Hudson Pacific Properties, Inc. Q1 FY2025 earnings call

• Industry Trends: Venture investing in Q1 set a new high with deal value doubling year-over-year to $92 billion, with the Bay Area receiving nearly 70% of funding. AI investment is a bright spot, with over 0.5 million square feet of AI office leasing in San Francisco in Q1. - Regional Operations: - San Francisco: Leading West Coast recovery in tech leasing, benefited from Mayor Lurie's initiatives, with Ferry Building welcoming 2.5 million visitors in Q1. - Seattle: Downtown Seattle benefited from political tailwinds, with gross leasing up 15% in Q1, and 411 First had occupancy increased to 93% from 78% in Q1 last year. - Los Angeles: Portfolio 97% leased, but production recovery favored feature films; state budget proposal to nearly double film and tax credit to $750 million by July 1. - Asset Sales: Closed on Foothill Research Center and Maxwell dispositions for $69 million in Q1, 625 2nd in San Francisco went under contract to sell for $28 million, and working on $125 - $150 million of additional dispositions. - Studio Business: Pipeline remains robust, with 46 of 53 film and TV stages or 88% of related square footage leased or in contract; in contract on two longer-term multi-stage leases. - Development: Sunset Pier 94 Studios on track for year-end delivery, with exterior components nearing completion and interior construction underway.

Office Segment: First quarter revenue was $198.5 million, down from $214 million in the first quarter of the previous year. Net absorption was positive for the second straight quarter, with gross leasing just under 3 million square feet. GAAP rents increased 4.8% and cash rents decreased 13.6%. In-service office properties were 76.5% leased as of the end of the first quarter. Studio Segment: First quarter studio revenues were $33.2 million, $2.2 million lower primarily due to lower Quixote studio ancillary and transportation revenues from production pauses during fires. In-service stages were 78.7% leased, and Quixote stages were 43.4% leased after adjusting for lease terminations. Sunset Pier 94 Studios is on track for year-end delivery.

• Second Quarter: Expect FFO per diluted share to range from $0.03 to $0.07 per diluted share. Office NOI expected to be approximately $0.05 lower due to leasing expirations and asset sales, partially offset by higher studio NOI and lower G&A expense. - Full Year: Interest expense increased by $12 million due to CMBS financing, G&A expense decreased by $3 million, and full year weighted average shares outstanding expected to be approximately $500,000 higher. FFO per diluted share guidance range remains in line with previous projections with adjustments for these factors.

• Tariffs: Potential effects on core industries, though monitoring and preparing for both negative and positive impacts. - Debt: Uncertainties related to refinancing studio debt and maintaining debt covenants. - Asset Sales: Uncertainty regarding the timing and success of selling non-core assets within the $125 - $150 million target range.

Q: Could you dig into expenses related to cost-cutting initiatives at Quixote and run rate going forward?

A: Costs are largely early lease termination costs, with total run rate savings of $14.2 million annualized. Non-same-store studio expenses were $29.5 million in the quarter, with adjustments for one-time fees showing potential normalized expenses.

Q: Can you comment on G&A guide reduction?

A: Continuing cost-cutting initiatives, specifically lower payroll-related costs, driving the reduction in G&A guide.