Hudson Pacific Properties sees credit rating downgrade at S&P due to high leverage

S&P Global Ratings downgraded Hudson Pacific Properties' (HPP) issuer credit rating to 'B' from 'BB-' with a negative outlook, citing deteriorating credit metrics due to a challenging operating environment in the studio and office sectors. The downgrade reflects concerns over Hudson Pacific's ability to manage upcoming debt maturities, with the agency forecasting a debt to EBITDA ratio around 13x in 2025 and 12x in 2026, and same-property NOI decreased by 9.9% in Q1. Further downgrades are possible if the company fails to refinance debt, if operating performance deteriorates, or if key financial ratios worsen.

Analysis

S&P Global Ratings has significantly downgraded Hudson Pacific Properties' (HPP) issuer credit rating to 'B' from 'BB-', assigning a negative outlook, primarily due to a sharp deterioration in its key credit metrics stemming from a challenging operating environment in its studio and office segments and a weakened macroeconomic backdrop. The company's debt to EBITDA ratio reached 13.0x as of March 31, 2025, a substantial increase from 10.0x a year prior, and is forecasted by S&P to remain around 13x in 2025 before potentially declining to approximately 12x in 2026. Concurrently, fixed-charge coverage (FCC) has deteriorated to 1.5x from 1.8x over the same period. These financial strains are exacerbated by restricted access to capital, heightening liquidity pressures and refinancing challenges, particularly concerning given HPP's shorter weighted-average debt maturity profile of below three years, excluding extension options. Operational performance has also suffered, evidenced by a 9.9% year-over-year decrease in same-property net operating income (NOI) on a cash basis in the first quarter of 2025, driven by lower office occupancy (75.1% occupied versus 79.0% a year prior) and reduced studio portfolio leasing (73.8% leased versus 76.9%). The downgrade extended to HPP's senior unsecured notes, now rated 'B' with a recovery rating revised to '4' from '3', and its preferred stock, downgraded to 'CCC' from 'B-', underscoring increased default risk and weaker recovery prospects. The negative outlook reflects S&P's expectation of continued portfolio challenges and pressure on credit protection measures, with further downgrades possible if HPP fails to refinance upcoming debt, including its $775 million revolving credit facility maturing in December 2025, or if operating performance and key credit metrics (debt to EBITDA sustained above 13x or FCC below 1.5x) worsen beyond current projections.

Key Decisions for Investors

• Investors should exercise extreme caution with Hudson Pacific Properties (HPP) due to its significant credit downgrade to 'B', deteriorating financial metrics including a debt-to-EBITDA of 13.0x and FCC of 1.5x, and a persistent negative outlook signaling heightened default and refinancing risks.
• Holders of HPP's debt instruments, particularly the senior unsecured notes (now 'B') and preferred stock (now 'CCC'), should critically reassess their positions considering the lowered ratings and reduced recovery prospects, while equity investors should anticipate continued downward pressure on the stock.
• Closely monitor HPP's ability to successfully refinance its upcoming debt maturities, especially the December 2025 revolving credit facility, any improvements in leasing and occupancy rates within its challenged office and studio segments, and stabilization or improvement in its debt-to-EBITDA and FCC ratios, as these are critical for its financial stability and potential rating revisions.