Hudson Pacific Properties(HPP) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Second quarter revenue was $245.2 million, down from$ 251.4 million year-over-year, primarily due to tenant move-outs and asset sales [23][24] - Funds from Operations (FFO) for the second quarter was $34.5 million or$ 0.24 per diluted share, compared to $74.6 million or$ 0.51 per diluted share a year ago [49] - Adjusted Funds from Operations (AFFO) was $31.1 million or$ 0.22 per diluted share, down from $60.3 million or$ 0.41 per diluted share [50] - Same-store cash Net Operating Income (NOI) grew to $127.6 million, up 4.7% from$ 121.9 million [50] - The company’s share of net debt to undepreciated book value was 38.7%, with 85.3% of debt fixed or capped [51] Business Line Data and Key Metrics Changes - The in-service portfolio ended the quarter at 87% leased, down about 170 basis points compared to the first quarter [17] - Approximately 50 office leases were signed, totaling over 400,000 square feet, with net effective rents up close to 9% to $44 per square foot [42][43] - Studio stages remained well-leased at 95.7% on a trailing 12-month basis [45] Market Data and Key Metrics Changes - Office demand increased quarter-over-quarter in Seattle (18%) and San Francisco (25%) [11] - VC funding for AI in San Francisco grew 650% in the first five months of the year, translating into office demand with nine requirements totaling 870,000 square feet [13] Company Strategy and Development Direction - The company is focused on occupancy preservation and expense reductions while proactively managing its balance sheet [10] - The strategy includes leveraging the growth in AI and tech sectors, with expectations of significant upside as the market recovers [38] - The company plans to limit capital improvements until there is certainty around demand [47] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains challenging, with office fundamentals across West Coast markets under pressure [5] - There is optimism regarding a post-strike ramp-up in production, similar to the recovery following COVID [14] - The company expects to see vacancy rates begin to turn as new office deliveries slow and older office spaces are converted to non-office uses [12] Other Important Information - The company has$ 581.2 million in total liquidity, including $109.2 million in unrestricted cash [25] - The board reduced the quarterly common stock dividend to$ 0.125 per share, resulting in additional cash flow savings of $17.9 million [51] - The company is exploring asset sales, with three deals under contract that could generate over$ 100 million in gross proceeds [52] Q&A Session Questions and Answers Question: What is the impact of asset sales on NOI and cost structure? - The company is not providing specific NOI details yet due to uncertainty around sales, but they are constantly looking for ways to reduce costs [55][76] Question: Insights on the writers' and actors' strikes? - Management indicated that negotiations are ongoing, with hopes for a resolution by year-end, but the duration of the strike remains uncertain [62][63] Question: How will asset sales improve debt-to-EBITDA metrics? - While specific metrics are not disclosed, management emphasized that asset sales will improve long-term debt-to-EBITDA ratios [88][90]