Q4 2023 Hudson Pacific Properties Inc Earnings Call

February 13, 2024

Information that will be the opportunity for any questions, which you can also pressing star followed by the number one on your telephone keypads.

Now I'll turn the call over to our host Laura Campbell Executive Vice President Executive Vice President Investor Relations and marketing. Please go ahead. Good morning, everyone. Thanks for joining US with me on the call today are Victor Coleman, CEO and Chairman, Marc Lama, President Routier, Marion CFO and art Suazo EVP of leasing yesterday.

We filed our earnings release and supplemental on an 8-K with the SEC and both are now available on our website.

A webcast of this call will be available for replay on our website some.

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 the reconciliation of non-GAAP financial measures used on this call.

Today, Victor who will discuss our 2023 accomplishments in 2024 priorities along with macro trends across our markets Mark will provide detail on our office and studio operations and development and her route will review our financial results and 2024 outlook thereafter, we'll be happy to take your questions Victor.

Thanks, Laura good morning, everyone and thanks for joining us.

2023 proved to be a challenging year as higher interest rates fueled recession fears and slowed the pace of office leasing across the country. Many industries, including tech focused on cost cutting and park through layoffs and real estate downsizing and longer NIS, one office leasing activity improved incrementally in the fourth quarter remained.

10% below the five year quarterly average. Furthermore, a once in a generation do studio Union strike effectively shut down the entertainment industry in Los Angeles, 2023 film and television production in aggregate fill approximately 40% compared to the prior year led by scripted television which fell.

Most to 70%.

Against that backdrop and within our portfolio and many of the most impacted markets. Our team has remained steadfast in our priorities to navigate these uncertain times.

[music].

Aggressive leasing further strengthening our balance sheet in part through asset sales executing our active development opportunities as well as maintain a leadership position in the ESG spa.

Specifically, we signed $1 7 million square feet of office leases in 2023, averaging over 420000 square feet per quarter.

We executed on over $1 billion of asset sales, which enhance liquidity, allowing us to address our debt maturities until fourth quarter 2025, and improve our leverage metrics were also on track to deliver our Sunset <unk> Studios in Washington, 1000 development projects this quarter and we received multiple ESG.

Accolades all of this we accomplished while quickly pivoting to streamline studio operations and maximize non production revenue during an historic strength.

The Fed's January commentary did little to encourage a major shift in corporate sentiment around office leasing, but we continue to observe a variety of trends in our core industries and markets that are favorable in the fourth quarter Tech leasing rebounded to approximately 15% of all activity up from 10% in the fourth quarter last year, but still.

Hello, everyone and welcome to the Hudson Pacific properties fourth quarter 2023 earnings Conference call. My name is Emily and I'll be coordinating your code today.

After the presentation, there will be the opportunity for any questions, which you can also by pressing star followed by the number one on your telephone keypad I'll now turn the call over to our hoist, Laura Campbell Executive Vice President Executive Vice President of Investor Relations and marketing. Please go ahead. Good morning, everyone. Thanks for joining US with me on the call today are Victor Coleman.

5% to 10% below.

<unk> levels and aggregate takeaway offs appear to be slowing tech employment still exceed pre pandemic levels and is relatively strong compared to other industries.

<unk> is in its early innings and has been an important driver of growth comprising of around 40% of leasing activity in the San Francisco market in the fourth quarter.

<unk> CEO and chairman Mark Lehmann, President Uchida, Marion CFO and art Suazo EVP of leasing.

Yesterday, we filed our earnings release and supplemental on an 8-K with the SEC and both are now available on our website. The audio webcast of this call will be available for replay on our website.

In the years to come we expect to see second and third waves of AI growth is big tech builds out their own teams and non tech companies implement AI services, both increasing the demand for office space.

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 this call.

Venture funding levels for the full year 2023 were in line with 2020 and are still strong most of the funding that has disappeared versus peak years of 2021, and 2022 is for very large deals say $250 million plus whereas smaller deals are only 25% off peak.

Today, Victor who will discuss our 2023 accomplishments in 2024 priorities along with macro trends across our markets Mark will provide detail on our office and studio operations and development and who will review our financial results and 2024 outlook thereafter, we'll be happy to take your questions Victor.

And while tech has embraced the hybrid model research indicates companies that are working on innovative evolving technologies have a much stronger preference to be in the office.

Thanks, Laura good morning, everyone and thanks for joining us.

2023 proved to be a challenging year as higher interest rates fueled recession fears and slowed the pace of office leasing across the country. Many industries, including tech focused on cost cutting in part through layoffs and real estate downsizing and while the nationwide office leasing activity improved incrementally in the fourth quarter remained.

These are small to medium sized companies recording 30000 square feet or less that are growing and looking at floor space to support that growth. This is our area of expertise in the Silicon Valley and a trend we should benefit from and our leasing tours and pipeline.

Turning to our studio segment following <unk> contract ratification in December production companies have been slow to Greenlight, New productions and in January production counts remained approximately 20% below 2021 and 2022 basis.

10% below the five year quarterly average. Furthermore, a once in a generation dual studio Union strike effectively shut down the entertainment industry in Los Angeles, 2023 film and television production and aggregate sell approximately 40% compared to the prior year led by scripted television which fell.

Based on the level of activity, we're seeing real time, we now anticipate that production levels may not materially improve until the second half of the year.

Rose to 70%.

Media companies are still adjusting their business models through both revenue generating and cost saving measures, but original content remains integral to subscriber growth and as an example, Netflix one of our largest tenants recently reaffirmed $17 billion of content spend for the year, which is in line with our 2021 and 'twenty two.

Against that backdrop and within our portfolio and many of the most impacted markets. Our team has remained steadfast in our priorities to navigate these uncertain times.

Aggressive leasing further strengthening our balance sheet in part through asset sales executed in our active development opportunities as well as maintain a leadership position in the ESG spa.

Who pre strike spend.

Specifically, we signed $1 7 million square feet of office leases in 2023, averaging over 420000 square feet per quarter.

On the transactions front, we successfully executed on three asset sales in the quarter generating almost $890 million of gross proceeds. Most notable of these was our $700 million sale at approximately a 6% cap rate for our one west side and West side, two office redevelopment to UCLA.

We executed on over $1 billion of asset sales, which enhanced liquidity, allowing us to address our debt maturities until fourth quarter 2025, and improve our leverage metrics were also on track to deliver our Sunset Gower Studios in Washington, 1000 development projects this quarter and we received multiple ESG.

Which we owned 70 525 with matrix the.

The fact that in the five years plus since acquiring this asset we found not one but two high quality innovation centric end users for this asset is a testament to our ability to identify and execute on unique opportunities and ultimately realized significant value for our shareholders.

Accolades all of this we accomplished while quickly pivoting to streamline studio operations and maximize nonproductive revenue during an historic strength.

The Fed's January commentary did little to encourage a major shift from corporate sentiment around office leasing, but we continue to observe a variety of trends in our core industries and markets that are favorable in the fourth quarter Tech leasing rebounded to approximately 15% of all activity up from 10% in the fourth quarter last year, but still.

We will be working with UCLA on their build out for certain elements of this project on a fee basis going forward. We also sold certain tranches of a loan secured by our Hollywood media portfolio for $146 million.

And a parcel of land in north San Jose for approximately $44 million.

5% to 10% below pre pandemic levels.

All of these proceeds served to significantly enhance our leverage and liquidity position.

In aggregate takeaway offs appear to be slowing tech employment is still exceed.

We also received additional ESG recognition in the fourth quarter, we renamed and office Americas sector leader by <unk> for the third year in a row and for a second year in a row NAREIT leader of the light for office and one of Newsweek's America's most responsible companies.

<unk> levels and is relatively strong compared to other industries.

<unk> is in its early innings, and it's been an important driver of growth comprising of around 40% of leasing activity in the San Francisco market in the fourth quarter.

Our focus on ESG continues to further differentiate our platform and assets, while providing value for our tenants our employees and our shareholders.

Venture funding levels for the full year 2023 were in line with 2020 and are still strong most of the funding that has disappeared versus peak years of 2021, and 2022 is to be very large deals say $250 million plus whereas smaller deals are only 25% off peak.

And Hudson Pacific, We remain committed to our long term strategy of optimizing our unique portfolio and platform to take advantage of future growth opportunities as they arise in 2024, our priorities are fourfold aggressive leasing within our office and studio portfolios.

Executing on opportunistic dispositions.

And while tech has embraced the hybrid model research indicates companies that are working on innovative evolving technologies have a much stronger preference to be in the office.

<unk> progressing our New York studio development, and further deleveraging and fortifying our balance sheet and so doing as the next wave of growth takes hold we will be well positioned to leverage our portfolio expertise and relationships to benefit our shareholders now let me turn the call over to Mark.

These are small to medium sized companies, requiring 30000 square feet or less that are growing and looking for space to support that growth. This is our area of expertise in the Silicon Valley and a trend we should benefit from and our leasing tours and pipeline.

Thanks Victor.

We signed 432000 square feet of office leases in the fourth quarter, 75% of these were renewal leases and close to 65% of that activity within the San Francisco Bay area, including a 57000 square foot renewal with Github at $2 75 granted.

Our cash rents decreased just under 10%, while GAAP rents decreased 2% largely driven by two mid sized renewals in the San Francisco Bay area, the expiring leases for which were signed at the top of the market.

Based on the level of activity, we're seeing real time, we now anticipate that production levels may not materially improve until the second half of the year media companies are still adjusting their business models through both revenue generating and cost saving measures, but original content remains integral to subscriber growth and as an example, Netflix one of our large.

But for these two renewals our cash rent spreads would have been flat.

Our in service office portfolio ended the year at 81, 9% leased with approximately 75 of 120 basis point decrease between the third and fourth quarter attributable to the sale of Onewest side.

<unk> tenants recently reaffirmed $17 billion of content spend for the year, which is in line with our 2021 and 'twenty two pre strike spend.

On the transactions front, we successfully executed on three asset sales in the quarter generating almost $890 million of gross proceeds. Most notable of these was our $700 million sale at approximately a 6% cap rate for our Onewest side and west side, two office redevelopment to UCLA.

We are still seeing tour demand accelerate during the quarter, we had over 145 tours, representing one 4 million square feet of requirements of 4% since last quarter and 50% higher than this time last year.

Our leasing pipeline also remains active with deals in leases Lois or proposals totaling $1 9 million square feet slightly below last quarter, but still up almost 6% year over year.

Which we owned 70 525 with matrix the.

The fact that in the five years plus since acquiring this asset we found not one but two high quality innovation centric end users for this asset is a testament to our ability to us.

In 2022, and 2023, we had an atypical high number of office leases expiring largely the result of short term renewal leases signed during the pandemic.

We also had several large 100000 square foot plus leases rolling this year, we have a more manageable $1 5 million square feet expiring, which is aligned with our long term average. This includes only one tenant a known vacate of just over 100000 square feet expiring. We currently have.

Verizon of activity that is deals signed in leases Lois or proposals or discussions on approximately 40% of that space, which is relatively on track for this time of year.

Importantly.

While we cannot control how and when demand will return we remain confident in our portfolio along with our team's ability to drive tour activity and execute on leasing in an effort to expedite closing timelines.

That said, we are not banking on any material improvements in the operating environment. This year.

Our occupancy will likely be under pressure at least in the first three quarters of the year with a potential to return to essentially flat occupancy by year end.

This is based on both our historical leasing trends and informed directly by our team's detailed space by space lease by lease assessment of our portfolio and what we believe should be achievable.

Turning to our studios on a trailing 12 month basis, our in service studios, where 84% leased and our stages were 84, 7% leased with a changed largely attributable to a single tenant giving back six stages and sports space in the second and third quarters due to the strike.

Our <unk> studios in stages, where 29, 3% and 31% leased respectively on a trailing 12 month basis.

In terms of our service business in the fourth quarter production resumed on certain of our long term lease stages, which led to a 7% increase in combined lighting and grip and other services revenue.

We also grew our transportation revenue by approximately 10% from live events.

Kris just under 10%, while GAAP rents decreased 2% largely driven by two mid sized renewals in the San Francisco Bay area, the expiring leases for which were signed at the top of the market.

Even as it's taking time for shows to enter production, we have seen a pickup in demand from December to January we saw a 45% increase in studio tours and more than a doubling in stage related inquiries utilization across our transportation assets also picked up incrementally in January.

But for these two renewals our cash rent spreads would have been flat.

Our in service office portfolio ended the year at 81, 9% leased with approximately 75 of 120 basis point decrease between the third and fourth quarter attributable to the sale of Onewest side.

Looking out over the next 90 days, 45% of our available stages are booked which is a new high watermark since the strike following a multi cam reality show, taking all three stages <unk> New Orleans.

We are still seeing tour demand accelerate during the quarter, we had over 145 tours, representing one 4 million square feet of requirements.

As for our in process developments.

<unk> is effectively complete and we are awaiting department of water and power sign offs required for certificate of occupancy, which we expect to have next month, we pushed out our completion date to first quarter to reflect this updated timing.

Up 4% since last quarter and 50% higher than this time last year. Our leasing pipeline also remains active with deals in leases Lois or proposals totaling $1 9 million square feet slightly below last quarter, but still up almost 6% year over year.

We are actively touring and engaging with an array of productions interested in either long term or show by show of leases.

In 2022, and 2023, we had an atypical high number of office leases expiring largely the result of short term renewal leases signed during the pandemic. We also had several large 100000 square foot plus leases rolling this year, we have a more manageable $1 5 million square.

Construction continues at Sunset Pier, 94, which will deliver year end 2025, and we are in discussions with multiple tenants interested in long term multi stage leases.

As for our Washington, 1000 development, we're finalizing <unk> and other marketing improvements as we await certificate of occupancy, which we also expect to receive next month.

Feet expiring, which is aligned with our long term average. This includes only one tenant a known vacate of just over 100000 square feet expiring. We currently have a variety of activity that is deals signed in leases Lois proposals or discussions on approximately 40% of that space.

Large tenant demand in Seattle is yet to come back in a material way, but we are staying flexible and actively touring full floor users to.

The building is stunning and we expect interest to accelerate once tenants can fully experience. It is impeccable design and fantastic indoor outdoor amenities, especially vis vis competitive product and now I'll turn the call over to Ruth.

<unk>, which is relatively on track for this time of year importantly.

Importantly.

Thanks, Mark our fourth quarter 2023 revenue was $223 4 million compared to $269 $9 million in the fourth quarter of last year.

That said, we are not banking on any material improvements in the operating environment. This year.

Mostly attributable to the sales of Skyway landing 600 for Arizona, and 30 401 Exposition previously communicated tenant move outs at 40 55 market in 2900, <unk> thousand 950, Washington, as well as a reduction in studio services and other revenue due to the related union strikes.

Our occupancy will likely be under pressure at least in the first three quarters of the year with a potential to return to essentially flat occupancy by year end.

This is based on both our historical leasing trends and informed directly by our team's detailed space by space lease by lease assessment of our portfolio and what we believe should be achievable.

Our fourth quarter <unk>, excluding specified items was $19 6 million or <unk> 14 per diluted share compared to $70 2 million or 40 <unk> per diluted share in the fourth quarter last year. So that's minor items for the fourth quarter 2023 consisted of deferred tax asset write off expense of $6.

$6 million or <unk> <unk> per diluted share and transaction related expenses of $2 million or zero cents per diluted share. Prior specified items consisted of transaction related expenses of $3 6 million or <unk> <unk> per diluted share.

Our <unk> studios in stages, where 29, 3% and 31% leased respectively on a trailing 12 month basis.

Our fourth quarter, <unk> was $21 5 million or <unk> 15 per diluted share compared to $62 1 million or <unk> 43 per diluted share in the fourth quarter last year, our fourth quarter same store cash NOI was $116 1 million compared to $127 4 million in.

We also grew our transportation revenue by approximately 10% from live events.

The fourth quarter last year with the change mostly attributable to the large vacate at Fortunately defined market and mid sized tenant move outs in San Francisco Peninsula, and Silicon Valley combined with a single tenant vacating stick stages at Sunset Las Palmas during the strike.

Note that our 2023 full year outlook assumed a one 5% same store cash NOI growth at the midpoint, including one Westside, which was sold five days prior to the end of the fourth quarter and where we experience the full benefit of cash rents in 2023 on a full year office.

Looking out over the next 90 days, 45% of our available stages are booked which is a new high watermark since the strike following a multi cam reality show, taking all three stages at Coty New Orleans.

As for our in process developments.

Same store cash NOI growth would have been three 8%. This also includes 170 basis points of growth attributable to the we work letters of credit, which we drew down in the fourth quarter and were not accounted for in our 2023 full year guidance assumptions.

We are actively touring and engaging with an array of productions interested in either long term or show by show leases.

Turning to the balance sheet following our $482 2 million mortgage loan refinancing at Bento Center with Blackstone and the full repayment of our construction loan from the sale of boneless side on West side too we have no maturities until November 2025 further we used the net proceeds from onewest side and less high too.

Construction continues at Sunset Pier, 94, which will deliver year end 2025, and we are in discussions with multiple tenants interested in long term multi stage leases.

As for our Washington, 1000 development, we're finalizing <unk> and other marketing improvements as we await certificate of occupancy, which we also expect to receive next month.

As well as the sales of <unk> and the Hollywood media portfolio to repay outstanding amounts under our unsecured revolving credit facility. As a result, we improved our share of net debt to unappreciated book to 36, 5% and our share of net debt to EBITDA at $8 nine.

Large tenant demand in Seattle is yet to come back in a material way, but we are staying flexible and actively touring full floor users. The building is stunning and we expect interest to accelerate once tenants can fully experience. It is impeccable design and fantastic indoor outdoor amenities, especially vis vis competitive product and.

Finished the year with approximately $800 million in total liquidity comprised of approximately $100 million of cash and cash equivalents and $700 million of undrawn capacity under our unsecured revolving credit facility.

Now I'll turn the call over to Ruth.

Thanks Mark.

Our fourth quarter 2023 revenue was $223 4 million compared to $269 9 million in the fourth quarter of last year, mostly attributable to the sales Skyway landing 600 for Arizona and 30 401 Exposition previously communicated tenant move outs at 14 55 market.

The undrawn capacity of our credit facility reflects reduction under our commitments to $900 million in association with favorable adjustments made to our related definitions and covenant calculations. This quarter. We also have another approximately $200 million of undrawn capacity under our sunset <unk> and Sunset period.

And 2900, <unk> thousand 950, Washington, as well as a reduction in studio services and other revenue due to the related union strikes.

Andy for construction loans now I'll discuss our 2024 outlook as always this outlook excludes the impact of any potential dispositions acquisitions financings or capital markets activity or disruptions in studio operations related to inactive strength, we're providing a first quarter and initial full year 2024 <unk> outlet.

Our fourth quarter <unk>, excluding specified items was $19 6 million or <unk> 14 per diluted share compared to $70 2 million or 49 per diluted share in the fourth quarter last year. So that's not a items for the fourth quarter 2023 consisted of deferred tax asset write off expense of $6 six.

And the range of 15 to 19.

And $1 to $1 10 per diluted share respectively. There are no specified items in connection with this guidance.

<unk> or <unk> <unk> per diluted share and transaction related expenses of $2 million or zero cents per diluted share. Prior specified items consisted of transaction related expenses of $3 6 million or <unk> <unk> per diluted share.

We are introducing first quarter guidance to provide greater visibility around how our initial expectations for earnings in the early part of the year compared to our full year projections more specifically, while we are seeing steady improvement in production activity since Saks contract ratification in December most of the current active.

<unk> relates to returning shows rather than new productions, the acceleration of which is an important driver of demand of our <unk> Studios in services, we expect new activity to continue to ramp up into the second half of the year, which should in turn contribute to steady improvement in our quarterly <unk> outlook.

In the fourth quarter last year with the change mostly attributable to the large vacate at fortune 55 market and mid sized tenant move outs in San Francisco Peninsula.

Now, we'll be happy to take your questions operator.

Silicon Valley combined with a single tenant vacating stick stages at Sunset Las Palmas during the strike.

Thank you if you'd like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be removed from Nicky you can press star and then K.

Note that our 2023 full year outlook assumed a one 5% same store cash NOI growth at the midpoint, including mobile aside which was sold five days prior to the end of the fourth quarter and where we experienced the full benefit of cash rents in 2023, our full year office.

Our first question today comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey.

Good morning out there.

Just two questions.

First.

A lot of us on the call clearly understand real estate, we don't understand the movie business. So as we look at the guidance in the first quarter Guy.

<unk> could you just help us understand the media walk through and the ramp and then Victor to your point about the studios just taking a bit longer.

Turning to the balance sheet following our $482 2 million mortgage loan refinancing at Bento Center with Blackstone and the full repayment of our construction loan from the sale of boneless side on one side, we have no maturities until November 2025 further we used the net proceeds from onewest side, unless I too as well.

Is it is there an assumption that that 100 million of NOI that you guys lost because of the strikes that that will come back or is meaning annualize. This year or is that something that could get pushed out you know the recovery of that $100 million could get pushed out to like two.

The sales of <unk> and the Hollywood media portfolio to repay outstanding amounts under our unsecured revolving credit facility. As a result, we improved our share of net debt to unappreciated book to 36, 5% and our share of net debt to EBITDA at $8 nine.

26 or beyond.

So let me start with the generic allergy.

So thanks for the questions and then I'll let.

Jumping on the first on the first part I will walk you up the ramp a little bit okay. So.

Our prepared remarks sort of indicated in the last quarter that we assumed when the strike was ending.

We finished the year with approximately $800 million in total liquidity comprised of approximately $100 million of cash and cash equivalents and $700 million of undrawn capacity under our unsecured revolving credit facility.

In November and then it wasn't ratified until December the production with cease and desist it until January.

The current state of affairs right now is any.

Production that was in filming is back up and running now anything that was green lit is now has to be green lit again, and the timeline has been delayed because writers should stop writing they couldnt right and so we assumed that we would have a back end year and thats been the assumption and how we've ramped you up to.

<unk> 94 construction loans now I'll.

The second half of the year it may be.

Discuss our 2024 outlook as always this outlook excludes the impact of any potential dispositions acquisitions financings or capital markets activity or disruptions in studio operations related to inactive strike, we're providing a first quarter and initial full year 2024, <unk> outlook in the range of 15 to 19.

Second quarter late second quarter, we were very comfortable it can be third and fourth.

And seasonality is not going to play as much of an issue going forward on that basis in terms of the $100 million. Yes, we think we're going to get there this year, but it could trickle through the first quarter. It's clearly been January the holds for the sound stages and the activity is there that production has not had been executed because the <unk>.

And $1 to $1 10 per diluted share respectively. There are no specified items in connection with this guidance.

Gripped, writing and other aspects around that have not been completed we do think there are multiple holes are going to be executed for leasing and I think pretty much comfortable that how we've looked at this analysis being it this quarter is going to be low relative to the fourth quarter, which will be high that step up is exactly where we.

Leave that that's going to be a review I'll walk through it sure so Alex.

<unk> relates to returning shows rather than new productions that acceleration of which is an important driver of demand of our acuity Studios and services, we expect new activity to continue to ramp up into the second half of the year, which should in turn contribute to steady improvement in our quarterly <unk> outlook.

Good question on the impact on the media on our guidance so.

The media, specifically <unk> and the timing around.

The activity there is.

Contributing about 15.

Of our <unk> so meaning.

Had that normalized quicker, we'd have <unk> more of <unk> and you can kind of see that in our.

Now, we'll be happy to take your questions operator.

Result of activity for the remainder of the year, we're going from roughly a midpoint of 2017.

In Q1 to an average of I think almost 30 for the rest of the year if you.

Back into the number and <unk>.

Our first question today comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Basically the biggest drivers coty as a result of again the slower ramp up of the studio business I think if you normalize for that.

Hey.

Good morning out there.

Just two questions.

We'd be much more aligned.

First.

You know a lot of us on the call clearly understand real estate, we don't understand the movie business. So as we look at the guidance in the first quarter Guy.

Okay and then the second question is maybe art can comment.

One of the positives are that we were hoping for this year last year you guys were hit by block.

<unk> could you just help us understand the media walk through and the ramp and then Victor to your point about the studios just taking a bit longer.

Which was a big impact we work big impact this year the Gras.

Granularity of the of the lease exposure was much smaller I think the biggest one was like 90080 thousand and then it dropped off precipitously. So it's much more.

Smaller impact based on your leasing comments that occupancy could decline.

<unk> declined through the third quarter that leasing tech leasing is still tepid.

Do we still have comfort or do you guys still have comfort in the granularity of this year's lease exposure that we won't really see big impacts the way we did last year or are you viewing that.

26 or beyond.

So let me start with a generic Alec.

Alex So thanks for the questions and then I'll let.

Jumping on the first on the first part I will walk you up the ramp a little bit okay. So.

The lease exposure this year, while smaller tenants.

Our prepared remarks sort of indicated in the last quarter that we assumed when the strike was ending.

We could end up with sort of the same treasury. If you will this year that we saw last year.

In November and then it wasn't ratified until December the production with cease and desist it until January.

Alex This is actually mark because those are my comments as it related to softness in the first part of the year I'll just give me a little bit of color around that and then art.

The current state of affairs right now is any.

I can comment on status of some of the upcoming explorations, but yes.

Yes, so our own expectations is that for the first half of the year, we're likely to see a bit of softness on our occupancy levels relative to where we ended the year with steady improvement in the back half of the year just.

Just to put a finer point in terms of what that boils down to in terms of numbers. If you take our 12 31 23 explorations together with our scheduled there are 24 exploration is about $1 seven feet of total expirations.

The second half of the year it may be.

Second quarter late second quarter.

We're very comfortable it can be third and fourth.

And seasonality is not going to play as much of an issue going forward on that basis in terms of the $100 million. Yes, we think we're going to get there this year, but it could trickle through the first quarter. It's clearly been January the holds for the sound stages and the activity is there. The production has not had been executed because the <unk>.

If you take let's say, 40% retention on that would be which would be an historically conservative amount.

We typically retain better than that amount, but if you took 40 declined by 700000 feet of that we've already executed 75000 feet of that.

That leaves us about 1 million fee of.

It <unk> seem to do on existing availability, we've already executed about 160 of that so that leaves you about 840000 respecting leasing on existing availability of fairly too to get back to where we ended the year on occupancy so 840 <unk> fairly.

That's going to be a review I'll walk through it sure so Alex.

Good question on the impact on the media on our guidance so.

High level of activity as we indicated in our prepared remarks the team has done.

The media, specifically <unk> and the timing around the.

The activity there.

As we do every year heading into year end, we do a very very detailed deep dive into every asset every available space.

Speaking about 15 of our <unk> so meaning.

Had that normalized quicker, we'd have <unk> more of <unk> and you can kind of see that in our.

And as we sit today, we think that number is achievable, which is why we commented in our prepared remarks.

Result of activity for the remainder of the year, we're going from roughly a midpoint of 2017.

We think its fight to get back to year end 2000, 2031, 'twenty three occupancy by end of this year and Alex if you.

In Q1 to an average of I think almost 30 for the rest of the year if you.

Back into the number and that basically is the biggest drivers coty as a result of again the slower ramp up of the studio business I think if you normalize for that.

40% inactive process right now.

Which we feel really good about but you made a comment about small tenants, yes, that's exactly right that number is going to grow because.

We'd be much more aligned.

Our average tenant size is well under 10000 square feet.

Okay and then the second question is maybe art can comment.

Later year and these tenants aren't engaging just yet so this doesn't reflect that once they start engaging.

One of the positives are that we were hoping for this year last year you guys were hit by block.

The small tenants are going to that number in the aggregate is going to help us a great deal.

Which was a big impact we work big impact this year the.

Thank you.

The granularity of the of the lease exposure was much smaller I think the biggest one was like 90080 thousand and then it dropped off precipitously. So it's much more.

The next question comes from Michael <unk> with Citi. Please go ahead.

Smaller impact based on your leasing comments that occupancy could decline.

<unk> declined through the third quarter that leasing tech leasing is still tepid.

Hello, Michael Your line is now open. Please proceed with your question.

Do we still have comfort or do you guys still have comfort in the granularity of this year's lease exposure that we won't really see big impacts the way we did last year or are you viewing that.

Sorry, sorry, I was on mute there question for her route just kind of on the cash balance and sources and uses if we look I guess relative to last quarter from this quarter. Your cash balance went went up about $25 million, but then I am just trying to reconcile the 700 million that came in from the Onewest side proceeds and then.

The lease exposure this year, while smaller tenants.

We could end up with sort of the same treasury. If you will this year that we saw last year.

Paying off the construction loans there.

Alex This is actually mark because those are my comments as it related to softness in the first part of the year I'll just give me a little bit of color around that and then art.

Gets me to about $500 million or so maybe of net cash proceeds. So could you walk me through kind of where where the remainder of that went and any commentary around that would be helpful.

I can comment on status of some of the upcoming explorations, but yes.

Sure just as a reminder, the $700 million not all ours.

We have a 25% partner.

And so when you take $100 million. There are some closing cost there is a hold back of about $16 million that that we should get by the end of 2024 and the remainder was first used to pay down the construction loan and then.

Just to put a finer point in terms of what that boils down to in terms of numbers. If you take our 12 31 23 explorations together with our schedule. There are 24 exploration is about $1 seven feet of total exploration.

Our net proceeds were used to pay down our line of credit so.

Every dollar every extra dollar we had we used to pay down line of credit. So we have another like I said, another $16 million coming to us well split between us and <unk> that will come at the end of <unk> going forward.

If you take let's say, 40% retention on that would be which would be an historically conservative amount.

Yeah.

Got you that's helpful. And then maybe just a more broad question on your markets and distressed opportunities Youre seeing out there obviously it seems like one of the priorities is to pay down debt and to get the balance sheet and better order, but if you do see distress out there could you look to capitalize on any opportunities.

We typically retain better than that amount, but if you took 40 declined by 700000 feet of that we've already executed 75000 feet of that.

That leaves us about 1 million feet of.

Yeah, Michael listen, we're not seeing distress that is it tracking US right now we are evaluating price per pound and the cap rate movements in all of our markets, but there's not a tremendous amount of deals out there that are truly.

High level of activity as we indicated in our prepared remarks the team has done.

Forefront deals that I guess Hudson, we want to partake in right now we've got our finger on the pulse clearly as to what's in the marketplace I would say the activity that youre seeing that has been obviously given back to some of the lenders or certain sellers are looking to sell assets there is more and more about it.

As we do every year heading into year end, we do a very very detailed deep dive into every asset every available space.

And as we sit today, we think that number is achievable, which is why we commented in our prepared remarks.

We think its fight to get back to year end 2021 'twenty three occupancy by end of this year and Alex if you.

Like an owner user type.

Sure.

Aspect versus a value add.

Aspect right now that being said.

40% inactive process right now.

I think we're going to see some opportunities that may be intriguing with existing partners on assets that we may have opportunities of taking out at some pretty pretty.

Which we feel really good about but you made a comment about small tenants, yes, that's exactly right that number is going to grow because.

Our average tenant size is well under 10000 square feet.

Good good valuations for the company to move forward on if theres upside in those assets. So we're in the market.

Later year and these tenants aren't engaging just yet so this doesn't reflect that once they start engaging.

I would say.

Course, everybody's focused on San Francisco because of its depressed aspect, but theres only been a few deals done there there's going to be opportunities in Seattle, there is going to be opportunities.

The small tenants are going to that number in the aggregate is going to help us a great deal.

Thank you.

In the valley and there is also going to be opportunities in Los Angeles.

The next question comes from Michael <unk> with Citi. Please go ahead.

Great. That's it for me thanks for the time.

The next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks. Good morning, I was hoping you guys could give a little bit more color. I know you guys are done breaking up studio versus office same store guidance, but I do think that coming into 2024. There was some optimism that the video side could show some better results in the services business that could offset some headwinds on the office side.

Hello, Michael Your line is now open. Please proceed with your question.

So any sort of general color you could give on the contribution of each of those to the.

Paying off the construction loans there.

Overall same store number would be really helpful.

Gets me to about 500 million or so maybe of net cash proceeds. So could you walk me through kind of where where the remainder of that went and any commentary around that would be helpful.

So we made a decision a while ago only provide same store for the company overall without breaking it out between the two but you can see that the preponderance of our business is the office side and that's been the driver of our projection.

Sure just as a reminder, the $700 million not all ours.

We have a 25% partner.

There are some growth obviously in the media side, but the driver for at least 24 is office, but just as a reminder, the acuity business, which is the operating is not in our same store numbers. So.

Our net proceeds were used to pay down our line of credit so.

If you add that in and we changed the definition of same store I think we'd be up 5% year over year. So just to give you some contact center.

Okay.

For <unk>.

Just.

A follow up on that.

Okay.

Dig in on the office side.

You do have a lot of vacancy at $40 55 market from the block move out can you just give us an update on your thoughts around back filling that space and what's included in guidance if anything.

Yes, let me start and I'm going to have art again, we have <unk>.

Right now.

In negotiations about 155000 feet of deals.

That could grow substantially with some existing.

Negotiations and interest levels over the next.

12 to 24 months.

The assets uniquely positioned because of the current buildout with block and Uber.

Forefront deals that I guess Hudson would want to partake in right now we've got our finger on the pulse clearly as to what's in the marketplace I would say the activity that youre seeing that has been obviously given back to some of the lenders or certain sellers are looking to sell assets there is more and more about it.

Faces, so unique and large floor plates Blaine that seems to be where the interest level is clearly.

The deals that we did with block and Uber were in a different timeline the market has shifted back.

To not necessary, where those levels were but at least closer to where they were then where where where the rents would have been when they exited so we still have some a little bit of headroom, there and I think we're comfortable with some of the aspects on those deals that we're looking at yes, I mean relative to our vacancy in San Francisco I mean, the preponderance of it is in <unk>.

Like an owner user type.

Sure.

Aspect versus a value add.

Aspect right now that being said.

I think we're going to see some opportunities that may be intriguing with existing partners on assets that we may have opportunities of taking out at some pretty pretty.

<unk> five for the reasons Victor described in addition to that.

Good good valuations for the company to move forward on if theres upside in those assets. So we're in the market.

Remember, it's really two buildings and one right. It's not just the build out that the residual value in the build out but it's 90000 foot plates on the on the podium and 25000 square foot plates in the tower, which is.

I would say.

Quite appealing to the users we're talking to.

In the valley and there is also going to be opportunities in Los Angeles.

Yes, there was 150000 square feet that were actively in negotiations on right now.

Great. That's it for me thanks for the time.

I just want to underscore that the growth behind it from within these tenants.

We'll have it would happen.

The next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Fairly imminent.

Yes.

Great. That's helpful. Last question for me can you talk about the impairment charge you guys took in the quarter and that was driven by just the situation around that.

Yes sure.

To evaluate our assets, it's a GAAP evaluation not a market evaluation to be clear. This is not a indication of fair value, but just kind of an indication of where there might be some impairment in terms of.

So any sort of general color you could give on the contribution of each of those to the.

Overall same store number would be really helpful.

The valuation compared to our book balance and so it primarily I mean, I don't want to get specific on about primary relates to a couple of assets.

On that.

Compared to the undiscovered cash flow don't seem to be long term.

Value adds so.

I mean, what I'll say about that but thats it.

There are some growth obviously in the media side, but another driver for at least 24 is office, but just as a reminder, the acuity business, which is the operating is not in our same store numbers. So.

Okay. So just just to be clear this isn't to suggest that you guys are looking to kind of dispose of any assets.

Reevaluation that was triggered by something else.

If you add that in and we changed the definition of same store I think it would be up 5% year over year. So just to give you some contact center.

Correct.

Okay. Thank you guys.

Okay. That's helpful.

Our next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Just.

A follow up on that.

Dig in on the office side.

You do have a lot of vacancy at $40 55 market from the block move out can you just give us an update on your thoughts around back filling that space and what's included in guidance if anything.

Hi, This is Julian fluid on for Caitlin and thanks for taking the question.

I had a question on G&A it looks like G&A is going to be a little bit higher year over year, and certainly higher than than we were expecting.

Yes, let me start and I'm going to have art again, we have <unk>.

I guess last year I think you mentioned you were you were looking to reduce costs and reevaluating G&A.

Right now.

Negotiations about 155000 feet of deals.

That could grow substantially with some existing.

And the company has yet to reinstate the regular dividend to common shareholders. I guess, what is driving G&A higher and are there any opportunities to lower it.

Negotiations and interest levels over the next.

12 to 24 months.

The assets uniquely positioned because of the current buildout with block and Uber that spaces, so unique and large floor plates Blaine that seems to be where the interest level is clearly.

Let me answer the second one first yes, there's opportunities lowered and we're going to constantly evaluate the G&A to make sure. It's right sized the increase year over year is primarily driven by.

The deals that we did with block an uber or a different timeline the market has shifted back to.

And incentive plan.

So it's while the expenses high its really going to be driven by.

<unk> not necessary, where those levels were but at least closer to where they were then where where where the rents would have been when they exited so we still have some a little bit of headroom, there and I think we're comfortable with some of the aspects on those deals that we're looking at yes, I mean relative to our vacancy in San Francisco.

By stock price and returns so it aligns the management.

Interest with the.

Investors interest, meaning the shares won't be issued unless we achieve certain hurdles.

For accounting purposes are valued at target and those numbers.

And some of it is in in $14 55 for the reasons Victor described in addition to that.

Can seem high.

Year over year, but that doesn't mean, you actually incur those costs because if you don't achieve those goals. None of those shares are issued by the expense is still in our underlying numbers.

Remember, it's really two buildings and one right. It's not just the build out that the residual value in the build out, but it's 90000 foot plates on the podium and 25000 square foot plates in the tower, which is.

Okay.

Quite appealing to the users we're talking to.

I also thank you Mark just remind me in.

Yes, there was a 150000 square feet that were actively negotiations on right now.

In the prior year.

We removed that portion of the incentive plan in 2023.

I just want to underscore that the growth behind it from within these tenants.

<unk>.

It caused an increase year over year from 'twenty to 'twenty four if you compare that to compare our G&A from 24% to 22 the increase isn't as.

We will have it would happen.

Fairly imminent.

Great. That's helpful. Last question for me can you talk about the impairment charge you guys took in the quarter and that was driven by just the situation around that.

Stagnant.

It's a small increase but that's what drove the year over year increase is the lack of the same plan in 2003 compared to 24.

Got it okay. That's helpful.

Yes sure.

To evaluate our assets at the GAAP evaluation not a market evaluation to be clear. This is not a indication of fair value, but just kind of an indication of where there might be some impairment in terms of.

And then maybe one quick one on <unk>.

The covenants.

I guess the debt service coverage and adjusted EBITDA.

<unk> tightened again in the fourth quarter I know some of the other Scott sort of amendments and.

The valuation compared to our book balance and so primary I mean, I don't want to get specific on ebay primary relates to a couple of assets.

We're helped.

By the flexibility received I guess, how do you expect those specific covenants to trend in the coming quarters and will an improvement in the studio NOI eventually start to help these metrics.

That <unk>.

Compared to the undiscovered cash flow don't seem to be long term.

Value adds so.

Yeah for sure. Let me just just I don't want to gloss over the improvement remember last quarter.

I mean, what I'll say about that but thats it.

Okay. So just just to be clear this isn't to suggest that you guys are looking to kind of dispose of any assets.

One covenant that everyone was concerned about was the unsecured indebtedness to unencumbered asset value, which was at 57 seven and this quarter at $41 eight I don't want to gloss over their improvement there, yes, some of it relates to the.

Reevaluation that was triggered by something else.

Correct.

Okay. Thank you guys.

Adjusted definitions, but the rest of it is driven by the management reduction of debt payoff of debt from asset sales. So.

Yeah.

Our next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

That is important it's not just the definitional changes associated with our line of credit.

Hi, This is Julian bluing on for Caitlin and thanks for taking the question.

But to address your specific points around the EBITDA and fixed charges. So that's a trailing number so right now were trailing a lot of the higher interest expense before the paydown that once that burns off we will start changing direction, then yes. The CDO business will help that number as it starts improving so.

I had a question on G&A it looks like G&A is going to be a little bit higher year over year, and certainly higher than than we were expecting.

I guess last year I think you mentioned you were you were looking to reduce costs and reevaluating G&A.

And the company has yet to reinstate the regular dividend to common shareholders. I guess, what is driving G&A higher and are there any opportunities to lower it.

We expect that to start improving.

Im not saying its going to be you know immediately up to back to two six but our productions assume it's going to improve over the year.

Okay, Great. That's really helpful. Thank you.

Okay.

Let me answer the second one first yes, there's <unk> lowered and we're going to constantly evaluate the G&A to make sure. It's right size the increase year over year is primarily driven by.

Okay.

The next question comes from John Kim with BMO capital markets. Please go ahead.

Thank you on the studio and services ramp in the second half of the year getting you to about 30.

And incentive plan.

So while the expenses high its really going to be driven by.

That's about per quarter.

By stock price and returns so it aligns the management.

Does it improve in 'twenty five as you realize some of those synergies and Sidoti and you get the full benefit of Glen Oaks or 30.

Interest with the.

Investors interest, meaning the shares won't be issued unless we achieve certain hurdles.

Maximum.

Oh no no we expect sorry.

So for accounting purposes, they're valued at target and those numbers.

So just to be clear, it's not I just want to make sure I'm not the miss.

Can seem high.

It's not 30 for the media business of 30 overall.

Year over year, but that doesn't mean, you're actually incur those costs because if you don't achieve those goals. None of those shares are issued but the expense is still in our underlying numbers.

Overall based on the math, okay, but the media business, we expect it to continue to improve year over year. So.

Okay.

We definitely think there'll be improvement not only from the synergies of the business, but also just the overall business itself as it continues to get back to normalization.

I also thank you Mark just remind me in.

In the prior year.

We removed that portion of the incentive plan in 2023.

<unk>.

It caused an increase year over year from 'twenty to 'twenty four if you compare that to if you compare our G&A from 24% to 22, the increase isn't as <unk>.

24, again because of Q1 is a much lower year, just that alone is going to increase and 25 without everything else that were just mentioned.

Stagnant.

It's a small increase but that's what drove the year over year increase is the lack of the same plan in 2003 compared to 24.

Okay, so getting to 30.

Third and fourth quarter would imply 28.

The second quarter.

What are the chances that that.

Got it okay. That's helpful.

Disappoints, just given the slower ramp up of production.

And then maybe one quick one on on the.

It's really hard to know.

The covenants.

I guess the debt service coverage and adjusted EBITDA.

[laughter].

Funding for the first quarter for US to go ahead and comment on second quarter and thinking you might disappoint is.

Covenants tightened again in the fourth quarter I know some of the other Scott sort of amendments and.

It's early.

I think we would have provided the guidance numbers. We did if we thought it was going to disappoint. So I think we feel pretty comfortable with it.

We're helped.

By the flexibility received I guess, how do you expect those specific covenants to trend in the coming quarters and will an improvement in the studio NOI eventually start to help these metrics.

And.

Yeah that's.

That's all I can say.

Okay. My next question is on <unk>.

Leasing activity.

Yeah for sure let me just.

I think Mark mentioned two thirds of that was in the Bay area. This past quarter, but then also to our demand has accelerated I was wondering if you could break down that.

I don't want to gloss over the improvement remember last quarter. The one covenant that everyone was concerned about was the unsecured indebtedness to unencumbered asset value, which was at 57 seven and this quarter at 41, eight I don't want to gloss over their improvement there, yes, some of it relates to the.

Cured activity among your major markets, La Seattle, San Francisco and Silicon Valley.

Sure This is art.

Adjusted definitions, but the rest of it is driven by the management's reduction of debt payoff of debt from asset sales. So.

Activity really kind of goes hand in hand, with what we have interactive pipeline that I would say that.

65% of the $1 million million nine is.

Spread out throughout the Bay area.

That is important it's not just the definitional changes associated with our line of credit.

Pretty evenly so.

We're talking about $1 2 million to a $1 million across the bay area and so the team is working.

But to address your specific points around the EBITDA and fixed charges. So that's a trailing number so right now we are trailing a lot of the higher interest expense before the paydown that once that burns off we will start changing direction, then yes. The CDO business will help that number as it starts improving.

Ferociously to try to get all of those through the pipeline. It is going to come down to deal velocity, how long, it's going to take to do some of these deals and going back to the first part of that question, which is tour activity right Thats. The thats the precursor to all of this and so the fact that were up.

We expect that to start improving.

Call it 6%.

Im not saying its going to be you know immediately up to back to two six but our productions assume it's going to improve over the year.

Quarter over quarter.

<unk>.

Both in number and square footage.

Bodes well for the coming quarters.

Okay, Great. That's really helpful. Thank you.

Yes.

And so Seattle of that percentage, Seattle, both Seattle and Seattle.

Okay.

The next question comes from John Kim with BMO capital markets. Please go ahead.

20, close to 25% and the rest rounds out L. A where we don't have a lot of vacancy or explorations and Vancouver.

Thank you on the studio and service ramp in the second half of the year getting you to about 30.

I may have missed this but what was 6%.

That's per quarter.

Activity was 50% higher.

Does it improve in 'twenty five as you realize some of those synergies and Sidoti and you get the full benefit of Glen Oaks or 30.

The tour the tour activity.

Yeah.

The two activities was 6% higher.

Maximum.

Oh no no.

Sorry.

Yes year over year, its 50% higher rate since <unk>.

So just to be clear, it's not I just want to make sure I'm not the miss.

Sequentially, yes.

Sequentially, Okay got it okay, great. Thank you.

Construe it at about 30 for the media business of 30 overall.

Overall based on the math, okay, but the media business, we expect it to continue to improve year over year. So.

Okay.

The next question comes from Rich Anderson with Wedbush. Please go ahead.

We definitely think there'll be improvement not only from the synergies of the business, but also just the overall business itself as it continues to get back to normalization.

Hey, good morning.

On the topic of sort of green lighting, new production and understanding it takes it's going to take some time.

The writers are on strike as well.

So 24 again because of the Q1 is a much lower year, just that alone is going to increase and 25 without everything else that were just mentioned.

To what degree did that take you off guard like it did.

Street, apparently in terms of how you or the cadence of your quarterly guidance quarterly.

Results that we're envisioning for 2024, and but a bigger question is does this suggest that there could be like this pent up option.

Okay, so getting to 30.

And third and fourth quarter would imply 28.

The second quarter.

What are the chances that that.

Disappoints, just given the slower ramp up of production.

Activity I should say in the back half of the year, you don't want to guide to that but maybe there is a real chance to have a <unk> type of catch up.

It's really hard to know.

We thought we knew from the first quarter for US to go ahead and comment on second quarter and thinking you might disappoint is.

In your studio business on the other side of all this is that something thats at least possible.

It's early.

Well, let me, let me sort of making any sort of a general comment I mean once the stages released their leased right. So youre going to have the revenue stream on the stages whenever they are fully leased in terms of the ancillary revenue in the Coty business, Yes, I mean, it's still on the market share for our transport business.

I think we would have provided the guidance numbers. We did if we thought it was going to disappoint. So I think we feel pretty comfortable with it.

<unk>.

Yeah.

That's all I can say.

Okay. My next question is on <unk>.

Leasing activity.

We still have 70% of the market share so when that industry is fully up and running we're going to benefit from it.

I think Mark mentioned two thirds of that was in the Bay area This past quarter.

But then also to where demand has accelerated I was wondering if you could break down that.

I don't know.

Rich I don't know if it took us off guard I mean listen what took US off guard was the fact is that the industry stopped and it never started even when the when the strike was over it didn't start until January because it wasn't ratified till December they didn't work in December. So there is a ramp up period, we've always said that that ramp up period should.

Sure.

<unk> among your major markets, La Seattle, San Francisco and Silicon Valley.

Sure This is art.

Activity really kind of goes hand in hand, with what we have interactive pipeline that I would say that.

65% of the $1 million million nine is.

Be fairly aggressive and we're going to benefit from it.

Spread out throughout the Bay area.

Yes.

What surprised US was really the green lighting of shows was truly the writers didn't right I mean as opposed to if you look back at Covid. There was communication, writing and when they got to the point that they were going to produce content. It started right away. This is just taking time as we mentioned in our prepared remarks the move.

Pretty evenly so.

We're talking about $1 2 million to a $1 million across the bay area and so the team is working.

Ferociously to try to get all of those through the pipeline.

Going to come down to deal velocity, how long, it's going to take to do some of these deals and going back to the first part of that question, which is.

Juruti of our tenants in the industry has still maintained a budget of production content that is going to be for this year. It will be back ended but theyre not coming off of their numbers.

<unk> activity right Thats the thats the precursor to all of this and so the fact that were up.

Call it 6%.

Quarter over quarter.

Both in number and square footage.

And we don't think it's going to be the case for 25 or going forward. So I think.

Bodes well for for the coming quarters.

And so Seattle of that percentage, Seattle, both Seattle and Seattle.

We're pleasantly looking for production to start and once that ramp up starts it should continue.

20, close to 25% and the rest rounds out L. A where we don't have a lot of vacancy or explorations and Vancouver.

Okay and then second question is on 2025, Mark you said back to one 5 million square feet for 2024 in terms of office explorations, but different pops back up a little bit in 2025.

I may have missed this but what was 6% at the active.

Activity was 50% higher.

Approaching 2 million square feet and 18% of the portfolio do you do you guys see anything there.

The tour the tour activity.

Yes.

The two activities was 6% higher.

That sort of on your radar screen.

Yes year over year, its 50% higher right.

Yes, it's sort of like a watch list further out.

Sequentially, yes.

Sure.

Things feeling a little bit more stable with a longer term view.

Sequentially, Okay got it okay, great. Thank you.

Mhm.

Well I mean, we'll tag team this with art.

The next question comes from Rich Anderson with Wedbush. Please go ahead.

As you know, we've got Uber and.

25 early 25 to 325000 Victor mentioned.

Hey, good morning.

On the topic of sort of green lighting, new production and understanding it takes it's going to take some time.

Activity at.

At $40 55 market.

Because of the writers are on strike as well.

Which helps address.

To what degree did that take you off guard like it did.

The square exploration and could even.

Street, apparently in terms of how you or the cadence of your quarterly guidance quarterly.

Get us a head start on inroads there.

After that the expirations in 2005 at least.

Results that we are.

We are envisioning for 2024, and but a bigger question is does this does this suggest that there could be like this pent up option.

Or off we've got Google for 180 at Foothill, we're keeping an eye on that.

Activity I should say in the back half of the year, you don't want to guide to that but maybe there is a real chance to have a <unk> type of catch up.

We don't want to get too far in the commentary here, but.

As we go throughout the rest of the year the exploration size at least comes.

It comes down from there and there is some activity on that already on a yes to put a finer point on what Mark said about $40 55, yes. Some of it some of the space, we have actively in negotiation and the deal behind that or the square footage behind that is both on the Uber and square space. So looking at both of them concurrently.

In your studio business on the other side of all this is that something thats at least possible.

Yes.

And then beyond that there is.

On the market share for our transport business.

Theres some mid sized deals that were in negotiations on that perhaps.

We still have 70% of the market share so when that industry is fully up and running we're going to benefit from it.

<unk>.

But.

Nothing that nothing that's alarming beyond.

No.

I don't know if it took us off guard.

The first kind of couple of deals that Mark mentioned.

What took US off guard was the fact is that the industry stopped and it never started even when the when the strike was over it didn't start until January because it wasn't ratified till December they didn't work in December. So there is a ramp up period, we've always said that that ramp up period should be fairly aggressive and we're going to benefit.

Okay.

Okay fair enough. Thanks.

Yes.

The next question comes from Tom Mccarthy with with BPI.

Please go ahead.

Thank you and good afternoon everybody.

From it I.

Sector and in the press release and your prepared remarks, you noted your commitment to Delevering can you provide your thoughts on near term levers to progress towards that and maybe what parts of the portfolio you consider untouchable when it comes to raising capital.

I guess what.

To repay debt.

Juruti of our tenants in the industry has still maintained a budget of production content that is going to be for this year. It will be back ended but theyre not coming off of their numbers.

A great question first first of all we have few deals right now that we've got some reverse inquiries. We're currently not marketing any assets to delever the portfolio, but we have.

And we don't think it's going to be the case for 25 or going forward. So I think.

At least three transactions that have come to us.

<unk>.

Which are by users.

We're pleasantly looking for production to start and once that ramp up starts it should continue.

Thank you.

We maintain that we want to we want to look at our b assets in the portfolio and eventually get rid of them.

Okay and then second question is on 2025, Mark you said back to one 5 million square feet for 2024 in terms of office explorations, but different pops back up a little bit in 2025.

At the right price and the right terms and the right conditions.

There is no fire sale going on because we did a phenomenal job and $1 billion last year.

Sort of rewriting the ship from the capital market standpoint, but we do have a couple of assets that that I think will fall into the category of disposition for the first half of this year and potentially.

Approaching 2 million square feet and 18% of the portfolio do you do you guys see anything there.

That sort of on your radar screen.

The ones that are.

Sort of like a watch list further out or.

As you look at it off the table there really is only one asset that we currently have in the portfolio that would be considered a class a asset that we've got a reverse inquiry on that we would consider the rest of them are not.

Things feeling a little bit more stable with a longer term view.

Well I mean, we'll tag team this with art I mean, as you know we've got Uber and.

Things that we can't live without I guess I would put it that way.

25 early 25 to 325000 Victor mentioned.

I appreciate the thoughts thanks Victor.

And then maybe moving over to San Francisco.

We have.

At 14 55 market.

They get hub renewal was a welcome surprise, especially given Ceos prior plans to go fully remote can you share any insights you may have into their change in real estate strategy and maybe whether there's any read through for other tech tenants in your portfolio.

Which helps address.

The square exploration and could even.

Get us a head start on inroads there.

After that the expirations in 2005 at least taper off we've got Google for 180.

I mean in a general basis. There is a lot of these tenants have come back and revisited the work from home status.

Foothill, we're keeping an eye on that.

We don't want to get too far in the commentary here, but.

As we said in the prepared remarks, we feel very comfortable we are at the tail end of this candidly.

As we go throughout the rest of the year the exploration size at least comes down from there and there is some activity on that or do you want to yes to put a finer point on what Mark said about $40 55, yes. Some of it some of the space, we have actively in negotiation and the deals behind that or the square footage behind that is both on.

Candidly, we're a little surprised it's taken this long in the West coast as is.

Slower mover as we're all feeling and.

Unfortunately living with every single day I guess you guys. All know what my thoughts are around that but that being said I think theres a theres a generic push for interaction for Onboarding and culture and Github is a great example of that they realized that they needed space, albeit they didn't need all of it.

<unk> and the square space, So looking at both of them concurrently.

And then beyond that.

There is.

Theres some mid sized deals that were in negotiations on that but perhaps right sizing.

They needed space.

Hopefully that follows suit with some of the other ones. We're talking to right now that we thought were we're also going to take a different direction and announced come back and ask for renewals. So that's the general tenor it seems as if the majority of the tech tenants.

But.

Nothing that nothing that's alarming beyond.

The first kind of couple of deals that Mark mentioned.

Okay, Okay fair enough. Thanks.

Made their decision as to what direction, they're going in and other executing on it that's right Tom.

The next question comes from Tom Mccarthy with with BPI. Please.

When all around for.

Please go ahead.

Yeah.

For the reasons Victor Victor mentioned, and we are seeing that with the other tenants. There. This idea about right sizing and try it really discovery period to figure out.

Thank you and good afternoon everybody.

They figure out now people are coming back we figured out we need space now they are just trying to figure out how much space and this is a great example of that.

Yeah.

And just quick follow up on that is this and again I know each lease is different each tenant is different but is this a trend youre seeing more of in the specific markets or is the kind of rethinking and setting of the real estate strategy pretty consistent across every across your portfolio.

All to repay debt.

A great question first first of all we have few deals right now that we've got some reverse inquiries.

Currently not marketing any assets to delever the portfolio, but we have.

Yes, I think the decision, making it's consistent across the board right starts with cost savings.

At least three transactions that have come to us.

Two of which.

Getting your employees back which by the way has been.

By users.

I think.

No small task.

We maintain that we want to we want to look at our b assets in the portfolio and eventually get rid of them.

We're past, we're getting through that hurdle, but we're seeing it everywhere.

At the right price and the right terms and the right conditions there.

Got it I appreciate the insights thanks, everyone.

There is no fire sale going on.

We did a phenomenal job and $1 billion last year.

The next question comes from Ronald Camden with Morgan Stanley.

Sort of rewriting the ship from the capital market standpoint, but we do have a couple of assets that.

Please go ahead.

Hey, just my first one is just starting with the I.

That I think will fall into the category of disposition for the first half of this year and potentially.

I guess, both the studio and the same store NOI.

The ones that are.

NOI guidance. So number one can you just contextualize sort of what did the studio due in 'twenty three and how much is baked into the guidance and in 2024 versus ultimately the ultimate amount, which I think was 120.

As you look at it like off the table. There really is only one asset that we currently have in the portfolio that would be considered a class a asset that we've got a reverse inquiry on that we would consider the rest of them are not.

Things that we can't live without I guess I would put it that way.

Plus.

Just what's that what's the context on that and then so tying it to the same store NOI.

I appreciate the thoughts thanks Victor.

Trying to get a better understanding of this down 12.

And then maybe moving over to San Francisco.

What are the pieces right how much of that is you know again I know you're not breakout studio versus office, but maybe what are the big lease expiration is doing to it.

Hub renewal was a welcome surprise, especially given Ceos prior plans to go fully remote can you share any insights you may have into their change in real estate strategy and maybe whether there's any read through for other tech tenants in your portfolio.

What other pieces can we think about this down 12, which is a pretty large number.

Sure.

I just want to make sure I understand the 120.

I mean in a general basis. There is a lot of these tenants have come back and revisited the work from home status.

I'm guessing that's the media number that that.

That kind of we disclosed that the consolidated number that also includes the key Ot activity.

As we said in the prepared remarks, we feel very comfortable we are at the tail end of this.

Not just the same store so.

Candidly, we're a little surprised it's taken this long.

That <unk> activity.

West Coast is is a.

<unk> is not in the same store number so the 14th sorry.

Slower mover as we're all feeling and.

Unfortunately living with every single day I guess you guys. All know what my thoughts are around that but that being said I think there is there is a generic push for interaction for onboarding and culture.

The number that we disclosed for the same store is without killing so if you factor that in I think I had mentioned earlier, we'd be roughly at a 5% year over year increase which is.

Part of the whole.

The whole activity for the company in terms of.

And Github is a great example of that they realized that they needed space, albeit they didn't need all of it but they needed space.

The drivers year over year on the office side I mean, the big one obviously is square.

Bringing that number down.

Down and then we work giving back some space.

A couple of our buildings and then we also as I mentioned in my prepared remarks, we received.

Some scare deposit.

And impact in 2023, that's not reoccurring in 'twenty four or so.

That's right Tom.

Impacting the numbers year over year.

Win all around.

For the reasons Victor Victor mentioned, and we are seeing that with the other tenants. There. This idea about right sizing and it really discovery period to figure out they figure out now people are coming back we figured out we need space now they are just trying to figure out how much space and this is a great example of that.

Got it Okay and then so I guess my last one would just be on the I think you touched on this earlier, but just on the disposition activity.

Any how are you guys thinking about that any other assets in the market.

What sort of is the right right way for us to think about that thanks.

Well as usual I mean listen we're not going to tell you. What we are disposing up so we're.

We're not we're not going to do it until we make the announcement of those assets, but I think I just covered that in the last question. The ones. We're looking at right now are all reverse inquiries and theres at least three of them and there may be more.

Thanks, so much.

Yes, I think the decision, making it's consistent across the board right starts with cost savings.

You got it.

The next question comes from Vikram Malhotra with Mizuho.

Getting your employees back which by the way has been.

Please go ahead.

No small task.

Morning, Thanks for taking the question.

We're past, we're getting through that hurdle, but we're seeing it everywhere.

I just wanted to go back to the studio side and.

Okay.

Again, we're all trying to just ramp up and understand the kind of the variable and non variable would be submitted piece of it but is the tour activity that you mentioned being up 40%, 45% is that a good leading indicator like what are the <unk>.

Got it I appreciate the insights thanks, everyone.

The next question comes from Ronald Camden with Morgan Stanley. Please.

Please go ahead.

Hey, just my first one is just starting with the I.

Indicators, you are monitoring to kind of.

I guess, both the studio and the same store NOI.

Realize that hey, the rapids are likely and especially the new production in the Williston stuff and just stopped.

NOI guidance. So number one can you just contextualize sort of what did the studio due in 'twenty three and how much is baked into the guidance and 2024 versus ultimately the ultimate amount, which I think was 120.

So vikram I'll start with that the activity is holds right I mean holds on space as the first.

Plus.

And as a result, they're reaching out for vacant spaces.

Just what's that what's the context on that and then so tying it to the same store NOI.

On the <unk> side once they get picked up then the equipment starts going out the door from that point on and as I mentioned earlier.

Trying to get a better understanding of this down 12.

What are the pieces right how much of that is you know again I know you're not breakout studio versus office, but maybe what are the big lease expiration is doing to it.

What that was in production is now back in production. So it's all sort of happening at the same at the same time in the market, Yes, just add a little bit more color. We are that's exactly what we're watching.

What other pieces can we think about this down 12, which is a pretty large number.

Sure.

As Victor has now I think responded to three or four times at this point.

I just want to make sure I understand the 120.

Everything that was it.

I'm guessing that's the media number that that.

Hello, operator, we're here.

That kind of we disclosed that the consolidated number that also includes the key Ot activity.

Yes. This is Nick I'm, sorry, I don't know, where you got cut off but I don't think anyone good year, yes, sorry, Vikram. We were just we were just adding a little bit of color in response to your question we are launching.

Not just the same store so.

That <unk> activity.

<unk> is not in the same store number so the 14 sorry.

Where <unk> TV.

Television and film show accounts are and.

The number that we disclosed for the same store is without killing so if you factor that in I think I had mentioned earlier, we'd be roughly at a 5% year over year increase which is.

I don't know if you heard this but the good news is we are back above.

Where we were at this time last year.

But we are still behind our below 21 and 'twenty two levels.

Part of the whole.

The whole activity for the company in terms of.

Under 21 by say, 18%.

The drivers year over year on the office side I mean, the big one obviously is square.

By 25% under 20 to buy.

Bringing that number down.

18% 21 was an exceptionally high year because of making up for the pandemic in any event as we project out by show count.

Down and then we work giving back some space.

A couple of our buildings and we also as I mentioned in my prepared remarks, we received.

No.

Some are scared deposit.

For La which is where the lion's share of our core businesses and our our stages are.

And impact in 2023, that's not reoccurring in 'twenty four or so.

We do anticipate show count to be at a normalized level at or close to 'twenty, one or 'twenty two level, sometimes to towards the end of second quarter early third quarter and Thats the sort of the one of the key barometers that we're keeping our eye on as we think about the recovery in the studio business.

Impacting the numbers year over year.

Got it Okay and then so I guess my last one would just be on the I think you touched on this earlier, but just on the disposition activity.

Any how are you guys thinking about that any other assets in the market.

What sort of is the right right way for us to think about that thanks.

Got it okay. That's helpful.

For context.

Well as usual I mean listen we're not going to tell you. What we are disposing up so we're.

Just on the office side, you mentioned the Occupancies under pressure. The first I think three quarters and then you expect to ramp back up I'm just wondering.

I think you said, 40% John the exploration, but.

In the pipeline or perhaps either like leave the NOI or just stuff that signed but not commenced like what gives you the insight into sort of the downturn and then up in the fourth quarter that seems very specific.

Thanks, so much.

You got it.

The next question comes from Vikram Malhotra with Mizuho.

Well it is very specific because that's the way we.

Please go ahead.

Morning, Thanks for taking the question.

<unk> model our activity is.

I just wanted to go back to the studio side and.

As granular Vikram as you can imagine I mean this is.

Inputs from every.

The person on our leasing team assigned to their respective assets and it goes suite by suite on renewal.

Indicators, you are monitoring to kind of.

<unk> renewal or not renewal on activity on available space and so.

Realize that hey, the rapids are likely and especially the new production in the Williston stuff and just stopped.

When we look at our output on say at the end of any particular quarter. It is a.

So vikram I'll start with the activity as whole right I mean holds on space as the first.

Very it's the it's not some high level input and output, it's a very specific.

Specific resolved based on very specific inputs and outputs and I don't know how else to.

And as a result, they are reaching out for vacant spaces.

On the <unk> side once they get picked up then the equipment starts going out the door from that point on and as I mentioned earlier anything what that was in production is now back in production. So it's all sort of happening at the same at the same time and Mark just to add a little bit more color. We are that's exactly what we're watching.

Explain it other than to say.

The result of all of those inputs is that we see a bit of softening in the first half on occupancy with a steady recovery in the third and into the fourth quarter.

<unk>.

Okay, I don't know what else.

Yes.

As Victor has now I think responded to three or four times at this point.

I can follow up I was just wondering whether it's the need or the occupancy because if it is occupancy must have been your polar defining a bunch of deals which would hit to occupancy in second half. Yes. It is I was being very specific about occupancy just because that's what's informing guidance.

Everything that was it.

Got it okay.

And then just last one could you clarify this confused on what changed in the stock comp plan that was not there last year and is there. This year I'm wondering like have the metrics on which you have large stock has that changed or something else. I was just confused like you said something was not there last year, but it is this year.

Yes, so last year, we didn't have our part of the stock comp line that is driven by.

Let's share metrics, if you will like to share stock price metrics that did not exist last year can I just say because it is again, we for the senior management team forfeited.

Hello.

<unk> of our long term incentive program, we voluntarily did that and so that's one of the year over year differences.

Yeah.

Okay. That's helpful that cares about thanks, so much.

Our final question, Bob Operator, we're going to take one more question because.

Hello.

Yes, sorry, sorry, this will be our last question because im sorry, we went over but we had a technical problem go ahead Dylan.

Apologies everyone. It appears that the speakers have disconnected please.

Please be patient and please we know we're here we're here.

Our final question today comes from Kenneth <unk> with Green Street.

Hello, operator, we're here.

Kevin. Please go ahead, yes. Thanks.

Yeah. This is Vic I'm, sorry, I don't know, where you got cut off but I don't think anyone Goodyear you Oh, yes, sorry vikram.

Thanks for taking the question guys. Just one quick one sort of given everything that's going on across your markets in terms of just vacancies and sublease availability continuing to move higher here I guess do you guys expect to be able to maintain face rents in this environment or can we finally started to see pressure on this front.

We're just we were just adding a little bit of color in response to your question we are launching.

You know, where TV and film show counts are and.

I don't know if you heard this but the good news is we are back above.

Yes, I think Thats, a really good point right now.

We did have a slight mark to mark to market last year and the year before on an upward mobility I think we're looking at it being flat right now to slightly down the interesting thing is still and we're not seeing the concessions AD in the same way.

Where we were at this time last year.

But we are still behind our below 21 and 'twenty two levels.

Under 21 by say, 18%.

Our free rent change.

Or by 25% under 20 Dubai.

And <unk> incretion, any capex or <unk> that being said.

18% 21 was an exceptionally high year because of making up for the pandemic in any event as we project out by show count.

I think we are comfortable at our rent matrixes that were going out with and we're not getting pushed around a ton on that.

<unk>.

For L, a which is where the lion's share of our core businesses and our our stages are we.

With at least with the deals that are in negotiations right now we're going to continue to monitor that but its not something thats surprising us to say Oh, we're coming off some big numbers or were coming off current rent numbers.

We do anticipate show count to be at a normalized level at or close to 'twenty, one or 'twenty two level, sometimes too towards the end of second quarter early third quarter and that's the sort of the one of the key barometers that we're keeping our eye on as we think about the recovery in the studio business.

It's always going to be.

Based upon the available.

And the quality of the space and we still maintain that our quality is high enough to sort of absorb the kind of rental rate structure that we're currently at.

Yes.

Got it okay. That's helpful context.

Perfect. Thanks for that color guys.

Just on the office side, you mentioned the occupancy the under pressure. The first I think three quarters. When you expect to ramp back up I'm just wondering.

Thank you Dylan.

Sorry, we went over and I apologize for those who we couldn't get to the <unk>.

Questions too, but I know lots of you reaching out to the team. Thanks, So much operator have a good day.

You I think you said, 40% John the exploration, but.

In the pipeline or are perhaps either likely the NOI or just stuff that signed but not commenced like what gives you the insight into sort of the downturn and then up in the fourth quarter that seems very specific.

Well it is very specific because that's the way we.

Our model our activity is.

It says granular vikram as you can imagine I mean is this is.

Inputs from every.

Person on our leasing team assigned to their respective assets and it goes suite by suite on renewal.

<unk> renewal or not renewal on activity on available space and so.

When we look at our output on say at the end of any particular quarter. It is a very it's the it's not some high level input and output, it's a very specific.

Specific resolved based on very specific inputs and outputs and I don't know how else to.

Explain it other than to say.

The the result of all of those inputs is that we see a bit of softening in the first half on occupancy with a steady recovery in the third and into the fourth quarter.

Okay, I don't know what else.

Got it.

I can follow up I was just wondering whether it's the lease rate or the occupancy because if it is occupancy must have been your youre closer to signing a bunch of deals which would hit occupancy in second half <unk>. Yes. It is I was very specific about occupancy just because that's what's informing guidance.

Got it okay.

And then just last one who could you clarify of this confused on what changed in the stock comp plan that was not there last year and is there. This year I'm wondering like have the metrics on on which you have large stock has that changed or or something else. I was just confused like you said something was not there last year, but it is this year.

Yes, so last year, we didn't have our part of the stock comp line that is driven by.

Like share metrics, if you will like to share stock price metrics that did not exist last year can I just say because this is again, we forfeit that senior management team forfeited a portion of our long term incentive program, we voluntarily did that and so that's one of the year over year differences.

Okay that that type of that cares about thanks, so much.

Our final question, Bob Operator, we're going to take one more question because.

Yes, sorry, sorry, this will be our last question because I'm sorry, we went over but we had a technical problem go ahead Dylan.

Our final question today comes from Gillam Brzezinski with Green Street.

Kevin. Please go ahead, yes. Thanks.

Thanks for taking the question guys. Just one quick one sort of given everything that's going on across your markets in terms of just vacancies in February its availability continuing to move higher here I guess do you guys expect to be able to maintain base rents in this environment or can we finally started to see pressure on this Ron.

Yeah, I think Thats, a really good point right now.

We did have a slight mark to mark to market last year and the year before on an upward mobility I think we're looking at it being flat right now to slightly down the interesting thing is John we're not seeing the concessions AD in the same way.

Our free rent change.

And <unk> Incretion any capex for Gis that being said.

I think we are comfortable at our rent matrixes that where we're going out with and we're not getting pushed around a ton on that.

With at least with it with it with the deals that are in negotiations right now we're going to continue to monitor that but it's not something that's surprising us to say Oh, we're coming off some big numbers or were coming off current rent numbers.

It's always going to be.

Based upon the availability and the quality of the space and we still maintain that our quality is high enough to sort of absorb the kind of rental rate structure that we're currently at.

Yes.

Perfect. Thanks for that color.

Is it going guys.

Thank you Dylan.

Sorry that we went over and I apologize for those who we couldn't get to the.

Questions too, but I know lots of you reaching out to the team. Thanks, so much operator and have a good day goodbye.

Thank you everyone for participating.

Questions too, but I know lot of you will be reaching out.

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