Hudson Pacific Properties Q2 Earnings Call Highlights

Key Points

• Record leasing improved Hudson Pacific’s office metrics: The company signed 1.3 million square feet of office leases in Q2, including an 891,000-square-foot, 24-year San Francisco government lease. Office occupancy rose 470 basis points sequentially to 82.5%, while the leasing pipeline reached 2.4 million square feet.
• Financial performance strengthened significantly: Core FFO nearly tripled year over year to $23.1 million, or $0.35 per diluted share, while same-store cash NOI increased 7.5% and interest expense fell 20%. Hudson Pacific raised its 2026 Core FFO guidance to $1.12–$1.20 per share.
• Studio operations improved as Quixote undergoes restructuring: Studio occupancy reached 74.6%, and core studio NOI rose to $4.6 million, with Hudson Pacific’s share turning positive for the first time in two years. The company plans to exit several Quixote operations and is targeting more than $200 million in asset sales.

Hudson Pacific Properties NYSE: HPP reported record office leasing activity in the second quarter of 2026, higher occupancy and a sharp increase in Core FFO, supported by a major San Francisco government lease, improved studio performance and ongoing cost reductions.

Chairman and CEO Victor Coleman said the company signed 1.3 million square feet of new and renewal office leases during the quarter, including an 891,000-square-foot, 24-year lease with the City and County of San Francisco at 1455 Market. The agreement provides “nearly a quarter of a century of cash flow visibility,” Coleman said.

Office occupancy increased 470 basis points sequentially to 82.5%, while the leased rate rose 440 basis points to 82.8%. The company reported its fourth consecutive quarter of occupancy gains. Same-store net operating income rose 7.5%, reflecting improved results in both office and studio operations.

Leasing Pipeline Remains Active

President Mark Lammas said 61% of the quarter’s 1.3 million square feet of office leasing was new leasing and 39% was renewals. Excluding the large San Francisco government lease, Hudson Pacific completed another 402,000 square feet of leasing, of which 71% was new.

The company’s leasing pipeline stood at 2.4 million square feet at quarter-end, with nearly 70% representing prospective new leases and an average requirement above 20,000 square feet. Art Suazo, executive vice president of leasing, said active deals in the pipeline were evenly divided between technology and artificial-intelligence-related tenants and non-tech tenants, including professional-services, FIRE-sector and government users.

GAAP rent spreads increased 17.2%, while cash rent spreads declined 11.4%. Excluding the City and County of San Francisco lease, GAAP rents declined 3.3% and cash rents declined 9.9%, which Lammas attributed primarily to mid-sized Palo Alto leases rolling from pre-pandemic peak rents. He said those rents remained above $80 per square foot.

Hudson Pacific said net effective rents rose 22% from the preceding quarter and 9% from a year earlier, significantly aided by the San Francisco lease. Trailing 12-month net effective rents increased 7% sequentially and 1% year over year. Tour activity rose nearly 20% year over year.

Market Conditions Vary by Region

Coleman said office demand was broadening in several markets amid limited new construction, though recovery rates differed by region. He pointed to San Francisco’s seventh straight quarter of positive absorption and its largest year-over-year rent increase since 2020. The company also cited positive absorption in Foster City, Redwood City and Redwood Shores, as well as headline leasing activity in Santa Clara.

In Los Angeles, Coleman said Hudson Pacific is focusing leasing efforts on West Los Angeles, where activity and rents are stronger than in the wider market. He said demand in the region has been led by financial, insurance and real estate tenants, particularly law firms, along with entertainment and streaming companies and their related businesses.

In Seattle, Suazo said the company has seen increased leasing activity across the central business district and has more active deals under negotiation there than in any other Hudson Pacific market. Washington 1000 has approximately 350,000 square feet of deals in various negotiation stages across nine tenants, according to Suazo. The company has coverage for about 65% of the building, compared with 60% in the prior quarter.

Downtown Vancouver remained one of the company’s strongest markets, ending the period at effectively 94% leased along with Palo Alto. Coleman said Vancouver’s downtown vacancy was just above 12%, the lowest among Hudson Pacific’s markets.

Studio Business and Quixote Restructuring

The company’s in-service studio stages were 74.6% leased in the second quarter, up 180 basis points sequentially. The increase was driven by Sunset Pier 94, where the leased rate rose 40 percentage points to 78.5%. Hudson Pacific’s Hollywood stages, including Sunset Las Palmas, were 95.5% leased.

Hudson Pacific is restructuring Quixote, its production-services business, and plans to exit Quixote’s leased soundstage facilities, Atlanta-area operations, pro-supplies business and stage ancillary operations such as lighting and grip. Going forward, the company will report core studio NOI based on Sunset Studios and Quixote’s fleet operations in Los Angeles and New York.

Core studio NOI rose $3.1 million sequentially and $7 million from a year earlier to $4.6 million. Hudson Pacific’s share turned positive for the first time in two years, reaching $2.2 million.

Lammas said Quixote generated negative cash NOI of $18.6 million in 2024. Restructuring efforts have improved its annualized cash NOI run rate by about $14.3 million, leaving the fleet business at slightly more than $4 million of negative annualized cash NOI at current demand levels. He said the business could reach break-even if show counts increased modestly from roughly 70 to 80, although the company’s guidance does not assume an improvement in show counts.

Financial Results and Updated Outlook

Total revenue was $188.3 million, compared with $190 million a year earlier, as the impact of asset sales, particularly the sale of Element L.A., was nearly offset by higher office occupancy. General and administrative expense declined 11% to $12 million.

• Core FFO nearly tripled to $23.1 million from $8 million a year earlier.
• Core FFO per diluted share increased 30% to $0.35 from $0.27.
• Same-store cash NOI increased 7.5% to $90.2 million.
• Total liquidity was $876 million, including $81 million in cash and $795 million of availability under the credit facility.
• Interest expense fell 20% year over year, producing $9.7 million in savings.

Chief Financial Officer Harout Diramerian said all of Hudson Pacific’s debt is fixed or capped. He also said the Hollywood Media portfolio loan transferred to a special servicer after the quarter ahead of its third-quarter maturity. The borrower and special servicer agreed to terms for a longer-term extension, with a 30-day extension to complete documentation. The company said its outlook maintains the same interest-expense assumptions.

Hudson Pacific raised its full-year 2026 Core FFO guidance to $1.12 to $1.20 per diluted share, from a prior range of $1.10 to $1.18. Diramerian said the midpoint increase reflects about $0.01 of second-quarter outperformance and another $0.01 from improved expectations for the second half. The company expects third-quarter lease expirations to pressure occupancy and earnings before a projected fourth-quarter rebound.

On dispositions, Coleman said Hudson Pacific sold 2001 Gateway after quarter-end and has three additional Bay Area office assets in contract or negotiation, along with its 10950 Washington residential development site. The company is targeting $200 million of asset sales and said it expects to exceed that amount, citing stronger buyer interest in Bay Area office properties.

About Hudson Pacific Properties (NYSE:HPP)

Hudson Pacific Properties NYSE: HPP is a self-managed real estate investment trust focused on the acquisition, development and management of high-quality office and studio properties. The company's portfolio spans strategic West Coast markets in the United States and key markets in Canada, providing space for technology, media and creative companies as well as major film and television producers. As an owner and operator of both traditional office buildings and specialized production facilities, Hudson Pacific seeks to deliver stable income through long-term leases and strategic property enhancements.

In its office segment, Hudson Pacific targets markets with strong job growth and limited supply, including Los Angeles, Silicon Valley, San Diego and Seattle, as well as Vancouver, British Columbia.

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