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spk01: Thank you for your patience. The Hudson Pacific Properties First Quarter 2023 Earnings Conference call will be starting in a few moments time. Thank you all for joining. I would like to welcome you to the Hudson Pacific Properties first quarter 2023 earnings conference call. My name is Brieca and I'll be your operator for today's call. At this time, all participants are in a listen only mode and you will have an opportunity to ask a question after the presentation. Please press star followed by the number one to ask a question and star then two if you change your mind at any point. And for operator assistance, it's star zero. Thank you. I would now like to turn the conference over to Laura Campbell to begin, so Laura may begin.
spk00: Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lama, President, Harut Dhirumarian, CFO, and Art Suazo, EVP of Leasing. Yesterday, we filed our earnings release and supplemental on an AK with the SEC, and both are now available on our website. An audio webcast of this call will be available for replay on our website. Some of the information we'll share today on the call is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information, as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss macro conditions in relation to our business, Mark will provide detail on our office leasing, and Harut will review our financial results and 2023 outlook. Thereafter, we'll be happy to take your questions. Victor?
spk02: Good morning, everyone, and welcome to our first quarter call. In the first few months of the year, macroeconomic challenges have persisted, exacerbating uncertainty and putting downward pressure on office market fundamentals. We will touch on how this is impacting our leasing activity in a moment. Recently, however, we've seen much more of big tech return to work announcements bringing employees back to office multiple days a week citing performance and efficiency concerns. These include Amazon, Oracle, Redfin, Lyft, and DocuSign, to name a few. Council data and transit ridership also show improvement across our markets. With the return to office unfolding slower than many expected, we remain cautiously optimistic that these announcements and related trends will translate into increased physical occupancy and improved tenant demand at our assets. Important indicators continue to support the notion that the Bay Area and Seattle remain epicenters for talent and capital networks that drive the tech industry. For example, the first quarter venture capital investments was in line with historic 10-year average, with the Bay Area continuing to receive the bulk of these funds. The early 2020s brought a wave of funding accelerated by COVID-related macro forces with a minimal office leasing. Beyond AI, which is currently driving approximately 600,000 square feet of requirements in the city of San Francisco alone, other sectors like cybersecurity, defense, and energy remain compelling areas for growth. While it would take time for this to positively contribute to our leasing efforts, it reaffirms our view that our office properties are located in compelling growth markets. Turning to our studios, last week, the Writers Guild of America elected to strike. leading to a halt in the domestic film and TV production. And unlike prior strikes where production ramped up in advance, this was instead a significant slowdown in filming through the first quarter. We suspect this is primarily the result of streaming companies' more robust existing content pipeline, although the austerity measures as well may have played a role. For example, In the LA market overall, the first quarter filming and TV shoot days declined approximately 30% compared to the same period last year. This initial slowdown impacted independent studios and service providers such as ours first as major studios consolidated productions on site. With the strike underway, productions at all studios have now been disrupted. This slowdown was a precursor to what we will experience during the strike in the past, with the overall economic impact to be felt much more broadly. In 2007-8, the writer's strike, which lasted 14 weeks, cost the California economy $2.1 billion, or $2.8 billion in today's dollars. There have been seven such strikes since the 1950s, ranging from two to 22 weeks, with the average being 14 weeks. Whether brief or protracted, the strike will impact the entire studio business, albeit less for our Sunset Studio assets, where nearly 70% of our state square footage is under multi-year leases with guaranteed minimums for service revenue. Lack of visibility around the strike's duration led us to suspend our 2023 FFO outlook and related studio assumptions, while we're still providing assumptions related to our 2023 office outlook. Haroud's going to discuss this further on the call. These studio-related union strikes are both temporary and relatively infrequent, and we believe underlying fundamentals for content production and thus for the studio business overall remain solid. Even if spend on high-quality original content moderates in the coming years in pursuit of profitability, current estimates indicate it will be at least on par with last year's following a period of ramp-up post-strike. In these uncertain times, we stay focused on what we can control, executing our leasing, prudently allocating capital, reducing corporate expenses, proactively working on asset sales, and further fortifying our balance sheet. We continue to limit upfront capital spend for market-ready suites, common area, and base building improvements until we have certainty around demand. We're currently evaluating potential disposition of six distinct assets, including a land parcel. We've also recently received board approval to reduce our dividend by 40 to 50% with the precise amount to be finalized at our board meeting later this month. This will bring our dividend policy in line with other capital preservation efforts. However, even without the dividend reduction, we have a path to address all our maturities through year end 2025, which Haroud will also discuss later in this call. With that, I'm going to turn it over to Mark.
spk04: Thanks, Victor. Our 344,000 square feet of first quarter leasing activity reflects tenants' continued slow decision making, which notably decelerated amid recession concerns in the third and fourth quarter of last year. Our in-service office portfolio lease percentage was 88.7% compared to 89.7% at the end of last year. Note this quarter we've added 10,900, 10,950 Washington to our future development pipeline. It is the only residential conversion we're considering at this point, and we're actively working through entitlements to build approximately 500 units. Thus, the decline in lease percentage was mostly attributable to small to midsize expirations at our Peninsula and Silicon Valley assets. At the same time, the preponderance of our first quarter leasing activity also resulted from small sub 5,000 square foot tenants in those markets. Our gap in cash rents fell approximately three and 5% respectively with a decline mostly driven by a significantly below market 20,000 square foot short-term renewal. Our tenant improvements were in line with the trailing 12 months per square foot average, but look higher on an annual basis due to shorter weighted average lease term. Trailing 12 month net effective rents are nearly 6% higher than last year, and in line with pre-pandemic, that is first quarter 2020 trailing 12-month net effective rents. The average weighted lease term of 42 months reflects the impact of three larger short-term renewals. For new deals alone, our weighted average lease term was 67 months, which is typical given an average size of 4,000 square feet. Trailing 12-month weighted average lease term is approximately 9% higher than last year and in line with our pre-pandemic trailing 12-month weighted average lease term. We still have activity on both of our 2023 large block expirations, including 60% coverage on blocks space at 1455 Market, but given the broader dynamics in the mid-market neighborhood, we expect that backfill will take time. We also remain in discussions around a potential renewal with our full building tenant at Met Park North, even as we proactively market that space. In total, we currently have 47% coverage on our remaining 2023 expirations with an average tenant size of roughly 11,000 square feet. Our leasing pipeline, which includes deals and leases, LOIs, or proposals, has increased up 11% to 2 million square feet since it dipped in the third quarter of last year. The average deal size within our pipeline is 13,000 square feet, above the 8,000 square feet on average for signed deals over the last five years. The weighted average lease term of deals currently within our pipeline is more closely aligned with our five-year average of 82 months. Separately, tours at our assets are at the highest level since first quarter of 2017. Since slowing in third quarter last year, the number of our tours has increased more than 30%, largely driven by activity at our Silicon Valley assets. First quarter tours represent over 1.8 million square feet of requirements, up 130% since third quarter last year, in part driven by an increase in average requirement size from 8,000 to 14,000 square feet. While it remains unclear how quickly these trends will translate into signed leases, Historically, we've seen a clear correlation between an uptick in tour activity and new deals. And now let's turn the call over to Haroud. Thanks, Mark.
spk06: Compared to first quarter 2022, our first quarter 2023 revenue increased 3.2% to $252.3 million, primarily due to our acquisition of Quixote, which we purchased in the third quarter of last year. Our first quarter FFO, excluding specified items, was $49.7 million, or 35 cents per diluted share compared to 75.2 million or 50 cents per diluted share last year. Specified items in the first quarter consisted of transaction related expenses of 1.2 million or 0.1 cents per diluted share compared to transaction related expenses of 0.3 million or 0 cents per diluted share. And a trade name non-cash impairment of 8.5 million or 6 cents per diluted share a year ago. The year-over-year decrease in FFO was mostly due to lower production activity impacting QUT in the lead-up to the writer's strike, though we were also impacted by higher interest expense and lower office occupancy compared to last year. First quarter FFO was in line with our expectations, but for studio results, particularly with respect to March projections. Our first quarter AFFO was $35 million, or $0.24 per diluted share, compared to $58.8 million, or $0.39 per diluted share. The decrease was largely attributable to the aforementioned items affecting FFO. Our same-store cash NOI grew to $125.6 million, or 7.2% from $117.2 million, mostly due to significant office lease commencement at Harlow in 1918-18. as well as higher production-related revenue and lower operating expenses at Sunset Gower and Sunset Bronson Studios. During the first quarter, we repaid $110 million Series A notes and applied $102 million of sales proceeds from Skyway Landing to pay down our credit facility. At the end of the quarter, we had $828.3 million of total liquidity comprised of $163.3 million of cash, of unrecognized cash and cash equivalents, and $665 million of undrawn capacity on our unsecured revolving credit. We have additional capacity of $138.9 million under our One Westside and Sunset Glen Oaks construction loans. At the end of the first quarter, our company's share of net debt to company share of undepreciated book value was 38.2%. 66.2% of our debt is unsecured and 90.3% percent is fixed or capped debt. As Victor noted, we continue to focus on delivering by exploring asset sales, financings and cost and dividend reductions. Our anticipated dividend alignment will result in 58 to 72 million of annual cash flow savings to further enhance our balance sheet. Market conditions have rightfully heightened focus on our debt maturities. And I'll take a minute to walk through our exposure. Following our pay down of the Keoghly loan in April, we have only one small maturity remaining this year, a $50 million private placement note. Our two 2024 maturities are both secured debt, the larger of which is one Westside, for which we have indicative terms from third-party brokers on a refinancing. With respect to our 98 million 20% ratable share of loans secured by Bental Center maturing in July of next year, our partner Blackstone has already taken the lead in discussing with the existing lenders. As for 2025 maturities, 96% of that indebtedness does not mature until the final two months of 2025, more than two and a half years from today. Three of our four 2025 maturities comprise nearly two-thirds of the maturing amount are secured by high-quality assets, 1918-8 Element LA and Sunset Glen Oaks, the first two of which enjoy high-credit single-tenant occupancy, with remaining lease terms into 2030. Sunset Glen Oaks will be a fully operational state-of-the-art studio campus before its 2025 maturity. Our fourth and final 2025 maturity consists of $259 million private placement loan scheduled to mature in December 2025. While we are more than two and a half years away from that maturity, we are focused on ensuring that we have capital availability to address the loan ahead of its repayment. Turning to our outlook, we are continuing to provide several 2023 assumptions, including those most closely associated with our office portfolio to provide continued visibility. However, due to the high level of uncertainty around the duration of the writer's strike, we will not be providing a 2023 FFO outlook or studio-related assumptions at this time. Please note that we provided an office-same-store cash NOI projection rather than our customary combined office and studio estimate in light of the rider strike and uncertainty. As always, our 2033 outlook excludes the impact of any opportunistic or not previously announced acquisitions, dispositions, financings, and capital markets activity. Now we'll be happy to take your questions. Operator?
spk01: Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If you change your mind, please press star two. The first question we have comes from Alexander Goldfarb Piper Sandler.
spk13: Yes, hi. Good morning out there. So two questions. First, Harut, on the guidance, the FFO suspension, Is that solely due to the studios or were there some other changes in the core office? And the reason I ask is the same store cash and a why guidance range came down as did the joint venture FFO contribution.
spk06: Good morning, Alex. Thank you for the question. It's a good question. So it is 100% due to the studio operations. Sinks or NOI guidance, I don't know if you can tell if it will disclose if it went down quarter over quarter, primarily because the previous guidance provided had a combination of studio and office, whereas the guidance provided this time is only office. So while, yes, there's a decrease quarter over quarter, but you can't tell from the previous disclosure that it came down. But to answer your question, it did come down about 50 basis points for the office NOI, and that's not why that guidance suspended. all due to the studio and then the drop in the jv share of ffo is again related to the studio all of it so uh office's first quarter was in line with our expectations and uh while it's not you know uh blowing up and doing amazing but it is consistent with our expectations okay and then the second question is
spk13: on cost-cutting, you guys laid out some planned asset dispositions, land dispositions, certainly cutting the dividend. From a platform perspective, what are some of the costs that you guys could – do you think that you could reduce out to also improve the overall cash flow generation of Hudson?
spk04: I mean, you've covered, you know, sort of the gamut there on where our focus is today. You know, we continue to monitor other discretionary spend and look for ways to, you know, make reductions where we can. But I think the main impactful items are the items you listed, you know, perhaps starting with, you know, kind of dividend at the top of the list.
spk06: In addition, I mean, we originally provided our guidance last quarter, and it's obviously playing in the current quarter, which is a reduction of our G&A. You see the quarter-to-quarter decrease in terms of Q1 versus Q1, and the guidance provided is consistent with that.
spk02: Lastly, Alex, as you've probably, you know, heard in the prepared remarks, I mean, you know, we have looked at assets and, you know, some of the assets that are not in the disposition line. But other assets that we would have had some capital expenditures allocated towards them, we've held off because of maybe some lack of leasing activity or confidence in that and focused our energy on the ones that we see are more imminent to lease up. So there's a combination of things between what Harut and Mark said, and then obviously the dispositions of some assets.
spk15: Okay. Thank you, Victor. You got it, Alex.
spk01: We now have Michael Griffin of Citi.
spk11: Thanks. It's actually Nick Joseph here with Michael. Just on the studio platform, obviously recognize kind of removing the guidance, the uncertainty on the timing. But as you look back to history and maybe 2007, 2008, does it create pent up demand when it ends or is it really more just kind of lost revenue as a strike is underway?
spk02: That's a great question. I'll tell you, we were around in the last strike and you heard our prepared remarks. We don't unfortunately have a seat at the table currently to sort of give an eye as to what is going on. We have a very sophisticated board of which three are very involved in the entertainment business. So we're getting some firsthand information of how negotiations are going. But that being said, I would akin this to specific to your question, more correlated to COVID. When COVID hit us, you know, production stopped. And yes, there was writing, but all production had stopped for a period of time. And then it also, when it came back, and there is a downtime to ramp up, but when it came back, it came back better than anybody expected. And we are assuming that the same example will occur here. There will be enough of a pipeline demand and every major studio has come out to date and said they are they are not adjusting their budgets for content spend so that would lend us to believe that it's going to you know come back aggressively if it's going to come back in your direct question correlated to year-end 23 I don't know how they can produce all that content when they when they're losing time but it will flow into seasonality of first quarter which typically is the case and First quarter is always a seasonal time lower, and then it dips back up in the second quarter. I think you're going to see some seasonality on the positive side late this year and then early next as well.
spk11: Thanks. And then just on guidance, would your intention be to resume full-year guidance once the strike ends and you get more clarity, or would you even wait a little longer than that to see kind of – the pickup as things resume?
spk02: Well, as soon as we have knowledge of the strike and then indicative knowledge of activity is when we will resume guidance. But yes, when the strike is over, we should see a correlation to the amount of activity on the studio business in general, and that's when we will reinstate guidance.
spk15: That's the intent. Thank you very much.
spk01: Your next question comes from Nick Unico from Scotiabank.
spk14: Thanks. So first question, I guess, is, you know, on the studios, is there any way to give us any, you know, rough feel for how this could work from maybe like every month, you know, there is a strike and how it's going to impact your business, realizing, you know, I think second quarter and third quarter is where you have more seasonal benefit from the studio business, just trying to see if there's any parameters we can think about.
spk04: You know, if we thought we could give you too much specifics, Nick, we obviously wouldn't have pulled guidance. But you can look to our NOI detail page of the supplemental to give you at least a sense of what the underlying expenses look like on a quarterly basis. And kind of what, you know, low revenues look like on a quarterly basis. We can't really give you much more to go by than that at this point because we don't know what revenues could look like even in a strike scenario and what inroads perhaps we can make on expenses depending on how long the strike goes for.
spk02: And Nick, you know, listen, this is, you know, the strike is a week old. We have access to our facilities. We have access to all of our products. all of our comms, all of our transpo. And, you know, we are looking at alternative sources of revenue. This is, you know, this is new to the uses of those revenue, but we will look to, you know, live events and we're going to look to short-term production or various different venue hostings and the likes of that. So there will be some revenue. We just have no idea what it's going to be, but the sales team is out there. And that being said, as I said earlier in the last question, you know, we're looking at expense reduction throughout the entire studio business. So the combination of that will sort of come out over the next couple of months if this lasts that long.
spk14: Okay. Fair enough. Thanks. Second question just has to do with, you know, the covenants in the credit facility. You know, have you guys done a stress test on that in regards to a certain period of a strike and then also factoring in some of the known move-outs you have this year if you don't backfill those? Just, you know, your confidence in being, as we roll forward through the year, you know, you guys still being okay with your covenants and your credit facility?
spk06: It's a good question. So we... periodically or regularly look at our covenants and project out at least a year, sometimes two, depending on circumstances. And in this case, you know, we feel, you know, barring anything bizarre happening, even with a three-month strike, we are completely in line with our covenants.
spk14: Okay, thanks. You said assuming something like a three-month strike, you feel like you're still good within your covenants?
spk06: Yeah, and even going further out, we're in line with those covenants.
spk14: Okay, great. Thanks. I guess just one last question, if I could. You know, Victor, the board addressed the dividend. I guess I'm wondering if there's another step that the board is going to consider to address, meaning that, you know, at some point you make more crystallized a certain level of asset sales to raise liquidity to you know to address future uh debt maturities um you know just just wondering what what the thoughts are on that thanks yeah nick let's just think thanks you know on on that specific aspect you know i i think we laid out pretty concisely that between now and the end of uh 24 uh four
spk02: We don't have anything major coming due. And then considering 25, we only have one piece of debt. Given just the liquidity that we currently have with dividend savings, that effectively can be taken care of on a dollar-for-dollar basis. The rest of it is asset level. So I hope that we sort of alleviated that thought process that has been sort of hovering over Hudson for the last several months. that, you know, other than asset-related debt, which are high-quality single-tedded assets, that we don't have any aspects of debt that we're concerned about replacing through end of 25. That being said, I think the Board has looked at this as a one-time cut, and given where we feel that the evaluation of what will transpire with some of the leasing that we project and hopefully the recovery of the entertainment business in a shorter form based on the strike being resolved, we should be in great shape to continue to grow going forward.
spk11: Okay. Thanks, Victor.
spk01: Your next question comes from Dylan of Green Street.
spk05: Hi, guys. Thanks for taking that question. Just curious if you can kind of give you an overview of sort of the San Francisco market in general today. You know, recently we've seen several retailers announce that they're going to be closing stores. So just curious, you know, how you guys see the recovery there playing back and maybe if, you know, things are a little bit worse on the ground today versus where we were call it three to six months ago.
spk02: Yeah. I mean, I'll jump in a little bit and then Art can sort of take, take precedent. I mean, you're obviously, you know, seeing what's on the ground on the retail side. I think it is really a tale of two ends of the city, right? I mean, if you're looking at our assets at Rincon or at Ferry, the activity is fairly robust. We don't have any vacancy coming due to speak of. And what we're seeing is a lot of interest or a lot of inquiries and interest if we did have vacancy on high quality assets. And that, I think, you know, is evident throughout the whole city on that end of the city for high quality assets. As you move towards the tenderloin, you are seeing some impact here. I will say that, you know, the announcements of some of the retailers are not surprising given the safety and security concerns and crime. I do know the city is looking to, you know, fulfill an obligation on a somewhat similar to a, you know, a focused plan that the mayor's office is trying to revive, you know, downtown San Francisco and the mid market areas and the civic center areas. You know, I think that that process and plan is being laid out and the intent is to sort of spend 25 plus million dollars in the police departments and expanding, you know, the street response teams and the likes of that. which will hopefully turn the city into a positive avenue and get out of what we're currently in today. On a highlight, which is limited in San Francisco right now, Dylan, I'm sure you're hearing about the demand for AI. And the demand for AI is what we've seen and what our people on the ground in the Valley and the city have seen is really only in the city right now. And it's somewhere around 600,000 square feet of inquiries And one tenant is already signed, and it looks like there's another six tenants in the marketplace looking for space. So that could boost some form of a next step recovery, or at least a step recovery for San Francisco that we are keeping an eye on and evaluating.
spk10: Yeah, that's definitely bolstered demand in the market. As Victor said, up about 600,000 square feet, which is now, you know, brings the demand up to about three and a half billion square feet. know people forget that the gross leasing has remained you know north of a million square feet a quarter um and so we're battling the headwinds of net absorption but you know relative to our portfolio we've got uh you know in addition to the coverage we have on on on block it's about 270 000 square feet we have 150 000 square feet of you know action on on on our vacancy out there so we we are seeing that demand, that segment out looking, you know, taking their finger off the pause button and looking to transact. So, you know, it's definitely a positive sign.
spk15: That's very helpful commentary, guys. Appreciate that.
spk05: Maybe just one more if I could. You guys mentioned having or going to market with six assets. Maybe if you can just talk about sort of the profile of these assets, the geographies, that'd be helpful. Thanks.
spk02: Yeah, one asset we have currently today is in negotiations on contracts. Three assets we have offers on and two assets we are getting offers on on Friday. The assets are all in California. I don't want to talk specifics around which asset, but one is a land, partial land, and the other three active office buildings. Sorry, five active office buildings.
spk15: I don't know why I said three. Okay. Maybe, I mean, the office buildings, is that single tenant, long wall, value add type, or any additional detail there? Yeah, I think of them, two of them are single tenants and the other three are multi-tenant assets. Awesome. Appreciate it. Thanks. Thanks.
spk01: We now have John Kim of BMO Capital Markets.
spk03: Thank you. Good morning. I wanted to ask about the amount of dividend cut. being, you know, when you compare that versus the studio NOI, which was about 13% of total NOI in the fourth quarter, and this strike may last about a quarter or so, why did you cut it or decide to cut it at 40% to 50%?
spk04: Yeah, it's really not correlated to the studios at all. I mean, we plan our dividend for the long term, and the studio, the strike is a temporary event. If you look historically... We've had return of capital somewhere a bit north of 30%. Last year, we had return of capital north of 50% on, you know, kind of on a run rate basis. That is to say, without trying to handicap gains or losses on sale of assets. Our view is that 2023 from a P&L point of view can accommodate 50%. We've obviously, you know, monitored what the implied yield of the dividend is, and 50% cut is still, you know, sizable yield. And the, you know, we're looking for ways to retain our lowest cost of capital. And so all of those considerations factored into the decision around the 50% cut, but the studio performance really has nothing to do with that.
spk03: And what would be your priority as far as use of proceeds?
spk04: Yeah, due leverage or the balance sheet and liquidity.
spk03: Okay. On the studio NOI, can I just ask, with the strike happening now, what percentage of your rental revenue goes to zero? And also the same question on service and other. And on the OPEX side, how much of the expenses are fixed versus variable?
spk04: But you can, I point you back to the NOI detail. You can see in the same store NOI, the studio same store NOI detail, how well the legacy brick and mortar held up right that's the 35 stages the sunset gower bronson lost promise um we mentioned in our prepared remarks that roughly 70 of the stages there which are you know what largely drive the revenue there are under long multi-year agreements that have guarantees on ancillary revenue um and it it shows up and how well those studios held up there'll be a bit of impact from the strike because not all the stages there, like roughly 30% of the stages there are not in our multi-year agreement, so it'll be a little bit of impact. And then you can see how the non-same store, which is Coyote, Zio Star Wagons and Coyote, how they performed in the lead up to an anticipated strike. So I, you know, I encourage you to look at that detail.
spk15: Thanks for the caller.
spk01: Thank you. We now have Blaine Heck of Wells Fargo.
spk12: Great, thanks. Good morning out there. Victor, we've heard a lot of optimism around the return to office for some of the tech tenants that were most insistent on hybrid or remote work in the midst of the pandemic. Have there been any kind of tangible signs yet that maybe they're rethinking some of the sublease space that they put on the market or had given back too much space in your markets? as their headcounts actually grew throughout the pandemic? Or is it maybe too early to tell if that's going to happen?
spk02: Yeah, so Blaine, the answer is yes. I don't want to get into the details, but they're specific to our portfolio. But there is a single tenant that has come back to us now and said that they're interested in revisiting this current space that they had indicated that they were either going to sublease or leave. sort of general market conditions. I do know that just recently in Seattle and Bellevue, that same circumstance occurred with not with our portfolio, but with another portfolio of assets that a couple of tenants have come out and said that they want to retain their current space and evaluate how the space will lay out. And so we sort of assumed that was going to happen. As you've seen, There has been a massive push back. Today, Weyerhaeuser was another tenant that came back out and said they're demanding other tenants coming back. And the list of tenants I gave you is on top of where Amazon started last month. So you're seeing a movement. It, though, is still, Blaine, disturbing for our quality of portfolio that this has become really a West Coast issue. and not a rest of the country issue. And so it's sort of a little underwhelming that most of these West Coast companies have not made decisions to either expand space, but maybe just maintain their current platform. But we anticipate that to take a little more time, and we're optimistic that it's going to, you know, as I said earlier, quality assets will prevail first.
spk15: And so we're seeing that in our portfolios.
spk12: Okay, great. That's helpful. And then just back on the studio space, can you talk about whether you expect to see less willingness to sign longer-term leases on studio space as a result of the tougher environment and even potentially as a result of the threat and now reality of a strike and maybe a reversion to the show-by-show or season-by-season leasing that used to be a lot more prevalent?
spk02: I'm going to have Jeff answer that.
spk09: Hey, Blaine. This is Jeff. Yeah, I think, you know, the way the industry generally works is it's fundamentally predicated on that show by show model that you're referring to. To a lesser extent, there obviously are long term leases. But, you know, most of the stages and most of the inventory is really going on a show by show basis, meaning, you know, when a show gets greenlit, they you know, get all the services, including a stage. But, you know, long-term leasing, it's a big benefit to our portfolio and Sunset. But as we expand the business and we scale, fundamentally, you do get into the show-by-show model, which is kind of how the industry works. So it's just the nature of the industry that, you know, I don't think there's going to necessarily be less demand from studios going forward for long-term leasing. It's just a smaller subset of the overall demand for stages.
spk15: Got it. Thanks, guys.
spk01: Thank you. As a reminder, it's still one to ask questions. And our next question comes from Ronald Camden of Morgan Stanley.
spk08: Hey, just a couple quick ones from me. Just going back to the leasing pipeline, which I think you talked about, I think close to 2 million feet, if I got that number correct. But if I compare that to some of the expiring leases and commenced leases, can you just put it all together and where are you thinking occupancy ends the year at? What are sort of the right zip codes on the occupancy at the end of 2023?
spk04: Yeah, deja vu. We finished the quarter at 88.7 at least. We've got two sizable expirations, 60% coverage on the block space in discussions on the other expiration with Amazon towards the end of the year. Our success on both of those can make a material difference, obviously. Pipeline's really healthy. Pacing on deals isn't as, you know, slower than we'd like. And so I think it's, you know, where we end up at the end of the year in terms of occupancy or lease percentage is, you know, predicated on how quickly we get deals done, how successful we are on those backfills or renewals that I mentioned, you know, and we'll have to leave it at that.
spk08: Understood. If I could just pivot to the balance sheet. If I, you know, you end of the quarter at eight and a half debt to EBITDA, I see in the supplement. So when you put it all together in the asset sales, maybe you talk about potentially how much dollars you get out of that and then the dividend cut. What's the potential for bringing that down this year?
spk04: Well, yeah, I mean, it will go down. I mean, you're, you're seeing an aberration in large part driven off of the, um, the impact of the slowdown at the studios. And so we finished last quarter quarter prior at like seven, four, that's even, uh, um, uh, had a slowdown in this quarter. Don't know exactly how quickly that'll resolve itself. Once it normalizes, That component of the portfolio will contribute EBITDA and we will continue to make inroads on debt repayments in connection with asset sales. So, you know, the goal remains to get back into the sixes and mid sixes are lower if we can. And as soon as the studio business resumes, I think you'll see that trend continue.
spk08: Great. If I could just sneak one in on OneWest side, any sort of early indications of what the rate LTVs could be on that? Thanks.
spk04: Oh, well, yeah, I mean, right now the loan kind of fully funded is at a touch over $400 million. You could run, you know, your own numbers, but that, you know, conservatively should be, you know, 50-ish, maybe less than 50% on any reasonable range of values. And we've got indicative indications from third-party brokers that we could readily refinance that level.
spk08: Great. And on the interest rates?
spk04: Yeah, I'm sorry. I didn't hear that. Yeah, I mean, again, it'll depend on kind of where indices move between now and end of 2024. But our view is today it would be a mid-six type of rate all in.
spk15: Great. Helpful. Thanks so much.
spk01: Thank you. I'd like to hand it back to Victor for any final remarks.
spk02: Thank you so much for participating in our quarterly call. And as always, I want to call out the Hudson Pacific team for all their hard work and dedication in these challenging times.
spk15: Have a good day.
spk01: Thank you. I can confirm this does conclude today's call. Please have a lovely day, and you may now disconnect your line. I can confirm this does conclude today's call. Please have a lovely day.
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