Hudson Pacific Properties, Inc.

Good 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 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 question and answer 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. Please go ahead.

Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lamas, President, Harut Dirimurian, 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 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 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 Harut will review our financial results and 2025 outlook. Thereafter, we'll be happy to take your questions. Victor?

Thank 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 24, we ended the year with office leasing nearly 20% higher compared to the prior year as we delivered over 2 million square feet of signed leases. This included 1.2 million 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 Oaks in Los Angeles. And through various cost-cutting initiatives, we achieved approximately $4 million in G&A savings as compared to our initial outlook. And as Haroud's 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 million, one of which closed in December, the second closed in January, And the third is anticipated to close by the end of the first quarter. West 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. In summary, all of our markets' gross leasing is reaching post-pandemic highs. Sublease 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 billion was the highest level since second quarter 2022, 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 a half a trillion dollars, were all AI companies headquartered in the Bay Area. Given 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 2.4 million square feet, more than doubling the existing footprints with over 1.4 million square feet of requirements presently in those markets. Another favorable trend It's 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 22 and down 90% from their peak in the first quarter of 23. And 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, 2025 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 to $750 million, 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 California 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 John Voight, Mel Gibson, and Sylvester Stallone are all pushing for additional state and local program enhancements and commitments from media companies to increase local production. We are specifically part of the California Production Coalition, but active and in communication with all of these groups. As Mark's 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 stage 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 Brothers, Discovery, and Paramount reach profitability. Note, 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 3176 Porter in the fourth quarter, we sold Maxwell in the early first quarter and Foothill Research Center is also under contract Victor Pechaty, With closing anticipated in March so collectively we've generated $94 million of gross proceeds over the last two quarters with all proceeds going to reduce leverage. Victor Pechaty, Beyond these three assets, we are pursuing approximately 100 to $150 million of dispositions in various stages and roots going to discuss additional balance sheet related enhancements which are either completed or underway and that i'm going to turn it over to mark.