Hudson Pacific Properties achieved a major milestone this summer when it sold Blackstone Group 49 percent of its $1.65 billion Hollywood real estate portfolio, which includes 1.2 million square feet in soundstage space — a fifth of L.A. County’s supply.
The deal represented a bet on the long-term growth of content creation for streaming services. But for now, HPP’s studio properties are suffering through the pandemic. Same-store net operating income in the company’s studio portfolio was down 40 percent year-over-year in the third quarter, and down 9 percent at its office holdings.
But HPP is hopeful that the tide is turning.
“Ongoing shutdowns have to date slowed a West Coast recovery, but we’re starting to see some positive momentum with the easing of restrictions for non-essential businesses in San Francisco and schools in Los Angeles,” CEO Victor Coleman said in a statement ahead of Friday’s investor call.
On the rent collection front, HPP’s figures held strong with about 97 percent of combined contractual rents collected in the third quarter, including 98 percent of office rents, 100 percent of studio rents and 52 percent of storefront retail rents, roughly on par with the prior quarter.
According to a TRD analysis, the real estate investment trust’s studio properties generate a significant amount of income from sources other than base rent, such as the rental of lighting and grip equipment and control rooms. In the third quarter, revenue at HPP’s studios dropped 30 percent year-over-year — and operating expenses 21 percent — because of the slowdown in production activity.
A dip in office revenues, meanwhile, was driven not only by missed rent payments but also factors like the conversion of WeWork’s lease at Maxwell in the Arts District to a percentage-rent structure.
The REIT signed leases totaling 185,000 square feet in the quarter, up from 110,000 in the prior quarter. Of that total, 36,800 square feet came from short-term extensions related to the pandemic.
The company inked one major new lease with Google for 42,000 square feet at San Francisco’s Rincon Center, with 35,000 square feet commencing in October and the rest in late 2023. The tech giant has said it will allow all employees to work remotely until at least July.
HPP also announced a major development milestone in the quarter, as the Harlow — a 106,000-square-foot office development at Sunset Las Palmas Studios — received its final certificate of occupancy. However, the company’s financial disclosures show that the estimated stabilization date for the project has been pushed back by more than a year, from the third quarter of 2021 to the fourth quarter of next year.
“With a fortified balance sheet, over $1.3 billion of liquidity and well-aligned, well-capitalized joint venture partners, we’re still optimally positioned to operate and grow our platform strategically and effectively through the pandemic and beyond,” Coleman said.