Q2 2024 Hudson Pacific Properties Inc Earnings Call

August 7, 2024

Hello everyone. Thank you for attending today's Hudson Pacific Properties second quarter 2024 earnings call.

2020-24, Ironfall.

Sierra: My name is Sierra, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone key path.

Sierra: My name is Sierra, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, press star 1 on your telephone keypad. I would now like to turn the conference over to our host, Laura Campbell, Executive Vice President of Investor Relations and Marketing. Please proceed.

Sierra: My name is Sierra, and I'll be your moderator for today.

All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, press star 1 on your telephone keypad.

Laura Campbell: I would like to turn the conference over to our host, Laura Campbell, Executive Vice President of Investor Relations and Marketing. Please proceed.

Laura Campbell: Good afternoon, everyone. Thanks for joining us.

I would now like to turn the conference over to our host, Laura Campbell, Executive Vice President of Investor Relations and Marketing. Please proceed.

Victor Coleman: After you and everyone, thanks for joining us.

Laura Campbell: With me on the call today are Victor Coleman, CEO and Chairman, Mark Lammas, President, Harout Diramerian, CFO, and Art Suazo, EVP of Leasing. This afternoon we filed our earnings release and supplemental on an 8K with the SEC, and both are now available on our website. An audio webcast of this call will be available for replay on our website. Some of the information we'll share on the call today is forward-looking in nature.

Victor Coleman: With me on the call today, are Victor Coleman, CEO and Chairman; Mark Lammas, President; Rout Diramerian, CFO; and Art Suazo, TVP, as we sing. This afternoon, we filed our earnings release and supplemental on an AK with the SEC, and both are now available on our website. An audio webcast of this call will be available for replay on our website. Some of the information we'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.

Laura Campbell: Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lammas, President, Harout Diramerian, CFO , and Art Suazo, EVP of Leasing.

Speaker Change: This afternoon, we filed our earnings release and supplemental on an AK with the SEC, and both are now available on our website. An audio webcast of this call will be available for replay on our website.

Laura Campbell: Please refer to our earnings release and supplementary materials for statements regarding forward-looking information, as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss industry and market trends, as well as other highlights from the quarter. Mark will provide an update on our office and studio operations and development, and Harout will review our financial results and 2024 outlook. Thereafter, we'll be happy to take your questions. Victor? Thank you.

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.

Victor Coleman: Today, Victor will discuss industry and market trends, as well as other highlights from the quarter.

Mr: today mr will discussed industry and market trends as well as other highlights from the quarter mark will provide an update on our office and studio operations and development and her t will review our financial results in two thousand and twenty four outlook thereafter we will be happy to take your questions victor

Victor Coleman: Mark will provide an update on our office and studio operations and development, and her route will review our financial results in 2024 outlook. Thereafter, we'll be happy to take your questions.

Victor Coleman: Victor? Thank you, Laura.

Victor Coleman: Thank you, Laura. Good afternoon, everyone, and welcome to our second quarter call. The results we reported this quarter were in line with our FFO outlook, with our office portfolio performing better than our expectations. This quarter, our team's strong execution resulted in leasing over half a million square feet. This was our highest leasing activity since the second quarter of 2022, and our year-to-date leasing was up 40 percent compared to last year. Two-thirds of those leases were new, the most since first quarter 2019.

Victor Coleman: Good afternoon, everyone, and welcome to our second quarter call. The results we reported this quarter were in line with our effortful outlook, with our office portfolio performing better than our expectations. This quarter, our team's strong institution resulted in leasing over half a million square feet. This is our highest leasing activity since the second quarter of 2022, and our year-to-date leasing was up 40 percent compared to last year. Two-thirds of those leases were new, the most since first quarter 2019. Even after another strong quarter of leasing, our pipeline of the deals in leases, LOIs, or proposals is healthy at two million square feet, with an average requirement of above 15,000 square feet, up from about 9,000 square feet two years ago.

Victor: Thank you, Laura. Good afternoon, everyone, and welcome to our second quarter call.

Speaker Change: The results we reported this quarter were in line with our FFO outlook, with our office portfolio performing better than our expectations.

Speaker Change: This quarter, our team's strong execution resulted in leasing over half a million square feet. This is our highest leasing activity since the second quarter of 2022, and our year-to-date leasing was up 40% compared to last year.

Laura Campbell: Two-thirds of those leases were new, the most since first quarter 2019. Even after another strong quarter of leasing,

Victor Coleman: Even after another strong quarter of leasing, our pipeline of deals in leases, LOIs, or proposals is healthy at 2 million square feet, with an average requirement of above 15,000 square feet, up from about 9,000 square feet two years ago. All of this is a testament to our team's ability to attract and capture demand and successfully move leases through the pipeline to execution. And while still challenging, there's a gradual strengthening across our West Coast office markets. Almost uniformly, relative to the trailing four-quarter average, available sublease space is declining, development pipelines are diminished, tenant requirements are growing, crime is falling, and transit ridership is improving. Nowhere is this more evident than in San Francisco.

Laura Campbell: Our pipeline of deals in leases, LOIs, or proposals is healthy at 2 million square feet with an average requirement of above 15,000 square feet up from about 9,000 square feet two years ago.

Victor Coleman: All of this is a testament to our team's ability to attract and capture demand and successfully move leases through the pipeline execution. And while still challenging, there's a gradual strengthening across our West Coast office markets, almost uniformly relative to the trailing full quarter average; available subway spaces declining, development pipelines are diminished, tenant requirements are growing, crime is falling, and transit ridership is improving.

All of this is a testament to our team's ability to attract and capture demand and successfully move leases through the pipeline to execution.

Laura Campbell: And while still challenging, there's a gradual strengthening across our West Coast office markets.

Speaker Change: Almost uniformly, relative to the trailing four-quarter average, available subway space is declining, development pipelines are diminished, tenant requirements are growing, crime is falling, and transit ridership is improving.

2020-2024 article.

Victor Coleman: Nowhere is this more evident than in San Francisco. The city had its second best leasing quarter in two years at two million square feet, with several submarkets experiencing positive or near-positive net absorption. There were 13 deals signed over 40,000 square feet, the highest number since the third quarter of 2021, and kudos to our team for signing two of the 10 largest deals. Tenant requirements continue to increase, reaching 6.8 million square feet this quarter, up 50% year over year, to levels not seen since late 2019. Continued strong investment in AI is re-igniting the San Francisco office market and spilling over into our other markets, especially Silicon Valley, and to some extent Seattle, with over 600,000 square feet of AI leases signed in San Francisco year-to-date, and 740,000 square feet of AI tenants already in the market. 2024 is on pace to be another significant AI leasing.

Victor Coleman: The city had its second best leasing quarter in two years at 2 million square feet, with several submarkets experiencing positive or near positive net absorption. There were 13 deals signed over 40,000 square feet, the highest number since the third quarter of 2021. And kudos to our team for signing two of the 10 largest deals.

Sierra: My name is Sierra and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, but with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone key path.

Laura Campbell: Nowhere is this more evident than in San Francisco. The city had its second-best leasing quarter in two years at 2 million square feet, with several submarkets experiencing positive or near-positive net absorption.

Laura Campbell: I'd like to turn the conference over to our host, Laura Campbell, Executive Vice President of Investor Relations and Marketing. Please proceed. So that's for you, everyone. Thanks for joining us.

Speaker Change: There were 13 deals signed over 40,000 square feet, the highest number since the third quarter of 2021. And kudos to our team for signing two of the 10 largest deals.

Victor Coleman: With me on the call today, our Victor Coleman CEO and Chairman, Mark Lammas, President, through Diramerian, CFO, and Art Suazo TV as we sing. This afternoon, we found our earnings release and supplemental on an AK with the SEC, and both are now available on our website. An audio webcast of this call will be available for replay on our website. Some of the information we'll share on the call today is forward looking in nature.

Victor Coleman: Tenant requirements continue to increase, reaching 6.8 million square feet this quarter, up 50% year-over-year, to levels not seen since late 2019. Second quarter USDC investment of $56 billion was the highest quarter in two years, driven by the AI megadeal, energized by this positive leasing momentum. All of these factors influence demand for our stages and services, both in Los Angeles and outside of Los Angeles. While the strike exacerbated this trend from 2021 to 2022, growth in the Los Angeles region's total scripted production capture was up less than 1% compared to 4% in total scripted industry output. In 2022, Los Angeles lost nearly $1 billion of production spend due to projects leaving the state for tax credit. Finally, turning to our balance sheet. Thanks, Victor.

Laura Campbell: Tenant requirements continue to increase, reaching 6.8 million square feet this quarter, up 50% year-over-year, to levels not seen since late 2019.

Speaker Change: Continued strong investment in AI is reigniting the San Francisco office market and spilling over into our other markets especially Silicon Valley and to some extent Seattle.

Victor Coleman: Please reference our earnings release and supplemental for statements regarding forward looking information, as well as the reconciliation of non-gap financial measures used on this call. Today, Mr. Wood discussed industry and market trends, as well as other highlights from the quarter.

Laura Campbell: With over 600,000 square feet of AI leases signed in San Francisco year-to-date and 740,000 square feet of AI tenants already in the market, 2024 is on pace to be another significant AI leasing year.

Victor Coleman: here. Second quarter USVC investment, a 56 billion, was the highest quarter in two years driven by AI mega deals. Reportedly, investors are gaining confidence in the US market's relative performance and getting more pressure from LPs to allocate nearly $300 billion of dry powder. The Bay Area, where we have obviously a significant presence, continues to receive the largest allocation of VC funds, along with about 75% of all AI funding in the first half of the year. We're energized by this positive leasing momentum and by significant funding for businesses that are choosing to locate in our core markets.

Laura Campbell: Second quarter USDC investment of $56 billion was the highest quarter in two years, driven by AI mega-deals.

Victor Coleman: Good afternoon, everyone. And welcome to our second quarter call. The results we reported this quarter were in line with our FFO outlook, with our office portfolio before me better than our expectations. This quarter, our team's strongest student resulted in leasing over half a million square feet. This is our highest leasing activity since the second quarter of 2022, and our year-to-day leasing was up 40% compared to last year. Two-thirds of those leases were new.

Speaker Change: Reportedly, investors are gaining confidence in the U.S. market's relative performance and getting more pressure from LPs to allocate nearly $300 billion of dry powder.

Speaker Change: The Bay Area, where we have obviously a significant presence, continues to receive the largest allocation of VC funds, along with about 75% of all AI funding in the first half of the year.

Victor Coleman: The most since first quarter 2019. Even after another strong quarter of leasing, our pipeline of the deals in leases, L-O-I's, or proposals, is healthy at 2 million square feet, with an average requirement of above a 15,000 square feet up from about 9,000 square feet two years ago. All of this is a testament to our team's ability to attract and capture demand, and successfully move leases through the pipeline execution. And while still challenging, there's a gradual strengthening across our West Coast office markets.

Speaker Change: We're energized by this positive leasing momentum and by significant funding for businesses that are choosing to locate in our core markets. While we cannot control the timing on leases closing, we expect our office fundamentals will gradually strengthen further as we move ahead.

Victor Coleman: While we cannot control the timing on leases closing, we expect our office fundamentals will gradually strengthen further as we move ahead.

Victor Coleman: As for our studios, last week the Teamsters ratified their contract with the Alliance of Motion Picture and Television Producers, finally clearing the way for production activity to begin to normalize. This favorable resolution follows an unprecedented 18 months of strikes and difficult negotiations, which delay green lighting and overshadow typical seasonality. Presently, we estimate that there are only about 80 productions till we in Los Angeles, compared to approximately 100 during much of the second quarter, as the potential for additional strikes weighed on demand in July. While we expect some level of increased production through the bounds of the year, to what levels remains unclear.

Speaker Change: As for our studios, last week the Teamsters ratified their contract with the Alliance of Motion Picture and Television Producers.

Speaker Change: Finally clearing the way for production activity to begin to normalize.

Speaker Change: This favorable resolution follows an unprecedented 18 months of strikes and difficult negotiations, which delayed green lighting and overshadowed typical seasonality.

Victor Coleman: Almost uniformly relative to the trailing four-quarter average, available suddenly spaces to climbing. Development pipelines are diminished. Tenant requirements are growing, primus falling, and transit ridership is improving. Nowhere is this more evident than in San Francisco. The city had its second best leasing quarter in two years at 2 million square feet, with several submarkets experiencing positive or near-positive net absorption. There were 13 deal signed over 40,000 square feet, the highest number since the third quarter of 2021, and kudos to our team for signing two of the 10 largest deals.

Speaker Change: Presently, we estimate that there are only about 80 productions still in Los Angeles compared to approximately 100.

Speaker Change: During much of the second quarter as the potential for additional strikes weighed on demand in July .

Speaker Change: While we expect some level of increased production through the balance of the year, to what levels remain unclear. Beyond the strikes, consolidation, cost-cutting, and shifting content mix are altering not just show counts, but also production type, number of episodes, and budgets.

Victor Coleman: Beyond the strikes, consolidation, cost cutting, and shifting content mix are altering not just show counts, but also production type, number of episodes, and budgets. All of these factors influence demand for our stages and services, both in Los Angeles and outside of Los Angeles. While we believe Los Angeles will remain the epicenter of entertainment, in recent years the city has lost some of the substantial lead in global production. Other locations have enhanced their infrastructure and implemented favorable state film, tax credits, and sector-specific incentives. While the strike exacerbated this trend, from 2021 to 2022, growth in the Los Angeles region's total scripted production capture was up less than 1%, compared to 4% in total scripted industry output.

Speaker Change: All of these factors influence demand for our stages and services, both in Los Angeles and outside of Los Angeles.

Victor Coleman: Tenant requirements continue to increase reaching 6.8 million square feet this quarter up 50% year over year to levels not seeing since late 2019. Continued strong investment in AI is re-denying the San Francisco office market, and spilling over into our other markets, especially Silicon Valley, and to some extent Seattle. With over 600,000 square feet of AI leases signed in San Francisco year to date, and 740,000 square feet of AI tenets already in the market.

Speaker Change: while we believe los angeles will remain the epicenter of entertainment in recent years the city has lost some of the substantial lead in global production

Speaker Change: Other locations have enhanced their infrastructure and implemented favorable state film tax credits and sector-specific incentives.

Speaker Change: While the strike exacerbated this trend, from 2021 to 2022, growth in the Los Angeles region's total scripted production capture was up less than 1%, compared to 4% in total scripted industry output.

Victor Coleman: 2,024 is on pace to be another significant AI leasing year, here. Second quarter USVC investment, a 56 billion, was the highest quarter in two years driven by AI mega deals. Reportedly, investors are gaining confidence in the US market's relative performance and getting more pressure from LPs to allocate nearly 300 billion dollars of dry powder. The Bay Area, where we have obviously a significant presence, continues to receive the largest allocation of VC funds, along with about 75% of all AI funding in the first half of the year.

Victor Coleman: In 2022, Los Angeles lost nearly $1 billion of production spend due to projects leaving the state for tax credits. While we are working closely with Los Angeles's Mayor Bass, Governor Newsom, and other elected officials and industry experts on this front, Mayor Bass is committed to ensuring the industry continues to thrive in the city of Los Angeles and has established a commission to strategize on incentives and related topics.

Speaker Change: in two thousand and twenty-two los angeles lost nearly one billion dollars of reduction spend due to projects leaving the state for tax credits

Speaker Change: While we are working closely with Los Angeles' Mayor Bass, Governor Newsom, and other elected officials,

Speaker Change: and industry experts on this front, Mayor Bass is committed to ensuring the industry continues to thrive in the City of Los Angeles and has established a commission to strategize on incentives and related topics.

Victor Coleman: All of these dynamics are very fluid, and as a result, we currently lack the visibility to assess with reasonable certainty how and when our studio operations will normalize. But they will normalize, and we believe that by the fourth quarter, production should start to get better, even as new content investment remains cautious and more globally distributed. Importantly, we did not require production to return anywhere near our 2021 peak levels for our studio businesses to create meaningful value. At a point of reference during the fourth quarter of 2022, when we began to experience the early impacts of pending WGA and SAG-AFTRA strikes, we estimate there were approximately 120 productions filling the Los Angeles.

Speaker Change: All of these dynamics are very fluid, and as a result, we currently lack the visibility to assess with reasonable certainty how and when our studio operations will normalize.

Victor Coleman: We're energized by this positive leasing momentum and by significant funding for businesses that are choosing to locate in our core markets. While we cannot control the timing on leases closing, we expect our office fundamentals will gradually strengthen further as we move their contract with the alliance of motion picture and television producers, finally clearing the way for production activity to begin to normalize. This payroll resolution follows an unprecedented 18 months of strikes and difficult negotiations, which delay green lighting and overshadowed typical seasonality.

Speaker Change: But they will normalize, and we believe that by the fourth quarter, production should start to get better, even as new content investment remains cautious and more globally distributed.

Speaker Change: Importantly, we do not require production to return anywhere near our 2021 peak levels.

Speaker Change: for our studio businesses to create meaningful value.

Speaker Change: At a point of reference, during the fourth quarter of 2022, when we began to experience the early impacts of pending WGA and SAG-AFTRA strikes, we estimate there were approximately 120 productions filming in Los Angeles.

Victor Coleman: Presently, we estimate that there are only about 80 productions in Los Angeles, compared to approximately 100 during much of the second quarter, as the potential for additional strikes weighed on demand in July. While we expect some level of increased production through the balance of the year, to what levels remain unclear. Beyond the strikes, consolidation, cost-cutting, and shifting content mix are altering not just show counts, but also production type, number of episodes, and budgets.

Victor Coleman: During that same period, our in-service studios generated an annualized NOI of $37 million, and our COD businesses generated an annualized NOI of $41 million. dollars.

Speaker Change: during that same period our in-service studios generated an annualized noy of thirty seven million dollars and our cod businesses generated an annualized nnoy of forty-one million dollars

Victor Coleman: Finally turning to our balance sheet. Further deleveraging remains our top priority. We have no debt maturities until the end of 2025, and while we have already seen improvements in some of our leverage metrics, which Harout will comment on shortly, we anticipate that increasing studio cash flow will further strengthen these organically. As part of our proactive multi-pronged approach to managing our leverage, we will continue to pursue opportunistic dispositions and have strong minor interests in several assets. We expect to be able to execute successfully on these types of transactions, just as we did last year.

Speaker Change: finally turning to our balance sheet

Speaker Change: further de leveraging remains our top priority

Speaker Change: We have no debt maturities until the end of 2025, and while we have already seen improvements in some of our leverage metrics, which Harout will comment on shortly, we anticipate that increasing studio cash flow will further strengthen these organically.

Victor Coleman: All of these factors influence demand for our stages and services, both in Los Angeles and outside of Los Angeles. While we believe Los Angeles will remain the epicenter of entertainment, in recent years the city has lost some of the substantial lead in global production. Other locations have enhanced their infrastructure and implemented favorable state film tax credits and sector-specific incentives. While the strike exacerbated this trend from 2021 to 2022, growth in the Los Angeles region's total scripted production capture was up less than 1%, compared to 4% in total scripted industry output.

Harout Diramerian: As part of our proactive multi-pronged approach to managing our leverage, we will continue to pursue opportunistic dispositions and have strong buyer interest on several assets.

Harout Diramerian: we expect to be able to execute successfully on these typees of transactcions just as we did last year with that ion mataterur over to mark

Mark Lammas: With that, I'm going to turn it over to Mark. Thanks, Victor. This quarter we signed 540,000 square feet of new and renewal leases. On our first earnings call this year, we indicated our occupancy at least percentages would likely get in the first half, with the potential to improve thereafter. The 30 and 50 basis point declines in occupancy and lease percentages this quarter are consistent with those early indications. Our gap runs grew 2.6% while our cash runs were off 13.3%. Excluding our 150,000 square foot 21-year lease with the city of San Francisco at 1455 Market, our gap and cash would have increased up 8% and 0.9% respectively.

Mark Lammas: This quarter, we signed 540,000 square feet of new and renewal leases. On our first earnings call this year, we indicated our occupancy and lease percentages would likely dip in the first half, with the potential to improve thereafter. The 30 and 50 basis point declines in occupancy and lease percentages this quarter are consistent with those early indications. Our gap runs grew 2.6% while our cash runs were off 13.3%.

Mark: Thanks, Victor. This quarter we signed 540,000 square feet of new and renewal leases.

Speaker Change: On our first earnings call this year, we indicated our occupancy and lease percentages would likely dip in the first half, with the potential to improve thereafter. The 30 and 50 basis point declines in occupancy and lease percentages this quarter are consistent with those early indications.

Victor Coleman: In 2022, Los Angeles lost nearly 1 billion dollars of production spend due to projects leaving the state for tax credits. While we are working closely with Los Angeles' Mayor Bass, Governor Newsom, and other elected officials and industry experts on this front, Mayor Bass is committed to ensuring the industry continues to thrive in the city of Los Angeles and has established a commission to strategize on incentives and related topics. All of these dynamics are very fluid, and as a result, we currently lack the visibility to assess with reasonable certainty how and when our studio operations will normalize, but they will normalize, and we believe that by the fourth quarter, production should start to get better even as new content investment remains cautious and more globally distributed.

Speaker Change: our gaap rine grew two point six percent while our cash ferens were off thirteen point three percent

Mark Lammas: Excluding our $150,000 square foot 21-year lease with the City of San Francisco at $14.55 per square foot, our gap in cash rents would have increased 8% and 0.9%, respectively. Note that more than half of the square footage leased by the city with former block space was signed at the peak of market $80 plus rents, whereas the rent delta on the yet to be leased block space, most of which was signed in the mid 2010s, would be significantly less.

Speaker Change: including in our one hundred fifty thousand squarely twenty-one year lease with the city of sanfrancisco at fourteenhundred and fifty five market our gaap and cash rents would have increased up eight percent and point nine percent respectively

Mark Lammas: Note that more than half of the square footage leased by the city with former block space signed at peak of market $80 plus rents, whereas the rent delta on the yet to be lease block space, most of which was signed in the mid 2010s, would be significantly less. The notable increase is this quarter in both net effective rent to $57 per square foot and termed in nine years were driven by mid to large size renewal leases in the Bay Area, some signed at $100 plus square foot rents. We had roughly 1.4 million square feet of unique office tours again this quarter, up 20% from this time last year.

Speaker Change: note that more than half of the square footage leased by the city with former blocks they signed at peaka market eighty plus dollar rents whereas the rent delta on the yet to be lease block space most of which was signed in the mid-two thousand and tenens would be significantly less

Mark Lammas: The notable increases this quarter in both net effective rent to $57 per square foot and term to nine years were driven by mid to large-size renewal leases in the Bay Area, some signed at $100 plus per square foot. We had roughly 1.4 million square feet of unique office tours again this quarter, up 20% from this time last year. Compared to the first quarter, tour activity increased 60% in San Francisco and 14% in Seattle.

Speaker Change: The notable increases this quarter in both net effective rent to $57 per square foot and term to nine years were driven by mid to large size renewal leases in the Bay Area, some signed at $100 plus square foot rents.

Victor Coleman: Importantly, we do not require production to return anywhere near our 2021 peak levels for our studio businesses to create meaningful value. At a point of reference during the fourth quarter of 2022, when we began to experience the early impacts of pending WGA and SAG after strikes, we estimate there were approximately 120 productions filling the Los Angeles. During that same period, our in-service studios generated an annualized NOI of $37 million, and our COD businesses generated an annualized NOI of 41 million, dollars.

Speaker Change: We had roughly 1.4 million square feet of unique office tours again this quarter, up 20% from this time last year.

Mark Lammas: Compared to first quarter, two were actually the increased 60% in San Francisco at 14% in Seattle. Year-to-date at Washington 1000, we have two or tenets representing an aggregate of over 600,000 square feet of mid to large size demand. We also have planned tours for that project representing another 80,000 square feet. To underscore, this represents only very early interest, but we are pursuing all prospects from the entire region with bigger. Washington 1000 is among the best, if not the best, product in the Seattle CBD. On the heels of yet another strong leasing quarter, as Victor mentioned, our over 2 million square foot pipeline is up 8% from last quarter and 5% compared to second quarter last year.

Speaker Change: Compared to first quarter, tour activity increased 60% in San Francisco and 14% in Seattle. Year-to-date at Washington 1000, we have toured tenants representing, in aggregate, over 600,000 square feet amid to large size demand.

Mark Lammas: Year to date at Washington 1000, we have toured tenants representing in aggregate over 600,000 square feet, amid to large size demand. We also have planned tours for that project representing another 80,000 square feet. To underscore, this represents only very early interest, but we are pursuing all prospects from the entire region with vigor. Washington 1000 is among the best, if not the best, product in Seattle. On the heels of yet another strong leasing quarter, as Victor mentioned, our over 2 million square foot pipeline is up 8% from last quarter and 5% compared to the second quarter last year.

Speaker Change: We also have planned tours for that project representing another 80,000 square feet. To underscore, this represents only very early interest, but we are pursuing all prospects from the entire region with vigor.

Victor Coleman: Finally turning to our balance sheet. Further deleveraging remains our top priority. We have no debt maturities until the end of 2025. And while we have already seen improvements in some of our leverage metrics, which Harout will comment on shortly, we anticipate that increasing studio cash flow will further strengthen these organically. As part of our proactive multi-pronged approach to managing our leverage, we will continue to pursue opportunistic dispositions and have strong minor interests on several assets. We expect to be able to execute successfully on these type of transactions just as we did last year.

Speaker Change: Washington 1000 is among the best, if not the best, product in the Seattle CBD.

Speaker Change: On the heels of yet another strong leasing quarter, as Victor mentioned, our over 2 million square foot pipeline is up 8% from last quarter and 5% compared to second quarter last year. This includes 48% coverage, including deals and discussion on our remaining 2024 expirations.

Mark Lammas: This includes 48% coverage, including deals and discussion on our remaining 2024 expiration. On our top 10 vacancies, which collectively total about 2 million square feet, we have 47% This should allow us to begin to increase occupancy at assets like 1455 Market, 505 First, Page Mill Hill, 901 Market, and 83 King. Over the last three years, we have leased 470,000 square feet per quarter on average.

Mark Lammas: This includes 48% coverage, including deals and discussion on our remaining 2024 aspirations. On our top 10 vacancies, which collectively total about 2 million square feet, we have 47% coverage. This should allow us to begin to increase occupancy at assets like 1455 Market, 505 First, Page Mill Hill, 901 Market, and 83 King. To put a finer point on our upcoming office aspirations, we have roughly 800,000 square feet expiring through year-end and two million square feet expiring in 2025. Over the last three years, we have leased 470,000 square feet per quarter on average. Assuming we continue to accomplish only that and nothing more over the next six quarters, we would have leased a total of 2.8 million square feet, exactly enough to address all remaining 2024 and 2025 expiration.

Speaker Change: On our top 10 vacancies, which collectively total about 2 million square feet, we have 47% coverage.

Speaker Change: This should allow us to begin to increase occupancy at assets like 1455 Market, 505 First, Page Mill Hill, 901 Market, and 83 King.

Mark Lammas: With that, I'm going to turn it over to Mark. Thanks, Victor. This quarter we signed 540,000 square feet of new and renewal leases.

Speaker Change: To put a finer point on our upcoming office expirations, we have roughly 800,000 square feet expiring through year-end and 2 million square feet expiring in 2025.

Mark Lammas: On our first earnings call this year, we indicated our occupancy at least percentages would likely get in the first half with the potential to improve thereafter. The 30 and 50 basis point declines in occupancy and lease percentages this quarter are consistent with those early indications. Our gap runs grew 2.6% while our cash runs were off 13.3%. Excluding our 150,000 square foot 21 year lease with the city of San Francisco at 1455 market, our gap and cash runs would have increased up 8% and 0.9% respectively.

Speaker Change: over the last three years we have leased four hundred and seventy thousand square feet per quarter on average

Mark Lammas: Assuming we continue to accomplish only that and nothing more over the next six quarters, we would have leased a total of 2.8 million square feet, exactly enough to address all remaining 2024 and 2025 expirations. Our Coyote stages were 32.8% least, up from 29.8% last quarter due to increased stage occupancy at Coyote North Valley. We currently have signed leases are in contract or have client interest on 38 of our 59 film and TV stages. Transportation utilization increased approximately 300 basis points to 24% compared to the first quarter.

Speaker Change: Assuming we continue to accomplish only that and nothing more, over the next six quarters, we would have leased a total of 2.8 million square feet, exactly enough to address all remaining 2024 and 2025 expirations.

Mark Lammas: Operations. Thereafter, our annual office aspirations become substantially lower, including in comparison to a majority of office periods. If our pace of leasing continues, or even modestly accelerates as market conditions improve, there is a clear path whereby we will not just preserve and achieve sustained growth and occupancy. Turning to studios, on a trailer 12-month basis, our in-service stages were 78.1% leased compared to 79.4% in the first quarter, which reflects an additional vacant stage at sunset last promise. Our COD stages were 32.8% leased, up from 29.8% last quarter due to increased stage occupancy at COD North Valley.

Speaker Change: Thereafter, our annual office expirations become substantially lower, including in comparison to a majority of office peers.

Mark Lammas: Note that more than half of the square footage leased by the city with former block space signed at peak of market $80 plus rents, whereas the rent delta on the yet to be lease block space, most of which was signed in the mid 2010s would be significantly less. The notable increase is this quarter in both net effective rent to $57 per square foot and termed in nine years were driven by mid to large size renewal leases in the Bay Area, some signed at $100 plus square foot rents.

Speaker Change: if our pace of leasing continues or even modestly accelerates as market conditions improve there is a clear path whereby we will not just preserve and achieve sustain growth in occupancy

Speaker Change: Turning to studios, on a trailing 12-month basis, our in-service stages were 78.1% leased compared to 79.4% in the first quarter, which reflects an additional vacant stage at Sunset Las Palmas.

Speaker Change: Our Coyote stages were 32.8% least up from 29.8% last quarter due to increased stage occupancy at Coyote North Valley.

Mark Lammas: We had roughly 1.4 million square feet of unique office tours again this quarter, up 20% from this time last year. Compared to first quarter, two were actually the increased 60% in San Francisco at 14% in Seattle. Year-to-date at Washington 1000, we have toured tenants representing in aggregate over 600,000 square feet amid to large size demand. We also have planned tours for that project representing another 80,000 square feet. To underscore, this represents only very early interest, but we are pursuing all prospects from the entire region with bigger. Washington 1000 is among the best if not the best product in the Seattle CBD.

Mark Lammas: We currently have final leases on contract, or have client interest on 38 of our 59 film and TV stages. In May, we held a grant opening event for clients at Sunfekla Note with major studio streamers and networks in attendance. Year to date, we have conducted over 20 unique tours at that asset, representing 11 active requirements, which resulted in three leased stages with a four stage in negotiations. Transportation utilization increased approximately 300 basis points to 24% compared to first quarter. We had more activity in the early half of the second quarter and had been gaining market share, even as activity declined with production levels later in the quarter.

Speaker Change: We currently have signed leases, are in contract, or have client interest on 38 of our 59 film and TV stages.

Speaker Change: In May, we held our grand opening event for clients at Sunset Glen Oaks with major studios, streamers, and networks in attendance. Year-to-date, we have conducted over 20 unique tours at that asset, representing 11 active requirements, which resulted in three lease stages with a fourth stage in negotiations.

Speaker Change: Transportation utilization increased approximately 300 basis points to 24% compared to first quarter.

Harout Diramerian: We had more activity in the early half of the second quarter and have been gaining market share even as activity declined with production levels later in the quarter. This is a testament to what our sales team and unique integrated offering can accomplish as production normalizes. Our studio revenue grew 8% relative to the first quarter. This is due to 2.1 million of additional stage of studio ancillary revenue from higher occupancy at Coyote North Valley, more Netflix production at Sunset Gower, and initial occupancy and production at Sunset Gwinnett.

Speaker Change: We had more activity in the early half of the second quarter and have been gaining market share even as activity declined with production levels later in the quarter. This is a testament to what our sales team and unique integrated offering can accomplish as production normalizes.

Mark Lammas: On the heels of yet another strong leasing quarter, as Victor mentioned, our over 2 million square foot pipeline is up 8% from last quarter and 5% compared to second quarter last year. This includes 48% coverage, including deals and discussion on our remaining 2024 expiration. On our top 10 vacancies, which collectively totaled about 2 million square feet, we have 47% coverage. This should allow us to begin to increase occupancy at assets like 1455 market, 505 first, Page Mail Hill, 901 market, and 83 King.

Mark Lammas: This is a testament to what our sales team and unique integrated offering can accomplish as production normalizes. Our studio revenue grew 8% relative to first quarter. This is due to 2.1 million of additional stage of studio ancillary revenue from higher occupancy at COD North Valley, more Netflix production at Sunfek hour, and initial occupancy and production at Sunfek One House. It also includes $1 million of incremental services revenue from higher transportation and location services utilization. Finally, I'll note that construction at Sunfek Pier 94 is on budget and on time for planned opening in end of 2025.

Speaker Change: Our studio revenue grew 8% relative to first quarter. This is due to $2.1 million of additional stage of studio ancillary revenue from higher occupancy at Coyote North Valley, more Netflix production at Sunset Gower, and initial occupancy and production at Sunset Glen Elms.

Harout Diramerian: It also includes $1 million of incremental services revenue from higher transportation and location services. Finally, I'll note that construction at Sunset Pier 94 is on budget and on time for its planned opening at the end of 2025. As Manhattan's first purpose-built studio, the project has garnered significant interest from high-profile studios and productions.

Speaker Change: It also includes $1 million of incremental services revenue from higher transportation and location services utilization.

Mark Lammas: To put a finer point on our upcoming office expirations, we have roughly 800,000 square feet expiring through year end and two million square feet expiring in 2025. Over the last three years, we have leased 470,000 square feet per quarter on average, assuming we continue to accomplish only that and nothing more. Over the next six quarters, we would have leased a total of 2.8 million square feet exactly enough to address all remaining 2024 and 2025 expiration. Thereafter, our annual office aspirations become substantially lower, including in comparison to majority of office periods.

Speaker Change: Finally, I'll note that construction at Sunset Pier 94 is on budget and on time for plan opening in end of 2025.

Mark Lammas: As Manhattan's first purpose-built studio, the project has garnered significant interest from high-profile studios and productions, and we are in discussions with multiple tenants for multi- and single-stage leases.

Mark Lammas: If our pace of leasing continues, or even modestly accelerates as market conditions improve, there is a clear path whereby we will not just preserve an achieved sustained growth in occupancy.

Ruth: As Manhattan's first-purpose built studio, the project has garnered significant interest from high-profile studios and productions, and we are in discussions with multiple tenants for multi- and single-stage leases. And with that, I'll turn the call over to Ruth.

Harout Diramerian: And we are in discussions with multiple tenants for multi- and single-stage leases, partially improved by a reduced non-cash revenue adjustment and formally less in recurring capex spend. We continue to take proactive steps to reduce, leverage, and strengthen related metrics. Compared to a year ago, we improved our share of net debt relative to our share of undepreciated bulk value by 140 basis points to 37.3% and increased our percentage of debt fixed or capped by 690 basis points to 92.2%. Importantly, as Victor noted, we have no maturities until November 2025.

Harout Diramerian: With that, I'll turn the call over to our rooms. Thanks, Mark. Our second quarter, 24 revenue, was toward an 18 million compared to 245.2 million in second quarter last year, primarily due to assets sales and two moveouts, one at 455 Market, and one at Sunfek Lost Palm of Studios, partially offset by improved studio ancillary revenue from increased production activity at Sunfek Hour. Our second quarter, FFO, excluding set of items, was 24.5 million or 17 cents per diluted share, compared to 34.5 million or 24 cents per diluted share in the second quarter last year. Set of items consistent of transaction related income of 0.1 million or 0 cents per diluted share, and a one time derivative fair value adjustment of 1.3 million or 1 cent per diluted share.

Ruth: Thanks, Mark.

Ruth: Our second quarter 2024 revenue was $218 million compared to $245.2 million.

Speaker Change: in second quarter last year, primarily due to asset sales and two move outs.

Ruth: One at 4255 Market and one at Sunset Las Palmas Studios. Partially offset by improved studio ancillary revenue from increased production activity at Sunset Gower.

Speaker Change: Our second quarter FFO, excluding specified items, was $24.5 million, or $0.17 per diluted share, compared to $34.5 million, or $0.24 per diluted share, in the second quarter last year.

Mark Lammas: Turning to studios, on a trailer 12 month basis, our in-service stages were 78.1% lease compared to 79.4% in the first quarter, which reflects an additional vacant stage at sunset last promise. Our COD stages were 32.8% lease up from 29.8% last quarter due to increased stage occupancy at COD North Valley. We currently have fine leases are in contract or have client interest on 38 of our 59 film and TV stages. In May, we help a grand opening event for clients at Sunset Glenoaks with major studio streamers and networks in attendance.

Ruth: Specified items consist of transaction-related income of $0.1 million or 0 cents per diluted share and a one-time derivative fair value adjustment of $1.3 million or 1 cent per diluted share.

Harout Diramerian: The Eurorear Change in FFO is mostly due to the items affecting revenue, along with less FFO allocated to non-controlling interest, following our purchase of our partner's ownership interest in 455.

Speaker Change: The year-over-year change in FFO is mostly due to the items affecting revenue, along with less FFO allocated to non-controlling interests following our purchase of our partner's ownership interest in the 1455 market.

Harout Diramerian: Market. Our second quarter AFFO was 24.2 million, or 17 cents per diluted share, compared to 31.1 million, or 22 cents per diluted share in the second quarter last year. With a change largely attributable to the previously mentioned items affecting AFFO, partially improved by reduced non-cash revenue development and form any less and recurring cap-ac spend. Our second quarter same-store cash and a Y was 105.2 million compared to 119.3 million in the second quarter last year, mostly different by previously mentioned tenant move outs at 4.25 market and cents at lost promise. At the end of the second quarter, we had 706 million of total liquidity comprised of 78 million of unruly cash, cash recover loans, and 628 million of undrawn capacity on our unsecured revolving credit facility.

Mark Lammas: Year to date, we have conducted over 20 unique tours at that asset representing 11 active requirements, which resulted in three lease stages with a four stage in negotiations. Transportation utilization increased approximately 300 basis points to 24% compared to first quarter. We had more activity in the early half of the second quarter and had been gaining market share even as activity declined with production levels later in the quarter. This is a testament to what our sales team and unique integrated offering can accomplish as production normalizes.

Speaker Change: Our second quarter AFFO was $24.2 million or $0.17 per diluted share compared to $31.1 million or $0.22 per diluted share in the second quarter last year, with a change largely attributable to the previously mentioned items affecting FFO.

Speaker Change: partially improved by reduced noncash revenue justment and formmany less and recurring capex spent

Ruth: Our second quarter same-store cash NOI was $105.2 million compared to $119.3 million in the second quarter last year, mostly driven by previously mentioned tenant move-outs at 425 Market and Sunset Las Palmas.

Mark Lammas: Our studio revenue grew 8% relative to first quarter. This is due to 2.1 million of additional stage of studio ancillary revenue from higher occupancy at COD North Valley, more Netflix production at sunset Gower and initial occupancy in production at Sunset Glenoaks. It also includes $1 million of incremental services revenue from higher transportation and location services utilization.

Ruth: At the end of the second quarter, we had $706 million of total liquidity comprised of $78 million of unreachable cash, cash requirements, and $628 million of undrawn capacity on our unsecured revolving credit facility.

Harout Diramerian: There is also additional capacity of approximately 196 million specific to our Sunsecland Oaks and Sunset Peer 94 construction loads; our share of which represents 54 million dollars. We continue to take proactive steps to reduce leverage and stress-related metrics. Compared to a year ago, we improved our share of net debt relative to our share of unappreciated bulk value by 104 basis points to 37.3 percent and increased our percentage of debt fixed or capped by 6098 points to 92.2 percent. Importantly, as Victor noted, we have no maturity until November 2025.

Ruth: There is also additional capacity of approximately $196 million specific to our Sunset Glen Oaks and Sunset Pier 94 construction loads, our share of which represents $54 million.

Mark Lammas: Finally, I'll note that construction at Sunset Pier 94 is on budget and on time for plan opening in end of 2025. As Manhattan's first purpose bill studio, the project has garnered significant interest from high profile studios and productions and we are in discussions with multiple tenants for multi and single stage leases.

Ruth: We continue to take proactive steps to reduce, leverage, and strengthen related metrics.

Ruth: Compared to a year ago, we improved our share of net debt relative to our share of undepreciated bulk value by 140 base points.

Harout Diramerian: With that, I'll turn the call over to her. Thanks, Mark. Our second quarter, 24 revenue, was toward an 18 million compared to 245.2 million in second quarter last year, primarily due to asset sales and two moveouts, one at 1455 market and one at Sunset lost palm of studios. Partially offset by improved studio ancillary revenue from increased production activity at Sunset Gower. Our second quarter, FFO, excluding step wide items, was 24.5 million or 17 cents per diluted share compared to 34.5 million or 24 cents per diluted share and the second quarter last year.

Ruth: to 37.3% and increased our percentage of debt fixed or capped by 690 basis points to 92.2%. Importantly, as Victor noted, we have no maturities until November 2025.

Harout Diramerian: One housekeeping matter before we discuss our outlook. With construction on Sunset Glen Oaks complete as of the second quarter, we are now accounting for it as a consolidated property. Turning to our outlook, we are providing third-quarter FFO outlook of 8 cents to 12 cents per dude share with no specified items. Our third quarter outlook assumes that our in-service studio and security business as NOI is lower in the third quarter, given the operating conditions are currently less capable than the first half of the year. And it will take time following the recent ratification of the Teamsters Agreement to green light and prep for new productions.

Harout Diramerian: One housekeeping matter before we discuss our, With construction on South Lake Lenox complete as of the second quarter, we are now accounting for it as a consolidated property. Turning to our, We are providing a third quarter FFO outlook of $0.08 to $0.12 per diluted share with no specified additions. Our third-quarter outlook assumes that our in-service studio and Coyote Businesses NOI is lower in the third quarter, given that operating conditions are currently less favorable than in the first half of the year.

Victor Coleman: One housekeeping matter before we discuss our outlook. With construction on South Lake Lenox complete as of the second quarter, we are now accounting for it as a consolidated property.

Victor Coleman: turn to our outlook

Speaker Change: We are providing 3rd quarter FFO outlook of $0.08 to $0.12 per dilute share with no specified items.

Speaker Change: Our third quarter outlook assumes that our in-service studio and QOD businesses' NOI is lower in the third quarter, given the operating conditions are currently less favorable than the first half of the year, and it will take time following the recent ratification of the Teamsters Agreement to greenlight and prep for new productions.

Harout Diramerian: Step wide items, consistence of transaction related income of 0.1 million or 0 cents per diluted share and a one-time derivative fair value adjustment of 1.3 million or 1 cents per diluted share. The Eurorear Change in FFO is mostly due to the item's affecting revenue along with less FFO allocated to not controlling interest following our purchase of our partner's ownership interest in 4.255 of the market. Our second quarter, AFFO, was 24.2 million or 17 cents per diluted share compared to 31.1 million or 22 cents per diluted share in the second quarter last year, with a change largely attributable to the previously mentioned items affecting AFFO, partially improved by reduced non-cash revenue development and form any less and recurring capex spend.

Harout Diramerian: And it will take time following the recent ratification of the Teamsters agreement to green light and prepare for new production. Reminder that our same store portfolio excludes our QT business and now consolidates Sunset Glen Oaks. As always, our outlook excludes the impact of any potential dispositions, acquisitions, financings, and or capital market activity. We will return to providing full year FFO guidance. Once we believe production levels have normalized to a point where we can more accurately anticipate and project future cash flows related to show by show lease, studio, and service assets, primarily at our Coyote business, we'll be happy to take questions. Operator.

Harout Diramerian: Our office leasing performance in the second quarter was the end of our expectations. However, our third quarter outlook assumes lower average occupancy and NOI during by lease expiration in the second and third quarter, even as we anticipate occupancy has the potential to be flat at the end of the third quarter. Regarding our full year FFO assumptions, we are lowering the range of same-store property cash and NOI growth to negative 12.5 to 13.5 percent due to the same-store studios, specifically lower absorption at Sunset Loft Thomas. Our reminder that our same-store portfolio excludes our security business and now consolidates Sunset Glen Oaks Studio.

Speaker Change: Our office leasing performance in the second quarter was ahead of our expectations.

Speaker Change: However, our third quarter outlook assumes lower average occupancy and NOI, driven by lease expirations in the second and third quarter, even as we anticipate occupancy has the potential to be flat at the end of the third quarter.

Ruth: Regarding our full-year FFO assumptions, we are lowering the range of same-store property cash NOI growth to negative 12.5% to 13.5% due to the same-store studios, specifically lower absorption at Sunset Las Palmas.

Ruth: A reminder that our same story or portfolio excludes our QOD business and now consolidates Sunset Glen Oak Studio.

Harout Diramerian: As always, our outlook excludes the impact of any potential dispositions, acquisitions, financing, and or capital market activity. We will return to providing full-year FFO guidance outlook. Once we believe production levels have normalized to a point that we can more accurately anticipate and project future cash flows related to show-by-show lease studio and service assets primarily at our security business.

Victor Coleman: As always, our outlook excludes the impact of any potential dispositions, acquisitions, financings, and or capital market activity.

Harout Diramerian: Our 105.2 million compared to 119.3 million in the second quarter last year, mostly driven by previously mentioned tenant moveouts at 425 market and cents at lost promise. At the end of the second quarter, we had 706 million of total liquidity comprised of 78 million of commercial cash, cash recoverments and 628 million of on-drop capacity on our unsecured revolving credit facility. There is also additional capacity of approximately 196 million specific to our Sunsecland Oaks and Sunset Peer 94 construction loads, our share of which represents 54 million dollars.

Victor Coleman: We will return to providing full-year FFO guidance outlook.

Victor Coleman: Once we believe production levels have normalized to a point that we can more accurately anticipate and project future cash flows related to show-by-show lease, studio, and service assets primarily at our QOD business. Now, we'll be happy to take questions. Operator?

Sierra: Now we'll be happy to take questions.

Operator: Operator? Thank you.

Operator: Who will now begin the Q&A session? If you would like to ask a question, please press star, followed by one on your telephone keypad. If you would like to remove your question for any reason, press star followed by two. And if you are using a speaker phone, please pick up your handset before asking your question.

Operator: We will now begin the Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove your question for any reason, press star followed by 0. And if you are using a speakerphone, please pick up your handset before asking your question. Our first question today comes from Blaine Heck with Wells Fargo.

Ruth: Thank you.

Speaker Change: We will now begin the Q&A session.

Speaker Change: If you would like to ask a question, please press star, followed by 1, on your telephone keypad.

Ruth: If you would like to remove your question for any reason, press star followed by 2.

Harout Diramerian: We continue to take proactive steps to reduce leverage and stress and related metrics. Compared to a year ago, we improved our share of net debt relative to our share of unappreciated bulk value by 104 to base points to 37.3%, and increased our percentage of debt fixed or capped by 6098 points to 92.2%. Importantly, as Victor noted, we have no maturity until November 2025.

Speaker Change: And if you are using a speakerphone, please pick up your handset before asking your question.

Blaine Heck: Our first question today comes from Blaine Heck with Wolf Fargo. Your line is now open. Great thanks. Good afternoon.

Ruth: Our first question today comes from Blaine Heck with Wells Fargo. Your line is now open.

Blaine Heck: Great, thanks. Good afternoon, Victor. I was hoping you could comment maybe a little bit more on the asset sales that you talked about last quarter and again, a little bit this quarter, you know, maybe just how the reception has been, where you guys might be in that process, and maybe any color on potential prices.

Victor Coleman: Victor, I was hoping you could comment maybe a little bit more on the asset sales that you would talk about last quarter. And again, a little bit this quarter, maybe just how the reception's been, where you guys might be in that process, and maybe any color on potential pricing. Yeah, Blaine, thanks. Good to hear your voice. So the asset sales, we are still in active discussions and beyond just conversations on at least a few assets. I don't want to get in the details and numbers, and I don't want to get in the details on the amounts, but we're confident that we're going to execute on our asset sales like we did last year.

Blaine Heck: Great, thanks. Good afternoon. Victor, I was hoping you could comment maybe a little bit more on the asset sales that you had talked about last quarter, and again, a little bit this quarter, you know, maybe just how the reception's been, where you guys might be in that process, and

Harout Diramerian: One housekeeping matter before we discuss our outlook. With construction on Sunset Peer Oaks complete as of the second quarter, we are now accounting forward as a Consolidate property.

Ruth: med

Speaker Change: Any color on potential pricing.

Victor Coleman: Yeah, Blaine, thanks. Good to hear your voice. So the asset sales, you know, we are still in active discussions and beyond just conversations on at least a few assets. I don't want to get into details and numbers, and I don't want to get into details on the amounts, but we're confident that we're going to execute on our asset sales like we did last year.

Victor Coleman: Yeah, Blaine, thanks. Good to hear your voice. So the asset sales, you know, we are still in active discussions and in

Harout Diramerian: Turning to our outlook. We are providing third quarter FFO outlook of 8 cents to 12 cents per dude share with no specified items. Our third quarter outlook assumes that our in-service studio and security business is NOI is lower in the third quarter given the operating conditions are currently less capable than the first half of the year, and it will take time following the recent ratification of the Teamsters Agreement to green light and prep for new productions.

Speaker Change: Beyond just conversations on at least a few assets, I don't wanna get into details on numbers and I don't wanna get into details on the amounts, but we're confident that we're gonna execute on our asset sales like we did last year.

Blaine Heck: Okay, that's helpful.

Blaine Heck: Okay, that's helpful. Just to quickly follow up.

Victor Coleman: Just to quickly follow up on that, are these the same assets that you were targeting last quarter, or has there been any change to kind of the composition of those potential sales? Let me think about it. They're predominantly the same assets, as with the exception of one. Okay. One helpful. Okay, got it.

Okay: Okay that's helpful. Just to quickly follow up on that, are these the same assets that you were targeting last quarter or has there been any change to kind of the composition of those potential sales?

Victor Coleman: There hasn't been any change to the composition of those potential sales.

Harout Diramerian: Our office leasing performance in the second quarter was the end of our expectations. However, our third quarter outlook assumes lower average occupancy and NOI during by lease expiration in the second and third quarter, even as we anticipate occupancy has the potential to be flat at the end of the third quarter. Regarding our full year FFO assumptions, we are lowering the range of same-store property cash and NOI growth to negative 12.5 to 13.5 percent due to the same-store studios specifically lower absorption at Sunset Loft Thomas.

Speaker Change: Let me think about it. They're predominantly the same assets with the exception of one.

Blaine Heck: Okay, I got it.

Speaker Change: okay one my self in manupjust

Victor Coleman: And then, you know, I had asked the last quarter about whether there were any kind of strategic alternatives. You guys might be exploring, and I thought you gave a very candid answer that essentially all options were still on the table. So just want to follow up there and maybe get any update to your thoughts on that subject and whether, you know, larger changes are still a consideration for you guys. Well, you know, as I said last time, listen, as a company, as the chairman, as the board of directors, always evaluate all potential opportunities, and we're going to determine whether they're viable, and obviously, they're going to be acutely discussed to look at what would maximize long-term value for our shareholders.

Speaker Change: Okay, got it.

Speaker Change: And then, you know, I had asked last quarter about whether there were any kind of strategic alternatives you guys might be exploring. And I thought you gave a very candid answer that essentially all options were still on the table. So just wanted to follow up there and maybe get any update to your thoughts on that subject and whether

Blaine Heck: You know, larger changes are still a consideration for you guys.

Speaker Change: You know, larger changes are still a consideration for you guys.

Harout Diramerian: Our reminder that our same-store portfolio excludes our security business and now consolidates Sunset Glen Oaks studio. As always, our outlook excludes the impact of any potential dispositions, acquisitions, financing, and or capital market activity. We will return to providing full year FFO guidance outlook. Once we believe production levels have normalized to a point that we can more accurately anticipate and protect future cash flows related to show-by-show lease studio and service assets primarily at our security business.

Speaker Change: Well, you know, as I said last time, listen, as a company, as the Chairman, as the Board of Directors, always evaluate.

Speaker Change: All potential opportunities, and we're going to determine whether they're viable, and obviously they're going to be acutely discussed to look at what would maximize long-term value for our shareholders. There is nothing imminent at all that is currently in place today, but as I said, we're always evaluating and looking at alternatives.

Blaine Heck: There is nothing imminent at all that is currently in place today, but as I said, we're always evaluating and looking at alternatives. Great. Thanks.

Blaine Heck: Great, thanks. I'll leave it there.

Blaine Heck: I'll leave it there.

Operator: Now we'll be happy to take questions. Operator? Thank you, who will now begin the Q&A session. If you would like to ask a question, please press star, fall by one on your telephone keypad. If you would like to remove your question for any reason, press star, follow by two. And if you are using a speakerphone, please pick up your handset before asking your question.

Victor Coleman: Thanks, Plain.

Speaker Change: Great, thanks. I'll leave it there.

Ronald Kamdem: Our next question today comes from Ronald Kimden with Morgan Stanley. Your line is now open. Hey, just two quick ones for me. Just just one. Is there a quick way to sort of bridge going from 17 to 10 cents, you know, quarter to quarter? Just what are the components of that? Just trying to figure out what pieces are driving that? Sure. So the main drivers are lower things for NLI at COD and are things for studios, and that's related to dropping activity at Gower and lower show counts in general, and then also lower office NLI, you know, relate to the second and third quarter exploration, which results in lower average occupancy in the quarter.

Blaine Heck: Thanks Blaine.

Speaker Change: our next question of today comes ron a cendden with morgan family your line is to open

Ron Cendden: Hey, just two quick ones for me. Just one, is there a quick way to sort a bridge going from $0.17 to $0.10, you know, quarter to quarter? Just what are the components of that? Just trying to figure out what pieces are driving that.

Blaine Heck: Our first question today comes from Blaine Heck with Wolf Fargo. Your line is now open. Great thanks, good afternoon.

Speaker Change: Sure. So the main drivers are lower things for NOI at CODNR.

Speaker Change: same-store studios

Speaker Change: And that's related to a drop in activity at Gower and lower show counts in general. And then also lower office NOI, you know, related to the second and third quarter explorations, which

Harout Diramerian: We sort of expect, however, that by the end of the third quarter, we could be in line with what we report in the second quarter. of Oxford City.

Victor Coleman: I don't want to get in the details and numbers, and I don't want to get in the details on the amounts, but we're confident that we're going to execute on our asset sales like we did last year. Okay, that's helpful.

Speaker Change: results in lower average occupancy in the quarter. We still expect, however, that by the end of the third quarter, we could be in line with what we report in the second quarter in occupancy.

Ronald Kamdem: Got it, that makes sense.

Unknown Attendee: Got it. That makes sense. And then we noticed that you disclosed 239,000 square feet of early termination. I'm just curious, what was that driven by, and were there any one-timers in the office rent figures that we should be thinking about?

Arthur Suazo: And then we noticed that you disclosed 239,000 square feet of early terminations in the quarter. It just curious, what was that driven by, and were there sort of any one-timers in the office rent figures that we should be thinking about? Thanks.

Speaker Change: Got it. That makes sense. And then we noticed that you disclosed 239,000 square feet of early terminations in the quarter. Just curious, what was that driven by and were there sort of any one-timers in the office rent figures that we should be thinking about? Thanks.

Arthur Suazo: Yeah, this is art. You know, there were really two major drivers. One was we work in totality for 112,000 square feet, and then there was a default for 40,000 square feet. And those are the big ones. The good news on those is, there is good news on those is that we already have high-blind behind that or in negotiations to backfill most of that space. And to answer the second half of that question, we did not get any leads from national revenue from the We Work. So that's not any of the numbers. Okay, great.

Speaker Change: hel

Art Suazo: Yeah, this is Art. You know, there were really two major drivers. One was WeWork in totality for 112,000 square feet. And then there was a default for 40,000 square feet. And those are the big ones.

Speaker Change: The good news on those is, there is good news on those is that we already have

Victor Coleman: And then I had asked the last quarter about whether there were any kind of strategic alternatives you guys might be exploring, and I thought you gave a very candid answer that essentially all options were still on the table. So just wanted to follow up there and maybe get any update to your thoughts on that subject and whether larger changes are still a consideration for you guys. Well, you know, as I said last time, listen, as a company as the chairman, as the board of directors always evaluate all potential opportunities, and we're going to determine whether they're viable, and obviously they're going to be acutely discussed to look at what would maximize long-term value for our shareholders. There is nothing imminent at all that is currently in place today, but as I said, we're always evaluating and looking at alternatives. Great. Thanks. I'll leave it there. Thanks, Wayne.

Speaker Change: pipeline behind that or negotiations to backfill most of that space.

Unknown Executive: and to answer the second half of that question, we did not get any lease termination revenue.

Speaker Change: And to answer the second half of that question, we did not get any lease termination revenue from the WeWork, so that's not in any of the numbers.

Ronald Kamdem: That's it for me. Thanks so much.

Speaker Change: Okay, great. That's it for me. Thanks so much.

Nikuliko: Our next question comes from Nikuliko.

Mark Lammas: Let's squish a bank. Your line is not open. Thanks. I think earlier, Mark, you said something about, you know, the coverage on the expirations for this year. I thought you said 48%. So I want to make sure that was right. And then I don't know if you have a number you could share on 2025 expirations. Yeah, so you're right on the 48. That's the coverage on the 800 or so; it's finally back up the year on 25 and just looking at art. Yeah, so on 25 right now, we're sitting at about 25% coverage on it.

Speaker Change: Our next question comes from Nick Ulico with Scotiabank.

Speaker Change: Your line is now open.

Nick Ulico: Thanks. I think earlier, Mark, you said something about, you know, the coverage on the expirations for this year. I thought you said 48 percent. I just want to make sure that was right. And then I don't know if you have a number you could share on 2025 expirations.

Mark: Yeah, so you're right on the 48. That's that's the coverage on the 800 or so, expiring back up the year. On 25, I'm just looking at ours. Yeah, so on 25 right now, we're sitting at about 25% coverage on it. Finder point on the 48.

Ronald Kamdem: Our next question today comes from Ronald Kimden with Morgan Stanley. Your line is now open. Hey, just two quick ones for me.

Mark Lammas: Find a point on the 48. Our average tender size is below 7,000 square feet. A lot of these guys are just barely engaging right now. So that number 48 can go up very clearly. Okay, thanks.

Speaker Change: Our average tenant size is below 7,000 square feet. A lot of these guys are just barely engaging right now, so that number, that 48, can go up very clearly.

Harout Diramerian: Just one. Is there a quick way to sort of bridge going from 17 to 10 cents, you know, quarter to quarter? Just what are the components of that? Just trying to figure out what pieces are driving that? Sure. So the main drivers are lower things for NOI at COD and are things for studios, and that's related to dropping activity at Gower and lower show counts in general, and then also lower office and why, you know, relate to the second and quarter exploration, which results in lower average occupancy in the quarter. We still expect, however, that by the end of the third quarter, we could be in line with what we report in the second quarter, of Oxford City.

Victor Coleman: And then I guess turning to AI, you talked about that a bit earlier. What we've heard is that, in many cases, these firms will want to have more pre-built space or that they've taken subly space because of that issue. They don't want to put much capital in. Can you just talk about maybe how you've situated your portfolio, whether it's spec suite or anything else that you think you could be competitive to grab that tenant in the city of San Francisco versus the Valley? Yeah, so it's bifurcated right through talking about AI with the large growth, and you're talking about kind of the early stage AI that we deal with on the peninsula and through the valley.

Speaker Change: Okay, thanks and then...

Speaker Change: I guess, turning to AI...

Speaker Change: You talked about that a bit earlier.

Speaker Change: What we've heard is that in many cases these firms will want to have more pre-built space or that they've taken subleased space because of that issue, they don't want to put much capital in. Can you just talk about...

Speaker Change: You know, maybe how you've situated your portfolio, whether it's, you know, spec suites or anything else that you think you could be competitive to grab that tenant in, you know, city of San Francisco versus the Valley.

Arthur Suazo: Got it, that makes sense. And then we noticed that you disclosed 239,000 square feet of early terminations in the quarter. It just curious, what was that driven by, and where there's sort of any one-timers in the office, rent figures that we should be thinking about. Thanks. Yeah, this is art. You know, there were really two major drivers. One was we work in totality for 112,000 square feet, and then there was a default for 40,000 square feet.

Speaker Change: Yeah, so it's bifurcated, right? So you're talking about AI with the large growth.

Speaker Change: and you're talking about kind of the early stage AI that we deal with on the peninsula and through the valley. I'll deal with the second one first. In the valley, our pre-built space.

Victor Coleman: I'll deal with the second one first. In the valley, our pre-built space, which we have about 300,000 square feet of in the valley, and it's been our bread and butter. That space is attracting these tenants because they don't have to plan it, they don't have to think about it, and we get immediate, immediate movements. So we're doing really well in those, in those on the larger spaces. You know, oftentimes we'll pre-built a single floor. In this case, you know, if they're looking for multiple floors, we haven't built out multiple floors, which is why North has anyone for that matter, which is why they've been gravitating to really top-end subtly space.

Speaker Change: which we have about three hundred thousand square feet of intothe valleyand it's been our breadand butter that that spac is attracting these tenants because they don't have to bbuild off the planet they don't to think about it and we get immediate immediate movements so we're doing really well in those in those on the larger spaces you know

Arthur Suazo: And those are the big ones. The good news on those is, there is good news on those is that we already have a pipeline behind that order negotiations to backfill most of that space. And to answer the second half, that question. We did not get any leads from national revenue from the we work, so that's not in any of the numbers.

Arthur Suazo: Okay, great.

Speaker Change: Oftentimes we'll pre-build a single floor. In this case, you know, if they're looking for multiple floors, we haven't built out multiple floors, which is why a lot, nor has anyone for that matter, which is why they they've been gravitating to

Unknown Executive: That's it for me. Thanks so much.

Speaker Change: really top-end, sublease space.

Unknown Attendee: Our next question comes from Nikuliko.

Victor Coleman: Okay, thanks.

Victor Coleman: And I think you're able to just share just following up on terms like the pipeline or some of the leasing activity you've done, you know, what the composition has been of AI firms. AI and tech, yeah, I'll share with you, you know, so as we mentioned in our prepared remarks, it's still a little bit more than two million square feet, but it's grown quarter over quarter. It's chiefly 65% new to renew deals. And I will say this, you know, year over year, year over year, our tech as a composition of the pipeline has grown 15% to almost 40%.

Unknown Attendee: Let's close your bank. Your line is not open.

Speaker Change: Okay, thanks. And I think you're able to just share just following up on terms of like the pipeline or some of the leasing activity you've done, you know, what the composition has been of AI firms.

Mark Lammas: Thanks. I think earlier, Mark, you said something about, you know, the coverage on the expirations for this year. I thought you said 48%. So I want to make sure that was right, and then I don't know if you have a number you could share on 2025 expirations. Yeah, so you're right on the 48. That's the coverage on the 800 or so expirations back up the year on 25 and just looking at art.

Speaker Change: yeah

Speaker Change: ai ackck i'll i'll re with you you know so as we mentioned in our prepared remarks it's still a little bit more than two million square ene but's growwn quarter overquarter it's chiefly sixty- five percent new to renew deals and i will say this you know year-over-year year over-year our tech

Mark Lammas: Yeah, so on 25 right now, we're sitting at about 25% coverage on it. Find a point on the 48. Our average tenet size is below 7,000 square feet. A lot of these guys are just barely engaging right now, so that number 48 can go up very clearly.

Unknown Executive: is that the composition of the pipeline has grown 15% to almost 40%. Right. So we're starting to see more tech in the pipeline. We're also seeing

Speaker Change: as a composition of the pipeline has grown 15% to almost 40%, right? So we're starting to see more tech in the pipeline. We're also seeing...

Victor Coleman: Right. So we're starting to see more and more tech in the pipeline. We're also seeing the size of the tenant grow. So kind of the mid-size tenant is carrying the day 20 to 60,000 square feet, and that's up actually 40% year over year. Of that, you know, most of that is in the city; most of the AI, as you've seen, is in the city for the larger users. We've seen it in the valley, again, in really the startup realm. We've seen maybe three or four mid-size AI deals in Seattle, but the performance of all of that is in San Francisco.

Mark Lammas: Okay, thanks.

Speaker Change: the size of the tenant grow.

Speaker Change: So, kind of the mid-sized tenant is carrying the day 20,000 to 60,000 square feet and that's up actually 40% year over year.

Mark Lammas: And then I guess turning to AI, you talked about that a bit earlier. You know, what we've heard is that in many cases, you know, these firms will want to have, you know, more pre-built space or that they've taken subly space because of that issue. They don't want to put much capital in. Can you just talk about, you know, maybe how you've situated your portfolio, whether it's, you know, spec suite or anything else that you think you could be competitive to grab that tenet in, you know, city of San Francisco versus the valley.

Speaker Change: Of that, you know, most of that is in the city, most of the AI, as you've seen, is in the city.

Speaker Change: for the larger users. We've seen it in the Valley, again, in really the startup realm. We've seen...

Speaker Change: maybe three or four mid-size AI deals in Seattle. But the preponderance of all of that is in San Francisco. And of the tech that I just mentioned to you, I would say that maybe 20% of that is AI.

Victor Coleman: And of the tech that I just mentioned to you, I would say that maybe 20% of that is AI. Okay, if we carry 40% tech, 20% of that is AI.

Mark Lammas: Yeah, so it's bifurcated right through talking about AI with the large growth. And you're talking about kind of the early stage AI that we deal with on the peninsula and through the valley. I'll deal with the second one first in the valley, our, you know, our pre-built space, which we have about 300,000 square feet of in the valley. And we've, it's been our bread and butter. That, that space is attracting these tenants because they don't have to, they don't have to plan it.

Speaker Change: Okay, so if we carry 40% tech, 20% of that is AI.

Caitlin Burrows: Appreciate it. Our next question comes from Caitlin Burles with Goldman Sachs. The line is now open. Hi. Good afternoon, everyone. I was wondering if you could talk a little bit about office retention. What it's been this year, maybe how it compares to history, the expectation for the rest of the year. And then, as you look forward into 2025, whether you have any insight yet, one way or the other on any of the maybe larger lease explorations.

Speaker Change: appreciated

Speaker Change: Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is now open.

Unknown Attendee: Hi, good afternoon, everyone. I was wondering if you could talk a little bit about office retention this year, maybe how it compares to history, the expectation for the rest of the year, and then, as you look forward into 2025, whether you have any insight yet one way or the other on any of the maybe larger lease expirations.

Caitlin Burrows: Thank you. Bye. Bye.

Caitlin Burrows: hi good afternooneveryone i was wondering if you to talk a little bit about office reattention what it's been this year maybe how it compares to history the expectation for the rest of the year and then as you lookforward into two thousand andtwenty five what you have any insight yet one way or the other on any of them maybe larger lease expirations

Mark Lammas: They don't have to think about it and we get immediate, immediate movements. So we're doing really well in those, in those on the larger spaces, you know, often times we'll, we'll pre-built a single floor. In, in this case, you know, if they're looking for multiple floors, we haven't built out multiple floors, which is why a lot, nor has anyone for that matter, which is why they, they've been gravitating to really top end, subtly space.

Arthur Suazo: Sure, this is art. You know, the market mentioned that it's about 48% the retention. We think we can get it better than that. Why? Because there's a lot of smaller tenants that still haven't engaged yet in the fourth quarter. So we can get that, you know, north of 50%. We feel we can get it north of 50%. You know, that stacks up to the last, I would say the last three or four years, for sure. But, you know, 25, 25 again, it's very early, and we have about 25% coverage on those explorations. So obviously, that number is going to grow.

Arthur Suazo: Sure, this is Art. You know, Mark had mentioned that it's about 48% retention. We think we can get it better than that. Why?

Caitlin Burrows: Sure, this is Art. You know, Mark had mentioned that it's about 48% the retention.

Speaker Change: videos. I don't know if I'd be here if it wasn't for Mark and Laura's stunt involvement. All right. Thank you. Thanks for having me. Bye. Bye. Bye. All right. Thanks for tuning in. I'll see you on Wednesday. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.

Speaker Change: We think we can get it better than that. Why? Because there's a lot of smaller tenants that still haven't engaged yet in the fourth quarter, so we can get that, you know, north of 50%. We feel we can get it north of 50%.

Caitlin Burrows: You know, that stacks up to the last, I would say, the last three or four years, for sure, but you know.

Mark Lammas: Okay, thanks. And I think you're able to just share just following up on terms of like the pipeline or some of the leasing activity you've done, you know, what the composition has been of AI firms. AI and tech, yeah, I'll share with you, you know, so as we mentioned in our prepared remarks, it's still a little bit more than two million square feet, but it's grown quarter over quarter. It's chiefly 65% new to renew deals.

Arthur Suazo: Because there are a lot of smaller tenants that still haven't engaged yet in the fourth quarter, so we can get that, you know, north of 50%. We feel we can get it north of 50%. 25, 25, again, it's very early, and we have about 25% coverage on those expirations.

Speaker Change: 25, 25 again it's very early and we have about 25% coverage on those expirations so obviously that number is going to grow.

Arthur Suazo: So obviously,

Arthur Suazo: And just to clarify, that 48% retention is that just coincidentally? I think you mentioned 48% coverage for the second half. Yeah. Experiences are two different steps that both happen to be 48%. Okay.

Speaker Change: And just to clarify, that 48% retention, is that just coincidentally, I think you mentioned 48% coverage for the second half expirations? Yeah. Those are two different stats. Yeah. It just happened to be 48%.

Mark Lammas: And I will say this, you know, year over year, year over year are tech as a composition of the pipeline has grown 15% to almost 40%. Right. So we're starting to see more more tech in the pipeline. We're also seeing the size of the tenant grow. So kind of the mid size tenant is carrying the day 20 to 60,000 square feet. And that's up actually 40% year over year. Of that, you know, most of that is in the city, most of the AI, as you've seen, is in the city for the larger users.

Arthur Suazo: And then just on. But two different steps that happened to both be 48%. No, no, no, cover. You just saying we have coverage on the 800,000 feet that represents the ability to retain that experience.

Speaker Change: Okay. And then just on... Yeah. Yeah.

Arthur Suazo: but two different stats that happen to both be 48%.

Speaker Change: but two different stats that happen to both be 48 percent.

Speaker Change: No, no, no, he's just saying we have coverage on the 800,000 feet that represents the ability to retain that expiration.

Caitlin Burrows: Okay, I think I got that. Maybe I'll catch, circle back on that, but then maybe on the dividend, so it's at $5.25 now, wondering if you can comment on how that compares to your expected taxable income for the year and what could cause any incremental change to the dividend one way or the other at this point? Sure, it's a bit early to compare to taxable, only because there's half a year left. Like, we always evaluate given every quarter; it's really the board's decision when it comes to the status of our dividend. Okay, so early in the year, I got it. Thanks.

Speaker Change: Okay, I think I got that. Maybe I'll catch.

Speaker Change: Circle back on that. But then maybe on the dividend. So it's at five cents a quarter now. Wondering if you can comment on how that compares to your expected taxable income for the year and what could cause any incremental change to the dividend one way or the other at this point?

Mark Lammas: We've seen it in the valley, again, in really the startup, well, we've seen maybe three or four mid size AI deals in Seattle. But the performance of all of that is in San Francisco. And of the tech that I just mentioned to you, I would say that maybe 20% of that is AI. Okay.

Speaker Change: Sure, it's a bit early to compare to taxable only because there's half a year left, like we always evaluate the dividend every quarter, it's really the board's decision when it comes to the status of our dividend.

Mark Lammas: So if we carry 40, yeah, if we carry 40% tech, 20% of that AI. Appreciate it.

Speaker Change: Okay, so early in the year. Got it. Thanks.

John Kim: Our next question comes from John Kim with FEMA. Your line is now open. Thank you. I still don't really understand guidance, but third quarter, you have it at 10 cents at midpoint. That's down 41% sequentially. Your original guidance provided six months ago implied 29 cents per quarter and second to fourth quarter. And I understand studios down, but at its peak, the studio is only 11% of NOI, so I guess a lot of this is from the occupancy, but the expirations was known a few months ago.

Speaker Change: Our next question comes from John Kim with FEMA. Your line is now open.

Caitlin Burrows: Our next question comes from Caitlin Burroughs with Goldman Sachs.

Speaker Change: oh

Caitlin Burrows: The line is not open. Hi, good afternoon, everyone. I was wondering if you could talk a little bit about office retention. What it's been this year, maybe how it compares to history, the expectation for the rest of the year. And then as you look forward into 2025, whether you have any insight yet. When we're at the other on any of them, maybe larger lease aspirations.

John Kim: Thank you.

John Kim: I still don't really understand guidance for the third quarter. You have it at 10 cents and midpoint.

John Kim: that's down 41% sequentially. Your original guidance provided six months ago implied 29 cents per quarter in the fourth quarter. And I understand the studio's down, but at its peak, the studio's only 11% of NOI.

unknown: , , , , , , , , , , , , , ,

Unknown Attendee: So I guess a lot of this is from occupancy, but the expiration was known a few months ago. So I just don't really understand how it could drop so much in one quarter. And I was wondering if there was anything that surprised you or anything incrementally new.

Speaker Change: So, I guess a lot of this is from occupancy, but, you know, the expiration was known a few months ago. So, I just don't really understand how it could drop so much in one quarter, and I was wondering if there was anything, you know, that surprised you or anything incrementally new.

Arthur Suazo: Sure. This is art. You know, market mentioned that it's about 40, 48% the retention. We think we can get it better than that. Why? Because there's a lot of smaller tenants that still haven't engaged yet in the fourth quarter. So we can get that, you know, north of 50%. We feel we can get it north of 50%. You know, that stacks up to the last, I would say the last three or four years for sure.

Harout Diramerian: So I just don't really understand how it could drop so much in one quarter, and I was wondering if there was anything that surprised you or anything incrementally new looking at the third quarter. No, it's a good question. So, like we said, our office is actually a little bit improved based compared to our previous guidance, or even our full year guidance that was provided early in the year. It is really due to the both Coyote business and the same store studio business. They're just not performing in line with our projections, both the full year and, you know, next quarter.

Speaker Change: Looking at the third quarter.

Speaker Change: It's a good question. So, like we said, our office is actually...

Arthur Suazo: But, you know, 25, 25 again, it's very early and we have about 25% coverage on those explorations. So obviously that number is going to grow. And just to clarify that 48% retention, is that just coincidentally, I think you mentioned 48% coverage for the second half. Expressions are two different steps that both happen to be 48%. Okay. But two different steps that happened to both be 48%.

Speaker Change: a little bit improved comparedative to our previous guidance or even our full year guidance that provided earer in the year it is really due to the yity business and the same store studio business they're just not performing in line with our projections

Harout Diramerian: That's the driver of it. I know, again, from the percentage you're holding in terms of percentage of the cup, that's a percent of NOI, but, you know, that's not a percentage of FFO. The FFO is also driven by, you know, the interest and the GNA, which there's a larger movement as a result. So it's not just, if you're just thinking of the percentage of NOI, it's yes, it feels large, but when you compare to FFO, it's a bigger number. And, you know, assuming our understanding is correct and the recovery is that that is going to turn around pretty drastically once studio activity picks up, and a number of shows increase.

Speaker Change: both the full year and, you know, next quarter.

Speaker Change: That's the driver of it. I know, again, from the percentage you're quoting in terms of percentage of the company, that's the percentage of NOI. But, you know, that's not a percentage of FFO. The FFO is also driven by, you know, the interest and the GNA, which

Arthur Suazo: No, no, no, cover. You just saying we have coverage on the 800,000 feet that represents the ability to retain that experience.

Speaker Change: There's a larger movement as a result. So it's not just, if you just take it as percentage NOI, yes, it feels large, but when you compare it to FFO, it's a bigger number.

unknown: and, you know, assuming our

Harout Diramerian: Okay, I think I got that maybe I'll catch, circle back on that, but then maybe on the dividend, so it's at $5.25 now, wondering if you can comment on how that compares to your expected taxable income for the year, and what could cause any incremental change to the dividend one way or the other at this point? Sure, it's a bit early to compare to taxable only because there's half a year left, like we always evaluate given every quarter it's really the board's decision when it comes to the status of our dividend. Okay, so early in the year, got it, thanks.

Speaker Change: And, you know, assuming our understanding is correct in the recoveries, that is going to turn around pretty drastically once studio activity picks up and number of shows increase.

Harout Diramerian: So, thanks to our studio, NOI was 7.6 million in the second quarter. Does that become significantly negative number in the third quarter? No. The sub-port 6 is the, I think, in service studio number, so we expect that to come down.

unknown: So, thanks to our studio.

Unknown Attendee: Why was $7.6 million in the second quarter? Does that become...

Speaker Change: So, Same Store Studio NOI was $7.6 million in the second quarter. Does that become a...

Speaker Change: Significantly negative number in the third quarter.

Speaker Change: The 7.6 is the, I think, in-service studio number, so we expect that to come down.

Harout Diramerian: Can I end up with killing? Let me just maybe take a somewhat different tack on it. Peru gave you the drivers of the difference between the 17 cents or 16 under Navy definition and the 10 cent midpoint, right? That's half studio related, half average office occupancy related. Hopefully, that's fairly clear. As it relates to your, sort of, the reach back to the earlier guidance and sort of trying to bridge, if you will, to that early, early number and the 10 cents. I think what you have to appreciate is that the QD business, especially, is a slightly, highly leveraged to its fixed cost.

Speaker Change: Let me just maybe take a somewhat different tact on it.

Harout Diramerian: Harout gave you the drivers of the difference between the $0.17 or $0.16 under May redefinition and the $0.10 midpoint, right?

John Kim: Our next question comes from John Kim with FEMA, your line is now open. Thank you.

Speaker Change: Half studio related, half average office occupancy related. Hopefully that's fairly clear. As a release to your sort of the reach back to the earlier guidance and sort of trying to

Harout Diramerian: I still don't really understand guidance, but third quarter, you have it at 10 cents at midpoint, that's down 41%, sequentially, your original guidance provided six months ago, implied 29 cents per quarter and second to fourth quarter, and I understand studios down, but at its peak, the studio is only 11% of NOI, so I guess a lot of this is from occupancy, but the expirations was known a few months ago, so I just don't really understand how it could drop so much in one quarter, and I was wondering if there was anything that surprised you or anything incrementally new looking at the third quarter. No, it's a good question, so like we said, our office is actually a little bit improved based compared to our previous guidance, or even our full year guidance that was provided early in the year.

Speaker Change: Bridge, if you will, to that early early number and the 10 cents. I think what you have to appreciate is that the Coyote business especially is highly highly leveraged to its fixed cost.

Harout Diramerian: And so it, if, if show counts and the other drivers that really drive that business, markedly improved, you can generate a heck of a lot of incremental FFO off that. And if they don't improve, which for the time being at least show counts are pretty stagnant. What you realize is that you're kind of bumping along not too far away from, say, what were you reported in a wide negative 3 million bucks. And as we sit today on our third quarter expectations, is that it's going to take a little while for the show counts to meaningfully improve.

Speaker Change: and so...

Speaker Change: If show counts and the other drivers that really drive that business markedly improve, you can generate a heck of a lot of incremental FFO off that. And if they don't improve, which

Speaker Change: for the time being at least so cancer

Speaker Change: What you realize is that you're kind of bumping along, not too far away from, say, what we reported NOI, negative three million bucks.

Speaker Change: And as we sit today, our third quarter expectations is that it's going to take a little while for the show counts to meaningfully improve. And so we just haven't been able to really get the real lift off, if you will, in terms of the impact that Coyote has the potential to make on FFO.

Harout Diramerian: And so we're, we just haven't been able to really get the real lift off, if you will, in terms of the impact that QD have the potential to make on FFO.

Harout Diramerian: It is really due to the both Coyote business and the same store studio business, they're just not performing in line with our projections, both the full year and, you know, next quarter. That's the driver of it. I know, again, from the percentage you're holding in terms of percentage of the cup, that's a percentage of NOI, but you know, that's not a percentage of FFO, the FFO is also driven by, you know, the interest and the GNA, which there's a larger movement as a result.

Mark Lammas: Mark, you mentioned that the fixed cost nature of COD. I just wanted to ask about same store studio expenses being up 33% this quarter. I would have thought it would be a lower number than that. The sequential route is looking at it. I apologize; I wasn't prepared for that specific question. It's just the same store studio expenses that move up a lot. Yeah, it could be. We did enjoy pretty high production levels. It's unsaid gourd in the quarter. In fact, you know, higher than we had initially projected lighting and grit. When production levels are high, it tends to mean lighting and grip is high.

unknown: Six Cost Nature of Coyote

Speaker Change: Mark, you mentioned the fixed cost nature of Coyote. I just wanted to ask about same store studio expenses being up 33% this quarter.

Unknown Attendee: Same store studio expenses were up 33% this quarter. I would have thought it would be a lower number than that.

Mark: I would have thought it would be a lower number than that.

unknown: Oh, um...

unknown: The sequential route to look at it

Mark: oh

Mark: cho

Mark: The sequential, I don't know, Harout's looking at it.

unknown: I apologize; I wasn't prepared for that specific question.

Harout Diramerian: So it's not just, if you're just thinking of the percentage of NOI, yes, it feels large, but when you compare to FFO, it's a bigger number. And, you know, assuming our understanding is correct and the recover is that that is going to turn around pretty drastically once studio activity picks up, and a number of shows increase.

Harout Diramerian: I apologize, I wasn't prepared for that specific question.

Unknown Executive: Yeah, it could be. We did enjoy pretty high production levels at Sunset Gower in the quarter. In fact, higher than we had initially projected. Lighting and grip, when production levels are high, it tends to mean lighting and grip are high, and they carry with them higher operating expenses. So that's likely the reason for the sequential.

Speaker Change: It's just the same store, studio expenses have moved up a lot.

Speaker Change: Yeah, it could be. We did enjoy pretty high production levels at Sunset Gower.

Mark: In the quarter, in fact, you know, higher than we had initially projected.

Speaker Change: Lighting and grip, when production levels are high, it tends to mean lighting and grip is high, and they carry with it higher operating expenses, so that's likely the reason for the sequential increase.

Mark Lammas: And they carry with it higher operating expenses. So that's likely the reason for the sequential increase.

Harout Diramerian: So, thanks to our studio NOI was 7.6 million in the second quarter, does that become significantly negative number in the third quarter? No. The sub-port 6 is the, I think, in service studio number, so we expect that to come down.

Mark Lammas: Okay, great. Thank you.

Mark: ok

Alexander Goldfarb: Our next question comes from Alexander Goldberg with Piper Sandler. Yeah, it's not open. Hey, good afternoon. Good afternoon down there.

Operator: Our next question comes from Alexander Goldfarb with Piper Sandler.

Victor Coleman: Can I end up with killing? Let me just maybe take a somewhat different tack on it. Peru gave you the drivers of the difference between the 17 cents or 16 under Navy definition and the 10 cent midpoint, right? That's half studio related, half average office occupancy related. Hopefully, that's fairly clear. As it relates to your, sort of, the reach back to the earlier guidance and sort of trying to bridge, if you will, to that early, early number and the 10 cents.

Speaker Change: Our next question comes from Alexander Goldfarb with Piper Sandler. Your line is now open.

Alexander Goldfarb: Just two questions first and sort of, you know, piggybacking on John Kim's question on the earnings. You know, it seems like the earnings this year, obviously, you know, come down pretty quickly, just given the issues that you guys have been dealing with, especially on the studio front. When things right size and occupancy for office improves, studios rebounds, should we think about the quarterly progression of earnings rebounds to be as sharp and upward as it has been on the down. Just trying to get a sense of, you know, how long it will take to get earnings back, where it was with expectations at the beginning of the year versus where we stand right now.

Alexander Goldfarb: Hey, good afternoon. Good afternoon down there.

Alexander Goldfarb: Two questions first and sort of, you know, piggybacking on John Kim's question on the

Alexander Goldfarb: Just two questions first and sort of, you know, piggybacking on John Kim's question on the earnings.

Alexander Goldfarb: You know, it seems like the earnings this year, obviously, will come down pretty quickly, just given the issues that you guys have been dealing with, especially on the studio front.

Alexander Goldfarb: It seems like the earnings this year have come down pretty quickly, just given the issues that you guys have been dealing with, especially on the studio front.

Alexander Goldfarb: When things right-size and occupancy for office improves, Studios will rebound.

Speaker Change: When things right-size and occupancy for office improves,

Unknown Executive: We think about the quarterly progression of earnings rebounds to be as sharp and upward as it has been on the downside, just trying to get a sense of how long it will take to get earnings back to where they were with expectations at the beginning of the year versus where we stand right now.

Victor Coleman: I think what you have to appreciate is that the COD business, especially, is a slightly, highly leveraged to its fixed cost. And so, if show counts and the other drivers that really drive that business, markedly improved, you can generate a heck of a lot of incremental FFO off that. And if they don't improve, which for the time being at least, show counts are pretty stagnant. What you realize is that you're kind of bumping along not too far away from say, well, we reported NOI, negative 3 million bucks.

Speaker Change: Studios Rebound. Should we think about the quarterly?

Speaker Change: Progression of Earnings Rebounds to be as sharp and upward as it has been on the down, just trying to get a sense of, you know, how long it will take to get earnings back to where it was with expectations at the beginning of the year versus where we stand right now.

Victor Coleman: Yeah, I mean, it could be very sharp. But what I was just, you know, walking you through the prior question points of that. I mean, Keody has the potential, as you know, to generate, you know, considerably higher NLI than, you know, the negative three or previous quarters before that. And if you just run the math, I mean, there's not that much incremental cost associated with improving that NLI. And so it essentially drops to the bottom line. And FFO would, you know, could go up pretty quickly and significantly when that happens.

Unknown Executive: Yeah, I mean...

Victor Coleman: It could be very sharp. What I was just, you know, walking you through in the prior question points to that. I mean, Coyote has the potential, as you know, to generate, you know, considerably higher NOI than, you know, the negative three or previous quarters before that. And if you just run the math, I mean, there's not that much incremental cost associated with improving that NOI. And so it essentially drops to the bottom line.

Unknown Executive: It could be very

Speaker Change: Yeah, I mean.

Speaker Change: It could be very sharp.

Speaker Change: What I was just, you know, walking you through in the prior question points to that. I mean, Coyote...

Victor Coleman: And as we sit today on our third quarter expectations is that it's going to take a little while for the show counts to meaningfully improve. And so, we just haven't been able to really get the real lift off, if you will, in terms of the impact that COD have the potential to make on FFO.

Speaker Change: have the potential, as you know, to generate

Mark: You know, considerably higher NOI than the negative three or previous quarters before that. And if you just run the math, I mean, there's not that much incremental costs associated with improving that NOI. And so it essentially drops to the bottom line.

Victor Coleman: And FFO would, you know, could go up pretty quickly and significantly when that happens. Okay, and then the second question is, Victor, on the asset sales that you're contemplating, as you guys look at the portfolio, and especially where some of the assets may have been weaker as of late, is there, do you envision a scenario where, you know, maybe surgically you can remove some of the weaker assets, and that way end up with, you know, a Hudson that, you know, has, you know, is much more concentrated in the top.

Mark Lammas: Mark, you mentioned that the fixed cost nature of COD, I just wanted to ask about same store studio expenses being up 33% this quarter. I would have thought it would be a lower number than that. The sequential route is looking at it. I apologize, I wasn't prepared for that specific question. It's just the same store studio expenses with a lot. Yeah, it could be, when we did enjoy pretty high production levels, it's unsaid gourd in the quarter.

Speaker Change: and FFO would, you know, could go up pretty quickly and significantly when that happens.

Victor Coleman: Okay, and then the second question is Victor on the asset sales that you're contemplating as you guys look at the portfolio, and especially where some of the assets may have been weaker as of late. Is there, do you envision a scenario where, you know, maybe surgically, you can remove some of the weaker assets. And that way, end up with, you know, a husband that, you know, has, you know, is much more concentrated in the top tier assets across the portfolio and that the lagers, you can remove. It's easier done than said than done. So, you know, listen, on a general comment, as you well know, once the debt markets open up, you know, the disposition market is going to increase.

Unknown Participant: Unknown Participant

Speaker Change: Okay, and then the second question is, Victor, on the asset sales that you're contemplating, as you guys look at the portfolio, and especially where some of the assets may have been weaker as of late,

Speaker Change: Is there, do you envision a scenario where, you know, maybe surgically you can remove some of the weaker assets and that way end up with, you know, a Hudson that, you know,

Mark Lammas: In fact, you know, higher than we had initially projected lighting and grit. When production levels are high, it tends to mean lighting and grip is high. And they carry with it higher operating expenses. So that's likely the reason for the sequential increase.

Unknown Executive: Okay, great. Thank you.

Speaker Change: has, you know, is much more concentrated in the top tier assets across the portfolio and that the laggards you can remove or it's easier said than done.

Alex: Alex, so, you know, listen, on a general comment, as you well know, once the debt markets open up, you know, the disposition market is going to increase.

Victor Coleman: And so we have allocated our energy around two tiers, right? The assets that we don't think are long term assets for the portfolio going forward, which will make the enterprise a much higher quality enterprise. And those assets are already identified. And to some extent, our in conversations, you know, we've looked at them. There are a couple of assets that are in that bucket that clearly are not saleable in this market, given where the debt markets are. The other alternative is for us to also look at where we get a much higher capital amount to the bottom line of the company.

Alexander Goldfarb: Our next question comes from Alexander Goldpark, what's high for Sandler? Yeah, it's not open. Hey, good afternoon, good afternoon down there.

Alex: and so we've allocated our energy around two teers right that the assets that we don't

Speaker Change: Think are long-term assets for the portfolio going forward, which will make

Victor Coleman: Just two questions first, and sort of, you know, piggybacking on John Kim's question on the earnings. You know, it seems like the earnings this year, obviously, you know, come down pretty quickly, just given the issues that you guys have been dealing with, especially on the studio front. When things right size and occupancy for office improves, studios rebound, should we think about the quarterly progression of earnings rebounds to be as sharp and upward as it has been on the down.

Speaker Change: The Enterprise, a much higher quality enterprise, and those assets are already identified, and to some extent are in conversations, you know, we've looked at them. There are a couple assets that are in that bucket that clearly are not saleable in this market, given where the debt markets are.

Speaker Change: The other alternative is for us to also look at...

Speaker Change: where we get a much higher capital amount.

Victor Coleman: And as a result, we would look at a couple of the maybe better assets in the portfolio. But the goal is exactly how you sort of stated it. We're looking at having a much higher quality portfolio with high quality assets that are going to be performing. It's just taking us some time to get through that, but they've already been identified. Okay, thank you, Victor.

Speaker Change: to

Speaker Change: to the bottom line of the company and as a result we would look at a couple of the maybe better assets in the portfolio but but the goal is exactly how you sort of

Victor Coleman: Just trying to get a sense of, you know, how long it will take to get earnings back, where it was with expectations at the beginning of the year versus where we stand right now. Yeah, I mean, it could be very sharp. But what I was just, you know, walking you through the prior question points of that. I mean, COD has the potential, as you know, to generate, you know, considerably higher NOI than, you know, the negative three or previous quarters before that.

Victor Coleman: stated it, we're looking at having a much higher quality portfolio with high quality assets that are going to be performing. It's just taking us some time to get through that, but they've already been identified. Okay, thanks. Thank you.

Speaker Change: it stated it we're looking at having a much higher quality portfolio with high quality assets that are going to be performing it's just taking us some time to get through that but they've already been identified

Victor Coleman: You're welcome.

Victor Coleman: Okay, thank you, Victor.

Tom Cafferwood: Next question comes from Tom Cafferwood with BTIG. Yeah, why does that open?

Operator: Our next question comes from Tom Catherwood with BTIG. Your line is now open.

Speaker Change: You're welcome.

Victor Coleman: Our next question comes from Tom Catherwood with BTIG. Your line is now open.

Mark Lammas: Thank you, and good afternoon, everybody. Maybe Mark and Haroot started to keep sticking with guidance here, but following up on John's question, if we do a quick back of the envelope on the guidance ring quarter of recorder, it implies studio performance. It could be pretty close to in line with the 4Q 23 numbers, which was the peak of the strike impact. Is that really what you're building into guidance for next quarter? I don't think it's exactly that low. Like I said, I don't know if I gave estimates around the numbers. We expected a sequential drop, but I don't think we expect one to be as low as Q4.

William Catherwood: Thank you and good afternoon, everybody. Maybe Mark and Harout, sorry to keep sticking with guidance here, but following up on John's question, if we do a quick back of the envelope on the guidance swing quarter over quarter, it implies studio performance could be pretty close to in line with the 4Q23 numbers, which was the peak of the strike impact. Is that really what you're building into guidance for next quarter?

Tom Catherwood: Thank you and good afternoon everybody. Maybe Mark and Harout, sorry to keep sticking with guidance here, but following up on John's question,

Victor Coleman: And if you just run the map, I mean, there's not that much incremental cost associated with improving that NOI. And so it essentially drops to the bottom line and FFO would, you know, could go up pretty quickly and significantly when that happens.

Tom Catherwood: If we do a quick back of the envelope on the guidance swing quarter over quarter, it implies studio performance could be pretty close to in line with the 4Q23 numbers, which was the peak of the strike impact. Is that really what you're building into guidance for next quarter?

Victor Coleman: Okay, and then the second question is Victor on the asset sales that you're contemplating as you guys look at the portfolio. And especially where some of the assets may have been weaker as of late, is there, do you envision a scenario where, you know, maybe surgically you can remove some of the weaker assets. And that way end up with, you know, a Hudson that, you know, has, you know, is much more concentrated in the top tier assets across the portfolio and that the laggers, you can remove or it.

Unknown Executive: I don't think it's exactly that low. Like I said, I don't know if I gave estimates around the numbers, but we expect a sequential drop. I don't think we expect one as low as Q4 2023. I don't think so either.

Speaker Change: I don't think it's exactly that low. Like I said, I don't know if I gave...

Speaker Change: Estimates around the numbers. We expect a sequential drop, but I don't think we expect one to be as low as Q4 2023. I don't think so either and I mean just if you look at Q4

Unknown Executive: And I mean, just if you look at Q4 All right. Coyote NOI was 11.8 negative. The most recent quarter is 3-9. Seeming show counts sort of stay at or around, you know, in the 80-ish level, which they did in July and probably don't really start showing meaningful improvement until maybe late September. You're not even at that level. I don't think you're approaching 10 negative.

Mark Lammas: I don't think so either. And I mean, just if you look at Q4. QD and OI; it was 11, 8 negative. The most recent quarter is 3, 9, sending show counts, sort of stay out around, you know, in the 80th level, which they get in July and probably don't really start showing meaningful improvement until maybe late September. You're not even at that level. I don't think you're approaching 10, you know, negative 11.8 on QD. And that's, you know, you know, on. So we're not making that level of assumption on the QD business. We're really assuming this sort of stays more or less where it is today.

Victor Coleman: All right.

Speaker Change: Coyote NOI it was 11.8 negative

Victor Coleman: It's easier done than said than done So you know what listen on a general comment as you well know once the debt markets open up you know the disposition market is going to is going to increase and so we have allocated our energy around two tiers right the assets that we don't think are long term assets for the portfolio going forward which will make the enterprise a much higher quality enterprise and those assets are already identified and some extent are in conversations you know we we've looked at them there are a couple assets that are in that bucket that clearly are not saleable in this market given where the debt markets are the other alternative is for us to also look at where we get a much higher capital amount to to the bottom line of the company and as a result we would look at a couple of the maybe better assets in the portfolio but but the goal is exactly how you sort of stated it we're looking at having a much higher quality portfolio with high quality assets that are going to be performing it's just taking us some time to get through that but they've already been identified okay thank thank you Victor you're welcome next question comes from Tom Kaffirwood with B.

Speaker Change: The most recent quarter is 3-9, seeing show counts sort of stay at or around, you know, in the 80-ish level, which they did in July and probably don't really start showing meaningful improvement until maybe late September .

Speaker Change: You're not, even at that level, I don't think you're approaching 10, you know, negative 11.8.

Unknown Executive: 11.8, on Coyote. And that's, you know, you know, uh, and you know, so we're not making that level of it.

Tom Catherwood: on Coyote, and that's, you know...

Tom Catherwood: You know

Unknown Executive: So we're not making that level of assumption on the Coyote business; we're really assuming it sort of stays more or less where it is today. Maybe similar to Q1 for Coyote. Yeah.

Tom Catherwood: So, we're not making that level of assumption on the Coyote business, we're really...

Tom Catherwood: assuming it sort of stays more or less where it is today.

Mark Lammas: Maybe similar to Q1 for QD. Yeah.

Victor Coleman: maybe similar to q one for yty now

Victor Coleman: All right. Thank you for that clarification. And then Victor, following up on your response to Blaine's question about the asset sales, you mentioned one more being added to the bucket. Just to clarify, was that one in addition to kind of what has been, you know, expected before or ordered something fall out of the potential sales pool. That something fell out of the sales pool, and this was the reversing query by a user that we're talking to, and they're almost roughly the same valuation. This one's a little higher. Got it, appreciate that.

William Catherwood: All right, thank you for that clarification. And then Victor, following up on your response to Blaine's question about the asset sales, you mentioned one more being added to the bucket. Just to clarify, was that one in addition to what has been, you know, expected before, or did something fall out of the potential sales pool?

Victor Coleman: thank you for that clarification and then victor fall up on your response to blae's question about the asset sales you mentioned one more being added to the bucket just to clarify was that one in addition to a kind of what has been you know expected before or or did something fall out of the potential sales pool

Victor Coleman: that something fell out of the sales pool. And this was the reverse inquiry by a user that we're talking to, and they're almost roughly the same valuation. This one's a little higher.

Speaker Change: Something fell out of the sales pool and this was the reverse inquiry by a user that we're talking to.

Speaker Change: and there' are almost ough almost roughly the same valuation this one's a little higher

Victor Coleman: Got it. Appreciate that. Then last one for me just quickly, if I can.

Victor Coleman: The last one for me just quickly, if I can, are in terms of the least senior pipeline specifically in Silicon Valley and the Peninsula. Do you have a sense of how much of that is tenants relocating from properties within the market and submarket versus tenants maybe relocating from other markets? Yeah, generally there, it's not relocating from other markets. Generally, it's growth, right, because our bread and butter is kind of the 5,000 foot, perhaps a startup, high growth company, you know, that we're banking on. And those those are taking more space beyond that, it's, you know, space within the market.

William Catherwood: Art, in terms of the lease senior pipeline, specifically in Silicon Valley and the peninsula, do you have a sense of how much of that is tenants relocating from properties within the market and submarket versus tenants may be relocating from other markets?

Mark Lammas: P. I. G, you know why does that open Thank you and good afternoon everybody maybe Mark and Haroot sorry to keep sticking with guidance here but following up on John's question if we do a quick back of the envelope on the guidance ring quarter of a quarter it implies studio performance could be pretty close to in line with the four q 23 numbers which was the peak of the strike impact is that really what you're building into guidance for next quarter? I don't think it's exactly that low like I said I don't know if I gave estimates around the numbers we expected sequential drop I don't think we expect one to be as low as q 4 I don't think so either not I mean just if you look at q 4 qd and a y it was 118 negative the most recent quarter 3 9 sending show counts sort of stay out around you know in the 80th level which they get in July and probably don't really start showing meaningful improvement until maybe late September or you're not even at that level I don't think you're approaching 10 you know negative 11.8 on qd and that's you know you know so we're not making that level of assumption on the qd distance we're really assuming it sort of stays more or less where it is today maybe similar to q 1 for qd now.

Art Suazo: Got it. Appreciate that. Then last one for me just quickly, if I can. Art, in terms of the lease senior pipeline, specifically in Silicon Valley and the peninsula, do you have a sense of how much of that is tenants relocating from properties within the market and sub-market versus tenants maybe relocating from other markets?

Arthur Suazo: Yeah, generally there, it's not relocating from other markets. Generally, it's growth, right?

Arthur Suazo: Because our bread and butter is kind of the 5000 foot view, perhaps a startup, high growth company, you know, that we're banking on. And those, those are taking more space. Beyond that, it's, you know, space within the market. But we're seeing more and more of those growth, users, taking additional space.

Art Suazo: Yeah, generally there, it's not relocating from other markets, generally it's growth, right? Because our bread and butter is kind of the 5,000-foot, perhaps a startup, high-growth company that we're banking on, and those are taking more space.

Victor Coleman: But we were seeing more and more of that growth, growth users, taking additional space. Appreciate the answers.

Victor Coleman: Beyond that, it's, you know, space within the market, but we're seeing more and more of that, growth users taking additional space.

William Catherwood: I appreciate the answers. That's it for me. Thanks, everyone.

Victor Coleman: That's it for me.

Victor Coleman: Thanks, everyone.

Speaker Change: Appreciate the answers. That's it for me. Thanks, everyone.

Michael Griffin: Our next question comes from Michael Griffin with City.

Operator: Our next question comes from Michael Griffin with Citi. Your line is now open.

Victor Coleman: The line is not open. Great, thanks, Victor. I want to go back to your opening comments around how you don't think studio production needs to return to peak levels for it to start contributing to your business. I was wondering if you could expand on this a bit. Does this mean that just the rate of change and the recovery is going to be beneficial? And I recall when you initially did the keynote a deal, I think it was about $80 million of run rate, but the kind of initial expectation, do you think that's still possible as the business recovers?

Speaker Change: Our next question comes from Michael Griffin with Citi. Your line is now open.

Michael Griffin: Great, thanks. Victor, I want to go back to your opening comments around how you don't think studio production needs to return to peak levels for it to start contributing to your business. I was wondering if you could expand on this a bit. Does this mean that just the rate of change and the recovery are going to be beneficial? And I recall when you initially did the Quixote deal; I think it was about $80 million of run rate EBITDA, kind of initial expectations. Do you think that's still possible as the business recovers?

Michael Griffin: Great, thanks. Victor, I want to go back to your opening comments around how you don't think studio production needs to return to peak levels for it to start contributing to your business. I was wondering if you could expand on this a bit. Does this mean that just the rate of change in the recovery is going to be beneficial? And I recall when you initially did the Quixote deal, I think it was about $80 million of run rate EBITDA kind of initial expectations. Do you think that's still possible as the business recovers?

Mark Lammas: This is Mark. I'm going to try to tackle that. You know, it really starts with LA show counts, improving the levels consistent with periods less affected by either a pandemic or a strike, such as 2019 or 2022, the average of which is about 120 shows. Even if we assume that current production budgets, which are, you know, reflecting real cost-cutting measures, even if we assume those cost-cutting measures continue to limit the number of trailers and other production vehicles, let's say And also, we hinder our ability to push stage and service rates back to more historic norms.

Mark Lammas: Mark, I'm going to try to tackle that. You know, it really starts with L.A. show counts improving the levels consistent with periods less affected by either a pandemic or a strike such as 2019 or 2022, the average of which is about 120 shows. Even if we assume that current production budgets, which are, you know, reflecting real cost-cutting measures, even if we assume those cost-cutting measures continue to limit the number of trailers and other production vehicles, that say seven vehicles per production. And also, we hinder our ability to push stage and service rates back to more historic norms. As long as L.A.

Victor Coleman: This is Mark. I'm going to try to tackle that. You know, it really starts with L.A. show counts, improving the levels consistent with periods less affected by either a pandemic or a strike, such as 2019 or 2022.

Victor Coleman: All right thank you for that clarification and then Victor falling up on your response to Blaine's question about the the asset sales you mentioned one more being added to the bucket just to clarify was that one in addition to to kind of what has been you know expected before or or did something fall out of the potential sales pool. That something fell out of the sales pool, and this was the reverse inquiry by a user that we're talking to. And they're almost roughly the same valuation. This one's a little higher. Got it, appreciate that.

Victor Coleman: of which is about 120 shows.

Victor Coleman: um

Speaker Change: Even if we assume that current production budgets, which are, you know, reflecting real cost-cutting measures, even if we assume those cost-cutting measures continue to limit the number of trailers and other production vehicles that, say,

Victor Coleman: 7 vehicles per production. And also we hinder our ability to push stage and service rates back to more historic norms. As long as LA show counts simply reach something like 115 or 120 shows, our Coyote stages

Mark Lammas: As long as LA show counts simply reach something like 115 or 120 shows, our Coyote stages should get to about 65 to 70% occupied, and our projected annual NLI for Coyote should reach between 45 and 50 million. From there, any number of improvements have the potential to push NLI to 60 and above 60. For example, if you get to 75% Coyote stage occupancy, that drives another $5 million NLI increase. And if trailer and other vehicle counts go from the current seven or so vehicles back to the historic levels of eight to eight and a half, that drives another $7 to $10 million NLI.

Mark Lammas: show counts simply reach something like 115 or 120 shows, our KOD stages should get to about 65 to 70% occupied, and our projected annual ROI for KOD should reach between 45 and 50 million. From there, any number of improvements have the potential to push N.O.I. to 60 and above 60. For example, if you get to 75% KOD stage occupancy, that drives another $5 million N.O.I. increase. And if trailer and other vehicle counts go from the current seven or so vehicles to back to historic levels of eight to eight and a half, that drives another seven to 10 million of N.O.I.

Victor Coleman: should get to about 65-70% occupied and our projected annual NOI for Coyote should reach between $45 and $50 million.

Mark Lammas: The last one for me just quickly, if I can, are in terms of the leasing your pipeline specifically in Silicon Valley and the peninsula. Do you have a sense of how much of that is tenants relocating from properties within the market and sub market versus tenants, maybe relocating from from other markets? Yeah, generally there it's not relocating from other markets, generally it's growth, right? Because our bread and butter is kind of the 5,000 foot, perhaps a startup, high growth company that we're banking on. And those are taking more space beyond that it's space within the market, but we're seeing more and more of that growth, growth users taking additional space. Appreciate the answers. That's it for me.

Victor Coleman: From there, any number of improvements have the potential to push NOI to 60 and above 60. For example, if you get to 75% COD stage occupancy, that drives another $5 million NOI increase.

Unknown Executive: Thanks everyone.

Victor Coleman: And if trailer and other vehicle counts go from the current seven or so vehicles to back to the historic levels of eight to eight and a half, that drives another seven to 10 million of NOI. And then of course, obviously as market conditions tighten, with show counts improving, we could then look to potentially push rates.

Mark Lammas: And then, obviously, as market conditions tighten with show counts improving, we could potentially push rates. We might be able to increase our market share a little bit. And all of those would ultimately contribute to getting that NLI number not just to 60 but somewhere well north of 60.

Mark Lammas: And then, of course, obviously, as market conditions tighten with show counts improving, we could then look to potentially push rates. It may, we might be able to increase our market share a little bit. And all of those would ultimately contribute to getting that N.O.I. number not just to 60 but somewhere well north.

Victor Coleman: and maybe we might be able to increase our market share a little bit and you know all of those would ultimately contribute to you know getting that NOI number not just to 60 but somewhere you know well north of that.

Mark Lammas: That should appreciate the color on that mark.

Michael Griffin: I would appreciate the color on that, Mark. And then maybe for Harout, just updated thoughts, maybe around issues with potential covenants. You know, I imagine that EBITDA is expected to decrease in the third quarter relative to the second quarter. I think you might be pushing up on a couple covenants there. So any thoughts or updates around how we should think about that?

Harout Diramerian: And then maybe for Harout just updated thoughts maybe around issues with potential covenants, you know, I imagine that Eva dies expected a decrease with the third quarter relative to the second quarter. I think you might be pushing up on a couple covenants there. So, any thoughts or updates around how we should think about that. Hey Michael, good question. So you know, we. We, we always project out our covenants, and like this quarter, our projections came in our actual team and better in our projections and all of our covenants and our results. So given that aren't even our lower expectations in the future, we don't, we don't think we're going to break any covenants or, you know, I think, you know, maybe next one might be similar to this quarter.

Speaker Change: that appreciate the the color on that mark and then maybe for her out just updateated thoughts maybe around issues with potential covenants you know i imagine that e does expected a decrease with the third quter relative to the second quarter i think you might be push up on on a couple of covenants there er so any any thought or updated around i would should think about that

Michael Griffin: Our next question comes from Michael Griffin with City.

Victor Coleman: The line is not open. Great, thanks. Victor, I want to go back to your opening comments around how you don't think studio production needs to return to peak levels for it to start contributing to your business. I was wondering if you could expand on this a bit. Does this mean that just a rate of change in the recovery is going to be beneficial. And I recall when you initially did the key, I think it was about $80 million of run rate, but kind of initial expectations.

Harout Diramerian: Hey Michael, good question.

Victor Coleman: Hey Michael, good question. So, you know, we...

Harout Diramerian: So, you know, we always project out our covenants, and like this quarter, our projections came in. Our actual results came in better than our projections and all of our covenants and our results. So, given that we even have lower expectations in the future, we don't, we don't think we're going to break any covenants or, you know, I think, you know, maybe next quarter might be similar to this quarter. So, you know, we feel pretty confident, but, you know, our projections are solid in terms of our

Speaker Change: We always project out our covenants and like this quarter our projections came in

Victor Coleman: Do you think that's still possible as the business recovers? Mark, I'm going to try to factor that. You know, it really starts with L.A, show counts, improving the levels consistent with periods less affected by either a pandemic or a strike such as 2019 or 2022, the average of which is about 120 shows. Even if we assume that current production budgets, which are, you know, reflecting real cost cutting measures, even if we assume those cost cutting measures continue to limit the number of trailers and other production vehicles that say seven vehicles per production and also a hinder our ability to push stage and service rates back to more historic norms.

Speaker Change: Our actuals came in better than our projections in all of our covenants and our results.

Victor Coleman: As long as L.A, show counts simply reach something like 115 or 120 shows, our key O.D, stages should get to about 65 to 70% occupied and our projected annual ROI for key O.D, should reach between 45 and 50 million from there any number of improvements have the potential to push N.O.I, to 60 and above 60. For example, if you get to 75% key O.D, stage occupancy, that drives another $5 million N.O.I, increase.

Harout Diramerian: Given that, even though our lower expectations in the future, we don't think we're going to break any covenants, or, you know, I think, you know, maybe next quarter might be...

Harout Diramerian: So, you know, we feel pretty confident, but, you know, our projections are solid in terms of our expectations.

Victor Coleman: Similar to this quarter so you know we feel pretty confident but you know our projections are solid in terms of our expectations.

Michael Griffin: Great. What's this for me? Thanks for the time.

Michael Griffin: Great, that's it for me. Thanks for the time.

Michael Griffin: Thanks, Michael.

Dylan Burzinski: Next question comes from Dylan Burzinski with Green Street. Your line is not open. Thanks for the question, guys. Just wanted to go back to your comments around kind of domain or kind of requirements taking up in San Francisco. Can you kind of talk about some of the drivers of that? Obviously, I'm sure some of it to pick up an activity from AI companies. But if you can sort of give any other details of the other drivers of that. And then it's sort of a parallel to that. A lot of the reason why market vacancies have continued to go higher in San Francisco is because of space.

Operator: Our next question comes from Dylan Burzinski with Green Street. Your line is now open.

Victor Coleman: thankm

Speaker Change: Our next question comes from Dylan Burzinski with Green Street. Your line is now open.

Dylan Burzinski: Good afternoon. Thanks for taking the question, guys. Just wanted to go back to your

Dylan Burzinski: comments around tenant demand or tenant requirements picking up in San Francisco. Can you kind of talk about some of the drivers of that?

Dylan Burzinski: Good afternoon. Thanks for taking the question, guys. Just wanted to go back to your comments around tenant demand or tenant requirements picking up in San Francisco. Can you kind of talk about some of the drivers of that?

Dylan Burzinski: Obviously, I'm sure some of it's a pickup and activity from AI companies. But if you can sort of give any other details about the other drivers of that, and then, as sort of a parallel to that, a lot of the reason why market vacancies have continued to go higher in San Francisco is because of space givebacks by big tech, you kind of just talk about expectations for there to be a continuation of this, or a change in this, because as we sort of think about where big tech is investing their capital today, it

Victor Coleman: Obviously, I'm sure some of it's a pickup and activity from AI companies, but if you can sort of give any other details of the other drivers of that, and then that's sort of a parallel to that.

Speaker Change: A lot of the reason why market vacancies have continued to go higher in San Francisco is because of space givebacks by big tech.

Arthur Suazo: Give back by big tech and kind of just talk about expectations for there to be a continuation of this. A change in this because there's sort of think about where big tech is investing their capital today. It's primarily in the AI and data center of a structure. And so, just curious if you can give us any insight into, you know, any potential for this space. Give back from the segment of the market.

Dylan Burzinski: Can you kind of just talk about expectations for there to be a continuation of this, a change in this, because as I sort of think about where...

Dylan Burzinski: primarily in the AI and data center infrastructure. And so, just curious if you can give us any insight into, you know, any potential for this.

Victor Coleman: And if trailer and other vehicle counts go from the current seven or so vehicles to back to the historic levels of eight to eight and a half that drives another seven to 10 million N.O.I. And then of course, obviously as market conditions tighten with show counts and proving we could then look to potentially push rates. It may we might be able to increase our market share a little bit. And, you know, all of those would ultimately contribute to, you know, getting that N.O.I, number not just to 60 but somewhere, you know, well north.

Speaker Change: Big tech is investing their capital today. It's primarily in the AI and data center infrastructure. And so just curious if you can give us any insight into, you know, any potential for this space to give back from this segment of the market.

Dylan Burzinski: any potential further space give backs in this segment of the market.

Arthur Suazo: Sure, Dylan, this is art. You know, listen, yeah, AI has been clearly driving the market. It last year that was responsible for about 1.7 million square feet. We started off the first half of the year strong with about 600, just a little over 600,000 square feet. And the active AI pipeline. The demand sits, I mean, I think we re-reported it with somewhere around seven. But since it's going to went to print, I mean, we're literally looking at and pushing up against another million square feet. So we're tracking as we did last year. But don't forget, you know, yes, AI is driving the market now.

Arthur Suazo: Sure, Dylan, this is Art. You know, listen, yeah, AI has been clearly driving the market last year, responsible for about 1.7 million square feet. We started off the first half of the year strong with about 600, just a little over 600,000 square feet. And the active AI pipeline, the demand sits, I think we reported it was somewhere around seven, but it's since it's gone, it went to print.

Arthur Suazo: Sure, Dylan, this is Art. Listen, yeah, AI has been clearly driving the market. Last year, it was responsible for about 1.7 million square feet. We started off the first half of the year strong with

Arthur Suazo: About 600, just a little over 600,000 square feet, and the active AI pipeline.

Arthur Suazo: The demand sits, I mean, I think we re-reported it was somewhere around seven, but it's...

Mark Lammas: That should appreciate the color on that mark.

Arthur Suazo: Since it's gone and went to print, I mean, we're literally looking at and pushing up against another million square feet. So we're tracking as we did last year.

Harout Diramerian: And then maybe for Harout, just updated thoughts maybe around issues with potential covenants, you know, I imagine that Eva dies, expected a decrease with the third quarter relative to the second quarter, I think you might be pushing up on a couple covenants there. So any any thought or updated around how we should think about that. Hey Michael, good question. So you know we. We always project out our covenants and like this quarter, our projections came in our actual team and better in our projections and all of our covenants and our results.

Arthur Suazo: I mean, we're literally looking at and pushing up against another million square feet. So we're tracking as we did last year. But don't forget, you know, yes, AI is driving the market now, tech is coming back into the market in a more meaningful way. But the bread and butter, not just for San Francisco but for all the markets through the pandemic, was professional service law, Law Firm's leasing space. That continues.

Arthur Suazo: Tech is coming back in the market in a more meaningful way. But the bread and butter, not just for San Francisco, but for all the markets through the pandemic, was professional service law; law firms leasing space. That continues. It's just been overshadowed in the headlines because of AI and because of tech coming back. Everybody's anxiously awaiting. But that sector has continued to grow as well. Not at the same rate, but it also, like I said, it's going to bolster the market. Relative to tech, big tech givebacks, you know, we were seeing them wholesale. For a while, I think these givebacks have become more measured.

Victor Coleman: But don't forget, you know, yes, AI is driving the market now.

Speaker Change: Tech is coming back in the market in a more meaningful way. But the bread and butter, not just for San Francisco, but for all the markets through the pandemic was professional service law.

Arthur Suazo: It's just been overshadowed in the headlines. Because of AI and because of tech coming back, everybody's anxiously awaiting, but that sector has continued to grow as well. Not at the same rate, but it also, like I said, it's going to bolster the market. Relative to tech, big tech givebacks. You know, we were seeing them wholesale for a while.

Speaker Change: law firms leasing space.

Harout Diramerian: So given that aren't even our lower expectations in the future, we don't, we don't think we're going to break any covenants or, you know, I think, you know, maybe next four might be similar to this quarter. So we're going to be able to do that. You know, we feel pretty confident, but our projections are in terms of our expectations. Great.

Arthur Suazo: because of AI and because of tech coming back, everybody's anxiously awaiting, but that sector has continued to grow as well. Not at the same rate, but it also, like I said, it's going to bolster the market. Relative to tech, big tech givebacks.

Arthur Suazo: I think these givebacks have become more measured, I think. Some of these big tech companies have just made decisions about how they're going to give back or how they're going to utilize space and how they're going to give it back. Listen, they're up against some expirations in the next year and a half, and I think they're going to deal with it then.

Arthur Suazo: you know we were seeing them wholesale for a while i think these givebacks have become more measured i think

Arthur Suazo: I think. and some of these big tech have made decisions about how they're going to give back or how they're going to utilize space and how they're going to give it back. Listen, they're up against some explorations in the next year and a half, and I think they're going to deal with it then. But I think we've seen a far more measured approach about what that means going forward. And I think the demand that you're seeing in the market, when executed, is going to ultimately more than offset any of those get backs.

Arthur Suazo: Some of these big tech have just made decisions about how they're going to give back or how they're going to utilize space and how they're going to give it back. Listen, they're up against some expirations in the next year and a half, and I think they're going to deal with it then. But I think we've seen a far more measured approach about what that means.

Victor Coleman: But I think we've seen a far more measured approach about what that means going forward, and I think that the demand that you're seeing in the market when executed is going to ultimately more than offset any of those givebacks. Hey Dylan, it's Victor.

Michael Griffin: What's this for me. Thanks for the time. Thanks Michael.

Dylan Burzinski: going forward. And I think that the demand that you're seeing in the market when executed is going to ultimately more than offset any of those givebacks.

Dylan Burzinski: Next question comes from Dylan Burzinski with Green Street. Your line is not open. Thanks for taking the question guys. Just wanted to go back to your comments around kind of domain or kind of requirements taking up in San Francisco. Can you kind of talk about some of the drivers of that. Obviously I'm sure some of it to pick up an activity from AI companies, but if you can sort of give any other details of the other drivers of that.

Victor Coleman: Dylan, inspector, also, I just want to give some macro highlights in the city. I know you guys are on top of this stuff, but we're fault. We follow is very closely. And when I made in my prepared remarks, the reduction in crime, I mean, we're seeing that it's hitting its lowest mark in the last five years. We're seeing obviously activation centers areas that are being capitalized for activation centers in the city that is going well. The barred exits have gone up almost 7%. The San Francisco can counts are down since 2018. They're the lowest levels, you know, the 41% reduction intense, and the homelessness is down 13%.

Victor Coleman: Also, I just want to give you guys some macro highlights in the city. I know you guys are on top of this stuff, but we follow this very closely. And when I made my prepared remarks, the reduction in crime, I mean, we're seeing that it's hitting its lowest mark in the last five years. We're seeing obviously activation centers, areas that are being capitalized on for activation centers in the city that are going well. BART exits have gone up almost 7 percent. Meanwhile, the San Francisco tent counts are down since 2018. They're at their lowest levels.

Victor Coleman: Hey Dylan, it's Victor. Also, I just want to just give you some macro highlights in the city. I know you guys are on top of this stuff, but you know, we follow this very closely.

Victor Coleman: And, you know, when I made my prepared remarks, the reduction in crime, I mean, we're seeing that it's, you know, that it's hitting its lowest mark in the last five years. We're seeing, obviously, activation centers, areas that are that are being

Dylan Burzinski: And then it's sort of a parallel to that. A lot of the reason why market vacancies have continued to go higher in terms of school is because of space give back by big tech. You kind of just talk about expectations for there to be a continuation of this, a change in this because there's sort of think about where big tech is investing their capital today. It's primarily in the AI and data center of a structure.

Victor Coleman: being capitalized for activation centers in the city that is going well. BART exits have gone up almost 7%. The San Francisco tent counts are down since 2018. They're at their lowest levels, you know, they're at a 41% reduction in tents. And the homelessness is down 13%. So these are all factors that are helping the macro basis.

Dylan Burzinski: And so just curious if you can give us any insight into, you know, any potential for this space give back from the segment of the market. Sure, Dylan, this is art. You know, listen, yeah, AI has been clearly driving the market laughter that was responsible for about 1.7 million square feet. We started off the first half of the year strong with about 600, just a little over 600,000 square feet. And the active AI pipeline.

Arthur Suazo: They saw a 41 percent reduction in tents, and homelessness is down 13 percent. So these are all factors that are helping the macro basis for growth in San Francisco. And I've always said, you know, when San Francisco turns, it will turn quicker than people think. And I think that's what's driving some of this activity. And you know, one more thing, Dylan, other than the obvious demand drivers, you know, gross leasing and things like that, the number I'm looking at is sublease availability. It was, excuse me, the net absorption, which was negative 290,000 square feet, which seems like a normally high number.

Victor Coleman: So these are all factors that are helping the macro basis for growth in San Francisco. And I've always said, you know, when San Francisco turns, it will turn quicker than people think. And I think that's what's driving some of this activity. And you know, one more thing, Dylan, you know, other than the obvious demand rise, you know, gross leasing and things like that. The number I'm looking at is sublies, yeah, sublies availability. It was extremely the net absorption, which is negative 290,000 square feet, which seems like a normally high number. It's been trending through the pandemic.

Dylan Burzinski: The demand sits, I mean, I think we re-reported it with somewhere around seven, but it's since it's going to went to print. I mean, we're literally looking at and pushing up against another million square feet. So we're tracking as we did last year. But don't forget, you know, yes, AI is driving the market now. Tech is coming back in the market in a more meaningful way, but the bread and butter, not just for San Francisco, but for all the markets through the pandemic was professional service law.

Arthur Suazo: for growth in San Francisco. And I've always said, you know, when San Francisco turns, it will turn quicker than people think. And I think that's what's driving some of this activity.

Arthur Suazo: And, you know, one more thing, Dylan, you know, other than the obvious.

Arthur Suazo: Demand drives, you know, gross leasing and things like that. The number I'm looking at is...

Dylan Burzinski: Sublease, yeah, sublease availability.

Arthur Suazo: It was, excuse me, the net absorption, which was negative 290,000 square feet, which seems like normally a high number. It's been trending through the pandemic. It's been trending to about a million and one.

Arthur Suazo: It's been trending through the pandemic. It's been trending to about a million one, right? So if you think about it, it's come down over the last few quarters, but it was trending at a million one, and it's now kind of moving back to a manageable number. Appreciate those comments, and then maybe just a follow-up.

Victor Coleman: It's been trending about a million one, right? So if you think about it, it's come down over the last quarters, but it was trending in a million one. It's now kind of moving back to a manageable number. Appreciate those comments.

Arthur Suazo: So if you think about it, it's come down over the last few quarters, but it was trending at a million one. It's now kind of moving back to a manageable number.

Dylan Burzinski: Law firms leasing space that continues. It's just been overshadowed in the headlines. Because of AI and because of tech coming back everybody's anxiously awaiting, but that sector has continued to grow as well. Not at the same rate, but it also like I said, it's going to bolster bolster the market relative to tech, big tech give back. You know, we were seeing them wholesale for a while. I think these givebacks have become more measured.

Victor Coleman: And then maybe just a follow-up to some of that. I mean, are you seeing? I know Governor Newsroom really recently ordered the state agencies to address homeless encampment. So you see in that sort of be obviously that's recent news, but you see in that sort of be talked about in leasing discussions. And then, you know, obviously it seems like recession odds are higher today than they were two or three weeks ago. And so are you at all hearing any discussions on that with tenants, or I take listen on the recession is too early to tell, right?

Dylan Burzinski: That I mean, are you seeing? I know Governor Newsom really recently ordered state agencies to address homeless encampments. Are you seeing that sort of thing, obviously, that's recent news, but are you seeing that sort of thing talked about in leasing discussions? And then, obviously, it seems like the recession odds are higher today than they were two or three weeks ago. And so are you at all hearing any discussions on that with tenants or not?

Speaker Change: appreciate those comments and then maybe just a follow-up to some of that I mean

Dylan Burzinski: Are you seeing, I know Governor Newsom really recently ordered the state agencies to address homeless encampments, are you seeing that sort of be, obviously that's recent news, but are you seeing that sort of be...

Speaker Change: I talked about in recent discussions, and then.

Dylan Burzinski: You know, obviously, it seems like recession odds are higher today than they were two or three weeks ago. And so are you at all hearing any discussions on that with tenants or?

Dylan Burzinski: I think, and some of these big tech have made decisions about how they're going to give back or how they're going to utilize space and how they're going to give it back. Listen, they're up against some explorations in the next year and a half, and I think they're going to deal with it then. But I think we've seen a far more measured approach about what that means going forward. And I think the demand that you're seeing in the market when executed is going to ultimately more than offset any of those get backs.

Arthur Suazo: I think, listen, on the recession, it's too early to tell, right? This is, you know, it's sort of new news. It's come out in the last, you know, 30, less than 30 days in terms of the governor's movement to move the encampments. It's absolutely affected San Francisco. I think more so than it has for sure in Los Angeles because, you know, listen. There's an election in San Francisco, right?

Victor Coleman: This is, you know, it's sort of new news. It's come out in the last, you know, 30 less than 30 days in terms of in terms of. The governor's movement to move the encampments. It's absolutely affected San Francisco. I think better more so than than it has for sure in Los Angeles. Because, you know, listen, there's an election in San Francisco, right? So London Breed is up for reelection. And so she's going to push on that as a platform where, you know, Karen Mass Mayor Bass doesn't have to do that. She's got another two plus years to go.

Arthur Suazo: I think, listen, the recession is too early to tell, right? This is, you know, it's sort of new news that's come out in the last, you know, less than 30 days. In terms of the governor's movement to move the encampments, it's absolutely affected San Francisco. I think more so than it has for sure in Los Angeles. Because, you know, listen, there's an election in San Francisco, right? So London Breed is up.

Arthur Suazo: So London Breed is up for reelection. And so she's going to push for that as a platform where, you know, Karen Bass, Mayor Bass, doesn't have to do that. She's got another two plus years to go.

Art Suazo: Dylan, Inspector, also, I just want to give some macro highlights in the city. I know you guys are on top of this stuff, but we're fault, we follow is very closely. And when I made in my prepare remarks, the reduction in crime, I mean, we're seeing that it's, you know, that it's hitting its lowest mark in the last five years. We're seeing obviously activation centers areas that are being capitalized for activation centers in the city that is going well.

Arthur Suazo: for re-election. And so she's going to push on that as a platform where, you know, Karen Bass, Mayor Bass doesn't have to do that. She's got another two plus years to go.

Victor Coleman: Great.

Dylan Burzinski: Great. Thanks for the details, guys. I really appreciate it. Thanks, Dylan.

Victor Coleman: Thanks for the details. You guys really appreciate it. Thanks, don't.

Dylan Burzinski: Great. Thanks for the details, guys. Really appreciate it.

Peter Abramowitz: Our next question comes from Peter Abramowitz with Jefferies. Your line is now. Yes, thank you for taking the questions. Just wanted to go back to those comments about kind of the ability to drive some meaningful value in the studio portfolio, even if things don't get back to where they were before the strikes. I guess is there anything you can do or anything you're expecting to do on the expense side to kind of close some of the gap and get back to the NOI run rates you for under rowing? Yeah, there's some measures we can do and are doing.

Operator: Our next question comes from Peter Abramowitz with Jefferies.

Speaker Change: Thanks, Dylan.

Speaker Change: Our next question comes from Peter Abramowitz with Jefferies. Your line is now open.

Peter Abramowitz: Yes, thank you for taking the questions. Just wanted to go back to those comments about the ability to drive some meaningful value in the studio portfolio, even if things don't get back to where they were before the strikes. Is there anything you can do or anything you're expecting to do on the expense side to kind of close some of the gap and get back to the NOI run rates you sort of underwrote when you did the Kyoto deal? Just to sort of close that gap, because obviously, demand and the revenue side are not going to be quite where you were probably expecting them a couple of years ago.

Peter Abramowitz: Yes, thank you for taking the questions. I just wanted to go back to those comments about kind of

Art Suazo: Bard exits have gone up almost 7% the San Francisco can counts are down since 2018 there are the lowest levels, you know, the 41% reduction intense and the homelessness is down 13%. So these are all factors that are helping the macro basis for growth in San Francisco. And I've always said, you know, when San Francisco turns, it will turn quicker than people think. And I think that's what's driving some of this activity.

Speaker Change: The ability to drive some meaningful value in the studio portfolio, even if things don't get back to where they were before the strike.

Peter Abramowitz: I guess, is there anything you can do, or anything you're expecting to do on the expense side to kind of close some of the gap?

Peter Abramowitz: Get back to the NOI run rates you underwrote when you did the Quixote deal, just to sort of close that gap because obviously demand and the revenue side is not going to be quite where you were probably expecting it a couple years ago.

Art Suazo: And you know, one more thing, Dylan, you know, other than the obvious demand rise, you know, gross leasing and things like that, the number I'm looking at is sublies, yeah, sublies availability. It was, excuse me, the net absorption, which is negative 290,000 square feet, which seems like normally high number. It's been trending through the pandemic. It's been trending about a million one, right? So if you think about it, it's come down over the last quarters, but it was trending in a million one.

Unknown Executive: Yeah, there are some measures we can do and are doing. I mean, on the heels of the acquisition of Coyote, the third of the three companies in the fall of 22, we implemented a lot of efficiency measures, including two pretty sizable rifts. And so we believe we've largely right-sized the headcount. There are other things we are looking into at the operations level, looking at our footprint in terms of our various facilities, ways to save costs there, and looking at efficiencies on the manufacturing side in terms of our trailer manufacturing. And so we'll just continue to pursue those and try to make inroads on the cost side to try to help improve those margins.

Mark Lammas: I mean, we did, on the heels of the acquisition of COD, the third of the three companies in the fall of 22. We did implement a lot of efficiency measures, including two. Pretty sizable riffs. And so we believe we've largely right-sized the head count. There are other things we are looking into, really happy operations level, looking at our footprint in terms of our various facilities, ways to save cost there. We're looking at the efficiencies on the manufacturing side in terms of our trailer manufacturing. And so we'll just continue to pursue those and try to make inroads on the cost side to try to help improve those margins.

Speaker Change: Yeah, there's some measures we can do and are doing. I mean, we did...

Unknown Executive: On the heels of the acquisition of Coyote, the third of the three companies, in the fall of 22, we did implement a lot of efficiency measures, including two pretty sizable rifts.

Unknown Executive: And so we believe we've largely right-sized the headcount.

Art Suazo: It's now kind of moving back to a manageable number. Appreciate those comments. And then maybe just a follow up to some of that. I mean, are you seeing, I know Governor Newsroom really recently ordered the state agencies to address homeless encampment. So you see in that sort of be obviously that's recent news, but you see in that sort of be talked about in leasing discussions and then, you know, obviously it seems like recession odds are higher today than they were two or three weeks ago.

Unknown Executive: There are other things we are looking into.

Unknown Executive: really at the operations level, looking at our footprint in terms of our various facilities, ways to save

Art Suazo: And so are you at all hearing any any discussions on that with tenants or I take listen on the recession is too early to tell, right? This is, you know, it's sort of new news. It's come out in the last, you know, 30 less than 30 days in terms of in terms of the governor's movement to move the encampments. It's absolutely affected San Francisco. I think better more so than than it has for sure in Los Angeles.

Unknown Executive: We'll just continue to pursue those and try to make inroads on the cost side to try to help improve those margins.

Mark Lammas: Okay, that's helpful. And then you published an interesting chart. I think in your neighborhood presentation, that utilization, transportation utilization, the studio business had gone from about 10% during the back half of last year or up close to 30 by April. Apologies if I missed this up front here to cover it, but could you just provide an update on where that is as of July. Yeah, well, we mentioned in our prepared remarks of the 24%. I would, I would venture, you know, that's, you know, if you think about where we finished the quarter at 82 shows in LA, you know, to be at 24% utilization at show counts at that level really points to a lot of, you know, potential here.

Peter Abramowitz: Okay, that's helpful. And then you published an interesting chart, I think, in your Navy presentation that utilization, transportation utilization, the studio business had gone from about 10% during the back half of last year, up close to 30% by April. Apologies if I missed this up front here to cover it, but you just provide an update on where that is as of July. Yeah.

Peter Abramowitz: Okay, that's helpful. And then you published an interesting chart, I think, in your NARIT presentation that utilization, transportation utilization, the studio business had gone from

Peter Abramowitz: About 10% during the back half of last year, up close to 30% by April . Apologies if I missed this up front, you already covered it, but we just provide an update on where that is as of July .

Art Suazo: Because, you know, listen, there's an election in San Francisco. Right. So London breed is up for reelection. And so she's going to push on that as a platform where, you know, Karen Bass, Mary Bass doesn't have to do that. She's got another two plus years to go. Great. Thanks for the details. You guys really appreciate it. Thanks, Don.

Unknown Executive: Yeah, well, we mentioned in our prepared remarks the 24%. I would, I would mention, you know, that's, you know, if you think about where we finished the quarter at 82 shows in LA, to be at 24% utilization at show counts at that level really points to a lot of potential here. I mean, 30% was back when show counts were in the low 100 range.

Unknown Executive: Yeah, well, we mentioned in our prepared remarks of the 24%. I would, I would mention that, you know, that's, you know, if you think about where we

Unknown Executive: finished the quarter at 82 shows in L.A.

Peter Abramowitz: Our next question comes from Peter Abramowitz with Jeffries. Your line is now.

Unknown Executive: To be at 24% utilization at show counts at that level really points to a lot of potential here.

Mark Lammas: I mean, 30% was back when show counts were in the low 100 range to put a finer point on it. We averaged 96 in the second quarter. We only just tapered down to 80 and towards the end of June. We're sitting at about 80 as of the end of July. We might, you know, hopefully we start coming off that bottom soon. But if we're at 24 at 80, we could easily get to 30 quickly on. We think we are picking up market share on the trailer side through a lot of credit to our sales team picking up on, you know, proving relations, picking up just more sales.

Victor Coleman: Yes, thank you for taking the questions. Just wanted to go back to those comments about kind of the ability to drive some meaningful value in the studio portfolio, even if things don't get back to where they were before the strikes. I guess is there anything you can do or anything you're expecting to do on the expense side to kind of close some of the gap and get back to the NOI run rates you for under rowing?

Unknown Executive: 30% was back when show counts were in the low 100 range.

Unknown Executive: To put a finer point on it, we averaged 96 in the second quarter, and we only just tapered down to 80 and towards the end of June. We're sitting at about 80 as of the end of July. We might, you know, hopefully, start coming off that bottom soon. But if we're at 24 at 80, we could easily get to 30 quickly. We think we are picking up market share on the trailer side through a very large credit to our sales team, picking up on, you know, improving relations, picking up just more sales.

Speaker Change: To put a finer point on it, we averaged 96 in the second quarter and we only just tapered down to 80 in the first quarter.

Unknown Executive: We're sitting at about 80 as of the end of July .

Unknown Executive: Coming off that bottom soon, but...

Unknown Executive: If we're at 24 at 80, we could easily get to 30 quickly.

Unknown Executive: on

Unknown Executive: We think we are picking up market share on the trailer side through a lot of credit to our sales team.

Unknown Executive: [inaudible] All right, that's all from me. Thank you.

Unknown Executive: picking up on, you know, improving relations, picking up just more sales.

Mark Lammas: So, well, you know, I think 30, you know, something we can get to quickly. And then if show counts get to the levels, we're just talking about the 115, 120 level. And we should be back above 50 plus percent utilization.

Unknown Executive: So, well, you know, I think 30, you know, something we can get to quickly. And then if show counts get to the levels we were just talking about, the 115, 120 level, you know, we should be back to about 50 percent utilization.

Unknown Executive: So, well, you know, I think 30 is, you know, something we can get to quickly, and then if show counts get to the levels we were just talking about, the 115, 120 level, you know, we should be back above 50 plus percent utilization.

Mark Lammas: All right, that's all for me.

Peter Abramowitz: All right, that's all for me. Thank you.

Richard Anderson: Thank you. All right, the next question comes from Rich Anderson: what was securities? Your life's not open. Thanks.

Peter Abramowitz: That's all for me. Thank you.

Operator: Our next question comes from Rich Anderson with Wedbush Securities.

Speaker Change: Our next question comes from Rich Anderson with Woodbush Securities. Your line is now open.

Victor Coleman: Good afternoon. I was asked and asked a similar question on Ciodi, specifically on the expense side, the 25 million you run roughly per quarter. Something a lot of that is least expense. Have you inquired or thought about, you know, sort of a rent restructure for the 23 least studios? Or is it not gotten that bad? Rich, hey, no, but Rich, what we have done is, you know, we're, I mean, you're actually right, a line share of that is least cost, but we are also looking at some consolidation that are not studio least cost, but, but, transpos storage least costs and the likes of that in consulting or in conversations on that. We have several leases that expire in the next, you know, 24 to 36 months that we're working on a master plan around that.

Rich Anderson: Thanks, good afternoon. I was asked, and I ask a similar question on Coyote, specifically on the expense side, the $25 million you run roughly per quarter, assuming a lot of that is lease expense. Have you inquired or thought about, you know, sort of a rent restructure for the 23 lease studios?

Richard Anderson: Or has it not gotten that bad? Rich, hey, no, but Rich, what we have done is, you know, we are, I mean, you're absolutely right. A lion's share of that is lease costs, but we are also looking at some consolidations that are not studio lease costs but transpo storage lease costs and the likes of that and consolidation. We're in conversations about that. We do have several leases that expire in the next, you know what, 24 to 36 months, and we're working on a master plan around that.

Richard Anderson: So that will also help the overhead process. Is there any scenario where you could own some of those studios at some point? Yeah, yeah, yeah. Okay, that's all I need out there. And then last question, the recession. Someone brought up the recession, and I had it on my list, too. But let's put all the noise of everything that's happened, you know, in terms of strikes and so on aside. What does a recession do to production? Production business generally, like how, If you look back in history, what happened?

Speaker Change: or has it not gotten that?

Rich Haight: Rich Haight

Speaker Change: No, but Rich, what we have done is, you know, we're, we are, I mean, you're, you're absolutely right. A lion's share of that is lease costs. But we are also looking at some consolidations that are not studio lease costs, but, but transpo storage lease costs and the likes of that and consolidating. We're in conversations on that. We do have several leases that expire in the next

Victor Coleman: So that will also help you overhead process.

Richard Anderson: You know what 24 to 36 months that we're working on a master plan around that so that will also help the overhead process

Victor Coleman: Is there any scenario where you could own some of those studios, some point down the road? Yeah.

Richard Anderson: Is there any scenario where you could own some of those studios at some point down the road?

Richard Anderson: Okay, that's all I need to out there.

Speaker Change: Yeah. Yeah. Yeah.

Victor Coleman: And then last question, the, someone brought up recession and I had on my list too, what, but let's put all the noise of the very thing that's happened to, you know, in terms of strikes and so on aside, what does a recession do to production, the production business generally? Like, how, you know, if you look back in history, what happens? I mean, historically, the entertainment industry is performing exceptionally well during recession at times because it's providing a cheaper, a cheaper form of entertainment, clearly. And so not to say that, you know, anybody wants a recession, but at the end of the day, it's always performed well.

Richard Anderson: Okay, that's all I need down there. And then last question, the...

Richard Anderson: Someone brought up recession, and I had it on my list, too. Let's put all the noise of everything that's happened, in terms of strikes and so on, aside. What does a recession do to production?

Speaker Change: The production business, generally, like how, you know.

Unknown Executive: I mean, historically, the entertainment industry has performed exceptionally well during recessionary times because it's providing a cheaper form of entertainment. Clearly. And so, not to say that, you know, anybody wants a recession, but at the end of the day, it's always performed well. And that was sort of part of the prepared remarks, just saying, you know, even in a downturn, content will be produced. Okay.

Unknown Executive: If you look back in history, what happens?

Speaker Change: I mean his

Unknown Executive: Historically, the entertainment industry has performed exceptionally well during recessionary times because it's providing a cheaper form of entertainment, clearly. And so, not to say that anybody wants a recession, but at the end of the day, it's always performed well. And that was sort of part of the prepared remarks, just saying even in a downturn, content will be produced.

Victor Coleman: And that, that was sort of part of the prepared remarks, you're saying, you know, even in a downturn, content will be produced. Yep. Okay.

Richard Anderson: Okay, that's all I had. Thanks very much.

Victor Coleman: That's all I had. Thanks very much. Thanks, Rich.

Richard Anderson: Okay, that's all I had. Thanks very much.

Victor Coleman: Thank you all for your questions. There are no longer questions in Q.

Victor Coleman: Thank you all for your questions. There are no more questions in queue, so I will pass the conference back over to Victor Coleman for any closing or further remarks. Thank you.

Victor Coleman: Thanks, Rich.

Victor Coleman: So I will pass the conference back over to Victor Coleman for any closing or further remarks. Thank you so much for participating in our second quarter call. We look forward to speaking to you guys all soon.

Victor Coleman: Thank you all for your questions.

Victor Coleman: There are no longer questions in queue so I will pass the conference back over to Victor Coleman for any closing or further remarks.

Victor Coleman: Thank you so much for participating in our second quarter call, and we look forward to speaking to you guys all soon.

Victor Coleman: Thank you so much for participating in our second quarter call and we look forward to speaking to you guys all soon.

Operator: That will conclude the conference call. Thank you all for your participation.

Operator: That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.

Operator: You may now disconnect your line.

Operator: That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.

Rich Anderson: All right, next question comes from Rich Anderson, what was securities?

Victor Coleman: Your life's not open. Thanks. Good afternoon. I was asked and asked a similar question on Ciodi, specifically on the expense side, the 25 million you run roughly per quarter. Something a lot of that is least expense. Have you have you inquired or thought about, you know, sort of a rent restructure for the 23 least studios? Or is it not gotten that bad? Rich, hey, no, but Rich, what we have done is, you know, we're, I mean, you're, you're actually right, a line share of that is least cost, but we are also looking at some consolidations that are not studio least cost, but, but, transpo storage least costs and the likes of that and consulting or in conversations on that, we, you have several leases that expire in the next, you know, 24 to 36 months that we're working on a master plan around that.

Victor Coleman: So, that will also help you overhead process. Is there any scenario where you could own some of those studios, some point down the road? Yeah. Okay, that's all I need to accession and I had on my list, too. What, but let's put all the noise of the very thing that's happened to, you know, in terms of strikes and so on, aside, what is a recession due to production, the production business generally?

Victor Coleman: Like, how, you know, if you look back in history, what happens? I mean, historically, the entertainment industry is performing exceptionally well during recessionary times because it's, it's providing a cheaper, a cheaper form of entertainment, clearly. And so, not to say that, you know, anybody wants a recession, but at the end of the day, it's always performed well. And that, that was sort of part of the prepared remarks, just saying, you know, even in a downturn, content will be produced.

Victor Coleman: Yeah. Okay. That's all I had. Thanks very much. Thanks, Rich. Thank you all for your questions. There are no longer questions in queue, so I will pass the conference back over to Victor Coleman for any closing or further remarks. Thank you so much for participating, our second quarter column. We look forward to speaking to you guys all soon.

Victor Coleman: That will conclude the next conference call. Thank you all for your participation. You may now disconnect your line.

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