Q4 2022 Hudson Pacific Properties Inc Earnings Call
Percent, we also continue to achieve sustainability and ESG excellence ranking number one in the office companies in the Americas by aggressively and winning NAREIT leader in the Light award during 2022 and most recently we were recognized by Newsweek as one of America's most responsible companies and included in the 2023 Bloomberg.
Gender equality index further aligning our platform with stakeholders prioritizes sustainable and equitable workforces.
I'm also very proud of the Hudson Pacific team, and our ability to execute and work toward creating long term value for our shareholders in this complex and highly dynamic environment.
Our strategy places Hudson Pacific at the confluence of several macroeconomic trends that we believe are transitory therein lies the opportunity as we leverage our unique industry expertise and full service platform to position our company and World class portfolio optimally for the next cycle, we continue to see utilization.
Cross our portfolio improve with multiple assets trending towards $50 to 75% peak occupancy.
<unk> remains very tentative and thus asset specific but we believe growing employer mandates and employee willingness to return, especially in light of the recent layoffs will result in even higher utilization and reemphasize on being in the office to improve workforce productivity in the coming year.
Looking at the five largest layoffs among north American Tech companies over the last six months only about 15% of those lay offs based on the warn notices impacted our U S markets accounting for about 1% of the Companys total workforce, while hiring among tech and media companies was notably declined in the recent months, we recall these <unk>.
<unk> had massive hiring gains throughout the pandemic with little or no augmentation of their office footprint in our target U S markets employment levels in tech and media related sectors are still at or well above pre pandemic levels, reflecting the inherent long term secular strength in the case of Seattle and the Bay area.
As much as 15% above software and it job postings are still 20% to 25% above and the pandemic levels. According to indeed, and we know as big tick right sizes talent will spin out and build the next high growth companies. The next Google or the next Amazon VC capital firms raised about $160 billion in 2000.
22, and have record amounts of capital to invest in series ANV rounds, and there is still very active this will give rise to innovative small and medium sized companies that will ultimately expand within our portfolio and beyond just as they've done in past cycles.
As of the fourth quarter top studios, including Apple TV, and Netflix Disney Amazon and others, we're still projecting to spend a total of $140 billion on content. This year up 11% from last year to a new high original content spend which typically accounts for 20% to 50% of the total spend is perhaps a better indicator of production was expected to.
Increase by a more moderate 2%. However, we did see production activity moderate in the fourth quarter, particularly here in Los Angeles, which we attribute to several factors, including studios growing austerity measures the Amazon MGM and discovery Warner Media acquisitions and caution ahead of the late spring studio Union contract negotiations as well.
Annual seasonality.
We'll continue to monitor these trends, but remain confident in the long term fundamentals around content creation and the ability of our platform through a combination of long term leases and increasingly diverse geographic footprint and product offerings to meet the current and new client priorities and preferences.
And Hudson Pacific We are building upon a strong track record of execution, our ability to uncover opportunities deliver premier office and studio space execute leases in gross rent grow rents and in so doing we've set the bar when it came to creative collaborative high quality high touch sustainable work environments and related services to.
The world's most innovative and creative companies and their employees as these industries evolve and grow once again, we will be at the forefront of this next shift we will leverage our platform seasons cycled team that's fully tested our full service programs vertically integrated platform and our unique strategy and value of our relationships.
To continue to expeditiously optimize our portfolio and ways that we could create significant value for shareholders. Looking ahead to 'twenty three our priorities are as follows to continue to successfully address our 2023 office lease expirations with the goal of preserving rent and occupancy.
Executing on our near term value creation office and studio development opportunities, specifically, Sunsick Lenox, and Washington, 1000 to further strengthen strengthen our balance sheet by delevering through asset sales and reducing interest rate risk through hedges and finally to continue our ESG and sustainability leadership.
Has become a hallmark of our businesses and how do we create long term value for our shareholders now im going to turn the call over to Mark.
Thanks, Victor our leasing team continues to hustle and in the fourth quarter, we signed 517000 square feet of new and renewal leases.
This resulted in over 96000 square feet of positive net absorption and drove our in service office lease percentage up 40 basis points to 89, 7%.
This included a 100000 square foot.
10 year lease with a large publicly traded software company at Metro Center in Foster City, which was not only the largest deal in our portfolio for the quarter, but also the largest along the entire San Francisco Peninsula and a win for the team.
Our activity also included the full building 47000 square foot backfill of Lockheed Martin with a 17 year lease with Stanford at $31 76 quarter in Palo Alto and a 40000 square foot 10 year renewal with SF MTA at 14 75 market in San Francisco.
Both deals addressed two of our larger 2023 explorations are.
Our GAAP rents on fourth quarter deals were up 16%, while our cash rents were down 5% driven primarily by Stanford renewal at $31 76 border.
Adjusted for the Stamford lease cash rents were close to 3% higher.
Note that the NFL, which vacated 2910 950, Washington on January 1st of this year is still included in our fourth quarter lease percentage.
Although we continue to negotiate with a single tenant for the entirety of that asset we're actively exploring redevelopment of the property as residential to take advantage of its prime Culver city location and pending up Sony.
This is a decision we expect to be able to make in the coming months as we review our options.
Even as we continue to sign significant leases, we have one 9 million square feet of opportunities in our leasing pipeline and multiple stages.
We also currently have activity on both of our only two large block explorations in 2023.
Specifically, we have 60% coverage on block space at 14, 35 market in San Francisco, which expires in the third quarter of this year, we're negotiating with an existing 25000 foot subtenant and a new tenant with a 250000 foot requirement.
If we can close on these will have largely addressed our only material exploration in downtown San Francisco This year.
We're also in discussions with Amazon to renew their fourth quarter 140000 square foot exploration and met park North in Seattle, and expect to have more visibility as to their plans by the third quarter.
We currently have 42% coverage on our 2023 expirations with an average tenant size of roughly 9000 square feet.
Approximately 50% of these are located in the Peninsula and Valley Submarkets, where we're seeing resilience small to mid sized tenant demand for our assets.
According to CBRE in the fourth quarter, along the peninsula over 70% of leases signed were under 5000 square feet and in the valley over 60% of deals we're under 10000 square feet.
We're staying disciplined in our approach to new development as we monitor market conditions are.
Our under construction development pipeline consists of two attractive and unique projects.
Burbank adjacent seven states Sunset Guano studio, which will be the first purpose built studio in Los Angeles in over 20 years.
It's on track to deliver this year.
We're in discussions with several tenants regarding multistage multiyear commitments, including some single tenant users for the entire lot, but we're also prepared to leverage a more traditional show by show lease model for some stages <unk>.
Construction also continues at our Washington, 1000 Office Tower, which will deliver next year and is well positioned at the best of the best product in Seattle's Denny triangle Submarket.
Over the last decade, we've established a proven track record of excellence in development with our platform and projects winning numerous awards from the likes of <unk> <unk> and <unk>.
Apart from our two under construction projects, we continue to progress entitlements and designs for the balance of our $3 6 million square foot pipeline of potential development opportunities, which contains you need projects like Berard exchange, which will be one of north America's tallest mass timber office towers, and Sunset Walton Cross, which will be one of our largest.
Studio facilities in the UK.
We're taking this time to ready our pipeline to ensure we can commence construction and create value, but only when the timing is right with that I'll turn the call over to Eric. Thanks, Mark our fourth quarter of 2020 revenue increased 12, 2% to $269 $9 million compared to fourth quarter 2021, primarily <unk>.
By income generated from our <unk> acquisition in August 2022, and the commitment and the commitment of Google's lease at one left side in December 2021, partially offset by Qualcomm's vacancy at Sky Sky Park Plaza in July 2022.
Our fourth quarter same store property cash NOI increased two 7% to $126 9 million compared to fourth quarter of 2021, primarily driven by increases in revenue at 1980, 811, 61 was for 45 market and Sunset Gower Studios, partially offset by Qualcomm's vacancy at Skype a plaza in July .
2022, adjusted for Qualcomm, our same store cash NOI.
NOI would have increased to $6 seven.
Fourth quarter <unk>, excluding special items was <unk> 49 per diluted share compared to 52 per diluted share a year ago.
Fourth quarter specified items consisted of transaction related expenses of $3 6 million or three cents per diluted share compared to transaction related expenses of $1 5 million or one cent per diluted share and prior period property tax reimbursements of <unk> 7 million or zero cents per diluted share a year ago.
Fourth quarter, <unk> was $62 1 million or 40, <unk> per diluted share compared to $72 5 million or <unk> 47 per diluted share a year ago, our payout ratios for the fourth quarter and year to date or a 58% and 61, 4%, respectively underscoring that our dividend remains well covered.
We continue to execute on financing that asset sales to fortify our balance sheet at the end of the fourth quarter, we had $878 8 million and total liquidity comprised of $255 8 million in unrestricted cash cash equivalents and $615 million of undrawn capacity under our unsecured revolver.
<unk> credit facility. We also had another 90 $898 million and $15 3 million of Undrawn capacity under construction loans secured by one left side $10 50, Pico and <unk> respectively.
Upon looping or 110 million series a notes in January 2023, and using that in a $2 million of sales proceeds from skyway landing to pay down our unsecured revolving credit facility. This February we now have $1 billion in total liquidity in January we also entered into interest rate swaps on our 172.
$9 million pro rata share of our 19, Atms loan and $51 2 million net pro rata share of our Hollywood media portfolio loan.
Accounting for these debt repayments and interest rate swaps the composition of our debt as of December 31, 2022 on a pro forma basis results in fixed debt of approximately 82, 8% and fixed and kept debt approximately 86%.
Currently have $210 million of debt maturing towards the end of 2023.
Which can be repaid from our line availability. This includes our $50 million.
C E notes maturing in mid September and $160 million.
Note of <unk> secured debt maturing on December 31.
Now I'll turn to our outlook for 2020 as always our guidance excludes the impact of any acquisitions dispositions financings and capital markets activity. We are providing an initial full year 2023, <unk> guidance range of $1 77 to $1 87 per diluted share there are no specified items in connection with this guidance.
We expect same store property cash NOI to grow.
Growth of two 5% to three 5%, which reflects the additions to the same store property pool of Onewest side fits them Bell in Harlow and the removal of $2 905 to 950, Washington in Culver City, which we for guidance purposes designate as redevelopment to residential.
Our 2023 full year guidance reflects for the first time, the full year benefit of our <unk> acquisition, which occurred in the third quarter of 2022, However guidance does not reflect the potential disruption and studio production activity beyond the slowdown mentioned earlier.
Advent ongoing studio Union contract negotiations lead to a strike and halting production, which could occur as of May one and June 30 of this year now we will happy to take your questions operator.
Hello.
Sorry about that we will now begin the question and answer session. As a reminder to ask a question. Please press star and the number one on your telephone keypad.
If youre using a speakerphone, please remember to pick up your handset before pressing the keys to withdraw your question. Please press star two.
Our first question is from Michael Griffin with Citi. Your line is now open.
Great. Thanks, maybe we can just start off on the on the guidance for 'twenty three Victor your prepared remarks, you talked about preserving rent and occupancy for the year ahead. So I mean should we read this as you expect the occupancies are to be flat and then as it relates to the same store I mean, it seems like it's more a function of just moving.
Assets in and out of the same store pool as opposed to more organic growth I guess do you have a sense of what that number would be if the NFL building was included in the pool this year.
Well, let me, let me start and I'll get the guys to sort of jump in.
Michael on your second part of your question first.
No.
We're not moving assets in and out I think it's important to note on the NFL asset we have limited activity from single building users and when we recognize the fact that the interest was not as high as we had anticipated in our marketplace.
<unk> is in high demand for residential and.
And the opportunity for the upswing in Culver City.
It's now being evaluated by our team, which is the highest and best use the return on that asset would be would be obviously.
Much higher than the residential capacity, but we're going to evaluate it we'll keep you posted what we think the returns are going to be in the construction costs and the likes of that and whether we do it on ourselves it's TBD.
That being said.
Asset.
If we had kept it on a same store basis.
That asset was well below market any ways in terms of the NFL.
Numbers and I do think that we're probably looking at it we were always probably looking at a 24 occupancy physical occupancy in that asset as the year went by and in 'twenty, two and we start with the activity was a REIT you want to comment on that sure.
What we don't want to do it.
Really.
Do what you are trying to right now which is <unk>.
Collectively add or remove certain assets.
That comply with our same store policy right so in regardless of.
These assets they were supposed to come in as our policy States, which is Harlow onewest side and put the bell and NFL being removed as because of a change in use.
Is that sky.
Sky part is in the same store because there isn't I'll say.
Changing used in that asset.
I don't think.
Selecting one asset versus another.
See what the impact of same store is as beneficial to N. One however, if we ignore both Skype court and one left side.
And leave to $9 50 to 900 out our same store cash NOI would go up by 5% so.
So I do think that.
Cherry picking certain asset.
Any of US this is our same store pool and.
And this is what we've got at all.
Right right I understand that but I guess my I'm sorry.
Okay.
I was just going to segue over to your question on occupancy.
No.
We started last year with 2 million feet of expirations, beginning of 'twenty, two and signed $2 1 million square feet.
And that kept off in our lease percentage close to 90%.
This year, we start with less exploration than we did last year, we're about familiar with seven square feet.
There are some pretty sizable explorations as part of that NFL.
Block being two decent size explorations.
And so.
Our view is that and we have 2 million feet of activity in the pipeline now or close to that so we expect a full year leasing activity to be healthy.
But our view is trying to pinpoint some ending year lease percentage is a bit of a fool's errand because it's it is so tied to our success of either backfill in water.
Let's say the block space for example can fairly materially move the needle.
As with any moment in time.
But I think we're set up to have a really successful year.
In any event.
Right and again I don't want to harp on the moving assets into our same store pool, just seems to me that if there is potential office demand for asphalt I mean, I know you have your answer.
So our policy is but if that were to get leased one would think that that should still be on the pool, but I understand you guys are on metrics for you quantifying, which again are not in the same store pool.
Great.
And then one more if I could just quickly Victor you mentioned in your prepared remarks, just a comment on transitory effects in the environment right. Now I guess can you expand on that I mean is the is the long term assumption that we go back to what the office was like at a pre COVID-19 level I just found it I use the word transitory.
Sort of interesting just given we're sort of in this.
What I would interpret as more permanent sort of hybrid remote hybrid work environment, but if you could if you could expand on that that would be great.
Yes, I mean listen I think I can sort of tell you what we're seeing on the ground region a region all the way through it but the reality is we are definitely.
In the.
Latter stages of post Covid and some some sense of normality.
The majority of our tenants are three days plus a week and some are fully up to five some of our tech tenants are fully five five days a week. Some some of our fire related tenants are three days weeks Ome average, we're seeing that and we're seeing that shrink that number shrink from basically.
Overall, 75% pre COVID-19 occupancy level of physical occupancy level to probably I don't know where that number is going to fall in place but were still.
Feeling it's going to be in that 60% to 70% anyways and if you look at our portfolio today I mean, we're at in Vancouver, We're at 75%.
In Seattle, we're roughly at 75%.
The peninsula, where between 45 and 60% in our portfolio San Francisco.
We're looking around 25%.
But if you took take a look at the ferry building we're at 75%.
So and in la.
<unk> got assets that are 100% and we've got our multi tenant assets. There that are <unk>. So the averages between 50 and 100 so I.
I do think that we're seeing a big shift and thats going to continue to evolve as companies look to establish their presence both physically and then.
And then socially within their own environment and culture.
Gotcha, Alright, guys Thats it for me thanks for the time.
Thanks.
Yeah.
Our next question is from Dave Rodgers with Baird. Your line is now open.
Yes, hi, everybody I guess first on the leaf and you talked about 42% coverage on the expirations for this year and I think you said, 60% of block does that include leases that <unk> already just signed or is this still leases that you're negotiating I just wanted to try to get a sense in those two particular instances how much of that activity is already done.
<unk>.
Hey, David Sorry, do you mean of the 42%.
How much of it's yes, yes, most of it is in negotiation that we signed I think three deals.
Three deals and most of that is in LOI stages right now.
Okay. Thanks for the clarification on that Victor a second on the Union negotiations could you give us a sense I guess across the studio business of how much of that business would that impact for you is that.
Star Wagon Cody.
The whole services side as well as kind of the services youre, providing or sourcing within our studios themselves and I guess, how much direct impact that you get on expenses, maybe let's say versus just the occupancy hit a shot into the studio down.
Yes, I'll start and I'm going to kick it over to Jeff startling easier also to sort of focus specifically on this but yes first and foremost.
Dave I mean, the Union is the union negotiation between the three between Sag in DVA and writers Union right now, it's a obvious hot-button last time.
This sort of contentious was right around eight when we first owned our studios, we saw 100 day strike.
It's a little bit of a land grab right now to see who is going to go first.
Our preference like everybody else's on the ownership production side will be DGA, because they seem to have great leadership and a direction and so.
If they can get out ahead and make a deal which is what we're all hopeful it may set precedent, but we don't know whats going to happen. There is specifically we're looking timeline.
May June .
As some sort of emphatic timeline when the actual strikes would occur.
We obviously are not impacted by our sound stages that are on leases we are.
Much more impact on our operating businesses.
We'll produce content up until the strike occurs and Jeff can get into a little bit more detail on that.
Yes.
So.
If the strike happens obviously it impacts.
Occupancy utilization and it's a high fixed cost business right. So once once those impacts happen, obviously, it ripples through and it rolls down to our profitability. We have two different sides of the business as you know on the Sunset brands most of our business, 85% of it is under long term lease.
So really the vast.
There is much less of an economic impact on the sensor side on the acuity side. This is our collection of the <unk>.
Stages that are under lease as well as the service codes that businesses, maybe 90% show by show.
Sort of a short term lease so not not under that launch and lease model all in the whole portfolio. The entire portfolio is roughly 50 50.
Two different businesses are pretty different I guess, the last thing I would say is.
We look at this is obviously, it's not it's not great, but it's obviously fully out of our control and it's a short term impact. So ultimately we do believe if and when the strike happens we will we expect to recapture a lot of that demand, whether it's Q3 and Q4 'twenty four we expect to recapture most of that.
That's kind of how we think about it.
Just to recap that about 50% of that could be at risk. If all three are striking and the studio is shut down.
Yes for the temporary.
Yes.
It's well, it's 50% of revenue the impact to NOI.
Not necessarily be the exact same thing because of the constant ensure that each business, but yes, 50% about half. The revenue is under short term and about half is under long term.
Okay. That's helpful last one for me just on disposition appetite and desire to get assets into the market currently and get those closed.
<unk> continued to create liquidity for the business.
We have a few more that we're looking at market conditions, we'll obviously dictate timing and pricing on that nothing is eminent we did take our arts district assets off the market last year and have not looked to revisit to bring them back at this time, but we.
Successfully.
Executed on our.
Our most recent disposition, which which was which was last.
Which was done this quarter, but we executed last year and we closed this quarter. So I think you can sort of anticipate that we will let you know when we bring assets to the marketplace, because we're not going to we're not going to do them on our own will bring third parties and it will be public just like it wasn't the Arts district.
Yeah.
Alright, Thanks Victor.
Okay.
You got it David.
Our next question is from Alexander Goldfarb with Piper Sandler Your line is now open.
Oh, great. Thank you and I think its still good morning out there.
Just continuing on on the on the studio business.
You guys have increased the mobile studio business. So.
Just wanted to know about that we've gotten used to the way the regular the traditional soundstage business works through the year, but now that you have more mobile studios want to understand the seasonality of that and then also.
Just the depreciation more of that is not an add back so.
If we think about the guidance and what's in there.
Any sort of adjustments that we should be mindful to make sure that we properly account for the depreciation now that we have sort of a full year.
Of the Big studio mobile studio platform.
Thanks, Alex.
So we provided that in the guidance section in the chart, we've kind of illustrated what our ranges for 2023 in terms of the.
Non add back of depreciation or our non real estate depreciation to be more precise. So that's in our guidance and the Q4 number is probably the closest to a run rate youll see just because it has a full quarter of Jody and obviously.
The formerly Starbucks Zile.
So that's all in that number and the guidance.
Our best.
Indication of that.
Yes.
Alex in terms of your first part of your question I mean listen if you recall when we first got into this industry and this business. We were really runny show by show variability and we converted over to long term leases. So.
It's exactly what it was as each show goes goes in and the success of the show will be based on it will be based upon the success and the pickup the biggest difference though.
Today than when it was some time ago. When we first bought the studios anybody who ever was at eight or eight or nine.
Is that now the shows they go in on a variable basis.
Which are for the small screen the series episodic.
Versus features they're almost inevitably always picked up for two years.
Unlike before it would be much more seasonality in filming we'd be starting sometime in early late late spring early summer and carries retail March April and there would be a hiatus now for only 24 24, 7% 12 months a year.
But we do see seasonality around.
The mobile studio business, specifically in December usually we see it again.
Around August .
He's been weaknesses in quarters.
At various different times, when we pointed that out.
The stickiness is whats going to happen between the increase in.
On on location shoots and the amount of days there versus in our in our sound stages and what we've what we've tried to message around this is we're capturing both we're capturing production on location now at a level of about almost 70%. That's film is specifically in Los Angeles, and then were capped.
Green location shoots in studios that are not just all of ours, but now our competitors and our friend studios, because we control a substantial amount of that business.
Okay. That's helpful. The second question is just sort of.
L. A has done a great job over the past several decades of diversifying its economy and it's still obviously content.
It's got a much deeper.
Kind of base. If you will do you feel that northern California, and Seattle are too concentrated and is.
Is there anything that the local.
Community business communities are trying to do to diversify or in your view the tech the upside when tech really works more than compensates for the tech downturn as far as owning and investing in real estate.
Well listen I would completely concur with your statement in Los Angeles, I think people people do think of Elas City of entertainment, but really it is the most diversified of all the markets. We're in.
Whether it's entertainment whether it's tech.
It's small business, whether it's fire related businesses the diversity of our tenants.
Is much more apparent in Los Angeles, how has that has trickled through our portfolio in the peninsula in San Francisco and Seattle.
It is evolving by just what youre seeing statistically in our portfolio and the leasing that our team did so if you look.
Thematic wheat at 2022.
Currently the makeup of our portfolio was about 40% Tech you know that most people know that but if you look back on 'twenty. Two we did about 300 plus leases of that.
It was some more around from a number of leases less than 20% where tech and from a square footage above.
30%, where tech and if you look at the quarter, we did about 76 leases and if you look at this portfolio wide and if you look about 17% of those leases were tech and about 30% square footage. So it's consistent that youre seeing the spread now what our communities viewing listen at the end of the day.
I can't sort of comment on the political environment and community community, but I can tell you. There is still a welcoming thought process for small business growth specifically in California, specifically in the valley that is spearheaded a niche on EMEA you heard might you heard my prepared remarks, I mean, the next Amazon or the next <unk>.
<unk> is coming out of the divisions of those companies with the way VC capital has always attracted those those types of tenants to start small and hopefully grow big and become successful and Theyre not all tech clearly and then all entertainment and so the diversity will be there. It just takes a little bit of time, but the Genesis.
<unk> of capital is driven on the success of the companies, which in the history of Seattle, San Francisco and the Peninsula. These companies had been tech related because thats, where the success has come from.
Okay. Thank you.
You got it Alex.
Our next question comes from Ronald Camden with Morgan Stanley .
Line is now open.
Hey, just going back to sort of the same store NOI question, maybe just thinking about it a different way is there is there a way we could sort of break it out that growth and what's what's occupancy whats Bob.
What's free rent burning off just trying to get a sense of what's driving that 3% at the midpoint.
I don't know if we've ever gotten that granular on our same store disclosures.
I think I think I illustrated earlier, where if you back out.
The big movers, which is.
Qualcomm.
Okay.
Google.
And I guess NFL.
We're still having a 5% increase of our same store and I think that's just a product of.
Either the leasing and our ramp ups and free rent burning off.
Otherwise I don't think we can get to the very granular detail, especially in northern California segment, which is an average occupancy of about 5000 square feet.
So it's really hard to really break that down, but thats kind of the big picture of it.
Helpful does that then just that yes.
That's helpful.
Just moving onto sort of the leasing.
Thank you talked about sort of the.
The 1.9 million pipeline.
That's in focus right now can you talk about sort of what.
What the tenants are saying you hit on the Amazon thing, which was has been in use and so forth. Just how are you guys sort of thinking about that are those conversations going.
Well, let me start by <unk>.
Given the accolades for the leasing team I mean 2 million square feet in 22 was literally NDA and combat and so.
When I just mentioned Ronnie that we did over 300 leases I mean that was a lot of hard work I think that's indicative of where we sit right. Now we are still in in a headwind position where tenants have choices and so theyre looking at the availability of space.
The likelihood of a landlord to be able to write a check for <unk> and the ability to execute at their timeline, not our timeline and never before.
<unk> seen such a delay of tenants that are interested in leasing space, but haven't committed because they don't have to until the absolute last minute.
If theyre, leaving space to come to our space or others. They're current landlords are laying mixed and hold over one times in the past they've said.
Over ratios were 150 or 200 over rent and you have to pay that now they're waiving that.
It's an absolute flat and you can take more time and make a decision so with that as a backdrop on our $1 9 million square feet in the pipeline.
As Mark indicated in his prepared remarks.
400000 feet, sorry, 300000 feet of that is to tenants at block and so that takes US there are two tenants once once $2 50, and one is a little over 25 those those two tenants. We are working hard on those two tenants, but if you take the next million isolate art sort of address that.
Yes.
You're spot on I mean, the one nine is a very healthy level of market indicated earlier that we carry.
Mindful of the fact that we had just finished leasing 500000 square feet plus and so our ability to reload the pipeline in this environment.
It's been a feat for our team on the ground and so we do anticipate.
The demand to be at healthy levels going forward.
Because of the successes we've had.
But that remainder of the square footage that Victor was talking about were chiefly talking about tenants that are roughly about six six to 7000 square feet.
These tenants have.
<unk> dominated most of the markets I will say with the exception of Silicon Valley, where it's still tech Tech driven all the other markets have seen an uptick or significant uptick over the last couple of quarters in.
Buyer and scepter and <unk>.
Special service firms and as a matter of fact it really.
Which was shocking to two quarters ago.
That said those two sectors surpassed.
Surpassed attack in the Seattle market. So those are the types of tenants were looking at right now.
NAND.
As you might imagine.
This demand generally favors our portfolio why because we have our VSP program, which is the market ready suites that have been super successful I think as we built them out we've over time leads to mid 80% clip and so that's why we feel really bullish about the small tenant that could be back in the market.
Great. That's it for me thanks, so much.
Got it.
Our next question is from <unk> bundle with Bank of America. Your line is now open.
Hello.
There has been a number of big tech firms.
Firms coming out recently, stating that they're planning to cut back on their office footprint, Google being the latest I know that your leases with Google are longer term, but wanted to understand if you see any risks since sub leasing or lease termination from the master of your largest tenant in the portfolio.
Yes, well listen we're in constant contact with Google and we have obviously several leases with them I think.
<unk>.
<unk>.
We have not seen any indication of sub leasing.
In any of our assets with them to date.
Think in.
One of our assets.
We have an early term.
The end of 'twenty, four which is hill view.
And I think that's about 200000 feet or so and <unk>.
<unk> had some chat about keeping app, and maybe and maybe <unk>, but thats move because it's in three different departments. That's moved around I think that's the only conversation that I can recall that our team has had to date.
And as I said that at the end of 'twenty going into 'twenty beginning in 2005, so yes.
That's all that we know to date.
Okay and from any other time.
Any other tenants within the portfolio any increased rates for sublease thing there too.
No I mean listen the only other one on the portfolio everybody already knows about is Uber.
$40 55, and they expire in 2005, and a 25% and.
<unk> been trying to sublease their space and and.
One of the transactions that we're working on will it include part of that but that's it.
Got it and can you spend a bit of time talking about the Skyway landing sale. You recently closed on the types of buyers that you're seeing and any color around how pricing came out versus your expectations.
Yes, so I'll just ticked up a little bit if you recall we.
<unk> ability to approximately I think 30% occupancy.
Over the last year plus.
And on the.
On the ability for us to maybe convert this for life sciences for either ourselves to do.
Particular buyer so.
So the life science interest buyers were who was looking at this asset.
I think we sold the asset for about effectively vacant.
For about 400, plus a foot.
And so we're pretty pleased with the number.
<unk>.
And I think as a result the execution.
<unk> was one that in today's marketplace, we did not earn Zheng neuro rehab to carry back to financing. So I think it was clean Mark do you want to add to that yes. I mean, just in case you want it for your numbers Thats.
Less than a 1% GAAP and cash cap rate on Q4 annualized so it.
It makes effectively no difference to our operating results going forward and as Victor points out we did north of 400, a foot on the sales so.
Good execution on that.
Okay. Thank you.
Our next question is from Nick <unk> with Scotiabank. Your line is now.
Yes, thanks going back to the same store NOI guidance for this year I want to see if you could break down the impact between office and studio for the components.
Yes.
We're guiding without that we don't.
I mean first of all our peers are not separating out when they have multi year whatever in their numbers right or life sciences or life Sciences.
I mean suffice to say.
Office is the vast majority of that same store NOI and to get to the 3% at the midpoint office would have to be darn close to that number to begin with.
It's hard to give you a pretty good idea of the.
The composition of the two numbers.
Okay got it and then I guess just following up on that in terms of.
I know you talked earlier about it's hard to forecast where.
The leased rate might be for the portfolio at the end of the year, but maybe you could give us a sense for it.
Actual.
Same store office occupancy type of number that's embedded the.
The change in same store office occupancy embedded in your same store cash NOI growth.
Hi, guys, Nick I respect the tenacity.
But look we didn't if we were going to guide to it we would have guided to it.
Yes.
Okay Alright.
Just one last question has gone back to $14 55 market and.
The tenant prospective tenant you are talking about there.
I guess at this point are there.
It's solely relying on that one tenant and I think in the past mindset. It's a.
Government tenant and so I'm just trying to figure out.
So the likelihood of a risk of actually that deal.
Yes getting done.
Yes.
Listen.
I can't tell you if it can get done or not we're the only or the only place that theyre looking at I will say that and so either make sure it doesn't.
With us so.
I think our market to put a number on what it is we're hopeful that something comes out of it and if it doesn't then.
We'll figure something else out.
So to answer your question directly that's the only one tenant of size currently today that we're entertaining.
Okay.
Is it a government tenant.
I can't say.
Okay fair enough. Thank you.
Thanks.
Yes.
Our next question comes from John Kim with BMO. Your line is now open.
Thank you I wanted to ask about your fourth quarter cash same store growth, which in office was positive at 1.9%, but you also had occupancy dropped 510 basis points year over year as the big.
And I think headwind to overcome.
Were there any onetime items in there whether its termination fee or free rent burn off that really helps with this quarter's results.
There are if there are any termination fees there are probably de minimis. So I don't think theres anything in there and it's a combination of.
Partial quarter increases in.
Occupancy and rent bumps so there wasn't anything.
And I recall.
One time in those numbers that would drive that it's just rental income.
Maybe maybe a collection of some rents that.
Basically rent burn off.
Okay.
Just to clarify you don't include termination fee guidance.
Correct, if we do we call it out.
And our guidance we don't include.
Termination fees.
We really haven't had much.
Material termination fees.
Unlike many of our peers just not hasnt played much of a role on our numbers and the last time, we had a big one we are very clear on calling it out everywhere so people understood.
The impact of them.
Either in same store total even.
Phil.
Can you talk about this might be a little bit premature, but can you talk about.
The conversion opportunity at the NFL copper space.
Whether it's multifamily or condo conversion that youre contemplating.
And whether or not you are looking at other assets in your portfolio for either Rajiv Lifetime's conversions.
Yeah.
Maybe a clarification around the conversion, but the what we're exploring at $10 $9 50 in Culver City is really a full redevelopment it's not.
We're not envisioning, taking the 170000 feet and adapt sort of converting that to residential rather the up zoning. That's currently underway in Culver City is to densify.
It's a long transportation corridors, and we think our site could support as many as.
Up to 470 units there are comps.
Within say a mile radius of us.
That are good.
Financial costs that are under development today that.
0.2 valuations for our site.
At that density level it somewhere.
Maybe double our current GAAP basis.
Which is why we think it's a compelling.
Opportunity to pursue ask or other conversions.
<unk>.
It's obviously happening in various markets residential conversions more on b or even C quality type real estate, we don't really have that within the portfolio. We are looking at on sort of what it entails to convert on.
On assets that may be physically are well situated for conversion or maybe happen to be in markets that have nearby residential.
So that we're at least informed about what the opportunity for conversion looks like but I don't I mean I think.
Victor has said on past calls I don't think we think theres much of our existing portfolio. That's a real candidate for conversion given the quality of the assets.
Okay.
Okay, just one more for me on your dividend and your decision to maintain it.
I think its request and youre not following the herd necessarily but how committed our EBIT maintaining the dividend for the year.
Just given we're trading at a 9% yield and you might have some use of proceeds on retaining that capital.
And listen we're completely committed to maintain the dividend you can see where our <unk> ratio is right now.
One of the lowest we've had I think in quite some time and I think it's.
Whether we're following the herd or we're creating our own the reality of the situation is the amount of differential here for access to capital given our liquidity position right now is not materially.
There won't be a material change if we lowered our dividend and we just think that given this is a hopefully a indication of the strength of the company one and two the position by which we're going to take going forward, which has been consistent throughout I mean at one point last year, we were having conversations about increase in our dividend because of our <unk>.
It is going to do you want to comment I just wanted to add not to take away anything that Victor said, we always evaluate our dividend policy and coverage and factor in current economic conditions leasing activity interest rates everything that we also put into our guidance. So.
And again.
Thinking it through all of that we've decided to maintain our dividend in the short term at least whether or not we increase or decrease it later on.
Reevaluate on ongoing basis.
Great. Thanks for the color.
Yes.
Our next question comes from young Ku with Wells Fargo. Your line is now open.
Great. Thank you just wanted to go back to commentary in Google I think you've mentioned tell bill.
As a potential early termination.
But other than that are there any other chunky or at least that we should be aware of that coming up by end of.
2024 that could potentially move out.
No theres nothing theres nothing to the.
Next lease has probably put in 2025 sometime maybe but it's in our.
It's in our supplemental lease explorations for Google, Yes, it's all laid out in our top 15 tenants listing.
<unk> has all the breakdown of all the leases.
And all of our explorations are outlined for the next eight quarters in the supplemental.
Yeah.
Okay. That's helpful. And then just since you mentioned, Google again, what kind of.
Utilizations are you seeing at the different spaces. So my belief is.
Yeah.
Aye.
I think we will.
Hilde you there are almost 100% because it's two different groups I think at Foothill, we have two buildings, one I'm pretty sure once fully occupied one of the buildings I believe there was there was vacancy there that they never built out but not a tremendous I thought it was going off of memory like 20000 meter less little bit more.
Yes, some of that.
So yes.
Got it Okay. That's helpful and I think we might have mentioned this when you were talking about guidance, so you're not baking in any.
Potential strike on the studio side.
Right now right.
That's correct.
Okay, and what kind of <unk> impact what there be let.
Let's say perspective quite them then.
There was minimal kind of production for a back half from beer.
I'm going to just let Jack startling.
Or at least related to this question.
So I would say rather than attempt to quantify this now if the strike materializes because again, we don't we're not like a 100% certain that it's actually going to materialize, but if it does then it wouldn't really officially start until may 2nd because the contract expires may one and I think we have our next earnings call like may 3rd so it probably at that point.
Better sense of the timing and the impact maybe we can give you a better sense, but right now it's premature.
Okay got it that's fair thank you.
Our next question comes from doing Bronski with Green Street. Your line is now open.
Hey, guys. Good afternoon. Thanks for taking the question just curious on a capital from a capital allocation perspective, any desire to start some of the developments that you guys have laid out in your prepared remarks.
Well I think we did yes, we indicated.
But there is no we're not anticipating a near term start on what are really kind of.
On the office side, you've got Berard, we're monitoring it.
<unk>.
We will make sure it's ready to go if the market conditions support it or if we had some significant pre leasing.
The studio side is a bit different we're pretty we're pretty far along we are fully entitled on Walton crossed.
Which you will recall.
Our studio development site that we own in partnership with Blackstone.
35% of that that one could start.
Again, we're monitoring it.
Market conditions remain very good.
We are out looking for construction financing, which you will have to we don't quite know yet how that pricing is going to shake out but that it is feasible that that could start this year.
But other than that.
We don't have any other near term starts.
Okay. That's helpful. And then just curious what's the overall mark to market on the portfolio today.
Yes, so the spot mark to market across the entire portfolio consolidated about 2%.
The 2023, Mark on exploration is about 4% both positive.
Yes.
Okay. Thank you.
Our next question comes from Vikram Malhotra with Mizuho. Your line is now open.
Thanks for taking the questions.
Wanted to follow up on two specific tenants.
See if there's any update on thoughts one is just sales force given the news of them restructuring or terminating leases. Just wondering if there is any specific update you have on your sales force leave and then we work as well they've they've already I think given back 40 buildings last year of what these spaces.
Any update on just how do we work spaces are performing.
So I mean sales for us we still have.
A considerable amount of time on that lease I mean with the earliest expiration of 83000 feet not occurring until middle of 2025, and then we have like sort of two year staggered explorations thereafter.
Fully sublease to Twilio.
So I mean, theres really nothing immediate to update you on our sales force, let me just add to that not only the sublet to twilio at somewhat above market rate. So the idea of salesforce, returning that and giving up they're up upside profit would be strange, yes, I'll clarify not necessarily above mark.
But above the underlying directly so there.
We're sharing in the profit of that so salesforce highly motivated to do whatever I can to maintain that lead.
Lease.
On the we were applying.
We have.
Four locations with them.
They've approached us.
And we're we're talking on that.
For the time being.
There they look to be.
Pretty profitable on at least three of those locations and they seem pretty incentivized to do whatever they can to maintain those locations. The fourth is that $14 55 market.
That one's been even though they've had high attendance there.
Generating quite enough membership. So we're in that one we probably end up being in more of a negotiation with them at some point.
Okay.
So maybe I guess, what youre, saying part of we work or one of the three could potentially be.
Dominated or given back, but but as of now three of them are performing really well is that fair.
Yes, I mean at least I really well I suppose is up to we worked in the side, but from the financials. We review they all look to be profitable.
Okay and then just.
On back to the occupancy I respect that you can give a.
The specific number but I'm just looking for like guardrails or ultimately just ranges assuming you do very new very little new leasing.
We all know the known move outs as well as the explorations.
That that are there in the in the book today I'm, just wondering like as a spot occupancy if you can clarify wherewith spot occupancy on Jan one.
And if you were to do no new leasing or known you backfill and can you just give us sort of a.
A range or sort of where you think the low point could be just trajectory wise just would be helpful. Because it.
It's tough.
I'm, just going to I'm going to stop you know, okay, because we're not going to go here, Okay, you're the fourth guidance call and ask the question and the answer is still is the same okay. It's the same question. If you say give me the high end.
What's the best case scenario, we saw $1 9 million square feet, we're not going to do that either let's go on okay.
Okay Fine I mean, I guess ultimately for real estate Theres occupancy and rent. So it's hard for us to sit here and say where is it going to be but I guess, we'll.
Hopefully after IV in midyear or whether you can give us.
And maybe just we've always bad.
Right.
Maybe just last one on side I guess the comment was around this year at least you're committed to the dividend.
If I just look at sort of Capex, assuming similar capex levels that you saw last year.
Is it safe to say like based on your <unk> range.
Fad if my math is correct rather for one one per deal the 140 of that the equivalent to what you've guided to one <unk>.
We can run the numbers I mean, I guess, if you're backing into it that way I'm sure those numbers work, but.
First of all I think when you say <unk>, you mean <unk> right there.
There are two different calculation.
But.
I mean.
Look at your sort of extrapolating, which is fair Ryan Youre looking at <unk> kind of year over year change on that and what that might imply in terms of <unk>.
There's a lot of other adjustments as you know that that make.
The correlation between <unk> and <unk>.
<unk>.
Trickier to pin down.
I would say.
Maybe to give you a sense as we look at the model.
Between Google and company three cash rents commencing.
This year.
Those significantly mitigate the impact of vacancy like Qualcomm NFL block.
And should help us maintain an <unk> level pretty close to 2022.
And that we have to normalize ti and LC spend in order to kind of get to.
That level, which is totally reasonable.
I want to point out by the way because I think it gets lost a little bit as people think about.
Just maybe the trend on <unk> and <unk>.
It can be you can lose track of.
What's going on Directionally in terms of Ti and Lcs and net effective rents because those have a much.
More profound impact over the long term.
And especially if you look at the what's going on Directionally in terms of average lease term.
Our leases signed in 2002 were 17% longer than.
And then they were in the prior year. So we're along getting our leases there were five and a half years for in 'twenty, two and I think what happened in the most recent quarter is also really important.
Our ti costs were 36% below what they were in Q4 of 21 and 57% below on a per square foot basis than they were at 19.
I think.
These drivers of <unk>.
Our.
The improving if you will.
And I think that should give you some.
Sort of company some comfort in terms of how.
Our coverage could trend.
Okay. Thank you.
Okay.
Operator, we're over our time limit so I want to thank everybody for participating the call and apologize that we're slightly over.
Our commitment was.
Appreciate everybody.
Take any interesting Hudson and we look forward to talking to everybody next quarter.
Bye bye.
Who.
The conference has concluded you may now disconnect Goodbye.