Q2 2022 Hudson Pacific Properties Inc Earnings Call
Near term net impact that hybrid work capital constraints and potential layoffs could have on office demand for the second quarter overall and several of our markets. We saw tenant requirements in gross leasing.
Grow sublease space stabilize or decline and positive net absorption in the six figures yet the swelling demand and activity we witnessed at the beginning of the second quarter tempered in June and July as some of the companies pause to digest the impact of increased market volatility and the possibility of a recession benefiting from our diversification at our <unk>.
<unk> assets, we continue to see robust demand for our integrated offering of class a office high quality stages support space and production services.
While our online ancillary production office space is leasing up, albeit slowly our stages and support spaces are essentially fully occupied our studio facilities are ideal for the type of original content streaming and other media companies will continue to rely on to win subscribers. Currently we can accommodate only a fraction.
And of the inbound stage and support space related inquiries, which ultimately bodes well for our online class a and production office space.
Pro business leadership and policies appear to be gained momentum across all of our markets and this is very positive in terms of development.
Most recently California's proposal to establish an annual property tax surcharge on properties valued at over $4 million. The latest effort to repeal prop 13 failed to garner the requisite signatures to be included on November ballot from Seattle to San Francisco to Los Angeles, We're seeing greater support for pro business candidate.
With an emphasis on cleanup cities supporting beliefs, and ensuring urban centers remain open for business at the end of the day, regardless of the changing macro a regulatory environments. We are doing what is within our control and what we do best leveraging our expertise and relationships staying laser focused on leasing and making strategic enhancements. In addition.
<unk> to our portfolio to capture tenant demand now and in the future. We are in front of every relevant space requirement in our markets, where effectively determining where repositioning other capital improvement dollars can have the greatest impact in recycling out non strategic assets, while executing on select projects within our development pipeline and we're pursuing only studio.
And sue related acquisitions that are synergistic and accretive to our existing platform.
Finally, I encourage all of our investors should check out our latest corporate responsibility report.
Which we published during the quarter I'm proud of our continued accomplishments and of the value of our better blueprint ESG platform and it's creating value for our stakeholders today, we have the highest percentage of LEED certified properties among our major office Reits.
Our operations are carbon neutral and we have further reduced emissions by 25% and to address homelessness, we've invested and donated a total of $4 million towards supportive housing solutions in our communities and we've also strengthened our commitment to diversity equity inclusion hiring a D head and launching innovative impact fund.
Blue to support these efforts within our industries and our communities with that I'm going to turn it over to Mark.
Thank you Victor.
This quarter as part of our ongoing focus on leasing we signed over 700000 square feet of new and renewal office leases, including nearly 500000 square feet of deals in the Bay area alone.
This includes two significant renewals Stanford renewed the entirety of its 43000 square foot lease at page Mill Center in Palo Alto through 2027 that lease was set to expire in Q4 of this year. We also renewed 199000 square feet of new <unk> 2020 for exploration and expansion.
Handed them into another 16000 square feet at $17 40 technology in San Jose, thereby extending about 50% of their current space through 2030.
Part of this agreement <unk> early terminated 14000 square feet at concourse in May of this year and we've already backfill that space with another tenant as part of a larger new deal <unk>.
New tenants will terminate 67000 square feet and another 42000 square feet and Metro Plaza in January and June of 2023, respectively, leaving 117000 square feet to naturally expire in June of 2024.
GAAP and cash rents were up 16% and nearly 6% from prior levels. Our office portfolio at the end of the quarter was 98% occupied and 92 three.
3% leased our leasing pipeline that is deals in leases Lois or proposals is now approximately 2 million square feet and we have just over 1 million square feet of inquiries and tours on top of that.
Excluding known vacate Qualcomm, we're in leases or have LOI or proposals on about 55% of our remaining 2022 expirations within our in service office portfolio with another 10% in discussions.
Regarding sky poor Plaza in North San Jose, where Qualcomm lease expires at the end of July we are working on various reposition scenarios, including enhanced lobbies common areas and amenity and outdoor space for office use.
There are some large office requirements in the market with only a handful of availabilities that can accommodate tenants and the 400000 square foot range. So we feel that with strategic capital improvements we will be competitive.
We remain in leases with a single tenant to backfill the entire NFL space at 10, $910 950, Washington in Culver City, and we have interest from two other tenants for the entirety of both buildings.
Block gave notice that they will vacate the entirety of their space at 14 55 market when their lease expires in Q3 2023, we're continuing our marketing efforts to backfill that space, which includes discussions with existing sub tenants, who are in about 125000 square feet or 25% of <unk>.
<unk> space separately, we have had some recent interest on another 200000 plus square feet largely from a single tenant.
We're also evaluating reposition ideas to meet market demand and we're prepared to backfill this space with single floor and full podium users ranging from 25000 90000 square feet.
That was our original plan to address <unk> rollout when we purchased the asset and prior to blocks and Uber its rapid expansion.
Turning to development company, three and Google are building out their tenant improvements at Harlow and Onewest side with GAAP rents already commenced and stabilization on track for Q4 2022 in Q2 2023, respectively.
These projects will contribute a combined $45 million of additional NOI annually Sunset Kronos in Washington, 1000 are under construction with anticipated delivering in Q3 2023 in Q1 2024, respectively. These two projects upon stabilization will contribute $42 million of additional NOI.
Annually.
We also recently received planning approval for two projects within our $3 6 million square foot future development pipeline, including Berard exchange, a 450000 square foot hybrid mass timber office building in Vancouver, and a $1 2 million square foot.
Onset Walton Cross studios outside London, both in partnership with Blackstone, We now have the option to start construction on both projects next year.
Finally to provide an update on our held for sale office assets.
We've entered into contracts to sell Northview Center in Lynwood, Washington, and del Amo in Torrance, California, together these transactions, which we expect to close before the end of Q3 of this year will yield approximately $50 million of gross proceeds.
We continue to market and have buyer interest in both 69, 22 Hollywood and Skyway landing.
Also exploring alternative uses for these assets, 69% 22 hotel or residential at Skyway landing as life science and with that I'll turn things over to Ruth.
Thanks Mark.
Compared to second quarter 2021, our second quarter 2020 revenue increased 16, 6% to $251 4 million.
Our same store property cash NOI grew by seven 3%.
$225 2 million, primarily driven by the commencement of cash loans on various solutions, including Felicia farms Twitch interactive and we work at Maxwell and Libyan AD hoc houseware.
Corporate <unk>, excluding specified items was $74 6 million or <unk> 51 per diluted share compared to $74 4 million or <unk> 49 per diluted share specified items in the second quarter consisted of transaction related expenses of $1 1 million or one cents per diluted share and a one <unk>.
Property tax expense.
$5 million or zero cents per diluted share compared to transactional expenses.
$1 1 million or one cent per diluted share and a onetime property tax expense of $3 million or zero cents per diluted share a year ago year to date <unk> continues to improve by $4 7 million or four 2% or <unk> <unk> per diluted share or six 6% at the end of the set.
Quarter, we had $781 5 million of total liquidity comprised of $266 5 million of unrestricted cash and cash equivalents and $515 million of undrawn capacity on our unsecured revolving credit facility, our total liquidity as of the quarters and includes protein.
<unk> from settlement of the U S government securities used to repay the $126 $4 million of any substance the feeds that subsequent to the quarter.
We also have access to $143 9 million of Undrawn capacity under our one Westside construction loan and $85 5 million of Undrawn capacity under our Sunset Glen Oaks construction loan.
Approximately 69% of our debt is unsecured and 66% is fixed rate our weighted average long term with extension for seven years.
Not all children guidance as always our guidance excludes the impact of any.
Opportunistic and not previously announced acquisitions dispositions financings and capital market activity.
We are updating full year 2022, <unk> guidance to a range of $2 to $2 <unk> per diluted share excluding specified items specified items consist of $1 4 million of transaction related expenses $8 $5 million of trade name noncash impairment and $5 million of onetime property tax expense.
<unk> identified as exclude items in our year to date 2022 as a follow.
Our revised guidance reflects the impact of higher interest expense associated with steeper LIBOR and social curves compared to prior projections also reflects the anticipated disposition of Northview Center and del Amo by the end of the third quarter for gross proceeds of approximately $48 8 million, which we expect to use to repay outstanding.
Amounts under our credit facility.
Note that we increased our full year same store property NOI projection by 50 basis points.
Our revised range.
Two 5% to three 5%, which includes the full impact of Qualcomm's exploration of Sky Park Plaza without renewal or backfill.
The increase stems from improved leasing expectations as well as lower operating expenses compared to prior projections adjusted for Qualcomm full year same store property cash NOI growth projections would be four 5% to five 5% now.
Now, we will happily take questions operator.
We will now begin the question and answer session.
As a reminder to ask a question.
Press Star one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the key to withdraw your question. Please press Star then.
Keith.
The first question comes from the line of Alexander <unk>.
<unk> with Piper Sandler you May proceed.
Hey, good morning, good morning out there.
Two questions for you.
Victor Let me just ask a bigger picture on the studios.
There've been some announcements recently and I think these are all separate but Youll correct me and let me know if these are actually all the same but there was like Atlas that had something eastern capital and I think there was one other there've been a number of studio announcements are the economics for studios in la changing and becoming more advantageous or is there just so much demand.
And that people can make the numbers work regardless of cost escalations or how should we think about some of this increase announcements on the studio front from other people looking to either enter or expand their holdings.
Well.
Listen I think.
Specific to markets, if youre looking specifically at La <unk>.
The demand for studios is still relatively high.
Our Sunset Glen Oaks, we've got multiple tenants, who are interested in the whole thing or a series of stages and the economics around our transaction is still very favorable we went out and did a third party study, which I'm sure. Our guys can share with you want to call them offline to show supply demand ratios in our main markets.
And some of the other main markets throughout the country and in other parts of the World and we are still seeing economics around building at the right price levels I would caution.
The banter around some people, saying Theyre building studios I think.
What was planned earlier last year and even to the extent at the end of last year a lot of those deals are not going to materialize I don't think theres a lot of debt on construction financing available for.
New development and.
Unfettered groups, who don't have a lot of experience and so I still think we're in a very good position on the assets that we have.
Already.
We're going to be building and the activity that we have around them, it's still consistent with the yield even with cost increases.
Okay, and then mark.
Route.
On the interest expense I think originally on last quarter's call you spoke about $325 million to $350 million of total dispose you have $50 million now so it sounds like there is still $300 million you last time, Gabe, but two in a quarter GAAP cap rate just because of a bunch of vacancy, but now we have a higher interest rate environment. So net route.
We think and I'm not asking for 'twenty three guidance, but as we think about modeling our interest expense line and what debt balances we should be thinking about that are effected by rates. What do you think on your numbers sort of the net impact.
Interest expense.
Some of the companies are giving absolute numbers like hey expect interest expense next year to be $40 million higher or something like that is there something that you can give us.
So that we can sort of be modeling in the ballpark for where your net floating rate will be and how much interest expense do you think is going to increase next year.
Alex Thank you for the question.
Theres a lot digest that we haven't provided anything in 2023, but maybe as a guidepost I can give you the breakdown of our 2022 are.
Our variable that this year. So you can get a sense of what the drivers are and then use that to model.
If you look at our variable debt, even though it's at 44, 5%, it's really comprised of the 14%.
The total.
Debt.
As for an 85000 range of online, which we find to be temporary and once we sell these other assets, we'll buy that down pretty significantly.
Another $6, 1% or $210 million relates to construction financing both at Onewest side and.
Sounds like one Oaks, which again is relatively temporary until those construction loans get taken out and then you have another $328 million worth of debt.
That has some sort of cap on it whether various caps and then that really leave you with $170 million to $173 million.
$1 of debt, that's truly variable, meaning there is no caps, it's not temporary so if you kind of break it down that way you can look to use those numbers to protect because ultimately all we use our future LIBOR and software curve. So we don't have any other crystal ball to utilize all of those yeah, Alex Let me just.
To respond to your question about the held for sales.
And impact on that.
If you cut through it even if you assume kind of higher underlying so for LIBOR rates.
Which on the curve peak out in December and then start tapering back down even if you assume kind of the higher end of that.
Curve.
The NOI generated by those assets right, which until sold will continue to contribute.
Roughly.
Offsets.
It difference between 622 at Skyway landing, but collectively they basically offset the savings associated with the debt repayment. So.
It's more or less a neutral outcome, whether you sell it and pay down the debt or keep the assets and carry the debt.
Okay. Thank you.
Sure.
Yes.
Yes.
Thank you.
Our next question comes from the line of Michael Griffin with C. You May proceed.
Thanks, maybe stepping back to talk again about the leasing in the San Francisco area. You know obviously it was driven by the new tactics with Sanford renewals, but kind of for the other half of the leasing what really drove this demand was new leases expansion of tenants any specific sector that is kind of driving that.
Yes. This is this is it really a mixed bag, which is which is.
Promising right I mean, the valley and Peninsula Greater Valley and the Peninsula has shown quite a bit of lift in the greater markets. There was roughly $3 1 million square feet of gross leasing 2 million square feet of net absorption and we've seen that driven four to five quarters in a row right and.
Relative to our portfolio. It is it's not just it's not just tech, but it's been law firms, it's been a fire sector and so forth. So.
It's very pleasing to see that it's coming really from from all sectors.
Great. That's helpful. And then just wanted to get a sense on the sub kind of exposure in the portfolio.
Mark kind of touch on this in the prepared remarks, but could you see some of these go direct as future prospects for space in the future.
Yeah, absolutely I think Mark alluded to 14 55 in particular, which we are working with those tenants to keep them in some capacity.
But across the portfolio. We're in front of every single one of our sub tenants and we'll keep them in some in some way shape or form.
Got you could you could you put a number around that subset and subtenant exposure kind of quantify it.
Total total sublease in our portfolio.
Yes, yes, probably about we're talking about probably a four.
400000 square feet, a little bit more.
Okay, Great. That's it for me thanks for the time.
Thank you.
The next question comes from the line of Jamie Feldman with Bank of America. You May proceed.
Great. Thank you Victor I wanted to go back to the comment you made at the outset of the call about.
Just it sounds like.
Tech in general and.
Overall demand is still seems like its there can you just talk more broadly about I know, we're seeing the headlines.
Course, depresses focusing on the negative, but what do you think the same tenants and the largest tech tenants are thinking about their long term space plans today.
Yes, Jamie listen.
I don't have a crystal ball as I'll use.
Rich Frazier, but but.
I think you've seen in the marketplace and I appreciate the rhetoric around negativity seems to have the highest highlight so.
<unk> C, but the preponderance of the stable tenants, even though there may be a pause or a whole back have a vision beyond 24, 36 months right Theyre not.
I think the encouraging aspect of the I'll use Google as an example, because we're seeing it in our own portfolio they've come back to us on some space and said, we want to extend leases and the likes of that for 10 years out that their vision and I think that's the encouraging aspect even though other tenants are the same.
We're going to we're going to wait and see and we're not going to renew or we're going to we're going to downsize and so the overall rhetoric around some of the strong tenants paying related or not.
We are staying put into certain assets, and we know which ones in our portfolio. They are saying that there are certain assets in our portfolio. We have exposure, but we know that reached out and said we want to renew early or we want to restructure our lease that we have longer term I think this silver lining if there is one off.
That is the term that theyre looking at is not a three four year term, it's more of a 789 year term longer art wants to comment on that yes.
Not only turn but you seem to even the depth of the pandemic, Jamie you've seen the same tenants, taking additional space, even with us, but even as we speak now the tenants that are driving the large tenants that are driving the market Apple still doing large deals in silicon valley. They just did almost 400000 square feet, Microsoft doing 450.
Square feet in Vancouver, and the likes of those we're still seeing those.
Across the markets.
So can you quantify the size of that leasing pipeline the stuff that <unk>.
Probably on hold for now but on a longer term view probably gets leased at some point.
Across the entire well I do know that one of them one of the markets that has some caution right now with regards to demand and leasing activity is Seattle I know there is there is this four tenants close to about 100000 square feet that are tech tenants that have really hit the pause.
But they have not left the market, but they are still in the market and that's for Seattle right now I think thats kind of our our chief Chief concern.
But I could I couldnt give you a market by market breakdown it tends to have hit the pause button reasonable.
Okay. So maybe using them as an example, what do you think they are waiting for is it.
The economy is it understanding how they're actually going to use space is there something else, yes, I think it's a little of everything really but really there is theyre still working through what does return to work look like right and with the kind of recent economic news I think they're looking at it and being more judicious about what theyre going to take into new markets.
Okay. Thank you and then just thinking about economics, I mean are you able to push rents.
And what are the Ti discussions like.
Assuming a slower leasing market you lose some pricing power.
Yes, I mean, it's a mixed bag different every market is different in the valley in the valley it'll rates have remained pretty stable, there's no pressure on concessions right now.
As deal velocity starts to pick up that's the valley and the peninsula.
Vancouver has been very steady steadily increasing through kind of the depth of pandemic. So we're really in good shape. There I think the ones that we have.
Really keeping a close eye on is.
Seattle, where we're type of competitive but.
But we still have a pretty robust pipeline of deals that were in negotiation call. It north of 200000 square feet those rates have been eroded, but we're still very competitive and the biggest.
We all know and talk about San Francisco, we're in a market. They were not only be hyper competitive, but we're going to have to go in and dig in with the best team on the ground and start to dig into the 14 million square feet of expirations across the city that are going to take hold over the next two years. So those are the two that were key.
And a really close eye on and then as we moved down to La West Los Angeles.
The tech and media tenants have been driving the market in a big way and we haven't seen any we haven't seen any.
Deterioration in rents.
Jamie Art and I did it.
A bit of a deep dive on net effective.
B.
It just seemed to hear of the 1 million feet that we've signed so far.
$1 million of it is in the peninsula, San Jose in Vancouver and theirs.
Theres enough footage there to really get start to get a real sense of net effective.
And if you look at those markets.
Sure.
The net effect is are up year over year compared to last year's activity in those very same market 14%.
And interestingly they are not just up relative to 2021, they're higher than 2019 and 2020 across all three of those markets. So.
Just to get to your original question about rents and <unk> and so forth.
Based on the activity today, where there is real our goods size sample of real activity signed rents.
Rents are looking Greg and Jamie if I, if I can state the obvious.
That isn't mentioned before with the tenants are paying up for premium space and Theres a lot of the markets were not having to slug. It out there's a lot of premium space out there and so we are the beneficiaries of them paying up to be in the asset.
Okay.
So the 14% is that in your portfolio or across the entire market.
So thats in our that's our activity in our portfolio.
Okay.
And then just housekeeping it looks like the.
Expected cost to build it sounds like <unk> is up about $5 million at the midpoint.
Is there any.
Where does that come from.
Well thats not I don't think thats compared to last quarter or is it.
I think it is are you comparing it to Q1.
Yes, I think that the high end is up $10 million.
Hum.
I don't know I'll have to I could be wrong I don't know offhand.
Okay.
Alright, thank you.
Thank you.
The next question comes from the line of Ronald Camden with Morgan Stanley You May proceed.
Great just a couple quick ones one is just on.
Just a little bit more color on the.
Nyx deal that you guys already mentioned earlier on.
Just maybe what they are looking for and.
Out of their space needs change and whats the plan for a sort of the re lease and any sort of capex needs. There. Thanks.
Yeah, I mean first of all and Ardal jump in here to answer but the team first of all got way out in front on this and we're really proud of them.
They identified.
The long term mechanics long term need.
They had experienced explosive explosive growth they were spread around three different asset.
We're looking to kind of rationalize their footprint.
And consolidate they never really used.
A fair amount of the footage that they add.
Taken down they never spent ti dollars on on it or anything.
So.
Totally uninfluenced by work from home.
They were just looking at what they think their long term requirement is and.
And that's got the team focused and able to extend them on <unk>.
50% of their put it through 2030, I would add by the way.
That another almost 30% of their footprint doesn't expire until the middle of 'twenty, four and Thats still in play they just don't know yet.
What they want a view on that so 75% of the footage is either extending in 'twenty three or have the potential for further extension. If you want to add to that yes, that's exactly right and by the way. The Mark was six 5%, which is which is a solid mark going forward on their premises and in the backfill portion so roughly about 15000 square feet.
It was immediately back filled.
This quarter was at about a 13 silver 13% Mark So all in it was just a great deal.
Great helpful. And then my next question is just on the.
If you could maybe help us think about there's a lot of ins and outs, obviously, you as occupancy outside of I think.
The Qualcomm, which you called out but when I look at the lease expiration schedule over the next eight quarters, maybe from a high level are you guys thinking about the occupancy bell, maybe as you've sort of finish out this year and into next given all the leasing that you've done so far.
Yes.
That's a great question.
Yes.
If the activity that's in the pipeline that we touched on in our prepared remarks.
If you look at that activity and you kind of play it forward to year end.
We lose Qualcomm end of July .
We're going to experience a bit of a dip in both lease percentage and occupancy on account of that and so but there's ongoing activity.
A lot of activity throughout the third quarter and into the fourth quarter and it looks to us like if that activity.
And by the way there.
Potential even more favorable outcomes here, if new requirements come around which they always do but if you just look at whats currently in process.
That activity holds there is a very reasonable chance that we will end the year materially in line on a lease percentage basis now.
The reason I focus on lease percentage, one I think it is the more relevant between lease and occupancy but too.
Hi.
We're going to be working on getting leases executed all the way through year end and and that May mean that theres a bit of a delay on that commencement. So we might experience a bit of a occupancy drag into year end, even as we've restored the lease percentage at or around the <unk>.
<unk> is currently at so that's how it's looking in I would say.
A fair amount there that.
We got to execute on the pipeline in Seattle.
That's sort of.
Yes.
500000 square feet of activity, mostly in pioneer square and we're moving forward on that bit of that come through we could end the year kind of.
Right around where we are right now.
Okay.
Great and then my last one is maybe just a bigger picture one.
I think you guys are.
One of the few.
S rights with just the pure West coast exposure as you think about I think all of this commentary about Tac pausing.
Clearly your long term focus, but what are I mean, what are some of the things what are the signposts. What are you guys thinking about in terms of.
Making sticking with these markets or whether theres opportunities to.
To add another one or diversify just just.
Maybe it's too soon now, but what are some of the things you should be you will be thinking about and considering in terms of potentially adding diversification.
From the West Coast.
Well listen I'll jump in on that listen I think we've.
Looked at multiple markets compared to where we're at we still think the west coast markets even throughout.
Throughout some volatile times also in high times, and low times as the areas and markets that we feel most comfortable with.
If you look at it.
The world is accurate and we're going to see some dip in all these marketplaces and valuation shifts it will only avail ourselves of the ability to actually go into those markets with the right got stack and structure and.
Enhance our portfolio with high quality assets that are synergistic.
In the next two or three years to come and so that would be the direction versus going somewhere else.
In June the external growth in other markets. So our intent is to maintain our position.
And possibly grow it depending on where the economy is on the west coast.
Great. That's it for me thanks, so much.
Thank you.
Thank you.
The next question comes from the line of Matt Com Malhotra witnesses you May proceed.
Hi, Thanks for taking the questions.
Maybe just building upon that the occupancy the prior occupancy question. Some of your peers have started maybe giving some signs both guideposts about 23 in the sense of not us.
Specific number but thinking about the direction of same store NOI growth.
The puts and takes on other line items. So I'm wondering if you can just.
Give us a sense of what are the major.
Kind of variables, we should be thinking about as we as we sort of model and look forward to.
<unk> anything that may be known like interest expense kind of if you assume where rates are today.
Versus maybe where the real swing factors are for 'twenty three.
Go ahead, Vikram Theres a lot in that question.
<unk>.
Hi.
I guess some guide posts are.
<unk>.
We've already got.
Got a relatively.
Sort of lower exploration year, as we sit today and it will be even lower as we get to year end than say, we did in 2019 2000 2021.
So a little less exploration.
As expected into 'twenty three.
<unk>.
We the Mark on 23 expirations as we sit today, it's almost 20% so an even better in 'twenty three than it was if I recollect as we.
We were heading into 'twenty two.
So really healthy Mark a little less exploration to contend with and we've had in the past couple of years.
As for interest expense.
You look at the curve.
You'll see by the middle of next year or so.
<unk>.
So for example, I think you're back.
Right around 3% and there is and it continues to decline from there.
I think there's a real chance, we won't have quite as much floating rate debt on our books anyway on but to the extent that we have some there's probably.
In 'twenty three.
We will start to see some sort of relief if you will on interest expense.
On a shoot I'm not so sure I can remember all of the.
All your question Vikram that gives you.
Yes.
This is more of the big picture buckets going into 'twenty three whether it's the core the same store pool, the ins and outs you've talked about the exploration obviously there.
The non move outs and the bumps.
And then you talked about the.
The rate environment.
I guess like ancillary income or any other line items.
Yes for sure it does.
And that is also a few of our assets.
Our currently potential building out their space and their cash NOI when when they start contributing in 'twenty three.
The biggest of which this Google at Walmart side, so in terms of cash NOI.
Annualized would be around $50 million.
On a consolidated basis, yes, Google.
And Glenn no timing going to sunset.
I'd say, Glenn Alex will deliver to.
So that could be a contributor and then you know the big 2023.
Exploration is square block at <unk>, five and we've already given you sort of line of sight on them right. In the next biggest we're in negotiations with which is Amazon for 139000 square feet.
Okay that makes sense.
And then just maybe one.
Victor a bigger picture question.
Obviously, you've gotten very early on the studio business create lot of value through the combination with office.
Obviously, theres a lot of demand for those certain select for those high quality asset.
I'm just wondering like in the current portfolio some would argue.
Office is undervalued. Some would argue the studios are dramatically undervalued is there a part of some you've done the JV with Blackstone.
Is there a thought of something more strategic either.
Monetizing studios in its entirety.
Leaving just where things are.
What other alternatives would you look to create value at this point, whether even if it is considering a broad assortment of the company.
Well I mean, yes.
Obviously, a loaded question.
I will say in terms of the in terms of the studio.
As we spoke in the office.
Soundstage side, I mean, the value upside that's not recognized.
Beyond just your obvious comment.
The commercial real estate and the soundstage undervalued.
Based on where the perception is in the true value is is the operating businesses I mean, we we consistently outperform in the op businesses and have acquired companies.
Continued as you show in the future on the operating side and.
True.
Multiple value.
And IRR value well exceeds what we're achieving in stabilized office and stabilized studios I mean.
Ifs.
Effectively.
Double or more in terms of the returns and so those arent gain the values either so the combination of all of that is.
It's nice to see that it's at least sitting there from our standpoint in pure cash standpoint in terms of the greater picture.
I'm not in a position to make a comment on that on a public call with everybody.
That's fair enough. Thanks, so much.
Thank you Vikram.
Thank you.
Your next question comes from the line of Tayo Okusanya with Credit Suisse. You May proceed.
Hi, yes, good afternoon.
Sorry for that address this because I got on the call a little late but.
But for <unk>.
Broad exchange in Vancouver.
Sunset Balsam Cross studios.
What would encourage you guys to start development.
In 2023, and what would be your thought around kind of funding those development sites.
That's a great question so.
Listen the encouragement level is what we're seeing right now on the ground in terms of broad exchange.
We have a tenant that is indicated some interest in the entire property.
We've got another tenant that is indicated interest I think in about 200000 square feet. So tenant interest in that marketplace, given where the vacancy factor is which I think is for.
4% or something to that effect approximately that market's a little different than what we would look at and throughout other markets, we're in and I.
I do think its.
Fundamentally a very unique asset in that it's a timber timber built and the desire around that.
Is very high and so we will continue to.
Look.
The fundamentals in that marketplace, which are extremely strong and I said as I think maybe an outlier in terms of some sense at Walton Cross and then I'll go back to the funding in the second in terms of since it Walton Cros.
That's going to be a world class.
South state's facility in a marketplace that is still.
Locally in need of excess studio and office space. We also have had interest from single tenants for multiple sound stages in office space on that and we just got approvals on that asset last Monday.
A week ago Monday and so.
That asset will be indicative of our pre marketing that we're working on now we're going through all of that.
Both here in Los Angeles, and London in terms of entertaining tenants and educating them on the amenity based project that we're going to be looking to build in terms of the capitalization I mean remember how the cap stack is were $75 25 with Blackstone at broad exchange and we're a 65 35.
Isn't that right 88.
80% to 80 to 80 20 in at $35 $6 $35 $60 65, 35, with Blackstone at Walton Cross and so.
Capital structure from our standpoint.
Those both those developments will be much more limited from Hudson's exposure and it will be a mutual discussion with Blackstone as to the right time to start to build.
Blackstone has indicated that they will.
All want construction financing in connection with both so.
<unk>.
When you think about just capital needs from our side.
The spend is very light for us.
Got you great. Thank you.
Thank you.
The next question comes from the line of Daniel.
With Green screen you May proceed.
Great. Thank you maybe.
Maybe just staying on the timber front in ESG Victor you mentioned ESG in the opening remarks, and a possible tenant interesting broad exchange.
I'm just curious more broadly are you seeing those ESG factors translating into higher rates or better tenants.
Traction or retention quite yet.
Oh, yes.
It's a great question I think the awareness on the ESG side has finally come to fruition on the institutional quality tenants who are.
Whether it's.
<unk>.
Any aspect of our assets that are upgraded in ESG side has had at an attractive level of certain tenants that will only go in those assets or those type of assets that have already been upgraded to that extent. So has it correlated specifically excuse me to increase rents I don't think you can directly.
Do that correlation, but I think the interest level.
Outweighs the increase rents on that because we have a much higher interest and awareness level I think that would be the most important aspect that's right even from a leasing perspective. This is art by the way leasing perspective, we seen over the last several years. It was a nice to have became a check the box to gene with these institutional tenants youre not going to get.
On the short list and that means everything.
Got it that makes sense and then just one more small housekeeping question from me on the Sunset Waltham developments Victor I think you mentioned approvals coming in earlier this week.
I just noticed on the supplemental and increase in the estimated square footage of a projects was that related to the increase.
Was that related to the approvals or was that a change in design or.
What drove the increase in size.
Yes, no the intrusion sizes, we bought an adjacent property that we can add some support staff space.
And some outdoor space and so that that in itself increase the square footage was I think we purchased that in spring.
Sometime and so that's why it was increase in the supplemental.
Okay.
Got it thank you.
Thank you.
The next question is.
As a follow up question from Michael Griffin with Citi. You May proceed.
Hey, it's Michael Bilerman here with Christy Vik.
Victor I just wanted more of a clarification question you, obviously have extraordinarily close relationship with Blackstone going all the way back to when you are.
<unk> portfolio when they came on the board and obviously studios and everything is there anything in your relationship that precludes them from selling the shares they bought back at the beginning of 'twenty, one or for that matter, adding to that position.
Given all of your relationships and ventures, whether it's up in Canada, or the UK or in the studio business I didn't know if there was effectively a lockup on those shares and I'm just trying to understand.
Is there anything thats precluding that.
No.
This is their information from the standpoint of shareholders like everybody else's, it's publicly traded information in terms of their information on on the partnership.
Also.
Publicly held information, but there is no restrictions on us on the stock.
And so and I recognize I could absence of John .
They bought almost a 4 million share position <unk> at 24 stocks of 14.
You would think that there would be.
More interest at these levels, given everything that you've been able to produce and all of your commentary on the call.
Hi.
I wonder if what youre, referring to is the position that they carried back in connection with the contribution of the portfolio in 2015.
Is that what youre, referring to.
For you to open market <unk> or 'twenty.
No.
<unk>.
Yes that was the open market purchase wasn't the $3 8 million shares.
Held since.
No.
Hello.
Substantial position roughly half of the $3 5 billion purchase was carried back in equity in 2015, and then it took them there was a lockout for a while and then it took a little while for them to liquidate that position I'm going to say.
Three or four but they held nothing at that point and they have since done.
Done open market purchases, but we're not we're not we're not party to those open market purchase yeah, Yeah no no.
And Thats whats.
Right.
I'm just trying to I I wanted to better understand because obviously the open market purchases were back earlier last year right as the stock had fallen off of it recovered a little bit.
And I just didn't know if there was anything precluding them from a selling that stock given all the relationships and I would see information about your prospects and if there wasn't the opposite question that I asked was well shouldnt that shouldn't they be buying given all of.
The basis in value. So that's where I was just trying to understand it better.
Yes, as I said, there are no restrictions and I think you could ask them if they want to continue to buy we would love.
Sure.
Yeah.
Sure.
Is there not only on the topic is there anything.
And I recognize your comments about the overall marketplace.
Anything that youre thinking about from dipping back into the stock. Obviously you did the accelerated share repurchase Hindsight's 2020 is you can't go back in time at that time, you liquidated you had proceeds and we executed the trade I guess, how are you thinking about.
<unk>.
Furthering that do you feel like that was a good exercise to go through or sort of look at other ways to drive shareholder value and hope the stock price will follow suit.
Listen I think it was an excellent execution at a time and it was something that we said we were going to do and subsequent to that we have been averaging down so to speak.
And the ATM structure on a daily basis up until the point, where we were locked out that will open up again.
Sometime in early August and I think the intent is for us to continue the game plan on that basis.
Do you have incremental asset sales to put to market to generate more proceeds to effectuate those purchases.
Yes, I mean, we've commented on the two small ones that are selling and we've got two more that they're in.
In active negotiations.
And then we'll revisit market conditions and other assets that potentially may fall into that category.
Okay.
Alright, thanks for the time.
Thanks, Michael.
Thank you.
The next question comes from the line of David Rodgers with Baird. You May proceed.
Oh, Hey, just wanted to follow up for me I think it was Victor you made the comment about the strength in the studio and support business did see that Netflix has taken a charge on real estate and I think that was related to Burbank, but I do think there are some questions around any of that impact you guys do you see any communication with them related to wanting to give back space terminate.
Base or sublease it.
No listen that was out in Burbank, I believe that was maybe theyre animation group or something like that regularly and office space. It wasn't even they hadn't been occupied level of build out yes. So yes, we had zero communication on that level that they are interested in getting back any space.
In any of our portfolio and quite frankly, I've heard nothing in Hollywood in general from them at all.
Other assets too.
Alright, great. Thanks.
We will now.
We will now begin.
That concludes the question and answer session I would like to turn.
Back over to Victor Coleman, Chairman and CEO for any closing remarks.
Thank you operator and participate.
Everybody on the call today I want to reiterate what March comment was about.
<unk> team and the great efforts that they made quarter in quarter out and we look forward to speaking with everybody next quarter. Thanks, so much.
The conference call has concluded by disconnect.