Hudson Pacific Properties, Inc.

Hello all and welcome to Hudson Pacific Properties first quarter 2024 earnings conference call. My name is Lydia and I'll be your operator today. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Laura Campbell, Executive Vice President, Investor Relations and Marketing to begin. Please go ahead.

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lamas, President, Harut Girimarian, CFO, and Art Suazo, EVP of Leasing. Yesterday, we filed our earnings release and supplemental on an 8K with the SEC, and both are now available on our website. An audio webcast of this call will also be available for replay on our website. Some of the information we'll share on the call today is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information, as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss industry and market trends, as well as other highlights from the quarter. Mark will provide an update on our office and studio operations and development, and Harut will review our financial results and 2024 outlook. Thereafter, we'll be happy to take your questions. Victor?

Thank you, Laura. Hello, everyone, and welcome to our first quarter call. Macroeconomic pressures have persisted into 2024 with the Fed contemplating keeping rates higher for longer. On the office side, speaking thematically across our markets, vacancy and negative net absorption remain stubbornly high as many existing tenants continue to downsize. And yet, demand in terms of new requirements is recovering. Sublease is stabilizing with backfills exceeding new additions and minimal construction starts have significantly curtailed new supply. Remote-versed companies are becoming rarities, and more business-friendly, public safety-focused policies are taking hold, contributing to meaningful reductions in crime across our urban markets. In line with these more positive trends, and backed by our team's persistence and creativity, our office leasing activity, along with the percentage of newly signed deals, accelerated in the first and second quarters of the year. We have always been focused on ensuring our portfolio meets the needs of today's and tomorrow's workforce. And in addition to new construction, we have consistently adapted, renovated, or otherwise repositioned our older product, which will only pay further dividends as the pipeline of new supply wanes. Today, over 70% of our in-service portfolio was either built or substantially renovated after 2010, such that our average billing age when factoring in substantial CapEx improvements is approximately 10 years. Over 95% of our properties have functional outdoor space. 90% have end-of-trip facilities with bike storage, showers, and lockers. 60% have fitness centers. 95% offer EV charging. 92% are LEED certified, and 100% are carbon neutral. Further, our expertise in placemaking throughout our combination of strategic capex, retail teneting, programming, and events as demonstrated by our successful stewardship of the Ferry Building in San Francisco and Bentall Center in Vancouver, is becoming more important than ever. We're now leveraging those learnings to the benefit of our entire portfolio, especially in our more urban markets. In terms of the studios, upon the strikes resolution late last year, our team hit the ground running to market our stages and services. In the first quarter, as filming resumed, revenue improved across essentially every segment of our studio business. we also have promising activity on a majority of our vacant stages, inclusive of negotiating our first lease at Sunset Glen Oaks. However, as has been well documented by the media, post-strikes, the film and television industry has recovered far more slowly than anticipated. Most of our studio business is in Los Angeles, where Film LA recently reported shoot days in the first quarter were down 9% year over year. And while film production has largely recovered, television production, One of the primary demand drivers for our stages and services was off 16% in the first quarter compared to last year, even as the number of pilots increased nearly tenfold. There are several reasons why the ramp up is different than what occurred following the pandemic. Many believe studios are curtailing production due to the pending IATSE and Teamsters local 399 union contract expirations in May and July, respectively. Broadly speaking, the industry seems eager to avoid another strike. and thus IOTC negotiations are on track to be completed by late May with all 13 Hollywood locals reaching craft-specific agreements as of last week. Other factors include logistical and resource constraints as multiple productions attempt to restart simultaneously, industry consolidation, and shifting business models as networks pursue profitability. Unfortunately, with the IOTC and Teamsters contract expirations imminent, It is challenging to more fully assess how these other factors will weigh on stage and services demand for the balance of the year. But there is no question that high-quality original content will remain essential to the studios growing their subscriber bases and building valuable IP. Thus, while the industry is evolving, we will see long-term fundamentals as compelling. Turning to dispositions, we continue to opportunistically pursue potential sales with the goal of further deleveraging and fortifying our balance sheet. While we cannot yet disclose which assets, we are actively exploring the sale of three office assets collectively representing around 900,000 square feet. We are also looking at a potential recapitalization of a fourth office asset in the Bay Area. While we are most focused on dispositions, this quarter we had a unique opportunity to purchase our partner's 45% interest in 1455 Market We then executed a 20-plus year lease at 157,000 square feet at 1455 Market with the City of San Francisco, which has expressed interest to grow significantly in that building. This is the largest direct deal in downtown since 2021. The City's commitment to mid-market neighborhood, both through its actions and its representative's commentary related to this lease, speaks volumes. We continue to believe in the long term demand drivers for San Francisco office space and our ability to create further value at fourteen fifty five market at very attractive all in basis with no leverage. Finally, during the first quarter, we were once again included in sustainability yearbook and last month we published our sixth annual corporate responsibility report. Key accomplishments for the year include reducing scope one and two carbon emissions by 36% from our 2018 baseline, such that we are on track to meet our science-based 50% reduction target by 2030. We continue to operate our assets on a carbon neutral basis with our LEED and ENERGY STAR certification among the best in the office sector. And last year, we began manufacturing a 100% solar electric trailer as part of Coyote's Verde line which is setting the standard for sustainable trailers in the industry, and on average outperforms our non-solar product in terms of pricing and utilization. And most recently, Globe Street once again named Hudson Pacific a best place to work, which is a nod to our exceptional people and culture. With that, I'm going to turn it over to Mark.