By Meghan Hall
Los Angeles-based Hudson Pacific Properties continued the momentum it established during the second and third quarters of 2018, announcing in its latest quarterly earnings report that the it capped off a record a year of leasing. That growth is only expected to grow into 2019, said Hudson Pacific, as the company continues its leasing spree throughout the San Francisco Bay Area and beyond.
“Hudson Pacific Properties executed exceptionally well in all aspects of our business in 2018, propelled by the continued strength of tech and media in West Coast markets,” said Hudson Pacific Properties’ Chairman and CEO, Victor Coleman, in a statement. “We are well situated in both our office and studio segments as we head into 2019.”
During the fourth quarter of 2018, Hudson Pacific signed 807,000 square feet of leases, bringing its in-service office portfolio to 93 percent leased. Hudson Pacific also executed 75 new and renewal leases, and over the past year as a whole, the company signed 3.4 million square feet of leases.
Some of those leases include Nutanix’s decision to lease an additional 80,489 square feet at Metro Plaza in North San Jose through May 2024, coterminous with its other lease in the building, as well as its leases at Concourse and 1740 Technology, also in North San Jose. Nutanix renewed its original, 212,600 square foot lease at 181 Metro Dr. and 1740 Technology, which sit nearly adjacent to each other, not far from San Jose international airport.
Pivotal Software also extended its 66,510 square foot lease at 875 Howard in San Francisco through June 2026, and like Nutanix, signed a coterminous lease for an additional 17,039 square feet, which is set to begin in June 2020. The company’s location in San Francisco is just one of four regional headquarters around the world. Its other locations are in New York, Singapore and London.
Knotel also leased up space in San Francisco, taking 56,721 square feet at 625 Second in San Francisco through April 2027. According to Hudson Pacific Properties, 43,846 square feet of that lease commenced in December 2018. The company will grow slowly into its space, adding another 6,834 square feet beginning in July 2019 and the last 6,041 square feet in November 2020.
Hudson Pacific Property also successfully signed leases in San Carlos, Calif., located in San Mateo County. Both MarkLogic Corporation and Check Point Software renewed their 40,268 square foot and 40,265 square foot leases, respectively, at Skyway Landing. MarkLogic’s lease will expire in June 2023, while Check Point Software’s will wrap up in February 2024.
On the acquisition side, Hudson Pacific Properties formed a joint venture with Allianz Real Estate to purchase a leasehold in the land and improvements of iconic San Francisco Ferry Building in October 2018, which The Registry was the first to report. Hudson Pacific owns 55 percent of the property, while Allianz owns 45 percent. The deal closed at $291 million before credits, prorations and closing costs. Hudson Pacific will serve as the managing member of the property, which is fully leased and contains 192,532 square feet of office and 75,486 square feet of retail. The joint venture intends to drive revenue by re-leasing space at market rents and introducing new amenities and events. The transaction was all-cash, the report states, and 49 years remain on the ground lease with the Port of San Francisco.
With all of this leasing and acquisition activity, total revenue from the office segment for the company increased by 2.8 percent to $176 million. Hudson Pacific attributes that increase primarily due to an influx of rental revenue to $143.4 million and a $0.5 million increase in tenant recoveries to $25.3 million. Revenue for its studio segment also increased by 24.2 percent to $22.4 million, also due to increases in rental and other property-related revenue, Hudson Pacific stated.
However, net income dropped from $32.5 million during the fourth quarter of 2017 to $15.9 million during the fourth quarter of 2018. However, the company had a healthy balance sheet, with $2.65 billion of total unsecured and secured debt and approximately $505.7 million of total liquidity. Hudson Pacific is well-posed for growth in the coming year, the company stated, and it has plans of continued expansion, according to Coleman.
“We sold nearly half a billion dollars of non-core assets in 2018, which we’ve used, in part, to purchase higher quality, well-located properties with better NOI growth potential,” said Coleman. “These include our joint venture with Macerich for One Westside and 10850 Pico in West Los Angeles and, in the fourth quarter, our joint venture with Allianz for the San Francisco Ferry Building. With significant asset sales behind us, a strong balance sheet, and a variety of joint venture partners, we have ample capital to fund both embedded and external growth going forward.”