Hudson Pacific Properties

Marketing 361 Phase -Team #52

Brendon Burke

Alex Jarufe

Alice Lau

Derek Lavey

Morgan McGarry

Mike Shumway
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I. Company and Industry Description

Hudson Pacific Properties (HPP) is a real estate investment trust (REIT) that operates in the

United States of America. The REIT industry is currently a mature industry and growth is

projected to continue slowing over the next five years, going from an average of 5.4% per year to

2.6% per year (Rivera, 2017). The REIT industry is comprised of many firms holding small

portions of the total market share. There are 1,376 REITs in the United States, and the largest

REIT, Simon Property Group Inc., only accounts for 5.9% of the total market. HPP with

revenues of $728.13 million accounts for .078% of the United States market (Google Finance,

2018).

One of the best indicators of the demand for rental property is the rental vacancy rate. Currently,

7% of rental properties are vacant. This is expected to rise to 8% as increases in expendable

income and declines in unemployment cause individuals and businesses to prefer purchasing

property instead of leasing it (Rivera, 2017). Somewhat counterintuitively, a healthy economy

decreases the demand for rental property and can harm the REIT industry. REITs generate

revenue by leasing property to tenants. The industry is divided by the types of lessor and what

the rental property is used for. Some examples of REIT subcategories are Mortgages, Retail,

Residential and Commercial Office Space. HPP specifically leases commercial office space.

HPP’s unique selling proposition is the amount of customizability they offer to their tenants.

They work with tenants to provide unique solutions to their needs, whether it’s transportation,

sustainability, or recreation. This emphasis on customizability distinguishes HPP from their

competitors, attracts successful tenants, and allows them to charge a premium for their rental

properties (HPP, 2018).

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II. SWOTT Analysis

For a detailed analysis of HPP’s strengths, weaknesses, opportunities, threats and trends, please

see Attachment 1.

III. Target Markets

For more detail regarding HPP’s target markets, please view Attachment 2.

Primary: HPP’s primary target market are their tenants and broker representatives. Their tenants

include 66 of the most successful Fortune 1000 companies such as Amazon, Apple, Netflix,

HBO and Redfin. HPP owns office and studio spaces in areas such as Los Angeles, San

Francisco, the Silicon Valley and Seattle (Dempsey, 2015). HPP redevelops and repositions

properties as “creative offices to attract top-tier tenants in Technology, Entertainment, and Other

High-Growth Industries” (HPP, 2018). In a PDF of their Investor Presentation, that was released

on March 20th, 2018, they mentioned that their 15 largest tenants consisted of leading Blue-Chip

and Growth Companies with a total of 37.3% ABR (HPP, 2018). These companies are targeted

based on their credibility and ability to generate revenue to pay off any leases they sign with

HPP. Credit rating is an incredibly important factor when deciding who to lease property to. HPP

specifically targets companies with excellent credit scores. They also target companies based in

areas they own property: Seattle, L.A, San Francisco, Hollywood, and Silicon Valley. To further

hone this target market, Fortune 1000 companies were screened based on the two previous

factors, and 60 companies that meet the criteria HPP is looking for in tenants (Reference USA,

2018).

Secondary: HPP’s secondary target market are the analysts who evaluate their stocks. HPP

currently has 12 analyst ratings, which break down into 4 strong buys, 5 buys and 3 holds
 4-Hudson Pacific Properties

(Yahoo!, 2018). These ratings affect their attractiveness to investors as well as the value of their

stock. HPP must continually demonstrate value to these analysts, or face the risk of being

downgraded as they recently were by Sandler O’Neill (Wilson, 2018). To further refine this

target market, HPP should specifically target analysts that are giving sell or hold ratings.

Marketing to analysts who downgraded their rating within the last year have the greatest chance

of reverting their rating back to a buy (Yahoo!, 2018). Using these criteria, there are two analysts

that HPP should target specifically, Mizuho and Goldman Sachs.

Tertiary: HPP’s tertiary target are their investors. As stated on the “Institutional Ownership”

portion on their website, there are 293 institutions who own shares in the company. Among the

investors is Goldman Sachs, Vanguard Group Inc. and 544 institutions with mutual fund shares

such as JPMorgan Insurance Trust and College Retirement Equities fund (HPP, 2018). HPP’s

investor relations should be focused on larger investors such as Vanguard and other mutual

funds. Hudson should segment these investors by size of investment and type of firm or investor.

It is important to separate mutuals funds and pensions and other firms like banks as their motives

differ. Pensions and mutual funds can be expected to hold a position for longer than other

institutions. It is also important to segment investors putting forth more than $10mm, as those

investors are primarily the ones they would like to attract.

IV. Competitive Analysis

Competitive Landscape: The top four REITs only account for 20% of the industry’s total

market share making it a highly diluted industry (Rivera, 2017). The industry is expected to

become more highly concentrated in the near future, as struggling REITs that were hit hard by

the 2008 subprime mortgage crisis continue to merge with and be acquired by more financially
 5-Hudson Pacific Properties

healthy REITs (Rivera, 2017). HPP is in a position of strategic strength relative to many

competitors, because they were founded after the subprime mortgage crisis and managed to

avoid the hit to property equity as well as purchased property at reduced prices (HPP, 2018).

Competition in the REIT industry is rated as moderate and is steadily increasing. Competition

comes in the form of other REITs in the same subcategory offering similar services, but also in

the form of investment funds that are potentially more attractive options for large institutional

investors. REITs have a competitive advantage over these funds because of their unique

structure, which allows them to avoid taxes at a corporate level (Rivera, 2018). The REIT

industry is following the current trend of the U.S. financial market by becoming increasingly

globalized, however revenues from international markets are currently marginal (Rivera, 2018).

REITs are expected to continue expanding globally, and any potential protracted downturn in

economic activity in the U.S. market is anticipated to greatly increase the speed of this process.

Micro Competition: HPP’s micro competition is currently limited to REITs of the same subtype

operating in similar geographic locations. The largest competitors in this group are Digital Realty

Trust Inc., Kilroy Realty Corp., and Prologis Inc (Reference USA, 2018). These REITs directly

compete with HPP across all three target markets, struggling for tenants, analyst ratings, and

investor capital.

Macro Competition: HPP’s macro competition comes primarily from the larger REITs of

different subcategories who compete with them for investor capital. Examples of these REITs are

Simon Property Group Inc. and Host Hotels and Resorts LP. These REITs utilize their position

of financial strength to acquire smaller REITs, or outcompete them for investor capital (Rivera,

2018).

Summary:
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HPP’s biggest marketing challenges are customer satisfaction, conveying their value, and

targeting their markets. To increase customer satisfaction, Hudson could further increase

sustainability efforts and pass cost savings along to their tenants. They should also look into

increasing their communication with tenants, periodically surveying them to make sure all of the

tenants’ needs are being met by HPP and the property they currently occupy. Lastly, Hudson

could provide incentives to their tenants that renew leases and continue to lease property through

HPP. Hudson Pacific Properties appears to have trouble conveying their value to potential

tenants. They should focus on showing potential clients the benefits of their properties over other

commercial real estate properties and managers. The best way to do this is by showing the high-

value locations they offer and justifying them by giving examples of cost breakdowns of similar

buildings in the area. Additionally, they could emphasize their ready access to other business and

local infrastructure. Their final and most serious challenge is targeting their markets. They could

further develop their market by advertising in places like trade journals or industry focused

publications. Another option is to directly reach out to the management teams of companies that

are rapidly expanding to see if they have unmet needs. Hudson Pacific Properties should also

advertise to existing tenants that are growing and may have need for more properties.
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Attachments
Attachment 1: SWOTT Analysis
Strengths: Weakness:
● They are vertically integrated. ● They recently re-acquired the controlling interest in their
● They prioritize customer satisfaction leading to high tenant company from Blackstone incurring a large opportunity cost
retention rates. (Campbell, 2017).
● They have strong financial performance and outperform the ● They have received several poor ratings from employees on
S&P 500 every year (HPP, 2018). ratings websites (Glassdoor, 2017)
● Their focus on sustainability and efficiency reduces long- ● Their choice of properties is very capital intensive.
term costs.

Opportunities:
● A low market share concentration in their industry allows
expansion through mergers and acquisitions (Rivera, 2017).
● REITs are also becoming increasingly globalized, another
opportunity to expand (Sharma, 2016).
● Improvements in technology in the industry are reducing
costs (Rivera, 2017).
Threats:
● The REIT industry is becoming more competitive (Rivera,
2017).
● REITs are also highly cyclical and linked to the broader
economic climate (Moen, 2015).
● Relationships with controversial clients may damage their
credibility with ethics-based investors (Walsh, 2014).

Trends:
● The increase in interest rates will raise the cost of capital overall. We just saw a rate hike of 25 basis points in March, and can expect
to see another 2-3 rate hikes by the end of 2018.
● The new US Tax Plan may offer REITs substantial tax benefits (Chen, 2017).
● Vacancy rates in the industry have been trending downwards for the past decade (Rivera, 2017).

Attachment 2: Target Markets

Primary: Fortune 500 Companies in Washington and California. There are 66 in these states. Some of the largest are
Hewlett Packard, Amazon, and Google (Dempsey, 2015).

Secondary: 12 Major Stock Analysts currently evaluate HPP. 4 say strong buy, 5 say buy, and 3 say hold. HPP
specifically targets the ones saying hold, which are currently Keybanc, Sandler O’Neill, and Mizuho
(Yahoo!, 2018).

Tertiary: Large Institutional Investors like Vanguard, Blackrock, and Goldman and Sachs make up over 95% of
HPP’s shareholders (Yahoo! Finance, 2018) HPP continually markets themselves to these investors to
ensure a steady flow of capital. We will further segment by invest type (pensions and mutual funds vs other
institutions) and by investments over or under $10mm.

Attachment 3: NAICS Information

NAICS 52593, Real Estate Investment Trusts
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Attachment 4: Problem/Solution Chart:

Problems Solution 1 Solution 2 Solution 3

Customer Satisfaction Increasing tenants cost Periodically survey Provide incentives for
savings from tennants to make sure all companies to have a
sustainability features their needs are met sustained relationship
with HPP

Conveying Value Use charts and
infographics to explain
cost advantages over other
property managers
Use maps to show high-
value locations of
properties
Justify high cost locations
with tangible benefits
(proximity to other
business, public
transportation, other
infrastructure)

Targeting Markets Advertise new properties Contact Fortune 1000 Advertise in Media and
to existing clients that are COOs to get a better Telecom trade journals
experiencing growth understanding of their
needs and desires

Attachment 5: Target Market Chart

Primary Target Market Secondary Target Market Tertiary Target Market

Target Description Fortune 1000 Companies Stock Analysts Who Institutional Investor
Evaluate HPP Shareholders of HPP

Initial (N) 1000 12 326

Segment Basis 1, Excellent Credit 935 - -

Rating

Segment Basis 2, Geographic (Seattle, 60 - -

Hollywood, San Francisco, L.A.,
Silicon Valley)

Segment Basis 3, Analysts with Sell or - 3 -

Hold Ratings

Segment Basis 4, Analysts that have - 2 -

downgraded within the past year

Segment Basis 5 Larger than $10 - - 34

million investment

Final N 60 2 (Mizuho, Goldman 34

Sachs)
 9-Hudson Pacific Properties

References

Campbell, L. (January 4th, 2017). HPP Announces Pricing of Primary Offering Of Common Stock To Fund Repurchase Of Common Units And Secondary

Offering Of Common Stock By Selling Stockholders. Retrieved February 11th, 2018

from:http://investors.hudsonpacificproperties.com/Cache/1001218694.PDF?O=PDF&T=&Y=&D=&FID=1001218694&iid=4251328

Chen, M. (2017, December 22). New Tax Plan is Good for REITs ETF Investors. Retrieved February 09, 2018, from https://www.etftrends.com/2017/12/new-

tax-plan-is-good-for-reits-etf-investors/

Dempsey, C. (2015, July 28). Fortune 500 List by State for 2015. Retrieved February 09, 2018, from https://www.geolounge.com/fortune-500-list-by-state-for-

2015/

G.Gage (February 6th,2017).REITs Reshaping Communities: Hudson Pacific. REIT Magazine. Retreived from https://www.reit.com/news/reit-

magazine/january-february-2017/reits-reshaping-communities-hudson-pacific

Glassdoor. Glassdoor.com (2017.). Retrieved February 09, 2018 from https://www.glassdoor.com/Reviews/Hudson-Pacific-Properties-Reviews-

E354494.htm

Google Finance (2018). Retrieved March 25, 2018 from

https://www.google.com/search?tbm=fin&ei=Eim4Woq2CoW4jwOP17vYAQ&q=HPP&oq=HPP&gs_l=finance-

immersive.3..81l2.13112.13631.0.13961.5.5.0.0.0.0.119.334.0j3.3.0....0...1.1.64.finance-

immersive..2.3.334.0...0.BmbzfUxeqkU#scso=uid_ISm4Wr2SBZDAjwPfroyQBA_5:0&wptab=COMPANY

HPP, (2018). Hudson Pacific Property. Retrieved February 09, 2018, from

http://investors.hudsonpacificproperties.com/CustomPage/Index?keyGenPage=1073744035

Moen, E. (2015, February 16). What makes housing markets so volatile? Retrieved February 08, 2018, from

https://www.weforum.org/agenda/2015/02/what-makes-housing-markets-so-volatile/

Reference USA (2018). Retrieved March 24, 2018 from

http://www.referenceusa.com.ezproxy2.library.arizona.edu/UsBusiness/Search/Custom/c76f0ace9fb14fbeaa2ebb4b8a75ec83

Rivera, E. (2017). Real Estate Investment Trusts in the US. IBIS World US. Retrieved March 24, 2018, from

http://clients1.ibisworld.com.ezproxy1.library.arizona.edu/reports/us/industry/competitivelandscape.aspx?entid=1344

Sharma, D. (2016, September 15). Key Trends Taking Shape In REITs. Retrieved February 09, 2018, from http://www.etf.com/sections/etf-strategist-

corner/key-trends-taking-shape-reits?nopaging=1

Wilson, N. (2018). Hudson Pacific Properties (NYSE:HPP) Lowered to “Hold” at Sandler O’Neill. The Ledger Gazette. Retrieved February 08, 2018, from

https://ledgergazette.com/2018/02/07/hudson-pacific-properties-hpp-stock-rating-lowered-by-sandler-oneill.html

Walsh, B. (2014).Your Data Is Dirty: The Carbon Price of Cloud Computing. Time Magazine. Retrieved February 09, 2018 from

http://time.com/46777/your-data-is-dirty-the-carbon-price-of-cloud-computing/

Yahoo! Finance (2018). Retrieved February 09, 2018 from https://finance.yahoo.com/quote/HPP/holders?p=HPP