Fiserv Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 14 speakers on the call.

Operator

Thank you all for joining. I would like to welcome you to the Hudson Pacific Properties First Quarter 2023 Earnings Conference Call. My name is Breka, and I'll be your operator for today's call. At this time, all participants are in a listen only mode And you will have an opportunity to ask a question after the presentation. Thank you.

Operator

I would now like to turn the conference over to Laura Campbell to begin. So Laura, you may begin.

Speaker 1

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman Mark Lamas, President Harout Dhiramarian, CFO and Art Suazo, EVP of Leasing. Thanks. Yesterday, we filed our earnings release and supplemental on an 8 ks with the SEC and both are now available on our website.

Speaker 1

An audio webcast of this call will be available for replay on our website. Some of the information we'll share today on the call 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 macro conditions in relation to our business, Mark will provide detail on our office leasing and Harut will review our financial results and 2023 outlook. Thereafter, we'll be happy to take your questions.

Speaker 1

Victor?

Speaker 2

Good morning, everyone, and welcome to our Q1 call. In the Q1 of the year, macroeconomic challenges have persisted, exacerbating uncertainty And putting downward pressure on office market fundamentals. We will touch on how this is impacting our leasing activity in a moment. Recently, however, we've seen much more of Big Tech return to work announcements bringing employees back to office Multiple days a week citing performance and efficiency concerns. These include Amazon, Oracle, Redfin, Lyft and DocuSign to name a few.

Speaker 2

Council data and transit ridership also show improvement across our markets. With the return to office unfolding slower than many expected, optimistic that these announcements and related trends will translate into increased physical occupancy and improved tenant demand at our assets. Important indicators continue to support the notion that the Bay Area and Seattle remain epicenters for talent and capital networks that drive the tech industry. For example, the Q1 venture capital investments was in line with historic 10 year average, with the Bay Area continuing to receive the bulk of these funds. The early 2020 has brought a wave of funding accelerated by COVID related macro forces with a minimal office leasing.

Speaker 2

Beyond AI, which is currently driving approximately 600,000 square feet of requirements in the city of San Francisco alone, other sectors like cybersecurity, defense and energy remain compelling areas for growth. While it would take time for this to positively contribute to our leasing efforts, it reaffirms our view That our office properties are located in compelling growth markets. Turning to our studios, last week, the Writers Guild of America elected to strike, leading to a halt in the domestic film and TV production. And unlike prior strikes where production ramped up in advance, This was instead a significant slowdown in filming through the Q1. We suspect this is primarily the result Of streaming companies' more robust existing content pipeline, although the austerity measures as well may have played a role.

Speaker 2

For example, in the LA market overall, the Q1 filming and TV shoot days declined approximately 30% compared to the same period last year. This initial slowdown impacted independent studios and service providers such as ours first as major studios consolidated productions on-site. With the strike underway, productions at all studios have now been disrupted. This slowdown was a precursor to what we will experience during the strike In the past, with the overall economic impact to be felt much more broadly. In 2,007-eight, the rider strike, which lasted 14 weeks, cost the California economy $2,100,000,000 or $2,800,000,000 in today's dollars.

Speaker 2

There have been 7 such strikes since the 1950s ranging from 2 to 22 weeks with the average being 14 weeks. Whether brief or protracted, Strike will impact the entire studio business, albeit less for our Sunset studio assets, where nearly 70% of our state Square footage is under multi year leases with guaranteed minimums for service revenue. Lack of visibility around the strike's duration led us to suspend our 2023 FFO outlook and related studio assumptions. While we're still providing assumptions related to our 2023 office outlook, Harrutzen will discuss this further on the call. These studio related union strikes are both temporary and relatively infrequent, And we believe underlying finance for content production and thus for the studio business overall remains solid.

Speaker 2

Even if Spend on high quality original content moderates in the coming years in pursuit of profitability. Current estimates indicate We will be at least on par with last year's following a period of ramp up post strike. In these uncertain times, We stay focused on what we can control, executing our leasing, prudently allocating capital, reducing corporate expenses, Proactively working on asset sales and further fortifying our balance sheet, we continue to live in upfront capital spend for market ready suites, common area and face building improvements until we have certainty around demand. We're currently evaluating potential disposition of 6 distinct assets, including a land parcel. We've also recently received Board approval to reduce our dividend by 40% to 50%, with a precise amount to be finalized at our Board meeting later this month.

Speaker 2

This will bring our dividend policy in line with other capital preservation efforts. However, Even without dividend reduction, we have a path to address all our maturities through year end 2025, which Harute will also discussed later in this call. With that, I'm going

Speaker 3

to turn it over to Mark. Thanks, Victor. Our 344,000 square feet of 1st quarter leasing activity Reflects tenants' continued slow decision making, which notably decelerated amid recession concerns in the 3rd Q4 of last year. Our in service office portfolio lease percentage was 88.7% compared to 89.7% at the end of last year. Note this quarter we've added 10,900, 10,950 Washington to our future development pipeline.

Speaker 3

It is the only residential conversion we're considering at this point, and we're actively working through entitlements to build approximately 500 units. Thus, the decline in lease percentage was mostly attributable to small to midsize expirations at our Peninsula and Silicon Valley assets. At the same time, the preponderance of our Q1 leasing activity also resulted from small sub 5000 square foot tenants in those markets. Our GAAP and cash rents fell approximately 3% and 5%, respectively, with the decline mostly driven by a significantly below market 20,000 Square Foot Short Term Renewal. Our tenant improvements were in line with the trailing 12 months per square foot average, but look higher on an annual basis due to shorter weighted average lease term.

Speaker 3

Trailing 12 month net effective rents are nearly 6% higher than last year and in line with pre pandemic that is Q1 2020 trailing 12 month net effective rents. The average weighted lease term of 42 months reflects the impact of 3 larger short term renewals. For new deals alone, Our weighted average lease term was 67 months, which is typical given an average size of 4,000 square feet. Trailing 12 months weighted average lease term is approximately 9% higher than last year and in line with our pre pandemic trailing 12 month weighted average lease term. We still have activity on both of our 2023 large block expirations, including 60% coverage on blocks space at 1455 Market, but given the broader dynamics in the mid market neighborhood, we expect that backfill will take time.

Speaker 3

We also remain in discussions around a potential renewal with our full building tenant at Met Park North even as we proactively market that space. In total, we currently have 47% coverage on our remaining 2023 expirations with an average tenant size of roughly 11,000 square feet. Our leasing pipeline, which includes deals and leases, LOIs or proposals, has increased, up 11% to 2,000,000 square feet since a dip in the Q3 of last year. The average deal size within our pipeline is 13,000 square feet, Above the 8,000 square feet on average for signed deals over the last 5 years. The weighted average lease term of deals currently within our pipeline is more closely aligned with our 5 year average of 82 months.

Speaker 3

Separately, tours at our assets are at the highest level since Q1 of 2017. Since slowing in Q3 last year, the number of our tours has increased more than 30%, largely driven by activity at our Silicon Valley assets. 1st quarter tours represent over 1,800,000 square feet of requirements, up 130% since Q3 last year, in part driven by an increase An average requirement size from 8,000 to 14,000 square feet. While it remains unclear how quickly these trends will translate into signed leases, Historically, we've seen a clear correlation between an uptick in tour activity and new deals. And now I'll turn the call over to Haru.

Speaker 4

Thanks, Mark. Compared to Q1 2022, our Q1 2023 revenue increased 3.2% to $252,300,000 primarily due to our acquisition of Quixote, which we purchased in the Q3 of last year. Our Q1 FFO excluding specified items was $49,700,000 or $0.35 per diluted share compared to $75,200,000 or $0.50 per diluted share last year. Specified items in the Q1 consisted of transaction related expenses of $1,200,000 or $0.01 per diluted share, Compared to transaction related expenses of $300,000 or $0.00 per diluted share and a tradename non cash impairment of $8,500,000 or $0.06 per diluted share a year ago. The year over year decrease in FFO was mostly due to lower production activity impacting Quoty In the lead up to the rider strike, though we were also impacted by higher interest expense and lower office occupancy compared to last year.

Speaker 4

1st quarter FFO was in line with our expectations, but for Studio results, particularly with respect to March projections. Our Q1 AFFO was $35,000,000 or $0.24 per diluted share compared to $58,800,000 or $0.39 per diluted share. The decrease was largely attributable to the aforementioned items affecting FFO. Our same store cash NOI grew to $125,600,000 or 7.2 percent from $117,200,000 mostly due to significant office lease commencement at Harlow and 1918, as well as higher production related revenue and lower operating expenses at Sunset Gower and Sunset Boston Studios. During the Q1, we repaid $110,000,000 Series A notes and applied $102,000,000 of sales Proceeds from Skyra Landing to pay down our credit facility.

Speaker 4

At the end of the quarter, we had $828,300,000 of total liquidity comprised of 1 $163,300,000 of cash of unrecipitated cash, cash equivalents and $665,000,000 of undrawn capacity on our unsecured revolving credit. We have additional capacity of $138,900,000 under our One Westside and Sunset Glen Oaks construction loans. At the end of the Q1, our company's share of net debt to company's share of undepreciated book value was 38.2%. 66.2 percent of our debt is unsecured and 90.3% is fixed or capped debt. As Victor noted, we continue to focus on delevering by exploring asset sales, financings and costs and dividend reductions.

Speaker 4

Our anticipated dividend alignment will result in $58,000,000 to $72,000,000 of annual cash flow savings to further enhance our balance sheet. March conditions have rightfully heightened focus on our debt maturities. And I'll take a minute to walk through our exposure. Following our pay down of the Kyomi loan in April, we have only one small room maturity remaining this year, a $50,000,000 private placement note. Our 2 2020 formaturities are both secured debt, the large of which is One West Bank, for which we have indicative terms from third party brokers on a refinancing.

Speaker 4

With respect to our $98,000,000 20 percent ratable share of loans secured by Bentall Center maturing in July of next year, our partner Blackstone Has already taken the lead in discussing with the existing lenders. As for 2025 maturities, 96% of That indebtedness does not mature until the final 2 months of 2025, more than 2.5 years from today. 3 of our 4 2025 securities Comprised nearly 2 thirds of the maturing amount are secured by high quality assets, 1988's Almond L. A. And Sunset Glen Oaks, The first two of which enjoy high credit singleton occupancy with remaining lease terms into 2,030.

Speaker 4

Sunset Glen Oaks will be a fully operational state of the art Studio Campus before its 2025 maturity. Our 4th and final 2025 maturity consists of 259,000,000 Private placement loan scheduled to mature in December 2025. While we are more than 2.5 years away from that maturity, we are focused on ensuring that we have Capital availability to address the loan ahead of its repayment. Turning to our outlook. We are continuing to provide several Due to the high level of uncertainty around the duration of the writer's strike, we will not be providing a 2023 FFO outlook or studio related assumptions at this time.

Speaker 4

Please note that we provided an office same store cash NOI projection rather than our customary combined office and studio estimate in light of the rider strike and uncertainty. As always, our 2023 outlook excludes the impact of any opportunistic or not previously announced acquisitions, dispositions, financings and capital markets activity. Now we'll be happy to take your questions. Operator?

Operator

Thank The first question we have comes from Alexander Goldfarb of Piper Sandler.

Speaker 5

Yes. Hi. Good morning out there. So two questions. First, Harut, On the guidance, the FFO suspension, is that solely due to the studios or were there some other Changes in the core office.

Speaker 5

And the reason I ask is the same store cash NOI guidance range came down As did the joint venture FFO contribution.

Speaker 4

Good morning, Alex. Thank you for the question. It's a good question. So it is 100% due to the studio operations. The same store NOI guidance, I I don't know if you can tell from what we disclosed, but went down quarter over quarter primarily because the previous guidance provided

Speaker 6

Had a

Speaker 4

combination of studio and office, whereas the guidance provided this time is only office. So while, yes, there's a decrease quarter over quarter, but you can't tell from the previous But to answer your question, it did come down about 50 basis points for the office NOI, and that's not why that guidance was suspended. It's All due to the studio and then the drop in the JV share of FFO is again related to studio, all of it. So, Office's first quarter was in line with our expectations. And while it's not Blowing up and doing amazing, it is consistent with our expectations.

Speaker 5

Okay. And then the second question is on cost cutting. You guys laid out some planned asset dispositions, land dispositions, certainly cutting the dividend. From a platform perspective, what are some of the costs that you guys could do you think that you could reduce Out to also improve the overall cash flow generation of

Speaker 3

the of Hunter? I mean, you've covered the sort of the gamut there on where our focus is today. We continue to monitor other discretionary spend and look for ways To make reductions where we can, but I think the main impact Full items are the items you listed perhaps starting with kind of dividend at the top of the list?

Speaker 4

In addition, I mean, We originally provided our guidance last quarter and obviously playing in the current quarter, which is a reduction of our G and A. You see the quarter quarter decrease in terms of Q1 versus Q1 and the guidance provided is consistent with that. Lastly, Alex, as you probably heard in

Speaker 6

the prepared remarks, I mean, we have looked at assets and some of the assets that are not in the disposition line, But other assets that we would have had some capital expenditures allocated towards them, we've held off because of maybe some lack of leasing activity or Conferencing that and focus our energy on the ones that we see are more imminent to lease up. So there's a combination of things Between what Harut and Mark said and then obviously the dispositions of some assets.

Speaker 5

Okay. Thank you, Victor.

Speaker 6

You got it, Alex.

Operator

We now have Michael Griffin of Citi.

Speaker 7

Thanks. It's actually Nick Joseph here with Michael. Just on the studio platform, obviously, recognize kind of We're moving the guidance, the uncertainty on the timing, but as you look back to history and maybe 2,007, 2,008, Does it create pent up demand when it ends or is it really more just kind of lost revenue as a strike is underway?

Speaker 6

That's a great question. I'll tell you, we were around in the last slide, and you heard our prepared remarks. We don't unfortunately Have a seat at the table currently to sort of give an eye as to what is going on. We have a very sophisticated Board of which 3 are very involved in the So we're getting some firsthand information of how negotiations are going. But that being said, I would akin this to specific to your question More correlated to COVID, when COVID hit us, production stopped.

Speaker 6

Yes, there was writing, but all production had stopped For a period of time. And then it also, when it came back and there is a downtime to ramp up, But when it came back, it came back better than anybody expected. And we are assuming that the same example will occur here. There will be enough Of a pipeline demand, and every major studio has come out to date and said They are not adjusting their budgets for content spend. So that would lend us to believe that it's going to come back aggressively.

Speaker 6

If it's going to come back, and your direct question, correlated to year end 'twenty three, I don't know how they can produce all that content when they're losing time. But it will flow into seasonality of Q1, which typically is the case. 1st quarter is always a seasonal time lower, And then it dips back up in the Q2. I think you're going to see some seasonality on the positive side late this year And then EarlyNext as well. Thanks.

Speaker 7

And then just on guidance, would your intention be to resume full year guidance once The strike ends

Speaker 6

and you get more clarity or would you even wait a little longer

Speaker 7

than that to see kind of the pickup as things resume?

Speaker 6

Well, as soon as we have knowledge of the strike and then indicative knowledge of activity is when we will resume guidance. But yes, when the strike is over, We should see a correlation to the amount of activity on the Studio business in general, and that's when we will reinstate guidance. That's the intent.

Speaker 7

Thank you very much.

Operator

Your next question comes from Nick Yulico from Scotiabank.

Speaker 8

Thanks. So First question, I

Speaker 6

guess, is on the studios, is there any way

Speaker 8

to give us any rough feel for how this could work from maybe like every month There is a strike and how it's going to impact your business, realizing I think Q2 and Q3 is where you have more seasonal Benefit from the studio business. Just trying to see if there's any parameters we can think about.

Speaker 3

If we thought we could give you too much specifics, Nick, we obviously wouldn't have pulled guidance. But you can look to our NOI detail page of the supplemental to give you At least a sense of what the underlying expenses look like on a quarterly basis And kind of what low revenues look like on a quarterly basis. We can't Really give you much more to go by than that at this point because we don't know what revenues could look like even in a Strike scenario and what inroads perhaps we can make on expenses depending on how long the strike

Speaker 6

And Nick, listen, the strike is a week old. We have access to our facilities. We have access to all of our product, All of our comps, all of our transpo. And we are looking at alternative sources of revenue. This is new to the uses of those revenue, but we will look to Live events and we're going to look to short term production or various different venue hostings And the likes of that.

Speaker 6

So there will be some revenue. We just have

Speaker 8

no idea what it's going to

Speaker 6

be, but the sales team is out there. And that being said, as I

Speaker 2

said earlier in the last

Speaker 6

question, we're looking at expense reduction throughout the entire studio business. So the combination of that will sort of come out over the next couple of months if this lasts that long.

Speaker 8

Okay, fair enough. Thanks. Second question just has to do with the covenants in the credit facility. Have you guys done a Stress test on that in regards to a certain period of a strike and then also factoring in some of the known move outs you have This year, if you don't backfill those, just your confidence in being as we roll forward through the year, You guys still being okay with your covenants and your credit facility?

Speaker 4

It's a good question. So We periodically or regularly look at our covenants and project out at least a year, sometimes 2, depending on circumstances. And in this case, we feel barring anything bizarre happening, even though a 3 month strike, we are Completely in line with our covenants.

Speaker 8

Okay, thanks. You said 3 I was just assuming some of that something like a 3 month strike, you feel like you're Still good within your covenants?

Speaker 4

Yes. And even going further out, we're in line with those covenants.

Speaker 8

Okay, great. Thanks. I guess just one last question, if I could. Victor, The Board addressed the dividend. I guess I'm wondering if there's another step that the Board is going to consider to address, meaning that at some point you make More crystallized a certain level of asset sales to raise liquidity to address future Debt maturities, just wondering what the thoughts are on that?

Speaker 8

Thanks.

Speaker 6

Yes, Nick, this is Frank. Thanks. On that specific aspect, I think we laid out pretty concisely that between now and the end of 20 4, we don't have anything major coming due. And then considering 2025, we only have one piece of debt. Given just the liquidity that we currently have with dividend savings, that effectively can be taken care of on a dollar for dollar basis.

Speaker 6

The rest of it is asset level. So, I hope that we sort of alleviate that thought process that has been sort of hovering over Hudson for the last several months That other than asset related debt, which are high quality single tenant assets, that we don't have any aspects Of debt that we're concerned about replacing through end of 'twenty five. That being said, I think the Board has looked at this As a one time cut, and given where we feel that the evaluation of what will transpire with some of the leasing that we project And hopefully, the recovery of the entertainment business in a shorter form, based on the strike being resolved, we should be in great shape

Operator

Your next question comes from Dylan Berenzky of Green Street.

Speaker 9

Hi, guys. Thanks for taking my question. Just curious if you can kind of give you an overview of sort of the San Francisco market in general today. Recently, we've seen several retailers announce that they're going to be closing stores. So just curious how you guys see the recovery there playing back and maybe if Things are a little bit worse on the ground today versus where we were, call it, 3 to 6 months ago?

Speaker 6

Yes. I mean, I'll jump in a little bit and then Art can sort of take Preston, I mean, you're obviously seeing what's on the ground on the retail side. I think it is really a tale of 2 ends of the city, right? I mean, if you're looking at our assets at Rincon For the activity is fairly robust. We don't have any vacancy coming due To speak of and what we're seeing is a lot of interest or a lot of inquiries and interest if we did have vacancy on high quality assets.

Speaker 6

And that I think is evident throughout the whole city on that end of the city for high quality assets. As you move towards the tenderloin, you are seeing some impact here. I will say that the announcements of some of the retailers Are not surprising given the safety and security concerns and crime. I do know the city is looking to Fulfill an obligation on somewhat similar to a focused plan that the Mayor's office is trying to revive Downtown San Francisco and the mid market areas and the Civic Center areas. I think that that process and plan is being laid out And the intent is to sort of spend $25 plus 1,000,000 in the police departments and expanding the Street response teams and the likes of that, which will hopefully turn the city into a positive avenue and get out of what we're currently in today.

Speaker 6

On a highlight, which is limited in San Francisco right now, Dylan, I'm sure you're hearing about The demand for AI, and the demand for AI is what we've seen and what our people on the ground in the valley and the city have seen is really only in the city right now. And it's somewhere around 600,000 square feet of inquiries. One tenant has already signed and it looks like there's another Six tenants in the marketplace looking for space. So that could boost some form of a next step recovery Or at least a step recovery for San Francisco that we are keeping an eye on and evaluating. Yes, that's definitely bolstered

Speaker 10

the demand in the market. As Victor said, up about 600,000 square feet, which is now brings the demand up to about 3,500,000,000 square feet. People forget that the growth leasing has Remained north of 1,000,000 square feet a quarter, and so we're battling the headwinds of net absorption. But Relative to our portfolio, we've got in addition to the coverage we have on block, it's about 270,000 square feet. We have 150,000 square feet of action on our vacancy up there.

Speaker 10

So we are seeing That demand in that segment out looking taking the finger off deposit and looking to transact. It's definitely a positive trend.

Speaker 9

That's very helpful commentary guys. Appreciate that. Maybe just one more if I could. You guys mentioned having

Speaker 7

or

Speaker 9

going to market with fixed assets. Maybe if you can just talk about sort of The profile of these assets, the geographies, that'd be helpful. Thanks.

Speaker 6

Yes. One asset we have currently today It is in negotiations on contracts, 3 assets we have Offers on and 2 assets we are getting offers on, on Friday. The assets are all in California, I don't want to talk specifics around which asset, but one is a land, partial land, And the other 3 active office buildings. Sorry, 5 active office buildings. I don't know why I said 3.

Speaker 9

Okay. Maybe, I mean, is that single tenant, longwall value add type or any additional detail there?

Speaker 6

Yes, I think of them, 2 of them are single tenants and the other 3 are multi tenant assets.

Operator

We now have John Kim of BMO Capital Markets.

Speaker 6

Thank you. Good morning. I wanted to ask about the amount Of the dividend cut, being when you compare that versus the studio NOI, which was about 13% of total NOI In Q4, and this strike may last about a quarter or so, why did you cut it or decided to cut it to 40%, 50%?

Speaker 3

Yes, it's really not correlated to the studios at all. I mean, we plan our dividend for the long term And the studio strike is a temporary event. If you look historically, We've had return of capital somewhere a bit north of 30%. Last year, we had return of capital north of 50% Kind of on a run rate basis, that is to say, without trying to handicap gains or losses on sale of assets, Our view is that 2023 from a P and L point of view can accommodate 50%. We've obviously monitored what the implied yield of The dividend is and 50% cut is still sizable yield.

Speaker 3

And We're looking for ways to retain our lowest cost of capital. And so All of those considerations factored into the decision around the 50% cut, but the studio performance really has nothing to do with that.

Speaker 6

And what would be your priority for use of proceeds?

Speaker 3

Yes, deleverage of the balance sheet and liquidity.

Speaker 6

Okay. On the studio NOI, can I just ask With this right happening now, what percentage of your rental revenue goes to 0? And also the same question on And on the OpEx side, how much of the expenses are fixed versus variable?

Speaker 3

So you can I point you back to the NOI detail? You can see in the same store NOI studio same store NOI detail How well the legacy brick and mortar held up, right? That's the 35 stages, Sunset Gower, Bronson and Las Thomas. We mentioned in our prepared remarks that roughly 70% of the stages there, which are what largely drive the revenue there are under long multi year agreements that have Guarantees on ancillary revenue, it shows up in how well those studios held up. There will be a bit of impact From the strike because not all the stages there, like roughly 30% of the stages there are not under multi year agreements, so it will be a little bit intact.

Speaker 3

And then you can see how the non same store, which is, Quixote, ZYOSTAR WAGENS and Quixote, how they performed In the lead up to an anticipated strike. So I encourage you to look at that detail.

Speaker 6

Thanks for the color.

Operator

Thank you. We now have Blaine Heck of Wells Fargo.

Speaker 11

Hey, thanks. Good morning out there. Victor, we've heard a lot of optimism around the return to office Some of the tech tenants that were most insistent on hybrid or remote work in the midst of the pandemic, have there been any kind of tangible signs yet Maybe they're rethinking some of the sublease spaces they put on the market or have given back too much space in your markets as their headcounts actually grew throughout the pandemic? Or is Maybe too early to tell if that's going to happen.

Speaker 6

Yes. So Blayne, the answer is yes. I don't want to get into the details, but they're specific to our portfolio, but there is a single tenant that has come back to us now and said that they're interested in Revisiting in this current space that they had indicated that they were either going to sublease or leave. On the Sort of general market conditions, I do know, that just recently in Seattle and Bellevue that same circumstance occurred Not with our portfolio, but with another portfolio of assets that a couple of tenants have come out and said that they want to retain their current space And evaluate how the space will lay out. And so we sort of assumed that was going to happen.

Speaker 6

As you've seen, There has been a massive push back. Today, Weyerhaeuser was another tenant that came back out and said there are demanding other tenants coming back. And the list of tenants I gave you It's on top of where Amazon started last month. So you're seeing a movement. It though is still Blayne, disturbing for our quality portfolio that this is really a has become really a West Coast issue And not a rest of the country issue.

Speaker 6

And so it's sort of a little underwhelming that most These West Coast companies have not made decisions to either expand space, but maybe just maintain their current platform. We anticipate that to take a little more time and we're optimistic that it's going to as I said earlier, quality assets will prevail first. And so we're seeing that in our portfolio.

Speaker 11

Okay, great. That's helpful. And then just back on the studio space, Can you talk about whether you expect to see less willingness to sign longer term leases on studio space as a result of the tougher environment and even potentially as a result Could the threat now reality of a strike and maybe a reversion to the show by show or season by season leasing that used to be a lot more prevalent?

Speaker 6

I'm going to have Jeff answer that.

Speaker 12

Hi, Blaine. This is Jeff. Yes, I think the way the industry generally works is it's fundamentally predicated on that show by show model that you're referring to. To a lesser extent, there obviously are long term leases, but most of the stages and most of the inventory is really going on a show by show basis, meaning When a show gets greenlit, they get all the services, including a stage. But long term leasing, it's a big benefit To our portfolio in Sunset, but as we expand the business and we scale fundamentally, you do get into the show by show model, which is Kind of how the industry works.

Speaker 12

So it's just the nature of the industry that I don't think there's going to necessarily be less demand from studio going forward for Long term leasing, it's just a it's a smaller subset of the overall demand for stages.

Speaker 6

Got it. Thanks guys.

Operator

Thank you. And our next question comes from Ronald Kamdem of Morgan Stanley.

Speaker 13

Hey, just a couple of quick ones from me. Just going back to the leasing pipeline, which I think you talked about, I think close $2,000,000 if I got that number correct. But if I compare that to some of the expiring leases and commenced leases, Can you just put it all together and let where are you thinking occupancy ends the year at? What are sort of the right zip codes on the occupancy at the end of 2023?

Speaker 4

Yes.

Speaker 3

We finished the quarter at 88.7%, at least. We've got 2 sizable expirations, 50% coverage on the block space In discussions on the other expiration with Amazon towards the end of the year, our success on both of those Can they make a material difference, obviously. Pipeline's really healthy. Pacing on deals isn't as It's slower than we'd like. And so I think it's where we end up At the end of the year, in terms of occupancy or lease percentage is predicated on how quickly we get deals done, how successful we are on those Backfills or renewals that I mentioned, and we'll have to leave it at that.

Speaker 13

Understood. If I could just pivot to the balance sheet. If I you ended the quarter at 8.5% debt to EBITDA I see in the supplement. So when you put it all together in the asset sales, maybe can you talk about potentially how much dollars can you get out of that and then the dividend cut? What's the potential for bringing that down this year?

Speaker 3

Well, yes, I mean, It will go down. I mean, you're seeing an aberration in large part driven off of the impact of the slowdown at the studios. And So we finished last quarter, quarter prior at like 7.4 debt to EBITDA, Had a slowdown in this quarter. Don't know exactly how quickly that will resolve itself. Once it normalizes, That component of the portfolio will contribute EBITDA and we will continue to make inroads on debt repayments in connection with asset sales.

Speaker 3

The goal remains to get back into the 6s and mid-6s are lower if we can. And as soon as the Studio business resumes. I think you'll see that trend continue.

Speaker 13

Great. If I could just sneak 1 in on 1 So, any sort of early indications of what the rate LTVs are could be on that? Thanks.

Speaker 3

Well, yes, I mean, right now, the loan kind of fully funded At a touch over $400,000,000 you can run your own numbers, but that Conservatively, it should be 50 ish or maybe less than 50% on any reasonable range of values. And We've got indicative indications from our from 3rd party brokers that we could readily refinance that level.

Speaker 13

Great. And on the interest rate?

Speaker 3

Yes. Sorry, I didn't hear that. Yes. I mean, again, it will depend on kind of where indices move between now and end of 2024. But Our view is today it would be a 6 shift, mid 6 type of rate all in.

Speaker 13

Great. Helpful. Thanks so much.

Operator

Thank you. I'd like to hand it back to Victor for any final remarks.

Speaker 6

Thank you so much for participating in our quarterly call. And as always, I want to call out the Hudson

Operator

Thank you. I can confirm this does conclude today's call. Please have a lovely day and you may now disconnect your line.

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Earnings Conference Call
Fiserv Q1 2023
00:00 / 00:00