Fitch Ratings downgraded Hudson Pacific Properties' Long-Term Issuer Default Ratings (IDRs) to 'B+' from 'BB-', and its preferred stock rating to 'B-' from 'B'. The outlook for the ratings is stable.
The downgrade reflects HPP's operation outside Fitch's leverage sensitivities in 2024, a trend expected to continue into 2025. Office portfolio occupancy declined to 76.5% in Q1 2025 from 88.0% in Q4 2022, and cash same-store net operating income (SSNOI) fell by 12.8% in 2024, with another 13% decline anticipated in 2025.
Fitch expects REIT leverage to remain above 8.0x, with Fixed Charge Coverage (FCC) projected to fall below 1x in 2025 due to elevated capital expenditures and lower EBITDA. The net Unencumbered Assets/Unsecured Debt (UA/UD) ratio was 0.9x at Q1 2025, significantly below the typical 2.0x threshold for investment-grade REITs.
The studio business recovery is delayed until 2026, further contributing to financial pressures. Despite a recent $600 million equity offering and the payoff of $259 million Series B notes, $150 million Series D notes, and $56 million Series C notes in May 2025, the overall credit profile remains challenged.
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