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Investing.com -- Fitch Ratings has downgraded Hudson Pacific Properties, Inc. (NYSE:HPP) and its operating partnership’s Long-Term Issuer Default Ratings to ’B+’ from ’BB-’ while maintaining a Stable outlook.
The downgrade reflects HPP operating outside Fitch’s leverage expectations in 2024, a situation expected to continue into 2025. Improvement is anticipated in 2026 as lower lease expirations combined with new leasing activity should help reverse the decline in office occupancy that has plagued the company since the pandemic.
HPP’s office portfolio occupancy fell to 76.5% in the first quarter of 2025, down from 78.9% in the fourth quarter of 2024 and 88.0% in the fourth quarter of 2022. Cash same store net operating income dropped 12.8% in 2024 and is projected to decline another 13% in 2025 due to lower occupancy and rents.
The company expects occupancy to reach the low 80% range by year-end 2025 and mid-80% by year-end 2026. The studio business, still feeling effects from the 2023 writer’s strike, is also expected to normalize in 2026.
Fitch anticipates HPP’s REIT leverage will remain elevated in 2025 and above 8.0x throughout the forecast period. The company’s leverage has exceeded 8x for the past three years, reaching 12.0x in 2024. Management has targeted a leverage policy of 7.5x-8.5x as part of a multi-year strategy.
Fixed charge coverage is expected to fall below 1x in 2025 before improving to 1.0x-1.5x from 2026 onward as portfolio fundamentals strengthen and capital expenditure requirements decrease.
HPP owns class A office properties primarily in San Francisco (62% of office portfolio annualized base rent), Los Angeles (19%), Seattle (12%) and Vancouver (7%). The company completed a $600 million equity offering in June 2025 and has sold $122 million in assets since early 2024, with an additional $100-125 million in dispositions expected in 2025.
Factors that could lead to a future upgrade include sustained REIT leverage below 9.0x, strong recovery in the studio business, and office occupancy returning above 85%.
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