Hudson Pacific Properties(US:HPP)2022-11-05 20:14Financial Data and Key Metrics Changes - Revenue for Q3 2022 increased by 14.4% year-over-year to $260.4 million, but same-store property cash NOI declined by 2% year-over-year to $122.7 million when excluding known vacate Qualcomm and certain one-time property tax reassessments [26][29] - FFO for Q3 2022, excluding specified items, was $74.1 million or $0.52 per diluted share, compared to $77.3 million or $0.50 per diluted share in the previous year [27][28] - Year-to-date AFFO was $183.3 million or $1.25 per diluted share, representing a 4.2% increase compared to the previous year [29] Business Line Data and Key Metrics Changes - The studio segment now comprises approximately 13% of NOI, with only one month of contribution from the recent acquisition of Quixote [12] - The in-service portfolio ended the quarter at 89.3% leased, with Qualcomm's vacate impacting the overall percentage [17] - Leasing activity included over 380,000 square feet signed, with GAAP and cash rents increasing, primarily driven by small to midsize tenants averaging 6,000 square feet [10] Market Data and Key Metrics Changes - The Bay Area accounted for approximately 70% of new and renewal leasing activity, with significant deals including renewals for ARS Health and Amcor Technology [10] - In Los Angeles, the in-service portfolio is 98.9% leased, while the San Francisco portfolio is 93.8% leased [19][20] - Seattle's in-service portfolio is 85.4% leased, with Pioneer Square at 51.6% due to Dell EMC's decision to vacate [23] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet with over $950 million in liquidity and 93% of debt fixed or hedged [15][32] - The strategy includes opportunistic acquisitions, as evidenced by the acquisition of Quixote to enhance the studio platform [11] - The company is committed to ESG initiatives and has been recognized as 1 among 96 office companies in the GRESB 2022 real estate assessment [9] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment remains challenging due to monetary policy, potential recession, and hybrid work dynamics affecting supply and demand [5][6] - There is optimism as more companies are bringing employees back to the office, although lease negotiations are taking longer due to uncertainty [6] - Management expressed confidence in navigating current headwinds and emphasized the importance of their team and platform in driving future cash flow [16] Other Important Information - The company executed three of four non-core asset sales, generating total proceeds of $145 million [14] - The company is on track to deliver two under-construction projects totaling 790,000 square feet [12] - The company has narrowed its full-year 2022 FFO guidance to a range of $2.01 to $2.05 per diluted share [33] Q&A Session Summary Question: Durability of earnings from mobile studios compared to Hollywood studios - Management indicated that mobile studios and Hollywood studios are interdependent, with both contributing to overall earnings [35][36] Question: Current leasing market expectations and tenant behavior - Management noted a pause in decision-making among tech tenants, but rental rates and TIs are currently stable [38][39] Question: Future large tenant move-outs and their impact - Management identified Qualcomm and NFL as upcoming move-outs, with no significant additional large tenant concerns until 2025 [46][47] Question: Changes in lease structures due to hybrid work - Management confirmed a slight decrease in average lease terms, but overall trends show an increase in lease lengths over the past nine months [107][110]