Hudson Pacific Properties, Inc.

Good afternoon. My name is Sierra and I will be your conference operator today. At this time, I would like to welcome everyone to Hudson Pacific Properties' third quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. At this time, I'd like to turn the call over to Laura Campbell, Executive Vice President, Investor Relations and Marketing.

Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lamas, President, Harut Dharamarian, CFO, and Art Suazo, EVP of Leasing. 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. These 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 and capital recycling. Mark will provide an update on our office and studio operations and development, and Harit 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 third quarter call. At Hudson Pacific, we spent nearly two decades acquiring, transforming, developing, leasing, and operating premier real estate and related services in the most sought after locations, catering to dynamic tech and media industries. Over the last several years, our talented team has worked diligently to leverage the strength and resiliency of this unique platform. to rise above the multiple, unprecedented, once-in-a-generation challenges impacting our core industries and markets. As we sit today, we are gaining additional confidence that the tide is turning. While more time is needed, we believe that as we exit this year and move through 25, we will stabilize our portfolio and be positioned for a return to growth and, ultimately, outperformance. The positive office-related indicators that are emerging are numerous. The data clearly shows that office-oriented cultures enhance productivity and performance, and with the U.S. facing the steepest decline in white-collar productivity in 50 years, the push to four- or even five-day workweek has begun. Today, only 1% of the Fortune 100 companies still have fully remote office attendance policies, and 80% of the CEO respondents in KPMG's most recent survey anticipate their work will be full-time in office in the coming years. And this movement, which had early traction with financial companies on the East Coast, is now gaining momentum among tech companies along the West Coast. Recent full-time mandate announcements include Seattle's largest employer, Amazon, Dell, and San Francisco's largest employer, Salesforce. Underscoring the momentum in San Francisco, in September, Muni ridership surpassed 520,000 average weekday boardings and approximately 75% of pre-pandemic levels, with certain routes recovering to well in excess of 100%. And to that, tech layoffs are slowing, venture fundraising is picking up, and after years of cost cutting, venture investors are finally advising portfolio companies to get back out on the offensive. Tech layoffs have consistently declined since the first quarter of 2023, now reaching their lowest level since second quarter of 22, a 45% improvement year over year. Furthermore, AI companies, 44% of which are in the Bay Area, have brought venture investors back to the table. 2024 is on pace to be one of the best years for AI funding on record, with the lion's share going in the Bay Area, which we expect to provide another leasing catalyst in the coming months. AI companies tend to be office first, and since January 2022, have leased 2.3 million square feet in the Bay Area, a footprint Cushman & Wakefield expects to grow 200% over the next two years. At present, we're monitoring 25 tenants in the market seeking about 800,000 additional square feet. Big picture, a recovery that has already taken hold on the East Coast is now gaining traction on the West Coast. And in the third quarter, tenant requirements in the West Coast tech-centric office markets increased 17% year over year compared to just 7% for the broader U.S. office market. Downtown San Francisco had positive net absorption for Class A product for the first time in two years. And year-to-date overall gross leasing is the highest since 2019, with tenant requirements up 20% year-over-year. The San Francisco Peninsula has also had its first quarter of positive net absorption since 2022, and software and internet companies led leasing volume, representing 42% of the top 25 transactions. And in the Valley, office occupancy losses are starting to recede, and tenant requirements are up 33% year-over-year. And in Seattle, we're now seeing mid-sized demand coming back to the market with overall requirements up about 30% year over year. All of this activity mirrors what we're experiencing with our own office portfolio. Now turning to studios. The following three months of Los Angeles show counts has been approximately in the low 80s. Production has started to pick up, nearing 90 shows during October, on trend with stronger demand we are seeing for 2025. While we are moving in the right direction, Los Angeles production has yet to return to any sense of normalcy, which continues to limit demand for our stages and services. Los Angeles is still the worldwide leader in film and television production, but to win back productions in an increasingly competitive, cost-conscious environment, we must have the appropriate financial incentives. Fortunately, office officials in the public realm at all levels have recognized this. And a few weeks ago, Governor Newsom introduced legislation that if passed, would more than double the tax credit program to three quarters of a billion dollars, making it the largest in the United States. This is a very positive development, and if passed, will go into effect in mid-2025 at a key moment when many companies such as Netflix envision production to be back to normal. We think new soundstage supply will remain limited, and a comprehensive offering of studios and services will be poised to successfully capture incremental demand, which typically builds a hit of production. We remain confident our studio team is the best in the business and recently promoted two senior executives in recognition of their growing responsibilities. Stephanie Bourne, who joined Hudson Pacific 2021 from Disney, has been promoted to EVP Studios with oversight of sales, production services, operations, and strategic initiatives. And Ann Mertens has been promoted to EVP Studio Real Estate and Southern California Office Operations having led at different times those functions for over a decade. I know both, alongside with our team and the broader studio leadership team, will ensure we continue to benefit from the creative strategies, streamlined operations, and exceptional level of service for which we are known. Finally, I want to just talk about capital recycling. With Fed policy easing and office fundamentals improving, transaction volume across our markets is accelerating. We are strategically tapping into this demand as a key component of our effort to deleverage with a focus on completing additional non-core office asset sales where we can maximize value. Of note, our Bay Area assets are garnering strong buyer interest. And as of the third quarter, we're under contract with a buyer that has gone non-refundable on Foothill Research Center in Palo Alto for $23 million. We've opted to sell at an attractive price per square foot rather than continuing to invest in this asset. Inclusive of Foothill, we presently have three sales under contract, another 300 negotiation, which have the potential to generate gross proceeds totaling $200 to $225 million. In addition, we have begun discussions with potential partners and lenders on a portfolio of six office assets as both a secured financing and a joint venture opportunity, and we're optimistic the related transactions could close early next year. We look forward to providing much more detail and additional updates. With that, I'm going to turn it over to Mark.