Q3 2023 Hudson Pacific Properties Inc Earnings Call
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Speaker 2: Good morning and welcome to the Hudson Pacific Properties 3rd Quarter 2023 conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. To answer the question queue at any time, please press the star key followed by one on your touchtone phone. If you're using a speaker phone, note that you will need to pick up your handset before pressing the keys. Please note this event
Good morning, and welcome to the Hudson Pacific Properties third quarter 2023 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero right.
To answer the question queue at any time. Please press the star key followed by one on your touch time fine.
If you are using a speaker phone.
You will need to pick up your handset before pressing the keys.
Please note this event is being recorded.
Speaker 2: I would now like to turn the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Please go ahead.
I would now like to turn the conference over to Laura Campbell Executive Vice President Investor Relations and marketing. Please go ahead.
Speaker 3: Morning, everyone. Thanks for joining us. With me on the call today, our Vice-Dropoman CEO and Chairman Mark Lama's president, Perute Deer Amerian, CFO , and ArtsWazo EVP.
Good morning, everyone. Thanks for joining us with me on the call today are Victor Coleman, CEO, and Chairman Mark Wallace President and.
CFO and art Suazo EVP of leasing.
Speaker 3: Yesterday we filed our earnings release in supplemental on an 8K with the SEC and both are now available on our website. An audio webcast of this call will be available for replay on our web.
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.
Speaker 3: Some of the information we'll share on the call today is forward looking in nature. Please reference our earnings release and supplemental for statements regarding forward looking information, as well as the reconciliation of non- GAAP financial measures used on-
Some of the information we will share on the call today is forward looking in nature. Please reference our earnings release and supplemental for statements regarding forward looking information as well as a reconciliation of non-GAAP financial measures used on this call.
Speaker 3: Today, Vature will discuss macro conditions in relation to our business. Mark will provide detail on our Office and Studio Operations and Development, and her route will review our financial results in 2023 outlook. Thereafter, we'll be happy to take your questions. Victor?
Victoria will discuss macro conditions in relation to our business Mark will provide detail on our office and studio operations and development and who will review our financial results in 2023 outlook thereafter, we'll be happy to take your questions Victor.
Speaker 4: Thank you, Laura. Good morning, everyone. And thanks for joining our call today.
Laura Good morning, everyone and thanks for joining our call today as we head into year end with our leasing activity accelerating we're in a position to begin benefiting next year from both the ongoing set of an improvement in the office and the pending completion of the writers and related actors strikes second players along the West coast are finally enforcing an office.
Speaker 4: As we head into year end with our leasing activity accelerating, or in a position to begin benefiting next year, from both the ongoing sentiment improvement in office and the pending completion of the writers and related actors strike.
Speaker 4: Tech employers along the west coast are finally enforcing in office policies, mostly three to four days a week in growing. Foot traffic and public transit ridership is improving, and there's a renewed public sector focus in our markets to address crime and safety and implement more pro-business policies.
Policies, mostly three to four days, a week and growing foot traffic and public transit ridership is improving and there is a renewed public sector focus in our markets to address crime and safety and implement more pro business policies.
Close to 90% of our office space outside of the San Francisco CBD is already utilized on either a hybrid or full time basis and portfolio wide. Our office related parking revenue was up 13% year to date.
Speaker 4: Close to 90% of our office space outside of the San Francisco CBD is already utilized on either a hybrid or full-time basis. And portfolio-wide, our office-related parking revenue is up 13% year-to-date.
Speaker 4: San Francisco's outlook is improving as well. In the third quarter, there were over five million square feet of requirements in the city, up 80% year over year, and at fully 75% of pre-COVID levels.
And Francis outlook is improving as well in the third quarter, there were over 5 million square feet of requirements and the city up 80% year over year and at fully 75% of pre COVID-19 levels over 40% of these requirements are tech related and there are now 11 requirements over 100000 square feet with AI.
Speaker 4: Over 40% of these requirements are tech related and there are now 11 requirements over 100,000 square feet with AI remaining as a key driver of this growing demand.
Remaining as a key driver of this growing demand. This includes late stage deals with open AI for 450000 square feet of Sublease space in Mission Bay, and then Tropic for 230000 square feet of slack sublease space in the South financial District.
Speaker 4: This includes late-stage deals with open AI for 450,000 square feet of uber-subly space in Mission Bay and in Tropic for 230,000 square feet of slack subly space in the self-ininterd...
Speaker 4: We're seeing similar strong tenant interests and our assets across markets in the form of increase in tours. The number of tours at our assets, which we're already in line with pre-COVID levels, increase 17% sequentially, will aggregate square feet of demand grew 20%.
We're seeing similar strong tenant interest in our assets across markets in the form of inquiries and tours. The number of tours at our assets, which were already in line with pre COVID-19 levels increased 17% sequentially, while aggregate square feet of demand grew 20%.
Speaker 4: With the Ryder Strike Result, as of September , we're closely watching the progress of the SAG-AFTRA strike and discussions with AMPTP. Both sides appear motivated to get a deal done soon. We've seen a pickup in pre-production activity on our lots related to in-place leases, as well as an increase in tours, especially for production offices used by Ryder.
With the writers strike resolved as of September we are closely watching the progress of the Sag Aftra strike and discussions with A&P ETP both sides appear motivated to get a deal done soon we've seen a pickup in preproduction activity on our lots related to in place leases as well as an increase in tourists, especially.
<unk> for production offices used by writers once the Acuras reach an agreement we expect to experience an increase in stage bookings positively impacting both occupancy and rental revenue as production begin to prep.
Speaker 4: Once the actors reach an agreement, we expect to experience an increase in stage bookings, positively impacting both occupancy and rental revenue as productions begin to prep.
Speaker 4: As filming resumes, we'll start to see the ramp up of our service-related revenue as well. With the holidays approaching, the precise timeline remains difficult to predict. However, assuming that SAG strike resolves by mid-November, we expect some level of increased activity through year end with the recovery picking up to the first quarter and normalized production in the second quarter next year.
Assuming resumes we will start to see the ramp up of our service related revenue as well with the holidays approaching the precise timeline remains difficult to predict however, assuming that sag strike resolved by mid November we expect some level of increased activity through year end with the recovery picking up through the first.
<unk> and normalized production in the second quarter next year.
Speaker 4: We continue to build on our studio business, and in the third quarter, we closed on our joint venture with Vornado and Blackstone to develop Sunset Pier 94 as Manhattan's first purpose-built studio. New York has been a high-priority marketplace for expansion for our Sunset Studios brand due to the established talent-based production infrastructure and recently extended and expanded tax credits. This represents only a $39 million capital commitment with fee-enhanced returns of approximately 9%.
We continue to build on our studio business and in the third quarter, we closed on our joint venture with Vornado and Blackstone to develop Sunset Pier 94, as Manhattan's first purpose built studio.
Europe has been a high priority marketplace for expansion for our <unk> Studios brand due to the established talent base production infrastructure and recently extended and expanded tax credits. This represents only a $39 million capital commitment with fee enhanced returns of approximately 9% beyond just project level NOI.
Speaker 4: Beyond just project level and a lie, we expect our new footprint in the city to drive further demand for and revenue from our existing New York K.O.V. businesses, building a full service platform in the city, akin to what we've done successfully in Los Angeles.
We expect our new footprint in the city to drive further demand for and revenue from our existing <unk> businesses building, a full service platform and the city akin to what we've done successfully in Los Angeles. Our vision is an end to end production solution totally vertically integrated with top notch facilities and excel.
Speaker 4: Our vision is an end-to-end production solution totally rapidly integrated with top notch facilities and exceptional service.
<unk> service.
Speaker 4: We also remain focused on D-leverging and further fortifying our balance.
We also remain focused on deleveraging and further fortifying our balance sheet, we have no material maturities until year end 24, when our loan secured by one Westside matures and in the third quarter, we raised $72 million of proceeds from the sales of two California office assets, which reflect excellent execution by our.
Speaker 4: We have no material maturities until year end 24 when are alone secured by one West Side maturers. And in the third quarter, we raised $72 million of proceeds from the sales of two California office assets.
Speaker 4: which reflect exe- execution by our team in an obvious tough transaction environment. Our dividend reductions have thus far, this year yielded $54 million of savings. In terms of dispositions, we're currently have two assets under contract a cell with the possibility of adding a third all with the potential to close by year end.
Our team and an obvious tough transaction environment, our dividend reductions have thus far this year yielded $54 million of savings in terms of dispositions were currently have two assets under contract to sell with a possibility of adding a third all with the potential to close by year end and <unk>.
Speaker 4: And additionally, I'll note that we've once again earned top rankings in the Gresby real estate assessment. This is the third consecutive year we've been named a regional sector leader in the Office of Americas and our fifth consecutive year earning five star and green star ratings. We are very proud of our team for continuing to innovate and make our business more sustainable and ways to create values for our tenants and shareholders. With that, I'm gonna turn it over to Mark.
Additionally, I'll note that we once again earned top rankings in the <unk> real estate assessment. This is the third consecutive year, we've been named a regional sector leader in the office of Americas, and our fifth consecutive year, earning five star and Green Star ratings, we're very proud of our team for continuing to innovate and make our business more sustainable in waves.
To create values for our tenants and shareholders with that I'm going to turn it over to Mark.
Speaker 5: Thanks Victor. Our gross leasing activity accelerated again in a third quarter. We signed nearly 520,000 square feet of leases, including the renewal of our 140,000 square foot pennant at Met Park, North and Seattle. Our cash rents increased nearly 9%, largely due to the strength of leases signed in the Seattle and Vancouver market.
Thanks Victor.
Gross leasing activity accelerated again in the third quarter, we signed nearly 520000 square feet of leases, including the renewal of our 140000 square foot tenant at met Park North in Seattle, our cash rents increased nearly 9% largely due to the strength of leases signed in the Seattle and Vancouver markets.
Speaker 5: These are positive results thanks to the hard work of our team, but it's still taking considerably longer to get Lisa's fine versus pre-COVID.
These are positive results. Thanks to the hard work of our team, but it is still taking considerably longer to get leases signed versus pre COVID-19.
Speaker 5: This is especially true for new deals and as a result, approximately 80% of the leases we find in the third quarter were renewals.
This is especially true for new deals and as a result, approximately 80% of the leases we signed in the third quarter were renewals.
Speaker 5: Even with this relatively healthy level of activity, our least percentage as expected dropped 390 basis points to 83% with 330 basis points of that decline, a triggerable to one tenant, blocks move out at 1455 market, which we've discussed for more than a year. The sales of 3401 exposition and 604 Arizona also contributes.
Even with this relatively healthy level of activity our lease percentage as expected dropped 390 basis points to 83% with 330 basis points of that decline attributable to one tenant blocks move out at 14, 55 market, which we've discussed for more than a year.
Sales of 30 401 Exposition in six of our Arizona also contributed.
Speaker 5: Occupancy within our portfolio has been impacted over the last 12 months by a similar large tenant loop out. As we look to 2024, we only have one lease over 100,000 square feet expiring, specifically Nutanix for 117,000 square feet.
Occupancy within our portfolio has been impacted over the last 12 months by a similar large tenant move outs as we look to 2024, we only have one lease over 100000 square feet expiring, specifically new tactics for 117000 square feet.
Speaker 5: This expiration is the result of a 216,000 square foot renewal and extension through 2030. We completed with that tenant in 2022. Thus, with our leasing pipeline steady at 2.1 million square feet, including 400,000 square feet of deals and leases or late stage LLI, where optimistic will begin to see occupancy in our portfolio stabilize and start to recover in the coming quarters.
This exploration is the result of a 216000 square foot renewal and extension through 2030, we completed with that tenant in 2022, thus with our leasing pipeline steady at $2 1 million square feet, including 400000 square feet of deals in leases or late stage LOI, we're optimistic we will.
Begin to see occupancy in our portfolio stabilize and start to recover in the coming quarters. We currently have 62% coverage, including deals in discussion on our remaining 2023 explorations, which are approximately 5% below market, we have about 37% coverage on our 2024 exploration.
Speaker 5: We currently have 62% coverage, including deals in discussion on our remaining 2023 expirations, which are approximately 5% below market. We have about 37% coverage on our 2024 expirations over 50,000 square feet.
<unk> over 50000 square feet.
Speaker 5: Turning to the studios, the trailing 12 month lease percentage for stages at our in-service studios ended the quarter down 580 basis points at approximately 90% lease due to a single tenant opting not to renew on six stages at sunset last promise because of the strike.
Turning to the studios the trailing 12 month lease percentage for stages at our in service Studios ended the quarter down 580 basis points at approximately 90% lease due to a single tenant opting not to renew on six stages at sunset Las Palmas because of the strike.
Speaker 5: underscoring the uniqueness of this situation, this is the lowest least percentage we've had at that facility during our ownership since 2017.
Underscoring the uniqueness of this situation. This is the lowest lease percentage we've had at that facility during our ownership since 2017.
Speaker 5: Having acquired Coyote in the third quarter of last year, this is the first quarter we're disclosing the trailing 12-month results for those assets.
Having acquired <unk> in the third quarter of last year. This is the first quarter. We are disclosing the trailing 12 month results for those assets.
Speaker 5: COD stages were 41% leased on a trailing 12-month basis in the third quarter, which obviously includes the strike's impact and is therefore not indicative of the assets long-term potential. That said, historically, several of COD stages have been leased on a short term, less than one year basis.
Jody stages were 41% leased on a trailing 12 month basis in the third quarter, which obviously includes the strike's impact and is therefore, not indicative of the assets long term potential.
That said historically several of Coty stages have been leased on a short term less than one year basis. So going forward, we could expect to see lower trended occupancy for those assets versus our predominantly long term leased in service portfolio, but also comparatively higher per square foot ABR.
Speaker 5: So going forward, we could expect to see lower-trended occupancy for those assets versus our predominantly long-term leafed in-service portfolio, but also comparatively higher per-square-foot ABR. You'll note ABR per-square-foot for the COD studios was $64 as opposed to $46 for our in-service studio.
You will note ABR per square foot for the <unk> Studios was $64 as opposed to $46. Four are in service studios. So there is a trade off between occupancy and rate, which we would expect to benefit from as production activity ramps up post strike.
Speaker 5: So there is a trade-off between occupancy and rate, which we would expect to benefit from as production activity ramps up post-strike.
Speaker 5: Our team has continued to do an exceptional job of leveraging our COD stages and services to maximize revenue derived from non-strike impacted production.
Our team has continued to do an exceptional job of leveraging our acuity stages in services to maximize revenue derived from non strike impacted productions, including short form content like print ads reality, TV and large scale events.
Speaker 5: including short form content like print ads, reality TV, and large scale events.
Speaker 5: However, similar in occupancy, I'll underscore our third quarter revenue from Ciodi, as well as our same store studio assets, it's far from indicative of long-term potential performance.
Similar to occupancy all underscore our third quarter revenue from Cody as well as our same store studio assets is far from indicative of long term potential performance.
Speaker 5: Year-to-date, the combined studio businesses have generated approximately $10 million of cash NOI due to the impact of the strike.
Year to date, the combined studio businesses have generated approximately $10 million of cash NOI due to the impact of the strikes by contrast, our same store studios generated approximately $34 million of cash NOI in 2022, and we estimate that our key ot stages and services have been.
Speaker 5: By contrast, our same store studios generated approximately $34 million of cash NLI in 2022, and we estimate that our COD stages and services have the potential to generate 80 to 85 million of annual cash NLI once normalized production activity resume.
Potential to generate $80 million to $85 million of annual cash NOI once normalized production activity resumes in short our same store studio historical performance and initial estimates for acuity support the potential for as much as $120 million of annual cash NOI compared to just 13 million.
Speaker 5: In short, our same-store studio historical performance and initial estimates for Coyote support the potential for as much as $120 million of annual cash NOI compared to just $13 million based on annualized year-to-date results.
Based on annualized year to date results.
Moving to development, we are staying disciplined in our approach our in process projects reflect highly differentiated product within our respective markets and our remaining capital commitments are minimal nearly half of this in process pipeline is studio related Sunset Gwen <unk> Studios in Los Angeles is expected to deliver.
Speaker 5: Moving to development, we're staying disciplined in our approach. Our in-process projects reflect highly differentiated product within our respective markets and our remaining capital commitments are minimal. Nearly half of this in-process pipeline is studio related.
Speaker 5: Sunset Glen Oak Studios in Los Angeles is expected to deliver at the end of this year and as Victor noted, we've started construction on Sunset Pier 94 Studios in New York with delivery anticipated by end of 2025.
At the end of this year and as Victor noted we've started construction on Sunset Pier 94 Studios in New York with delivery anticipated by end of 2025 <unk>.
Speaker 5: Despite the strike, we've continued to tour potential tenants who recognize the exceptional quality and uniqueness of these properties and who have interest in both long-term and show by show leases. Clearly, the strike's resolution will accelerate leasing activity for these apps.
Despite the strike we've continued to tour potential tenants, who recognize the exceptional quality and uniqueness of these properties and who have interest in both long term and show by show leases clearly the strikes resolution will accelerate leasing activity for these assets.
Speaker 5: With respect to our only other in process development, Washington 1000 will deliver in the first quarter of next year. There are currently two million square feet of tenant requirements for downtown Seattle. This will be the best product in that market with no other product delivering in South Lake Union Denny Triangle through year in 2024. The surrounding neighborhood is vibrant due to the combination of return to office mandates and the recently completed convention center, which added to tell residential and retail amenities.
With respect to our only other in process development, Washington, 1000 will deliver in the first quarter of next year. There are currently 2 million square feet of tenant requirements for downtown Seattle. This will be the best product in that market with no other product delivering in South Lake Union Denny triangle through year end 2024.
Surrounding neighborhood as vibrant due to the combination of return to office mandates and the recently completed Convention Center, which added hotel residential and retail amenities our basis is only $640 per square foot, representing a 30% to 40% discount to comparable trades in recent years.
Speaker 5: Our basis is only $640 per square foot, representing a 30 to 40 percent discount to comparable trades in recent years. And now I'll turn...
And now I will turn the call over to <unk>.
Speaker 6: Thanks Mark. Our third quarter, 2023 revenue was 231.4 million compared to 260.4 million dollars in third quarter of last year. Primarily due to the sales of 69.22 Hollywood, Skyway Landing and Northview Center. Previously communicated 10 move outs at Skyport Plaza and 10900 to 109.50 Washington, as well as a reduction in studio services and other revenue due to the related union strikes.
Thanks, Mark our third quarter 2023 revenue was $231 4 million compared to $264 million in third quarter of last year, primarily due to the sales of 69, 22, Hollywood Skyway landing and Northview Center.
The communicated tenant move outs at Sky Port Plaza, and 10, 900 to $2 950, Washington, as well as a reduction in studio services and other revenue due to the related union strikes.
Speaker 6: Our third quarter FFO excluding specified items was $26.1 million or $0.18 per diluted share compared to $74.1 million or $0.52 per diluted share in the third quarter last year.
Our third quarter <unk>, excluding specified items was $26 $1 million or <unk> 18 per diluted share compared to $74 1 million or 52 per diluted share in the third quarter last year. There are no specified items for the quarter prior year specified items totaled seven cents per diluted share.
Speaker 6: There are no specified items for this quarter. Prior year specified items totaled $0.07 per diluted share. The year-over-year change in FFO is attributable to the previously mentioned asset sales and tenant move-outs, higher operating expenses associated with QOD acquisition, and higher interest expense.
The year over year change in <unk> is attributable to the previously mentioned asset sales and tenant move outs higher operating expenses associated with <unk> acquisition and higher interest expense, our third quarter <unk> was $28 1 million or <unk> 20 per diluted share compared to $55 $8 million or.
Speaker 6: Our third quarter AFFO was $28.1 million or $0.20 per diluted share compared to $55.8 million or $0.39 per diluted share with a change largely trivial to the previously mentioned item affecting FFO.
39 per diluted share with the change largely attributable to the previously mentioned items affecting <unk>.
Our same store cash NOI grew $126 $7 million up slightly year over year with the same store office cash NOI up three 5% largely driven once again by significant lease commencement at one west side in Harlow, the 49% decline in same store studio cash NOI reflects.
Speaker 6: Our same store cash NOI grew $126.7 million up slightly year over year with the same store office cash NOI up 3.5 percent, largely given once again by significant lease commencements at One Westside and Harlem. The 40.9 percent decline in same store studio cash NOI reflects, as Mark mentioned, a single tenant's decision not to renew on six stages at Sunset Las Palmas due to the strike.
Mark mentioned, a single tenants decision not to renew on six stages at Sunset Las Palmas due to the strike.
Speaker 6: During the third quarter, we repaid our $50 million series E private placement notes with funds from our unsecured revolving credit facility.
During the third quarter, we repaid our $50 million series E. Private placement notes with funds from our unsecured revolving credit facility at.
Speaker 6: At the end of the quarter, we had $555 million total liquidity comprised of $75 million of unrestricted cash and cash equivalents and for an $80 million of undrawn capacity on our unsecured evolving credit.
At the end of the quarter, we had $555 million total liquidity comprised of $75 million of unrestricted cash and cash equivalents and $480 million of undrawn capacity on our unsecured revolving credit facility.
Speaker 6: there is additional capacity of 295 million dollars under our One West Side, Sunset Glen Oaks, and Sunset Pier 94 construction.
There is additional capacity of $295 million under our one west side Sunset <unk> and Sunset Pier 94 construction loans.
Speaker 6: At the end of the quarter, our company share of net debt to company share of undepreciated book value was 38.6% and 77.1% of our debt was fixed or capped. The reduced percentage of fixed or capped debt reflects the expiration of the hedge associated with our bento center loan until the refinancing is complete and a new hedge is put in place. On a profile basis for the new hedge, our percentage of fixed and capped debt would be 79.7%.
At the end of the quarter, our company's share of net debt to company share of Unappreciated book value was 38, 6% and 77, 1% of our debt was fixed or capped the reduced percentage of fixed or capped that reflects the exploration of the hedge associated with our <unk> center alone until the refinancing is complete.
And our new hedges put in place on a pro forma basis for the new hedge our percentage of fixed and cap debt would be 79, 7%.
Speaker 6: Regarding our upcoming maturities, as noted, we're in the process of completing our refinancing an our Bental Center asset of which our 20% roundable share is 90.4 million. Their after our only remaining expiration through 2024 is our loan secured by one west side and west side to which matures in December 2024 and of which our 75% roundable share is 243.5 million dollars.
Regarding our upcoming maturities as noted we're in the process of completing our refinancing on our Bento center asset of which are 20% ratable share is $98 4 million thereafter, our only remaining exploration through 2024 is our loan secured by one Westside and west side, too, which matures in <unk>.
December 2024, and of which are 75% ratable share is $243 5 million.
Speaker 6: Specific to our covenants are a percentage of unsecured indebtedness to unencumbered asset value increased in the third quarter to 57.7% Up from 53.7% in the second quarter. This increase was anticipated for our projections and we expect to remain compliant.
Specific to our covenants are percentage of unsecured indebtedness to unencumbered asset value increased in the third quarter to 57, 7% up from 53, 7% in the second quarter. This increase was anticipate per our projections and we expect to remain compliant.
Speaker 6: Turning to our outlook. While we remain positive about the strikes near-term resolution, we still don't have sufficient visibility around the nature and timing of the post-strike ramp-up in production.
Turning to our outlook, while we remain positive about the strikes near term resolution, we still don't have sufficient visibility around the nature and timing of the post strike ramp up in production.
Speaker 6: Thus, we continue to maintain our approach on our 2023 FFO Outlook and studio-related assumptions, again, providing certain assumptions related to our office Outlook.
Thus, we continue to maintain our approach on our 2023 above our outlook and studio related assumptions again, providing certain assumptions related to our office outlook.
Speaker 6: We're reaffirming our office same store cash and the wide growth projection, ranging from 1 to 2%. As always, this outlook excludes the impact of any potential dispositions, acquisitions, financings, and or capital markets activity. Should the strike resolve by your end, we would anticipate reinstating our full year FFO outlook for 2024 when we report our 4th quarter 2023 results next year. Now, we'll be happy to take your questions. Operator.
We are reaffirming our office same store cash NOI growth projection ranging from 1% to 2% as always this outlook excludes the impact of any potential dispositions acquisitions financings and capital markets activity should the strike resolved by year end, we would anticipate reinstating our full year <unk> out.
<unk> for 2024, when we report our fourth quarter 2023 results next year now we'll be happy to take your questions operator.
Speaker 2: Thank you. We will now begin the question and answer session. As a reminder to ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.
Thank you 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 youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker 2: Question today comes from Alexander Goldfarb from Piper Fandler. Please go ahead
The first question today comes from Alexander Goldfarb from Piper Sandler. Please go ahead.
Okay.
Speaker 5: Hey, uh, good morning. Morning out there. Uh, so two questions.
Hey, good morning, good morning out there so two questions maybe.
Speaker 5: Maybe first, just sticking with the Bentol.
Maybe first just sticking with the Bento <unk>.
Speaker 5: You know, your partner has been busy exiting a number of other office assets that they've owned. I assume that Blackstone is, you know, like studios, given that they just, you know, upped with the Hudson, the Hudson studio here in New York, but can you just give a sense of, Ben, tell if this is an asset that, you know, they're committed to and you guys will stay in or, you know, should we look for you guys to exit Vancouver?
Asset.
Your partner has been busy exiting a number of other office assets that they've owned I assume that Blackstone is like studios to given that they've just upped with Hudson.
The Hudson studio here in New York, but can you just give a sense of that if this is an asset that.
They are committed to and you guys will stay in or.
Should we look for you guys to exit Vancouver.
Speaker 4: Thank you for the question. Yes, it's currently, you know, we've had countless conversations.
Thank you for the question yes.
Currently we've had countless conversations with Blackstone on this asset and I don't want to speak for them.
Speaker 4: Blackstone and its asset. And I don't want to speak for them as to how their portfolio is performed, but it's our understanding that this could be their best office asset in their entire portfolio. And to date, they are fully engaged and prepared to continue the ownership and the plan to move and, sorry, to remain in Vancouver with this asset and look to extend this relationship on this asset in Vancouver with us.
As to how their portfolio has performed but it's our understanding that this is could be their best office asset in their entire portfolio and to date. They are fully engaged and prepared to continue the ownership and the plan to move and sorry to remain in Vancouver with this asset.
And look to extend this relationship on this asset and in Vancouver with us.
Speaker 5: Okay, and then the 2nd question is, I think I'm not sure if this was just about coyote or coyote. I always have trouble pronouncing it or studios overall. But you guys mentioned that you're only 13Million now versus 120Million potentially. So just want to get better understanding, especially as we think about, you know, hopefully the strikes resolving and how the build up comes back.
Okay and then the second question is I think.
I'm not sure. If this was just about Coyote artillery I always have trouble pronouncing it.
Our studio's overall, but you guys mentioned that you are only $13 million now versus $120 million potentially so just want to get better understanding, especially as we think about.
Hopefully the strikes resolving and how the NOI buildup comes back.
Speaker 5: you know, simply put, where is NOI now and
Simply put whereas NOI, now and where could it go.
Speaker 5: You know, where could it go and I'm asking the question again, based on you mentioned that you're sort of 13Million now potential of 120Million with the studio.
Asking the question again based on you mentioned that you're sort of $13 million now potential of $120 million with the studios.
Speaker 4: Sure, so let me just start top level and then mark and inject and jump in.
Sure. So let me just start top level, and then Mark and Jeff can jump in so as you know the strike is now six months in.
Speaker 4: So, as you know, this strike is now six months in, and we can talk about the status of it, if that's what you want, just in terms of the numbers, I mean, we are looking...
And we can talk about the status of it.
Just in terms of the numbers I mean, we are looking at somewhere around loss of EBITDA for the company for the year at around $100 million, Okay, and so if you look at if we were if we were to look to be stabilizing the strikers moving forward. It would it would be more like.
Speaker 4: At somewhere around, you know, lots of EBITDA for the company for the year, at around $100 million, okay? And so if you look at, if we were to look to be stabilized and the strike is moving forward, it would be more like...
Speaker 4: The 120, that was broken out in the comments that Mark is prepared for, fair remarks, which is a combination of Kiyote.
The 120 that was broken out in the comments that Mark Mark.
His prepared remarks, which is a combination of coty.
Speaker 4: our sound state businesses and our Anselaer revenues and cost savings that we've implemented throughout the last nine months of this year.
South stage businesses, and our ancillary revenues and cost savings that we've implemented throughout the last nine months of this year.
Speaker 7: Yeah, Alex, I mean, you can obviously see it's broken out by a segment so you can see precisely where we are here today in terms of N-O-I on the studio business itself.
Yes al.
I mean, you can obviously see it's broken out by segment. So you can see precisely where we are year to date in terms of.
NOI on the studio business itself.
<unk>.
Speaker 7: I mean, so that's sort of what's underpinning the...
So that's sort of.
What's underpinning that.
Speaker 7: annualized number that we shared in our prepared remarks. I think maybe more importantly Alex is what we're trying to do is give you and others an idea of what the potential is right and so 2022 for our same store assets is a pretty you know it's a normal operating type year we had normal occupancy at the stages we had up until about the last month of that year we had normalized production activity
<unk> number that we shared in our prepared remarks, I think maybe more importantly, Alex is what we're trying to do is give you and others an idea of what the potential is right and so 2022 for our same store assets.
It's a normal operating type year, we had normal occupancy at the stages, we had up until about the last month of that year, we had normalized production activity.
Speaker 7: until it started to curtail in anticipation of the strike. So that's a pretty good benchmark, right? And we've shared along the way as we've done the acquisitions, Zile, Starwagons, and eventually COD itself, we've shared what we view as the potential EBITDA on a normalized basis. Jeff and his team have implemented somewhere in, we believe, synergy type savings and top-line improvements that...
Until it started to curtail in anticipation of the strike. So that's a pretty good benchmark rate and we've shared along the way as we've done the acquisitions I will star wagons, and eventually <unk> itself, we've shared what we view as the potential.
EBITDA on a normalized basis, Jeff and his team have implemented somewhere and we believe.
Synergy type.
Savings and topline improvements that.
Speaker 7: We think will result in somewhere in the neighborhood at 15 million, you combine that with the 70 million of prior pre-Centergy run rate NLI. That's how you get to that 80 to 85 million of normalized annualized NLI. So those are the contributors, if you will, that get to that 120.
We think will result in somewhere in the neighborhood of $15 million you combine that with the 70 million of.
Prior pre synergy run rate NOI, that's how you get to that 80 to 85 million of normalized annualized NOI. So that's those are the contributors if you will that get to that 120.
Okay.
Okay.
Yes.
Speaker 2: Our next question comes from John Kim at BMO Capital Market. Please go ahead.
Our next question comes from John Kim at BMO capital markets.
Please go ahead.
Okay.
Speaker 8: Thank you. Just sticking to that I know I uplift in studios, looking at your presentations in September , you go from 150, 159 including developments and the UK welcomes the process not included in that I know I contribution. I was just wondering if there was an update on that the project.
Thank you just sticking to that NOI uplift in studio looking at your presentation from September.
You go from 120 159, including developments.
And.
The UK welcome crossover not included in that NOI contribution.
Was wondering if there was an update on that on that project.
No I mean currently we are still in design phases entitling.
Speaker 4: No, I mean, currently, you know, we're still in design phases and entitling and we've not anticipated a start date in twenty four yet for Walton Cross. We're looking at some other alternatives and around around candidly sizing the deal on maybe two phases and that's going to come back on some pricing differential. But that's why it's not in the underlying cash flow going forward. Yeah.
And we've not anticipated to start date in 'twenty four yet for.
Welcome Cross, we're looking at some other alternatives and around.
Candidly.
Sizing the deal may be two phases, and that's going to come back on some pricing differential, but that's why it's not in the underlying <unk>.
Cash flow going forward, yes.
Speaker 8: Okay, and on the development yields that you're expecting on the two current developments, does that include any additional revenue from Coyote?
Okay and on the development yields that you're expecting on the two current development does that include any.
No revenue from Sidoti.
Speaker 4: Oh, no, no. That's just a straight development deal. Remember, we, and it's complicated, and it's a very good question. We balance this out. This is a sunset asset. So it's an asset under sunset, both fear 94 and sunset to land out.
Oh, no no thats, just a straight development Youll remember, we and it's complicated and it's a very good question. We balance. This out this is a sunset asset. So it is an asset under sunset, both Karen 94, and Sunset one out and then the key is the operating business asset.
Speaker 4: And then the Ciodi is the operating business asset and that is a different enhanced number on top of that. For all the service revenue that we'll go through, we'll go through Ciodi on those sunset-owned assets, but they're separate ownership, so we have to keep it separate in terms of the return.
That is a different enhanced number on top of that for all of the service revenue that will go through we'll go through Coty on those on the sunset own assets, but they are separate ownership. So we have to keep it separate in terms of the returns.
Speaker 4: Okay, so that that yield is just the studio rental yield and you do expect to service the studio. Yeah, the 9 yield that that was in the, in the, in the remarks was was for pure 94 and that's just the sunset yield on the studio for.
Okay. So that yield is just the studio rental than you do expect coty too.
Service studio the nine yield that was in the.
In the remarks was for 394 and Thats just the sunset yield on the studio for Hudson.
Yeah.
Speaker 8: My final question is on your dispositions. You mentioned two to three that may close this year. Any commentary that you could invite on the dollar amount in the year.
My final question is on your dispositions you mentioned two to three that May close this year any commentary that you can provide on the dollar amount in the yield.
Now we just don't do that I. Appreciate you asking we have three assets two are under contract hopefully the third will be and as we get closer to closing we'll share the numbers in the assets and the size.
Speaker 4: Now, you know, we just don't do that. I appreciate you asking. We have three assets, two or under contract. Hopefully the third will be. And as we get closer to closing, we'll share the numbers and the assets in the size.
Okay. Thank you.
Thank you. Our next question comes from Michael Griffin at Citi.
Speaker 2: Thank you. Our next question comes from Michael Griffin at FISI. Please go ahead.
Go ahead.
Yes.
Speaker 5: Great, thanks. Maybe just a question on leasing. You called out Seattle and Vancouver in the release as being markets that you're seeing relative strength. And is there something about these markets that give you more confidence, I guess, relative to San Francisco and L.A.?
Great. Thanks, maybe just a question on leasing you called out Seattle and Vancouver in the release.
Any markets that you're seeing relative strength.
There's something about these markets that gives me more confidence I guess.
San Francisco and L. A.
Speaker 4: So, let me start on just the general and then art sitting here. So, Michael, he can jump in on that. So, listen, Vancouver has been consistent throughout.
So let me start on just the general and then art sitting here. So Michael he can jump in on that so less in Vancouver has been consistent throughout.
Pre pandemic pandemic and currently today right. The vacancy is very low the rental rates have not moved.
Consider Billy in either direction, and it's been it's been absolutely consistent and could be one of the best markets, but yes, as we've talked in the past, it's very small what we've seen the shift in Seattle.
Speaker 4: and either direction, and it's been, it's been absolutely consistent. And could be, you know, one of the best markets, but yet as we've talked in the past, it's very small. What we've seen in the shift in Seattle is, is generally that when the workforce has gone from three days, who we're going to for now, in that area, some of the high quality space in both Bellevue and Seattle is getting eaten up. And there are a few deals right now that are about to be announced in both those markets, but we're seeing the quality space being eaten up in those markets. A lot more efficient than, I would say, in specific to Los Angeles, we don't have that kind of space available in Los Angeles for the same level inside the tennis. Plus, I think, you know, what's the underlying tone in Los Angeles? And I, and Arch, Arch, going to talk about some of the demand numbers, but because we have a strike here.
Generally that when the workforce has gone from three days a week going to four now in that area. Some of the high quality space in both Bellevue and Seattle is getting eaten up and there are a few deals right now that are about to be announced in both those markets, but we're seeing the quality space being eaten up in those markets a lot more.
Efficient then I would say it's specific to Los Angeles, we don't have that kind of space available in Los Angeles for the same level and size of tenant plus I think whats the underlying tone in Los Angeles and.
Speaker 4: I think, you know, what's the underlying tone in Los Angeles and I, and Arts, Arts, going to talk about some of the demand numbers, but because we have a strike here and we are a media entertainment related city in Los Angeles where we're sitting right now, things have slowed dramatically until we get back up and running. So it's not just...
<unk> is going to talk about some of the demand numbers, but because we have a strike here and we are a media entertainment related city in Los Angeles, where we're sitting right now things have slowed dramatically until we get back up and running so it's not just the studio business. It is the overall industry itself for people growing in real estate.
Speaker 9: This is the overall industry itself for people growing in real estate, right? And the groundswell really Michael in Seattle as Victor mentioned with you know return to office really starting to take hold more and more With the mandates. It's really the growth of you know tech users coming back into the market that we've seen really
And the groundswell really Michael in Seattle, as Victor mentioned with return to office really starting to take hold more and more.
With the mandate, it's really the growth of <unk>.
Tech users coming back into the market.
We've seen really grow over the last three quarters right.
Speaker 9: grow over the last three quarters. Also, not in law that San Francisco obviously has shown the most growth in demand, really the 80% growth in demand year over year and probably 25% quarter over quarter because of that same reason, because of tech. In Los Angeles, we're really only talking about relative or portfolio west Los Angeles and the reason Victor stated which regards to the strike.
Also.
Net loss at San Francisco, obviously is showing the most growth in demand.
Really the 80% growth in demand year over year, and probably 25% quarter over quarter because of that same reason because because of tech in Los Angeles, We're really only talking about relative to our portfolio of west Los Angeles and the reasons Victor stated with regards to the strike Entertainment and media were really driving that have been driving that.
Speaker 9: Entertainment and media were really driving. They have been driving that market through the pandemic and keeping it healthy. And, you know, we'll start to see those numbers come back, but it's still very, very modest level.
Market through the pandemic and keeping it healthy.
And we will start to see those numbers come back, but it's still.
Still very very <unk>.
Modest level of activity.
Speaker 5: Great, that's helpful. And then maybe you want Christian on oxygen, see if I can. I think marketing has prepared or marked kind of alluded to its stabilized expectation for oxygen to be heading into 2024. Should we read that as kind of flat from current levels or anything you can provide in the air if it helps?
Great. That's helpful. And then maybe one question on occupancy if I can I think marketing prepared remarks kind of alluded to a stabilized expectation for occupancy.
24 should we read that as kind of flat from current levels or anything you can provide there would be helpful.
Speaker 7: Yeah, our forecast shows steady improvement actually into, as we head into 24 and even into 25. I mean, we also mentioned the sort of the shift if you will from the, you know, aspirations that we've experienced over the past year or two.
Yes.
Okay. So show steady improvement actually into as we head into 'twenty, four and even into 'twenty five.
We also mentioned.
The sort of the shift if you will from the.
<unk> expirations that we've experienced over the past year or two.
<unk>.
Speaker 7: what'll be a year and a half of very little large aspirations, only one over 100,000 feet. That matches really, really well with the pipeline in terms of where the demand is coming from. So yeah, we expect to see steady improvement essentially from here on out and for the foreseeable future.
Well it'll be a year and a half.
<unk>.
Very little large expirations only one over 100000 feet.
That matches really really well with the pipeline in terms of where the demand is coming from.
So.
Yeah.
We expect to see steady improvement.
Essentially from here on out.
And for the foreseeable future.
Great that's it for me.
Jim.
Thank you.
Our next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.
Speaker 2: Our next question comes from Caitlin Burrows, a Goldman Sachs. Please go ahead.
Yeah.
Speaker 10: Hi, good morning there. So we've had the writer strike and actor strike. I'm wondering if you have a view on whether crews will strike, if that's anything you've heard about.
Hi, good morning, there so.
So we've had the writer's strike and actors strike I'm wondering if you have a view on whether I'm crews will strike if thats anything you've heard about.
Speaker 4: Bruce, next year. Oh, next year, yeah. Now, I mean, we haven't heard anything about that at this date. I mean, you know,
Crews next year next year, yes, now I mean, we haven't heard anything about that at this stage I mean.
Speaker 4: They typically have been more in line, and you never know what happened, Caitlin. But they typically move in more in line with the director's guild, and they settled like prior to. I would, as I said, we're a unique timeline with multiple industries looking to strike, but the two biggest are obviously, Sag After and the WGA, and they've always led the way. So we're hopeful that won't happen. So far today we've heard nothing.
They typically have been more in line and you never know what happens Caitlin right, but they've typically been more in line with like the directors Guild and they settle we settled like prior to I would I would.
As I said, we're in a unique timeline with multiple industries looking to strike but.
The two biggest are obviously Sag Africa.
<unk> and they have always led the way so we're hopeful that won't happen.
So far to date, we've heard nothing.
Okay.
Speaker 10: Thanks. And then also Herude are actually marked last quarter. You mentioned that you guys had stress tested your covenants through the end of 24 and that you would remain even in the worst quarter over 300 basis points clear of the limit. So now you just have 230 basis points remaining buffer on the unstreated indebtedness to unencumbered asset value covenant. So wondering if you could go through why it might have exceeded that stress test that you mentioned last quarter and kind of your confidence in the trend going forward in ability to forecast that.
Thanks, and then also hurt or actually Mark last quarter. You mentioned that you guys had stress tested your covenants to the end of 'twenty four and that you would remain even in the worst quarter over 300 basis points clear of the limit. So now you just have 230 basis points remaining buffer on the unsecured indebtedness to unencumbered asset value covenant. So one.
If you could go through why it might have exceeded that stress tests that you mentioned last quarter.
And kind of your confidence in the trend going forward and ability of that forecast that.
Yeah.
Speaker 7: Yeah. I mean, we are still largely in line with what our own expectations, although it is that there are, and it's a fairly complicated calculation. It uses trailing numbers that get,
We are still largely in line with what our own expectations. Although it is.
There are.
Fairly complicated calculation.
Uses trailing numbers on that.
Got it.
Speaker 7: gross stuff, there's one time items that have to get excluded. And so we are materially in line, I would say, I do appreciate your point regarding the sort of 300 basis points. As we look at the number and we've stressed tested, we still are confident we are going to remain compliant. So.
Gross Scott there is onetime items that have to get excluded.
So we are materially in line I would say I do appreciate your point regarding.
Sort of 300 basis points as we look at the number and.
And we stress test it.
And we still are confident we are going to remain compliant.
<unk>.
Speaker 7: I'm not sure there's much more we can add other than, you know, we're focused on it. We're looking at all of our leasing expectations. We've factored in the sales that Victor mentioned earlier. They're running through all of our projections and we expect a rooming compliant.
I'm not sure there's much more we can add other than we're focused on it we're looking at all of our leasing expectations, we've factored in on.
The sales that Victor mentioned earlier, they're running through all of our projections.
We expect to remain compliant.
Yes.
Okay. Thank you.
Thanks.
Our next.
Speaker 2: Our next question comes from Blaine Heck at Wells Fargo. Please go ahead.
<unk> comes from Blaine Heck at Wells Fargo. Please go ahead.
Speaker 11: Great thanks. So just following up on covenants and thinking about some of your options.
Great. Thanks, So just following up on covenants and thinking about some of your options to bring your metric away from the limits I understand increasing income would certainly help on some of them, but it's taken the income side out of the equation I guess, what can you do on the balance sheet side I believe if you kind of draw down the rest of the year.
Speaker 11: bring your metric away from the limits. I understand increasing income would certainly help on some of them, but just taking the income side out of the equation, I guess what can you do on the balance sheet side? I believe if you kind of draw down the rest of your line, that puts you in violation, but if you can confirm that, it'd be helpful. Have you looked into any additional security or debt on the media portfolio? Is that a possibility or does it just really come down to disposition?
Line that puts you in violation, but if you can confirm that it would be helpful.
Have you looked into any additional secured debt on the media portfolio is that a possibility or does it.
Just really come down to dispositions at this point.
Speaker 7: Oh, there's more than, I mean, just positions can are a good contributor. And we expect the just positions that we've mentioned already to be accretive to the unsecured metrics.
No there is more than I mean dispositions Ken.
Our a good contributor.
And.
We expect the dispositions that we've mentioned already to be accretive.
To the unsecured metrics.
Speaker 4: We also have other assets in the portfolio that we've mentioned playing in the past that are not.
We also have other we also have other assets in the portfolio that we've mentioned Blaine in the past that are not part of the facility or credits that.
Speaker 7: part of the facility or credit for the facility that we are looking at options around that which enhances the fair amount of liquidity as well. Yeah, yeah, just maybe just to reify that point. There are other levers blamed beyond just this position. So there's unencumbered assets that we could put, I mean, there's, sorry, there's some assets that we could put that on that don't run through the unencumbered metrics.
That we are looking at options around that which enhances a fair amount of liquidity as well.
And just maybe just.
Reify that point there are other levers Blaine beyond just disposition, so theres unencumbered assets that we could put there's sorry, there is assets that we could put that on that don't run through the unencumbered metrics that we could put in.
Speaker 7: that we could put, that would be a creative. There are other assets we own that are not.
That would be accretive there are other assets, we own that are not.
Speaker 7: Real estate assets, their notes, those are, we have the ability to sell those. Those would be accreted to the metrics. So there are a number of levers, if you will, that we can pull beyond assets that are all would improve those metrics.
Our real estate assets there their notes those are we have the ability to sell those those would be accretive to the metrics. So there are a number of.
On levers if you will that we can pull beyond asset sales that are all all would improve those metrics.
Okay.
Okay. That's helpful.
<unk>.
Speaker 11: We notice the term on leases signed during the quarterly significantly shorter than normal, I think, right around three years. Can you talk about that? Whether there was anything specific that might have skewed that downward and whether those shorter terms are prevalent and the leases you have in the pipeline as well.
We noticed the term on leases signed during the quarter was significantly shorter than normal I think right around three years can you just talk about that whether there was anything specific that might have skewed that.
Downward and whether those shorter terms are prevalent in kind of the leases that you have in the pipeline as well.
Speaker 9: Hey, Blaine, it's art. Yeah, no, they're not prevalent. Listen, the sequential decrease was primarily due to two really two transactions. The first was a six-month, 35,000-square-foot-non-office-use transaction in Pioneer Square, which we did as an accommodation to try to keep the tenant long-term. And the second was a 24-month extension on the 140,000-square-foot expiration in Denny Triangle, again, with the intent to further extend the lease down stream.
Hey, Blaine, it's art, yes, no. They are not prevalent listen the sequential decrease was primarily due to two really two transactions. The first was a six month 35000 square foot non office use transaction in pioneer square, which we did as an accommodation to try to keep it keep the tenant long term and the second was.
The 24 month extension on the 140000 square foot exploration in Denny triangle.
Again with the intent to further extend the lease down downstream.
Speaker 9: with combined effect of these two deals or weighted average lease term was right in line with the prior two quarters average weighted average lease term of about 45.5 months. So yes, there was a couple outliers, and that was the end.
With the with the combined effect of these two deals our weighted average lease term was right in line with the prior two quarters average weighted average lease term of about 45 45 five months. So yes. There was there was a couple of outliers.
That was the explanation.
Speaker 11: All right, thanks. And then last one, you know, given that you lost the tenant at sunset with Thomas, is that now the focus on the leasing side within your studio segment and how does that affect your ability to lease up Glen Oaks? I guess are they kind of competitive properties at this point, kind of going for the same tenant or separate?
Alright, Thanks, and then last one given that you've lost the tenant at Sunset Las Palmas.
That now the focus on the leasing side within your studio segment and how does that affect your ability to lease up Glen Oaks, I guess are they kind of competitive properties at this point.
Going for the same tenants or separate.
So blayne I mean listen we lost we lost a tenant thats been there because they stopped production and they had a right to get out and so.
Speaker 4: So, playing, I mean listen, we lost the tenets that's been there because they stopped producing.
Speaker 4: and they had a right to get out. So that show is canceled based on the strike. That's the first time we've ever had a vacancy in the history of ownership of that asset and quite frankly in Gleinhock in Gower and Bronze is the same. It's not competitive to Gleinhock. I mean the activity on Gleinhock has been...
That show was cancelled based on that.
Based on the strike.
That's the first time, we've ever had a vacancy in the history of ownership of that asset and quite frankly and Glenn.
Gower and Bronson into the same its not competitive to Glenn Alex I mean, the activity has been there.
Speaker 4: very surprisingly high and the interest is
Very surprisingly high and the <unk>.
Speaker 4: It's the first of its kind of a purpose-built facility and the interest is very high. As I mentioned in my prepared remarks, I mean we're RRETeen riders, rooms, and activity around that hop and running when the...
It's the first of its kind of a purpose built facility and the interest is very high.
As I mentioned in my prepared remarks, I mean, we're already seen writers' rooms, and activity around that up and running when the doctor strike is over.
Speaker 4: After strike is over, you know, purpose-built facilities will have the highest demand.
<unk> built facilities will have the highest demand and I think we're very comfortable that this is not a trend. This is a moment in time.
Speaker 4: And I think we're very comfortable that this is not a trend, this is a moment in time. And my gets...
And my guess is.
Speaker 4: The parent company that left us will be the first company that's going to call us and want to put a show in there going forward. We'll have options at last promise, just like we have options at Glenn Oaks and all of our COD facilities.
<unk> the parent company that left us will be the first company, that's going to call us and want to put a show in there going forward. We will have we will have options at Las Palmas, just like we have options that Glen Oaks in all of our key Ot facilities.
Got it thank you all.
Thanks Blaine.
Yeah.
Speaker 2: Our next question is from Rich Anderson at Wedbush. Please go ahead.
Our next question is from Rich Anderson at Wedbush. Please go ahead.
Thanks. Good morning. So you guys done really good work converting your studio business into longer term leases I know this topic has come up a couple of times now.
Speaker 12: So you guys done really good work converting your studio business into longer term lease so I know this topic has come up a couple of times now.
Speaker 12: But as an exit out of the act of strike situation, do you think the market or the business could step back in and want to continue this theme of more short-term leases at the outset and that you'll have to absorb more of that as you kind of get back to work or already think that won't be a sort of...
Is it an exit out of the actors strike situation do you think the market or the business could step back in and want.
To continue this theme of more short term leases at the outset and that youll have to absorb more of that.
As you kind of get back to work or do you think that won't be.
Sort of.
Something you have to give away too to get rolling again.
Speaker 4: I don't know what we're going to give away, but the fact of the matter is I think what we've said in the past, consistently is we think when the strikes are over, we will see a tremendous upswing and activity in all forms of function.
I don't know were going to give away rich, but the fact of the matter is I think what we said in the past consistently is we think when the strikes are over we will see a tremendous upswing in activity in all forms and functions and we'll decide whether short term or long term as the most equitable decision tree for us to move forward on I think we're going to have lots of options.
Speaker 4: and we'll decide whether short-term or long-term is the most equitable decision tree for us to move forward on. I think we're gonna have lots of options. Let's witness it.
Speaker 4: We already are heavy and can have Jeff jump in and talk a little bit about the sales team and what they're seeing, but he's getting a lot of inflows on the sales side for various different options.
We already are having I can have Jeff jump in and talk a little bit about the sales team and what they're seeing but he is getting a lot of inflows on the sale side for various different options.
Speaker 4: You know, we started this industry with Show to Show and we were extremely successful on that. We flipped over and did long term leases and we've been extremely successful on that. And I think we're prepared to look at what's the best economic term. We're not afraid of either one. Candlely, which we've mentioned, and you've been a part of this for a long time, so you should know this. We've mentioned that, you know, Show to Show is much higher revenue stream than...
We started this industry with show to show and we were extremely successful on that we flipped over and did long term leases and we've been extremely successful on that and I think we're prepared to look at what's the best economic term, we're not afraid of either one candidly, which we've mentioned.
You've been a part of this for a long time. So you should notice we've mentioned that show. The show is much higher revenue stream than long term leases and so I think we are prepared and comfortable with either direction.
Speaker 4: And so I think we are prepared and comfortable with either direction. And I think that the numbers are going to bear out because there's going to be as I said.
And I think the numbers are going to bear out because there's going to be as I said, a tremendous upswing in activity as soon as the strikes are over and we get back to stabilize revenue, which hopefully will be soon Jeff you want to jump in on the sales side, Yes, I would just add that.
Speaker 4: tremendous upswing and activity and soon as the strikes are over and we get back to stabilized revenue, which hopefully
Speaker 4: Jeff, you want to jump in on the sale path? Yeah, I would just add that, you know, when, you know, rich, when we go to a show by show model, I think it separates us as a differentiator in the industry because we have a really good team capable with all of our relationships with the studios and understanding how shows get green lit and booked and that whole process, it really enables a company like ours.
Rich when we go to a show by show model I think it separates us as a differentiator in the industry because we have a really good team capable with all of our relationships with the studios and understanding how shows get greenlit and booked in that whole process. It really enables a company like ours to succeed, whereas anybody who is <unk>.
Speaker 4: Where is anybody who's got sort of a one-off studio development who doesn't have those relationships It was just hoping a long-term lease is going to save them is going to have more trouble So I actually think we're in a competitive advantage situation when when the industry goes back to it We're not only show by show and that's how we're really building the business to capitalize on
Got sort of a one off studio development, who doesn't have those relationships I was just hoping a long term lease is going to save them is going to have more trouble. So I actually think we're in a competitive advantage situation when when the industry goes back to predominantly show by show and that's how we're really building the business to capitalize on that.
Speaker 12: Second question, Douglas Amidt has Warner Brothers known vacate for next year, not related to you, but
Okay second question.
Douglas Emmett has a Warner brothers known vacate for next year.
Not related to you, but perhaps a systemic observation about the industry does that give you pause at any level about just the longer term.
Speaker 12: the systemic observation about the industry. Does that give you pause at any level about just a longer term sort of view on content and.
Sort of view.
View on.
On content in.
The studio business overall or do you see that is completely unrelated.
Speaker 4: What we unrelated I think is like, you know, as I said, you know, we're seeing a feverish activity of interest around
Totally unrelated I think it looks like as I said.
We're seeing a feverish activity of interest around.
Speaker 4: studio occupancy and content and growth.
Studio occupancy and content and growth.
Speaker 4: I can't comment on Warner Brothers. I can't comment on their write off of $500 million last quarter, either in whatever else decisions they're making.
I can't comment on Warner Brothers, and I can't comment on their write offs of $500 million last quarter, either and whatever else decisions they are making candidly.
Speaker 4: Candle, but you know, they're not the only animal in the room. We've got Apple and Amazon and Netflix and HBO and Showtime and Cinemax.
But they're not the only animal in the room.
Apple and Amazon, and Netflix and HBO, and Showtime, Cinemax, and Disney and ABC, and NBC and CBS in Paramount and everybody else, who is looking for space and content in our markets that we're in.
Speaker 4: and Disney and ABC and NBC and CBS and Paramount and everybody else who is looking for space and content in our markets that we're in and other markets around the world. And, you know, I think that's just, you know, part and parcel.
In other markets around the world.
I think thats, just part and parcel of the growth story.
Okay and then last from me is New York City.
Very interesting expansion, there, but is that I imagine thats, a sort of a starting point for you at least in the metropolitan area.
Speaker 12: there's a netflix development going on very close to where i live in fort mometh and new jersey i'm just curious how you how much you see the new york city metropolitan area as as a growth you know story for you going forward
Theres, a netflix development going on very close to where I live in Fort Monmouth in New Jersey, I'm, just curious how much you see the New York City Metropolitan area is as a growth story for you going forward.
What kind of opportunity set do you see longer term.
No.
Speaker 4: I think in New York is, as I mentioned, I prepared remarks, a marketplace that we've been very eager to get into. I give the team high marks for being disciplined to not buy into the marketplace on the upswing. This is a purpose built facility. That will be 1st of its kind in in the city of Manhattan. And I think as a result of that, it will give an entree for us to look at some other opportunities in our venture with Blackstone, which is their interest level there and other markets as well.
I think in New York as I mentioned in my prepared remarks, a marketplace, we've been very eager to get into.
I give the team high marks for being disciplined to not bind to the marketplace on the upswing. This is a purpose built facility that will be first of its kind in the city of Manhattan, and I think as a result of that it will give an entree for us to look at some other opportunities in our venture with Blackstone, which is their interest level there in other markets as well.
As I said discipline has been something that we've been very focused on this as a three year deal in the making and at the end of the day.
Speaker 4: This is a three year deal in the making and at the end of the day, our team, which is already doing business through our op-codes with KOD and Zio and Starwagon and the likes of that in the surrounding areas of New York and all the other studios in the outside areas in Queens and Brooklyn and the Bronx, et cetera.
Our team, which is already doing business through our op codes with Cody.
Xylem and star wagons, and the likes of that in the surrounding areas of New York and all the other studios in the outside areas.
In Queens, and Brooklyn, and the Bronx et cetera.
Speaker 4: You know, we'll see where that ends up going forward, but right now we're positioned to continue to evaluate and be disciplined.
We'll see where that ends up going forward right now.
Positioned to continue to evaluate and be disciplined.
Yeah, Okay. Thanks very much.
Our next question is from Ron Camden at Morgan Stanley. Please go ahead.
Speaker 2: Our next question is from Ron Camden at Morgan Stanley . Please go ahead.
Speaker 11: Hey, two quick ones. Just going back to the covenant question, taking a different take at it. What are some of the hurdles to actually adding keyote to the calculation, right? Because presumably that would help, but just trying to figure out what are some of the hurdles for that to get into the calculation, or is that even realistic?
Hey, two quick ones, just going back to the covenant question.
<unk> taken a different.
Take at it.
Some of the hurdles to oxy, adding key.
<unk> to the to the calculation right, because presumably that would help but just trying to figure out why.
What are some of the hurdles for that to get into the calculation or is that even realistic.
Speaker 7: Oh, it's realistic. I wouldn't describe it as a hurdle. It is running through our TAV. At the time that we set reset the facility in 21, we had line of sight to what at the point at that time was two relatively small operating businesses.
Oh, it's realistic I wouldn't describe it as a hurdle it is running through <unk> at the time that we.
<unk>.
Set reset the facility in 'twenty one.
We have line of sight to what is the point.
That time with <unk>.
Two relatively small operating businesses.
Speaker 7: The lenders were amenable to flowing it through TAV. We did not anticipate the growth of that part of our business, and so we did not anticipate for the unencumbered metrics, the potential impact that those
The lenders were amenable to flowing it through <unk>.
We did not.
Anticipating the growth of that part of our business and so we did not anticipate through for the unencumbered metrics.
The potential impact that those could have.
Speaker 7: are, you know, we're in constant contact with our lenders, we have amazing relationships with them. They are very aware that those businesses grew and that
We're in constant contact with our lenders.
Raising relationships with them they are very aware of that.
Those businesses grew.
<unk>.
And that had we anticipated that type of growth. They would have been factored into those unencumbered metrics and I do think that.
Speaker 7: had we anticipated that type of growth, they would have been factored into those unencumbered metrics. And I do think that we're watching our calculations, our metrics and so forth, and there may be a time and an opportunity to pull those into the unencumbered metrics and they're amenable to that.
We're watching our calculations our metrics and so forth.
There may be.
<unk> and an opportunity to pull those into the unencumbered metrics and they are amenable to that.
Speaker 13: Helpful. Thanks. And then just switching gears. So I want to follow up on your comments on Washington 100. That's delivering, you know, on one cue. Obviously, no, no, no pre leasing done. Just curious. What kind of activity? Is there any more sort of color? Their tenants looking? Otherwise, just any sort of sensor pulse on the activity there. And what what would be a reasonable, you know, expectations for getting those first lease assigned?
Helpful. Thanks, and then just switching gears to want to follow up on your comments on Washington, 100, that's delivering.
On <unk>, obviously, I don't know no pre leasing done just curious what kind of activity is there any more sort of color there tenants looking LOI just any sort of.
Sensor a pulse on the activity, there and what what would be a reasonable.
Expectations for getting those first lease assigned.
Speaker 9: Yeah, first of all, yeah, it's, you know, not really pre-least Mark, but we're very, we're very well situated right now.
Yes first of all yes.
Not really a prelease market, but we're very we're very well situated right now.
Speaker 9: It's the newest best in class building in the market. In addition to that, there are no other deliveries to the end of 24. So again, we're very well situated. As Victor mentioned, on one of the other questions, we're starting to see an uptake in large deals.
It's the newest best in class building in the market. In addition to that there are no other deliveries through the end of 'twenty four so again, we're very well situated as Victor mentioned.
One of the other on one of the other questions.
We're starting to see an uptick in large deals.
Speaker 9: in the CBD and across Bellevue. There's a lot of quality, subtly space it's gonna get leased up here. You'll rebound in the following quarters.
In the CBD and across Bellevue Theres a lot of quality.
Sublease space, it's going to get leased up here.
You bet.
Following quarters.
Speaker 9: which makes us even more desirable. Again.
Which makes us even more desirable again.
Speaker 9: and in turn it's picked up our early interest and tours.
And in turn its ticked up our early interest and tours.
Okay.
Great. That's it for me thanks, so much.
Speaker 2: Our next question is from Tom Catherwood from BTIG. Please go ahead.
Our next question is from Tom Catherwood from <unk>. Please go ahead.
Thanks.
Speaker 12: Thanks. Sticking back with the studios, Victor, I appreciate your commentary on the pickup and pre-production activity. Can you provide some more color, though, on how far in advance the production planning process has to start to lock in studio space? And is that driving any early discussions with users beyond just the pre-production activity you mentioned?
Sticking back with the studios Victor approved.
I appreciate your commentary on the pickup in preproduction activity can you provide some more color, though on how far in advance the production planning process has to start to lock in the studio space and is that driving any early discussions with users beyond just the preproduction.
<unk> you mentioned.
Tom its a great question. There is no science here on that I can certainly tell you what we're seeing now remember well Sag in Africa are on strike they can't even entertain signing facilities until that strike has done, albeit that the writers are done the writers consign.
Speaker 4: Tom, that's a great question. There's no science here on that. I can sort of tell you what we're seeing. Now remember, well sag and after on strike, they can't even entertain.
Speaker 4: Signing facilities until that strike is done. I'll be it that the writers are done. The writers can sign office space
Office space and they can start working on scripts, but you cant sign sound stages in the likes of that nor would they so that's where we sit.
Speaker 4: And they can start working on scripts, but you can't sign sound stages and the likes of that, nor would they. So that's where we sit. Let me know. I can have Jeff jump in, but sort of, if the strike were to end today, as we've sort of commented, it would be, you know, 2 weeks to ratify it and then it would be another 6 to 8 weeks.
I can have Jeff jump in but sort of if the strike were to end today as we've sort of commented it would be.
Two weeks to ratify it and then it would be another six to eight weeks of activity around what shows are going first second third and how theyre looking at that and so then they would come and look at opportunities that ours and everybody else's stages that have availability and from that moment on there would be a timeline for me.
Speaker 4: Of activity around what shows are going 1st, 2nd, 3rd, and how they're looking at that. And so then they would come and look at opportunities that ours and everybody else's stages that have availability. And from that moment on, you know, there would be a timeline for mill space.
Speaker 4: Um, and and and outlining editing and the likes of that on the Pre production side. That's why we're anticipating a full up and running.
Space.
And outlining editing and the likes of that on the preproduction side, that's why we're anticipating.
A full up and running three quarters next year, approximately and we could get better economics in the first quarter of next year, if things happen quicker, but with the holidays.
Speaker 4: three quarters next year approximately and we could get better economics in the first quarter of next year if things happen quicker. But with the holidays
Speaker 4: Um, even though they've been on holidays for 6 months, in my opinion, um, they, you know, they probably won't get going till January 1.
Even though they've been on holidays for six months in my opinion.
Yes.
They probably won't get going till January one.
Got it really helpful. Thanks Victor.
Speaker 12: Got it. Really helpful. Thanks, Victor. And then second question, maybe Mark, following up on the levers that you mentioned in response to Blaine's Covenant question, what is your appetite to potentially monetize the retained bonds on the Hollywood media portfolio to fund either incremental investments or delevering?
And then second question maybe Mark.
Following up on the levers that you mentioned in response to Blaine Covenant question.
What is your appetite to potentially monetize the retained bonds on the Hollywood media portfolio to fund either incremental investments or delevering.
Speaker 7: I mean, I think it's an interesting potential source of liquidity and, you know, opportunity to create liquidity, improve the metrics. It's something worth exploring, and I guess I'll leave it at that. We'll just, you know, we'll have to see how other things unfold.
I think it's an interesting.
Potential source of liquidity and.
Opportunity too.
Create liquidity improve the metrics.
It's something worth exploring and I guess I'll leave it at that.
Well have to see how other things unfold.
Got it that's it for me thanks, everyone.
Thank you.
Speaker 2: The next question is from Dylan Bozinski from Green Street. Please go ahead.
The next question is from Dillon President Ski from Green Street. Please go ahead.
Speaker 14: Hi, guys, good morning. Thanks for taking the question. I guess just going back to occupancy and the expectations over the next call it 18 months to 2025. Are you able to share what sort of level of new leasing activity is embedded in those expectations? Okay.
Hey, guys. Good morning, Thanks for taking the question I guess, just going back to occupancy in the expectations over the next call. It 18 months through 2025.
Are you going to share what sort of level of new leasing activity is embedded in that expectation.
Not at this time I mean.
Speaker 7: You know, we haven't, I mean, historically, we've been asked this question. We've tried to give people ideas of kind of what where we might end up at certain points and so forth.
We haven't.
Historically, we've been asked this question we've tried to give people ideas of kind of what where we might end up at certain points and so forth.
Speaker 7: I think it's probably caused the wrong type of understanding of our leasing, our leasing activities, progress we make.
I think it's probably caused the wrong type of understanding of our leasing our leasing activity and progress we make.
On.
Speaker 7: I don't imagine that when it's time to reguide, you know, we're going to adopt some kind of, we might consider a metric. I don't know that it'll be as granular as new versus renewal. You know, maybe it's worth considering something that our peers do in terms of ranges of occupancy or something like that. But I, but I, it's, I don't think it's going to.
I don't imagine.
And that when it's time to re guide.
We're going to adopt some kind of we might consider a metric I don't know that it'll be as granular as new versus renewal.
On <unk>.
Maybe it's worth considering and something that our peers do in terms of ranges of occupancy or something like that but.
I don't think thats going to.
Speaker 7: quite be as pinpointed as your request for new leases.
Sure.
B is pinpointed.
Your request for new leases.
That's fair and then I guess just one more.
Speaker 8: Are you able to comment on sort of expectations for net effect of rent? And obviously it's going to differ by market, but if you can just go broad strokes across your footprint, that'd be helpful.
Are you able to comment on sort of expectations for net effective rents and obviously, it's going to differ by market, but if you could just go broad strokes across your footprint that would be helpful.
Speaker 7: Well, I mean, I'm sure you're keeping an eye on how net effective says trended. I mean, they've held that well. I think we're down. If you go trailing 12 pre-pandemic, so Q1, 20, trailing 12 as of that point, we're essentially in line on a trailing 12 but basis with the latest activity. I think we're down like 4%.
Well I mean.
Im sure Youre, keeping an eye on how net effective have trended I mean, they've held up well.
I think we're down if you'd go trailing 12 pre pandemic, so Q1 'twenty.
Trailing 12 as of that point were essentially in line on a trailing 12 month basis with the latest activity I think we're down like 4%.
Speaker 9: And they've held up, you know, almost every quarter, we're, you know, at sometimes above, sometimes slightly below, but the net effect has held up. Again, you know, we don't provide some sort of net effective, I don't think anyone provides a net effective target on a forecasting basis. Chiefly because the composition changes quarter to quarter, you know.
And they've held up almost every quarter were.
Sometimes above sometimes slightly below but the net effect is to build up.
Again.
<unk>.
We don't provide some sort of net effective to I don't think anyone provides a net effective target on a on a forecasting basis chiefly because the composition changes quarter to quarter.
Great. Thanks for the detail there guys I appreciate it.
Thanks, Sean.
Last question on the coal comes from Nick <unk> from Scotia Bank.
Speaker 2: Our last question on the call comes from Nick Euliko from Scotiabank.
Please go ahead.
Speaker 13: Hey, this is Daniel Shakerra. Go on for next. Just one question on leverage. You know, how are you thinking about balancing selling assets with an expectation for, you know, improved occupancy and leasing? You know, you're pretty well set up on the maturity ladder over the next few years. And, you know, back of the envelope math, if you had the $100 million of lost EBITDA from the studios business, you'd be close to that seven times net debt longer term target. So any thoughts there would be great.
Hi, This is Jamie <unk> on for Nick just one question on leverage.
Are you thinking about.
Balancing selling assets with an expectation for improved occupancy and leasing you know you're pretty well set up on the maturity ladder over the next few years.
Back of the envelope math, if you add the $100 million of of lost EBITDA from the studios business.
You'd be close to that seven seven times net debt.
Longer term targets, so any thoughts there would be great. Thank you.
I mean.
Speaker 7: I mean, your lead off in the question is precisely what we're doing. I'd say it's we're constantly balancing that. We're looking at assets that have and its tenant composition, maybe the remaining term on the lease.
Your lead off and the question is precisely what we're doing I'd say, it's we're constantly balancing that.
We're looking at assets that had and its tenant composition, maybe the the remaining term on the lease how we view the prospects for the backfill if thats been relatively early lease exploration.
Speaker 7: how we view the prospects for the backfill, if that's a relatively early lease expiration. And Drew, his team, you know, are looking at every.
And drew his team.
<unk>.
We're looking at every.
Speaker 7: you know, uh, element of every potential asset sale and taking into account.
No.
Element of every potential asset sale and taking into account.
Speaker 7: Exactly that, namely, how what our expectations would be, what it looks like when it, if it does expire, what the downtime looks like, what the cost of retaining is, and it's just a constant balancing act. And I think thus far, his team has done an amazing job of striking the balance just right every time.
Exactly that namely how.
What our expectations would be what it looks like when it if it does expire what the downtime looks like.
The cost of retaining is.
Just a constant balancing act and I think thus far his team has done an amazing job of like striking the balance just right every time.
Yeah.
Okay.
Okay.
Yes.
Great I think that's it.
Yes.
I appreciate everybody's participation this quarter and we look forward to updating you if not before next quarter.
Speaker 4: Appreciate everybody's participation in this quarter, and we look forward to seeing you, if not before, next quarter. Thanks very much, operators.
Thanks, very much operator.
Okay.
Speaker 2: Thank you. This conference has now concluded. You may now disconnect.
This conference has now concluded you may now disconnect.
[music].
Speaker 1: you
Okay.
Speaker 2: Thank you. This conference has now concluded. You may now disconnect.
This conference has now concluded you may now disconnect.