Hudson Pacific Just Leased Its Way to 86% — and the Stock Fell 45%
A fifth straight quarter of occupancy gains, an 8% same-store NOI jump and a raised outlook, against a share price down 96.8% from its 2020 peak and a debt wall still to be solved
HPP · Earnings Call · 2026-11-05
An operating inflection the tape refuses to price
On the tape, Hudson Pacific is a company the market has already written off. The stock is down 45.5% over the last 90 trading days, 48.2% below its July 2 close of $16.91, and 96.8% below the February 2020 peak of $270.90 — a $475 million market cap sitting on a West Coast office portfolio. On the call, the operators described something closer to a turn: “We signed 534 thousand square feet of new and renewal office leases and our in service office occupancy grew for the 5th consecutive quarter approaching 86%.” — Victor J. Coleman, Chairman and CEO · 2026-11-05 Same-store cash NOI rose 8.3% to $85.2 million, core FFO grew 11% to $18.6 million and 8% per share to $0.28, and full-year guidance went from $1.12–$1.20 to $1.15–$1.21. The gap between those two facts is the story. The recovery is real and now measurable — net absorption turned positive in San Francisco for an eighth straight quarter, Silicon Valley had its strongest leasing quarter since 2019, and Seattle's CBD posted its first positive quarter in nearly five years. What the tape is pricing is not the occupancy line; it is the AFFO line, the 2027 maturities, and whether a levered small-cap office REIT deserves to be valued as a going concern at all. Worth noting how long this took. In November 2025, Mark Lammas conceded that “it's got to be 2, if not more than 2 years since we've had a sequential positive quarter, both on leasing and occupancy.” — Mark Lammas, President · 2025-11-05 Five quarters later they have compounded it. That is genuinely new, and analysts stopped asking whether occupancy had bottomed — a question they asked relentlessly through 2025 and 2026.The pipeline matured, and the portfolio got smaller
The forward numbers look better than the backward ones. The leasing pipeline is 2.1 million square feet, roughly 25% above the long-term average and above 2 million for seven straight quarters, with 1.1 million square feet now in late-stage negotiations — nearly double a year ago. Almost 60% is new leases. Management cites 50% coverage on 2027 expirations and full coverage on the Salesforce/Twilio space at Rincon Center. The tactic that keeps showing up is the move-in-ready suite, particularly in Redwood Shores, where small tenants under 20,000 square feet are absorbing pre-built space faster than the market can tour it. Capital recycling did the rest: nearly $190 million of asset sales year to date — 2001 Gateway, 75 and 99 Howard, Skyport Plaza, non-core Coyote assets — largely vacant, capital-intensive buildings. Pro forma, HPP's share of debt is $700 million, down $425 million or 14% year-over-year, after repurchasing $200 million of 2027 and 2028 senior notes at a discount. Liquidity is $840 million pro forma. “We are not remotely interested in raising equity at these levels, and we do not need to raise equity to address our debt issues.” — Victor J. Coleman, Chairman and CEO · 2026-11-05 One honest asterisk: the guidance raise is largely mechanical. Harout Diramerian noted the improved occupancy and NOI estimates stem from the 875 Howard and Skyport sales and the temporary removal of Fourth & Traction, and that “after these changes, the company would have likely maintained its prior outlook on both metrics.” — Harout Krikor Diramerian, CFO · 2026-11-05 Headline up, underlying flat.The albatross stopped squawking — and a growth story vanished with it
For eight quarters the studio rental business was the loudest thing on these calls. Quixote restructuring was the single highest-ranked HPP keyword in Q3 2026, and noncore Coyote operations carried the largest momentum gain of any keyword the prior quarter. This quarter it has shrunk to housekeeping: core studio NOI improved to $4.3 million from $2.2 million sequentially, versus negative $2.5 million a year ago. “We are down to just a few more leases associated with the noncore Coyote business, and we think those will be wrapped up by year end.” — Mark T. Lammas, President · 2026-11-05 What matters more is what disappeared entirely. In February 2026 Victor Coleman pitched micro drama as a fresh growth vector — a market that went from $500 million of revenue in 2021 to $7 billion in 2025, projected at $11 billion in 2026, with Los Angeles positioned to capture it. That word is absent from this transcript. So is the "shot clock" language around California's 180-day production requirement. When a CEO quietly retires a growth narrative he was selling eight months earlier, that is a signal — the studio business is being run for breakeven and optionality, not growth. Similarly, special servicer and the Hollywood Media CMBS drama are gone: the $1.1 billion loan was extended to November 2027 with no principal paydown and SOFR fixed at 3.5%. That answers, in full, the question John Kim was stonewalled on in August when he asked how long the extension would run and got “you'll get full terms and conditions on the extension when we announce it.” — Victor Coleman, Chairman and CEO · 2026-08-05 Progress, delivered.The broken record, and the AI decoupling
AFFO has now been the recurring question for three straight calls, and management knows it.The same answer appeared in August (“we expect AFFO to be up and down over the next few quarters until all the spend is happening and the cash flow starts coming through” — Harout Diramerian, CFO · 2026-08-05) and in May. It remains the crux: free rent and front-loaded leasing capital are why occupancy can rise while cash earnings stay negative. The fundamentals confirm the strain — operating cash flow printed negative $8 million in the latest reported quarter, and net income has fallen roughly $139 million over three years, with this quarter's $218.1 million loss driven by impairments at Skyport Plaza and Hill 7. On the cost side there is a genuine tailwind: interest expense of $38 million is down from a $54 million peak, and year-to-date interest is 12% below 2025. The sharpest tension is AI. Globally, AI data centers sits among the worst-performing themes on the tape — down roughly 31% over 90 days and 30% over 30 days across dozens of tickers. HPP's demand comes from the same ecosystem but a different floor: U.S. venture funding of $98.4 billion in Q3, over $515 billion year to date, more than 70% deployed in West Coast markets. Victor drew the line explicitly — “we are mindful of the recent volatility in tech stocks, which is largely centered on the capital spending of the largest platforms, that is a different part of the AI economy from the 1 driving demand in our markets.” — Victor J. Coleman, Chairman and CEO · 2026-11-05 Pressed on whether AI tenant demand had paused, he was blunt: “we are not seeing that at all in the deals that we are doing.” — Victor J. Coleman, Chairman and CEO · 2026-11-05I feel like a broken record here. A big part of the AFFO turning positive again is free rents burning off. And you are right, it is a timing issue.