Lackluster Studio Business Drives Hudson Pacific To Post $136M Loss
Hudson Pacific Properties is pointing the finger at its studio arm for its $136.5M loss in the third quarter.
That is a larger loss than the roughly $98M incurred in the same period last year. HPP said it was “mostly attributable” to the deconsolidation of Sunset Glenoaks, the nearly $200M San Fernando Valley studio project it built in a joint venture with Blackstone.
Through the deconsolidation process, the net asset value and debt affiliated with Sunset Glenoaks were relocated on the company's balance sheet, resulting in a loss. Blackstone is still involved with the property.
HPP’s stages were 63.6% leased in the third quarter, and Sunset Glenoaks’ stages were 10.3% leased in that period. If Sunset Glenoaks were removed, the company's studio occupancy for the period would have been 82.3%, according to HPP.
“Lower stage occupancy and potential ongoing challenges required the Sunset Glen Oaks joint venture to reconsider the risks associated with the underlying project financing and treatment of the venture as consolidated for accounting purposes,” HPP Chief Financial Officer Harout Diramerian said on a Wednesday earnings call.
The total number of shoot days in Greater LA from July to September was 4,380, down 13.2% from a year ago, according to FilmLA, a nonprofit that handles film permits for the Los Angeles region.
But 74 new productions have received funds from the tax credit program for film and television since July, compared to only 18 in the same period the previous year, HPP CEO Victor Coleman said.
The tax credits approved over the summer will more than double the amount of funds to the program for film and television productions and are a beacon of hope for many in the industry that the allocations will translate into more productions coming to the state.
HPP said it is poised to capture some of the expected business windfall the credits will bring, but warned it might be a while before those benefits can be reaped. Though recipients have to start filming within 180 days of receiving the credits, executives cautioned that the boost to its stages likely wouldn’t come before the end of the year, as that is typically a very quiet time for filming.
Another challenge is HPP’s Quixote business, which rents equipment and stages for productions. The business has struggled as the larger entertainment industry has since the pandemic.
Analysts noted that HPP has “improved efficiencies” in the business, getting out of underperforming leases and instituting layoffs in previous quarters.
“We're on the precipice of breaking even,” Coleman said, indicating that the first quarter of 2026 is the target for that goal.
“We've come through what we would call the 100-year storm, and hopefully, we're coming out of it and may be better off than we think,” Coleman said. “We're not optimistic yet, but we're at least seeing the positive signs.”
The Bay Area office market, on the rise due to AI tenants in need of space, was a bright spot for HPP in the third quarter. The REIT’s properties in the region accounted for more than 80% of its third-quarter leasing activity, including a more than 100K SF AI tenant at Page Mill Center in Palo Alto. The tenant was Elon Musk’s xAI, the San Francisco Business Times previously reported.
HPP’s office portfolio saw 500K SF of leasing activity and ended the quarter at 75.9% occupied and 76.5% leased. Occupied and leased space declined year-over-year, from 79.1% and 80%, respectively.
Total revenue of $186.6M compared to $200.4M a year ago, primarily due to asset sales and lower office occupancy, according to HPP.
