Q1 2025 Hudson Pacific Properties Inc Earnings Call
Good afternoon, my name is Alex, and I will be your conference operator for today. At this time, I'd like to welcome everyone to the Hudson Pacific Properties' first quarter, 2025 earnings conference school.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session.
If you'd like to ask a question during this time, simply press star, offload by the number one on your telephone keypad.
If you'd like to withdraw your question, please press star off, I'd like to [inaudible]
Speaker Change: At the time, I'd like to turn the call over to Laura Campbell, Executive Vice President, Investor Relations, and Mark Singh. Please go ahead.
Laura Campbell: Good afternoon, everyone. Thanks for joining us. With me on the call today, our Mr. Coleman, CEO and Chairman, Mark Lammas, President, Perute Diramerian, CFO , and Art Suazo,
Laura Campbell: This afternoon we found 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 also be available for replay on our website.
Laura Campbell: 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: Today Victor will discuss industry and market trends. Mark will provide an update on our office and studio operations and development and Harout will review our financial results in 2025 outlook. Thereafter, we'll be happy to take your questions Victor.
Victor Coleman: Thank you, Laura. Good afternoon, everyone, and welcome to our first quarter call. Our team continues to execute across the business, staying cognizant of the state of our markets, working to maximize flexibility, free space, and grow our currency.
Victor Coleman: We are also closely monitoring the potential effects of tariffs on our core industries and we continue to see signs of improving or stabilization of our fundamentals.
Victor Coleman: We remain optimistic that the tariff negotiations will start to settle in the coming months and that pro-growth policies will phase in. Additionally, we're encouraged that the federal government is actively facilitating billions of additional investment into AI and implementing policies to redirect content production back to the United States, which could be a positive for Hudson Pacific. [inaudible]
Victor Coleman: One of the other catalysts we continue to monitor is venture investing, which in the first quarter said a new high watermark with deal value more than doubling year over year to $92 billion which is also 92% above the tenure average. .
Victor Coleman: The Bay Area squarely remains the epicenter of U.S. innovation receiving nearly 70% of the funding, or $59 billion, the most in a decade and more than fourfold year-over-year increase.
Victor Coleman: AI alone received 70% of the funding, including the five largest investments [inaudible]
Victor Coleman: with all but one of those companies head aboard in the Bay Area.
Victor Coleman: The Stargate Project, a US-based multinational artificial intelligence joint venture created by Oracle, Softbank, and OpenAI, will invest $500 billion in AI infrastructure and jobs over the next five years with $100 billion deployed immediately.
Victor Coleman: AI should remain a bright spot for tech and by extension for AI office leasing, which total over a half million square feet in San Francisco alone in the first quarter, up significantly year over year.
Speaker Change: Clearly San Francisco is leading the West Coast recovery both in terms of tech leasing and the benefits of a more moderate, pro-business, tough on crime leadership First quarter marked the second straight quarter of positive and absorption and gross leasing was just under 3 million square feet [inaudible]
Speaker Change: Beyond continued AI investment, the election of Mayor Lurie has been a game-changer for the city. With this focus on public safety and camping cleanup, drug enforcement, and array of other initiatives to promote economic activity.
Speaker Change: Jason Point, we welcome two and a half million visitors to our ferry building, the first quarter alone, our best first quarter on record, and 23% year-over-year increase.
Speaker Change: with the city's new financial and zoning incentives for residential conversions. We're re-evaluating and underwriting adaptive reuse of some of our office assets and expect to have one or more good candidates in the future.
Speaker Change: Downtown Seattle 2 is benefiting from political tailwinds, while direct vacancy increased 90 basis points in the quarter, gross leasing increased 15% to the highest level in a year.
Speaker Change: The Election of Mayor Harold and a more moderate city council significantly reducing crime and drug use and accelerated return to office for both public and private sector employees alike.
Speaker Change: Nowhere has this been more evident than in Pioneer Square, where year over year our leasing activity pipeline and tours have notably increased.
Speaker Change: We have successfully grown occupancy to 93% at 411 first from 78% in the first quarter last year and we have another 225,000 square feet in late stage deals in our pipeline for the other assets in that market.
Speaker Change: We're also working closely with city officials to expedite the lease up of Washington 1000, including a potential code amendment to allow building top signage and a partnership with the Adjacent Convention Center to activate our retail spaces.
Speaker Change: The devastating fires and increasing budget woes made it more of a challenging quarter for Los Angeles.
Speaker Change: Fortunately, our Los Angeles portfolio is currently 97% at least, largely under long-come leases.
Speaker Change: On the studio side, average shows and production remained in the mid-80s
Speaker Change: This year, California has seen new production starts accelerate more so than other North American and UK markets, but the recovery has favored feature films, as opposed to episodic TV shows, which is critical for the Los Angeles production.
Speaker Change: That said, starting last quarter, we noted a higher percentage of increase coming from quality productions looking for multi-stage and multi-month or year leases.
with Second and Third Quarter Start Days. [inaudible]
Speaker Change: Importantly, this trend continues, our leasing pipeline is as strong as it's been in the last two years and thus far as Mark will discuss, our sales team has been very successful at capturing an outside share of those leads [inaudible]
Speaker Change: The reality is that the gravity of Los Angeles challenges finally seems to have created some urgency for local officials to figure out what needs to happen for the city to thrive again.
Speaker Change: A New District Attorney has been a bright spot for public safety and despite significant budget cuts elsewhere, both the police and fire departments receive funding increases.
Speaker Change: The CD is taking another look at Measure ULA, which has significantly impaired multifamily development and last week passed a motion to reduce onerous regulations and permitting unnecessary fees and inconsistent safety requirements to make it easier and cheaper to film in Los Angeles.
Speaker Change: At the state level, the governor's budget proposal is on track to nearly double California's film and tax credit to $750 million to be voted on and adapted prior to July 1.
Speaker Change: Two companion bills have been introduced to enhance tax credits appeal by raising the qualified expense cap, making credits transferable, and expanding eligible productions to include among other things, episodic TV shows, which as I mentioned are so beneficial to the Los Angeles production marketplace. This is one of the most important things I've ever seen.
Speaker Change: And while it's truly and no precisely what federal incentives will look like, it's extremely positive to see Washington DC now fully engaged with Hollywood and well positioned to receive the net benefits going forward.
Speaker Change: Finally, we continue to make good progress on non-strategic asset sales to generate liquidity and reduce leverage. In the first quarter, we closed on the previous announced
Mark Lammas: and collectively these three transactions have generated an additional $97 million of liquidity and we continue to work on another approximate 125 to 150 million dollars of dispositions of which will provide additional updates in the coming quarters. And now I'm going to turn the call over to Mark.
Mark Lammas: Thanks, Victor. We've signed 630,000 square feet, a new and renewal leases in the first quarter, our highest quarterly leasing activity since second quarter 2022.
Mark Lammas: Newly seen accounted for 66% of activity and included execution of our second lease with the city and county of San Francisco at 1455 market for 232,000 square feet in 20 years.
Our gap rents increased 4.8% and cash rents decreased 13.6%
Mark Lammas: Excluding our large leaps with the city and county at 1455 market, a portion of which back filled space previously leased at peak market rents, cash rents would have decreased 8.8% roughly in mind, sequentially.
Mark Lammas: Our first quarter trailing 12-month blended net effective brands were 4% higher year-of-year and only 7% lower than pre-pandemic. Net effective brands on New Deal's alone were up 22% year-of-year and only 4% below pre-pandemic on a trailing 12-month basis.
Mark Lammas: Our trailing 12-month blended lease term was up 96% year-over-year and 54% versus pre-pendemic.
Mark Lammas: Even after removing our two roughly 20-year leases of the city and county of San Francisco, our
Mark Lammas: Regarding TI's, we have seen no impact from terrorist to date. Our exposure to TI-related price increases should be minimal, as most of our materials are US supplied or could be changed to a US supplier.
Mark Lammas: Furthermore, we have been extremely active with our vacant suite prep program in recent years, with most of the front and back of the house improvements behind us.
Mark Lammas: Our in-service office properties were 76.5% at least as of the end of the first quarter compared to 78.9% at the end of the fourth quarter last year.
Mark Lammas: 170 basis points of that change after accounting for square footage backfilled with a portion of the city and county lease is attributable to a significant known vacate at 1455 market that we have discussed for some time.
Mark Lammas: During the first quarter you need to wear activity at our assets meaningfully accelerated up 18% to 1.7 million square feet. The average requirement size also increased by 18% to 13,000 square feet.
Mark Lammas: A new post-pandemic high. Even after signing over 600,000 square feet, our leasing pipeline increased 5% to 2.1 million square feet with an average requirement size of 19,000 square feet.
Mark Lammas: This included 716,000 square feet of late-stage deals in leases or L.O.I.s, a significant portion of which has subsequently been signed.
Mark Lammas: We have 50% coverage that is deals and leases alloys to proposals on our remaining $1 million square fee of 2025 expirations.
Mark Lammas: 48% of which are in the second quarter alone. We have 76% coverage on our four remaining 2025 explorations over 50,000 square feet, which collectively total 397,000 square feet.
Mark Lammas: While our elevated explorations in the first half of the year have impacted occupancy, starting in the third quarter, we expect occupancy will begin to stabilize and grow there after.
Mark Lammas: This is because, from the 3rd quarter 2025 through year in 2026, we have only 225,000 square feet expiring on average each quarter, which favorably compares to our average trailing 4-quarter leasing activity of 530,000 square feet.
62% of which is comprised of new deals.
Victor Coleman: Turning to our studios, and it's Victor noted our pipeline remains robust, and our team continues to capture an outside share of productions in the market.
Victor Coleman: At present, 46 of our 53 film and TV stages or 88% of the related square footage are either leased or in contract compared to 35 stages or 69% of the related square footage last quarter.
Victor Coleman: Note for comparison purposes, we have adjusted our fourth quarter film and TV stage portfolio and associated square footage and leasing activity to exclude leases we terminated as part of broader
Victor Coleman: As examples of this strong activity, we are in contract on two longer-term multi-stage leases, one a long-running soap opera, and another a returning writer-producer with multiple successful shows.
Victor Coleman: It is also worth highlighting that stages leased or in contract, since our last call are expected to bring occupancy at that asset to the highest level since early 2023.
Victor Coleman: This strong activity has also reflected in the sequential improvement of our trailing 12 month studio lease percentages.
Victor Coleman: In the first quarter, our end service stages were 78.7% least or 190 basis points higher on additional occupancy. Again, it's since that last promise.
Victor Coleman: COD stages were 43.4% least or 220 basis points higher after adjusting for the previously mentioned lease terminations due to increased occupancy at COD North Valley as well as on our commercial stages at COD Griffith Park in West Hollywood.
Victor Coleman: First quarter studio revenues were $33.2 million or $2.2 million lower, primarily due to lower COD studio ancillary and transportation revenues related to production pauses during the fires.
Victor Coleman: Studio Expenses were up $3 million due to a $5.9 million termination fee and associated with certain cost reduction measures at COD.
Victor Coleman: But for that one-time fee, our operating expenses would have decreased by $2.9 million, reflecting the benefit of completed cost reduction initiatives.
Victor Coleman: To that point, since our February call, we have proactively terminated certain leases and negotiated rev reductions that bring our total run rate savings
Victor Coleman: to $14.2 million on an annualized basis or $13.6 million at share. We remain committed to achieving cost efficiencies to accelerate Ciodi's return to profitability and look forward to providing updates on these ongoing efforts.
regarding development. [inaudible]
Victor Coleman: Sunset Peer 94 Studios is on track for year-end delivery with exterior components nearing completion and interior construction well underway.
Victor Coleman: We expect no material impact from tariffs on cost for this project given that the vast majority of materials are already on site or paid for and in offsite US locations.
Victor Coleman: We are in discussions with potential long term tenants interested in one or more stages and are preparing the launch so by show leasing efforts this summer.
Victor Coleman: Studio Leasing has largely moved to a show by show model and typically occurs two to three months prior to lease commencement.
Victor Coleman: Given we are targeting first quarter, 2026 for certificate of occupancy, and productions must have certainty around space availability prior to committing.
Victor Coleman: primarily due to talent schedules. We would expect, show by show, we seem to begin in earnest in the first fourth quarter of this year.
Victor Coleman: Finally, regarding the lease of the Washington 1000, we remain in discussions with multiple large tenants and during the first quarter we saw an increase in tour activity from multi-floor tenants looking to upgrade their locations.
Victor Coleman: The competitive landscape continues to improve with class A direct and large blocked, subly space being cleared from the inventory.
Victor Coleman: Bellevue has only a few remaining class A options over 100,000 square feet.
Victor Coleman: Seattle's Class A Subway Supply has been reduced from 2 million square feet to less than 300,000 square feet, none of which offer continuous space of 100,000 square feet or greater.
Victor Coleman: Washington 1000 is the only new construction and alternative in Seattle, and with no further supply coming online in the near to midterm, the project remains well positioned to capture large trophy class users . .
and with that, I'll turn the call over to her written.
Haru: Thanks, Mark. Our first quarter, 2025 revenue, was $198.5 million compared to $214 million in the first quarter of last year. The changes due to both asset sales and lower occupancy within our office portfolio.
Haru: Our first quarter FFO, looting specified items, was $12.9 million or 9 cents per duty share, compared to $24.2 million or 17 cents per duty share a year ago.
Haru: Sputfied items for the first quarter totaled $0.7 per diluted share, consisting of one-time charity cost-cutting expenses of five cents per diluted share.
Haru: A loss on early extinguishing of our helmet L.A. debt of one-sempordalwood share and a non-cash derivative fair value adjustment of zero-sempordalwood share.
Haru: By comparison, special items for the first quarter of 2024 consists of transaction-related expenses of one simple diluted chair, excluding these specified items, the year-over-year change in the FFO was mostly subreddable to factors affecting revenue.
Haru: Our first quarter, same sort of cash and a Y, was $93.2 million compared to $103.4 million in the first quarter last year, mostly due to lower office occupancy.
Haru: Turning to our balance sheet. In the first quarter, we completed a CNBS financing for a portfolio of six office properties for $4.75 million.
Haru: and use the net proceeds to fully repay our 168-million-dollar loan secured by Element LA, with a remainder paying down amounts of outstanding on our credit facility and for general court purposes.
After successfully hedging the entire financing, shortly following the transaction.
Haru: The loan now bears an all-in rate of 7.14% or 50 beast points below corresponding rates at the time of closing.
Haru: As one of the largest office back CNBS transactions completed this year, this was a significant win for our team.
Haru: As of the end of the first quarter, we had $838.5 million of liquidity comprised of $86.5 million of unrestricted cash and cash requirements and some amount of $2 million of undrawn capacity under the unsecured revolving credit facility.
Haru: We also had another $31.4 million at HCP share of undrawn capacity under Sunset Pier, 94, studio of construction alone.
Haru: We have routinely discussed various paths to enhance our balance sheet and maturity schedules, including the repayment of our unsecured notes.
Haru: Substant to the quarter, we tender to repay all $4.55 million outstanding under our Series B, C and D private replacement notes.
Haru: Today we have repaid $254 million for the series B-Nodes and $50 million of the series C-Nodes with a bounce to be repaid on or before May 9th.
Haru: We're also now in the process of refinancing our only other 2025 maturity, the most secured by 1918 age.
Haru: which is fully reached to a reading investment grade tech tenant through 2030. Both conversations have been constructive as expected, but we look forward to providing additional updates.
Haru: Touring Outlook. For the second quarter, we expect FFO for delivery chair to range from three cents to seven cents per
Haru: Compared to the first quarter FFO of nine cents, but really share, based on the midpoint of our second quarter guidance, we anticipate office NOI approximately a five cents lower due to the full impact of first quarter leasing expiration.
and to a lesser extent, recent impending asset sales. [inaudible]
Haru: We expect full quarter impact of higher-age six cents from the six-assets CNBS transaction of approximately four cents.
Haru: The lower offers NLI and the higher instant expense will be partially offset by three cents of higher combined studio NLI and two cents of lower GNA expense regarding our full year guidance metrics
Haru: Most amounts remain unchanged from those provided last quarter, but the only exceptions being an increase to our full-year interest expense of $12 million, stemming from the recent CNBS financing.
Haru: and decreased to our full-year DNA expense of $3 million. Our full-year weighted average shares outstanding is also expected to be approximately $500,000 higher.
Haru: Lastly, compared to our initial 2024 GNA guidance, our previously announced 2025 GNA guidance reflected a projected savings of approximately $10 million.
Haru: We continue to implement further cost-cutting measures, resulting in the $3 million additional
Haru: Apart from 6.25 seconds, which was to help us out in the first quarter and the early repayment of the private placement notes, our outlook excludes the impact of any potential dispositions, acquisitions, finance, and or capital market activity. Now, we really happy to take your questions. Operator?
Speaker Change: Thank you. As a reminder, if you liked our question, please press star 4.1 on your telephone keypad.
Speaker Change: Our first question for today comes from a Seth Burgy of City. Your lines now open, please go ahead.
Seth Burgey: Hi, thanks for taking my question. I just wondered if you could comment a little bit on the cash rent threads that you kind of achieved in the corridor with those kind of inline with expectations, and then any color you can provide on concessions and kind of how those are trending. Thanks.
Seth Burgey: Yeah, no, Mark, in line, for sure, you heard on our prepared remarks, the impact of the city deal at 1455, you know, a gesture for that, we would have been negative 8.8 as opposed to 13.6, you see enough.
Seth Burgey: Supplemental, so it had a fairly tight sling back, that's really the mark against.
90 plus thousand square feet of-
Seth Burgey: expiring uber and some square footage with B&A, which were the uber's faith, especially was peak market rents from last cycle.
Seth Burgey: So yeah, in line with our expectations, I would say maybe the easiest way to appreciate how overall these economics are holding up.
Seth Burgey: Our net effectives are holding up quite well. We mentioned in the prepared remarks that year we year on a trailer 12 month basis.
Seth Burgey: Net Effectives are higher, Euroyear, 4%, and only 7% lower than Trailing 12-But Pre-Fendemic Net Effectives.
Seth Burgey: and I would, you know, you could, we could dissect that, you know, a number of different ways. I would just say the overall...
Seth Burgey: Picture as it relates to rent and lease economics is that they have continued to hold up extremely well, especially by comparison to pre-tandemic amounts. Yeah, and if I can put a final point on that stuff, on a...
Seth Burgey: Chris Corfoot, Pre-Year Basis, were down, he has commissions are down about almost $1,000, $97,000, yeah.
Speaker Change: Things that's helpful. And I guess just, you know, on the, you know, recent news with tariffs, you know, kind of, are you seeing that impact the studio business or any change in kind of behaviors from tenants, if there are tariffs implemented on foreign funds?
Speaker Change: Well, first of all, I think on a global basis, you know, it's still early to tell what's the impact on tariffs, and as they keep moving around, you know, they're...
Speaker Change: as a company, we're acutely aware of the downside, which obviously could be...
Speaker Change: Or a session, or even maybe worse, and stagnation. And as a result, we're preparing ourselves for the negative or the positive flip side on that and watching to see what tenants are signing versus not. And on a global basis, we really have seen no impacted loss of tenants or interest level in any of our assets up in on the list.
in terms of the tariff news on the federal level.
from the Studio Side.
Speaker Change: You know, for good or for bad, it's it's it's an awareness that I think we're very happy that it's got to the federal level. As you well know, the state is proposed that there's $750 million tax.
Speaker Change: Credit that is implemented hopefully by July 1 and it's on track to being approved. So that now enhanced with either a tariff or some form of federal support.
for
Speaker Change: The studio industry only makes it, I think, more heightened aware aspect of the need for additional support and we feel that it will be a positive at the end of the day. And it may come in the form of a federal relief fund on tax overall to benefit production in the United States, which we would welcome greatly.
Great, thanks.
Speaker Change: Thank you. Our next question comes from John Kim of BMO. Your lines are open, please go ahead.
John Kim: Thank you. Can you just discuss the the paydown of the private placement notes only the Series B is is due this year?
Speaker Change: Presumably, you're using a good law for prepay of this and the remaining $211,000,000 if that's standing. If that's the case, how do you plan to adjust the revolver going forward?
Speaker Change: Hey, John , that's Harout. Thank you for asking the question. So you're right. You know, we are using the revolver. I think we fitted earlier. We are.
Speaker Change: You know, when we did the CNBS, it was to address...
Speaker Change: Maturities, End 2025. This was just a two-step process. And once you pay down the series of three notes.
Speaker Change: You only have a little bit of private places left, which have more strict covenants, and it kind of clears the path of our unsecured through accessory 2027 without the revolver. And we are in constant discussions, I think we've stated in the past that we have very good relationship with our lead line bent.
Speaker Change: Lead Line Bankers, and we see that instrument as an evergreen instrument. We're going to continue to have it beyond 2026. And once we get closer to that maturity, we will...
Extend that one and do course. [inaudible]
Speaker Change: Okay, and then your guidance of $125 to $150 million of asset sales.
Speaker Change: A pretty big discount to book value as a result of that. But is this realistically what you're going to sell and how many assets does that concentrate?
was quoted on the prepared remarks, is three assets.
Speaker Change: Okay, but so something like Sunset, Walton Cross, I know that's already been repositioned, is that?
Speaker Change: Part of this guidance or is it something that may be sold this year in a subsequent year?
Speaker Change: As I said, we're not going to talk about assets until they're under contract.
Okay, Anderson, thank you!
Thanks, John.
Speaker Change: Thank you. Our next question comes from Connor Mitchell of Piper Sandler. The lines are open, please go ahead.
Hey, thanks for taking my question.
I guess it's following along that line of thinking. [inaudible]
Speaker Change: I'm just curious how your thought process and how the team has discussed, maybe adding some additional asset sales or thinking of different properties that might kind of fall its that bucket or on a different path maybe you've removed some potential sales and just kind of wondering how the team has thought about the whole process, did you kind of put this plan into motion and how the environment has changed throughout?
Speaker Change: Well, I think we'll be very consistent as to the number. I mean, last quarter, I think we said it was 150 to 200 million dollars of dispositions, you know, we're saying it's roughly around 150 now because we've already, you know, fit.
Speaker Change: sold 95 million dollars of disposition. So it's consistent with what our plan has been. As I said in prior comments, you know, we're not looking to sell four assets in the portfolio. We're looking to sell assets that are non-core, and we think that they're executionable, and they don't have any type of material impact on FFO. [inaudible]
Speaker Change: and so that's the direction we're going in. In terms of the market change,
Speaker Change: You know, the assets that we're looking at selling right now is pretty much consistent with what we sold in the past. I mean, it's users, it's high net worth, it's small investment funds, and the demand for these types of assets for those types of buyers has been pretty constant.
Speaker Change: There's not a tremendous amount of product in the marketplace in our markets of any quality assets and so these fit into the marketplace and the demand ratios of where people are looking right now.
Speaker Change: Okay, appreciate that color. And then, Mark, you gave a lot of pretty good information on-
Speaker Change: You know, some of the aspirations come to do with 25 and then the coverage associated with that. I think it was 50% coverage for the remaining.
Speaker Change: Explorations during the year. I'm just wondering if you could give us any more color on maybe how we should think about occupancy and decayed throughout the third major of the year, along with some of the information on the coverage, explorations, and then the leasing pipeline and the late stages of some of those deal issue discuss. [inaudible]
Speaker Change: Yeah, I'll give a little bit of response to that and then Art can unpack some of the further details on it, but our occupancy expectations
Speaker Change: on track for what our expectations were in the last phone call. You know, heading in to the end of the fourth quarter, heading in to the new year, we knew we had a considerable amount of square footage expiring in the first quarter, still a significant amount of the second-left, in the first but still relatively high amount, and then it was going to significantly taper off in terms of the expiration of the back-up and beyond. And on account of that, even though the pipeline [inaudible]
Speaker Change: was quite significant, and Arthur and team managed to get 630 over the line, which is obviously a monster quarter. We still had a lot of explorations, but...
Speaker Change: more than even that 630. And so the occupancy you're seeing or the least percentage you're seeing at the end of the first quarter is...
Speaker Change: Right on in track, actually slightly better than what our own model expectations were.
on...
Speaker Change: We believe that could be the bottom. There's a very good chance.
Speaker Change: It could be the bottom in terms of bought at least an occupied percentage.
Speaker Change: and that starting as early as the end of the second quarter, certainly by the time you get to the end of the third quarter.
of the Sequential Improvement.
Speaker Change: on Least and Occupied Percentage, and we expect that trend given how low aspirations are all the way into 26 and beyond, we expect that that general trend should continue for some time.
Speaker Change: Hey, Condor, it's art. And Mark talked about it in his prepared remarks. Our pipeline, you know, obviously grew, you know, 5% to almost 2.2 million
Speaker Change: that we've transacted. What gives us confidence going forward isn't just that this number appears out of nowhere. It's the leading indicator, which is tours. And the tours grew by 18 percent to 1.7 million square feet.
Speaker Change: Not only did the number increase, but the average tour side increase.
which tells us that, you know, kind of...
Single Floor Multiplore Deals
Speaker Change: or I was in the market in a bigger way, in a larger way than they had been in the past. So that gives us the confidence with the pipeline of the 2.2 million square feet that we have currently.
Speaker Change: 700, we also mentioned that 700, just over 700,000 square feet are in late stage, LY or in leases, that we feel extremely competent about closing certainly in the next.
Speaker Change: and a couple of quarters. In addition to just the deals and proposals that have really come out since the quarter ended. So, all those things said...
Speaker Change: We continue to refill the pipeline and continue to transact at a high level.
going forward.
Okay, thanks everyone.
Speaker Change: Thank you. Our next question comes from Tom Catherwood of VTIG. Reliance now open, please go ahead.
Tom Catherwood: Thank you, and I want to go back to the comment you just made on on large-blockleaf thing, and obviously you got the big deal done with the city's San Francisco at 415-55 market.
Tom Catherwood: But can you walk us through activity on other large block vacancies, maybe specifically Hill 7, and Met Park North, 11, 601 Wilshire, and kind of any other kind of real material ones.
Yeah, I mean, I'll start with, uh...
yearly off-hitter, which was, which was still seven, you know, HBO vacating [inaudible]
Tom Catherwood: They're actually downsizing into Discover Space. In Bellevue, but we have the 112,000 square treatment we have.
Tom Catherwood: 58,000 square feet in negotiations right now. So we have great coverage on that. At 505, as you know, our floor plates are about 45,000 square feet, non-divisible. We are in negotiations for about 145,000 square feet on that and we're very close.
Tom Catherwood: and in 11, 6.01, we currently have about 60,000 square feet in negotiations, 40,000 square feet of which are in leases about ready to sign.
and our, you know,
Thank you.
Tom Catherwood: and close to 95% at least in the 11601. Sorry, my math got, I got tongue tied with my math, I was so excited.
John , so what was that number on, London to someone?
Tom Catherwood: 11601, we're very close to getting to about 95% leaves very shortly.
Okay.
Speaker Change: Got it, got it, got it, thank you for that art. And then let me, for the debt on the Hollywood media portfolio, I get that it doesn't come due till next August , but given uncertainty, the market is likely assuming the worst. What in your view is the actual downside risk for the studio refinancing and with
Speaker Change: The Higher California Tax Credits in Victor, which you mentioned, potential federal relief, is selling your stake one of the options under active consideration?
Speaker Change: Well, listen, I don't know what the potential risk is given the fact that it's, you know, fully leased in the terms of the office side at 775,000 square feet, till 30.
Speaker Change: 1 or 2 and the occupancy in the sound stages with the exception of 2 are also master least for a long period of time. You know, the option of selling is not on the table at this time from our standpoint. It really isn't coming across for consideration. I do think that. But, um...
We've mentioned this before. New York.
Speaker Change: You know, we and our JV partner own the bottom tranche and a piece of the next tranche of the debt. That could be converted to equity and that takes care of any downside potential of if there was some form of
Speaker Change: Additional capital needed to get financing done to that asset. It's already in place in the form of debt that we can convert to equity.
Speaker Change: I think the only thing just that is that... [inaudible]
Speaker Change: You know, maybe in the last year or so, we have some vacancy on front a lot of promises. Victor and Mark indicated, you know, we've kind of shorted that occupancy which helps to NLI on that asset and therefore makes it even more refinanceable, at least making the refinancing easier.
Speaker Change: Okay, but let me just clarify Victor, it sounds like your comment is, if there is a paydown required, you don't expect it to be more than the B piece that is held by you and your partner. Is that what you were saying?
Speaker Change: What we're saying is that we're expecting no paydown. That's what we're going to the market with. Who knows what happens at the end of the day. But we have that as a fallback already in place as opposed to bringing new equity into the deal.
Speaker Change: Yeah, just to put a fine point on it, the death that the last one in Hudson on collectively would in and of itself cost you to 15% remargin, so...
Speaker Change: Even if summary margins in store, we already addressed what would be the line share of that Yeah, and maybe to give an example, you know, we're in the market in 1918.
Speaker Change: and as of right now, that requires no remargin. So, obviously, the whole immediate debt is further away, and
Speaker Change: Obviously a different setup, but the point being is that we have a long time to go and either be a large remargining or no remargining, it's kind of early tour to know right now.
Got it. Appreciate the answers. Thanks everyone.
Speaker Change: Thank you. Our next question comes from a young coup of Wells Fargo. Your line is now open. Please go ahead.
Yong Koo: Great, thank you. I just want to touch upon your debt covenants a little bit. It looks like you're NOI to interest expense.
Speaker Change: coverage. So a little bit, quarter of a quarter. I'm just wondering if you can provide some color on.
Speaker Change: What we should be expecting for the rest of the year, Dylan Burz, there are so many of those parts.
. . . .
And we'll do the last part.
Speaker Change: But the expectations for the right thing. Okay, no, I think we [inaudible]
Speaker Change: I feel like I'm a broken record at this point. We continue to be covenant compliance. We expect to be covenant compliant. We project out every quarter and just like this quarter, our expectations were exceeded in terms of our coverage, meaning we came in better on the lying expectations.
Speaker Change: so I think we expect to do the same in the future quarters. [inaudible]
Speaker Change: and are you able to kind of renegotiate some of the Covenant, Covenant Minimum's Blainecast, but Glunders?
you know, work through those ratios. So,
Speaker Change: Those are for the credit facility, the bonds we have not attempted to, and I think those have more room in them.
Speaker Change: Got it. Okay. Thank you. Thank you for that. And then just turn it to 2026.
Speaker Change: for the whole year, about 800,000 square feet. Can you kind of provide some color on, you know, how, whether you have, there are some potential move outs that you're. Thank you very much.
Speaker Change: Yeah, I mean, you need to nail on the head with a low, low expiration year, but there's really three large, three large tenants that we're tracking in that market, Wild Godshall, the three four tentative powers by the shore, three story, three floor tenant where we're renewing them in two floors, so 50 colored 53,000 square feet.
of the 75. At Med Park North, we have 24-hour fitness.
Speaker Change: which is 45,000 square feet. We're working on a renewal to keep them there as well. And then the last one is 875 Howard Pivotal software. They're in 80,000 square feet and they're already out of the market. So we're currently marketing the space. [inaudible]
Speaker Change: So those are the large three, but the rest of those are smaller tenants that we will be discussing over the next kind of six and nine months.
Speaker Change: Thank you, and then just one last. I think you guys talk about a couple production leads that you guys are looking at on the studio side. Can you comment on the size of those things? Let's finish it.
Speaker Change: Well, the two we were talking about are executed and will make formal announcements.
Speaker Change: One-stage start filming, but both are two-sages with support space and mill space.
Speaker Change: and one, as Mark mentioned, is a three-plus year term with options and the other is an existing
Speaker Change: Production Company that we've done multiple deals with, so it just shows the stickiness that we're seeing some of the support coming back from yes its majority is show by show but we've I think you know beaten the market in terms of these outsized longer term leases.
Okay, but you can't really comment on the size yet.
Speaker Change: Well, I've said they're both two stages with support staff. We don't talk about square footage and the likes of that.
Yeah, each show is two stages, Scotch, okay, Britain. [inaudible]
Okay, perfect, thank you.
Speaker Change: Thank you. Our next question comes from Pete Abramowitz from Jeffries. Your lines are open, please go ahead.
Pete Abramowitz: Yes, thanks for taking the questions. It looks like in the FFO reconciliation here, we have some of the expenses related to cost-cutting initiatives.
Pete Abramowitz: Aki Hote, I guess could you just kind of dig into what those expenses were, sort of the efforts that you're making to cut expenses in Kiyote and then what you incurred in the quarters as the cost of doing that?
Yeah.
The costs are largely, but early lease termination costs.
Pete Abramowitz: Last year we exited three stages in New Orleans, for example, we've since exited
some stages that were underutilized here in Los Angeles.
Pete Abramowitz: So that's a fairly healthy amount of the overall cost-cutting initiatives. I'll get to that.
The aggregate number in a minute.
Fine.
Pete Abramowitz: We were able to eliminate some obsolete parts of our transportation fleet that enable us to exit out of...
Pete Abramowitz: that part of the transportation fleet. And then there's headcount and other things correlating to that downsizing that also contributes to the overall costing. So an aggregate bond up to date, we've been able to cut about 14 million in cost.
Pete Abramowitz: We think pro-forma to last year's results that should improve NLI on the order of about $90 million on a run rate basis.
Um...
Pete Abramowitz: and so in terms of just looking ahead and relative to those cost cutting and safe initiatives
We think at current show count levels.
Pete Abramowitz: on, say, 90-ish, we were at 92 last year, we think that negative 19 million of N.O.I., cash and O.I., would perform it has been more like a negative 10, but I think maybe the best.
Pete Abramowitz: We, our view was to get back to break even in Coyote, we thought show counts needed to be somewhere close to a hundred. We still show positive NLI somewhere on the order of eight to nine million positive NLI at 100.
Pete Abramowitz: But based on those cuts, we think now we can get to breaking even at closer than 95 shows. So by doing the cuts, we've been able to lower the bar, if you will, to get in that business back to break even.
Speaker Change: Okay, that's helpful. Thank you for the clarification there. So I guess then just one other question to follow up on that. So you had...
Speaker Change: Presumably, that's almost entirely keynote day, I guess, what is sort of the run rate going forward after, either quarterly or annually, after those expense revetions?
Speaker Change: I think if you just take the $5.99 that we highlight and I think you can see that on page, sorry, real quick.
Studio page. Yeah, the studio page on- the studio page.
Sorry, I'll get there quick, please.
Speaker Change: Page 20 of the supplemental. Yeah, page 20. We kind of have it laid out there. You know, you cut down the five, you're back to like 20.
Three and a half million I think, roughly. [inaudible]
Speaker Change: 29.1 last 5.9 roughly, so that gets you to a potential norm, right?
Speaker Change: We slapped some other work that we're working on, so...
Speaker Change: from the perspective of what we've disclosed, that's the number to use. Yeah, well, maybe. I mean, I would just, once you adjust for those one-time expenses, your NOI for the COD business goes to $7.5 million, average show count for the first quarter of in the low 80s. [inaudible]
Speaker Change: So, again, getting back to the commentary about show counts, if we think that we get to 90, that number should be annualized more like a negative.
Speaker Change: 10-ish million, if we get to 95, we should be at break even, and if we get to 100, we should be at somewhere approaching 10 million, maybe a touch drive 10 million, a positive and a lot.
Speaker Change: Got it. Thank you. And then I guess just one more, while we're on the top of a couple of expenses, just like you lowered the GNA guide. I'm just wondering if you can comment on what you're doing there and what you're doing there.
Speaker Change: So, in the theme of cost-cutting and, you know, we're continuing to cost-cut, I think we've commented last quarter and last year and, you know, we just cost-cutting initiatives and just lower payroll-related costs is what we're doing.
[inaudible]
All right, that's all for me, thanks.
Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the call back to Victor Coleman, CEO and Chairman for closing remarks.
Victor Coleman: Thank you very much for participating in this course. We look forward to speaking to you all soon again. Goodbye.
Victor Coleman: Thank you all for joining us today's call. Goodbye. Just connect your lines.