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Jefferies downgrades Hudson Pacific stock as studio, office recovery lags

EditorEmilio Ghigini
Published 12/11/2024, 07:26 pm
HPP
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On Tuesday, Hudson Pacific Properties (NYSE:HPP) faced a downgrade in its stock rating by a Jefferies analyst, changing from Buy to Hold. Alongside the downgrade, the analyst also adjusted the price target for the company's shares, lowering it to $5.00 from the previous target of $5.50.

The revision was prompted by a combination of factors impacting the company's outlook. The analyst cited that while studio production might be reaching its lowest point, ongoing shifts among content producers continue to present challenges. Furthermore, recent discussions with the company indicated a conservative guidance for the fourth quarter.

The downgrade was influenced by expectations set during the previous upgrade, which projected a '25 Studio Net Operating Income (NOI) of $88 million, a figure that has since been revised to $36 million. With a slower-than-anticipated recovery in the Office segment, the analyst now believes that an occupancy uptick for Hudson (NYSE:HUD) Pacific is likely deferred until 2026.

The analyst's core '25 Funds From Operations (FFO) per share estimates are 7.6% lower than the consensus, which is attributed in part to an error in modeling interest expenses. This reassessment led to the decision to lower the stock's rating to Hold.

In other recent news, Hudson Pacific Properties, a real estate investment trust, has suspended its common stock dividend for the third quarter of 2024, in response to a slower-than-expected recovery in studio demand.

This move is aimed at preserving capital in what the company's CEO, Victor Coleman, describes as an "ongoing challenging environment." However, Hudson Pacific's Board of Directors declared a dividend on its 4.750% Series C cumulative preferred stock, indicating a nuanced approach to capital management.

In recent developments, Hudson Pacific reported its second-quarter earnings for 2024, showing a combination of growth and challenges. The company reported a significant increase in leasing activity, but its second-quarter revenue fell to $218 million, and lower FFO and AFFO figures were recorded.

Despite these challenges, the company expressed optimism about the strengthening of West Coast office markets, especially in San Francisco.

In response to these developments, Hudson Pacific is exploring strategic alternatives, including asset sales, to improve its portfolio quality. The company is also considering acquisitions of higher-performing assets.

These measures demonstrate Hudson Pacific's commitment to navigating the current market conditions and positioning itself for future opportunities.

InvestingPro Insights

Recent data from InvestingPro sheds additional light on Hudson Pacific Properties' current financial situation, providing context to the analyst's downgrade. The company's market capitalization stands at $643 million, reflecting the challenging environment described in the article.

Two key InvestingPro Tips are particularly relevant to the analyst's concerns. Firstly, HPP is "Trading at a low Price / Book multiple," with a Price / Book ratio of 0.24 for the last twelve months as of Q2 2024. This low valuation could indicate that the market has already priced in many of the challenges facing the company. Secondly, "Analysts anticipate sales decline in the current year," aligning with the downgraded outlook mentioned in the article.

The company's revenue for the last twelve months as of Q2 2024 was $881.22 million, with a concerning revenue growth of -14.04% over the same period. This decline in revenue supports the analyst's cautious stance on HPP's near-term prospects.

For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Hudson Pacific Properties, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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