Hudson Pacific Properties(HPP) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2019, the company generated FFO of $0.48 per diluted share, up from $0.46 per diluted share a year ago, driven by higher occupancy and rental rates across both office and studio portfolios [30] - NOI at the 32 same-store office properties increased by 12.7% on a GAAP basis and 11.1% on a cash basis [31] - The company increased its full year same-store office cash NOI guidance from a midpoint of 3.5% to 4.5% [31][36] Business Line Data and Key Metrics Changes - The company signed over 500,000 square feet of office leases in Q2 2019, with GAAP and cash rent spreads of 48% and 27%, respectively [5] - The same-store studio NOI decreased by 8.1% on a GAAP basis and 9.3% on a cash basis, attributed to elevated fixed costs and lower production-related revenue [32][44] - The stabilized Los Angeles portfolio is 98.8% leased, while the stabilized San Francisco portfolio is 97.5% leased, both with in-place rents below market [18][20] Market Data and Key Metrics Changes - In Los Angeles, Class A vacancy dropped 310 basis points to 6.8%, with rents increasing by 2.2% to $60 per square foot [17] - San Francisco saw Class A vacancy drop 40 basis points to 2.5%, with rents increasing by 2.4% to $90 per square foot [20] - Silicon Valley experienced 2.8 million square feet of positive net absorption, marking the largest quarter of occupancy gains in the market's history [23] Company Strategy and Development Direction - The company is focusing on capital recycling and is actively looking for opportunities in Vancouver, particularly in partnership with Blackstone [11][60] - The company plans to commence construction on Washington 1000 in mid-2021, with expectations of strong leasing prospects [12][26] - The company aims to enhance its ESG platform and align it with its business strategy, as evidenced by the appointment of a Vice President of Sustainability and Social Impact [14] Management's Comments on Operating Environment and Future Outlook - Management remains bullish on the performance of office and studio portfolios, driven by the growth of tech and media tenants [38] - The company anticipates continued demand in the Peninsula and Silicon Valley markets, with no expected decline in the next 24 months [46][47] - Management highlighted the importance of long-term leases and elevated service levels to attract tenants, despite higher operating expenses [44][66] Other Important Information - The company closed sales of Campus Center improvements and land for a combined $148 million, applying proceeds to pay down its revolving credit facility [13][35] - The company is increasing and narrowing its full year 2019 FFO guidance range to $1.98 to $2.04 per diluted share [36] Q&A Session Summary Question: Decline in same-store NOI in the studio portfolio - Management explained that the decline was due to elevated fixed costs and lower production-related revenue, with a significant drop in other property-related revenue [44][45] Question: Outlook for Silicon Valley and Peninsula markets - Management expressed optimism about continued demand and rent growth in these markets, with no expected decline in the near future [46][47] Question: Update on development projects - Management provided updates on Cloud 10 and Sunset Gower, indicating that both projects would require substantial pre-leasing before breaking ground [53][54] Question: Relationship with Blackstone - Management confirmed a strong partnership with Blackstone, focusing on project-by-project opportunities in Vancouver and other markets [60] Question: Studio expansion and market opportunities - Management indicated interest in expanding studio operations beyond Vancouver, including potential markets like New York and Toronto [77] Question: Capital commitment for Bentall - Management outlined a three-year investment plan for Bentall, with an estimated spend of $25 million in the first year [80]