Q2 2026 Hudson Pacific Properties Inc Earnings Call

August 5, 2026

Speaker #1: Hello, everyone. Thank you for joining us, and welcome to the Hudson Pacific Properties second quarter 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Hudson Pacific Properties Q2 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Laura, please go ahead.

Speaker #1: If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing.

Speaker #1: Laura, please go ahead.

Speaker #2: Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, Chairman and CEO; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing.

Laura Campbell: Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, the Chairman and CEO; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing. This morning, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website, along with an audio webcast of this call for replay. Some of the information we will share on the call today is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information, as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss our Q2 results and current market trends. Mark will provide detail on our office and studio operations, and Harout will review our financial results and 2026 outlook. Thereafter, we will be happy to take your questions. Victor?

Speaker #2: This morning we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website, along with an audio webcast of this call for replay.

Speaker #2: 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.

Speaker #2: Today, Victor will discuss our second quarter results and current market trends. Mark will provide detail on our office and studio operations, and Harout will review our financial results and 2026 outlook.

Speaker #2: Thereafter, we'll be happy to take your questions. Victor?

Speaker #3: Thanks, Laura. Hello everyone, and welcome to our second quarter call. This was both a record leasing and highly productive quarter for Hudson Pacific. We signed $1.3 million square feet of new and renewal office leases, headlined by a landmark $891,000 square foot, 24-year lease with the city and county of San Francisco at 1455 Market.

Victor Coleman: Thanks, Laura. Hello, everyone, and welcome to our Q2 call. This was both a record leasing and highly productive quarter for Hudson Pacific. We signed 1.3 million square feet of new and renewal office leases, headlined by a landmark 891,000 square foot, 24-year lease with the city and county of San Francisco at 1455 Market, which locks in nearly a quarter of a century of cash flow visibility. Occupancy increased 470 basis points, our fourth consecutive quarter of gains, and improved performance across our office and studio portfolios drove Same-Store NOI up 7.5%. Together, with continued cost reductions in Quixote restructuring, we nearly tripled core FFO and achieved a 30% increase on a per share basis. We also stayed disciplined on capital, maintaining total liquidity of $876 million while continuing to execute our asset disposition plan.

Speaker #3: Which locks in nearly a quarter of a century of cash flow visibility. Occupancy increased 470 basis points, our fourth consecutive quarter of gains, and improved performance across our office and studio portfolios drove same-store NOI up 7.5%.

Speaker #3: Together, with continued cost reductions and COD restructuring, we nearly tripled core FFO and achieved a 30% increase on a per-share basis. We also stayed disciplined on capital maintaining total liquidity of $876 million while continuing to execute our asset disposition plan.

Speaker #3: And importantly, as we look ahead, we reloaded our leasing pipeline to 2.4 million square feet. That leasing strength is playing out against a constructive venture and IPO backdrop.

Victor Coleman: Importantly, as we look ahead, we reloaded our leasing pipeline to 2.4 million square feet. That leasing strength is playing out against a constructive venture and IPO backdrop. US venture investment totaled $145 billion in the Q2, its second largest and strongest quarter ever. With funding broadening beyond large language models into defense tech, AI infrastructure, robotics, and space tech. This all points to a wider, more diverse tenant base rather than a single sector bet, which will benefit our portfolio over time. The IPO market is improving too, with pending listings signaling further office demand as newly public companies and the ecosystem around them continue to grow.

Speaker #3: U.S. venture investment totaled $145 billion in the second quarter. It's second-largest and strongest quarter ever. With funding broadening beyond large language models into defense tech, AI infrastructure, robotics, and space tech.

Speaker #3: This goes beyond large language models into defense tech, AI infrastructure, robotics, and space tech. All of this points to a wider and more diverse tenant base, rather than a single-sector bed.

Speaker #3: This will benefit our portfolio over time. The IPO market is improving too, with pending listings signaling further office demand, as newly public companies and the ecosystem around them continue to grow.

Speaker #3: Across nearly every market in our portfolio, demand is broadening along virtually no new construction, and that dynamic is strengthening fundamentals though at different rates across our markets.

Victor Coleman: Across nearly every market in our portfolio, demand is broadening along virtually no new construction, and that dynamic is strengthening fundamentals, though at different rates across our markets. San Francisco posted its 7th consecutive quarter of positive absorption and its largest year-over-year rent increase since 2020. We're seeing strength at the submarket levels across the peninsula and the valley, led by strong year-to-date positive absorption in Foster City and Redwood City, Redwood Shores, along with multiple headline leases in Santa Clara. In Los Angeles, our leasing efforts are focused on West Los Angeles, which commands the market's most robust activity and highest rents, even as the broader markets remain challenged overall. The Puget Sound extended its recovery for its 3rd consecutive quarter, led by downtown Seattle, which leases came from Anthropic, DocuSign, and Stripe helped drive the first improvement in CBD vacancy in 6 years.

Victor Coleman: Across nearly every market in our portfolio, demand is broadening along virtually no new construction, and that dynamic is strengthening fundamentals, though at different rates across our markets. San Francisco posted its 7th consecutive quarter of positive absorption and its largest year-over-year rent increase since 2020. We're seeing strength at the submarket levels across the peninsula and the valley, led by strong year-to-date positive absorption in Foster City and Redwood City, Redwood Shores, along with multiple headline leases in Santa Clara. In Los Angeles, our leasing efforts are focused on West Los Angeles, which commands the market's most robust activity and highest rents, even as the broader markets remain challenged overall. The Puget Sound extended its recovery for its third consecutive quarter, led by downtown Seattle, which leases came from Anthropic, DocuSign, and Stripe helped drive the first improvement in CBD vacancy in six years.

Speaker #3: San Francisco posted its seventh consecutive quarter of positive absorption and its largest year-over-year rent increase since 2020. We're seeing strength at the submarket levels across the peninsula and valley, led by strong year-to-date positive absorption and foster city and Redwood City reversors along with multiple headline leases in Santa Clara.

Speaker #3: In Los Angeles, our leasing efforts are focused on West Los Angeles, which commends the market's most robust activity and highest rents, even as the broader markets remain challenged overall.

Speaker #3: The Puget Sound extended its recovery for its third consecutive quarter, led by downtown Seattle, with leases from Anthropic, DocuSign, and Stripe helping drive the first improvement in CBD vacancy in six years.

Speaker #3: And downtown Vancouver continues to stand out on fundamentals, with vacancy just over 12%—the tightest in our portfolio—with positive net absorption both for the quarter and year-to-date.

Victor Coleman: Downtown Vancouver continues to stand out on fundamentals with vacancy just over 12%, the tightest in our portfolio, with positive net absorption both for the quarter and year to date. Regarding studios, our prime location studios continue to outperform as the production landscape remains mixed. New York show counts improved and the Los Angeles was relatively stable, as California's production pipeline continues to work through a meaningful backlog of tax credit approval projects not yet in production. Importantly, with SAG-AFTRA, WGA, and DGA all ratifying new 4-year AMPTP agreements, the labor risk that drove much of the industry's recent volatility is now off the table. Our strategy remains unchanged. Restructure Quixote while optimizing performance at our best-in-class assets. Finally, turning to dispositions.

Victor Coleman: Downtown Vancouver continues to stand out on fundamentals with vacancy just over 12%, the tightest in our portfolio, with positive net absorption both for the quarter and year to date. Regarding studios, our prime location studios continue to outperform as the production landscape remains mixed. New York show counts improved and the Los Angeles was relatively stable, as California's production pipeline continues to work through a meaningful backlog of tax credit approval projects not yet in production. Importantly, with SAG-AFTRA, WGA, and DGA all ratifying new four-year AMPTP agreements, the labor risk that drove much of the industry's recent volatility is now off the table. Our strategy remains unchanged. Restructure Quixote while optimizing performance at our best-in-class assets. Finally, turning to dispositions.

Speaker #3: Regarding studios, our prime location studios continue to outperform. As the production landscape remains mixed, New York show counts improved, and Los Angeles was relatively stable, as California's production pipeline continues to work through a meaningful backlog of tax credit approval projects not yet in production.

Speaker #3: Importantly, with SAG-AFTRA, WGA, and DGA, all ratifying new 4-year AMPTP agreements, the labor risk, that drove much of the industry's recent volatility is now off the table.

Speaker #3: Our strategy remains unchanged: restructure COD will optimizing performance at our best-in-class assets. Finally, turning to dispositions, we continue to make good progress against our $200 million target, having sold 2,001 Gateway after quarter-end, with 3 additional Bay Area office assets currently in contract or negotiation, alongside our 10,950 Washington residential development site.

Victor Coleman: We continue to make good progress against our $200 million target, having sold 2001 Gateway after quarter end with 3 additional Bay Area office assets currently in contract or negotiation alongside our 10950 Washington residential development site. Buyer demand for Bay Area office assets has picked up meaningfully this year, allowing us to execute this program on our timeline and to redeploy capital toward our broader strategic priorities. Now with that, I'm going to turn it over to Mark, who's going to talk about leasing and operations.

Speaker #3: Buyer demand for Bay Area office assets has picked up meaningfully this year, allowing us to execute this program on our timeline and to redeploy capital toward our broader strategic priorities.

Speaker #3: Now, with that, I'm going to turn it over to Mark, who's going to talk about leasing and operations.

Speaker #4: Thanks, Victor. As you noted, we signed 1.3 million square feet of office leases in the quarter—61% new and 39% renewal. On top of the City and County of San Francisco lease for 891,000 square feet, we executed an additional 402,000 square feet of leases, 71% of which were new and 29% renewal.

Mark Lammas: Thanks, Victor. As you noted, we signed 1.3 million square feet of office leases in the quarter, 61% new and 39% renewal. On top of the City and County of San Francisco lease for 891,000 square feet, we executed an additional 402,000 square feet of leases, 71% of which were new and 29% renewal. Our occupancy increased 470 basis points sequentially to 82.5%, and our lease rate climbed 440 basis points sequentially to 82.8%. Our portfolio occupancy and lease percentages improved everywhere except the already strong Palo Alto and Vancouver submarkets, both of which ended the quarter effectively 94% leased. Rent spreads grew 17.2% on a GAAP basis and decreased 11.4% on a cash basis, excluding the city and county lease. GAAP rents were off 3.3% and cash rents were down 9.9%, due primarily to mid-size deals in Palo Alto rolling off of pre-pandemic peak market rents.

Speaker #4: Our occupancy increased 470 basis points sequentially to 82.5%, and our lease rate climbed 440 basis points sequentially to 82.8%. Our portfolio occupancy and lease percentages improved everywhere except the already strong Palo Alto and Vancouver submarkets, both of which ended the quarter effectively 94% leased.

Speaker #4: Rent spreads grew 17.2% on a gap basis, and decreased 11.4% on a cash basis. Excluding the city and county lease, gap rents were off 3.3% and cash rents were down 9.9%, due primarily to midsize deals in Palo Alto rolling off of pre-pandemic peak market rents.

Speaker #4: However, these rents are still quite healthy and north of $80 per square foot. Net effective rents strengthened this quarter, rising 22% sequentially and 9% year-over-year, benefiting significantly from the city and county lease.

Mark Lammas: However, these rents are still quite healthy and north of $80 per square foot. Net effective rents strengthened this quarter, rising 22% sequentially and 9% year-over-year, benefiting significantly from the city and county lease. Trailing 12 month net effective rents were up 7% sequentially and 1% year-over-year. Tours rose nearly 20% year-over-year. Even with strong Q2 leasing, we reloaded the pipeline to 2.4 million square feet, nearly 70% new leases with an average requirement size north of 20,000 square feet. Excluding 2001 Gateway, which we sold earlier in Q3, and 875 Howard, where we now have line of sight on a potential sale. We have just over 50% coverage on approximately 400,000 square feet of leases set to expire through the remainder of the year. This includes 80% coverage on the PayPal lease at Fourth and Traction.

Speaker #4: Trailing 12-month net effective rents were up 7% sequentially and 1% year-over-year. Tours rose nearly 20% year-over-year. Even with strong second-quarter leasing, we reloaded the pipeline to 2.4 million square feet, nearly 70% new leases, with an average requirement size north of 20,000 square feet.

Speaker #4: Excluding 2001 Gateway, which we sold earlier in the third quarter, an 875 Howard where we now have line-of-sight ight on a potential sale, we have just over 50% coverage on approximately 400,000 square feet of leases set to expire through the remainder of the year.

Speaker #4: This includes 80% coverage on the PayPal lease at Fourth Attraction. At Washington 1000, we now have coverage for approximately 65% of the building, up from 60% last quarter, with active negotiations across nine tenants, including requirements of up to 125,000 square feet.

Mark Lammas: At Washington 1000, we now have coverage for approximately 65% of the building, up from 60% last quarter, with active negotiations across nine tenants, including requirements up to 125,000 square feet. We are seeing strong traction on our newly delivered move-in ready suites with eight tenants in the last 30 days touring or scheduling tours. Tour activity building wide has also increased, driven primarily by new to market tech, AI, and professional services firms. Turning to studios, we continue to see strong interest from leading showrunners and major studios for our prime production space. Our in-service stages were 74.6% leased during Q2, up 180 basis points sequentially, driven by an improved lease rate at Sunset Pier 94 Studios, up 40 percentage points to 78.5%. Our Hollywood stages, inclusive of Sunset Las Palmas Studios, remain well leased at 95.5%.

Speaker #4: We're seeing strong traction on our newly delivered move-in ready suites, with 8 tenants in the last 30 days touring or scheduling tours. Tour activity building-wide has also increased, driven primarily by new-to-market tech AI and professional services firms.

Speaker #4: Turning to studios, we continue to see strong interest from leading showrunners at major studios for our prime production space. Our in-service stages were 74.6% leased during the second quarter, up 180 basis points sequentially, driven by an improved lease rate at Sunset Pier 94, up 40 percentage points to 78.5%.

Speaker #4: Our Hollywood stages inclusive of Sunset Las Palmas remain well leased at restructuring, we have designated, as an encore, with plans to exit its lease sound stage facilities in Atlanta area operations, as well as COD's pro supplies and stage ancillary businesses, including lighting and grid.

Mark Lammas: As part of our Quixote restructuring, we have designated as non-core with plans to exit its leased soundstage facilities and Atlanta area operations, as well as Quixote's pro supplies and stage ancillary businesses, including lighting and grip. Going forward, we will speak to our studio NOI on a core basis, which in Q2 reflects Sunset Studios and Quixote's fleet operations in LA and NY. Core studio NOI was up $3.1 million sequentially and $7 million year-over-year to $4.6 million, with HPP's share turning positive for the first time in two years at $2.2 million. Putting a finer point on the Quixote restructuring to date, Quixote generated cash NOI of -$18.6 million in 2024.

Speaker #4: Going forward, we will speak to our studio NOI on a core basis, which, in the second quarter, reflects Sunset Studios and COD's fleet operations in Los Angeles and New York.

Speaker #4: Core studio NOI was up 3.1 million sequentially and 7 million year-over-year to 4.6 million, with HPP share turning positive for the first time in 2 years at 2.2 million.

Speaker #4: Putting a finer point on the COD restructuring to date, COD generated negative cash NOI of $18.6 million in 2024. Since then, our restructuring efforts have improved annualized run-rate cash NOI by approximately $14.3 million, bringing the fleet business to just over $4 million of negative annualized cash NOI at current demand levels—closing roughly three-quarters of the gap to our break-even objective.

Mark Lammas: Since then, our restructuring efforts have improved annualized run rate cash NOI by approximately $14.3 million, bringing the fleet business to just over $4 million of negative annualized cash NOI at current demand levels, closing roughly three-quarters of the gap to our breakeven objective. Turning to value creation optionality across the portfolio, we continue to make progress on our re-entitlement and adaptive reuse, an area where our team's expertise is a real differentiator. At 901 Market in San Francisco, we filed our office to residential re-entitlement application, with entitlements expected before year-end. We are also advancing construction drawings in parallel so we can quickly move once approved. Essentially the same playbook we are running at 10950 Washington. We also recently amended the CC&Rs at Metro Center in Foster City and across our Redwood Shores assets to permit residential use, giving us the flexibility to explore residential and mixed-use development.

Speaker #4: Turning to value creation optionality across the portfolio, we continue to make progress on our re-entitlement and adaptive reuse—an area where our team's expertise is a real differentiator.

Speaker #4: At 901 Market in San Francisco, we filed our office-to-residential re-entitlement application, with entitlements expected before year-end. We're also advancing construction drawings in parallel so we can quickly move once approved.

Speaker #4: Essentially the same playbook we're running at 10,950 Washington. We also recently amended the CC&R's and Metro Center and Foster City and across our Redwood Shores assets to permit residential use, giving us the flexibility to explore residential and mixed-use development.

Speaker #4: This isn't a reaction to soft leasing demand, as we're seeing healthy interest in these locations, rather a proactive step to unlock value by tapping into strong residential demand independent of where the office leasing cycle stands.

Mark Lammas: This isn't a reaction to soft leasing demand, as we're seeing healthy interest in these locations. Rather, a proactive step to unlock value by tapping into strong residential demand independent of where the office leasing cycle stands. In short, these entitlement efforts will create development options to enhance our current portfolio value. Now Harout will take you through our financial results and outlook.

Speaker #4: In short, these entitlement efforts will create development options to enhance our current portfolio value. And now, Harout will take you through our financial results and outlook.

Speaker #1: Thanks, Mark. Total revenues were $188.3 million, compared to $190 million in the prior year, primarily due to asset dispositions most significantly the sale of Element LA, almost entirely offset by improved office occupancy.

Harout Diramerian: Thanks, Mark. Total revenues were $188.3 million compared to $190 million in the prior year, primarily due to asset dispositions, most significantly the sale of Element LA, almost entirely offset by improved office occupancy. As a result of ongoing cost saving initiatives, G&A improved 11% to $12 million compared to $13.5 million in the prior year. The latter adjusted to exclude the prior year expense associated with the one-time cancellation of non-cash compensation agreements. We nearly tripled core FFO to $23.1 million, up from $8 million in the prior year, while core FFO on a per diluted share basis increased 30% to $0.35, up from $0.27 in the prior year. Adjustments to core FFO, including non-core Quixote lines of business totaled $7.5 million or $0.11 per diluted share, compared to $19.2 million or $0.64 per diluted share in the prior year.

Speaker #1: As a result of ongoing cost-saving initiatives, G&A improved 11% to $12 million compared to $13.5 million in the prior year, the latter adjusted to exclude the prior year expense associated with the one-time cancellation of non-cash compensation agreements.

Speaker #1: We nearly tripled core FFO to 23.1 million up from $8 million in the prior year, while core FFO on a per-diluted share basis increased 30% to 35 cents, up from 27 cents in the prior year.

Speaker #1: Adjustments to core FFO, including non-core COD lines of business totaled 7.5 million or 11 cents per diluted share compared to 19.2 million or 64 cents per diluted share, in the prior year.

Speaker #1: We grew same-store cash NOI 7.5% to 90.2 million compared to 83.9 million in the prior year, driven by higher office and studio occupancy. Turning to our balance sheet, total liquidity of $876 million includes $81 million of cash and full availability of $795 million on our credit facility.

Harout Diramerian: We grew Same-Store NOI 7.5% to $90.2 million compared to $83.9 million in the prior year, driven by higher office and studio occupancy. Turning to our balance sheet. Total liquidity of $876 million includes $81 million of cash and full availability of $795 million on our credit facility. Interest expense was 20% lower year-over-year, representing $9.7 million of savings, and all of our debt is fixed or capped. Regarding the Hollywood Media Portfolio loan, subsequent to quarter end, the loan transferred to the special servicer ahead of its Q3 maturity. The borrower and the special servicer have since agreed on terms for a longer-term extension, along with a 30-day extension to finalize documentation.

Speaker #1: Interest expense was 20% lower year-over-year, representing $9.7 million of savings, and all of our debt is fixed or capped. Regarding the Hollywood Media portfolio alone, subsequent to quarter end, the loan transferred to the special servicer ahead of its third quarter maturity. The borrower and the special servicer have since agreed on terms for a longer-term extension, along with a 30-day extension to finalize documentation.

Speaker #1: Wrapping up our 2026 outlook, we are raising our full year core FFO to a range of $1.12 to $1.20 per diluted share, up from the prior range of $1.10 to $1.18 per diluted share.

Harout Diramerian: Wrapping up our 2026 outlook, we are raising our full year core FFO to a range of $1.12 to $1.20 per diluted share, up from the prior range of $1.10 to $1.18 per diluted share. This updated range reflects, at the midpoint, approximately $0.01 of outperformance in the Q2 compared to our initial expectations, as well as approximately $0.01 attributable to improved expectations for the H2 of the year. As we have previously noted, even with the Q1 and Q2 outperformance, we anticipate Q3 expirations will impact occupancy and earnings results with a rebound in the Q4. As a reminder, this updated range excludes the previously announced closures of Quixote's stage and Atlanta operations and the associated stage ancillary and pro supply segments from core FFO. As always, our outlook excludes potential dispositions, acquisitions, or capital markets activity.

Speaker #1: This updated range reflects, at the midpoint, approximately one penny of outperformance in the second quarter compared to our initial expectations, as well as approximately one penny attributable to improved expectations for the second half of the year.

Speaker #1: As we have previously noted, even with the first and second quarter outperformance, we anticipate third quarter expirations will impact occupancy and earnings results, with a rebound in the fourth quarter.

Speaker #1: As a reminder, this updated range excludes the previously announced closures of COD's stage and Atlanta operations, and the associated stage ancillary and pro-supply segments, from core FFO.

Speaker #1: And as always, our outlook excludes potential dispositions acquisitions or capital markets activity, with that, I'll turn the call back to Victor for closing remarks.

Harout Diramerian: With that, I'll turn the call back to Victor for closing remarks.

Speaker #2: Thanks, Ruth. Simply put, the second quarter reflects exactly the execution we said we'd deliver, record leasing our fourth consecutive quarter of occupancy growth, a transformative long-term agreement with the city and county of San Francisco, and a COD restructuring that's now yielding measurable earnings benefits.

Victor Coleman: Thanks, Harout. Simply put, the Q2 reflects exactly the execution we said we'd deliver. Record leasing, our fourth consecutive quarter of occupancy growth, a transformative long-term agreement with the City and County of San Francisco, and a Quixote restructuring that's now yielding measurable earnings benefits. We still have work ahead of us, each of these actions reinforces the same outcome, a clear and credible path to sustained FFO per share growth. Operator, now I'd like to turn it back to you for questions.

Speaker #2: We still have work ahead of us, but each of these actions reinforces the same outcome: a clear and credible path to sustained FFO per share growth.

Speaker #2: Operator, now I'd like to turn it back to you for questions.

Speaker #3: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Jamie Feldman with Wells Fargo. Jamie, your line is open. Please go ahead.

Speaker #3: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #3: If you are muted locally, please remember to unmute your device. Your first question comes from the line of Jamie Feldman with Wells Fargo. Jamie, your line is open.

Speaker #3: Please go ahead.

Speaker #5: Great. Thanks for taking the question. I'm sitting in from Blaine today, his office. But great color on some of the market. I'll leave it good.

Jamie Feldman: Great. Thanks for taking the question. I'm sitting in for Blaine today, who's out.

Victor Coleman: Only the gritty, Jamie.

Jamie Feldman: Great color on some of the mark I'll leave it gritty. Yeah, we're back. Don't call it a comeback. I had some line like that I was going to use, but I don't know. Couldn't come up with anything good. West LA, you're talking about a recovery, then you still have decent upside to get to stabilization in North San Jose, Denny Triangle. Can you just talk more about those markets, but especially West LA, if there's a real inflection point happening or how we should think about what's to come?

Speaker #5: Yeah, we're back. Don't call it a comeback. I had some line like that I was going to use, but I don't know—I couldn't come up with anything good.

Speaker #5: So West LA, you're talking about a recovery, and then you still have decent upside to get to stabilization in North San Jose, Denny Triangle.

Speaker #5: Can you just talk more about those markets, but especially West LA? If there's a real inflection point happening or how we should think about what's to come?

Speaker #2: Well, I mean, West LA, you guys cover other peers. You're seeing it's a bifurcated marketplace, right? You've got Brentwood and Century City, and Beverly Hills doing exceptionally well.

Victor Coleman: Well, West LA, you guys cover other of our peers. You're seeing it's a bifurcated marketplace, right? You've got Brentwood, Century City, and Beverly Hills doing exceptionally well. I think Westwood and Santa Monica are a little slower. Olympic Corridor is a little slower. Again, there's zero construction in the near future for new product. Good space is pretty much leased up or in spoken for and being expanded upon. I think you're seeing that momentum potentially drive into some of the other marketplaces like Santa Monica, and hopefully in Westwood and overall the Westside. Culver City's been strong all the way through, but there's very little product there, and everything that's being built in that marketplace is already pre-leased.

Speaker #2: I think Westwood and Santa Monica are a little slower. Olympic Corridor is a little slower. But again, there is zero construction in the near future for new product.

Speaker #2: And so, good space is pretty much leased up, or, in spoken form, being expanded upon. And I think you’re seeing that momentum potentially drive into some of the other marketplaces, like Santa Monica and hopefully in Westwood, and overall the West Side.

Speaker #2: Culver City's been strong all the way through, but there's very little product there, and everything is that's being built in that marketplace is already pre-leased.

Speaker #4: But I guess more on the demand side, what's changing?

Jamie Feldman: I guess more on the demand side, what's changing?

Speaker #2: Well, listen, we've talked about the fire tenants being massively impactful in West LA, the majority of which is led by law firms. The streaming and entertainment companies have taken homes in specific marketplaces—like Apple in Culver, Sony in Culver, Netflix in Hollywood, and Amazon spreading themselves between, obviously, Santa Monica and Culver.

Victor Coleman: Well, listen, we've talked about the FIRE tenants being massively impactful in West LA, majority of which is led by law firms. The streaming/entertainment companies have taken sort of homes in specific marketplaces like Apple and Culver City, Sony and Culver City, Netflix and Hollywood, Amazon spread themselves between obviously Santa Monica and Culver City, Lionsgate, Beverly Hills. Entertainment companies, WME, the same, are all in those marketplaces. Then their ancillary guys are growing. Implications around AI is just not that strong here yet. They're small growth tenants. I do think it's entertainment and FIRE, and that's sort of the nucleus. Art, you want to comment on that?

Speaker #2: Lionsgate, Beverly Hills. And so entertainment companies WME, the same, are all in those marketplaces. And then their ancillary guys are growing. Implications around AI is just not that strong here yet.

Speaker #2: They're small growth tenants. But I do think it's entertainment and fire, and that's sort of the nucleus. All right, you want to comment on that?

Speaker #2: Yeah, I mean, I think the demand drivers, Jamie, are positive. They're modestly improving. There was an improvement in net absorption. Gross leasing was up slightly.

Art Suazo: Yeah. I think the demand drivers, Jamie, are positive. They're modestly improving. There was an improvement in net absorption. The gross leasing was up slightly, things like that we're monitoring very closely. That's coming from the small to mid-size tenants in the market. As you know, all this talk about West LA improving, West LA has been driving the LA market for several years, and it will continue to do so as the demand drivers continue to increase.

Speaker #2: Things like that, we're monitoring very closely, and that's coming from the small to midsize tenants. And as you know, all this talk about West LA improving—West LA has been driving the LA market for several years.

Speaker #2: And it will continue to do so. As the demand drivers continue to increase.

Speaker #4: Okay. And then if I can ask another, just the studio loan? Can you just talk about how you're including that in guidance or anything you can say about expectations of what that could look like for numbers or how we should be modeling it?

Jamie Feldman: Okay. If I can ask another, just the studio loan. Can you just talk about how you're including that in guidance or anything you can say about expectations of what that could look like for numbers or how we should be modeling it?

Speaker #2: Yeah, so we can't get into any specifics because we're still finalizing documentation. But what we can say is, in our guidance, we've kept things the same.

Harout Diramerian: Yeah. We can't get into any specifics because we're still finalizing documentation. What we can say is, in our guidance, we've kept things the same, and that is our expectation.

Speaker #2: And that is our expectation.

Speaker #4: Okay, so just keep the same interest expense that you've got now? Don't change anything?

Jamie Feldman: Okay. Just kept same interest expense that you've got now?

Harout Diramerian: Correct.

Jamie Feldman: Don't change anything?

Speaker #2: Correct.

Harout Diramerian: Correct.

Speaker #4: Okay. All right. Thank you.

Jamie Feldman: Okay. All right. Thank you.

Speaker #1: Thanks, Jamie. Welcome back.

Victor Coleman: Thanks, Jamie. Welcome back.

Speaker #4: Good to be back.

Jamie Feldman: Good to be back.

Speaker #3: Your next question comes from the line of Yana Galan with Bank of America. Yana, your line is open. Please go ahead.

Operator: Your next question comes from the line of Jana Galan with Bank of America. Jana, your line is open. Please go ahead.

Speaker #6: Thank you. Good morning and congrats on the strong office leasing and the improvements at COD. I guess maybe first question on the guidance. The main change seems to be the outperformance in second quarter G&A.

Jana Galan: Thank you. Good morning, and congrats on the strong office leasing and the improvements at Quixote. I guess maybe first question on the guidance. The main change seems to be the outperformance in Q2 G&A. Are there any other kind of puts and takes that are driving the FFO guidance increase given the strong leasing outlook?

Speaker #6: Are there any other kinds of puts and takes that are driving the FFO guidance increase, given the strong leasing outlook?

Speaker #2: Hi there. Just around guidance. So yes, our second quarter was very strong, but not that strong compared to our own expectations. We beat our own expectations by about a penny.

Harout Diramerian: Hi there. Just around guidance, Yes, our Q2 was very strong, but not that strong compared to our own expectations. We beat our own expectations by about $0.01, and our projections are higher by about $0.01. The leasing expectations that we've experienced in the Q2 and the projections are in line with our previous guidance. Nothing's really changed from that expectation, which is why you're not seeing a massive increase in our projections in our guidance.

Speaker #2: And our projections are higher by about a penny. So the leasing expectations that we've experienced in the second quarter and the projections are in line with our previous guidance.

Speaker #2: So nothing's really changed from that expectation, which is why you're not seeing a massive increase in our projections, in our guidance.

Speaker #6: Thank you. And then maybe just on the transaction market, given the asset sale, post-quarter and just a few more that may come, if you can just kind of comment on what you're seeing the kind of demand and depth of buyers like.

Jana Galan: Thank you. Maybe just on the transaction market, given the asset sale post quarter and just the few more that may come, if you can just comment on what you are seeing the kind of demand and depth of buyers like.

Speaker #2: Well, as I mentioned in my prepared remarks, I mean, San Francisco is seeing an influx of interest levels. And so we have closed one deal, as we mentioned, and we've got three others.

Victor Coleman: Well, as I mentioned in my prepared remarks, San Francisco is seeing an influx of interest levels. We have closed one deal, as we mentioned, and we have got three others, two of which are in contract, and one is imminently going to be in contract, that sort of show indicative interest level of the demand in the marketplace for our asset quality. We are comfortable with our pricing. I think we have exceeded our expectations in three out of the four assets that we are selling. There is one asset that potentially could be an owner-user, so that pricing is going to be dependent on timeline and occupancy for the owner-user. Overall, the demand drivers right now for the disposition market, from our standpoint, are very strong.

Speaker #2: Two of which are in contracts. And one is imminently going to be in contract. That sort of show indicative interest level of the demand in the marketplace for our asset quality and we're comfortable with our pricing.

Speaker #2: I think we've exceeded our expectations in three out of the four assets that we are selling. There is one asset that potentially could be an owner-user.

Speaker #2: And so that pricing is going to be dependent on timeline and occupancy. For the owner-user. But overall, the demand drivers right now for the disposition market from our standpoint are very strong.

Speaker #6: Great. Thank you, Victor. Thanks, Harut.

Jana Galan: Great. Thank you, Victor. Thanks, Harout.

Speaker #2: Thanks.

Victor Coleman: Thanks.

Speaker #3: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander, your line is open. Please go ahead.

Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander, your line is open. Please go ahead.

Speaker #5: Hey, thank you. And good morning out there. Two questions. First, Harut, on the updated guidance, you guys say it excludes the COD restructuring, but that would be a positive to guidance.

Alexander Goldfarb: Hey, thank you, and good morning out there. Two questions. First, Harout. On the updated guidance, you guys say it excludes the Quixote restructuring, that would be a positive to guidance, would it not? If you were to include that, guidance would increase? I just want to make sure I'm thinking about it right.

Speaker #5: Would it not? So if you were to include that guidance, would it increase? I just want to make sure I'm thinking about it right.

Speaker #2: No. It would not increase. Just like last quarter and the guidance provided last quarter, we've removed the impact of the COD restructuring. So it's not impacting the numbers that we have shared.

Harout Diramerian: No, it would not increase. Just like last quarter and the guidance provided last quarter, we've removed the impact of the Quixote restructuring. It's not impacting the numbers that we have shared. Just like our core FFO doesn't include that in our results, neither does our guidance.

Speaker #2: So, just like our core FFO doesn't include that in our results, neither does our guidance.

Speaker #5: But isn't that a drag on earnings? And once that drag is away, your streamlining the portfolio and there's less cost going forward? I understand in the in-between, there's a negative, but wouldn't that be a positive longer term?

Alexander Goldfarb: Isn't that a drag on earnings? Once that drag is away, like you're streamlining the portfolio and there's less cost going forward? I understand in between there's a negative, wouldn't that be a positive long-term?

Harout Diramerian: No. Alex, you're precisely right. It is a drag. That is to say it operates at a loss, so the removal of it improves core FFO, right?

Speaker #2: No, Alex, you're precisely right. It is a drag. That is to say, it operates at a loss. So, the removal of it improves core FFO, right?

Speaker #2: So our narrative FFO is dragged by it, but our core FFO is not.

Alexander Goldfarb: Okay

Harout Diramerian: is dragged by it, but our core FFO is not.

Speaker #5: Okay, now I'm thinking about it, right? Second question is on Seattle. As we think about the interplay between the East Side and the CBD, there's-- we want to get really enthusiastic and say, "Hey, Seattle could turn quickly and things are going well." At the same time, office moves slower than we all think.

Alexander Goldfarb: Okay. Now I'm thinking about it right. Second question is, Art, on Seattle, as we think about the interplay between the East Side and CBD. We want to get really enthusiastic and say, "Hey, Seattle could turn quickly and things are going well." At the same time, office moves slower than we all think. As we think about the CBD rebound, do you think this is a later this year 2027 event, or you think it takes longer than that just based on how office always, as I say, seems to take longer than we'd like?

Speaker #5: As we think about the CBD rebound, do you think this is a later this year or 2027 event, or do you think it takes longer than that, just based on how office always, as I say, seems to take longer than we'd like?

Speaker #2: Yeah. I mean, the good news is the word "rebound" is being used. We're already seeing green shoots, Alex. We've been talking about the greater Puget Sound with three-quarters of positive absorption.

Art Suazo: Yeah. I mean, the good news is the word rebound is being used. We are already seeing green shoots, Alex. We have been talking about the greater Puget Sound with 3 quarters of positive absorption. We saw for the first time in 6 years the CBD this quarter had positive absorption. We are seeing demand drivers continue to increase across downtown Seattle. Specific to our portfolio, specific to our pipeline, Seattle for the last 2 quarters has the most deals in negotiation than any sub-market that we have, including the Valley, including San Francisco. To us, that is a tremendous sign of what is to come. It is really being driven by not just the larger tenants that have come back in the market that we have talked about the last 2 or 3 quarters, it is really the 10,000 to 30,000 square foot tenants and the expansion of those tenants in the market.

Art Suazo: Yeah. I mean, the good news is the word rebound is being used. We are already seeing green shoots, Alex. We have been talking about the greater Puget Sound with three quarters of positive absorption. We saw for the first time in six years the CBD this quarter had positive absorption. We are seeing demand drivers continue to increase across downtown Seattle. Specific to our portfolio, specific to our pipeline, Seattle for the last two quarters has the most deals in negotiation than any sub-market that we have, including the Valley, including San Francisco. To us, that is a tremendous sign of what is to come.

Speaker #2: We saw for the first time in six years the CBD this quarter had positive absorption. We're seeing demand drivers continue to increase. Across downtown Seattle.

Speaker #2: And specific to our portfolio, specific to our pipeline, Seattle for the last two quarters has the most deals in negotiation than any submarket that we have, including the valley, including San Francisco.

Speaker #2: And to us, I mean, that's a tremendous sign of what's to come. And it's really being driven by not just the larger tenants that have come back in the market that we've talked about the last two or three quarters.

Art Suazo: It is really being driven by not just the larger tenants that have come back in the market that we have talked about the last two or three quarters, it is really the 10,000 to 30,000 square foot tenants and the expansion of those tenants in the market. Which by the way is predominantly driven by growth in the professional service firms, the FIRE sector, and governmental firms that are there. We are seeing it real time, and it is demonstrated by the fact that this last quarter, there were three larger deals done in downtown Seattle. Again, that demonstrates that the larger tenant demand is broadening beyond just Bellevue, as people had thought before.

Speaker #2: It's really the 10,000 to 30,000 square foot tenants and the expansion of those tenants in the market, which, by the way, is predominantly driven by growth in professional service firms, the FIRE sector, and governmental firms that are there.

Art Suazo: Which by the way is predominantly driven by growth in the professional service firms, the FIRE sector, and governmental firms that are there. We are seeing it real time, and it is demonstrated by the fact that this last quarter, there were 3 larger deals done in downtown Seattle. Again, that demonstrates that the larger tenant demand is broadening beyond just Bellevue, as people had thought before.

Speaker #2: So we're seeing it in real time, and it's demonstrated by the fact that this last quarter there were three larger deals done in downtown Seattle. Again, that demonstrates that the larger tenant demand is broadening beyond just Bellevue, as people had thought before.

Speaker #5: Okay. Thank you.

Alexander Goldfarb: Okay. Thank you.

Speaker #2: Thanks, Alex.

Art Suazo: Thanks, Alex.

Speaker #3: Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin, your line is open. Please go ahead.

Operator: Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin, your line is open. Please go ahead.

Speaker #7: Hi. Just to follow up then on Seattle, wondering if you can talk about how what you're seeing in the Seattle market is or is not impacting activity at Washington 1000 and kind of leasing potential there.

Caitlin Burrows: Hi. Just to follow up then on Seattle. Wondering if you can talk about how what you're seeing in the Seattle market is or is not impacting activity at Washington 1000 and kind of leasing potential there.

Speaker #2: Hi. Yeah. No, it absolutely is. In fact, we're seeing—as I mentioned to Alex—we have more activity in our pipeline, which is active deals and negotiations in Seattle, than any other market.

Art Suazo: Hi. Yeah. No, it absolutely is. In fact, we're seeing, as I'd mentioned to Alex, we have more activity in our pipeline, which is active deals and negotiation in Seattle than any other market. It is over 600,000 square feet for the market. Washington 1000, we had talked about nine deals we have in negotiation, represents over half of that. It is about 350,000 square feet of deals in different stages that have been impacted. We feel like we've had more momentum than we ever had. Even as we speak, kind of the last 30 days, tour activity has increased kind of in the dead of summer. Tour activity has increased tremendously.

Speaker #2: It's over 600,000 square feet for the market. Washington 1000, we had talked about nine deals we have in negotiation. Represents over half of that.

Speaker #2: So it's 300, about 350,000 square feet of deals in different stages that have been impacted and we feel like we've had more momentum than we ever had.

Speaker #2: Even as we speak, kind of the last 30 days, tour activity has increased kind of in the dead of summer. Tour activity has increased tremendously.

Speaker #7: Okay, got it. And then just on maybe the same story on the OI side, it looks like guidance suggested deceleration in the second half. I think you guys mentioned earlier that there could be lease expirations or low retention in the second half.

Caitlin Burrows: Okay, got it. Just on the maybe Same-Store NOI side, it looks like guidance suggested deceleration in H2. I think you guys mentioned earlier that there could be lease expirations or low retention in H2. Wondering if you could talk about that a little bit, and the expectation for occupancy in the back half.

Speaker #7: So, I was wondering if you could talk about that a little bit, and the expectation for—yeah, I guess, like, occupancy in the back half.

Speaker #2: Sure. As far as the guidance goes, what I specifically said is not the second half, but primarily the third quarter. We have two large expirations that are impacting our numbers in the third quarter that we have previously spoken about.

Harout Diramerian: Sure. As far as the guidance goes, what I specifically said, not H2, but primarily Q3. We have two large expirations that are impacting our numbers in Q3 that we've previously spoken about. This is not the first time we've talked about. We expect a rebound again in Q4.

Speaker #2: This is not the first time we've brought it up, and we expect a rebound again in the fourth quarter. On the occupancy question, if you're waiting on that answer...

Victor Coleman: Let me answer on that. On the occupancy question-

Mark Lammas: Let me answer on that. On the occupancy question-

Harout Diramerian: Yes

Victor Coleman: If you're waiting on that answer. We've maintained that midpoint, that 81%. When we initially launched that guidance, we had indicated that if you run the math from the beginning to the end of the year, it suggests that we should end the year towards the mid eighty-ish range, and that remains intact.

Mark Lammas: If you're waiting on that answer. We've maintained that midpoint, that 81%. When we initially launched that guidance, we had indicated that if you run the math from the beginning to the end of the year, it suggests that we should end the year towards the mid eighty-ish range, and that remains intact.

Speaker #2: We've maintained that midpoint, that 81%. When we initially launched that guidance, we had indicated that if you kind of run the math from the beginning to the end of the year, it suggests that we should end the year towards the mid kind of mid 80-ish range and that remains intact.

Speaker #7: Okay. Thank you.

Caitlin Burrows: Okay. Thank you.

Speaker #3: Your next question comes from the line of Dylan Brzezinski with Green Street. Dylan, your line is open—please go ahead.

Operator: Your next question comes from the line of Dylan Brzezinski with Green Street. Dylan, your line is open. Please go ahead.

Speaker #8: Hi, guys. Thanks for taking the question. Just maybe continuing with that mid 80% occupancy year-end and maybe looking at sort of the 2.4 million square foot leasing pipeline.

Dylan Brzezinski: Hi, guys. Thanks for taking the question. Just maybe continuing with that mid 80% occupancy year-end and maybe looking at sort of the 2.4 million square feet leasing pipeline. Is there any sort of large leases that are needed to require to hit that mid 80% occupancy range? Maybe just sort of diving into that 2.4 million square feet a little bit more. You mentioned an average size over 20,000 square feet, are there any sort of leases or potential leases that are well over that 100,000 square feet range?

Dylan Burzinski: Hi, guys. Thanks for taking the question. Just maybe continuing with that mid 80% occupancy year-end and maybe looking at sort of the 2.4 million square feet leasing pipeline. Is there any sort of large leases that are needed to require to hit that mid 80% occupancy range? Maybe just sort of diving into that 2.4 million square feet a little bit more. You mentioned an average size over 20,000 square feet, are there any sort of leases or potential leases that are well over that 100,000 square feet range?

Speaker #8: Is there any sort of large leases that are needed to require to hit that mid 80% occupancy range? And then maybe just sort of diving into that 2.4 million square feet a little bit more.

Speaker #8: You mentioned an average size of over 20,000 square feet, but are there any sorts of leases or potential leases that are well over that 100,000 square foot range?

Speaker #2: Hey, Dylan. So yeah, we have a series of leases that are the average size that we're talking about. And that's the majority of the portfolio.

Victor Coleman: Hey, Dylan. Yeah, we have a series of leases that are the average size that we're talking about, and that's the majority of the portfolio. There are a couple of deals that are multi-tenant floors, and leases that are large. We're still banking on our bread and butter, which is the 20 to 30,000 footers that are out there right now, and that seems to be the consistent aspect of where our properties are lined up. Not to say, as Art had mentioned, in Seattle as an example, I mean, there have been now a handful of deals either closed or about to close over 100,000 feet. I think there's more for sure in that marketplace behind it. There's clearly more in the city that are larger tenants. Specific to our portfolio, we do have our fair share.

Speaker #2: There are a couple of deals that are multi-tenant floors. And leases that are large. But we're still banking on our bread and butter, which is the 20 to 30,000 footers that are out there right now.

Speaker #2: And that seems to be the consistent aspect of where our properties are lined up. Not to say is our dimension. In Seattle, as an example, I mean, there have been now a handful of deals either closed or about to close over 100,000 feet.

Speaker #2: And I think there’s more for sure in that marketplace behind it. There is clearly more in the city that are larger tenants. Specific to our portfolio, we do have our fair share.

Speaker #2: But what we're really talking about on that 2.4 million square feet is the average size tenants—20,000 to 30,000 footers.

Victor Coleman: What we're really talking about on the 2.4 million square feet is the average size tenants, 20 to 30,000 footers.

Speaker #8: Okay, that's helpful. And then maybe just touching on sort of capital markets—you obviously mentioned confidence in hitting that $200 million target this year.

Dylan Brzezinski: Okay, that's helpful. Then maybe just touching on sort of capital markets. Obviously, you mentioned confident in hitting that $200 million target this year. As you sort of think about beyond 2026, I mean, is there any desire to sort of continue bringing assets to market to potentially help deleverage the balance sheet, given the strength that you've seen in capital markets and hopefully that continues?

Dylan Burzinski: Okay, that's helpful. Then maybe just touching on sort of capital markets. Obviously, you mentioned confident in hitting that $200 million target this year. As you sort of think about beyond 2026, I mean, is there any desire to sort of continue bringing assets to market to potentially help deleverage the balance sheet, given the strength that you've seen in capital markets and hopefully that continues?

Speaker #8: But as you sort of think about beyond '26, I mean, is there any desire to continue bringing assets to market to potentially help deleverage the balance sheet, given the strength that you've seen in capital markets—and hopefully that continues?

Speaker #2: So, Dylan, as you know, you covered this for a long time. We've increased our optionality for the ability for us to lower our debt metrics and the likes of that.

Victor Coleman: Dylan, as you know, you've covered us for a long time. We've increased our optionality for the ability for us to lower our debt metrics and the likes of that. That will continue. Working on these dispositions right now, confident that they're all going to go through, and we're going to exceed that $200 million number that we talked about at the beginning of the year. We have other options that are out there with assets that could either be put in the marketplace, given the activity in the market, or we have options on refinancing certain assets or just financing assets that are unencumbered as well. We've got other alternatives. The nice thing is we do have some time.

Speaker #2: And that will continue. Working on these dispositions right now, confident that they're all going to go through and we're going to exceed that 200 million dollar number that we talked about at the beginning of the year.

Speaker #2: We have other options that are out there, with assets that could either be put in the marketplace, given the activity in the market, or we have options on refinancing certain assets, or just financing assets that are unencumbered as well.

Speaker #2: So we've got—and we've got other alternatives. The nice thing is, we do have some time, and we're acutely aware of what our needs are and what the demand market is at the end of the day.

Victor Coleman: We're acutely aware of what our needs are and what the demand market is at the end of the day. I think we're comfortable with our ability to execute on all fronts.

Speaker #2: And I think we're comfortable with our ability to execute on all fronts.

Speaker #8: Great. Thanks, Victor.

Dylan Brzezinski: Great. Thanks, Victor.

Dylan Burzinski: Great. Thanks, Victor.

Speaker #2: See you, buddy.

Victor Coleman: See you, buddy.

Speaker #3: Your next question comes from the line of Seth Bergy with City. Seth, your line is open. Please go ahead.

Operator: Your next question comes from the line of Seth Bergey with Citi. Seth, your line is open. Please go ahead.

Speaker #9: Hey, thanks for taking my question. I guess just to start, you kind of talked on the increased activity with the transaction market. Just in the depth of the buyer pool, but just what type of money is out there that's interested in office product?

Seth Bergey: Hey, thanks for taking my question. I guess just to start, you kind of touched on the increased activity with the transaction market, and the depth of the buyer pool. Just what type of money is out there that's interested in office product? Is it core money? Is it opportunistic money? Just how are you seeing that kind of evolve?

Speaker #9: Is it core money? Is it opportunistic money? And just how are you seeing that kind of evolve?

Speaker #2: So I think there are three buckets, Seth, that you're looking at. I mean, there is a revamped core money that is out there, that is looking for the high-end, high-quality. It was more driven around Walt, and it still sort of relies on that aspect.

Victor Coleman: I think there's three buckets, Seth, that you're looking at. There is a revamped core money that is out there that is looking for the high-end, high quality. It was more driven around WALT, and it still sort of relies on that aspect. The opportunistic dollars are absolutely at the forefront for office looking for value add, which is usually lease up or repositioning. You still have your owner/user dollars that are out there that we've seen a fair amount that is either owner/user for an occupancy standpoint or a conversion standpoint. We did comment in our prepared remarks, we have some options on some assets, just like we did at 10950.

Speaker #2: I mean, the opportunistic dollars are absolutely at the forefront for office looking for value add, which is usually lease up or repositioning. And then you still have your owner-user dollars that are out there that we've seen a fair amount that is either owner-user for an occupancy standpoint or conversion standpoint.

Speaker #2: We did comment in our prepared remarks. We have some options on some assets just like we did at 10, 950. It's not been our core game plan to convert assets to residential, but we are in the process of a couple of assets in the portfolio right now that we're entitling.

Victor Coleman: It's not been our core game plan to convert assets to residential, but we are in the process of a couple of assets in the portfolio right now that we're in titling, and the activity is very strong on that as well, given the demand for residential. I think there are three buckets. They're consistent. I believe that the trade dollars, we haven't seen much of the trade dollars, albeit we did do a deal with the 1031 exchange just recently. That was our most recent deal. The markets are pretty much even across the board for activity and interest levels.

Speaker #2: And the activity is very strong on that as well, given the demand for residential. So, I think there are three buckets. They're consistent. I believe that the trade dollars—we haven't seen much of the trade dollars, albeit we did do a deal with a 1031 exchange just recently.

Speaker #2: That was our most recent deal. So the markets are pretty much even across the board for activity and interest levels.

Seth Bergey: Great. Thanks. Just maybe as leasing activity continues to accelerate, are you seeing any changes in kind of the timing of the conversion from when tenants are touring assets to signing leases?

Speaker #8: Great. Thanks. And then just maybe as leasing activity continues to accelerate, are you seeing any changes in kind of the timing of the conversion from when tenants are touring assets to signing leases?

Speaker #2: I mean, I think at the end of the day, it's competitive-driven, right? So high-quality stuff, if there's one or two tenants looking at it, the decisions are being made quicker.

Victor Coleman: I think at the end of the day, it's competitive driven, right? High quality stuff, if there's one or two tenants looking at it, the decisions are being made quicker. Brokers are more aware. I will let Art comment, and Ken's in the room as well, for the Bay Area. I think what you're finding now is high quality space is getting grabbed quickly, and as a result of that, a tenant is only looking at when they had maybe four or five options that were clear and identified. Now, if it's one or two, they're moving quicker on one and two versus, hey, I have four different options. I can take my time.

Speaker #2: Brokers are more aware. I will let Art comment, but and Ken's in the room as well. For the Bay Area, but I think what you're finding now is high-quality space is getting grabbed quickly.

Speaker #2: And as a result of that, a tenant is only looking at when they had maybe four or five options that were clear and identified.

Speaker #2: Now, if it's one or two, they're moving quicker on one and two, versus, "Hey, I have four different options—I can take my time."

Speaker #10: Yeah, no question. It's demand-driven. We're seeing in the markets where actually we are well leased, 94% in Palo Alto and Vancouver and so forth, West LA.

Art Suazo: Yeah, no question. It's demand-driven. We're seeing in the markets where actually we are well leased, 94% Palo Alto and Vancouver and so forth, West LA. Decisions have to be made quicker by necessity. As you start to see that pendulum swing on leverage, dare I say leverage, you're going to get a truncated deal cycle time. We're certainly seeing more and more of that.

Speaker #10: I mean, decisions have to be made quicker by necessity. And so as you start to see that pendulum swing on leverage, dare I say leverage, you're going to get a truncated deal cycle time.

Speaker #10: And we're seeing we're certainly seeing more and more of that.

Speaker #2: Let's not mistaken this to be a landlord's market though. I want to make sure we're clear on that.

Victor Coleman: Let's not mistaken this to be a landlord's market, though.

Art Suazo: Correct. Yeah.

Victor Coleman: we're clear on that.

Art Suazo: That's why I said, Dare I say.

Speaker #10: That's what I said, dare I say.

Speaker #2: Doors are always open for us to make deals.

Victor Coleman: Doors are always open for us to make deals.

Speaker #8: Great. Thank you, guys.

Seth Bergey: Great. Thank you guys.

Speaker #3: Your next question comes from the line of John Kim with BMO Capital Markets. John, your line is open. Please go ahead.

Operator: Your next question comes from the line of John Kim with BMO Capital Markets. John, your line is open. Please go ahead.

Speaker #11: Thank you. I wanted to ask for more color on your $2.4 million leasing pipeline. I think last quarter you gave some information on how much of that was tech versus AI.

John Kim: Thank you. I wanted to ask for more color on your 2.4 million person leasing pipeline. I think last quarter you gave some information on how much of that was tech versus AI. If you could provide some on that, and how much of the pipeline will be addressing either near term expirations or currently vacant space?

Speaker #11: So if you could provide some of that. And how much of the pipeline will be addressing either near-term expirations or currently vacant space?

Speaker #2: Hey John, it's hard. Yeah. So first of all, we grew the pipeline, right? We were at about $2.3 billion, even after the large quarter. The team has done an excellent job of increasing the number.

Art Suazo: Hey, John, it's Art. Yeah, first of all, we grew the pipeline, right? We were about 2.3. Even after the large quarter, the team's done an excellent job of increasing the number. It's interesting. Over the last 12 to 18 months, there's been a lot of attention paid, for good reason, to tech, and the AI ecosystem. What we're finding now in our active deals and negotiation pipeline is it's evenly distributed. It's about 50/50 AI ecosystem/tech versus non-tech, which is professional service firms, FIRE sector, and now, kind of governmental agencies taking more space. We have a broader depth of tenants that are looking for space, which is great. They're all not just the tech and the AI ecosystem. They're all looking for some level of expansion down the road. We feel even better than we did before this last quarter.

Speaker #2: It's interesting. Over the last 12 to 18 months, there's been a lot of attention paid to tech—and for good reason—to tech and the AI ecosystem.

Speaker #2: But what we're finding now in our Arctic deals and negotiation pipeline is it's evenly distributed. It's about 50-50 AI ecosystems slash tech versus non-tech, which is professional service firms, fire sector, and now kind of governmental agencies taking more space.

Speaker #2: And so we have a broader depth of tenants that are looking for space, which is great. And they’re all not just the tech and the AI ecosystem.

Speaker #2: They're all looking for some level of expansion down the road, so we feel even better than we did before this last quarter.

Speaker #11: And how much of it is new versus renewal?

John Kim: How much of it is new versus renewal?

Speaker #2: Right now in our active pipeline, it's 70-30—70% new, 30% renewal.

Art Suazo: Right now in our active pipeline, it's 70/30, 70 new, 30 renewal.

Speaker #11: Okay. And now that your Hollywood Media CMBS has gotten a short-term extension, but it's in special servicing, is your expectation that this will ultimately be refinanced, or is it a possibility that you would walk away from these assets?

John Kim: Okay. Now that your Hollywood Media, CBS, has gotten a short-term extension, but it's in special servicing, is your expectation that this will ultimately be refinanced, or is it a possibility that you'd walk away from these assets? Assuming it's the former, do you expect any pay down as part of that extension, or do you expect pricing to change even though it's not officially in your guidance?

Speaker #11: Assuming it's the former, do you expect any paydown as part of that extension, or do you expect pricing to change, even though it's not officially in your guidance?

Speaker #2: So, John, I want to be clear. We've commented on it. We're not going to talk about what's the paydown. We're not going to talk about the terms until they're finalized, okay?

Victor Coleman: John, I want to be clear. We've commented on it. We're not going to talk about what the pay down, we're not going to talk about the terms until they're finalized, okay? Your assumption is that, which is wrong, it's a short-term extension. That's your assumption, okay? I want to just make sure you're clear on that. In terms of us walking away from the assets or dealing with a refinancing, we'll address that publicly when we get the renewal completed.

Speaker #2: Your assumption is that, which is wrong, it's a short-term extension. But that's your assumption, okay? So I want to just make sure you're clear on that.

Speaker #2: In terms of us walking away from the assets, or dealing with a refinancing, we'll address that publicly when we get the renewal completed.

Speaker #11: So, if it's not short-term, how long is the extension for?

John Kim: If it's not short term, how long is the extension for?

Speaker #2: John, as I said, you'll get full terms and conditions on the extension when we announce it. You're not going to get in advance of anybody else.

Victor Coleman: John, as I said, you'll get full terms and conditions on the extension when we announce it. You're not going to get it in advance of anybody else.

Speaker #11: Okay. Okay. Thank you.

John Kim: Okay. Thank you.

Speaker #3: Your next question comes from the line of Ronald Camden with Morgan Stanley. Ronald, your line is open. Please go ahead.

Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald, your line is open. Please go ahead.

Speaker #8: Great, thanks so much. Just a commentary on AFFO. Obviously, a lot of the leasing has come through nicely. How do you guys think about the CapEx trailing off, and sort of the prospects of that AFFO to start kicking into gear as well?

Ronald Kamdem: Great. Thanks so much. Just commentary just on the AFFO. Obviously, a lot of the leasing has come through nicely. How do you guys think about the CapEx trailing off and sort of the prospects of that AFFO to start kicking into gear as well? Thanks.

Speaker #8: Thanks.

Speaker #2: Sure. Hey there, Ron. So the AFFO, I think we've previously stated this, that we're still working through the leasing spend. There's a lot of leasing that Art has mentioned that's still coming.

Harout Diramerian: Sure. Hey there, Ron. The AFFO, I think we previously stated this, that we're still working through the leasing spend. There's a lot of leasing that Art just mentioned that's still coming. The spend usually comes in a little later than we've experienced in the past. We expect AFFO to be up and down over the next few quarters until all the spend is happening and the cash flow starts coming through from all those leasing. Even though we've done a lot of good leasing, there's still some CapEx to be spent, and that leasing still hasn't generated cash flow yet. Full cash flow.

Speaker #2: The spend usually comes in a little later than we've experienced in the past. So, we expect AFFO to be up and down over the next few quarters until all the spend is happening and the cash flow starts coming through from all those leasing.

Speaker #2: So even though we've done a lot of good leasing, there's still some CapEx to be spent. And that leasing hasn't generated cash flow yet.

Speaker #2: Full cash flow.

Speaker #8: Helpful. And then just on the studio recovery and so forth, now that obviously the KLT Services in Atlanta is out, how do you guys think about the ramp and the ultimate NOI opportunity now with that studio business?

Ronald Kamdem: Helpful. Just on the studio recovery and so forth, now that obviously the Quixote Services in Atlanta is out, how do you guys think about sort of the ramp and the ultimate sort of NOI opportunity now with that studio business? Any color there would be helpful. Thank you.

Speaker #8: Any color there would be helpful. Thank you.

Art Suazo: Yeah. Maybe just to make sure our expectations are in line. Our first goal is to get this thing to break even. If you look at our results, and I assume you're talking about the Quixote business, because that's really where the opportunity sits, is if you look at our Q2 results, you'll see that we're now generating somewhere in the neighborhood of, call it -$4 million annualized cash NOI.

Mark Lammas: Yeah. Maybe just to make sure our expectations are in line. Our first goal is to get this thing to break even. If you look at our results, and I assume you're talking about the Quixote business, because that's really where the opportunity sits, is if you look at our Q2 results, you'll see that we're now generating somewhere in the neighborhood of, call it -$4 million annualized cash NOI.

Speaker #2: Yeah. I mean, maybe just to make sure our expectations are in line. Our first goal is to get this thing to break even. And if you look at our results, and I assume you're talking about the community business because that's really where the opportunity sits is if you look at our second quarter results, you'll see that we're now generating somewhere in the area of, call it, negative 4 million annualized cash NOI.

Speaker #2: That is with a backdrop of about 70 shows. We think we've, through all that cost-cutting efforts, we've managed to lower the threshold to get to break even in terms of show count.

Mark Lammas: That is with a backdrop of about 70 shows. We think through all that cost-cutting efforts, we've managed to lower the threshold to get to breakeven in terms of show count. If shows can improve very modestly, say from the current 70 level to 80, we think we're at breakeven. When we started the cost-cutting endeavor, shows were around 90. Had they stuck at that level, we would be in positive territory already. Which is to say, if we were at 90 shows, we should be running at a +$4 million or $5 million, we think a positive NOI in cash for Quixote. We are not trying to project where we think show counts are trending. We are just going to continue to focus on costs. We're going to continue to reach that breakeven point. We think we're getting increasingly close to that as the numbers show.

Speaker #2: So if shows can improve very, very modestly, say from the current 70 level to 80, we think we're at break even. When we started the cost-cutting endeavor, shows were around 90.

Speaker #2: Had they stuck at that level, we would be in positive territory already. Which is to say, if we were at 90 shows, we should be running at a positive $4 or $5 million, when we think of positive NOI and cash for Kyoto.

Speaker #2: We're not trying to project where we think show counts are trending. We're just going to continue to focus on costs. We're going to continue to reach that break-even point.

Speaker #2: We think we're getting increasingly close to that, as the numbers show. And we'll see where things go from there. Right now, we're in summer.

Mark Lammas: We'll see where things go from there. Right now, we're in summer. Summer is historically a slow period. We'll see if shows pick up as we get closer to fall, and hopefully if they do, we'll start to see +NOI in Quixote.

Speaker #2: Summer is historically a slow period. We'll see if shows pick up as we get closer to fall. And hopefully, if they do, we'll start to see positive NOI in Kyoto.

Speaker #8: Thank you.

Victor Coleman: Thank you.

Ronald Kamdem: Thank you.

Speaker #3: Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Richard, your line is open. Please go ahead.

Operator: Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Richard, your line is open. Please go ahead.

Speaker #8: Hey, thanks. Some of the draft off that last question for you, Mark. Do you still approach the Kyoto unwind as if it's 70 shows?

Richard Anderson: Thanks. I'm going to draft off that last question for you, Mark. Do you still approach the Quixote unwind as if it's 70 shows? You're not counting on 80 or 90, the process continues? I just want to make sure I understand that.

Speaker #8: You're not counting on 80 or 90, and so the process continues. I just want to make sure I understand that.

Speaker #2: That's right. Or maybe, to put an even finer point on it, if you look at our guidance, we are assuming no improvement in show count.

Mark Lammas: That's right. Maybe to put an even finer point on it, if you look at our guidance, we are assuming no improvement in show count.

Speaker #8: Okay. That's what I figured. I just wanted to confirm. Now, what does Kyoto what does the Kyoto platform look like as a long-term hold in terms of lease stages and so on?

Richard Anderson: Okay. That's what I figured. I just wanted to confirm. What does the Quixote platform look like as a long-term hold in terms of lease stages and so on? Where and what should we expect to be the ultimate landing point?

Speaker #8: Where and what should we expect to be the sort of the ultimate landing point?

Speaker #2: Yeah. Well, once the announced wind-downs are done, it will consist of a fleet of various types of vehicles, about a little bit more than 1,000 vehicles, largely located in Los Angeles with some in New York.

Mark Lammas: Well, once the announced wind-downs are done, it will consist of a fleet of various types of vehicles of about a little bit more than 1,000 vehicles, largely located in Los Angeles with some in New York. That will be the remaining going concern, if you will. Victor can comment on where we go from there, because the first priority is to get that wind-down done and give ourselves a chance at profitability. Then where we go from there, I think we'll have to explore.

Speaker #2: That will be the remaining going concern, if you will. I'll let Victor comment on where we go from there, because the first priority is to get that wind-down done.

Speaker #2: And give ourselves a chance at profitability. And then, where we go from there, I think we'll have to explore.

Speaker #1: Yeah. And Rich, just in line with that, it's let's not let the numbers get skewed a little bit here or there. We still have market share in the range of 70% in that business.

Victor Coleman: Yeah. Rich, just in line with that, let's not let the numbers get skewed a little bit here or there. We still have market share in the range of 70% in that business. It's not that we're servicing just our portfolio, we're servicing the industry itself. As the industry evolves and if it lays out to where it is right now, which we underwrote it at, as Mark said, we'll break even relatively shortly. If it ends up expanding, then there's options for us to look at that industry and that business around Quixote and look at our alternatives.

Speaker #1: So it's not that we're servicing just our portfolio. We're servicing the industry itself. And so as the industry evolves and if it lays out to where it is right now, we underwrote it at as Mark said.

Speaker #1: We'll break even relatively shortly. If it ends up expanding, then there's options for us to look at that industry and that business around Kyoto and look at our alternatives.

Speaker #8: But it's a fleet business at the end of the day. You would would you be out of the leased studios as well entirely?

Richard Anderson: It's a fleet business at the end of the day. Would you be out of the leased studios as well?

Victor Coleman: Yeah.

Richard Anderson: Entirely?

Speaker #1: Yeah. Yeah. That's the goal.

Victor Coleman: Yeah, that's the goal.

Speaker #8: Okay.

Richard Anderson: Okay. I apologize.

Speaker #2: On the Kyoto side.

Mark Lammas: On the Quixote side.

Victor Coleman: On the Quixote side.

Speaker #1: Yeah. On the Kyoto side.

Speaker #8: On the Kyoto side, yeah, understood. And so then my last question is: that's a nice change from an $18.6 million loss in 2024 to a $4 million current run rate today.

Richard Anderson: My last question is, that's a nice change from a $18.6 million loss in 2024 to $4 million currently run rate today. Would you describe yourself as ahead of the game versus when you started to talk about the unwind process?

Speaker #8: Would you describe yourself as ahead of the game versus when you started to talk about the unwind process?

Speaker #2: I would. In that, even as we've lost demand—that is to say, show counts have gone down over the time frame that we've been cutting costs—the fact that we are approaching break-even, even in that kind of declining demand environment, I think is a good indicator that our plan is working.

Mark Lammas: I would, in that even as we've lost demand, that is to say, show counts have gone down over the timeframe that we've been cutting costs. The fact that we are approaching breakeven even in that kind of declining demand environment, I think is a good indicator that our plan is working. Because we would be in positive territory, as I indicated, had demand held up.

Speaker #2: And because we would be in positive territory, as I indicated, had demand held up.

Speaker #8: Okay. And then just real quickly, will the studio side of Kyoto—will that extend into 2027 in terms of the unwind? I mean, year-end this year, will you still be in some studios?

Richard Anderson: Okay. Just real quickly, will the studio side of Quixote, will that extend into 2027 in terms of the unwind? Year-end this year, will you still be in some studios? Again, I apologize for that.

Speaker #8: Again, I apologize for not.

Mark Lammas: No. We're in the process. We started with 10 leases, mostly staged leases. We're out of five of them, and we are in negotiation on the remaining five.

Speaker #2: Well, we're in the process. We've got call it we started with 10 leases mostly staged leases we have we're out of five of them, and we are in negotiation on the remaining five.

Speaker #8: Okay, all right. Great. Thanks for the color.

Richard Anderson: Okay. All right. Great. Thanks for the color.

Speaker #1: Thanks, Rich.

Mark Lammas: Thanks, Rich.

Victor Coleman: Thanks, Rich.

Speaker #3: Your final question comes from Jamie Feldman with Wells Fargo. Jamie, your line is open. Please go ahead.

Operator: Your final question comes from Jamie Feldman with Wells Fargo. Jamie, your line is open. Please go ahead.

Speaker #5: Great. Thanks for taking the follow-up. So I guess just sticking with the studios, can you just talk about the potential show pipeline? I think you had commented on now that there's more stability or visibility on labor, maybe you feel better about what's out there.

Jamie Feldman: Great. Thanks for taking the follow-up. I guess just sticking with the studios, can you just talk about the potential show pipeline? I think you had commented on now that there's more stability or visibility on labor, maybe you feel better about what's out there. Can you just give us more color of what you think could come to the studios?

Speaker #5: Can you just give us more color of what you think could come to the studios?

Speaker #1: I mean, Jamie, listen, as Mark said, it is a quiet time right now. I think the labor comment is absolutely apparent, but there are no foreseeable hurdles on that basis.

Victor Coleman: Jamie, listen, as Mark said, it is a quiet time right now. I think the labor comment is absolutely apparent that there are no foreseeable hurdles on that basis. As we're seeing, New York has picked up dramatically, it's taken some business away from Los Angeles. Our core portfolio is performing extremely well and very well leased in terms of what we own. I think candidly, the state credits have been disappointing in that they haven't really expedited a lot of filming. We'll have to see what happens in fall. There is banter around some federal aid on that basis, we're in the middle of it as we sit, we'll see what happens on that side.

Speaker #1: As we're seeing New York has picked up dramatically so it's taken some business away from Los Angeles. Our portfolio is extremely performing extremely well and very well leased.

Speaker #1: In terms of what we own, the show counts have been varied. And I think candidly, the state credits have been disappointing in that they haven't really expedited a lot of filming.

Speaker #1: We'll have to see what happens in fall. There is banter around some federal aid on that basis and we're in the middle of it as we sit.

Speaker #1: So, we'll see what happens on that side. Los Angeles isn't going anywhere from a production standpoint. What we have seen is that the other ancillary markets are in a much worse situation—being Atlanta, New Orleans, Michigan, and Toronto. I mean, the three core markets that have really held up are New York, Los Angeles, and Vancouver.

Victor Coleman: Los Angeles isn't going anywhere from a production standpoint. What we have seen is the other ancillary markets are in a much worse situation, being Atlanta, New Orleans, Michigan, and Toronto. The three core markets really that have held up are New York, Los Angeles, and Vancouver. By fall, when we get through what we're working on right now, seeing the new shows that are launched in fall, I think we'll have a clearer picture of where those numbers are going to shake out on a consistent basis.

Speaker #1: So, by fall, and when we get through what we're working on right now, and seeing the new shows that are launched in fall, I think we'll have a clearer picture of where those numbers are going to shake out on a consistent basis.

Speaker #5: Okay. And is there anything you can say about Netflix or the Netflix lease? Or is that off?

Jamie Feldman: Okay. Is there anything you can say about Netflix or the Netflix lease, or is that off limits?

Victor Coleman: All we can say is that our relationship and conversations are completely ongoing, to the contrary of what other people are talking about.

Speaker #1: All we can say is that our relationship and conversations are completely ongoing, contrary to what other people are saying.

Speaker #5: Okay. All right. Great, thank you.

Jamie Feldman: Okay. All right. Great. Thank you.

Speaker #1: Thanks. With that, I'd like to thank everybody for participating in this quarter's call, and we look forward to updating you in the next quarter.

Victor Coleman: Thanks. With that, I'd like to thank everybody for participating in this quarter's call, we look forward to updating you through the next quarter and speaking next quarter. Thank you.

Speaker #1: And speaking next quarter. Thank you.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 Hudson Pacific Properties Inc Earnings Call

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