Hudson Properties Prices IPO at the Low End of Range

 |  About: Hudson Pacific Properties, Inc. (HPP)
by: SA Editor Mohit Manghnani

Hudson Pacific Properties (NYSE:HPP), a real estate company focused on acquiring high-quality office properties, priced its IPO on June 23 at $17 per share, at the lower end of its anticipated range of $17-$19 per share, giving a first day return of 2.4%.

Business Overview (from prospectus)

We are a full-service, vertically integrated real estate company focused on owning, operating and acquiring high-quality office properties in select growth markets primarily in Northern and Southern California. Our investment strategy is focused on high barrier-to-entry, in-fill locations with favorable, long-term supply-demand characteristics. These markets include Los Angeles, Orange County, San Diego, San Francisco, Silicon Valley and the East Bay, which we refer to as our target markets. Upon the consummation of this offering and the formation transactions, we will own eight properties totaling approximately 2.0 million square feet, strategically located in many of our target markets.

We believe current events in the financial markets, the credit crisis and the scarcity of available capital for commercial real estate have created significant market dislocation, thereby fostering a favorable acquisition environment. We have access to and are actively pursuing a pipeline of potential acquisitions consistent with our investment strategy. We believe Mr. Coleman’s and Mr. Stern’s successful history of operating a publicly traded real estate company, significant expertise in operating in the California office sector and extensive, long-term relationships with real estate owners, developers and lenders, coupled with our conservative capital structure and access to capital, will allow us to capitalize on the current market opportunity.

Offering: 12.8 million shares at $17 per share. Net proceeds of approximately $157 million will be used to repay full mortgage indebtedness, approximately $28 million to acquire the Del Amo Office property, approximately $7.2 million to acquire interests in the First Financial and Tierrasanta properties and $ 11 million to fund the build-out and lease-up of the 875 Howard Street property.

Lead Underwriters: BofA Merrill Lynch (NYSE:BAC), Barclays Capital (OTCPK:BCLYF), Morgan Stanley (NYSE:MS)

Financial Highlights:

The company has had no activity since its inception other than the issuance of 100 shares of common stock. Revene of operations will start on successful completion of the acquisitions.


We compete with a number of developers, owners and operators of office and commercial real estate, many of which own properties similar to ours in the same markets in which our properties are located and some of which have greater financial resources than we do. In operating and managing our portfolio, we compete for tenants based on a number of factors, including location, rental rates, security, flexibility and expertise to design space to meet prospective tenants’ needs and the manner in which the property is operated, maintained and marketed. As leases at our properties expire, we may encounter significant competition to renew or re-let space in light of the large number of competing properties within the markets in which we operate. As a result, we may be required to provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination rights or below-market renewal options, or we may not be able to timely lease vacant space. In that case, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you may be adversely affected.

We also face competition when pursuing acquisition and disposition opportunities. Our competitors may be able to pay higher property acquisition prices, may have private access to opportunities not available to us and otherwise be in a better position to acquire a property. Competition may also have the effect of reducing the number of suitable acquisition opportunities available to us, increase the price required to consummate an acquisition opportunity and generally reduce the demand for commercial office space in our markets. Likewise, competition with sellers of similar properties to locate suitable purchasers may result in us receiving lower proceeds from a sale or in us not being able to dispose of a property at a time of our choosing due to the lack of an acceptable return.

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