thanks for the question. Just to be clear, we provided Q2 guidance, but we also provided all the metrics we normally provide, the grid that we provide at the end of the year. And those pieces that make up FFO. The only thing that we didn't provide effectively is our Quixote business results or operations or projections. That's what's driving this change. And that's the area that we have at least amount of visibility on. A: Harout Krikor Diramerian - Hudson Pacific Properties, Inc. - CFO

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Q: Yes, sorry about that. I understand what you're saying, Harout, but I'm just trying to hone in on does management not have the visibility to get back to that $1.05 midpoint for this year, and that's really if there's kind of a lack of confidence in reaching that. Maybe that's why the full year guide from last quarter wasn't reiterated. I'm just trying to wrap my head around how we should think about it throughout the Q&A. A: Mark T. Lammas - Hudson Pacific Properties, Inc. - President & Treasurer

Q: Got you. Appreciate that extra color there, Mark. And then just maybe broadly on the Quixote business. Obviously, your prepared remarks kind of talking about the near-term headwinds. But if we look at issues like industry consolidation, maybe less content spend from legacy media companies, are you still confident that you can hit that $75 million to $80 million run rate of the EBITDA, I think you laid out when you acquired the platform? A: Mark T. Lammas - Hudson Pacific Properties, Inc. - President & Treasurer

Q: Just taking a step back here, Victor. I'm sure this is (inaudible) how you wanted the year to progress, withdrawing full year FFO guidance, again, given the slowness on the studio side, but kind of here we are, and you've got some large known move-outs still to come on the office side. I guess how should we think about what you guys have in your power to get the stock working again, whether that includes larger spin-off type options or highly impactful strategic moves. A: Victor J. Coleman - Hudson Pacific Properties, Inc. - Chairman & CEO

Q: Great. Really appreciate all that color, Victor. Just to follow up, you said you were kind of concurrently exploring some of those more strategic options. Anything you could say about timing and kind of what stage those conversations are in? A: Victor J. Coleman - Hudson Pacific Properties, Inc. - Chairman & CEO

Q: And then just second question, just on guidance. You pointed out that the updated guidance assumes there's a successful resolution of the upcoming contract negotiations. I guess, to what extent do you think guidance could change, again, if we do run into another strike? And how much visibility do you think you have into the process at this point? A: Victor J. Coleman - Hudson Pacific Properties, Inc. - Chairman & CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.