Hudson Pacific's Valuation Discounts $475 Million Deal And Asset Sales, Analyst Upgrades Stock

BMO Capital Markets analyst John P. Kim upgraded Hudson Pacific Properties, Inc. HPP on Friday from Market Perform to Outperform, raising the price forecast from $4 to $5.

The analyst notes that Hudson Pacific Properties’ shares have dropped due to disappointing earnings, mainly caused by weaker performance in their office and studio segments, which has led the market to speculate about potential insolvency.

Despite these challenges, the company has been actively seeking ways to generate cash flow, including raising debt and selling assets, Kim writes. These efforts are aimed at easing their near-term debt obligations, which extend through 2026.

Per Kim, the company’s current valuation is lower due to a decline in earnings, which could continue because Hollywood production has taken longer than expected to resume, and the recovery of West Coast office spaces has also been slower than anticipated.

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Meanwhile, the analyst highlights that the company’s recent $475 million CMBS transaction has helped provide some relief and offers additional support for its valuation.

These apart, Kim notes that Hudson Pacific plans to sell an additional $150 million worth of assets in 2025, potentially including properties like 625 Second, 10950 Washington, Fourth & Traction, and/or Hollywood Media.

Furthermore, Hudson Pacific and Blackstone Inc. have decided to pause the development of the Sunset Waltham Cross Studios, a 91-acre media complex in the U.K., with the aim of reworking its entitlement for an alternative use that could exceed its $297.3 million value as of December 31, 2024.

Price Action: HPP shares are trading flat at $3.01 at last check Friday.

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