On Tuesday, Wedbush made a significant change to its outlook on Hudson Pacific Properties (NYSE:HPP), downgrading the stock from Outperform to Neutral. The firm also adjusted the price target to $7.50, a decrease from the previous target of $11.00. The revision follows Hudson (NYSE:HUD) Pacific Properties' announcement of its funds from operations (FFO) guidance for 2024, which is set at $1.00-$1.10 per share. This projection falls notably short of the consensus estimate of $1.24 and marks a considerable deviation from expectations for a real estate investment trust (REIT) of this scale.
The downgrade was prompted by several factors impacting the company's performance. Key among these is the slower-than-anticipated recovery of the media segment, which includes real estate and service income, due to delays in production resumption post-strike actions. Additionally, office occupancy rates are expected to face ongoing challenges throughout most of 2024. Hudson Pacific Properties is tasked with securing 840,000 square feet of new speculative leasing to simply maintain a steady occupancy growth rate for the year.
The analyst from Wedbush pointed out that each passing quarter is likely to underscore the issue of double-digit negative same-store growth. Compounding this is the anticipated difficulty in releasing the 470,000 square foot Block space, of which Hudson Pacific Properties owns 270,000 square feet, located at 1455 Market Street. The process of finding tenants for this space is expected to be extended.
Looking further ahead, there is additional concern with the expiration of the 325,000 square foot lease with Uber (NYSE:UBER) in early 2025, situated in the same building. This lease's end is part of a larger set of expirations totaling 2 million square feet that year. The analyst noted that for Hudson Pacific Properties' outlook to improve, several positive developments would need to occur.
Despite these challenges, Wedbush has maintained its 11x adjusted funds from operations (AFFO) multiple on the new price target, which reflects a $0.25 reduction in the firm's 2024 FFO estimate for Hudson Pacific Properties.
InvestingPro Insights
As investors digest the recent downgrade of Hudson Pacific Properties by Wedbush, it's worth noting the company's current financial health and performance metrics. According to real-time data from InvestingPro, Hudson Pacific Properties has a market capitalization of approximately $1.04 billion USD. This figure is crucial for investors to understand the company's size and market value. The Price / Book ratio, standing at 0.39 as of the last twelve months ending Q4 2023, indicates that the stock is trading at a low multiple of its book value, which could suggest the assets are undervalued.
InvestingPro Tips highlight some key elements of the company's recent performance. Hudson Pacific Properties has experienced a significant return over the last week, with a 1 Week Price Total Return of 8.05%. This contrasts with the 1 Month Price Total Return of -16.18%, suggesting recent volatility in the stock price. Additionally, the company is noted for paying a significant dividend to shareholders, with a current yield of 6.9%, which is particularly attractive for income-focused investors. This is supported by the company's track record of maintaining dividend payments for 14 consecutive years.
For those looking to delve deeper into Hudson Pacific Properties' financials and future prospects, InvestingPro offers an array of additional tips. There are currently 12 more InvestingPro Tips available that could provide further insight into the company's valuation, cash flow, and profitability expectations. Interested readers can find these tips and more detailed metrics by visiting https://www.investing.com/pro/HPP. Additionally, users can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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