Hudson Pacific Properties(HPP) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q1 2022 increased by 14.7% to $244.5 million compared to Q1 2021 [31] - FFO excluding specified items rose by 3.3% to$ 75.2 million, or $0.50 per diluted share [31] - AFFO grew by 11.8% to$ 58.6 million, while same-store property cash NOI increased by 1.4% to $120.3 million [33] Business Line Data and Key Metrics Changes - Over 500,000 square feet of leases were signed in the quarter, with a 12% GAAP and 5.8% cash increase in rents from prior levels [19] - The in-service office portfolio ended the quarter at 91.1% occupied and 92.3% leased [21] - The leasing pipeline includes 2.2 million square feet of activity, up about 35% from the long-term average [21] Market Data and Key Metrics Changes - The Vancouver market fundamentals remain strong with sub 6% vacancy [28] - The South Lake Union submarket in Seattle has a vacancy rate below 10% [26] - Demand for large tenants in Silicon Valley and the Peninsula has notably increased, with significant leasing activity reported [50] Company Strategy and Development Direction - The company aims to create shareholder value by selectively growing its real estate portfolio, focusing on tech and media industries [6][7] - The strategy includes pursuing capital recycling opportunities and enhancing ESG leadership [5][12] - The company plans to capitalize on embedded development opportunities and pursue attractive acquisitions in a disciplined manner [9][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the leasing market, noting a positive momentum in demand and active deals [48] - The company anticipates continued growth in same-store property cash NOI, despite some short-term fluctuations [37] - Management highlighted the importance of ESG initiatives and their integration into the company's strategy [13][15] Other Important Information - The company has repurchased$ 380 million of common stock over the last four years, with plans to reach $580 million by the end of the third quarter [12] - The anticipated proceeds from asset sales are expected to be between$ 325 million and $350 million, which will be used to pay down credit facilities and fund development [29] Q&A Session Summary Question: Can you talk about the change in leasing or same-store NOI presentation? - Management explained that the change was made to simplify financials and align with peers, with a minor sequential decline attributed to both office and media [40][42] Question: What drove the decline in occupancy? - The decline was primarily due to a significant tenant, Dell, vacating space, but overall there was positive net absorption without that impact [52][54] Question: Can you elaborate on the Washington 1000 project? - Management expressed confidence in the project due to attractive all-in costs and strong tenant demand in the South Lake Union submarket [56][58] Question: How does the company view the studio and office split in guidance? - Management clarified that combining guidance is consistent with industry practices and does not indicate unpredictability in studio demand [62][64] Question: What is the outlook for interest expense? - The increase in interest expense is attributed to the updated LIBOR curve, and the company plans to use asset sales to pay down debt [110][112]