HPP-PC Q3 2026 earnings call transcript, November 5, 2026

Approaching 86%. Together with improved studio performance, that contributed to growth of 8% in same-store cash NOI and a core FFO per share year-over-year, and we're once again raising our full-year outlook. We also continue to execute on our disposition plan and strengthen our balance sheet. Performant for our fourth-quarter asset sales and senior notes repurchase, total liquidity stands at 840 million. With our share of debt reduced by 14% year-over-year. And looking ahead, our leasing pipeline stands at 2.1 million square feet, with 1.1 million square feet now in advanced stages, nearly twice the level of a year ago. A pipeline of similar size set the stage for a very strong 2026, and its greater maturity today further positions us to extend our earnings growth into 2027. Touching on our markets, I'm going to begin with the capital fueling demand. U.S. venture backed companies raised $98.4 billion in the third quarter, while below the outside first-half totals, it was roughly double the quarterly levels of 2023 and 2024. Year-to-date investment now exceeds... ...$515 billion, already more than 60% above full-year 2025, with over 70% of it deployed in our West Coast markets. AI remains the primary driver, accounting for 20 U.S. rounds of $1 billion or more in the quarter, while software also has captured a record share of venture dollars this year. Several indicators support continued funding. U.S. VC fundraising reached over $100 billion.

through the third quarter, already ahead of all of 2025, and a record acquisition exit values are recycling capital back into the ecosystem. We're mindful of the recent volatility in tech stocks, which is... ...largely centered on the capital spending of the largest platforms. That's a different part of the AI economy from the one driving demand in our markets. We'll continue to watch how public market sentiments affect private funding, but so far we haven't seen it. in our pipeline or tour activity. On the ground, demand continues to build. AI and tech-driven leasing is broadening the office recovery across the west coast with virtually no new supply coming online. San Francisco posted. It's eighth consecutive quarter of positive net absorption adding 1.3 million square feet. Citywide vacancy has improved 660 basis points over the past year and asking rents are up nearly 10 percent. The South Financial District continues to lead having absorbed more than 2 million square feet so far this year. With large blocks in the south of market quickly disappearing we expect tenants to widen their searches into adjacent sub-markets. which should benefit our assets greatly. Silicon Valley delivered its strongest leasing quarter since 2019 at 4.1 million square feet. It also absorbed more than 1 million square feet and active tenant demand rose 12.4 million square feet. with Santa Clara among the leading sub-markets. On the peninsula, net absorption turned positive, led by Redwood City, Redwood Shores at more than 40% of the region's total, while neighboring Palo Alto remains one of the Bay Area's tightest office.

markets with rents among the highest in the country. Further north, in Seattle, net absorption reached its highest level since 2021, while downtown Seattle recorded its first positive quarter in nearly five years on the strength of the CBD. Square has been positive both for the quarter and the year to date. Los Angeles, by contrast, remains more mixed. Leasing volume rose nearly 12% year over year, but net absorption was modestly negative. West Los Angeles captured roughly 40% of all leases. In Los Angeles, with Brentwood posting positive absorption this quarter. And in Vancouver, Class A vacancy downtown fell for the fifth straight quarter to its lowest level since 2022. No new downtown supply expected until at least 2032. Conditions are setting up for upward pressure on premium rents. Turning to our studio business, production levels in Los Angeles and New York continue to move in different directions. But as Mark's going to discuss... Our prime locations are performing well in both. Third quarter Los Angeles on-location shoot days were 5% lower year-over-year and remain 29% below the five-year average. New York, meanwhile, is surging with third quarter production spending up to 87... year-over-year to $1.6 billion, approaching California's $1.8 billion. Filming permits in New York City were up 27% year-to-date as of September. Looking ahead, we see... The potential catalyst for Los Angeles production. At the federal level, legislation introduced this fall would create a 20% to 30% film and TV tax credit that stacks on top of the existing state credits and supporters are pushing to pass this.

before year end. In a bold move this week, Governor Newsom proposed raising the state's annual credit from $750 million to at least $1 billion and for the first time extending eligibility to above the line compensation, closing the gap with competing states. This proposal will require legislation action and will likely carry into the next administration, but it's a clear signal of the state's commitment to bringing production back. Continuing to sharpen the portfolio through opportunistic asset sales and year to date, we close nearly $190 million of non-core FFO accreted dispositions. That includes $90.5 million from the sales of 2001 Gateway. And $875 and $899 Howard in the third quarter. $75.5 million of sales for the Skyport Plaza in the fourth quarter. And $23 million of sales of the non-core assets from Coyote across both quarters. The office sales.

To talk through leasing and operational details.

Thanks, Victor.

We signed 74 leases totaling approximately 534,000 square feet in the third quarter with activity evenly balanced between new leasing and renewals. Tech tenants provided a significant source of demand at 28% of activity and roughly two-thirds of our leasing was in the Bay Area where Palo Alto led all submarkets at over 110,000 square feet. This included a 65,000 square foot renewal and expansion lease with Rivian and Volkswagen Group Technologies at Clock Tower Square which addressed one of the four 2028 expirations over 50,000 square feet. Our in-service occupancy increased 310 basis points sequentially to 85.6%, our fifth consecutive quarter of gains, and our lease rate climbed 330 basis points to 86.1%. Adjusted for asset sales and the temporary removal of 4th attraction in our Los Angeles Arts District from our in-service portfolio, our occupancy and lease rate increased 80 and 100 basis points. Respectively on a like-for-like basis. Regarding 4th attraction, the City of Los Angeles adopted seismic retrofit requirements several years ago that applied to the building, so this is work we need to do. PayPal's recent expiration gives us a win. Endo to complete it, and we have several prospective long-term tenants with requirements of up to 75,000 square feet interested in the building. That's precisely why we're moving quickly now, so the work is done before they move in. We expect to finish the seismic work by

end of second quarter next year, but we'll work with those tenants to phase an occupancy floor by floor. Rent spreads grew 6% on a gap basis and 0.4% on a cash basis, driven by new and renewal leasing. our peninsula and Silicon Valley assets. Third quarter net effective rents increased 30% year over year and on a trailing 12 month basis, we're up 9%. Tour activity remains strong with 116 tours covering nearly 2 million square. in the third quarter. Tour count was up 13% year over year and the average requirement of 17,000 square feet remains well above the roughly 10,000 square feet typical in 2023 and 2024. Average requirement size. grew most on the peninsula and in Silicon Valley where they roughly doubled this quarter and in Seattle where they rose almost 50%. Even after signing 2.4 million square feet year to date up 40% from last year our pipeline has. remain above 2 million square feet for seven consecutive quarters roughly 25% above our long-term average. Almost 60% of the pipeline is new leases supporting continued occupancy gains while. the renewal portion has grown to over 800,000 square feet the highest level we've tracked and as victor noted more than 1 million square feet is in late stage negotiations the quality and momentum of our pipeline. are as strong as we've seen and we're highly confident in our ability to convert a significant portion of it turning to our expirations we have approximately 50% coverage on both the remaining 144,000 square feet expiring in 2026 and the one.

0.1 million square feet expiring in 2027. we define coverage as deals and leases LOIs or proposals for the first half of 2027 coverage is over 50% including full coverage on the Salesforce. and Twilio space at Rincon Center in San Francisco where we're in late-stage negotiations. Second half 2027 expirations are mostly smaller leases averaging about 6,000 square feet and those tenants typically do not engage until about a quarter before expiration. At Washington 1000, consistent with last quarter, we have coverage on approximately 65% of the building with active negotiations across 10 tenants whose requirements range up to 125,000 square feet, including over 60,000 square feet of late stage deals. Activity at our move-in ready spec suites has increased meaningfully since their June completion and plans and pricing are complete. for the next phase of spec suites on the fifth and sixth floors. Beyond our current pipeline, tour activity has picked up noticeably from tenants with near-term occupancy needs, most of them new to the market. As has been reported, while Gottschalk and Manning changes, our tenant at Towers at Shore Center in Redwood Shores is winding down operations. Weill occupied 89,000 square feet across two leases. 38,000 square feet expired after quarter end and the remaining 51,000 square feet runs through 2038. Weill recently completed an estimated $700 per square foot build out,

leaving pristine space that ranks among the peninsula's best for professional service firms with in-place rents at- market. Beyond the public announcements, we haven't heard from Weill about his plans for the Redwood Shores lease. Given the quality of the space and the demand for both the asset and Redwood Shores more broadly, we're confident we could release it efficiently. In our studio segment, our in-service stages were 74.7% leased on a trailing three-month basis in the third quarter, stable compared to the prior quarter. Our Hollywood stages remained well leased at 95% and sunset period. Per 94 continued to ramp, with its lease rate up another 370 basis points to 82.2%. In contrast to the broader Los Angeles market, our prime location stages in production, we saw higher production activity and spend. Compared to the same quarter last year, though activities softened from the last quarter. Together with lower operating expenses, both sequentially and year-over-year, and the continued wind-down of non-core Coyote operations, our share of core studio and Coyote improved to $4.3 million from $2.2 million last quarter and up considerably from negative $2.5 million a year ago. Lastly, in terms of additional avenues for value creation, after quarter end, we secured entitlements to convert approximately 164,000 square feet of office space at 901 Market in San Francisco into 136 residential units above the existing retail. As we did at 10950 Washington, we've

created real optionality, giving us multiple paths to respond to market demand and maximize value. We're advancing construction drawings and evaluating pricing, and we will determine the best path forward in the coming quarters. This remains part of a broader effort as we continue. to evaluate residential and mixed-use opportunities alongside our office assets in Palo Alto and across the peninsula. And now Haru will take you through our financial results and outlook.

Thanks, Mark.

In the third quarter... ...revenues were $180.9 million compared to $186.6 million in the prior year, primarily due to asset dispositions, most significantly the sale of Almond LA, partially offset by improved office occupancy and increase... ...studio production activity. GNA improved 10% to $12.3 million compared to $13.7 million in the prior year, resulting from cost-cutting initiatives. We reported net loss of $218.1 million... ...or $3.38 per diluted share, compared to $136.5 million or $2.12 per diluted share in the prior year. Primarily driven by non-cash impairments of Skyport Plaza and... Hill 7, and a loss on the sale of $8.75 and $8.99 Howard. The deconsolidation loss related to Sunset Glen Oaks accounted for the loss reported in the prior year period. Excluding these items, our underlying performance continued to strengthen. Core FFO grew to $18.6 million... ...up approximately 11% from $16.7 million in the prior year, and increased approximately 8% on a per diluted share basis to $0.28 from $0.26. This was driven by Hire, Same Store, NOI across both our office and studio properties. ...and lower non-real estate depreciation from the wind-down of non-core Coyote operations, partially offset by asset sales. Adjustments to FFO totaled negative $2.8 million or negative 4 cents per diluted share, primarily reflecting... ...gains on non-core Coyote lease terminations, a prior period property tax refund, and the sale of non-real estate assets partially offset by non-core Coyote costs.

This compares to positive $2 million or 3 cents per diluted share. ...in the prior year. We grew same-store cash NOI 8.3% to $85.2 million, compared to $78.7 million in the prior year, driven by improved office occupancy and increased studio. ...in production activity. Turn to the balance sheet. We ended the quarter with $956 million of liquidity, including $161 million of unrestricted cash and full availability of $795 million on our revolve. Net debt to underappreciated book value was 32.1%, and our debt was 100% fixed or capped, at a weighted average interest rate of 4.9%. During the quarter, together with our joint venture partner, we extended the $1.1 billion Hollywood Media... ...Portfolio CMBS loan to November 2027, providing additional flexibility as we continue to execute our business plan for the portfolio. The extension required no principal paydown. The spread is unchanged. ...And we fixed SOFR at 3.5% through the extended maturity slightly better than the swaps it replaced. Subsequent to the quarter end, we repurchased $200 million of senior notes, $100 million... ...each of our 2027 and 2028 notes at a discount to par. We funded the repurchase with cash on hand and borrowings under our revolver. We then closed sales of Skyport Plaza and a non-core Coyote asset and used the net... to pay down the revolver to $30 million. Pro forma for these transactions, HPP's share of debt is $2.7 billion, a reduction of $425 million, or 14% from a year ago.

An HPP share of net debt to cash adjusted EBITDA RE improves to 11.4 times from 11.8 times at quarter end. Pro forma liquidity is $840 million. Consisting of $75 million of unrestricted cash and $765 million of revolver availability, which includes $333 million of commitments expiring this December. Beyond the senior notes, our remaining 227 maturities are non- recourse, property-level joint venture loans, primarily the Hired Media Portfolio, CMBS, which we just extended. For our 2027-2028 maturities, we expect to utilize a combination of liquidity, assets- sales and capital markets in a disciplined manner. Interest expense for the quarter was $40.9 million, which improved modestly from the prior year, and $117.4 million year-to-date, a 12% improvement versus the first three quarters of- 25. Wrapping up our 2026 outlook, we're increasing and narrowing our full-year core FFO to a range of $1.15 to $1.21 per diluted share, up from the prior range of $1.12 to $1.20. This updated range reflects, at the midpoint, approximately $0.01 of outperformance in the third quarter compared to our initial expectations, as well as approximately $0.01 attributable to improved expectations for the FFO. While we have received no indication that while Gauchel will stop paying rent, we've taken a conservative approach and excluded their rent from our guidance for the balance of the year. The 200 base points improvement to average in-service office

occupancy reflect actual results for the first three quarters and estimates for the fourth quarter. The 175 base point improvement to same-store property cash NOI growth reflect the full-year estimates of the properties, which now contribute the same store. In both cases, the improved estimates are essentially attributable to the sales of A75 Howard and Skyport Plaza and the temporary removal of fourth and traction from the in-service and same-store portfolio for seismic upgrades. Releasing. After these changes, the company would have likely maintained its prior outlook on both metrics. As a reminder, this updated range excludes the previously announced wind-down of non-Core Coyote operations from Core. FFO. And as always, our outlook excludes potential dispositions, acquisitions, or capital markets activity beyond those completed to date. With that, I'll turn the call back to Victor for closing remarks.

Thank you, Haroud.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

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Your next question comes from the line of Seth Burgi with city. Seth, your line is open. Please go ahead.

Hey, thanks for taking my question. I guess just on the first one with the kind of alluding to potential asset sales or JVs, could you just broadly talk about where you think pricing is for me? Some of the core assets with the high-quality credit that you mentioned in various markets. In terms of pricing, you mean cap rates or price per square foot or? Cap rate. Yeah, I think, listen, we're not going to openly discuss cap rates on a call like this because that obviously puts us in a situation where we're going to be backed into evaluation. I would just say that today. If you look at the market conditions on the assets we're looking at, people are paying a premium right now for vacancy because of the demand and lack of future development for the next three to five years. And so that is one cap rate. And one return. That's not an in-place. It's going to be a future IR. And then still today, there are lots of capital partners and capital providers and interest. Level for acquisitions that want stable, walt-related assets with high credit. And that will range as well. But as I said, even when we go out to the marketplace publicly with a broker, we don't come out with a price. So we're not going to talk about cap rates. But suffice to say, the asset qualities that we're looking at are, you know, some of the best that would be entered in the market right now.

And then I guess just my second one, you've kind of used a term. Coverage on some of the activity on Washington 1000 and some of the kind of upcoming lease expirations, just kind of what level of confidence do you have that kind of coverage either translates into. Find leases, or can you kind of define that in terms of how much of the coverage is leases that are out or, you know, in earlier stages of kind of the lease execution process? I think I think it's important to sort of note what what the past is sort of. delivered for the company. As we said in our prepared remarks, you know, again, we had a great quarter with leasing excess of 500,000 square feet consistently. We've done that quarter over quarter for almost. Eight or nine quarters in a row and we're ahead of our expectations on leasing. We thought the year would be roughly around 2 million square feet. We're over that through three quarters. And so we we still when we look at the term cover. We are confident that we're going to execute on the transactions and they're either in leases, in LOIs or in negotiations. I would say of the 50 percent coverage, which is the comment that we had made, we are in leases for. 50% of those 50%, the entire 50% of those deals at some form or function. So we are comfortable that either in the fourth or the first quarter that will be executed. Great. Thank you.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Your final question comes from the line of Richard Anderson with Cantor Fritz.

There are no further questions at this time. I will now turn the call back. To Victor Coleman, chief executive officer and chairman for closing remarks. I want to thank everybody for participating. I want to thank the Hudson team for all the hard work in the last quarter. And we're going to strive to year end at the same success levels.

Thanks very much.

This concludes today's call.

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