Executive Summary / Key Takeaways

• Hudson Pacific Properties (HPP) is strategically positioned to benefit from the recovery of the West Coast office market, driven by robust demand from AI and technology companies, and a resurgence in studio production fueled by California's expanded tax credits.
• The company has significantly strengthened its financial foundation, achieving over $2 billion in capital markets activity year-to-date through Q3 2025, resulting in $1 billion of liquidity, 100% fixed or capped debt, and no major maturities until Q3 2026.
• Office leasing momentum is strong, with 1.7 million square feet leased year-to-date in 2025, marking the best performance since 2019, and positive absorption achieved in Q3 2025, signaling an inflection point for occupancy growth.
• Operational efficiencies and cost-cutting initiatives, particularly within the Quixote studio business, are driving improved profitability, with Quixote aiming for breakeven by Q1 2026.
• HPP's specialized "end-to-end real estate solutions" for tech and media tenants, coupled with its prime locations in innovation hubs, provide a competitive moat against broader market players, enabling it to capture outsized demand in its niche.

The West Coast Epicenter: A Foundation for Growth

Hudson Pacific Properties, Inc. (HPP) was established in November 2009 as a fully integrated REIT, strategically focusing on owning, managing, leasing, acquiring, and developing office and studio properties across the United States, Western Canada, and Greater London, United Kingdom. The company's core business model revolves around providing specialized real estate solutions for dynamic tech and media tenants, a strategy that has shaped its portfolio and operational approach. This foundational focus positions HPP uniquely within the commercial real estate landscape, particularly on the West Coast, which has historically been an epicenter for innovation and content creation.

HPP's competitive advantage is rooted in its differentiated approach to real estate, which can be seen as a form of "technological differentiation" in the property sector. The company offers "end-to-end real estate solutions" tailored specifically for its tech and media clientele. This involves not just providing space, but understanding the unique operational, cultural, and growth needs of these industries. For instance, AI companies, a significant demand driver, seek "quality Class A or trophy assets with growth top of mind" and "richly amenitized space," often preferring "second-generation really high-quality second-generation space" for quicker move-in and cost efficiency. HPP's portfolio is designed to meet these precise requirements, offering flexible expansion paths and environments conducive to innovation and collaboration.

This specialized offering provides tangible benefits over more generalized REITs like Boston Properties (BXP) or Vornado Realty Trust (VNO), which have broader geographic footprints or a mix of office and retail. HPP's deep relationships and niche expertise allow it to attract and retain high-caliber tenants, potentially leading to stronger customer loyalty and pricing power in its target segments. While direct quantitative comparisons of innovation capabilities with specialized life science REITs like Alexandria Real Estate Equities (ARE) are complex, HPP's agility in adapting properties for tech tenants and its focus on media studios give it a distinct edge in its chosen verticals. This strategic alignment helps HPP counter the operational scale of larger competitors and the financial stability of those with more diversified asset bases.

The broader industry trends underscore HPP's strategic positioning. U.S. venture capital investment remained robust in the third quarter of 2025, with year-to-date deal value tracking approximately 15% above full year 2024 levels, marking one of the strongest funding environments since the 2021 peak. A significant portion of this capital, nearly two-thirds, is flowing into AI, with the San Francisco Bay Area capturing over half of the deal value. These trends directly translate into increased demand for specialized office space, particularly from growth-oriented AI tenants seeking substantial teams and future expansion capabilities.

Office Segment: An Inflection Point for Occupancy

HPP's office segment is demonstrating clear signs of a recovery taking hold across its West Coast markets. The company is on track for its strongest office leasing year since 2019, having executed 1.7 million square feet of leases year-to-date through Q3 2025. This strong performance contributed to positive absorption in the third quarter, marking a significant inflection point for office occupancy. As of September 30, 2025, the in-service office portfolio was 76.5% leased, a sequential improvement of 30 basis points.

The demand is particularly robust in innovation hubs. Leasing accelerated sharply in San Francisco and the Peninsula in Q3 2025, driven by tech and AI tenants. Silicon Valley recorded its fourth consecutive quarter of declining vacancy, while Seattle saw AI investments surpass $1.5 billion year-to-date, leading to its first decline in availability in nearly four years. HPP's assets are directly benefiting, with over 80% of its Q3 2025 leasing activity occurring in the Bay Area, including a significant 100,000+ square foot AI tenant at Page Mill Center in Palo Alto.

While office rental revenues for the three and nine months ended September 30, 2025, decreased by 7.4% and 8.2% year-over-year, respectively, to $154.58 million and $475.62 million, the underlying operational metrics point to a positive trajectory. Office Net Operating Income (NOI) for the three and nine months ended September 30, 2025, was $83.00 million and $260.27 million, respectively. Management notes that rental rates are stabilizing across the Peninsula and Silicon Valley, and tour activity at HPP's assets surged by nearly 20% sequentially and 60% year-over-year in Q3 2025, comprising 2.1 million square feet of unique requirements. The average requirement size in the leasing pipeline is approaching 25,000 square feet, indicating growing tenant confidence.

A critical factor supporting future occupancy growth is HPP's favorable lease expiration profile. The company faces significantly lower expirations in 2026, with only 1 million square feet (8% of the in-service portfolio) set to expire, representing about 40% less than the average annual expirations over the past four years. HPP already has approximately 50% coverage on these 2026 expirations through leases or active negotiations, which is ahead of its historical pace. This strong momentum, coupled with 75% of its availabilities in quality assets within leading West Coast recovery markets, positions HPP to grow both occupancy and cash flow.

Studio Segment: Emerging from the Storm

The studio segment, while facing broader production challenges, is also showing signs of a rebound driven by strategic initiatives and external tailwinds. Los Angeles shoot days declined 30% in Q3 2025 year-over-year, yet demand for HPP's well-located, best-in-class Hollywood Studios enabled sequential occupancy improvement. Studio NOI for the three months ended September 30, 2025, was $344 thousand, a decrease from $1.89 million in the prior year, but for the nine months ended September 30, 2025, it increased significantly to $10.46 million from $3.96 million in the prior year.

A major catalyst for the studio business is California's recently expanded and extended film and television tax credit. Since July, the program has allocated credits to 74 new productions, a substantial increase from 18 in the same period last year, including 18 television series and 10 feature films. These tax credit recipients are required to begin filming within 180 days of allocation, suggesting a material pickup in production activity starting in the second quarter of 2026, after accounting for typical seasonality.

HPP's in-service studio stages were 65.8% leased on a trailing 12-month basis in Q3 2025, a 220 basis point sequential increase, primarily driven by additional occupancy at Sunset Las Palmas and Sunset Glenoaks. The Sunset portfolio, excluding Sunset Glenoaks, is almost 100% leased, with long-term leases extending until 2031 for key tenants like Netflix (NFLX).

Operational enhancements are also critical. HPP has implemented significant cost-savings initiatives at its Quixote Studios, reducing annual expenses by approximately $23 million to $24 million. These efforts are yielding results, with Q3 2025 studio NOI, adjusted for one-time expenses, increasing by $4 million sequentially and turning positive for the first time in over a year. The strategic objective is to achieve breakeven for Quixote by Q1 2026, with an estimated breakeven point at low 90s show count levels. Furthermore, the company projects $30 million to $40 million in cash NOI if show counts reach 110-120.

Development projects are also progressing. Sunset Pier 94 Studios in Manhattan, the city's first purpose-built studio, is on time and budget for year-end delivery and a Q1 2026 grand opening. The company is seeing strong interest from multiple high-quality productions looking to lease significant portions of the facility for six months to a year, with potential for renewal.

Fortifying the Foundation: Capital Structure and Liquidity

HPP has undertaken a comprehensive strategy to strengthen its balance sheet and enhance financial flexibility. Year-to-date through Q3 2025, the company executed over $2 billion in capital markets activity. This includes a $475 million CMBS financing for a portfolio of six office properties in Q1 2025, the repayment of $465 million in Series B, C, and D private placement notes in Q2 2025, and a significant equity raise in June 2025 that generated $690 million in gross proceeds. These proceeds were utilized to fully repay the credit facility and for general corporate purposes.

As of September 30, 2025, HPP boasts a strong liquidity position of $1 billion, comprising $190.4 million of unrestricted cash and cash equivalents and $795.3 million of undrawn capacity under its unsecured revolving credit facility. Additionally, 100% of HPP's debt is either fixed or capped, providing predictable debt service costs and supporting financial planning. The next debt maturity is the loan secured by the Hollywood Media Portfolio, maturing in Q3 2026. HPP and its joint venture partner own a portion of this debt, which could be converted to equity if needed, mitigating potential downside risk during refinancing.

The company's strategic asset disposition program continues to generate liquidity. HPP has sold three non-core assets (3176 Porter, Maxwell, and 625 Second) for a combined $94 million in gross proceeds, with all proceeds directed towards reducing leverage. An additional $100 million to $150 million in dispositions are currently in various stages of pursuit. While HPP's senior unsecured debt ratings are B2 (Moody's (MCO)), B (Standard & Poor's (SPGI)), and B (Fitch (FNC)), indicating non-investment grade, the operating partnership remains in compliance with its financial covenants.

Outlook and Risks

HPP anticipates FFO of $0.01 to $0.05 per diluted share for the fourth quarter of 2025. This outlook reflects expected lower studio NOI due to typical seasonality and slightly elevated G&A, consistent with full-year assumptions. The deconsolidation of Sunset Glenoaks Studios in Q3 2025 will result in lower interest expense and FFO from unconsolidated joint ventures, partially offset by higher FFO attributable to noncontrolling interests.

The company's outlook for office occupancy is positive, with expectations of stabilization in the second half of 2025 and subsequent growth, driven by strong leasing momentum and a significantly reduced expiration schedule in 2026 and 2027. For the studio segment, a material pickup in production activity is expected from Q2 2026 onwards, as tax credit recipients commence filming.

Despite the positive momentum, HPP faces several risks. The ability to maintain compliance with debt covenants remains crucial, as it is subject to economic conditions, interest rate fluctuations, and the ability to generate sufficient cash flows. While AI is a significant demand driver, the long-term impact of AI displacement on labor, particularly in traditional office-using sectors, presents a potential headwind. The studio business, while recovering, is still susceptible to market volatility and the execution of cost-saving initiatives. The successful refinancing of the Hollywood Media Portfolio loan in Q3 2026 is also a key event to monitor.

Conclusion

Hudson Pacific Properties is at a pivotal juncture, strategically positioned to leverage the burgeoning demand from AI and technology companies in its core West Coast office markets and the anticipated resurgence in studio production. The company's history of specialized real estate solutions for tech and media tenants, combined with its unique asset base and operational expertise, forms a robust competitive advantage. This differentiation is critical in a competitive landscape that includes both broad-market REITs and highly specialized players.

The significant strengthening of HPP's balance sheet, marked by substantial capital raises and debt restructuring, provides the financial flexibility necessary to capitalize on these growth opportunities. While recent financial performance has reflected market headwinds and strategic dispositions, the forward-looking indicators—such as accelerating leasing activity, stabilizing rental rates, and a favorable lease expiration schedule—point to a clear path for occupancy and cash flow growth. The ongoing operational efficiencies in the studio segment further underscore management's commitment to profitability. Investors should closely monitor the continued execution of HPP's leasing strategy, the full impact of the California tax credits on studio production, and the company's ability to maintain strong financial metrics amidst evolving market dynamics.