NYSE:HPP Hudson Pacific Properties Q4 2024 Earnings Report $2.24 +0.02 (+0.67%) Closing price 04/23/2025 03:59 PM EasternExtended Trading$2.24 0.00 (0.00%) As of 04/23/2025 04:20 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Hudson Pacific Properties EPS ResultsActual EPS$0.11Consensus EPS $0.10Beat/MissBeat by +$0.01One Year Ago EPSN/AHudson Pacific Properties Revenue ResultsActual Revenue$209.67 millionExpected Revenue$207.95 millionBeat/MissBeat by +$1.72 millionYoY Revenue GrowthN/AHudson Pacific Properties Announcement DetailsQuarterQ4 2024Date2/20/2025TimeAfter Market ClosesConference Call DateThursday, February 20, 2025Conference Call Time5:00PM ETUpcoming EarningsHudson Pacific Properties' Q1 2025 earnings is scheduled for Tuesday, April 29, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Hudson Pacific Properties Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 20, 2025 ShareLink copied to clipboard.There are 14 speakers on the call. Operator00:00:00Good afternoon. My name is Cameron, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hudson Pacific Properties Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:28Thank you. At this time, I'd like to turn the call over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Please go ahead. Speaker 100:00:38Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman Mark Lamas, President Harut Deremerian, CFO and Art Suazo, EVP of Leasing. This afternoon, we filed our earnings release and supplemental on an eight ks with the SEC and both are now available on our website. An audio webcast of this call will also be available for replay on our website. Speaker 100:01:02Some 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. Today, Richard will discuss our 2024 accomplishments and priorities for 2025 along with industry and market trends. Mark will provide detail on our office and studio operations and development and Haru will review our financial results and 2025 outlook. Thereafter, we'll be happy to take your questions. Speaker 100:01:32Victor? Speaker 200:01:33Thank you, Laura. Good afternoon, everyone, and thanks for joining us. Throughout 2024, our team remained undeterred and laser focused on our strategic priorities, driving office and studio leasing, executing on property sales, continuing cost containment and strengthening our balance sheet. We've had many successes in this regard, and we remain committed to additional progress in 2025 on our multifaceted plan to reinvigorate earnings growth. Touching on some of the highlights in 'twenty four, we ended the year with office leasing nearly 20% higher compared to the prior year as we delivered over 2,000,000 square feet of signed leases. Speaker 200:02:10This included 1,200,000 square feet of new leasing or 60% of all activity, the highest level since 2019 and nearly double our post pandemic average. We successfully completed two of our three under construction development projects, Washington 1000 in Seattle and Sunset Glen House in Los Angeles. And through various cost cutting initiatives, we achieved approximately $4,000,000 in G and A savings as compared to our initial outlook. And as Harut is going to discuss, we anticipate further savings this year. And even in a challenging transaction environment, we placed three non core assets under contract to sell for a total of $94,000,000 1 of which closed in December, the second closed in January and the third is anticipated to close by the end of the first quarter. Speaker 200:02:53West Coast office fundamentals are showing resilience with the Bay Area as a standout and bellwether for what should follow across our markets. In the fourth quarter, both San Francisco and Silicon Valley achieved positive net absorption, capping off post pandemic record years for gross leasing. West Los Angeles too had a positive net absorption, while Vancouver remained relatively stable. In Downtown Seattle and San Francisco Peninsula, where negative net absorption persisted, the potential for favorable shift is starting to emerge as absorption continues to steadily march towards positive territory. And in summary, all of our markets gross leasing is reaching post pandemic highs. Speaker 200:03:34Sublease availability is improving with virtually no new construction. Therefore, supply for quality office space will become constrained. Supporting growing demand, fourth quarter venture funding of $75,000,000,000 was at the highest level since second quarter twenty twenty two, driven by AI interest in our markets. In 2024, San Francisco received 53% and the broader Bay Area received 82% of venture funding for global AI. In fact, the top five venture investment recipients in 2024, which totaled $500,000,000,000 were all AI companies headquartered in the Bay Area. Speaker 200:04:11Given the propensity for AI companies to be office first and the proximity to research and talent the Bay Area affords, we expect a considerable trickle down effect on office leasing to begin to materialize. Last year alone, AI office leasing in the Bay Area reached about 2,400,000 square feet, more than doubling the existing footprints with over 1,400,000 square feet of requirements presently in those markets. Another favorable trend is that even as the macro uncertainty persists amidst global conflicts and geopolitical tensions, businesses appear poised to benefit from the new administration's pro growth, pro deregulation policies. In our markets, we continue to see later stage startups turn their attention back to growth and fundraising after years of cost cutting. And fourth quarter tech layoffs were the lowest level since the first quarter of 'twenty two and down 90% from their peak in the first quarter of 'twenty three. Speaker 200:05:06And in addition, CEOs are realizing that with employees in the office four plus days a week, they need more space. And while the East Coast has led in improving office fundamentals to date, we fully anticipate similar trends will emerge on the West Coast. Turning to our studios, twenty twenty five is a pivotal year for film and television industry in Los Angeles with all eyes on the governor's proposal to more than double the tax credit from $330,000,000 to $750,000,000 which approved will go into effect July 1. Particularly in the wake of the recent wildfires, which temporarily delayed productions and personally impacted many in the industry, we're pleased to see a groundswell of support to increase filming in Los Angeles. The CALIFREU Production Coalition, Film LA, the Entertainment Union Coalition, Film Liaisons in California Statewide or FLICS and Stay in LA and now the President's Special Coalition comprised of Jon Voigt, Mel Gibson and Sylvester Stallone are all pushing for additional state and local program enhancements and commitments from media companies to increase local production. Speaker 200:06:15We are specifically part of the California Production Coalition, but active and in communication with all of these groups. As Mark is going to expand upon, production in Los Angeles picked up modestly in the fourth quarter. In the first quarter, many productions paused or were delayed due to the wildfires, but we're now seeing an uptick in staged leasing inquiries, not just in number, but in quality. Several of these long running, first season episodic television shows historically the bread and butter of Los Angeles production that need multiple stages as well as robust lighting and grip packages. Some of the pressure from austerity measures may be alleviated as growing number of streamers including Disney, Warner Bros, Discovery and Paramount reach profitability. Speaker 200:07:01Note, the increase in activity we see pertains to second or third quarter start dates and the incremental demand resulting from the expanded California tax incentives should be an upside. Lastly, I'm going to provide an update on transactions. On the heels of selling $31.76 in the fourth quarter, we sold Maxwell in the early first quarter, and Foothill Research Center is also under contract with closing anticipated in March. So collectively, we have generated $94,000,000 of gross proceeds over the last two quarters with all proceeds going to reduce leverage. Beyond these three assets, we are pursuing approximately $100,000,000 to $150,000,000 of dispositions in various stages. Speaker 200:07:39And Harut is going to discuss additional balance sheet related enhancements, which are either completed or underway. And with that, I'm going to turn it over to Mark. Speaker 300:07:48Thanks, Victor. We signed approximately 442,000 square feet of new and renewal leases in the quarter with nearly 60% new deals. Our reported GAAP and cash rent spreads, which were six percent and nine point nine percent lower in the quarter, would have been 2.84.3% lower, respectively, but for a new direct lease with an existing subtenant at Rincon Center, which fully backfills Salesforce eighty three thousand square foot lease expiring in the first quarter of this year. Our fourth quarter trailing twelve month net effective rents were 2% lower year over year and 8% lower than pre pandemic. Net effective rents on new deals alone were up 18% year over year and only 6% below pre pandemic on a trailing twelve month basis. Speaker 300:08:38Our trailing twelve month lease term was up 2% quarter over quarter, 81% year over year and 24% above pre pandemic. Even after removing our 157,000 square foot twenty one year lease with the city at 1455 Market from these metrics, our trailing twelve month lease term was still up 41% year over year. Our in service office properties were approximately 79% leased as of the end of the fourth quarter compared to 80% in the prior quarter. But for a single tenant terminating 140,000 square feet at Met Park North in December, our lease percentage would have been approximately 80% or essentially unchanged. During the fourth quarter, unique tour activity at our assets remained elevated, representing in aggregate 1,400,000 square feet of requirements. Speaker 300:09:29This is up 6% from third quarter and on par with our all time high in the fourth quarter a year ago with the average requirement size now at 10,000 square feet. Our current leasing pipeline remains strong at just over 2,000,000 square feet with an average requirement size of 16,000 square feet. This includes approximately 770,000 square feet of late stage deals in process comprised of $480,000 of deals in leases and another $290,000 in LOI. Excluding held for sale Foothill Research Center, we have under 1,600,000 square feet expiring in 2025 with 52% coverage that is deals in leases, LOIs or proposals. Roughly 70% of those expirations are in the first half of this year, including our 05/2025 expirations over 50,000 square feet, which collectively total close to 660,000 square feet and for which we have 68% coverage. Speaker 300:10:30Starting in the third quarter of twenty twenty five through year end 2026, we will average just 230,000 square feet expiring per quarter, well below our leasing activity, which has averaged 460,000 square feet over the last eight quarters. As Victor noted, last year, 60% of leases signed were for new requirements. And assuming this trend continues, starting in the second half of this year, new leasing should more than cover the quarterly expiring amounts. Thus, we fully expect our office portfolio occupancy to stabilize in the second half of this year and start to grow thereafter. Turning to studios. Speaker 300:11:07As Victor noted, Los Angeles production levels in the fourth quarter incrementally improved, where on average there were 86 shows filming compared to 84 in the prior quarter. Coincident with this level of activity, our trailing twelve month lease percentage for the fourth quarter for our in service stages was 77% leased or 90 basis points higher than the prior quarter, reflecting additional occupancy at Sunset Las Palmas. Our Coyote stages were 33% leased, essentially in line with last quarter. Fourth quarter studio revenues increased by $2,000,000 compared to the prior quarter, driven by a $1,900,000 increase in studio ancillary revenue, mostly from more production activity at Sunset Las Palmas and a $1,900,000 increase in transportation and location service revenue attributable to higher utilization in both segments, partially offset by a $1,600,000 decrease in stage rental revenue at Sunset Glen Oaks in various Coyote stages. Of our 56 film and TV stages, 43 stages representing 79% of the related square footage are either leased, in contract or subject to holds, which are essentially a non binding expression of interest. Speaker 300:12:21This is roughly in line with the snapshot we provided last quarter. But as Victor noted, we have seen an uptick in leasing activity for second and third quarter start dates, which, along with the proposed tax credits, points to the potential for improved occupancy the second half of the year. Despite the indications of stronger future production demand for Los Angeles, we continue to look for ways to rightsize the Quixote business. During the third and fourth quarters, we terminated certain leases and implemented other cost savings initiatives, which are expected to reduce fixed expenses by $7,500,000 annually. As part of the cost containment, we elected to cease operations in New Orleans, which will ultimately allow us to focus more intently on our assets of Los Angeles, New York and other core U. Speaker 300:13:07S. Markets. As for development, in regard to Washington one thousand, we are in discussions with multiple tenants with requirements ranging from 45,000 to 250,000 square feet. There has been a notable increase in activity for this project from full floor or greater tenants entering the market focused on upgrading to Class A or trophy assets in alignment with return to office mandates. As for Pier 94 Studios, the project is on time and on budget. Speaker 300:13:36Structural components are complete, exterior skin and roofing are nearly finished and the work is shifting to interior mechanical systems and build out. Leasing discussions are ongoing with a leading studio and other productions for multiyear agreements on one or more stages. With delivery anticipated by the end of this year, we expect to begin substantive discussions with tenants on a show by show basis this summer. And now I'll turn the call over to Haroop. Speaker 400:14:02Thanks, Mark. Our fourth quarter twenty twenty four revenue was $209,700,000 compared to $223,400,000 in the fourth quarter of last year, mostly due to the sale of One Westside and a single tenant moving out of Maxwell, partially offset by improved studio service and other revenue at Quixote and Sunset Las Palmas following the strikes. Our fourth quarter FFO excluding specified items was $15,500,000 or $0.11 per diluted share compared to $19,600,000 or $0.14 per diluted share a year ago. Specified items for the fourth quarter totaled $0.74 per diluted share compared to $0.05 per diluted share a year ago. Apart from the specified items, the year over year change in FFO was mostly due to items affecting revenue and reduced interest expense. Speaker 400:14:52Specified items in the fourth quarter included a goodwill impairment and write off of assets related to Q1 of $109,900,000 or $0.75 per diluted share, a noncash deferred tax adjustment of $2,100,000 or $0.01 per diluted share and a onetime income tax expense at Bentall stemming from a legislation change of $800,000 or $0.01 per diluted share. Note, the CAUTI goodwill impairment is the result of running our GAAP accounting impairment analysis of NOI in connection with our annual reporting to reflect the slower than anticipated recovery post strike. Our fourth quarter same store cash NOI was $94,200,000 compared to $106,300,000 in the fourth quarter last year, primarily due to lower office occupancy. Turning to our balance sheet. In January, we amended our credit facility to adjust certain definitions and ratios to favorably conform to market precedent and as a long term planning measure as we anticipate keeping the credit facility in play indefinitely. Speaker 400:16:00Specifically, we lowered the minimum required under key ratios, including adjusted EBITDA to fixed charges from 1.5x to 1.4x and unencumbered NOI to unsecured interest expense from 2x to 1.75x. We also modified certain definitions to improve how assets are factored into total asset value and unencumbered asset value calculations, again, to be more consistent with market terms. With the amendment effective as of the fourth quarter of last year, our fourth quarter results show improved credit facility covenant performance across all metrics. In exchange for these modifications, lender commitments are now $775,000,000 versus $900,000,000 with a maturity date unchanged at December 2026 with extensions. Factoring in the recent amendment, we have $518,300,000 of total liquidity comprised of $63,300,000 of unrestricted cash and cash equivalents and $455,000,000 of undrawn capacity on our unsecured revolving credit facility. Speaker 400:17:05We also have $154,000,000 of construction loan capacity, of which our share is $40,000,000 Our share of net debt relative to our share of undepreciated book value is 38.7% and our percentage of debt fixed or capped is 90.7%. We have no debt maturities until November 2025, and we are making good progress on asset sales and secured financings, the proceeds from which we tend to use to fully address both our 2025 and 2026 maturities. We expect to have additional updates in the near term. To underscore the credit facility amendment, along with asset sales and upcoming secured financings, are part of multiple concurrent efforts we are pursuing to enhance our balance sheets. Regarding our performance under covenants related to our prior placement unsecured notes, based on our strategy and projections, we expect to remain compliant. Speaker 400:17:58Current outlook. For the first quarter, we expect FFO per diluted share to range from $0.07 to $0.11 per diluted share. There are no specified items in connection with this guidance. Comparing to fourth quarter FFO, excluding specified items $0.11 per diluted share, we expect studio NOI to be approximately $0.02 lower at the midpoint, mostly due to the Los Angeles Wildfires, which hampered incremental improvements to demand this quarter, especially at Quixote. We anticipate office NOI of approximately $0.01 lower at the midpoint due to first quarter lease expirations and, to a lesser extent, recent and pending asset sales. Speaker 400:18:40These changes to Studio N office NOI should be partially offset by further favorable improvements to G and A expense as well as other miscellaneous items equating to approximately $0.01 higher at the midpoint. Regarding our full year assumptions, we anticipate same store property cash NOI growth of negative 12.5% to 13.5%, reflecting both recent asset sales and lower office occupancy through the first half of the year, followed by occupancy gains in the second half of the year. We anticipate additional noncash revenue between $10,000,000 to $15,000,000 this year due to both upfront free rent and beneficial occupancy from several large to mid sized landlord built lease deals presently in negotiation. Lastly, we have assumed lower G and A expense of $70,000,000 to $76,000,000 In 2025, not only will we receive the full benefit of cost containment measures undertaken last year, but we also expect to achieve additional savings this year ranging from $3,000,000 to $9,000,000 Apart from Foothill Research Center and Maxwell, which were held for sale in the fourth quarter, our outlook excludes the impact of any potential dispositions, acquisitions, financings and or capital market activity. Now we'll be happy to take your questions. Speaker 400:19:59Operator? Thank Operator00:20:05you. Your first question comes from the line of Tom Catherwood with BTIG. Speaker 500:20:23Maybe Art starting with you, since kind of the earnings growth flows through office leasing. The last quarter you had talked about tenant requirements increasing, obviously increased tour activity and your ability to start pushing for longer lease terms. As you look out to the start of what you've done in 'twenty five and kind of what's in that pipeline, how are the fundamentals firming up? And are you still able to whether it's start to push on rents or continue to push on term, what is your kind of negotiating position looking like? Speaker 600:20:56Sure, Tom. I think your premise at the beginning was correct. The tours are up quarter over quarter. The pipeline is up slightly quarter over quarter. But the most important part of that is that the average deal in negotiation has gone up 15% to 16,000 square feet. Speaker 600:21:17And that tells us the downstream, we're going to get more volume. It also tells us that there's more common larger deals in the pipeline. And that's exciting. As far as the lease term, the deals that we have in negotiation are trending in the right direction. Our trailing 12% quarter over quarter is up 2% slightly. Speaker 600:21:42But more telling is our trailing 12% year over year is up almost 80%. So that's very encouraging. And everything we have in our pipeline tells us that we're heading in that direction. Speaker 500:21:57Appreciate that, Art. And then second one for me. Victor, on the third quarter call, you mentioned pursuing secured financing on a portfolio of six assets. What's your current view on when that gets done? And kind of what's the backup plan to address maturities if that transaction doesn't come to fruition? Speaker 200:22:17Thanks, Tom. Listen, we're not going to comment on a timeline, but suffice to say that we're in process right now on a multiple of events that will accommodate our rightsizing the balance sheet. And we feel confident that one or more of these are going to come through. And it should be fairly imminent. Speaker 500:22:39Got it. Appreciate the answers. Thanks, everyone. Speaker 700:22:42Thanks, Tom. Operator00:22:44Your next question comes from the line of Nick Joseph with Citi. You may proceed. Speaker 800:22:52Hey, there. It's Michael Griffin on with Nick. Art, maybe just going back to the leasing pipeline. I mean, it seems like it's pretty positive for the year ahead. Obviously, the news we've heard about both AI and tech company and office requirements seems to be helping your market somewhat. Speaker 800:23:10But can you give us a sense of the type of tenants that are looking, how likely they are to commit? Is it more firms that are testing the water? Or do you feel pretty confident that a lot of these deals are going to get over the finish line? Speaker 600:23:27Yes. I'm supremely confident that a lot of these deals will get over the finish line, if I can go backwards. The pipeline, as I mentioned to Tom, the deal size has grown, which is encouraging to us. But more importantly, right now, we're seeing more deals in late stage LOI and leases, about 800,000 square feet, which we mentioned in our prepared remarks, that are really inside the five yard line, right? And so it's more than ever. Speaker 600:23:56And so we're seeing a little bit more urgency. And I think we're seeing a little bit more urgency because we're seeing a little bit more urgency because, some of these tenants that are realizing they need to get back to the office, return to office or as I like to call it, work from work, they're running out of time. And so that's also going to be a good impetus to move deals along. Additionally, our coverage, those deals in the pipeline and we mentioned part of it in the prepared remarks, we have high coverage on some of the expirations going forward, some of the large expirations. For example, at 1455, Uber and the BofA expiration, which is in total like 390,000 square feet, we have over 50% coverage on those right now and those are deals inside the five yard line. Speaker 600:24:47So again, everything is moving in the right direction and it's not just again, it's not just a handful of deals and a handful of markets, it's across the portfolio. Speaker 800:25:00Great. That's very helpful. Appreciate that, Art. And then maybe just turning to the studios. Obviously, the space has been through the wringer the past couple of years. Speaker 800:25:11It feels like even in the best of times, Quixote has a pretty limited visibility business, so you took the impairment this quarter. And as you think about maybe disposition opportunities, I mean, does it make sense to stick with this platform longer term? I mean, do you think you're getting credit for it versus just the underlying studio real estate? I know it fits into the whole broader media ecosystem, but if there are any updated thoughts there, that'd be interesting. Speaker 300:25:39Yes. This is Mark. Thanks, Mike. We are, we remain believers obviously in studios in general. We've been in it from the beginning, through the ups and downs, various changes. Speaker 300:25:54And continue to believe that Los Angeles is going to wage a comeback here. Victor touched on things like the tax credit increase, all of the various industry groups that are getting involved, local changes, all designed to pull production back to Los Angeles where it belongs. I would just say, as it relates to Todi specifically, we're not sitting in our hands just waiting for show counts to go up. We have already undertaken various cost savings initiatives. To date, starting in the third quarter, largely completed in the fourth quarter, we've cut about $7,500,000 of expenses. Speaker 300:26:33The resulting impact pro form a to $24,000,000 is like $4,200,000 of NOI improvement annualized. We're in process on another wave of cost cutting initiatives on the order of, call it, dollars 6,000,000 of savings generating 5,000,000 of NOI improvement, again, in pro form a to twenty twenty four operating results. So we're looking for ways to right size that business from a cost point of view and improve margins, enhance NOI. As show counts improve, that obviously will further improve the results. But we are going to improve those results one way or the other. Speaker 400:27:14Yes. And I just want Speaker 200:27:15to jump in. Beyond Netflix, obviously, the other streamers like Disney and Warner Brothers and Paramount, now they're reaching the levels of profitability. And with this Paramount merger, collectively, this is going to alleviate a lot of the negativity that has come to fruition in the last couple of years around the studio business. I mean, Los Angeles is still the lead marketplace for film and TV production globally. And we are seeing, unfortunately, with the circumstances of the fires, we're seeing a massive production turnaround and a support for the community around that, that the entertainment business and industry in general is leading. Speaker 200:27:50And so that is what's changed. I mean, at the beginning of the year, obviously, this devastating event occurred. And then the backside of that event is the conglomeration of all these entities that are out there that we are all affiliated with that I mentioned in my prepared remarks that have come now to the table to say let's rebuild L. A. So whatever acronyms you want LA Rises or Steadfast LA or Rebuild LA, they're all coming to the table and that is what we're seeing is transferring to more than just interest, but, holds on stages and production being greenlit going forward. Speaker 800:28:27Great. That's it for me. Thanks for the time. Speaker 200:28:31Thank you. Operator00:28:33The next question is from the line of Blaine Heck with Wells Fargo. You may proceed. Speaker 900:28:40Great. Thanks. Good afternoon. Just starting on the sales, Victor, a couple of questions there. It sounds like you're close to finished on the first three that were under contract. Speaker 900:28:48But just with respect to the three additional sales, can you give some more color on where you think you stand in the negotiations? And do you think we can expect those to go under contract soon? And then it sounds like the target for total proceeds is up slightly from your commentary last quarter at the midpoint. So, is that a change in mix, better proceeds on the sales so far or better expected proceeds on those that you still expect to sell? Speaker 200:29:19So, Blaine, I'll start with the first part of the question. Yes, I mean, the three are done. I mean, one has gone non refundable as we mentioned that last quarter. It's just been a timing close and so that deal is in process. We have two other deals right now, at one in contract stage and another, in LOI negotiation. Speaker 200:29:40The reason and we're confident that both those deals are going to make. The reason that the sort of the range is a little higher is we are realizing good pricing. These deals the deals that we're talking about have been marketed deals. And I think it's a testament to our ability to generate this liquidity and maximize value. And some of the comps have been very good comps and some of the ones we're looking at are going to be equally as good. Speaker 200:30:03But we've also had some reverse inquiry on some assets that are slightly larger and that's what we've looked at potentially considering that beyond the two that we're working on right now, which would make that number a little higher. That's still in flux and that asset that I'm referring to is not a marketed asset, so we're keeping that a little bit more closer to the vest at this time. And as we get closer, we'll provide you guys with more updates on it. Speaker 900:30:33Okay, great. That's really helpful. And then thanks for all the commentary on the studio side. I guess in the press release, you talk about high caliber shows returning. Can you just expand on what that means? Speaker 900:30:46Are these large shows that need a lot of studio space? Is that what makes them high caliber? And then with respect to returning, are these shows that were on hiatus? Or have they maybe moved to other markets and are coming back to LA? Speaker 300:31:02Well, yes, by returning, we don't necessarily mean literally a returning show. What we mean is coming back to LA, looking for stages in LA as opposed to other competing markets. And by high quality, we mean television episodics, the kind of bread and butter that makes L. A. Thrive and that come to studios, high quality studios like we have in Hollywood or Sunset Glen Oaks. Speaker 300:31:28Just to give you a point of reference, we were seeing, on average, one long term TV episodic type show come through our available stages, about one on average for October, November, December. As of last month, six of those shows came through in January. So, good early indicator that we're starting to see that recovery coming from the these bigger shows that use more stages, use heavier lighting and grip packages, all the things that we rely on to make those stages work. Speaker 200:32:04And, Blayne, they're named showrunners who've either worked in LA in the past or worked in our facilities. They're coming back with shows that are multiple year running shows. And we haven't seen that momentum in some time. And we're looking at a couple of shows right now that have been in the marketplace ten plus years that are coming back and looking at our studios. So it's much stickier than the ones that we've sort of seen in the last twenty four months that have been pilots that may or may not have gotten picked up. Speaker 900:32:38Got it. Very helpful. Thank you, guys. Operator00:32:43Your next question comes from the line of Connor Mitchell with Piper Sandler. You may proceed. Speaker 1000:32:51Hey, thanks for taking my question. I just have a couple. So first, going back to some of the guidance you provided, the cash NOI of negative $13,000,000, Haroop gave some information on it regarding the occupancy and pre rent. But just to make sure I'm understanding correctly, do you see the negative 13 cash NOI guidance primarily due to the occupancy impacts in the first quarter, the dip and then regaining some strength? Or is it the free rent or some combination or something else that I might be missing? Speaker 400:33:23No. You hit on that. It is a combination. So there's a lot of deals that are in the works that Art's working on that have upfront free rent. So the GAAP NOI will definitely reflect that, but the cash NOI will be picked up on the later half of the year. Speaker 400:33:40So it's some of the timing occupancy, the rest is the structure of the deals that we are anticipating. Speaker 1000:33:49Okay. That's helpful. And then, thinking about the impairments, you took on Quixote, since it's not a JV and I understand there's just a GAAP accounting involved, but just wondering how you guys can kind of think about the actual value of it now versus the purchase price that you guys took on in 2022? Speaker 400:34:13So the impairment, it's really an annual GAAP requirement. And unlike real estate, you don't it doesn't work the same way. So you have a different metrics and you've got to factor in all the NOI and projections. Ultimately, this just stems from the slower start of the recovery post the strike. That's all really impacted and doesn't really impact the future of the business or how we look at it. Speaker 400:34:38And it's all goodwill, by the way, to be fair. It's not the assets themselves. Speaker 1000:34:44Yes. So essentially, you can maybe look at the value being slightly higher than the book value currently after the impairment. But you guys still have, you still have confidence in the Quoty business like you mentioned earlier in the remarks. Correct? Speaker 400:34:58That's correct. Speaker 1000:35:00Okay. Thank you. Operator00:35:04Your next question comes from the line of Ronald Kamdem with Morgan Stanley. You may proceed. Speaker 1100:35:11Hey, just two quick ones from me. I think, Juan, just looking at the guidance, I think I remember last year you talked about sort of stress testing the covenants and so forth. Just can you just remind us when you do that exercise for this year, how we should think about the covenants trending this year? Speaker 400:35:30Hey, Ronald. The reality is, like we said, we feel like we'll be covenant compliance. We look at the projections granularly. And just to put it another way, almost for the last six or eight quarters, every quarter we've exceeded our internal expectations of the covenants. And so we feel confident we'll remain covenant compliant. Speaker 1100:35:53Okay. Got it. And then just staying on the sort of the same guidance topics, just from a high level from this 78% sort of occupancy, maybe talk through how we should expect occupancy to trend for the year? I know it's going to get better than the second half, but just maybe any numbers would be helpful. Speaker 300:36:13Yes. We don't provide specific occupancy guidance. But I think you can discern what will happen in terms of the cadence over the quarter by simply looking at quarterly lease expirations in the supplemental, Art outlined kind of what the pipeline looks like, somewhat elevated, expirations first quarter, tapering off a little bit second quarter. So 70% of all expirations in 25% are weighted to the first half of the year. That's where we're going to feel the most pressure on occupancy. Speaker 300:36:48So we expect to see a dip in the first quarter. We actually believe there's an opportunity that you can see recovery thereafter even by second quarter relative to that where we end the first quarter. So that and then it should just steadily improve thereafter. And I would add, we believe it will steadily improve beyond '25 given where expirations and activity is pointing. Speaker 1100:37:15Great. That's it for me. Operator00:37:19Your next question comes from the line of Caitlin Burrows with Goldman Sachs. You may proceed. Speaker 1200:37:26Hi, everyone. I guess we've talked a lot about volume and interest of leasing. But on the pricing side, leasing spreads were down in 2024. So do you expect the leasing spread of like down, call it, double digits on a cash basis to continue in 2025? Or like as you think about stabilizing occupancy, how much is it like a rate versus occupancy decision these days? Speaker 1200:37:49Or is rate kind of secondary at this point? Speaker 300:37:53Okay. Yes. So, on leasing spreads, of course, they're not necessarily indicative of what we're seeing holistically in terms of net effective rents, right? You're just seeing a comparison on face rates relative to expiring rents. But a couple of things about that. Speaker 300:38:10Right now, 2025 and even 2026 mark to market on rents is somewhere we're, like, call it, six ish, 7% above market. So, that gives you an idea of kind of where expiring rents are relative to market. Now, those don't necessarily translate into what you see on cash spreads that get reported in activity because they don't the timing of that doesn't always work out identically. But that gives you an idea of where spot mark to market is for each of those two years. As for like the actual lease economics to kind of answer your initial question, those have held up incredibly well. Speaker 300:38:46I mean, we outlined it in the prepared remarks in terms of net effective rents. But I would just emphasize that, whether you look at the latest set of results and compare trailing twelve month to almost any period of time year over year pre COVID rents. We continue to be in the low single digits off of even pre pandemic net effective rents. And I would add there's been a couple of quarters in there when we were essentially back to pre pandemic net effective. And the underlying reasons for that is essentially we've lost little to no ground on straight line rents, again, on almost any period of comparison. Speaker 300:39:30And we've been able to stretch term out while maintaining TIs and LCs per annum. So, net effectives have held up incredibly well. And I would say some of the more recent quarters are an indicator there's a real possibility we'll start to see net effect is higher than pre pandemic soon. Speaker 1200:39:53Got it. And then, maybe just back to Washington one thousand, wondering if you could give some more detail on the tour activity type of tenants coming through and whether they would be relocating or expanding into the space? And then also like if you were to sign a lease today, how quickly would you realize that NOI? Speaker 200:40:13Yes. This is Art, Caitlin. Speaker 600:40:15First of all, unquestionably, the Washington 1000 is the premier newly constructed asset in the market, the only one in our downtown core. And the team continues to doggedly pursue all prospects across the Puget Sound. We had mentioned that we're in discussions with tenants from 45,000 square feet to 250,000 square feet, and actually in negotiations with two of those prospects that have twenty twenty six lease commencement date. So, we anticipate transacting in the coming quarters. If I can share really at a macro level, the tech demand is increasing and growing stability with the city of Seattle. Speaker 600:40:55And what I mean by growing stability, meaning enhanced security, cleaner, safer streetscapes, stricter return to office, revitalized retail and certainly elevated foot traffic. We're encouraged that this is going to generate more activity for Washington 1000. Speaker 1200:41:13Thanks. Operator00:41:17Your next question is from the line of Dylan Berzynski with Green Street. You may proceed. Speaker 700:41:24Good afternoon, guys. Thanks for taking the question. Just wanting to touch on the leasing pipeline that you guys commented in the press release that it's called a little over 2,000,000 square feet, which is generally in line with where it's been really throughout 2024. So just trying to sort of square the leasing pipeline comments with some of your remarks around a recovery in sort of leasing demand from tech. Is there something we're sort of missing? Speaker 700:41:49Because it doesn't seem like according to the leasing done during the quarter, combining that with your comments on the leasing pipeline that things are improving all too much. So just want to hear your thoughts on that and then sort of anything we might be missing. Speaker 200:42:03Well, Dylan, let me start sort of on a macro basis. I mean, they're clearly, improving. I mean, we've leased more space by new and renewed tenants in the last year than we had since effectively 2019. So we're seeing the numbers pan out. And 2,000,000 feet is in line with what we did last year and that's what's in the pipeline right now. Speaker 200:42:24But that 2,000,000 feet is going to be offset by what's expiring and you have to look at 2025, '20 '20 '6 and 2027. And we sort of set the table and you, if anybody knows this, we're going to have the least amount of expirations in 'twenty six and 'twenty seven than we've had in five plus years. And so it does magnify what's available and what's coming available given where the pipeline is. And it is supportive of the deals that we did in the last twelve months and what's the ones that are on the table right now, which are some good sized leases that are going to come to fruition in the portfolio. Speaker 600:42:59Right. As I mentioned earlier, the average deal size of the pipeline is growing, which points to what Victor just talked about. I think most importantly, the pace of the deals is picking up. We're starting to see a little bit more urgency out there, with these deals. And more importantly is, are the tours, right? Speaker 600:43:17The tours spiked kind of early last year. We've maintained that level of tour activity and the team's done an amazing job of pulling those forward. So it's about reloading the pipeline. Yes, it looks like it's static at 204,100,000 feet, but we're also transacting 2,000,000 feet, which is a big difference. Speaker 700:43:40That's helpful. I appreciate the comments. I guess, just one sort of double clicking into Seattle. I mean, do you guys envision it seems like Proposition 1A is going to get passed. I mean, do you guys sort of envision that further separating out the recovery in Bellevue versus sort of the city of Seattle? Speaker 700:43:57If you can kind of just provide your thoughts on that, that would be helpful. Speaker 200:44:02Yeah. Listen, I read your piece the other day. I may not agree with all of it, but that's okay. It's not been the first time you and I have not agreed on things in the past. But given that, I think, the two things that maybe you guys missed over on that was, one, the lack of space that is available in Bellevue right now. Speaker 200:44:22I mean, it's not there's very few, Class A space that are comparable to the Class A space, between Bellevue and Seattle. Economically though, I think that's the big difference, right? I mean, Seattle's average price of Class A space is $50 a foot and Bellevue's average space is about $65 a foot. So that economic difference is a big momentum shift for companies to want to make a move versus the $1,000,000 that employees are going to pay for, a 5% head tax, that the employer sorry, not employees, the employers are going to pay for. So I think that clearly is going to stand out. Speaker 200:45:02Also, I think the number of people that are getting paid those dollars for relative terms given the valuation shift in the Class A real estate, I think that's indicative of Seattle being very supportive. I mean, I concur with your analysis of South Lake Union, but Denny, South Lake Union has been very much attracted. And the activity that we're seeing in Pioneer Square right now, we've seen two large tenants that were earmarked to go to Bellevue recently change direction, even with Prop 1A. And now they're looking specifically in Seattle at at Pioneer Square to move, and their objectives are really because of rental differences and the quality of the real estate that's available. Lastly, I would be remiss to say because I think you sort of did point it out, It is to us surprising that, given the momentum shift in Seattle and given the opposition between the council, the mayor, virtually every CEO and every company like ours, supporting 1B and not supporting 1A that the unions did prevail at such a high percentage. Speaker 200:46:19So that the momentum around the progressiveness in Seattle that we've been all talking about and really praising the city for did take a step back. And I think, you know, we would concur with your analysis on that. Speaker 700:46:34Great. Well, really appreciate that detail. It's very helpful. So, thanks. Speaker 200:46:40Thanks, Dylan. Operator00:46:42Your next question comes from the line of Rich Anderson with Wedbush. You may proceed. Speaker 500:46:48Hey, thanks. Good afternoon. So Harud, on the revolver covenant adjustments, I believe this is the second time that you guys have made adjustments there. Correct me if I'm wrong. And I'm curious like where you're at now in terms of additional flexibility should you need it. Speaker 500:47:12You lost $125,000,000 of commitments as a result. I mean, what is the is this where we should expect things to stand forever or for the foreseeable future? Or is there additional flexibility that you can take advantage of if needed a year or two from now? Speaker 400:47:35Hey, Rich. So I think we feel very comfortable with where the revolver is right now. Obviously, things can change, but it sets us up very nicely to execute in all the different capital leads we need for the next at least '25 and into '26. And once we do that, we will then address the recast, which will extend the revolver for even a longer time and maybe expand it depending on market conditions. Speaker 500:48:04Okay. But this was just a balancing act between the commitments you lose and the reduction of the covenants. Is that the right way to think of that? I apologize for the amateur sounding question, but I just want to make sure I understand how it's taking you. Speaker 400:48:21No, for sure. It's just creating more flexibility and putting our revolver on market terms. That's really what we're doing, just trying to set up a good future for our coverage of the financing that we have coming up. Speaker 500:48:36Okay. Second question is on the rightsizing of Quixote. It was mentioned you stopped operations in New Orleans. I'm curious, is this kind of a first in a series of steps? Could there what's your flexibility to do the same in other markets within the Quixote platform? Speaker 500:48:54I'm curious how you're thinking about future adjustments to Quixote on a go forward basis? Thanks. Speaker 300:49:02Yes. I mean, this is the first. We are looking at some other states locations and warehouses. And there would be obviously payroll associated with some of that downsizing. So, I kind of mentioned that, Rich, that there's about 6,000,000 more of cost saving initiatives that we're looking at that pro form a to 24 would improve NOI on an annualized basis another $5,000,000 So, that's kind of Phase two. Speaker 300:49:36We'll continue to monitor the market, and we're always looking to be more efficient, cut expenses where necessary. But we'll let you know where we come out in the next phase of this thing when they're done, and continue to be flexible depending on how the market improves. Speaker 500:49:56So those savings may involve exits like in the case of New Orleans? Speaker 300:50:03Not really because New Orleans was, if you recall, it's a small location that came with a much larger acquisition. It was the only stage location, that was outside of the State of California. So at this point, we're just looking at isolated opportunities to eliminate a stage here or there. It doesn't exit a market Operator00:50:24at this point. Speaker 500:50:25Not an exit. I said that wrong. I apologize. But and then in terms of I think the rental Speaker 700:50:31the lease payments, correct me Speaker 500:50:32if I'm wrong, $25,000,000 ish a quarter, is that right? And how could that adjust down as time passes? Speaker 300:50:41Well, in that $7,500,000 I mentioned of completed deals, about $4,500,000 is directly related to, lease, eliminating leases. And I would say roughly half the $6,000,000 I mentioned about deals in process is also eliminating studio related leases. Speaker 500:51:06Okay. All right. Thanks very much. Operator00:51:11Your next question is from the line of John Kim with BMO Capital Markets. Speaker 1300:51:18Thank you. On that topic on cost reduction, some of your peers were more aggressive as far as stating a G and A reduction goal and executing that as sort of the first step in terms of getting their stock rerated. Is that something that you have considered? Speaker 400:51:41Hey, John. Yes. In fact, if you look at where we guided G and A last year at this time compared to where we guided this year, I believe that's about a $7,000,000 sorry, dollars 10,000,000 decrease year over year. So we're definitely addressing that, and that's reflected in the numbers you see. So we recognize some of it in 2024 and we'll have more in 2025 and we're going to continue to look ways to do that. Speaker 1300:52:10And how much of that is corporate overhead versus coyote and, other divisions? Speaker 400:52:18All of that is overhead. All the Quoty savings that Mark outlined relate to the Quoty business and the Quoty NOI. Speaker 1300:52:28Okay. Got it. Thank you. Operator00:52:34There are no further questions at this time. I'd like to turn the call back to Victor Komen, CEO and Chairman, for closing remarks. Speaker 200:52:42Thanks so much for participating in our call, and we look forward to providing you more input as the quarter evolves. Operator00:52:52This concludes today's conference call. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallHudson Pacific Properties Q4 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Hudson Pacific Properties Earnings HeadlinesAnalysts Are Bullish on Top Real Estate Stocks: Hudson Pacific Properties (HPP), Digital Realty (DLR)April 17, 2025 | markets.businessinsider.comHudson Pacific Properties (HPP) Receives a Hold from Piper SandlerApril 16, 2025 | markets.businessinsider.com$2 Trillion Disappears Because of Fed's Secretive New Move$2 trillion has disappeared from the US government's books. The reason why is a new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... but could soon have an enormous impact on your wealth.April 24, 2025 | Stansberry Research (Ad)Hudson Pacific Properties (HPP) Price Target Revised by Piper Sandler | HPP Stock NewsApril 15, 2025 | gurufocus.comSell Rating Maintained for Hudson Pacific Properties Amid High CMBS Rates and Market VolatilityApril 1, 2025 | tipranks.comHudson Pacific Completes $475 Million CMBS FinancingMarch 31, 2025 | businesswire.comSee More Hudson Pacific Properties Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Hudson Pacific Properties? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Hudson Pacific Properties and other key companies, straight to your email. Email Address About Hudson Pacific PropertiesHudson Pacific Properties (NYSE:HPP) (NYSE: HPP) is a real estate investment trust serving dynamic tech and media tenants in global epicenters for these synergistic, converging and secular growth industries. Hudson Pacific's unique and high-barrier tech and media focus leverages a full-service, end-to-end value creation platform forged through deep strategic relationships and niche expertise across identifying, acquiring, transforming and developing properties into world-class amenitized, collaborative and sustainable office and studio space.View Hudson Pacific Properties ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Amazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InCan IBM’s Q1 Earnings Spark a Breakout for the Stock?Genuine Parts: Solid Earnings But Economic Uncertainties RemainBreaking Down Taiwan Semiconductor's Earnings and Future UpsideArcher Aviation Unveils NYC Network Ahead of Key Earnings Report Upcoming Earnings AbbVie (4/25/2025)AON (4/25/2025)Colgate-Palmolive (4/25/2025)HCA Healthcare (4/25/2025)NatWest Group (4/25/2025)Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 14 speakers on the call. Operator00:00:00Good afternoon. My name is Cameron, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hudson Pacific Properties Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:28Thank you. At this time, I'd like to turn the call over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Please go ahead. Speaker 100:00:38Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman Mark Lamas, President Harut Deremerian, CFO and Art Suazo, EVP of Leasing. This afternoon, we filed our earnings release and supplemental on an eight ks with the SEC and both are now available on our website. An audio webcast of this call will also be available for replay on our website. Speaker 100:01:02Some 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. Today, Richard will discuss our 2024 accomplishments and priorities for 2025 along with industry and market trends. Mark will provide detail on our office and studio operations and development and Haru will review our financial results and 2025 outlook. Thereafter, we'll be happy to take your questions. Speaker 100:01:32Victor? Speaker 200:01:33Thank you, Laura. Good afternoon, everyone, and thanks for joining us. Throughout 2024, our team remained undeterred and laser focused on our strategic priorities, driving office and studio leasing, executing on property sales, continuing cost containment and strengthening our balance sheet. We've had many successes in this regard, and we remain committed to additional progress in 2025 on our multifaceted plan to reinvigorate earnings growth. Touching on some of the highlights in 'twenty four, we ended the year with office leasing nearly 20% higher compared to the prior year as we delivered over 2,000,000 square feet of signed leases. Speaker 200:02:10This included 1,200,000 square feet of new leasing or 60% of all activity, the highest level since 2019 and nearly double our post pandemic average. We successfully completed two of our three under construction development projects, Washington 1000 in Seattle and Sunset Glen House in Los Angeles. And through various cost cutting initiatives, we achieved approximately $4,000,000 in G and A savings as compared to our initial outlook. And as Harut is going to discuss, we anticipate further savings this year. And even in a challenging transaction environment, we placed three non core assets under contract to sell for a total of $94,000,000 1 of which closed in December, the second closed in January and the third is anticipated to close by the end of the first quarter. Speaker 200:02:53West Coast office fundamentals are showing resilience with the Bay Area as a standout and bellwether for what should follow across our markets. In the fourth quarter, both San Francisco and Silicon Valley achieved positive net absorption, capping off post pandemic record years for gross leasing. West Los Angeles too had a positive net absorption, while Vancouver remained relatively stable. In Downtown Seattle and San Francisco Peninsula, where negative net absorption persisted, the potential for favorable shift is starting to emerge as absorption continues to steadily march towards positive territory. And in summary, all of our markets gross leasing is reaching post pandemic highs. Speaker 200:03:34Sublease availability is improving with virtually no new construction. Therefore, supply for quality office space will become constrained. Supporting growing demand, fourth quarter venture funding of $75,000,000,000 was at the highest level since second quarter twenty twenty two, driven by AI interest in our markets. In 2024, San Francisco received 53% and the broader Bay Area received 82% of venture funding for global AI. In fact, the top five venture investment recipients in 2024, which totaled $500,000,000,000 were all AI companies headquartered in the Bay Area. Speaker 200:04:11Given the propensity for AI companies to be office first and the proximity to research and talent the Bay Area affords, we expect a considerable trickle down effect on office leasing to begin to materialize. Last year alone, AI office leasing in the Bay Area reached about 2,400,000 square feet, more than doubling the existing footprints with over 1,400,000 square feet of requirements presently in those markets. Another favorable trend is that even as the macro uncertainty persists amidst global conflicts and geopolitical tensions, businesses appear poised to benefit from the new administration's pro growth, pro deregulation policies. In our markets, we continue to see later stage startups turn their attention back to growth and fundraising after years of cost cutting. And fourth quarter tech layoffs were the lowest level since the first quarter of 'twenty two and down 90% from their peak in the first quarter of 'twenty three. Speaker 200:05:06And in addition, CEOs are realizing that with employees in the office four plus days a week, they need more space. And while the East Coast has led in improving office fundamentals to date, we fully anticipate similar trends will emerge on the West Coast. Turning to our studios, twenty twenty five is a pivotal year for film and television industry in Los Angeles with all eyes on the governor's proposal to more than double the tax credit from $330,000,000 to $750,000,000 which approved will go into effect July 1. Particularly in the wake of the recent wildfires, which temporarily delayed productions and personally impacted many in the industry, we're pleased to see a groundswell of support to increase filming in Los Angeles. The CALIFREU Production Coalition, Film LA, the Entertainment Union Coalition, Film Liaisons in California Statewide or FLICS and Stay in LA and now the President's Special Coalition comprised of Jon Voigt, Mel Gibson and Sylvester Stallone are all pushing for additional state and local program enhancements and commitments from media companies to increase local production. Speaker 200:06:15We are specifically part of the California Production Coalition, but active and in communication with all of these groups. As Mark is going to expand upon, production in Los Angeles picked up modestly in the fourth quarter. In the first quarter, many productions paused or were delayed due to the wildfires, but we're now seeing an uptick in staged leasing inquiries, not just in number, but in quality. Several of these long running, first season episodic television shows historically the bread and butter of Los Angeles production that need multiple stages as well as robust lighting and grip packages. Some of the pressure from austerity measures may be alleviated as growing number of streamers including Disney, Warner Bros, Discovery and Paramount reach profitability. Speaker 200:07:01Note, the increase in activity we see pertains to second or third quarter start dates and the incremental demand resulting from the expanded California tax incentives should be an upside. Lastly, I'm going to provide an update on transactions. On the heels of selling $31.76 in the fourth quarter, we sold Maxwell in the early first quarter, and Foothill Research Center is also under contract with closing anticipated in March. So collectively, we have generated $94,000,000 of gross proceeds over the last two quarters with all proceeds going to reduce leverage. Beyond these three assets, we are pursuing approximately $100,000,000 to $150,000,000 of dispositions in various stages. Speaker 200:07:39And Harut is going to discuss additional balance sheet related enhancements, which are either completed or underway. And with that, I'm going to turn it over to Mark. Speaker 300:07:48Thanks, Victor. We signed approximately 442,000 square feet of new and renewal leases in the quarter with nearly 60% new deals. Our reported GAAP and cash rent spreads, which were six percent and nine point nine percent lower in the quarter, would have been 2.84.3% lower, respectively, but for a new direct lease with an existing subtenant at Rincon Center, which fully backfills Salesforce eighty three thousand square foot lease expiring in the first quarter of this year. Our fourth quarter trailing twelve month net effective rents were 2% lower year over year and 8% lower than pre pandemic. Net effective rents on new deals alone were up 18% year over year and only 6% below pre pandemic on a trailing twelve month basis. Speaker 300:08:38Our trailing twelve month lease term was up 2% quarter over quarter, 81% year over year and 24% above pre pandemic. Even after removing our 157,000 square foot twenty one year lease with the city at 1455 Market from these metrics, our trailing twelve month lease term was still up 41% year over year. Our in service office properties were approximately 79% leased as of the end of the fourth quarter compared to 80% in the prior quarter. But for a single tenant terminating 140,000 square feet at Met Park North in December, our lease percentage would have been approximately 80% or essentially unchanged. During the fourth quarter, unique tour activity at our assets remained elevated, representing in aggregate 1,400,000 square feet of requirements. Speaker 300:09:29This is up 6% from third quarter and on par with our all time high in the fourth quarter a year ago with the average requirement size now at 10,000 square feet. Our current leasing pipeline remains strong at just over 2,000,000 square feet with an average requirement size of 16,000 square feet. This includes approximately 770,000 square feet of late stage deals in process comprised of $480,000 of deals in leases and another $290,000 in LOI. Excluding held for sale Foothill Research Center, we have under 1,600,000 square feet expiring in 2025 with 52% coverage that is deals in leases, LOIs or proposals. Roughly 70% of those expirations are in the first half of this year, including our 05/2025 expirations over 50,000 square feet, which collectively total close to 660,000 square feet and for which we have 68% coverage. Speaker 300:10:30Starting in the third quarter of twenty twenty five through year end 2026, we will average just 230,000 square feet expiring per quarter, well below our leasing activity, which has averaged 460,000 square feet over the last eight quarters. As Victor noted, last year, 60% of leases signed were for new requirements. And assuming this trend continues, starting in the second half of this year, new leasing should more than cover the quarterly expiring amounts. Thus, we fully expect our office portfolio occupancy to stabilize in the second half of this year and start to grow thereafter. Turning to studios. Speaker 300:11:07As Victor noted, Los Angeles production levels in the fourth quarter incrementally improved, where on average there were 86 shows filming compared to 84 in the prior quarter. Coincident with this level of activity, our trailing twelve month lease percentage for the fourth quarter for our in service stages was 77% leased or 90 basis points higher than the prior quarter, reflecting additional occupancy at Sunset Las Palmas. Our Coyote stages were 33% leased, essentially in line with last quarter. Fourth quarter studio revenues increased by $2,000,000 compared to the prior quarter, driven by a $1,900,000 increase in studio ancillary revenue, mostly from more production activity at Sunset Las Palmas and a $1,900,000 increase in transportation and location service revenue attributable to higher utilization in both segments, partially offset by a $1,600,000 decrease in stage rental revenue at Sunset Glen Oaks in various Coyote stages. Of our 56 film and TV stages, 43 stages representing 79% of the related square footage are either leased, in contract or subject to holds, which are essentially a non binding expression of interest. Speaker 300:12:21This is roughly in line with the snapshot we provided last quarter. But as Victor noted, we have seen an uptick in leasing activity for second and third quarter start dates, which, along with the proposed tax credits, points to the potential for improved occupancy the second half of the year. Despite the indications of stronger future production demand for Los Angeles, we continue to look for ways to rightsize the Quixote business. During the third and fourth quarters, we terminated certain leases and implemented other cost savings initiatives, which are expected to reduce fixed expenses by $7,500,000 annually. As part of the cost containment, we elected to cease operations in New Orleans, which will ultimately allow us to focus more intently on our assets of Los Angeles, New York and other core U. Speaker 300:13:07S. Markets. As for development, in regard to Washington one thousand, we are in discussions with multiple tenants with requirements ranging from 45,000 to 250,000 square feet. There has been a notable increase in activity for this project from full floor or greater tenants entering the market focused on upgrading to Class A or trophy assets in alignment with return to office mandates. As for Pier 94 Studios, the project is on time and on budget. Speaker 300:13:36Structural components are complete, exterior skin and roofing are nearly finished and the work is shifting to interior mechanical systems and build out. Leasing discussions are ongoing with a leading studio and other productions for multiyear agreements on one or more stages. With delivery anticipated by the end of this year, we expect to begin substantive discussions with tenants on a show by show basis this summer. And now I'll turn the call over to Haroop. Speaker 400:14:02Thanks, Mark. Our fourth quarter twenty twenty four revenue was $209,700,000 compared to $223,400,000 in the fourth quarter of last year, mostly due to the sale of One Westside and a single tenant moving out of Maxwell, partially offset by improved studio service and other revenue at Quixote and Sunset Las Palmas following the strikes. Our fourth quarter FFO excluding specified items was $15,500,000 or $0.11 per diluted share compared to $19,600,000 or $0.14 per diluted share a year ago. Specified items for the fourth quarter totaled $0.74 per diluted share compared to $0.05 per diluted share a year ago. Apart from the specified items, the year over year change in FFO was mostly due to items affecting revenue and reduced interest expense. Speaker 400:14:52Specified items in the fourth quarter included a goodwill impairment and write off of assets related to Q1 of $109,900,000 or $0.75 per diluted share, a noncash deferred tax adjustment of $2,100,000 or $0.01 per diluted share and a onetime income tax expense at Bentall stemming from a legislation change of $800,000 or $0.01 per diluted share. Note, the CAUTI goodwill impairment is the result of running our GAAP accounting impairment analysis of NOI in connection with our annual reporting to reflect the slower than anticipated recovery post strike. Our fourth quarter same store cash NOI was $94,200,000 compared to $106,300,000 in the fourth quarter last year, primarily due to lower office occupancy. Turning to our balance sheet. In January, we amended our credit facility to adjust certain definitions and ratios to favorably conform to market precedent and as a long term planning measure as we anticipate keeping the credit facility in play indefinitely. Speaker 400:16:00Specifically, we lowered the minimum required under key ratios, including adjusted EBITDA to fixed charges from 1.5x to 1.4x and unencumbered NOI to unsecured interest expense from 2x to 1.75x. We also modified certain definitions to improve how assets are factored into total asset value and unencumbered asset value calculations, again, to be more consistent with market terms. With the amendment effective as of the fourth quarter of last year, our fourth quarter results show improved credit facility covenant performance across all metrics. In exchange for these modifications, lender commitments are now $775,000,000 versus $900,000,000 with a maturity date unchanged at December 2026 with extensions. Factoring in the recent amendment, we have $518,300,000 of total liquidity comprised of $63,300,000 of unrestricted cash and cash equivalents and $455,000,000 of undrawn capacity on our unsecured revolving credit facility. Speaker 400:17:05We also have $154,000,000 of construction loan capacity, of which our share is $40,000,000 Our share of net debt relative to our share of undepreciated book value is 38.7% and our percentage of debt fixed or capped is 90.7%. We have no debt maturities until November 2025, and we are making good progress on asset sales and secured financings, the proceeds from which we tend to use to fully address both our 2025 and 2026 maturities. We expect to have additional updates in the near term. To underscore the credit facility amendment, along with asset sales and upcoming secured financings, are part of multiple concurrent efforts we are pursuing to enhance our balance sheets. Regarding our performance under covenants related to our prior placement unsecured notes, based on our strategy and projections, we expect to remain compliant. Speaker 400:17:58Current outlook. For the first quarter, we expect FFO per diluted share to range from $0.07 to $0.11 per diluted share. There are no specified items in connection with this guidance. Comparing to fourth quarter FFO, excluding specified items $0.11 per diluted share, we expect studio NOI to be approximately $0.02 lower at the midpoint, mostly due to the Los Angeles Wildfires, which hampered incremental improvements to demand this quarter, especially at Quixote. We anticipate office NOI of approximately $0.01 lower at the midpoint due to first quarter lease expirations and, to a lesser extent, recent and pending asset sales. Speaker 400:18:40These changes to Studio N office NOI should be partially offset by further favorable improvements to G and A expense as well as other miscellaneous items equating to approximately $0.01 higher at the midpoint. Regarding our full year assumptions, we anticipate same store property cash NOI growth of negative 12.5% to 13.5%, reflecting both recent asset sales and lower office occupancy through the first half of the year, followed by occupancy gains in the second half of the year. We anticipate additional noncash revenue between $10,000,000 to $15,000,000 this year due to both upfront free rent and beneficial occupancy from several large to mid sized landlord built lease deals presently in negotiation. Lastly, we have assumed lower G and A expense of $70,000,000 to $76,000,000 In 2025, not only will we receive the full benefit of cost containment measures undertaken last year, but we also expect to achieve additional savings this year ranging from $3,000,000 to $9,000,000 Apart from Foothill Research Center and Maxwell, which were held for sale in the fourth quarter, our outlook excludes the impact of any potential dispositions, acquisitions, financings and or capital market activity. Now we'll be happy to take your questions. Speaker 400:19:59Operator? Thank Operator00:20:05you. Your first question comes from the line of Tom Catherwood with BTIG. Speaker 500:20:23Maybe Art starting with you, since kind of the earnings growth flows through office leasing. The last quarter you had talked about tenant requirements increasing, obviously increased tour activity and your ability to start pushing for longer lease terms. As you look out to the start of what you've done in 'twenty five and kind of what's in that pipeline, how are the fundamentals firming up? And are you still able to whether it's start to push on rents or continue to push on term, what is your kind of negotiating position looking like? Speaker 600:20:56Sure, Tom. I think your premise at the beginning was correct. The tours are up quarter over quarter. The pipeline is up slightly quarter over quarter. But the most important part of that is that the average deal in negotiation has gone up 15% to 16,000 square feet. Speaker 600:21:17And that tells us the downstream, we're going to get more volume. It also tells us that there's more common larger deals in the pipeline. And that's exciting. As far as the lease term, the deals that we have in negotiation are trending in the right direction. Our trailing 12% quarter over quarter is up 2% slightly. Speaker 600:21:42But more telling is our trailing 12% year over year is up almost 80%. So that's very encouraging. And everything we have in our pipeline tells us that we're heading in that direction. Speaker 500:21:57Appreciate that, Art. And then second one for me. Victor, on the third quarter call, you mentioned pursuing secured financing on a portfolio of six assets. What's your current view on when that gets done? And kind of what's the backup plan to address maturities if that transaction doesn't come to fruition? Speaker 200:22:17Thanks, Tom. Listen, we're not going to comment on a timeline, but suffice to say that we're in process right now on a multiple of events that will accommodate our rightsizing the balance sheet. And we feel confident that one or more of these are going to come through. And it should be fairly imminent. Speaker 500:22:39Got it. Appreciate the answers. Thanks, everyone. Speaker 700:22:42Thanks, Tom. Operator00:22:44Your next question comes from the line of Nick Joseph with Citi. You may proceed. Speaker 800:22:52Hey, there. It's Michael Griffin on with Nick. Art, maybe just going back to the leasing pipeline. I mean, it seems like it's pretty positive for the year ahead. Obviously, the news we've heard about both AI and tech company and office requirements seems to be helping your market somewhat. Speaker 800:23:10But can you give us a sense of the type of tenants that are looking, how likely they are to commit? Is it more firms that are testing the water? Or do you feel pretty confident that a lot of these deals are going to get over the finish line? Speaker 600:23:27Yes. I'm supremely confident that a lot of these deals will get over the finish line, if I can go backwards. The pipeline, as I mentioned to Tom, the deal size has grown, which is encouraging to us. But more importantly, right now, we're seeing more deals in late stage LOI and leases, about 800,000 square feet, which we mentioned in our prepared remarks, that are really inside the five yard line, right? And so it's more than ever. Speaker 600:23:56And so we're seeing a little bit more urgency. And I think we're seeing a little bit more urgency because we're seeing a little bit more urgency because, some of these tenants that are realizing they need to get back to the office, return to office or as I like to call it, work from work, they're running out of time. And so that's also going to be a good impetus to move deals along. Additionally, our coverage, those deals in the pipeline and we mentioned part of it in the prepared remarks, we have high coverage on some of the expirations going forward, some of the large expirations. For example, at 1455, Uber and the BofA expiration, which is in total like 390,000 square feet, we have over 50% coverage on those right now and those are deals inside the five yard line. Speaker 600:24:47So again, everything is moving in the right direction and it's not just again, it's not just a handful of deals and a handful of markets, it's across the portfolio. Speaker 800:25:00Great. That's very helpful. Appreciate that, Art. And then maybe just turning to the studios. Obviously, the space has been through the wringer the past couple of years. Speaker 800:25:11It feels like even in the best of times, Quixote has a pretty limited visibility business, so you took the impairment this quarter. And as you think about maybe disposition opportunities, I mean, does it make sense to stick with this platform longer term? I mean, do you think you're getting credit for it versus just the underlying studio real estate? I know it fits into the whole broader media ecosystem, but if there are any updated thoughts there, that'd be interesting. Speaker 300:25:39Yes. This is Mark. Thanks, Mike. We are, we remain believers obviously in studios in general. We've been in it from the beginning, through the ups and downs, various changes. Speaker 300:25:54And continue to believe that Los Angeles is going to wage a comeback here. Victor touched on things like the tax credit increase, all of the various industry groups that are getting involved, local changes, all designed to pull production back to Los Angeles where it belongs. I would just say, as it relates to Todi specifically, we're not sitting in our hands just waiting for show counts to go up. We have already undertaken various cost savings initiatives. To date, starting in the third quarter, largely completed in the fourth quarter, we've cut about $7,500,000 of expenses. Speaker 300:26:33The resulting impact pro form a to $24,000,000 is like $4,200,000 of NOI improvement annualized. We're in process on another wave of cost cutting initiatives on the order of, call it, dollars 6,000,000 of savings generating 5,000,000 of NOI improvement, again, in pro form a to twenty twenty four operating results. So we're looking for ways to right size that business from a cost point of view and improve margins, enhance NOI. As show counts improve, that obviously will further improve the results. But we are going to improve those results one way or the other. Speaker 400:27:14Yes. And I just want Speaker 200:27:15to jump in. Beyond Netflix, obviously, the other streamers like Disney and Warner Brothers and Paramount, now they're reaching the levels of profitability. And with this Paramount merger, collectively, this is going to alleviate a lot of the negativity that has come to fruition in the last couple of years around the studio business. I mean, Los Angeles is still the lead marketplace for film and TV production globally. And we are seeing, unfortunately, with the circumstances of the fires, we're seeing a massive production turnaround and a support for the community around that, that the entertainment business and industry in general is leading. Speaker 200:27:50And so that is what's changed. I mean, at the beginning of the year, obviously, this devastating event occurred. And then the backside of that event is the conglomeration of all these entities that are out there that we are all affiliated with that I mentioned in my prepared remarks that have come now to the table to say let's rebuild L. A. So whatever acronyms you want LA Rises or Steadfast LA or Rebuild LA, they're all coming to the table and that is what we're seeing is transferring to more than just interest, but, holds on stages and production being greenlit going forward. Speaker 800:28:27Great. That's it for me. Thanks for the time. Speaker 200:28:31Thank you. Operator00:28:33The next question is from the line of Blaine Heck with Wells Fargo. You may proceed. Speaker 900:28:40Great. Thanks. Good afternoon. Just starting on the sales, Victor, a couple of questions there. It sounds like you're close to finished on the first three that were under contract. Speaker 900:28:48But just with respect to the three additional sales, can you give some more color on where you think you stand in the negotiations? And do you think we can expect those to go under contract soon? And then it sounds like the target for total proceeds is up slightly from your commentary last quarter at the midpoint. So, is that a change in mix, better proceeds on the sales so far or better expected proceeds on those that you still expect to sell? Speaker 200:29:19So, Blaine, I'll start with the first part of the question. Yes, I mean, the three are done. I mean, one has gone non refundable as we mentioned that last quarter. It's just been a timing close and so that deal is in process. We have two other deals right now, at one in contract stage and another, in LOI negotiation. Speaker 200:29:40The reason and we're confident that both those deals are going to make. The reason that the sort of the range is a little higher is we are realizing good pricing. These deals the deals that we're talking about have been marketed deals. And I think it's a testament to our ability to generate this liquidity and maximize value. And some of the comps have been very good comps and some of the ones we're looking at are going to be equally as good. Speaker 200:30:03But we've also had some reverse inquiry on some assets that are slightly larger and that's what we've looked at potentially considering that beyond the two that we're working on right now, which would make that number a little higher. That's still in flux and that asset that I'm referring to is not a marketed asset, so we're keeping that a little bit more closer to the vest at this time. And as we get closer, we'll provide you guys with more updates on it. Speaker 900:30:33Okay, great. That's really helpful. And then thanks for all the commentary on the studio side. I guess in the press release, you talk about high caliber shows returning. Can you just expand on what that means? Speaker 900:30:46Are these large shows that need a lot of studio space? Is that what makes them high caliber? And then with respect to returning, are these shows that were on hiatus? Or have they maybe moved to other markets and are coming back to LA? Speaker 300:31:02Well, yes, by returning, we don't necessarily mean literally a returning show. What we mean is coming back to LA, looking for stages in LA as opposed to other competing markets. And by high quality, we mean television episodics, the kind of bread and butter that makes L. A. Thrive and that come to studios, high quality studios like we have in Hollywood or Sunset Glen Oaks. Speaker 300:31:28Just to give you a point of reference, we were seeing, on average, one long term TV episodic type show come through our available stages, about one on average for October, November, December. As of last month, six of those shows came through in January. So, good early indicator that we're starting to see that recovery coming from the these bigger shows that use more stages, use heavier lighting and grip packages, all the things that we rely on to make those stages work. Speaker 200:32:04And, Blayne, they're named showrunners who've either worked in LA in the past or worked in our facilities. They're coming back with shows that are multiple year running shows. And we haven't seen that momentum in some time. And we're looking at a couple of shows right now that have been in the marketplace ten plus years that are coming back and looking at our studios. So it's much stickier than the ones that we've sort of seen in the last twenty four months that have been pilots that may or may not have gotten picked up. Speaker 900:32:38Got it. Very helpful. Thank you, guys. Operator00:32:43Your next question comes from the line of Connor Mitchell with Piper Sandler. You may proceed. Speaker 1000:32:51Hey, thanks for taking my question. I just have a couple. So first, going back to some of the guidance you provided, the cash NOI of negative $13,000,000, Haroop gave some information on it regarding the occupancy and pre rent. But just to make sure I'm understanding correctly, do you see the negative 13 cash NOI guidance primarily due to the occupancy impacts in the first quarter, the dip and then regaining some strength? Or is it the free rent or some combination or something else that I might be missing? Speaker 400:33:23No. You hit on that. It is a combination. So there's a lot of deals that are in the works that Art's working on that have upfront free rent. So the GAAP NOI will definitely reflect that, but the cash NOI will be picked up on the later half of the year. Speaker 400:33:40So it's some of the timing occupancy, the rest is the structure of the deals that we are anticipating. Speaker 1000:33:49Okay. That's helpful. And then, thinking about the impairments, you took on Quixote, since it's not a JV and I understand there's just a GAAP accounting involved, but just wondering how you guys can kind of think about the actual value of it now versus the purchase price that you guys took on in 2022? Speaker 400:34:13So the impairment, it's really an annual GAAP requirement. And unlike real estate, you don't it doesn't work the same way. So you have a different metrics and you've got to factor in all the NOI and projections. Ultimately, this just stems from the slower start of the recovery post the strike. That's all really impacted and doesn't really impact the future of the business or how we look at it. Speaker 400:34:38And it's all goodwill, by the way, to be fair. It's not the assets themselves. Speaker 1000:34:44Yes. So essentially, you can maybe look at the value being slightly higher than the book value currently after the impairment. But you guys still have, you still have confidence in the Quoty business like you mentioned earlier in the remarks. Correct? Speaker 400:34:58That's correct. Speaker 1000:35:00Okay. Thank you. Operator00:35:04Your next question comes from the line of Ronald Kamdem with Morgan Stanley. You may proceed. Speaker 1100:35:11Hey, just two quick ones from me. I think, Juan, just looking at the guidance, I think I remember last year you talked about sort of stress testing the covenants and so forth. Just can you just remind us when you do that exercise for this year, how we should think about the covenants trending this year? Speaker 400:35:30Hey, Ronald. The reality is, like we said, we feel like we'll be covenant compliance. We look at the projections granularly. And just to put it another way, almost for the last six or eight quarters, every quarter we've exceeded our internal expectations of the covenants. And so we feel confident we'll remain covenant compliant. Speaker 1100:35:53Okay. Got it. And then just staying on the sort of the same guidance topics, just from a high level from this 78% sort of occupancy, maybe talk through how we should expect occupancy to trend for the year? I know it's going to get better than the second half, but just maybe any numbers would be helpful. Speaker 300:36:13Yes. We don't provide specific occupancy guidance. But I think you can discern what will happen in terms of the cadence over the quarter by simply looking at quarterly lease expirations in the supplemental, Art outlined kind of what the pipeline looks like, somewhat elevated, expirations first quarter, tapering off a little bit second quarter. So 70% of all expirations in 25% are weighted to the first half of the year. That's where we're going to feel the most pressure on occupancy. Speaker 300:36:48So we expect to see a dip in the first quarter. We actually believe there's an opportunity that you can see recovery thereafter even by second quarter relative to that where we end the first quarter. So that and then it should just steadily improve thereafter. And I would add, we believe it will steadily improve beyond '25 given where expirations and activity is pointing. Speaker 1100:37:15Great. That's it for me. Operator00:37:19Your next question comes from the line of Caitlin Burrows with Goldman Sachs. You may proceed. Speaker 1200:37:26Hi, everyone. I guess we've talked a lot about volume and interest of leasing. But on the pricing side, leasing spreads were down in 2024. So do you expect the leasing spread of like down, call it, double digits on a cash basis to continue in 2025? Or like as you think about stabilizing occupancy, how much is it like a rate versus occupancy decision these days? Speaker 1200:37:49Or is rate kind of secondary at this point? Speaker 300:37:53Okay. Yes. So, on leasing spreads, of course, they're not necessarily indicative of what we're seeing holistically in terms of net effective rents, right? You're just seeing a comparison on face rates relative to expiring rents. But a couple of things about that. Speaker 300:38:10Right now, 2025 and even 2026 mark to market on rents is somewhere we're, like, call it, six ish, 7% above market. So, that gives you an idea of kind of where expiring rents are relative to market. Now, those don't necessarily translate into what you see on cash spreads that get reported in activity because they don't the timing of that doesn't always work out identically. But that gives you an idea of where spot mark to market is for each of those two years. As for like the actual lease economics to kind of answer your initial question, those have held up incredibly well. Speaker 300:38:46I mean, we outlined it in the prepared remarks in terms of net effective rents. But I would just emphasize that, whether you look at the latest set of results and compare trailing twelve month to almost any period of time year over year pre COVID rents. We continue to be in the low single digits off of even pre pandemic net effective rents. And I would add there's been a couple of quarters in there when we were essentially back to pre pandemic net effective. And the underlying reasons for that is essentially we've lost little to no ground on straight line rents, again, on almost any period of comparison. Speaker 300:39:30And we've been able to stretch term out while maintaining TIs and LCs per annum. So, net effectives have held up incredibly well. And I would say some of the more recent quarters are an indicator there's a real possibility we'll start to see net effect is higher than pre pandemic soon. Speaker 1200:39:53Got it. And then, maybe just back to Washington one thousand, wondering if you could give some more detail on the tour activity type of tenants coming through and whether they would be relocating or expanding into the space? And then also like if you were to sign a lease today, how quickly would you realize that NOI? Speaker 200:40:13Yes. This is Art, Caitlin. Speaker 600:40:15First of all, unquestionably, the Washington 1000 is the premier newly constructed asset in the market, the only one in our downtown core. And the team continues to doggedly pursue all prospects across the Puget Sound. We had mentioned that we're in discussions with tenants from 45,000 square feet to 250,000 square feet, and actually in negotiations with two of those prospects that have twenty twenty six lease commencement date. So, we anticipate transacting in the coming quarters. If I can share really at a macro level, the tech demand is increasing and growing stability with the city of Seattle. Speaker 600:40:55And what I mean by growing stability, meaning enhanced security, cleaner, safer streetscapes, stricter return to office, revitalized retail and certainly elevated foot traffic. We're encouraged that this is going to generate more activity for Washington 1000. Speaker 1200:41:13Thanks. Operator00:41:17Your next question is from the line of Dylan Berzynski with Green Street. You may proceed. Speaker 700:41:24Good afternoon, guys. Thanks for taking the question. Just wanting to touch on the leasing pipeline that you guys commented in the press release that it's called a little over 2,000,000 square feet, which is generally in line with where it's been really throughout 2024. So just trying to sort of square the leasing pipeline comments with some of your remarks around a recovery in sort of leasing demand from tech. Is there something we're sort of missing? Speaker 700:41:49Because it doesn't seem like according to the leasing done during the quarter, combining that with your comments on the leasing pipeline that things are improving all too much. So just want to hear your thoughts on that and then sort of anything we might be missing. Speaker 200:42:03Well, Dylan, let me start sort of on a macro basis. I mean, they're clearly, improving. I mean, we've leased more space by new and renewed tenants in the last year than we had since effectively 2019. So we're seeing the numbers pan out. And 2,000,000 feet is in line with what we did last year and that's what's in the pipeline right now. Speaker 200:42:24But that 2,000,000 feet is going to be offset by what's expiring and you have to look at 2025, '20 '20 '6 and 2027. And we sort of set the table and you, if anybody knows this, we're going to have the least amount of expirations in 'twenty six and 'twenty seven than we've had in five plus years. And so it does magnify what's available and what's coming available given where the pipeline is. And it is supportive of the deals that we did in the last twelve months and what's the ones that are on the table right now, which are some good sized leases that are going to come to fruition in the portfolio. Speaker 600:42:59Right. As I mentioned earlier, the average deal size of the pipeline is growing, which points to what Victor just talked about. I think most importantly, the pace of the deals is picking up. We're starting to see a little bit more urgency out there, with these deals. And more importantly is, are the tours, right? Speaker 600:43:17The tours spiked kind of early last year. We've maintained that level of tour activity and the team's done an amazing job of pulling those forward. So it's about reloading the pipeline. Yes, it looks like it's static at 204,100,000 feet, but we're also transacting 2,000,000 feet, which is a big difference. Speaker 700:43:40That's helpful. I appreciate the comments. I guess, just one sort of double clicking into Seattle. I mean, do you guys envision it seems like Proposition 1A is going to get passed. I mean, do you guys sort of envision that further separating out the recovery in Bellevue versus sort of the city of Seattle? Speaker 700:43:57If you can kind of just provide your thoughts on that, that would be helpful. Speaker 200:44:02Yeah. Listen, I read your piece the other day. I may not agree with all of it, but that's okay. It's not been the first time you and I have not agreed on things in the past. But given that, I think, the two things that maybe you guys missed over on that was, one, the lack of space that is available in Bellevue right now. Speaker 200:44:22I mean, it's not there's very few, Class A space that are comparable to the Class A space, between Bellevue and Seattle. Economically though, I think that's the big difference, right? I mean, Seattle's average price of Class A space is $50 a foot and Bellevue's average space is about $65 a foot. So that economic difference is a big momentum shift for companies to want to make a move versus the $1,000,000 that employees are going to pay for, a 5% head tax, that the employer sorry, not employees, the employers are going to pay for. So I think that clearly is going to stand out. Speaker 200:45:02Also, I think the number of people that are getting paid those dollars for relative terms given the valuation shift in the Class A real estate, I think that's indicative of Seattle being very supportive. I mean, I concur with your analysis of South Lake Union, but Denny, South Lake Union has been very much attracted. And the activity that we're seeing in Pioneer Square right now, we've seen two large tenants that were earmarked to go to Bellevue recently change direction, even with Prop 1A. And now they're looking specifically in Seattle at at Pioneer Square to move, and their objectives are really because of rental differences and the quality of the real estate that's available. Lastly, I would be remiss to say because I think you sort of did point it out, It is to us surprising that, given the momentum shift in Seattle and given the opposition between the council, the mayor, virtually every CEO and every company like ours, supporting 1B and not supporting 1A that the unions did prevail at such a high percentage. Speaker 200:46:19So that the momentum around the progressiveness in Seattle that we've been all talking about and really praising the city for did take a step back. And I think, you know, we would concur with your analysis on that. Speaker 700:46:34Great. Well, really appreciate that detail. It's very helpful. So, thanks. Speaker 200:46:40Thanks, Dylan. Operator00:46:42Your next question comes from the line of Rich Anderson with Wedbush. You may proceed. Speaker 500:46:48Hey, thanks. Good afternoon. So Harud, on the revolver covenant adjustments, I believe this is the second time that you guys have made adjustments there. Correct me if I'm wrong. And I'm curious like where you're at now in terms of additional flexibility should you need it. Speaker 500:47:12You lost $125,000,000 of commitments as a result. I mean, what is the is this where we should expect things to stand forever or for the foreseeable future? Or is there additional flexibility that you can take advantage of if needed a year or two from now? Speaker 400:47:35Hey, Rich. So I think we feel very comfortable with where the revolver is right now. Obviously, things can change, but it sets us up very nicely to execute in all the different capital leads we need for the next at least '25 and into '26. And once we do that, we will then address the recast, which will extend the revolver for even a longer time and maybe expand it depending on market conditions. Speaker 500:48:04Okay. But this was just a balancing act between the commitments you lose and the reduction of the covenants. Is that the right way to think of that? I apologize for the amateur sounding question, but I just want to make sure I understand how it's taking you. Speaker 400:48:21No, for sure. It's just creating more flexibility and putting our revolver on market terms. That's really what we're doing, just trying to set up a good future for our coverage of the financing that we have coming up. Speaker 500:48:36Okay. Second question is on the rightsizing of Quixote. It was mentioned you stopped operations in New Orleans. I'm curious, is this kind of a first in a series of steps? Could there what's your flexibility to do the same in other markets within the Quixote platform? Speaker 500:48:54I'm curious how you're thinking about future adjustments to Quixote on a go forward basis? Thanks. Speaker 300:49:02Yes. I mean, this is the first. We are looking at some other states locations and warehouses. And there would be obviously payroll associated with some of that downsizing. So, I kind of mentioned that, Rich, that there's about 6,000,000 more of cost saving initiatives that we're looking at that pro form a to 24 would improve NOI on an annualized basis another $5,000,000 So, that's kind of Phase two. Speaker 300:49:36We'll continue to monitor the market, and we're always looking to be more efficient, cut expenses where necessary. But we'll let you know where we come out in the next phase of this thing when they're done, and continue to be flexible depending on how the market improves. Speaker 500:49:56So those savings may involve exits like in the case of New Orleans? Speaker 300:50:03Not really because New Orleans was, if you recall, it's a small location that came with a much larger acquisition. It was the only stage location, that was outside of the State of California. So at this point, we're just looking at isolated opportunities to eliminate a stage here or there. It doesn't exit a market Operator00:50:24at this point. Speaker 500:50:25Not an exit. I said that wrong. I apologize. But and then in terms of I think the rental Speaker 700:50:31the lease payments, correct me Speaker 500:50:32if I'm wrong, $25,000,000 ish a quarter, is that right? And how could that adjust down as time passes? Speaker 300:50:41Well, in that $7,500,000 I mentioned of completed deals, about $4,500,000 is directly related to, lease, eliminating leases. And I would say roughly half the $6,000,000 I mentioned about deals in process is also eliminating studio related leases. Speaker 500:51:06Okay. All right. Thanks very much. Operator00:51:11Your next question is from the line of John Kim with BMO Capital Markets. Speaker 1300:51:18Thank you. On that topic on cost reduction, some of your peers were more aggressive as far as stating a G and A reduction goal and executing that as sort of the first step in terms of getting their stock rerated. Is that something that you have considered? Speaker 400:51:41Hey, John. Yes. In fact, if you look at where we guided G and A last year at this time compared to where we guided this year, I believe that's about a $7,000,000 sorry, dollars 10,000,000 decrease year over year. So we're definitely addressing that, and that's reflected in the numbers you see. So we recognize some of it in 2024 and we'll have more in 2025 and we're going to continue to look ways to do that. Speaker 1300:52:10And how much of that is corporate overhead versus coyote and, other divisions? Speaker 400:52:18All of that is overhead. All the Quoty savings that Mark outlined relate to the Quoty business and the Quoty NOI. Speaker 1300:52:28Okay. Got it. Thank you. Operator00:52:34There are no further questions at this time. I'd like to turn the call back to Victor Komen, CEO and Chairman, for closing remarks. Speaker 200:52:42Thanks so much for participating in our call, and we look forward to providing you more input as the quarter evolves. Operator00:52:52This concludes today's conference call. You may now disconnect.Read morePowered by