Hudson Pacific Properties, Inc.

If you would like to ask a question, press star one on your telephone keypad. I would now like to turn the conference over to our host, Laura Campbell, Executive Vice President of Investor Relations and Marketing. Please proceed.

Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lamas, President, Root Deer Merriam, CFO, and Art Suazo, EVP, as we sing. This afternoon, 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 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 earnings released 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. Good afternoon, everyone, and welcome to our second quarter call. The results we reported this quarter were in line with our FFO outlook, with our office portfolio performing better than our expectations. This quarter, our team's strong execution resulted in leasing over half a million square feet. This is our highest leasing activity since the second quarter of 2022 and our year-to-date leasing was up 40% compared to last year. Two-thirds of those leases were new, the most since first quarter 2019. Even after another strong quarter of leasing, our pipeline of deals in leases, LOIs, or proposals is healthy at 2 million square feet. with an average requirement of above 15,000 square feet up from about 9,000 square feet two years ago. All of this is a testament to our team's ability to attract and capture demand and successfully move leases through the pipeline to execution. And while still challenging, there's a gradual strengthening across our West Coast office markets almost uniformly relative to the trailing four-quarter average available sublease spaces declining, development pipelines are diminished, Tenant requirements are growing, crime is falling, and transit ridership is improving. Nowhere is this more evident than in San Francisco. The city had its second best leasing quarter in two years at 2 million square feet, with several submarkets experiencing positive or near positive net absorption. There were 13 deals signed over 40,000 square feet, the highest number since the third quarter of 2021. And kudos to our team for signing two of the 10 largest deals. Tenant requirements continue to increase, reaching 6.8 million square feet this quarter, up 50% year over year, to levels not seen since late 2019. Continued strong investment in AI is reigniting the San Francisco office market and spilling over into our other markets, especially Silicon Valley and to some extent Seattle. With over 600,000 square feet of AI leases signed in San Francisco year-to-date and 740,000 square feet of AI tenants already in the market, 2024 is on pace to be another significant AI leasing year. Second quarter US VC investment of $56 billion was the highest quarter in two years, driven by AI mega deals. Reportedly, investors are gaining confidence in the US market's relative performance and getting more pressure from LPs to allocate nearly $300 billion of dry powder. The Bay Area, where we have obviously a significant presence, continues to receive the largest allocation of VC funds, along with about 75% of all AI funding in the first half of the year. We're energized by this positive leasing momentum and by significant funding for businesses that are choosing to locate in our core markets. While we cannot control the timing on leases closing, we expect our office fundamentals will gradually strengthen further as we move ahead. As for our studios, last week the Teamsters ratified their contract with the Alliance of Motion Picture and Television Producers, finally clearing the way for production activity to begin to normalize. This favorable resolution follows an unprecedented 18 months of strikes and difficult negotiations which delayed green lighting and overshadowed typical seasonality. Presently, we estimate that there are only about 80 productions tilling in Los Angeles, compared to approximately 100 during much of the second quarter, as the potential for additional strikes weighed on demand in July. While we expect some level of increased production through the balance of the year, to what levels remain unclear. Beyond the strikes, consolidation, cost cutting, and shifting content mix are altering not just show counts, but also production type, number of episodes, and budgets. All of these factors influence demand for our stages and services, both in Los Angeles and outside of Los Angeles. While we believe Los Angeles will remain the epicenter of entertainment, in recent years, the city has lost some of its substantial lead in global production. Other locations have enhanced their infrastructure and implemented favorable state film tax credits and sector-specific incentives. While the strike exacerbated this trend from 2021 to 2022, growth in the Los Angeles region's total scripted production capture was up less than 1% compared to 4% in total scripted industry output. In 2022, Los Angeles lost nearly $1 billion of production spend due to projects leaving the state for tax credits. While we are working closely with Los Angeles' Mayor Bass, Governor Newsom, and other elected officials and industry experts on this front, Mayor Bass is committed to ensuring the industry continues to thrive in the city of Los Angeles and has established a commission to strategize on incentives and related topics. All of these dynamics are very fluid, and as a result, we currently lack the visibility to assess With reasonable certainty how and when our studio operations will normalize, but they will normalize. And we believe that by the fourth quarter, production should start to get better, even as new content investment remains cautious and more globally distributed. Importantly, we do not require production to return anywhere near our 2021 peak levels for our studio businesses to create meaningful value. At a point of reference, during the fourth quarter of 2022, when we began to experience the early impacts of pending WGA and SAG-AFTRA strikes, we estimate there were approximately 120 productions filming in Los Angeles. During that same period, our in-service studios generated an annualized NOI of $37 million, and our COD businesses generated an annualized NOI of $41 million. Finally, turning to our balance sheet, further deleveraging remains our top priority. We have no debt maturities until the end of 2025, and while we have already seen improvements in some of our leverage metrics, which Harit will comment on shortly, we anticipate that increasing studio cash flow will further strengthen these organically. As part of our proactive multi-pronged approach to managing our leverage, we will continue to pursue opportunistic dispositions and have strong buyer interest on several assets. We expect to be able to execute successfully on these type of transactions just as we did last year. With that, I'm going to turn it over to Mark.