Despite an enviable list of tenants gearing up to lease its studio and office space, Hudson Pacific Properties saw its earnings drop by half in the fourth quarter.
There were some bright spots. The real estate investment trust said in an earnings call that it signed 75 new and renewal leases in the quarter, combining to 807,400 square feet. Those deals include Technicolor’s renewal in Hollywood, a Nutanix lease in San Jose, a Nestle lease in Seattle and a Knotel lease in San Francisco.
But net income in the quarter dropped 50 percent to $15.9 million, and funds from operations fell slightly to $78.8 million.The quarterly earnings were largely in line with analysts’ expectations.
Revenue in the fourth quarter grew 4.8 percent to $198.4 million, largely due to an increase in rental revenue from its properties in San Francisco and Los Angeles.
Victor Coleman, Hudson Pacific’s CEO and chairman, explained the results by saying that 2018 was “all about setting the stage for the company’s next stages of growth.” In 2019, the company will focus on a mix of internal and external growth, he said, as a “tremendous amount of cash” comes in from leases that were executed at year’s end.
Hudson Pacific’s stock price, which has been on the upswing the past month, rose 7 cents to $33.33 a share on the earnings announcement. Coleman said Thursday that the company had recently bought back $50 million worth of its outstanding stock.
Net income for all of 2018 was $98 million, a 45 percent hike over 2017, while funds from operation dropped 5.5 percent to $292.9 million. Revenue remained largely stagnant, growing less than 1 percent to $728.4 million.
Much of the yearly spike can be attributed to double-digit rent growth in Hollywood, where Hudson Pacific owns multiple studios and office buildings, said Arthur Suazo, executive vice president of leasing. “Hollywood is a standout,” he said.
In L.A., the firm’s headquarters, Hudson Pacific closed some big deals in the first few months of the 2019. The firm signed Google to a 14-year lease at One Westside, formerly known as Westside Pavilion, starting in 2022. It also inked a 12-year deal with WeWork for part of its Maxwell project, which Coleman confirmed will be occupied by two enterprise tenants.
Coleman said he expects “rent growth momentum” throughout 2019 as the demand from media and nearby tech companies continues to grow.
“I think it’s going to be pretty surprising the amount of cash we’re going to have in the company in the next 24 months,” Coleman said.