Hudson Pacific Properties’ perseverance yields return to profitability
Faith and patience have begun to pay off in a big way for Hudson Pacific Properties Inc., a company that is on pace for its best year ever.
The patience was tested by years of red ink. The faith, including a belief that some of Hollywood’s golden age real estate still had some magic left in it, had to ride out the global recession.
Now, with the company trading near its 52-week high, investors are apparently feeling that it was a winning formula.
Hudson Pacific is a real estate investment trust based in Los Angeles that acquires high-end office, media and entertainment properties in Southern California. Its other anchor has been the San Francisco Bay Area. Its 6.4 million square feet of holdings also include properties in Seattle. The company said it also owns undeveloped land that could support an additional 1.9 million square feet of office space.
The company this month released third-quarter financial results that showed it had returned firmly into the black in 2014.
Chief Executive Victor J. Coleman, 52, said in the third-quarter earnings call with Wall Street analysts that the reasons were the perfect combination for an REIT: low vacancy rates and the ability to set new leases or renew them at higher amounts.
“We’ve seen continued leasing momentum within our office portfolio,” said Coleman, who has been chief executive since 2007. Coleman added that the company had also “streamlined our portfolio by selling non-strategic assets.”
Hudson Pacific’s chief had been president of Arden Realty Inc., a Los Angeles landlord that was bought by General Electric Co. in 2006 for $3.2 billion. At the time, observers expected him to follow Arden’s strategy of acquiring non-trophy properties in Southern California markets that were slightly off the radar of large national and international investors.
That’s not exactly what transpired. As head of the fledgling investment firm he founded called Hudson Capital, Coleman started off by buying one of Hollywood’s signature film lots, the old Columbia Pictures headquarters, for more than $200 million in 2007. By then, the property was known as Sunset-Gower Studios.
Hudson Capital followed that up in 2008 by buying the original Warner Bros. studio for $125 million from Tribune Co.
In 2009, Hudson Pacific Properties was incorporated in Maryland as the successor to Hudson Capital.
In June 2010, Hudson Pacific went public, raising $210.5 million after fees.
The latest
Hudson Pacific this month reported third-quarter revenue of $68.2 million, up from $53.3 million a year earlier. It also reported a third-quarter net income of $11.4 million, compared with a net loss of $2.8 million in the year-earlier quarter.
The company increased its guidance for 2014 per-share earnings to a range of $1.14 to $1.18, from $1.12 to $1.16.
In February, Hudson Pacific bought Merrill Place, an office and retail property in downtown Seattle, for $58 million. In October, the company paid $38 million for an office building in Playa Vista.
Accomplishments
Coleman said Hudson Pacific was operating from a strong position: “Our stabilized office portfolio is 94.1% leased, and we’re seeing a solid year-over-year net operating growth.”
Hudson Pacific has signed renewal leases on 421,000 square feet with average lease rates that are 91.3% higher on a cash basis than the expiring leases.
In San Francisco, Hudson has landed a 15-year lease with Saks & Co. for 41,000 square feet at Hudson Pacific’s 901 Market St. property.
“San Francisco remains one of the nation’s best-performing office markets. Recent data indicates that San Francisco metro has reached full employment, with the unemployment rate of 4.5%,” Coleman said. “The region’s economic recovery continues to outpace both California and the United States.”
Challenges
Hudson Pacific depends on a sound economy and a strong real estate market to maintain its financial performance.
As it acquired its signature properties, for example, enduring and then emerging from the global recession, it posted net losses for multiple quarters.
Analysts
Of six Wall Street analysts who follow the company, two rate it a strong buy. Two others rate it a buy and two say investors should hold on to the stock.
Twitter: @RonWLATimes
