Q3 2022 Hudson Pacific Properties Inc Earnings Call

November 3, 2022

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Please note. This event is being recorded I would now like to turn the conference over to Laura Campbell Executive Vice President of Investor Relations and marketing. Please go ahead.

Yeah.

Good morning, everyone. Thanks for joining us with me on the call today are Victor Coleman, CEO and chairman Mark Lammas President.

Maryann CFO at art Suazo EVP of leasing yesterday, we filed our earnings release and supplemental on an 8-K with the SEC and both are now available on our website an audio webcast of this call will be available for replay on our website. Some of the information we will share on the call is forward looking in nature. Please reference our earnings release and supplemental or statements.

Forward looking information as well as a reconciliation of non-GAAP financial measures used on this call today, Victor I will discuss macro conditions at our third quarter highlights Mark will provide detail on our office leasing and here it will touch on our financial results and outlook thereafter, we'll be happy to take your questions Victor.

Laura and thank you to everyone for joining us today at Hudson Pacific, We're leveraging our expertise and relationships and continuing to hustle everyday to get leases signed I am proud of our team's effort and effectively navigating this very persistent dynamic macro environment.

The components of monetary policy potential recession tight labor markets and a hybrid work continue to impact supply and demand fundamentals in all of our markets.

One offset is that on a positive level. We are finally seeing more companies, bringing employees back to the office three to four days a week and office users are enquiring touring and trading paper simply though it's just taking longer to get leases over the finish line as tenants attempt to make mid to long term real estate decisions in the face of considerable.

Certainly our strategy has positioned our portfolio optimally for this challenging cycle and strong evidence is that our year to date leasing activity of one 6 million square feet is in line with our historical year to date levels and up over 18% over last year for more than a decade Hudson Pacific is partner with Tech and media companies to Greg campuses Award.

Spaces that engage and inspire employees and these companies defined what the modern workspace could be and they invested well above and beyond our key is to ensure that their employees want to spend time at the office. We in turn invested in the infrastructure upgrades onsite amenities, the latest technology and substantial ESG.

Initiatives as a testament to the ladder. We just ranked recently number one of 96 office companies in <unk> 2022, real estate assessment, we have a unique vertically integrated platform and a modern sustainable portfolio essential to meet tenant demand in the current marketplace.

Now let me touch on some of this quarters highlights we signed over 380000 square feet, representing 65, new and renewal leases that once again, our GAAP and cash rents increase this activity was largely driven by small to midsized tenants, averaging 6000 square feet across a range of industries, including Tech health care and government the Bayer.

<unk> comprised approximately 70% of the new and renewal leasing activity, including several large deals such as renewals of RF health for 27000 square feet Amcor technology for 23000 square feet and a state of California lease for 43000 square feet.

Staying opportunistic in terms of our acquisitions as we continue to monitor market conditions in the third quarter, we acquired <unk>, a leading stage in production services provider, which was a key component to our strategy to build a premier full service global studio platform with its combination of stage lease rights production.

<unk> vehicles <unk> further enhances our ability to capitalize on our robust production spend on and off our own Sunset studio lots carry is also a strong complement to our purchase of the <unk> services as well as star wagons last year.

With the closing our studio segment now comprises of approximately 13% of our NOI with only one month of contribution from Kelly. If we were former that back to the start of the year that number would be 15%.

In terms of development, we're on time and budget to deliver two under construction projects totaling 790000 square feet.

One our seven stage 241000 square foot Sunset Glen Oak studio, which we're building in a 50 50 JV with Blackstone will deliver in the third quarter of next year as the first purpose built studio in Los Angeles in over 20 years <unk> will benefit from the same favorable supply demand fundamentals as our Hollywood.

Assets were stages are full and we can only accommodate less than 5% of our current inquiries.

We already have interest from a major media company for a multi stage multiyear deal even as we anticipate <unk> will follow a more traditional studio model of leasing at least some stages on a show by show basis.

On the other construction project, Washington, 1000, Seattle It doesn't deliver until 2024, we continue to ready our three 6 million square foot future development pipeline, approximately 65% of which our studio city related office properties. So when the timing is right we can initiate construction.

During and subsequent to the quarter, we executed three of our four non core asset sales generating total proceeds of $145 million with no seller financing required and we're in conversations with two separate buyers on the fourth asset we continually review our portfolio for potential dispositions that is assets that no longer align.

With our strategy based on location and growth potential.

Are committed to maintaining a strong flexible balance sheet with excellent capital access and following our successful $350 million Green bond offering in the third quarter as well as the sale of $69 22 Hollywood last month, we now have over $950 million of liquidity with 93% of our debt fixed or hedged.

Time, and again, we have demonstrated our ability to adequately navigate the capital markets between the green bond in the preferred stock offerings earlier. This year, we've raised over $650 million over the past 12 months at rates of 150.

500 basis points inside the current rates respectively.

In summary, as we face current macro economic headwinds, we have a team a platform and a portfolio to succeed and we're energized to continue to lease our assets and drive future cash flow that now I will turn it over to mark. Thanks.

Thanks, Victor our in service portfolio ended the quarter at 89, 3% leased driven by known vacate Qualcomm, leaving 377000 square feet at Sky Park Plaza in North San Jose in July but for Qualcomm. Our in service portfolio would have ended the quarter at 91, 8%.

<unk> down 44 basis points, which speaks to the overall strength of our tenants and assets even in the current macroeconomic climate.

In terms of our leasing activity during and subsequent to the third quarter, we are executing and progressing deals with small to midsized tenants and with less velocity than we would like even so we're continuing to reload our leasing pipeline, which includes activity on all four of their recent or pending large tenant expirations through two.

2023, we currently have around 2 million square feet in various stages include providing us with 57% coverage on our remaining 2022 explorations and 49% coverage on our upcoming 2023 explorations, which are collectively 6% below market.

Let me touch on leasing priorities in each of our markets in Los Angeles, Our in service portfolio was 98, 9% leased.

Our main focus remains back filling known vacate NFL 168000 square foot lease at 10 902950, Washington in Culver City following their move to the sulfide stadium complex in Englewood and the lease exploration in December of this year.

A highly sought after location for an array of office users Culver City still has sub 6% vacancy and we have two tenants interested in back filling the entirety of NFL space, one in leases and the other in early negotiations.

Apart from NFL, we have 44% coverage on 76000 square feet expiring in Los Angeles through the end of 2023 with no tenant exceeding 2% of our total office ABR collectively our remaining 2022 and 2023 explorations in Los Angeles.

Our 18% below market.

Moving up to the Bay area, our San Francisco in service portfolio is 93, 8% leased our primary focus is back currently known vacate blocks third quarter 2023 469000.

Square foot exploration at 14, 55 market, which we own in a 50 545 JV with CPP IV, we're already in negotiations with existing blocks sub tenants to remain in a portion of their square footage as well as a new tenant to backfill an additional 250000 square feet.

Which collectively translates to 65% coverage on that space apart from block, we have 75% coverage of 67000 square feet expiring in San Francisco through 2023, with no tenant exceeding 2% of our total office AVR.

Our remaining 22, and 'twenty, three San Francisco explorations, including blocks or 6% below market.

Our combined peninsula and Silicon Valley in service portfolio, excluding Skype poor Plaza, where known vacate Qualcomm moved out of 377000 square feet in the third quarter is 88, 2% leased.

Guide toward is a quality asset, but we are executing in an approximately $12 $5 million capital plan to further enhance interior and exterior finishes and amenities for both buildings. We are in early discussions with a potential tenant for about 50% of qualcomm's former space.

Regarding our 2000 and our remaining 2022 and 'twenty three explorations. These are predominantly small to midsized tenants averaging around 6000 square feet that typically only engage in earnest on renewals about three months in advance.

Even so we have about 40% coverage on 297000 square feet of remaining 2022, explorations, which are 8% below market and 25% coverage on 807000 square feet of 2023 explorations, which are essentially at market rents.

In Seattle, our in service portfolio was 85, 4% leased we.

We owned four assets in the Denny triangle, Submarket, which are 100% leased with no significant expirations through 2023, but for a 140000 square foot lease at met Park North expiring in November of next year, which we are in very early discussions to potentially renew.

Pioneer square in service lease percentage is 51, 6% largely due to Dell Emc's decision to vacate 505.

Earlier. This year, we are currently in negotiations with a tenant on a 240000.

Requirement for that asset apart from Amazon, we have 100% coverage on 65000 square feet expiring in Seattle through 2023 with no tenant exceeding 2% of our total office ABR rents on our remaining 2022 and 'twenty three expirations in Seattle, including Amazon are about 20%.

Below market.

Lastly, in Vancouver, where vacancy remains low at around 7% our in service portfolio was 94, 4% leased.

We have 47% coverage on our 197000 square feet of remaining 2022, and 'twenty three expirations with no tenant exceeding 1% of our total opex ABR and rents 15% below market.

That I will turn the call over to Rick.

Thanks, Mark compared to third quarter of 2021, our third quarter 2020 revenue increased 14, 4% to $264 million.

But for known vacate Qualcomm and certain one time prior period property tax reassessment, our same store property cash NOI would have increased two 2% year over year, rather than declining 2% year over year to $122 $7 million compared to $125 $2 million.

A year ago.

Our third quarter <unk>, excluding specified items was $74 1 million or 52 per diluted share compared to $77 $3 million or <unk> 50 per diluted share last year specified items in the third quarter consisted of transaction related expenses of $9 3 million or <unk>.

Per diluted share and a onetime property tax expense of <unk> 4 million or zero cents per diluted share compared to transaction related expenses of $6 3 million or <unk> <unk> per diluted share and a onetime debt extinguishment costs of $3 2 million or <unk> <unk> per diluted share offset by a one time prior.

Property tax reimbursement of $1 3 million or <unk> <unk> per diluted share a year ago.

Year to date, our <unk> is $183 3 million or $1 25 per diluted share, which is <unk> <unk> per diluted share or four 2% higher compared to last year, our <unk> payout ratios for the third quarter and year to date were 65% and 60%.

Respectively, making our dividend extremely stable if not conservative as it does not yet reflect cash flow coming online from Onewest side at Harlow, We continued to execute on financings and asset sales to fortify our balance sheet at the end of the third quarter, we had $866 $7 million of total liquidity comprised.

$161 7 million of unrestricted cash and cash equivalents $705 million of Undrawn capacity.

<unk> on our unsecured revolving credit facility. Thus reflects the use of $40 million of proceeds from the sale of North you in del Amo to repay amounts outstanding on our credit facility upon payment of an additional $85 million with proceeds from the sale of six to 922 Hollywood in October we currently have $790 million of Undrawn capacity.

On a revolving credit facility and $951 $7 million of total liquidity, including our access to undrawn capacity of $141 $5 million under our one Westside construction loan and $69 8 million under our Sunset Glen Oaks construction loan. We currently have $1 2 billion.

Of total capacity.

As of the end of the quarter, our company's share of unsecured and secured debt net of cash and cash equivalents was $3 7 billion.

91% of which was fixed or hedged with a weighted average term of maturity of four four years, including extension again, this factors and repayments of our revolving credit facility from <unk> and del Amo sale as well as net proceeds from our $350 million Green bond offering.

Adjusted for post quarter pay down of our credit facility related to our sale of 69, 22 93, 2% of our debt is fixed or hedged now I will turn to guidance as always our guidance excludes the impact of any opportunistic and not previously announced acquisitions dispositions financings and cat.

Market activity, we are narrowing our full year 2022, <unk> guidance to a range of $2 <unk> to $2 <unk> per diluted share excluding specified items specified items consist of $8 5 million trade name noncash impairment $10 7 million transaction related expenses and.

$8 million onetime property tax expense identified as excluded items in our year to date 2022, <unk> now we'll be happy to take your questions operator.

Absolutely.

We will now begin the question and answer session. As a reminder to ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

The first question comes from the line of Alexander Goldfarb with Piper Sandler.

You May proceed.

Yes.

Okay.

It's still morning out there so good morning.

<unk>.

First.

Yes.

Before we get into the fund on leasing and some of the tech stuff, especially the Amazon News just wanted to go back to the mobile studios as you guys assess the businesses historically, how durable have you found the earnings and how can you how much of a parallel do you see that.

Are the studios.

Is that you have in Hollywood are those more durable or the mobile studios just as durable I'm just trying to get a sense for the quality of those earnings for the mobile studios versus the onsite facilities in Hollywood.

Hey, Alex it's Victor listen I think thanks for the question I think you would say they are parallel because you can't do one without the other even on studio lot locations.

Whether it's the ancillary revenue services, the equipment itself or the mobile studios.

They are filming for the most part on location and in studios, whether it's 40% on location, 60% studios or vice versa. They are using both for the type of film that we have in our studios and the relationships that we have overall so these trailers.

And the actual equipment that we use generators.

Backup facilities bathrooms, all all of that inclusive of LNG is probably in line with the studio business in general.

The difference I would add is the 26000 stages that we.

Now with the <unk> purchase.

Got more.

Day to day showed a show versus long term commitments.

Yeah.

Okay, and then getting to the leasing obviously, the Amazon news today that theyre freezing hiring.

Kinetic and not previously announced acquisitions dispositions financings and capital markets activity. We are narrowing our full year 2022, <unk> guidance to a range of $2 <unk> to $2 <unk> per diluted share excluding specified items specified items consist of $8 5 million trade name noncash.

What are your office competitors had some pretty cautious comments about tech and West Coast you guys. I appreciate the color on the space that you're trying to backfill, but just overall how would you compare the leasing market now as far as you know what.

Impairment $10 7 million transaction related expenses and <unk>.

<unk> for rents for Ti and just.

$8 million onetime property tax expense identified as excluded items in our year to date 2020, <unk> now we'll be happy to take your questions operator.

At tenants are coming up for renewal are they.

Taking the same amount of space shrinking or are they relocating maybe at San Fran tenants moving to the peninsula or maybe it's moving to other markets just trying to get a real sense, because obviously the headlines out of the tech companies have not been.

Yeah.

Absolutely.

We will now begin the question and answer session. As a reminder to ask a question you May Press Star then one on your Touchtone phone.

<unk>.

But unless.

If you are using a speakerphone please pick up your handset before pressing the keys.

Your question is a very big sort of wide open I don't meet that critically it's there's a lot. There. So let me sort of talk high level on our can jump in on some factual aspects.

To withdraw your question. Please press Star then two.

Amazon is one of many tenants that have commented on what their game plan is.

The first question comes from the line of Alexander Goldfarb with Piper Sandler.

Overall.

Your understanding of the of the Tech tenants is exactly where we see it which is this is a time of pause slowness and maybe even even.

You May proceed.

Uh huh.

Okay.

It's still morning out there so a good morning.

Right.

The first.

Reversing past and giving back space and laying off people and so we're seeing that I think effectively.

Before we get into the fun on leasing and some of the tech stuff, especially the Amazon News just wanted to go back to the mobile studios as you guys assess those businesses are historically, how durable have you found the earnings and how can how much of a parallel do you see that.

On our portfolio specific to what we currently have we don't see an impact until potentially end of 'twenty three with met park North and we're in conversations and those conversations are going forward, but they are telling us they are not going to let us know between now and let's say may or June give us six months notice as to what theyre going to do and I think they are.

Are they are the studios.

In that you have in Hollywood or are those more durable or the mobile studios just as durable I'm just trying to get a sense for the quality of those earnings for the mobile studios versus the onsite facilities in Hollywood.

Mystic in terms of laying out whether they stay or go we really wont know that so I know we've got a couple of calls between now and then people are going to ask the question, we're not going to know because they are telling us we're not going to know that being said.

Hey, Alex it's Victor listen I think thanks for the question I think you would say they're parallel because you can't do one without the other even on studio lot locations.

Just in general.

Not seeing any.

Lowering of rents or increase in <unk> on the deals that were making or the conversations we're having on a material basis now that's not to say it won't happen or could not happen, but the deals that we're talking about right now rental rates are being supported ntis are being supported from.

Whether it's the ancillary revenue services, the equipment itself or the mobile studios.

They are filming for the most part on location and in studios.

It's 40% on location, 60% studios or vice versa. They are using both for the type of film that we have in our studios and the relationships that we have overall, so these trailers and the actual equipment that we use generators backup facilities fast rooms all.

From a capital standpoint for the most part I mean do you want to jump in yeah, It's really a function on the Ti hi, Alex good morning.

It's really a function of <unk>.

Construction costs not as a function of the deal from a leverage perspective, right and so it really comes down to what condition as the space and in most of the markets well conditioned space and we figure out well how much we need to spend again construction cost we're in a great place because of our VSP program and we have prebuilt space.

All of that inclusive of LNG is probably in line with the studio business in general the only difference I would add is the 26000 stages that we own.

And now with the <unk> purchase.

Pretty much ready to go with minor improvements and so I feel like we're well situated especially in this environment, where there's pressure on a little bit of pressure on <unk> and <unk>.

Are a lot more day to day showed a show versus long term commitments.

Okay, and then getting to the leasing obviously, the Amazon news today that they're freezing hiring.

Sure.

Okay.

Victor Thank you art. Thank you appreciate it.

Thanks, Alex.

Thank you Mr. Goldfarb. The next question comes from the line of Blaine Heck with Wells Fargo. You May proceed.

Great. Thanks, Good morning, just to follow up kind of on the leasing market you guys have been very transparent with respect to recent and upcoming move outs of Qualcomm NFL, new tactics and block, which has been really helpful. I think in setting expectations.

As tenants are coming up for renewal are they.

At this point I know you just talked about Amazon, but kind of path that you feel like the large move out the role is likely to be lower in the future or are there any additional large tenant, but youre just not quite sure about path, you've kind of spoken to and singled out.

Encouraging.

But it doesn't it.

Your question is a very vague sort of wide open I don't meet that critically ill.

There's a lot there so let me sort of talk high level or can jump in on some factual aspects. Amazon is one of many tenants that have commented on what their game plan is.

Hey, Blaine I'll tell you I think listen we.

We've laid out what we perceive to be tenants that are going to leave or potentially leave and you listed them. I mean, no particular date, it's Qualcomm as we know they're gone NFL in about two months from now and then the next wave is blocked slash square.

Overall yeah.

Your understanding of the of the Tech tenants is exactly where we see it which is this is a time of pause slowness and maybe even even.

And art has got an update on that and then.

<unk>.

And then the next one after that is Amazon after that we have nothing of substance until 'twenty five.

Reversing past and giving back space and laying off people and so we're seeing that I think effectively on our portfolio specific to what we currently have we don't see an impact until potentially end of 'twenty three with met park, North and we're in conversations and those conversations are going forward.

And that's over so really.

I think we've laid out where we see the vacancies and where we see the possibility of a signing deals and we've got activity on a lot of that right now, but I think you did.

But they are telling us they are not going to let us know between now and let's say may or June give us six months notice as to what theyre going to do and I think they are optimistic in terms of laying out whether they stay or go we really wont know that so I know we've got a couple of calls between now and then people are going to ask a question, we're not going to know because they are telling us or we're not going to know that being said.

The reality is the large tenants in our portfolio are pretty stable after the ones that we've mentioned.

Great. That's helpful. And then just sticking with you we're all going to be out in San Francisco from NAREIT in a couple of weeks, you've talked about crime and other social issues impacting the CBD in the past should we expect to see much improvement while we're there and just wanted to get your kind of your thoughts on whether you think some of those years.

Just in general we're not seeing it.

Any risks.

Lowering of ranch or increase in <unk> on the deals that were making or the conversations we're having on a material basis now that's not to say it won't happen or could not happen, but the deals that we're talking about right now rental rates are being supported ntis are being supported.

Actual and safety issues are still affecting your markets and the decision to return to the office.

I mean listen we've been pretty vocal myself.

More than others or maybe not is not as Morris.

As much as a few but more than others about where the political environment is in our marketplaces in specific to Seattle, San Francisco and Los Angeles next week is a big week for Los Angeles, where we're hoping that there may be a little bit of a sea change like there was in San Francisco specific to San Francisco.

From a capital standpoint for the most part I mean do you want to jump in it's really a function on the Ti hi, Alex good morning.

It's really a function of <unk>.

Construction cost not as a function of the deal from a leverage perspective, right and so it really comes down to what condition as the space and in most of the markets well conditioned space and we figure out well how much we need to spend again construction cost we're in a great place because of our VSP program and we have pre built space.

I think it's.

It's got a long way to go but we have seen a change I think the voices are loud enough ours being one of them I would encourage you to come to our event on Monday, where we're going to have the mayor.

Pretty much ready to go with minor improvements and so I feel like we're well situated especially in this environment, where there's pressure on a little bit of pressure on <unk> and <unk>.

There and the.

The former mayor as well and we're going to talk specifically about this on a little fireside chat, which is the Monday before NAREIT I do think blayne.

Sure.

There is progression there is absolute reality that business needs to survive with decisions that are hard and fast and efficient.

Okay.

Victor Thank you art. Thank you appreciate it.

Thanks, Alex.

I'm not going to stand on a soap box and give you my political beliefs, but I do think as I said those those messages are out there.

Thank you Mr. Goldfarb. The next question comes from the line of Blaine Heck with Wells Fargo. You May proceed.

I would caution those who have not been into San Francisco.

Was there three weeks ago last Monday I wish.

Pleasantly surprised on the activity in the streets and the flow of traffic both.

People.

Out of areas, specifically in the financial district down.

At this point I know you just talked about Amazon, but kind of past that do you feel like the large move outs of role is likely to be lower in the future or are there any additional large tenants that you are just not quite sure about past those you've kind of spoken to and singled out.

By our building of the ferry building.

But I do think that.

The ridership is completely up as a result of that as you move to <unk>.

South towards South San Francisco up mission and the likes of that you will see other avenues.

Hey, Blaine I'll tell you I think listen.

Maybe Scott genus has still not been cleaned up but theres, a motive and there's a game plan and I am hopeful that that will continue to be progressive and entice tenants and residents to come back to the city in full force.

We've laid out what we perceived to be tenants that are going to leave or potentially leave and you listed them. I mean, no particular date, it's Qualcomm as we know they're gone NFL in about two months from now and then the next wave is blocks slash square.

Okay.

That's helpful. Thanks see you all soon.

Thanks Blaine.

And art has got an update on that and then.

Thank you Mr. Henk <unk>. The next question comes from the line of Michael <unk> with Citi. You May proceed.

And then the next one after that is Amazon after that we have nothing of substance until 'twenty five.

Great. Thanks, Mark I think you mentioned in your prepared remarks demand that youre seeing from smaller tenants taking space. The average seems to be about 6000 for the quarter is this a trend that you expect to continue in the future and maybe kind of more broadly do you see a pivot away from from tech tenants from this demand and maybe some of your portfolio growing exposure to other non.

And that's over so really.

I think we've laid out where we see the vacancies and where we see the possibility of a signing deals and we've got activity on a lot of that right now, but I think you did.

The reality is the large tenants in our portfolio are pretty stable after the ones that we've mentioned.

On tech sectors.

Yes, I'll start with the response.

Great. That's helpful and then Victor sticking with you.

<unk> will add some color.

We're all going to be out in San Francisco from NAREIT in a couple of weeks, you've talked about crime and other social issues impacting the CBD in the past should we expect to see much improvement while we're there and just wanted to get your kind of your thoughts on whether you think some of those years.

Sure.

That comment was made in relation to the peninsula and Silicon Valley, which our portfolio is largely does cater to.

Smaller tenant base small to mid sized tenant base, we actually did a deeper dive to kind of look at what the pipeline looks like in that particular market and the average size tenant is a touch higher than the 6000 square feet that we've been seeing lately. It actually came in closer to eight.

<unk> and safety issues are still affecting your markets and the decision to return to the office.

I mean listen we've been pretty vocal myself.

Maybe more than others or maybe not is not as Morris.

Feet, which I think is kind of an interesting trend to watch.

But.

So thats kind of gives you a sense of sizing.

Where the demands coming from the other thing is I would say, we've seen and we've been talking about this now for quite a while a real attack uptick in professional services law firms, making up.

I think it's.

Significant.

<unk> of the activity that we're seeing even as we've seen a bit of a slowdown in tech tenant demand or yes.

The former mayor as well and we're going to talk specifically about this on a little fireside chat, which is the Monday before NAREIT I do think blayne.

Yes, that's exactly right and as Mark said in the valley, it's still completely driven by tech with the uptake of professional services, but I will say really for the first time in Seattle. This is going back two quarters.

There is progression there is absolute reality that business needs to survive with decisions they are hard and fast and efficient I.

Professional service has taken really kind of taken the lead in terms of the number of deals done relative to the sector.

I'm not going to stand on a soap box and give you my political beliefs, but I do think as I said those those messages are out there.

I would I would caution those who have not been into San Francisco.

Got you that's helpful. Maybe turning to recent transaction activity I'm curious if you can provide any additional color.

Was there three weeks ago last Monday, I was pleasantly surprised on the activity in the streets and the flow of traffic both.

Just curious about the trailer park building the 69 22 Hollywood how did pricing compare it execution versus when the deal was was originally marketed and then kind of any other insights or color I know there are some some bigger assets sort of on the trading block in that market. So anything you can provide there would be helpful.

People in and out of areas, specifically in the financial district down.

By our building of the ferry building.

I do think that.

The ridership is completely up as a result of that as you move south towards South San Francisco up mission and the likes of that you will see other avenues of maybe sketch genus has still not been cleaned up but theres a motive and there's a game plan and I am hopeful that that will continue to be progressive.

Sure.

Pricing was a bit softer than our initial.

Expectations.

Heading into let's say around the in the first quarter of this year I think we're still pleased with the execution North view held up pretty close to initial expectations Hollywood building. The trailer Park building you referred to.

And entice tenants and residents to come back to the city in full force.

Okay.

That's helpful. Thanks see you all soon.

That came in a bit lower than initial expectations, but still solid let me give you a couple of data points.

Thanks Blaine.

Thank you Mr. Henk <unk>. The next question comes from the line of Michael Griffin with Citi. You May proceed.

You can use either for modeling purposes.

Or to kind of get a handle on.

Great. Thanks, Mark I think you mentioned in your prepared remarks demand that youre seeing from smaller tenants taking space. The average seem to be about 6000 for the quarter is this a trend that you expect to continue in the future and maybe kind of more broadly do you see a pivot away from from tech tenants from this demand and maybe see your portfolio growing exposure to other non.

And what the economics look like on a GAAP basis, we did sell three building. So let me give you that.

So you can kind of get it straight in your model. If you take back half of this year NOI on a GAAP.

Cap rate basis, the three assets, we sold in the del Amo asset had actually negative NOI on it came in at a four four cap and then on a cash basis. It came in at a three forecast.

On tech sectors.

Yes, I'll start with the response.

<unk> will add some color.

<unk>.

That comment was made in relation to the peninsula and Silicon Valley, which our portfolio is largely does cater to.

If you just take the two assets, which I think people are kind of interested in.

They both came in again this is on back half of the year NOI GAAP and cash.

Smaller tenant base small to midsize tenant base, we actually did a deeper dive to kind of look at what the pipeline looks like in that particular market and the average size tenant is a touch higher than the 6000 square feet that we've been seeing lately. It actually came in closer to eight.

They came in.

Essentially on top of each other at a five cap gap and at a four cap cash.

Early indications when we were talking about those three assets being up for sale.

Feet, which I think is kind of an interesting trend to watch.

We are on a cash.

Cap rate basis, our thinking was we were in like a two eight kind of on cash cap rate for the three assets and as I've just indicated they came in at like three or four so there really <unk>.

But.

So thats kind of gives you a sense of sizing.

Where the demands coming from the other thing is I would say, we've seen and we've been talking about this now for quite a while a real attack uptick in professional services law firms, making up.

Not much different from what our initial hope was but just a little a touch softer in terms of final value, yes, Michael and I will just jump in.

Significant.

I think you probably know in the markets that we're in there's very few transactions that are getting executed.

<unk> of the activity that we're seeing even as we've seen a bit of a slowdown in tech tenant demand or yes.

At where the initial underwriting was let's just say 90 or 120 days ago. A lot of these transactions clearly are asking for seller financing.

That's a little bit of weakness on 69 22 trailer part for US is that is that we had we had some solid interest four or five real real buyers there, but a few of them wanted to our financing and we weren't prepared to do it at the terms that they wanted and so we went with the all cash buyer with assured deal.

Professional service has taken really kind of taken the lead in terms of the number of deals done relative to the sector.

Got you that's helpful. Maybe turning to recent transaction activity I'm curious if you can provide any additional color I'm.

The stuff that we see in the marketplace right now obviously, the multi tenant stuff is very challenged in terms of in terms of getting the execution where people perceived values to be.

Especially curious about the trailer park building the 69 22 Hollywood how did pricing compare it execution versus when the deal was was originally marketed and then kind of any other insights or color I know there are some some bigger assets sort of on the trading block in that market. So anything you can provide there would be helpful.

Got you I appreciate the color. Thanks, so much.

Thanks, Michael.

Thank you Mr Goodson.

Next question comes from the line of John Kim with BMO Capital markets. You May proceed.

Sure.

Pricing was a bit softer than our initial.

Thanks. Good morning, you talked a lot about back filling in addressing some of your upcoming.

Expectations kind of heading into let's say around the in the first quarter of this year I think we're still pleased with the execution North view held up pretty close to initial expectations Hollywood building. The trailer Park building you referred to.

Exploration, but also recognizing the economic environment has changed.

We're seeing leasing decision making has slowed.

I'm wondering if you had an update as to when do you think occupancy is going to bottom in your portfolio.

That came in a bit lower than initial expectations, but still solid let me give you a couple of kind of data points.

Yes sure.

Think I mean, Arkansas to walk you through our main big deals are occupancy bounce is going to be effective when we execute a couple of the big deals in Seattle and San Francisco that we're working on right now and then I think to backfill NFL.

You can use either for modeling purposes.

Or to kind of get a handle on.

What the economics look like on a GAAP basis, we did sell three building. So let me give you that.

You can kind of get it straight in your model. If you take back half of this year NOI on a GAAP.

I don't want to give any.

Perceptive analysis other than what Mark's prepared remarks on our Qualcomm building that building.

On cap rate basis, the three assets, we sold in the del Amo asset had actually negative NOI on it came in at a four four cap and then on a cash basis. It came in at a three forecast.

Don't have the type of activity that we would have hoped for.

Currently after they've moved out in August but the other buildings that we're talking about we have lots of activity and we're hopeful that we can execute a few deals or do you want to get into some specifics are absolutely. So the next two obviously NFL, which we are.

If you just take the two assets, which I think people are kind of interested in this.

In leases on and have a bad deal behind that we feel pretty.

Both came in again this is.

Pretty confident about that.

On back half of the year, NOI GAAP and cash.

Then the one that's stealing everybody in the faces of the block.

They came in.

470000 square feet that comes up in September of next year, we already have 65% coverage on that what does that mean, well 250000 square feet of net new.

Essentially on top of each other at a five cap gap and at a four cap cash.

Early indications when we were talking about those three assets being up for sale.

Deal that we're negotiating a deal that we're negotiating on.

We are.

On a cash.

Currently and.

Cap rate basis, our thinking was we were in like a two eight kind of.

There is about 125000 square feet of sub tenancy within that number and we're going to we're going to keep these two <unk> by the way, we're going to keep both of them in some footprint collectively.

Cash cap rate for the three assets and as I've just indicated they came in at like three or four so they're really not much different from what our initial hope was but just a little.

Collectively, bringing us to 65% coverage.

Secondly, a year a year out and so we're being.

Softer in terms of final value, yes, Michael and I will just jump in I think you probably know in the markets that we're in there's very few transactions that are getting executed.

As aggressively we need to do to get activity and to get deals closed.

In that market.

And what about on the studio side I noticed that occupancy pick up 40 basis points sequentially.

Where the initial underwriting was let's just say 90 or 120 days ago. A lot of these transactions clearly are asking for seller financing.

That momentum is going to continue over the next couple of quarters.

That's a little bit of weakness on 69 22 trailer part for US is that is that we had we had some solid interest four or five real real buyers there, but a few of them wanted seller financing and we weren't prepared to do it at the terms that they wanted and so we went with the all cash buyer with assured yield.

Yes, it should I mean, we've been.

Giving some.

The background around that.

The result of improved occupancy in the component of the studios that is our office users that use space unrelated to stage two so people in the entertainment business, but not the <unk>.

The stuff that we see in the marketplace right now obviously the multi tenant stuff is very challenged in terms of in terms of getting the execution of our people perceived values to be.

Actual stage users and I think we've indicated that since we measure occupancy on the studios on a trailing 12 month basis, we saw during COVID-19 a bit of a pullback on that type of occupancy and we've seen that improve in.

Got you I appreciate the color. Thanks, so much.

Thanks, Michael.

Thank you Mr Goodson.

Question comes from the line of John Kim with BMO capital markets. You May proceed.

Over the last two or three quarters and so on a trailing 12 month basis Youre going to you should expect to see that steadily improve.

Thanks. Good morning, you talked a lot about back filling in addressing some of your upcoming.

Exploration, but also recognizing the economic environment has changed.

Sticking with the studio business. It looks like you made a small acquisition in new Mexico I was wondering if you could discuss that.

We're seeing leasing decision making has slowed.

Pricing.

Chanel and if it was really developed to the acuity acquisition.

I'm wondering if you had an update as to when do you think occupancy is going to bottom portfolio.

Well it is related to the production services business.

If you read the footnote we tried to get some color around what the nature of this property is it's 35000 feet of.

Yes sure.

I mean, Arkansas to walk you through our main big deals are occupancy bounce is going to be effective when we execute a couple of the big deals in Seattle and San Francisco that we're working on right now and then I think to backfill NFL.

Apart office part kind of industrial that historically has had occupancy for media companies, most recently Werner but more importantly.

It sits on a very very large parcel 29 acre parcel and we currently park over 90 transportation vehicles star wagons vehicles that.

I don't want to give any perceptive.

Perceptive analysis other than what March prepared remarks on our Qualcomm building that building.

Don't have the type of activity that we would have hoped for.

Both serve.

Currently after they moved out in August but the other buildings that we're talking about we have lots of activity and we're hopeful that we can execute a few deals or do you want to get into some specifics are absolutely. So the next two obviously NFL, which we are.

Albuquerque studio owned by Netflix, which is about two five miles away.

And all of the other studio business.

Surrounding Albuquerque, which is.

In leases on and had a bad deal behind that we feel pretty.

Busy media market and so we.

Pretty confident about that.

Had an opportunity to secure this site to give us the long term ability to park, our trailers, perhaps down the road, maybe even lease at 35000 feet to a user but most importantly, it's there to service that very busy production services market.

Then the one that's stealing everybody in the faces of the block.

470000 square feet that comes up in September of next year, we already have 65% coverage on that what does that mean, well 250000 square feet of net new.

Deals that we're negotiating a deal that we're negotiating on currently and.

Thanks for that and what was the price.

There is about 125000 square feet of sub tenancy within that number and we're going to we're going to keep these two <unk> by the way, we're going to keep both of them in some footprint.

Well, there's no point in giving a cap rate because it wasn't occupied when we bought it and we didn't buy it for that purpose, but I was approximately $8 million.

<unk>, bringing us to 65% coverage.

Okay, great. Thank you.

Effectively a year a year out and so we're being.

Thank you Mr. Kim.

As aggressively we need to do to get activity and to get deals closed.

The next question comes from the line of Dave Rodgers with Baird.

You May proceed.

In that market.

Yes, good morning out there Victor in your opening comments, you had talked about being opportunistic with acquisitions and I think that was probably your entree into key Ot, but curious on what youre seeing in the acquisition market today, and then maybe a dovetail to that is obviously you took studios cut it in half and now a triple that so can you give us a sense of kind of where that that might be going here with this.

And what about on the CDO side, I noticed that occupancy pick up 40 basis points sequentially.

Is that momentum is going to continue over the next couple of quarters.

Yes, it should I mean, we've been.

Sort of giving some.

The background around that.

Opportunistic acquisition comment at all.

The result of improved occupancy in the component of the studios that is our office users that use space unrelated to staging so people in the entertainment business, but not the.

Yes, I mean, you nailed that it was it was it was correlated around the <unk> acquisition, because we really haven't talked about it.

Since we closed the transaction but.

100% correlated to that I'll start on the office side as I said, we're seeing some deals in the marketplace nowhere near the flow.

Just given where the debt markets are and the appetite of people to sell into.

Into a increasing cap rate marketplace, I do think youre going to see I know of.

Some institutional quality assets that are going to come to market, whether they trade or not on the office side in our markets.

Over the last two or three quarters and so on a trailing 12 month basis Youre going to you should expect to see that steadily improve.

Going to be very interesting to see where that pricing comes into play on the studio side. There is.

Sticking with the studio business. It looks like you made a small acquisition in new Mexico I was wondering if you could discuss the pricing.

Currently today, one asset that's come to marketplace that we'll be curious to see where that prices, but so far what we're seeing from the first round bids.

<unk> now and if it was really developed to the acuity acquisition.

And understanding it's fairly aggressive and a very minimal increase in cap rate.

Well no it is related to the production services business.

On that asset.

If you read the footnote we try to get some color around what the nature of this property is it's 35000 feet of.

There is another potential asset.

That's possibly comes to marketplace, but after that I don't see a lot of depth.

On the on the CDO side, I do I do Dave CE.

Apart office part kind of industrial that historically has had occupancy for media companies, most recently Werner but more importantly.

Maybe an acquisition or two in the services side not for us, but they're going to be coming out so that would support.

It sits on a very very large parcel 29 acre parcel and we currently park over 90 transportation vehicles star wagons vehicles that.

I think our valuation is on our.

On our <unk> purchases in the last year, plus so thats sort of gives you a snapshot of what's out there, but it is it is obviously.

Both serve.

Albuquerque studio owned by Netflix, which is about two five miles away.

Obviously apparent that the flow of deals is nowhere near what we've seen in the past.

And all of the other studio business.

I appreciate the color Victor on the one asset the studio asset in the market and maybe one coming to market those assets Youre bidding on are those just going to be good comps you think for for your company.

Surrounding Albuquerque, which is.

Busy media market and so we.

Had an opportunity to secure the site to give us the long term ability to park, our trailers, perhaps down the road, maybe even lease at 35000 feet to a user but most importantly, it's there to service that very busy production services market.

One of the assets, we are going to be bidding on which is the one coming into the marketplace. We did not bid on the one that is in the market now.

I appreciate that and then maybe just a follow up shifting over to NFL, you've been talking about those two tenants for a while it sounds like maybe one is close to Inking. The deal can you talk about right and then maybe any downtime as youre negotiating leases and as we get closer here to the to the exploration.

Thanks for that and what was the price.

Well, there's no point in giving a cap rate because it wasn't occupied when we bought it and we didn't buy it for that purpose, but I was approximately $8 million.

Yeah, we've been we've been in leases for some time, it's a complicated transaction and the deal behind the deal behind it.

Okay, great. Thank you.

Really.

Came up not too long ago, but we didn't think of it as a viable backup.

Thank you Mr. Kim.

The next question comes from the line of Dave Rodgers with Baird.

Can't get into rate renegotiations, and that we're not getting it into the right and Neil specifics with you at this point, but we do feel like I think we've talked about it's going to be kind of early early.

You May proceed.

Yes, good morning out there I think they are in your opening comments you had talked about being opportunistic with acquisitions and I think that was probably your entree into key Ot, but curious on what youre seeing in the acquisition market today, and then maybe a dovetail to that is obviously you took studios cut it in half and now a triple that so can you give us a sense of kind of where that that might be going here with this.

Early 'twenty for first quarter second quarter.

Occupancy.

Alright, thank you.

Thank you Mr.

Thank you Mr Rogers.

Opportunistic acquisition comment at all.

Next question comes from the line of Daniel Ismail with Green Street, You May proceed.

Yes, I mean, you nailed it was it was it was correlated around the <unk> acquisition, because we really haven't talked about it.

Great. Thank you maybe going back to the new Mexico deal.

Since since we closed the transaction but.

Assuming that deal was also being included in the Blackstone partnership.

100% correlated to that I'll start on the office side as I said, we're seeing some deals in the marketplace nowhere near the flow.

Dan This is mark.

But for the short answer to that is no.

Just given where the debt markets are and the appetite of people to sell into.

As you know we own those the production services business.

Into a increasing cap rate marketplace, I do think youre going to see I know of.

And this.

This acquisition is part.

Some institutional quality assets that are going to come to market, whether they trade or not on the office side in our markets.

It sort of supports that production service business, so we own it on our own.

While we have you on the phone Dan.

Could be very interesting to see where that pricing comes into play on the studio side there is <unk>.

We wanted to take the opportunity to.

But add some information if you will on the back of your note the other day regarding dividend coverage.

Currently today, one asset thats come to marketplace that we'll be curious to see where that prices but.

Which I realize is not response to your question, but we're going to do it anyway.

So far what we're seeing from the first round bids.

And understanding it's fairly aggressive and a very minimal increase in cap rate.

So we.

We ran some math around it and buy it.

On that asset there is another potential asset.

Let us give you just our math around your math, if only to kind of.

That's possibly comes to marketplace.

After that I don't see a lot of depth.

Give investors a little bit more to go by.

On the on the CDO side, I do I do Dave CE.

You're for those who haven't read the note you had our dividend distribution at 98% for 2022.

Maybe an acquisition or two in the services side not for us, but they're going to be coming out so that would support where I think our valuation is on our.

That years, essentially I mean, you have three quarters actual only one quarter projected.

<unk> of our act essentially actual NOI, we expect to be more like 65% distributed relative to year 98, now youre careful in your note to point out that you normalize. The main difference is probably the normalization of recurring Capex Tis I'll see recurring.

On our <unk> zile purchases in the last year, plus so thats sort of gives you a snapshot of what's out there, but it is it is obviously apparent that the flow of deals is nowhere near what we've seen in the past.

I appreciate the color Victor on the one asset that studio asset in the market and maybe one coming to market those assets youre bidding on are those just going to be good comps you think for for your company.

We took your convention relative to 2022 and even under your convention so putting aside what we actually expect to spend even under your conviction convention, we get to 78 not 98.

One of the assets, we are going to be bidding on which is the one coming into the marketplace. We did not bid on the one that is in the market now.

And again Thats against 22 actual the other thing we did to just kind of gut check at all as we ran two year forward three year four four year, four and five year forward.

Im projections against our NOI, but using your convention of.

Spend relative to NOI and <unk>.

Yeah, we've been we've been in leases for some time, it's a complicated transaction and the deal behind the deal behind it.

The peak amount.

Just.

In terms of the percentage distributed during that period.

Really.

Came out not too long ago, but we didn't think of it as a viable backup.

It never exceeds 85% and Thats in this two to three year period, while we're dealing with some of these bigger.

Can't get into rate renegotiations, and that we're not getting it into rate and Neil specifics with you at this point, but we do feel like I think we've talked about it's going to be kind of early.

<unk>, but over the five year period at 78%, so similar to where 2022 landed but we never get anywhere remotely close to 98% and again thats using your.

Early 'twenty for first quarter second quarter.

Occupancy.

Alright, thank you.

That your convention on recurring Capex, So anyway, we thought it was important to us.

Yeah.

Thanks, Thank you Mr <unk>.

Thank you Mister Rogers. The next question comes from the line of Daniel Ismail with Green Street You May proceed.

Wound out.

Explanation I would also just add for what it's worth I know youre using a convention I think that that sector wide convention.

Great. Thank you maybe coming back on the new Mexico deal assuming that deal was also being included in the Blackstone partnership.

On the NOI recurring if we go back all the way to 2016 I think we went back we're actually we've actually been spending closer to 24% on recurring capex relative to NOI. So on year Convention, where I'd say, four or 500 basis points higher than what our historical spend has been.

Dan.

Mark.

Before the short answer to that is no.

No we own those the production services business.

And this this acquisition is part sort of.

<unk> supports that production service business, so we own it on our own.

Okay.

Eight.

Those comments, we will have to go back and look at my structure, but happy to take it offline to chat more about the the different thinking methodology, but I appreciate the comments.

While we have you on the phone Dan.

We wanted to take the opportunity to.

But add some information if you will on the back of your note the other day regarding dividend coverage.

Nonetheless.

The second question regarding the transaction market.

Victor you mentioned, the lack of comps and the difficulty in obtaining financing I believe it to have.

Which I realize is not in response to your question, but we're going to do it anyway.

So.

We do have two assets on the market in downtown L. A.

We ran some math around it and buy it.

Pretty decent like pretty good quality assets with long term.

Let us give you just our math around your math, if only to kind of.

I'm just curious how marketing is going to those assets.

We heard seller financing with being included in the marketing of those deals and I'm curious if that's alright.

Give investors a little bit more to go by.

You're for those who haven't read the note.

Tracking any more better than anything else you guys have.

<unk> had our dividend distribution at 98% for 2022.

Marketing out there.

Yes, there are two assets in the portfolio that that we're marketing we've got multiple offers on them.

That years, essentially I mean, you have three quarters actual only one quarter projected.

<unk> of our act essentially actual NOI, we expect to be more like 65% distributed relative to year 98, now youre careful in your note to point out that you normalize them.

All included with the exception of one some form of seller financing, obviously, you're not going to get into the terms and conditions of that.

But.

It's up to 50%.

And that's the that's the limit.

Mean difference is probably the normalization of recurring Capex Tis I'll see recurring.

They have been bids on both assets from people and then individual assets.

Depending where pricing comes into play we will make a decision what we're going to do one of one of the more interesting buyers as a user for one whole building, which is which is fully leased for seven more years, but there is an ability for them to get.

We took your convention relative to 2022 and even under your convention so putting aside what we actually expect to spend even under your conviction convention, we get to 78 not 98.

To get the asset back so.

And again, that's against 22 actual the other thing we did to just kind of gut check at all as we ran two year forward three year forward for year, four and five year forward projections.

We'll keep you posted as things go forward.

Yes.

Got it appreciate the color thanks, everyone.

Yes, and by the way just I forgot it we also as Mark mentioned in his prepared remarks, we sold three or four assets the fourth asset our skyway asset, where we talked a couple of quarters ago about the life science industry.

Projections against our NOI, but using your convention of spend relative to NOI and <unk>.

The peak amount.

And the attractiveness of that asset and it has been sort of being prepared for that our intent as we said was not to do that the market had called on that and as a result, it has come back we've got three potential buyers for that asset as well. So we'll keep you posted on that one too Daniel going forward. So there is three to talk about in the future.

<unk>.

Just.

In terms of the percentage distributed during that period.

It never exceeds 85% and that's in this two to three year period, while we're dealing with some of these bigger vague.

<unk>, but over the five year period at 78%, so similar to where 2022 landed but we never get anywhere remotely close to 98% and again thats using your debt.

Sounds good thank you everyone.

Thanks.

Thank you Mr issue.

Your convention on recurring Capex, so anyway, we thought it was important to round out.

Next question comes from the line of Ronald Camden with Morgan Stanley You May proceed.

The explanation I would also just add for what it's worth I know youre using a convention I think that that sector wide convention.

Hey, yes, sorry on Toronto, just wanted to follow up on the prepared remarks, I think you said you had a tenant that is interested in 50% of the Qualcomm space.

Sure.

On the NOI recurring if we go back all the way to 2016 I think we went back we're actually we've actually been spending closer to 24% on recurring capex relative to NOI. So under your convention, where I'd say.

Just to remind us.

That tenant was to move and would there be.

What are you expecting in terms of downtime.

And so far thank you.

Yeah.

Thanks, Thanks, as I said listen we haven't tenant.

It's just user maybe potential ownership I think it's just way too early for us to underwrite and gave you some projections on that I'll go back to what I said earlier.

For a 500 basis points higher than what our historical spend has been.

Yes.

Okay I appreciate that.

The assets that we have large vacancy and the disclosure and transparency that we're giving you I would not put a tremendous amount of credit in those two buildings versus the other stuff that we're talking about.

Those comments, we will have to go back and look at my thoughts are happy to take it offline to chat more about the the difference or the methodology, but I appreciate the comments nonetheless.

Maybe just a second question.

Yes.

Got it. Thank you and then just a follow up on that you have some debt coming due next year and the year. After that what are your what are your plans to take care of that.

Guarding the transaction market.

Victor you mentioned, the lack of comps and the difficulty in obtaining financing I believe it to have.

But we do have two assets on the market in downtown L. A pretty.

Well.

Pretty decent like pretty good quality assets with long term.

Probably use the line I mean, we've got.

Almost $800 million available on the line if any.

I'm just curious how marketing is going to those assets.

Asset sales.

We heard seller financing was being included in the marketing of those deals and I was curious if that's alright.

Focused on happened would likely improve.

Improve that capacity so in the very near term we've got the 110 coming due in January can easily address that on the line 50 Little later in the year again on the line and then we will.

Alright.

Any more better than anything else you guys have been marketing out there.

Yes, Daniel there are two assets in the portfolio that that we're marketing we've got multiple offers on them.

Yeah, and we'd get accommodate the final.

All include with the exception of one some form of seller financing, obviously, I'm not going to get into the terms and conditions of that but.

$160 Thats all the way at the end of next year also on the line if necessary on but.

It's up to 50%.

But a lot can happen between now and then.

And that's the that's the limit.

We always.

They have been bids on both assets from people and then individual assets.

We view the capital market. So we use the line as our.

Temporary holding period, but we always look at the bond market or the private placement market. The term loan market to help us address all of our <unk>.

Needs.

But suffice to say, we've got a lot of liquidity right now on the balance sheet.

To get the asset back so.

To get us through.

Nothing major after what Mark had mentioned comes due until 'twenty five.

We'll keep you posted as things report.

Yes.

Got it appreciate the color thanks, everyone.

Great. Thank you guys.

Thanks Ronald.

And by the way just I forgot it we also as Mark mentioned in his prepared remarks, we sold three or four assets the fourth asset our skyway asset, where we talked a couple of quarters ago about the life science industry.

Sorry, it wasn't wrong was it.

So it wasn't clear to me.

Okay.

Got it.

Yes.

The next question comes from the line of Camilo Parnell with Bank of America. You May proceed.

And the attractiveness of that asset and it has been sort of being prepared for that our intent as we said was not to do that the market cooled on that and as a result, it has come back we've got three potential buyers for that asset as well. So we'll keep you posted on that one too Daniel going forward. So there is three to talk about it in the future.

Hi, following up on earlier questions I noticed that the average lease term on your renewal pretty short.

And we've been hearing that occupiers are looking for flexibility in their leases given many are still trying to understand the impact of hybrid working on their office footprint are you able are you seeing any change in the lease structure. You are signing whether there are additional clauses being put in place for expansion or contraction or.

Sounds good thanks, everyone.

Thanks.

Thank you Mr issue.

The next question comes from the line of Ronald Camden with Morgan Stanley You May proceed.

He then early breaks.

Hey, yes, sorry on Toronto, just wanted to follow up on the prepared remarks, I think you said you had a tenant thats in.

Yes. This is art, yes. It is true we had a sequential down.

Interested in 50% of the Qualcomm space.

Ticked down in length of lease term on a blended basis, if you look at.

Just remind us if that tenant was to move and would there be.

New deals.

Picked up probably about seven months on the average of seven months. It was really the renewals were three renewals in there that really dragged it down.

What are you expecting in terms of downtime.

And so far thank you.

Yeah.

I think as I said listen we haven't tenant.

Greg the average down to about 30 months, but.

It's just user maybe potential ownership I think it's just way too early for us to underwrite and gave you some projections on that I'll go back to what I said earlier.

If you look at.

Where were linked to trim has been trending from Q2 2020, that's really where it bottomed out for US we have steadily been increasing our length of term on deals.

Again somewhere around 32 months to 50.

<unk> 52 months and so we feel pretty comfortable about it directionally I just think that it was just.

Yeah.

Got it. Thank you and then just a follow up on that you have some debt coming due next year and the year. After that what are your what are your plans to take care of that.

Three deals really on the renewal side, the drag dragged down the quarterly average, yes, if I could just maybe just add some analytics around art's point because its debt on it.

Well.

If you look not just at the recently completed quarter, which can be overly influenced by a couple of deals. If you look at nine months. The full nine months of this year, it's actually up on just on the renewals about 4%.

Probably use the line I mean, we've got.

Almost $800 million available on the line if any.

Asset sales have been.

Focused on happened would likely just.

Improve that capacity so in the very near term we've got the 110 coming due in January can easily address that on the line 50 Little later in the year again on the line and then we will.

At $49, one compared to 47, one for the nine months of the same period last year. So we're actually seeing an improvement I would even add to that if you want more to contextualize that if you looked at overall lease term.

Yeah, and we'd get accommodate the final.

160, and Thats all the way at the end of next year also on the line if necessary on but.

While this particular quarter on a sequential basis was down if you look say it on a trailing 12 month basis.

But a lot can happen between now and then.

We always.

<unk>.

For the most recently completed quarter and you compare that to say trailing 12 months pre COVID-19. So.

We view the capital market. So we use the line as our.

Temporary holding period, but we always look at the bond market or the private placement market. The term loan market to help us across all of our <unk>.

The last quarter of 2020 going back 12 months.

They're essentially in line, where like half a percent lower than we were pre COVID-19.

<unk>.

But suffice to say, we've got a lot of liquidity right now in the balance sheet to get it.

To get us through.

Okay I appreciate all the details so far around the leasing pipeline.

Nothing major after what Mark had mentioned comes due until 'twenty five.

Can you remind us what the retention rate was for this quarter and what do you view as the new normal on a go forward basis for.

Great. Thank you guys.

Thanks Ronald.

Sorry, it wasn't wrong was it.

For the company.

So it wasn't clear to me.

Yes, yes.

Okay.

Ben.

Got it.

The last certainly the last.

[laughter].

Eight quarters, or so, but we've been we've been trending around 60 somewhere around 60% to 65% on retention I think we think we're going to be pretty close to that.

The next question comes from the line of Camilo Parnell with Bank of America. You May proceed.

Hi, following up on earlier questions I noticed that the average lease term on your venue pretty shortly.

Thank you and just switching to the financing side can you talk to what the embedded costs were for the caps and swaps you obtain this quarter and I believe you have $125 million of swaps burning off soon whats youre thinking about hedging this floating rate exposure through <unk>.

23.

Yes, so we did not all of the caps and swaps that we have.

Ethan early breaks.

<unk> in the supplemental had preexisting so we didn't incur anything as it relates to hedging instruments in the quarter.

Yeah. This is art, yes. It is true we had a sequential down.

Ticked down in length of lease term on a blended basis, if you look.

I think we were except for maybe.

New deals.

Based on what's happened I think in the current quarter.

Picked up probably about seven months on the average of seven months it was really the renewal.

But glenn.

When we did the construction loan and the.

Three renewals in there that really dragged it down then drag the average down to about 30 months, but if you look at.

<unk>.

The three 5% on the Howard Lewis and our happened as of the financing of that.

Where were linked to trim has been trending from Q2 2020, that's really where it bottomed out for US we have steadily been increasing our length of term on deals.

Instrument.

And then as it relates to the to that swap.

That's a swap we actually had a while ago, we paid off term debt and then we were able to keep that in place to continue to offset floating rate exposure.

Again somewhere around 32 months to 50.

<unk> 52 months and so we feel pretty comfortable about it directionally I just think that it was just.

When it burns off.

We're going to look at what floating rate debt, we have it's a little bit more than 400 at that point and we're always monitoring.

Three deals really on the renewal side, the drag dragged down the quarterly average, yes, if I could just maybe just add some analytics around art's point, because it's dead on.

Hedging opportunities and depending on.

You look not just at the recently completed quarter, which can be overly influenced by.

How that looks.

Later in this year.

Right.

A couple of deals if you look at nine months the full nine months of this year, it's actually up on just on the renewals about 4%.

Further hedges in place.

Okay. Thank you for taking my questions.

At $49, one compared to 47, one for the nine months of.

Thank you Ms Bonnie.

Our next question comes from the line of Nick <unk> with Scotiabank you May proceed.

The same period last year. So we're actually seeing an improvement I would even add to that if you want more to contextualize that if you looked at overall lease term.

Thanks, Hi, everyone. First question is just on thinking about the overall balance sheet leverage debt to EBITDA has gone up a bit.

This particular quarter on a sequential basis was down if you look say it on a trailing 12 month basis.

You also have an issue over the next year, where some of the move outs aren't factored into EBITDA I know you get some EBITDA so from Onewest.

For the most recently <unk>.

Onewest side, but how should we think about how are you going to manage the balance sheet in regards to a leverage level and whether you do have more let's say asset sales contemplated or something else that would.

<unk> quarter, and you compared that to say trailing 12 months pre COVID-19. So.

Last quarter of 2020 going back 12 months.

<unk>.

They are essentially in line, where like half a percent lower than we were pre COVID-19.

Maybe address your leverage over the next year.

Sure.

Okay I appreciate all the detail so far around the leasing pipeline.

The address the net debt to EBITDA.

A little elevated this quarter, primarily because there's only one month of acuity.

Can you remind us what the retention rate was for this quarter and what do you view as the new normal on a go forward basis.

<unk>.

Adding value if you normalize that it comes down a little but the.

Youre correct the future.

For the company.

Yes, yes.

We have been.

Burn off of tenants that are expiring isn't reflected in the current one and neither like you said is less now but the one left side is significantly more impactful than the burn off of almost all the tenants that are rolling so from that perspective, we feel pretty good about how that's going to continue.

The last certainly the last.

Eight quarters, or so, but we've been we've been trending around 60 somewhere around 60% to 65% on retention I think we think we're going to be pretty close to that.

Thank you and just switching to the financing side can you talk to what the embedded costs were for the caps and swaps you obtain this quarter and I believe you had $125 million of swaps burning off saying whats youre thinking about hedging that.

New and.

Obviously, we're going to be focused on leasing and <unk>.

In addition to Harlow, let's not forget that has not provided any cash net debt to EBITDA as the Katherine front in the current quarter in Q4, yes.

Our floating rate exposure through 2023.

Chad a little bit more specifics around this we've given.

Yes, so we did not all of the caps and swaps that we.

Indications in the past over web pro forma adjustments look like.

Numerate it in the supplemental had preexisting so we didn't incur anything as it relates to hedging instruments in the quarter.

For Harlow for Onewest side.

We could do likewise for acuity, but what you would see quickly.

I think we were except for maybe.

Nick is that it drops below seven on a pro forma basis.

Sure.

Based on what's happened I think in the current quarter.

<unk>.

<unk> <unk> was when we did the construction loan and the.

Last time, we ran it with like a six six.

Debt to EBITDA and that <unk>.

The three 5% on the Howard Lewis and our happened as of the financing of that.

You can expect that to materialize as the cash rents from those.

Kick in towards the end of this year and into next.

Instrument.

And then as it relates to the to that swap.

Alright Thats helpful. Thanks, My second question is on Washington 1000.

The swap we actually had a while ago, we paid off term debt and then we were able to keep that in place to continue to offset floating rate exposure.

I don't believe you have a construction loan in place I just wanted to hear your latest thoughts are you trying to pursue something there and then also in terms of that project, realizing attractive location and very attractive design and but at the same time, we are moving into a more uncertain environment.

When it burns off we're going to look at what floating rate debt, we have it's a little bit more than 400 at that point and we're always monitoring.

Hedging opportunities and depending on.

From a leasing standpoint, and so just trying to understand why you are still confident in.

How that looks.

Going forward with that project right now and if theres any chance that you would actually consider.

Later in this year, we might.

Further hedges in place.

<unk>.

From a construction standpoint.

Okay. Thank you for taking my questions.

Preserve capital or.

For maybe a less on certain leasing environment.

Thank you Ms Bonnie.

Your next question comes from the line of Nick <unk> with Scotiabank you May proceed.

But I'll just address the capital side and then.

Victor.

Thanks, Hi, everyone. First question is just on thinking about the overall balance sheet leverage debt to EBITDA has gone up a bit.

To address the question around leasing in terms of the capital.

We've only got worse.

We're fully locked in on cost Nick we've got we're underway.

You also have an issue over the next year, where some of the move outs aren't factored into EBITDA I know you get some EBITDA so from.

It's probably close to being topped out by this point all costs are.

Under our guaranteed contracts so we have no cost.

Our risk.

There is only about $170 million of spend left to go to complete that.

Maybe address your leverage over the next year.

On.

So it's not going to be burden, some particularly in terms of capital availability.

Sure.

The address the net debt to EBITDA.

Although this quarter, primarily because there's only one month of acuity.

There is.

Obviously once we have a tenant until theres the spend associated with Ti and commission, which we would be more than happy to to <unk>.

Adding value if you normalize that it comes down a little but the.

<unk>, obviously, so it really is not Nick.

Youre correct.

The future.

Material burden on the on our capital availability.

Burn off of tenants that are expiring isn't reflected in the current one and neither like you said is one lesson, but the one left side is significantly more impactful than the burn off of almost all the tenants that are rolling so from that perspective, we feel pretty good about how that's going to continue.

So Nicky said its a great location. It's also a fantastic asset there is a handful of large deals out in the market. We're talking to all of them. We are in negotiations with one in particular right now.

From two to 250000 square feet. So, yes, we still feel bullish on the large tenant demand.

<unk> and.

And that trophy assets.

Obviously, we're going to be focused on leasing and.

And sorry in addition to Harlow, let's not forget that has not provided any cash net debt to EBITDA as the Katherine starting to current quarter in Q4, yes Chad.

The newer spaces going on all the attention. So we still feel good about it we have a little bit of time, but we are out hustling to kind of get the next tenant behind this one as well, yes, and then lastly, Nick listen this is <unk>.

Chad a little bit more specifics around this we've given.

You know theres a flight to quality here.

Indications in the past over web pro forma adjustments look like.

We believe in this asset there's no turning back now, though let's be let's be very Canada. It sounds like we're going to stop construction and then get into a situation where there is building is that going to be.

For Harlow for Onewest side, we.

We could do likewise for acuity, but what you would see quickly.

<unk>, so as Mark said at the capital spend is.

Nick is that it drops below seven on a pro forma basis.

As already.

As already in place and we have.

<unk>.

A lot of activity specifically around a couple of 100000 square footers and if that means we got to go to groundwater and do full floor deals. That's what we'll do to get the rest of at least.

Last time, we ran it with like a six six.

Debt to EBITDA and that.

You can expect that to materialize as the cash rents from those.

Alright, thanks, everyone.

Kick in towards the end of this year and into next.

Okay.

Thank you Mr <unk>.

Alright Thats helpful. Thanks, My second question is on Washington 1000.

The next question comes from the line of Tayo Okusanya with Credit Suisse. You May proceed.

I don't believe you have a construction loan in place I just wanted to hear your latest thoughts are you trying to pursue something there and then also in terms of that project realizing attractive location.

Hi, Yes. Good afternoon, everyone first of all just around the <unk> deal.

Again, if you take the September NOI that you guys provided in the salt.

Very attractive design and but at the same time, we are moving into a more uncertain environment.

And then annualize that it looks like that deal were kind of done at like a nine cap, but I think in the past when the deal was first announced.

From a leasing standpoint, and so just trying to understand why you are still confident in.

Kind of where we thought it was like a 12 13 cap type transaction can you just help us understand that a little bit better I don't know if there's some seasonality in the business, which is why I just annualize into September numbers may not be.

Going forward with that project right now and if theres any chance that you would actually consider.

Pausing it from a construction standpoint.

To preserve capital or wait for maybe a less on a certain leasing environment.

We did look at it.

Yes, I mean, you nailed it you got one month of results there you can gauge.

So I'll just address the capital side and then.

The valuation of this business off of one month of result, but.

Victor.

Dress the question around leasing in terms of capital, we've only got where we're fully locked in on cost Nick We've got we're underway.

<unk>.

We will see where full 2022, ultimately shakes out and when we were guiding we were really focused more on 'twenty three because that would be a full year of ownership, where it's under our.

It's probably close to being topped out by this point all costs are.

Under our structure it takes into account other opportunities we have of having combine this business with our pre existing business and.

Under our guaranteed contracts so we have no cost.

Our risk.

There is only about $170 million of spend left to go to complete that.

We are still confident that this business off of 2023 relative to the 360, we paid for it is like an eight to eight five multiple on EBITDA.

<unk>.

So it's not going to be burden, some particularly in terms of capital availability.

And you'll just have to.

There's there's obviously once we have a tenant until theres the spend associated with Ti and commission, which we would be more than happy to spend obviously, so it really is not Nick.

Continue to monitor the disclosure around that as we have more months to put in front of you to see how closely we are to achieving that that multiple.

Material burden on the on our capital availability, yes.

Okay excellent. Thank you and then just second question.

Yes, so Nicky said its a great location. It's also a fantastic asset there is a handful of large deals out in the market. We're talking to all of them. We are in negotiations with one in particular right now.

Just again, given all the conversation around slowdown in tech demand.

How do we start to think about kind of potential new development starts going forward in regards to that.

From two to 250000 square feet. So, yes, we still feel bullish on the large tenant demand.

At landing a big pre lease is that.

How do we kind of think about when you may start something new if at all.

And that trophy assets.

I mean.

The newer spaces going on all the attention. So we still feel good about it we have a little bit of time, but we are out hustling to kind of get the next tenant behind this one as well and then lastly, Nick listen theirs.

The market shift.

As led us too.

Obviously be in a position, where we would do it one of the multiple deals that we currently have.

As you know there is a flight to quality here.

In various forms and functions.

To break ground, we'd have to be a pre leasing component the amount of pre leasing and tenant quality.

It's obviously up in the air, but it's changed from where we looked in the past.

Gotcha.

Thank you.

As already in place and we have.

Thanks, so much.

A lot of activity specifically around a couple of 100000 square footers.

Thank you Mr <unk>.

That concludes our question and answer session I would like to turn the conference back over to Victor Coleman, Chairman and CEO .

We gotta go to groundwater and do full floor deals that's what we'll do to get the rest of at least.

Alright, thanks, everyone.

Okay.

Thank you so much for the participation and I appreciate all the questions and we'll look forward to seeing most of you at NAREIT in about two weeks.

Thank you Mr <unk>.

The next question comes from the line of Tayo Okusanya with Credit Suisse. You May proceed.

Goodbye.

Hi, yes, good afternoon, everyone.

That concludes the conference call. Thank you for your participation you may now disconnect your line.

First of all just around the <unk> deal.

Again, it could be September NOI that you guys provided in the salt.

Annualize that it looks like that deal were kind of like a nine cap, but I think in the past when the deal was first announced it.

End of <unk>.

We thought it was like a 12 13 cap type transaction could you just help us understand that a little bit better I don't know if there's some seasonality in the business, which is why I just annualize into September numbers may not be.

We do look at it.

Yes, I mean, you nailed it you got one month of results there.

Can gauge that.

The valuation of this business off of one month of result, but.

We will see where full 2022, ultimately shakes out and when we were guiding we were really focused more on 'twenty three because that would be a full year of ownership, where it's under our.

But under our structure it takes into account other opportunities we have of having combine this business with our pre existing business and we.

We are still confident that this business off of 2023 relative to the 360, we paid for it is like an eight to eight five multiple on EBITDA.

And you'll just have to.

But continue to monitor the disclosure around that as we have more months to put in front of you to see how closely we are to achieving that that multiple.

Okay.

Thank you and then just a second question.

Just again, given all the conversation around slowdown in tech demand.

Do we start to think about kind of potential new development starts going forward in regards to that.

That landing a big pre lease is that.

How do we kind of think about when you may start something new.

At all.

I mean.

The market shift.

As led us to.

Obviously be in a position, where we would do it one of the multiple deals that we currently have.

In various forms and functions for chip break ground, we'd have to be a pre leasing component the amount of pre leasing and tenant quality.

Obviously up in the air, but it's changed from where we looked in the past.

Gotcha. Thank you.

Yes.

Thanks, so much.

Thank you Mr <unk>.

That concludes our question and answer session I would like to turn the conference back over to Victor Coleman, Chairman and CEO .

Thank you so much for the participation and I appreciate all the questions and we'll look forward to seeing most of you at NAREIT in about two weeks.

Goodbye.

That concludes the conference call. Thank you for your participation you may now disconnect your line.

Q3 2022 Hudson Pacific Properties Inc Earnings Call

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