The views expressed below are those of Anchor Capital Advisors, LLC (‘‘Anchor’’) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.
Hudson Pacific Properties Inc. is a REIT which focuses on Class A office space in West Coast technology hubs. The company was founded in 2009 and is headquartered in Los Angeles, CA.[i]
We believe Hudson Pacific Properties has done a strong job of redeveloping properties, developing new developments, and staggering lease renewals. It is our opinion that the company will continue to grow funds from operations and deliver a solid balance sheet. Due to COVID-19 Hudson Pacific Properties has sold off along with other REITs.[ii]
Confirmation through Research
Hudson Pacific Properties has 52 office properties located in San Francisco, Palo Alto, Los Angeles, and Seattle.[iii] Top tenants include companies with strong cash positions such as Google and Qualcomm. As part of their strategy, redeveloping underperforming assets is about 17% of their asset base, but provides a 7.5% stabilized yield.[iv] The company has opportunistically developed new properties, with sites adjacent to existing properties that have the ability to be built out.[v] The company has strong occupancy trends, with over 90% occupancy in most properties.[vi] Further lease renewals are staggered, with few in 2020, and renewals beginning to pick up looking into 2021.[vii] The company has grown fund from operation (FFO) at over 5% per year over the last 5 years,[viii] and has a strong balance sheet, with 33% debt to cap.[ix] In our opinion, COVID-19 caused a massive sell off of REITS – which we believe could potentially be justified in some cases with REITs focused on hotels or apartment rentals. Hudson Pacific fell with these REITs, though it has tenants who seem to be doing fairly well in this market climate. Although technology companies, like others, moved to work from home, most of Hudson Pacific’s top tenants appear to continue to hire, and we believe more companies are growing into the size where they would rent from Hudson Pacific Properties.
We believe HPP sold off due to their classification and grouping with REITs alike. Different then some of those REITs, HPP has what we believe are high quality tenants, a high occupancy rate, and a strong balance sheet, which should all help in faring well through the current COVID climate. We believe the market is not assigning fair value to HPP, and that HPP will be able to continue to grow its funds from operation, and dividends, for years to come.