Q3 2019 Earnings Call
And just ever seen response.
Greetings and welcome to the Hudson.
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[laughter].
2019.
And what they're not here.
At this time all participants are in listen only.
A question and answer session.
All the.
Bob.
I'm off and awareness there.
Sure.
Simply.
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Hi.
This is being.
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Introduce your host.
Just.
Senior Vice President Investor.
And marketing.
Thank you Ms. cabling and maybe.
Thank you operator, good morning, everyone welcome to Hudson Pacific properties.
Okay.
<unk> earnings call.
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A press release or supplemental were filed an eight.
Great.
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For now available on the Investor section.
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HM.
The via webcast.
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That's helpful.
He played I thought over the.
Next.
Investors section.
Yeah.
During.
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Fiscal matters, which are reconciled to GAAP financial.
In our.
That's really a supplemental.
Well also be making for worldwide.
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Correct.
Sure.
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Yeah.
These statements are subject to risks and uncertainties.
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If you.
[laughter].
Actual events could cause our.
All to differ materially.
[laughter] hard rock.
Well.
I'd like to welcome Victor Coleman, our chairman CEO .
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Well I must.
Well.
Yeah. So.
Yeah.
I will give an overview of our.
In school.
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The circuit.
I think so.
Financial highlights.
No they will be joined by other senior management during.
Any portion of our.
Right so it looks.
Welcome everyone to our third quarter 2019 call.
[laughter].
We had an excellent.
Third quarter as exemplified by strong performance metrics across every aspect of our business.
Spreads to same store NOI growth.
[laughter].
Lesions.
[laughter].
Recycling.
The balance sheet quality, you will see as we move to the call today that we continue to execute very.
The combination.
With the exceptional and still.
Yeah.
Strengthening fundamentals across our west coast markets.
Actually if you.
The year and lays out an excellent.
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If I was more.
Third quarter, we signed more than 550000 square feet of.
Right.
I just think gap.
30% cash rent spreads and year to date, we leased 2.1 million square feet.
Right.
35%.
42%.
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Brent.
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So D. If you take into account there are a larger steel this quarter get hubs 90000 square foot renewal.
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Plus an adjustment from a modified grows to a triple net lease structure.
We estimate that in fact.
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We achieved 34% gap a 19%.
Cash rent spreads this quarter, and 39% gap and 25%.
Spread.
Year to date.
So I'm not Betsy.
Hi square feet of near term and under construction projects or 89%.
Hi.
Activity throughout our markets were strong this quarter in line with our it'll deal abilities.
We saw an 80% of our leases in the Bay area.
Oh.
For the two significant deals.
But.
Three three twin dolphin in Redwood shores, which raised the lease percentage for that asset.
8% to 75%.
We have coverage that is deals and.
So why is your proposals on 65% of the remaining 528000 square feet.
19 expirations.
Well lets them like ours.
The market and further we already have 40%.
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Our remaining 864000.
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2020 expirations.
[laughter].
For example, Omar.
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So these healthy.
[laughter].
<unk> percent rent spreads will enable us to drive meaningful in Hawaii growth through renewals and Backfills.
Even with just 6% of our toll office square footage Rolling next year.
At the end of quarter are stabilizing in service office portfolio for 96.4% and 94.7% leased respectively.
Now turning to the studios high profile productions.
Likes it ABCD Netflix continue to dominate demand for sunset studio services and stages in quarter over quarter, our stages are fully.
I.
And I recently, we've seen a jump in demand.
For writers offices from array of clients, including Amazon.
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M.B.C.H.B.L. Lionsgate and Viacom and yet this is another byproduct of streaming production doubling over the last two years.
At the end of the third quarter, our trailing 12 month.
Average lease.
Same store studios was up 282 basis points.
Year over year.
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Well the trailing 12 month average rent was up 5.1% to $40 per square foot.
50% of our studio FBR.
Hi, derived from long term leases as our clientele increasingly look.
Lockup stages for production space for three years or.
Earlier this month, we delivered topic, our 200 plus million dollar creative office development in Hollywood.
Which netflix will occupy in.
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Its entirety in addition to the significant.
In a wide growth attribute.
Is this.
Got to discuss.
This completion is noteworthy on a number of fronts.
First it exemplifies our track record.
De leveraging large scale in complex urban projects on time and on budget.
And fully pre.
It also shows how we continue to evolve our urban campus concert.
Concept, which started.
[laughter] element la.
It has enabled us to attract many of the world's most successful visionary.
Companies and.
It showcases.
Our commitment to innovative and sustainable building design to high Tech in energy efficient infrastructure and to the adaptability of advances in AI related technologies like autonomous cars.
And finally as our fourth deliver project adjacent to the Sunset Studios in Hollywood It represents our.
To what office markets.
Can and will do for the media entertainment companies have today.
And for the future.
We did not have much.
In the way of capital recycling activity in the third quarter other than completing the disposition of the campus center.
Honored and $48 million and proceeds for which.
Primarily to repay our revolver.
Notably, though the campus center sell brings our dispositions of the former Blackstone.
Peninsula, and Silicon Valley asked us to nearly a billion dollars close to.
A third of the original portfolio.
And we continue to.
Strategically.
Or.
Yes, and studio acquisitions across our core markets.
Finally, I'd like to highlight.
Milestones in our ongoing work to elevate and integrate our yes cheap priorities throughout the company, we recently announced our portfolio.
Almost entirely carbon neutral.
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The exact thanks to the purchase of renewable energy.
[laughter].
Our goal is to be 100% carbon neutral.
Through similar credit purchases by 2020, well in advance of any regulatory requirements. We also pursued these offsets as an immediate and impactful way to address our carbon footprint. However, we're taking a holistic approach to addressing climate change.
This includes.
All.
Active participation and benchmarking programs, such as energy start and.
Right.
Well, we're also making significant strides our development program has always been 100% LEED certified but we anticipate that by year end 2020, 60% of our portfolio, we learnt LEED certified and over 70% will be energy star certified.
Also.
The report.
At this year, we earned grasp.
Five star.
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Our designations are second time, receiving the ladder and for industry leadership and absolute performance on U.S.G. related initiatives as well as recipes.
Recognition for our excellent SG.
Disclosure.
It's been in the area an area that we've tried to focus over the last year.
Hi, I'm going to turn it over to arc who's going to further comment.
On our leasing and our markets.
[laughter].
Thanks Victor.
Yes.
Oh demand continued positive net absorption has uniformly contribute to supply constraints across our markets.
Hi, plenty of activity, which accounts for.
Deals and leases otherwise or proposals remains over 1 million square feet.
[laughter].
Pecking creative companies are driving.
Well more traditional.
Histories like aerospace in.
Service contract.
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This is rapidly redefining, which locations and prototypes Amanda most.
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The directly.
Yes.
So our.
In Hollywood this quarter class a rents.
This increase nearly 1%.
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$61 per square foot well class a vacancy was down 40 basis points to 6.4% with 24000 square feet of positive net absorption.
We're in negotiations for the entirety of Harlow, which will deliver next year.
Thanks.
Yeah, we remaining 2019 exploration of significance in Los Angeles is Saatchi in Saatchi's year end lease termination that del Amo, which we are exploring all options to address.
Our stabilized Los Angeles portfolio is 98.7% leased and in place rents are 14% below market.
In San Francisco, the only thing slowing the pace of absorption.
Is constrained supply as there is simply not enough large blocks placed space to bleed demand half of the 6.8 million square feet of requirements in the market, our 100000 square feet or more while there are only eat such blocks totaling 1.9 million square feet available class a rents rose 1.8% this quarter.
The $91 per square foot, bringing year over year rent growth to 11.7%.
Class a vacancy ticked up 20 basis points, but remain incredibly low at 2.7% with 473000 square feet positive net absorption.
We've essentially address all our remaining 2019 San Francisco expirations.
Our stabilized San Francisco portfolio is 98.8% leased and in place rents are 30% below market.
In Q3, which was another solid quarter for the peninsula for the purposes. The this discussion which includes Palo Alto class a rents increased 2% to $90 per square foot, bringing year over year growth to 6.5% well class a vacancy fell 10 basis points to 7.4% with 100.
63000 square feet of positive net absorption.
We've got a 140000 square feet of remaining 2019 explorations along the peninsula, all sub 25000 square foot spaces, with 60% coverage those or 14% below.
Our stabilized peninsula portfolio now, 89% leased and in place rents are 8% below market.
Silicon Valley, which had the most active quarter in terms of gross leasing with 4.2 million square feet of deals.
North San Jose is a standout as the market continues to tighten class a rents increased 2.5%.
In the quarter and $50 per se.
$50 per square foot, resulting in year over year growth of 16.2% well class a vacancy fell 20 basis points to 10.8% with 139000 square feet of positive net absorption.
We have 131000 square feet.
Silicon Valley 2019 expirations remaining also all sub 25000 square foot spaces with 65% coverage those are 22% below market our stabilized Silicon valley portfolio is 97.7% leased and in place rents are 7% below market.
Downtown Seattle continues to show strength as pre leasing has become a necessity for companies looking to secure large blocks of contiguous space.
This level of demand bodes well for all our properties in the market, but particularly for Washington 1000 development.
Which we have begun to market class a rents in downtown increased to 2% in the quarter $47 per square foot up 5.9% year over year in class a vacancy dropped 60 basis points to 6.3% 583000 square feet of positive net absorption.
We have nothing substantial in the wave remaining 2019 expirations in Seattle, Oh stabilized CL portfolio is 95.4% leased and in place rents are 21% below market.
Downtown Vancouver is a metro areas most competitive submarket in terms of demand class a rents in the quarter held at $61 per square foot.
10.4% year over year and class a vacancy remains very low at 2.5% down 30 basis points with 22000 square feet a positive net absorption Deloittes 93000 square foot leased the Ben tall remains unknown Q4 vacate.
We plan to reposition the space in our even though she is in negotiations on several floors otherwise we'd have about 42000 square feet of 2019 expirations remaining with over 90% coverage on that space collectively our remaining 2000 and I can bend Vancouver expirations are 40% below market, our stabilized Vancouver portfolio.
It was 97.7% leased and in place rents are 23% below market.
And with that ill turn the call over to Mark for financial highlights. Thanks Art.
The third quarter, we generated FFO, excluding specified items 51 cents per diluted share compared to 47 cents per diluted share year ago.
Higher occupancy and rental rates across both our office and studio portfolios together with asset acquisitions, specifically 10 East 50, Pico and the very building where their primary drivers of this year over year increase.
Specified items consisted of transaction related expenses of $300000 or zero cents per diluted share compared to transaction related expenses of $200000 or zero cents per diluted share a year ago.
And the third quarter and Hawaii at our 35 same store office properties increased 8% on a GAAP basis, and 7.5% on a cash basis.
Given these strong results as well as our expectation of that portfolios continued performance throughout year end, we're increasing our full year same store office cash NOI guidance for the third consecutive quarter from a 4.5% to a 5.5% midpoint.
Our same store studio and Hawaii increased by 22.9% on a GAAP basis, and 29.3% on a cash basis in light of these impressive results. We are increasing full year same store studio cash NOI guidance mid 0.7, 0.5%.
[noise] terms of capital market activity, we recently issued $400 million, a senior notes, 99.268% of par value with a 3.25% coupon and January 2030 maturity.
We use net proceeds to repay our 300 million dollar five year term loan due April 2020, as well as all outstanding amounts on our revolving credit facility with the remainder available for general corporate purposes.
This is simply a continuation of our efforts to address near term maturities and improved liquidity.
We now have only 64 and a half million dollars of debt maturing next year with no maturities in 2021.
I also have all 600 million available under our revolving credit facility, which when combined with our with $230 million available under our revolving sunset Bronson secured loan and cash on hand gives us close to $900 million of immediate liquidity.
In light of our commitment to sound balance sheet management among other strengths earlier this month moodys upgraded our credit rating credit rating, including our long term issuer and senior unsecured radians from BW athree to be doubly too with a stable outlook.
We're pleased that in doing so moody's recognize the quality of our team portfolio and markets, our overall liquidity profile, including our large unencumbered asset base and strong fixed charge coverage, our successful track record and our commitment to owning and operating sustainable and efficient properties.
[noise] as Victor noted this month, we completed epic.
Including our fourth and traction and Maxwell redevelopment, we have now recently placed into service three such value creation projects and we are poised to see significant and Hawaii growth associated with these projects in the fourth quarter and beyond.
We anticipate those projects will generate a 5.5% increase and the company share of fourth quarter, GAAP, and Hawaii compared to third quarter, which as a point of reference was $124.7 million.
We anticipate those projects will generate a 6% increase in full year, 2020, GAAP and Hawaii compared to the company share of annualized third quarter GAAP NOI.
We will also ultimately see similar growth and our cash NOI as upfront abatements associated with leases at those projects phase out.
Turning to guidance, we are increasing our full year 2019, AFFO guidance range from $1.98 to $2.04 per diluted share excluding specified items to $2 to $2 in six cents per diluted share excluding specified items, raising our midpoint from $2 and why.
Consent to $2.03 three cents per diluted share.
Specified items consist of transaction related expenses of $500000 identified in connection with our first and third quarter results.
And one time debt extinguishment costs of $700000 $100000 of which was identified in connection with our first quarter results and another 600000 of which will be identified in connection with our fourth quarter results stemming from the repayment of our 300 million dollar five year term loan due April 2020.
As described earlier.
Combined these specified items totaled $1.2 million or one cents per diluted share.
This guidance otherwise excludes the impact of on an outdoor speculative acquisitions dispositions financings and capital markets activity.
That I'll turn the call back to Victor Thanks, Mark Art and Laura.
As I mentioned to start the call our results speak for themselves and the third quarter and year to date, we've continued to demonstrate robust leasing activity exceptional rent spreads significant same store NOI growth successful execution on both our development pipeline and noncore assets and solid yet still improving credit metrics.
Such strong performance is hardly new for Hudson Pacific and as always I would like to congratulate our entire team on yet another great quarter and to everyone listening. We appreciate all your support with that we look forward to updating you next quarter and operator lets open the lines for questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask your question you May Press star one on your telephone keypad a confirmation total indicate your line is another question to you May Press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, and maybe necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks, Victor I wanted to touch a little bit on the studio business. It seems like you guys have a very strong platform, maybe the strongest out there, but there are competitors that are growing and acquiring at high prices in the space. So how do you see the competition and any increase supply influencing your operating results Andrew.
Your ability to continue to grow that part of the business going forward.
Thanks, Blayne so listen.
We wouldn't have had this conversation what a year or so ago right about competition. So it's not a bad thing at the end of the day it validates our pricing it validates the structure in the business model from others not just ourselves at for 10 plus years, we've been telling people what degree business.
Now the competition is you know is albeit very limited that's really only one other player and in currently today, it's only one studio because the other studio is on the development opportunity in the third.
Opportunity is is is Amazons corporate campus that being said there is very little supply in the marketplace is today, which enhances our business model for us to continue to grow organically on our own portfolio, which is the Sunset studios that we have about another million square feet to build.
And we're evaluating studio components at the same time, we've also feel that there are opportunities in our backyard here and other markets that we've talked about that we're evaluating senior you look to grow.
Interestingly enough you know the the content players are expanding in in the key markets that we're looking at so we're gonna grow with them hopefully and we've had conversations with multiple players in that basis, and I think the opportunities you're gonna Valence health for Hudson you continue to move forward, obviously pricing is an issue as you mentioned.
And it's something that we're very cognizant of but you know what I do think that thus the facts sort of.
I'd say for themselves. The reality is it for us to go in second tier marketplaces, we put our you know line in the standards and that's not something we're going to do for us to go into the primary markets didn't have showed traction stickiness. We said, we're going to continue to grow in those marketplaces and I do think that the opportunities would be.
Very economically beneficial once we serve movements in those areas and it's something that we're going to spend a lot of time and effort that we havent, we're going continue to do so.
Great really helpful. And then two questions on Seattle looks like you guys had a move out at Northview Center. So.
I was wondering how you guys view that asset in terms of a longer term fit within your portfolio. At this point and then number two you guys don't currently have any exposure in Bellevue were there it's been a ton of activity recently, how would you characterize your interest in that market and are there any opportunities out there to maybe gaining a foothold or.
Does that too expensive at this point.
Blayne, I'm I'm going to sort of top to top line on both those are all in argue with GDP in the move out activity there and what would our thoughts are they will tell our balance jumping on on Bellevue generally speaking north use not an asset that we would want to keep long term.
It is proven to be very great cash flowing assets, we have some opportunity that value increase can be achieved over the next year to two there and we're evaluating.
The Retenant C and the aspects there the markets is there is still very strong, but it isn't outlay asset from our standpoint as to Bellevue. It's a market that we're highly focused on right. Now we are looking at an opportunity or too that will have a substantial foothold if we're successful in that marketplace.
We think it's very synergistic to what we're currently so you know what we currently own and what we're about to build the Seattle itself are you in Japan sure ATP was unknown vacate 29000 square feet in August as well know and currently the team is negotiating with multiple multiple tenants for the entire space. So we feel pretty good about it.
And the more the mark to market on that space here, we're probably talking about.
5% to 10%.
Alex Yes, as it relates to Bellevue just a further on vectors comments. It was important when we first gotten the Seattle really build the platform and infrastructure around downtown which now with the Convention center, Yeah, we're up to 2 million feet.
We like the fundamentals in Bellevue, it's essentially becoming amazon's each to Q vacancy low single digits. So for the right opportunity, we definitely would like to enter the market and think it could complement what we have in Seattle proper.
Great. Thanks, guys.
Thanks, Brian .
Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.
Great. Thank you.
Alright Summit Senate Streeter, correct looks like you guys are on track for kind of mid to high single digits earnings growth next year.
As you think about the investment activity, whether its bellevue or anywhere else I mean, how do you think about balancing FFO growth versus putting fresh capital to work and maybe.
And it might be disruptive to that growth rate.
Let me I mean lesson, Jimmy we recycled capital out of assets I think he in even though you heard my prepared remarks, you know we're worried a little over $1 billion now in the Blackstone portfolio there could be a few more assets that were looking at that it performed very well and we'll be able to recycle that capital that way. We also have talked about.
In in concert with our Threed joint venture partners expanding those relationships.
In capturing the opportunities in the marketplace is that that has been our business Army business line, which is not to say that we will grow to grow we're growing it assets in markets that are going to be conducive to what our existing portfolio as and we've been very disciplined as you know more than most in our decision, making tree and the assets that we bought.
And what it has come to either over pricing or areas of concern we've walked away from transactions I think that discipline will be maintained going forward.
Marty Yeah, Jamie let me just underscore maybe some of that thought around opportunities you know a lot of our capital recycling.
You think back on where capital has been deployed on its been in non income producing real estate a lot of it has and a lot of the opportunities that the team has been working on more recently it our income producing real estate in so hard to know whether or not your if we did.
Do recycling exactly how cap rates would compare you know immediately although the yes. The goal would obviously be to look to accretive investments. So even if there was some recycling and redeployment into new real estate in by comparison.
Although past couple of years, you'd probably see a closer at yield on.
On the sold assets in the redeployment and then we would expect to see more accretion down the road on whatever was redeployed into so I don't think you would experience as much dilution.
Okay, that's very helpful.
And then can you talk about your exposure to we working co working in any conversations you've had with them about plans for some of the spaces. They have with you guys and just what's your what's your expectation on what happens at some of the space is going forward.
Well listen you you know first of all everybody in this call knows I mean, this and I've been pretty direct as to our thought process on on co working in its been a decision that we made since the beginning we think theres an absolute roll whether it's a read this or whether it's we work or whomever.
And and.
I think we have a very an enviable position in our portfolio.
We're currently you know we have.
Space in Vancouver in La and San Francisco Seattle.
Where we have we have apps you know we work there the preponderance of that space is.
Enterprise advantage today and.
I don't think were exposed at all for a number of reasons is one the enterprise tenants are solidified and have nowhere to go to supply constraint marketplace like Seattle like San Francisco.
In Los Angeles, and our markets in Vancouver, or they have a nice nice portfolio that is enterprise for the most most of it and their co working spaces full and there's a waiting list and so theres an opportunity there that being said we have a direct correlation in conversations on a regular basis art and his team do with we were.
Okay and they also have a direct relationship with a lot of our.
A lot of our enterprise tenants there our actual tenants in our in the same markets that were it and so we don't we're not worried about the the over the over exposure at all it's less than one and a half person in the portfolio from our standpoint, and we don't we're not worried at all about the ability for one for us to take it over if need be to for us to do direct deals with these tenant.
On a short term basis, there's no more capital outlay from our standpoint or a longer term leases with these tenants, but the fact is a matter is is that we're in markets that you know as you heard the statistics.
The the vacancies are all time lows in these three markets that we have exposure to them and I think the opportunity for if we work decided to give back space, we would not be the one that they would give it back for.
Okay. Thank you and then last from me just as you think about the pipeline of tenant demand in Silicon Valley or the peninsula, how does that match up with your buildings that have space to lease in vacancy.
Well I can just saying I mean listen you know in Silicon Valley in the Peninsula and then in San Jose I mean, the numbers are staggering as to what's what's coming down in terms of opportunity tenants.
In terms of our space, we've we're outperforming even our greatest expectations in terms of rent values and numbers on that basis, you know the two big ones that we're talking about as Metro in 333333, we've got two leases were on the customer right now that being stabilized there's lots of activity our can jump in on that and then on.
Our metro.
Yep.
It's it's high Seventys right now the demand is there and I have no concerned whether or not we're going to hit not just the leasing expectations, but well exceed our rental numbers and aren't you want to jump in here, Yeah, I would say even on our own or pipeline, we talk about our pipeline being over million square feet, probably 450000 square feet or more resides in the peninsula.
Cheaply in Silicon Valley and three through three as Victor mentioned, we just moved to 2600 basis points, we've probably got another.
Another 15000 square feet in leases there Metro Center.
We've got 65000 square feet in leases in deals behind that so as you've seen and we've talked about our VSP program really it worth the team is executing on the ground and we're getting these smaller spaces leased up so more things to come.
In Redwood shores in Metro Center as well.
Alright, Thanks, a lot.
Our next question comes from the line of Craig Mailman from Keybanc Capital markets. Please proceed with your question.
Mark I, just wanted to clarify the carbon our percent uplift.
And for Q from the development deliveries.
Epic wouldn't be.
Contribute to that all right. Good just looking at the commencement schedule on page 44.
Yeah, which has Q4 eight we were.
Chris and the team did a great job we delivered on Q1 on October Onest still right at the beginning of the quarter first day the quarter. So it does contribute in Q4 for gap.
So does the tire project.
Commenced.
Yes, the first yeah. It for all intents purposes, we turned over all of it for tenant improvement purposes. So.
They have possession of the higher building starting on October Onest.
Okay all right.
Uh huh.
Can you remind us what the GAAP yield on that is.
Well you can I think you can see it right in our development page, but it's nine eight is the stabilized yield now that that looks I had to the burn off of abatements.
So it's a cap I mean, it's a cash yield not a GAAP yield.
Yes, it's a stabilized cash yield I mean, I haven't converted that in my mind to it but a stabilized GAAP yield would look like.
So yeah right because you got straight line kicked in at you know at the time of that have you picked the date of stabilization in you ran as straight line number would be higher than the cash number right.
That's helpful. Then.
Victor just your comments going back to the studio 50% of FBR is coming home from longer term leases. What do you think you guys could or would want to push that too.
Going forward.
I mean listen to it the deals that were talking about what we're looking at 29%.
Oh increase in King in cash flow and that we pushed to all of it but the fact is I think we're maintaining flexibility.
For a number of reasons I think the market is moving the demand is extremely high there are no stages available for any of these tenants that need stages and I think our team.
And bill our our planning on just measuring occupancy based on the returns and right now when we've basically given a stage away or.
For a year to year basis. They haven't left lead just keep staying so I think the flexibility there the comfort levels very high.
And obviously you Craig as you know that the credit is huge.
And just thinking about Las Palmas is kind of a newer asset for you guys was not institutionally management is is there a disproportionate amount of the upside coming from that asset or is it pretty consistent across.
We have them.
No. It's it's I would say its consistent across all the so we've gone through a massive cycle with Abbvie, a guy Gower and so now that's all roll to an all new benchmark and marketplace right Bill. Yes. So that's you know that's been obviously transfer transposed over to higher returns Netflix clearly over at Bronson and yes last Palmer.
Yes.
But those stages are in hot demand and I think thats, where our most recent NBC right. Yeah, and also we have Viacom and HBIO, they're interested in doing long term longer term deals with us they probably already approached us.
And just last one for me our could just give a little bit more detail on kind of the demand you're seeing.
And in 1000.
Sure as you know that market has about five and half million square feet of active requirements right now.
Which is fantastic on Washington, 1000, we're currently in negotiations for about 300000 square feet. As we began our marketing campaign and we're in discussions with two additional tenants each for about 200000 250000 square feet.
Great. Thanks, guys.
Our next question comes from the line of Rich Anderson with S.M.B.C. Please proceed with your question. Thanks Good morning.
So when you what do you think about your growth profile going into 2020 mouth looking for AFFO guidance, yet of course, unless you want to give it but.
Do you think when you drill down to the age of AFFO number would it be a greater number of a greater level of growth or lesser level of growth in 2020, or 2019, whatever you want to dive into.
Yeah.
I think.
It looks and again, you're right, we're it'd be getting ahead of ourselves here.
The way we've been looking at it ranch is with a some level of caution around.
On the spend the T. and T.I.s in particular that our forecast in 20 and 21 and the reason for that is and if you can see it in the numbers that we've reported.
Hi, guys can be fairly volatile.
Because it's unpredictable when tenants are going to request allowances and so forth and I think maybe more importantly, as we think about that trend.
And kind of where it how it compares to 2019 it looks like we're going to we're on a quarterly run rate average basis T.I.s are going to be right around 30 ish or so million per quarter.
And AFFO is.
33.3 year to date in probably finish as the year on a quarterly run rate basis right around that level and then if you look ahead in 2020 and 2021 collectively.
The ingredients with FFO growth.
And sort of a leveling off of T.I.s, because I think T.I.s will level off in 2020 compared to 2019. So I don't think we think on a quarterly run rate base, it's going to go up from 2019, but then it since the model suggests that it's going to go down fairly steeply in 2021, but it's not uncommon.
For our T. ice to push out a bit so lets say you level those out 320 and 21 on.
If you look at a leveling off over saying eight quarter trend and you take were AFFO is trending to the ingredients over that E quarter period suggest that f. all compare to 2019 could be over 40% higher on a quarterly run rate basis, maybe even a touch higher than that.
Now I realize you were asking about 2020, but I want to be extra cautious about that because 20. The T.I.s forecasts are for 2020 could easily spill over into 2021, and so what is a very drastic increase in 2021 are there five FFO could be a bit.
Less drastic and we can see a lot of that benefit actually spill over into 2020 2020, if we don't spend quite as much in 2020, So that's where it what trends are suggesting.
I you know I don't know then there's much more at this point, we can say about it when we provide guidance.
In February we will try to give you a little bit more color on that but I, but I mean, you can you can safely say that the growth profile. The f. a full level is probably lower than the AFFO level.
Just simply because the tea is trending down on a quarterly but yeah. That's well, yes, I think that's right. If you're right. If you were to look if you were just to compare the growth trend on AFFO compared to an AFFO. You are correct I think there is a more.
There's a there's a more steep growth trend on an AFFO over the next two years 2000 2021 compared to.
Okay great.
As far as the same store growth that you're achieving today is there any amount of capex behind that that's driving the revenue number but you don't you don't get it doesn't show up on the expense line or is this a fairly clean sort of growth profile that you know is potentially repeatable into the future.
Well I can't think of any extraordinary capex is driving that okay and you know so it's a repeatable yet it's hard to say for sure but.
Yes, I think it is repeatable if what you're asking is did we have to do something extra special to make this happen. The answers now okay, great and then lastly to Victor the a third of the of Blackstone portfolio Thats been sold how did that compare when you think back to 2015 to your expectations.
And is there any more left to do in your mind.
Well, there's a couple of assets that we've talked about that we would consider.
Opportunities to dispose of but nothing material, we're not going to dispose of our north San Jose or Palo Alto loan assets at all and that's the preponderance of what we have left in terms of the return on it I mean, I don't have the calculation, but it's been.
Yes, it's been extremely successful entrances our return on the on the sales in the region no no I mean I meant what are the the level of dispositions compared to that compare to your expectations of dispositions. When you originally bought the portfolio.
Rich that's a good question when we originally bought the portfolio, we did not benchmarked to say, hey, we're going to dispose of X number of assets over this period of time. There were you obviously up assets that we said we're going to dispose of in some some came based on 10 advises on came based on on Oh, just market demand.
But I would say overall.
If we were sort of reflect back it's probably a higher number than we originally thought but not by much.
Okay.
Alright sounds good thanks.
Thank you.
Our next question comes from the line of Nick Yulico from Scotia Bank. Please proceed with your question.
Thanks, You know you bought the fairy building a year ago any any update on the retail plan there.
Yeah, I mean, the listen to the retail plan is in full force right now I believe December 1st I am seeing a complete.
Design model of the interior exterior and ER and the process by which we're going to go through.
Two plus year redevelopment plan is that about right guys to about two plus years yeah.
Okay any I mean, any just a preliminary thoughts you can share with us on.
What you plan to do there.
No it's going to be very exciting, though go take a look by coffee.
Okay.
It will at one west side I don't think you've given an update on this but but what's the latest on securing a construction loan there and how are the.
Lenders thinking about pricing for that asset.
Like a per square foot basis.
So we were in the process of skirt securing alone we've selected a lead lender, it's going to be a us a syndicate of a handful lenders with one group in particular.
In particular are running point on it but we anticipate that will most likely close.
Before year end.
And on the value per square foot.
I don't we're somewhat.
At this point locked incessant some confidentiality, but assume that are stabilized basis, it's a big number.
Okay. That's helpful. Thanks, and then just just lastly, I wanted to see if you could give us a fuel for which assets are going to be entering the same store office pull next year. I mean, you have a number of them on that are in the stabilized pool. This year, they and so I'm just wondering if you didn't get can you walk through some of these asset.
And the pull next year. Thanks.
Well, it's likely that 35 that qualified for this quarter seems.
Same store treatment.
And you could find precisely what those are in our disclosure there indicated.
Right, just and I'm sorry, the ones that are not that are non same store, they're listed as in your stabilized pool right now which is now let's just get added next year well so Nick take the take the full stabilized portfolio you will see we break down precisely what is in the same store.
We're in the lifts the properties exactly what's in the same store and then we know if the property qualified for the current current quarter same store of 35 or if it's in the year to date same store of the 31, so it'll be the though list of the within the stabilized portfolio that's I'd.
If I had asked anymore.
Okay. So the non same store assets that are in your stabilized pool are not like hill seven other assets there are not going to enter very build or not I understand start next right that's right.
Okay. All right that's helpful. Thank you.
For the fully right and we're assuming your mean for the full year for next year as opposed to quarterly treatment.
Our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.
Hey, guys.
Art, maybe one for you just.
How have conversations about early renewals been going with tenants given the tight.
Vacancies in each of your markets.
Well when front, we usually out in front of the larger tenants had to say 10000 square feet, probably your and have two years out I don't think thats changed.
The smaller tenants.
You know there probably probably lag a little bit, but we're we're aggressively pursuing them in every market. So it's business as usual for us.
And then maybe in a similar like on a couple of calls earlier in the season people talked about companies sort of outgrowing specifically in San Francisco their space looking elsewhere is that are trend, you're seeing where he board you buy their dot people looking around end markets that might have been more secondary previously or vice versa growing.
Out of the primary markets.
And having to look elsewhere.
I think thats the case with you know if you're over 100000 square feet in the city, you're having problems right theres, probably inside of a opportunities over 100000 square feet. I mean, you noticed stripe just moved out of the city South San Francisco. That's one. Good example, one Great example, I think we've been the beneficiary of that by and large down in Redwood shores.
It's I'm filling in speaking so perfect you're you're going to be batting cleanup on November 11th after investors get to go visit with.
And that PXP Kilroy, So I don't know a how you've got that spot, but be what do you want investors to focus on.
With the other company.
And then what are you, hoping that they take away from your presentation in your portfolio and your growth outlook relative to your peer set.
Well first of all Lord Lord It all the heavy lifting to make sure the calendar. So thats one of our way for us to be the and you don't listen I think our presentation in our.
Our event is going to be much different than anybody else is that you're going to see we have a specific business strategy around around a specific topic, which is Los Angeles, and we're going to talk about Los Angeles and the future of Los Angeles.
I have no idea, what what John or Jordan or are doing but my guess is it's not that.
Because they would have been talking to what we're about it so.
The market here in L.A. J.
Is going to be something that everybody is going to focus on because we're here and is it's right now is active as we've ever seen it and its revolving around the industry of checking media entertainment and those three industries or what we're going to be focusing on in our in our prepared presentation and the guest speakers are weak.
Nearly half.
I think it's kind of unique and you know what you'll have a good time, because you always do when you come to that.
Great. Thanks.
Thank you.
Our next question comes from the line of Alexander Goldfarb with Sandler Sandler O'neil. Please proceed with your question.
Hey, good morning out there.
First just going back to sort out a few other questions that were talking about 2020 growth Mark if we look at it you guys commented on dispositions that you really are planning anything or anything that's too disruptive looking at your rent rolls it looks like sort of 8% expiring over the next youre rolling four quarters.
So is there anything extraordinary that we should think about that would disrupt the growth trajectory that we're all looking at.
Because capital markets, you're fine. So is there anything that that would disrupt it or it looks pretty good that you guys should be delivering that almost 10% growth for next year.
Nothing teed up that should disrupt that I mean.
[noise], we're always looking at opportunities there's the possibility that.
We could cover some deemed it could be enhancing to that growth.
Maybe there's a recycling that we would do the there's certainly nothing we've got currently on our plate that should disrupt that.
Right. So the Saatchi art, whatever you do without your whether you replace or sell the building that Intel you Gotta backfill there from that exploration none of that is really disruptive materially to the growth correct. No. Yeah right. I mean, we then we anticipate the vacate in del Amo, we might actually get a little lucky and got a hold over there.
My.
Add some and Hawaii in 2020 for a little while but yeah and there's nothing material.
Okay, and then Victor on Bellevue that Ted topic, that's been discussed on prior calls.
So it sounds like you guys have had a shift or maybe before you were just playing it incredibly close to the vast what your plans where so maybe you can just talk was it just preserving your competitive advantage why you demure previously on the Bellevue topic or did something change in the in the market that made you guys now want to go and take a look at acquire.
And then that over there.
Critical mass is really the key it's the opportunities that we saw.
We either were unsuccessful or they were not appropriately priced for something that we were interested in and so but we've we've been on that marketplace for a long term, but whereas I said before we're not going to go out to that market by one asset Amin just not ours. It's been it's never been our business plan to do that and and then think about growing from that point on so we'd have to find some credit critical.
Mass and if we do.
We would be entertain a an opportunity to be an owner in that market.
Okay. Thank you.
Thank you.
Our next question comes from the line of David Rodgers with Robert W. Baird. Please proceed with your question.
Yes, good good morning out there maybe first question for Mark and vector together Victor you had discussions with matrix about maybe them getting it out of the venture at one Westside and Mark you have a good sense for what development spend might be in 20, given what you're committed to already.
Yes, I'll take the first one question any time.
The reality is I think our documentation is such that there is a lockout provision, but as mace rich is interested in getting out. They know what were they know our position there and we would be more than willing to take them out.
There are.
They're limited interest in that asset.
That being said, it's a it's a great opportunity for them. They did a great partner from our standpoint and extremely complementary of our team to let them do what they do best wishes execute at the highest level to get Google in on time and on budget and so, but we would welcome that opportunity and they know that.
Yes on development spend kind of looking ahead to next year.
We've got to we've got a little bit on Harlow, an epic thats going to mostly just be the T.I. allowance of that because.
I think is done but for that amount.
It is a little spill over there so it looks like 50 million there Harlow. Similarly, so 20 call it 27 million in 2020.
One last side is a bit chunky or as Alex mentioned, you know it looks like we have a construction loan for all of it but so this won't be as we won't have to use our current capital availability for that.
Buying or our revolver, our steel revolver, but that's.
We'll see how this pans out, but we're expecting somewhere around 150 million of spend in 2020.
Okay. That's just the one visit the one Westside project in and out of the other two Andrew it Yeah, that's right.
I think you if you're really honing in on sources and uses but it's really just.
Carlo an epic that or you know have utilization of our existing uses our sources right because we have a dedicated construction loan for one west side.
Gotcha.
And then maybe going back to our just a small tenants and kind of maybe discussed on the VIP program a little bit are you still seeing the pretty strong use of the VSP program or is that kind of now fading given the amount of demand that you're just kind of fee income out of the city and the activity that youre seeing just update us where you're out on that.
No I mean, we're it's stronger than ever I mean, three three is a great example that like I said, we move that that bill in 2600 basis points and that's because of these these suite that we're building in advance of it helps us to lease them faster with less downtime.
So we're trying to deploying more VSP spot strategically throughout the peninsula.
Alright, great. Thanks.
Thank you Jay.
There are no further questions I'd like to hand, it back to Mr. Victor Coleman for closing remarks, I appreciate Everybodys time incineration. This morning.
On our quarterly call, we look forward to talking all soon and see in Los Angeles renewed.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.