Hudson Pacific: Common Tanks While Preferreds Take The Scenic Route

Core Viewpoint - Hudson Pacific Properties, Inc. (HPP) has been downgraded from a "Hold" to a "Sell" rating due to deteriorating fundamentals and an overbought stock situation [1][3]. Operational Highlights - HPP's occupancy levels have declined, with in-service occupancy at 79.0% and leased at 80.5% as of Q1 2024, down from 86.9% and 88.7% respectively in Q1 2023 [5][6]. - The company executed leases for 508,615 square feet in Q1 2024, compared to 344,069 square feet in Q1 2023 [6]. - The net effective rent per square foot decreased to $39.08 from $43.78 year-over-year [6]. Financial Performance - Total revenues for HPP were $214.023 million in Q1 2024, down from $252.263 million in Q1 2023 [10]. - The net loss attributable to common stockholders increased to $52.202 million in Q1 2024 from $20.425 million in Q1 2023 [10]. - Funds from Operations (FFO) per diluted share decreased to $0.15 from $0.34 year-over-year [10]. Debt and Financial Outlook - HPP's debt to EBITDA ratio is approaching 10x, indicating increased financial strain [9]. - The company has significant debt maturities coming due, including a $259 million tranche in December 2025 [11]. - The occupancy rate in San Francisco is at 36.6%, contributing to HPP's challenges [22]. Market Conditions - The overall vacancy rate in San Francisco is at 35%, with major tech companies beginning layoffs, which could further impact HPP [2]. - The market has priced in expectations of credit easing, but HPP's fundamentals suggest a more cautious outlook [2]. Preferred Shares - Preferred shares of HPP have maintained their value despite the decline in common shares, but they are still considered risky due to the company's financial situation [24][25].