Greetings, and welcome to the Hudson Pacific Properties, Inc. First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you. Ms. Tidwell, you may begin.

Good afternoon, everyone, and welcome to Hudson Pacific Properties First Quarter 2013 Earnings Conference Call. With us today are the company's Chairman and Chief Executive Officer, Victor Coleman; and Chief Financial Officer, Mark Lammas. Howard Stern, the company's President, is also available to answer questions. Before I hand the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, May 6, 2013, and Hudson Pacific does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was released this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors. And now, I'd like to turn the call over to Victor Coleman, Chairman and Chief Executive Officer of Hudson Pacific. Victor?

Thank you, Kay, and thank you, everyone, for joining us today. We're off to a solid start in 2013. The first quarter was highlighted by a very successful common stock offering and a healthy leasing activity. Overall, the underlying fundamentals in our key California markets remain very strong and set the stage for another very productive year for the company. From the financing front, during the quarter, we completed a public offering of 8 million shares of common stock and the exercise of the underwriters' overall option to purchase an additional 1.2 million shares at the public offering price of $21.50 per share. Total net proceeds from the offering were approximately $189,900,000, which will help support our growth initiatives in 2013. Suffice to say, I was extremely pleased with the level of investor interest in this offering and appreciate the vote of confidence in our investment decisions. Turning to our first quarter leasing activity. Conditions in our key California markets continue to push up the lease rate of our portfolio to rental rates well above expiring and underwritten rents. As we and others have observed for some time now, trends towards open and more collaborative work environments continue to fuel the demand by technology, media, entertainment and social media tenants for office space, which caters to these sectors. Higher density and amenities tailored to a dynamic workforce have been the hallmark of tenancy by these industries. This trend is not confined to these sectors as more traditional industries are increasingly adjusting work environments to the changing needs of today's emerging workforce. It is more than just work environment, it's both -- companies in both new and traditional sectors recognize that workers want to work close to where they prefer to live, typically in locations with access to public transportation and…

Thank you, Victor. Funds from operations excluding specified items, for the 3 months ended March 31, 2013, totaled $14.1 million or $0.26 per diluted share compared to FFO, excluding specified items, of $9.4 million or $0.26 per share a year ago. The specified items for the first quarter of 2013 consisted of an early lease termination payment from Bank of America related to our 1455 Market Street property of $1.1 million or $0.02 per diluted share and a property tax reimbursement stemming from the reassessment of the Sunset Gower media and entertainment property of $800,000 or $0.01 per diluted share, both of which I will touch on in a moment. Specified items for the first quarter of 2012 consisted of expenses associated with the acquisitions of operating properties of $100,000 or $0.00 per diluted share. FFO, including the specified items, totaled $16 million or $0.29 per diluted share for the 3 months ended March 31, 2013, compared to $9.4 million dollars or $0.26 per share a year ago. Net loss attributable to common shareholders was $2.9 million or $0.06 per diluted share compared to net loss of $2.6 million or $0.08 per diluted share for the same period a year ago. Turning to our combined operating results for the first quarter of 2013, total revenue increased 29.2% to $49.4 million from $38.2 million a year ago. Total operating expenses increased 33% to $43.6 million from $32.8 million for the same quarter a year ago. As a result, income from operations increased 6.3% to $5.8 million compared to income from operations of $5.5 million in the same quarter a year ago. I will discuss the primary reasons for the increases in total revenue and total operating expenses in connection with our segment operating results. Interest expense during the first quarter increased…

Thanks, Mark. To summarize, our first quarter was highly productive and equally rewarding. Leasing activity continues to demonstrate strength across all of our submarkets. As always, we appreciate your continued support of Hudson Pacific Properties, and we look forward to updating you on progress again next quarter. Now operator, let's open it up for questions.

[Operator Instructions] Our first question comes from the line of Craig Mailman with KeyBanc Capital Markets.

Just on guidance, Mark, curious how the $0.26 compared to what you guys had in the model for 1Q and kind of did the Dexter move out in 2Q and 3Q completely offset that and that's why guidance didn't move at all?

Yes. I mean, right -- you're right on point. As you know, we guide to a full year, and we had anticipated the impact of Dexter, which is -- really reflects the timing difference, right, compared to early -- previous year first quarter. So for example, we would typically see a show like that would ramp-up its production towards the end of the second quarter and really be in high production by the third quarter. In this case, because it's their final season, they actually accelerated that schedule, such that we really recognized a high, high level of production-related revenue. And you can see it in the year-over-year number, right, Craig. So if you look at the year-over-year difference in other property-related revenue, the first part of last year to this quarter, you see that very significant step-up. And so while we had a very strong first quarter in the media segment, we anticipate that we'll see a waning or we're projecting to see a waning, who knows, we might do well, better than potentially project. But for the time being, we have reason to expect that we'll see a waning in that other property-related revenue when Dexter rolls out. So that's why our guidance has remained static.

Okay. And looking back, I guess maybe last year, how much did Dexter pay you guys on a per share basis?

Well, that's an interesting question. We've never tried to reduce to a single tenancy on the -- from the media-related tenants per share amount. Say it's something's worth considering but we've never done it.

Okay. And then just on Pinnacle, when the loan closes from an economic perspective, you guys basically have all the NOI coming in from Pinnacle I. We shouldn't expect too much of a variance when Pinnacle II closes, correct?

Well, they happen to -- that's more by virtue of the fact that they happen to have a pretty similar cash return there, as I say. They're being acquired at a pretty comparable NOI, such that when the NOI from Pinnacle II is contributed and we simply adjust our respective ownership interest, the cash NOI impact is relatively nominal, if you follow my point.

Yes, okay. And then just, Victor, on Seattle, just curious, you looking at Bellevue or Seattle proper, and would you go in there with just one asset? Or do you look to do more than one?

We're looking at all the areas in Seattle and Greater Seattle area right now, and we are looking at a couple of assets combined. One asset in an entrée in a market like that is not going to get where we want to be. So what were looking at right now is several assets that sort of fit the bill, with the same property type and mix in tenet make-up that we currently have in our portfolio right now, Craig.

Our next question comes from the line of Brendan Maiorana with Wells Fargo.

So Victor, just on Seattle, how do you sort of look at pricing in Seattle versus where it is in Southern California and Northern California?

Well, I think Seattle right now is comparable priced to where we've seen some Southern California pricing on a price per pound basis. It's relatively less. Our cap rate basis is probably equal. Clearly, it's not -- by listening to some of the comments that I talked about on my prepared remarks, in L.A., you can hear that there is a price per pound push in Southern California, specifically in the West L.A. marketplace, it is comparable to San Francisco. On a cap rate basis though, so San Francisco is still much more of an aggressive marketplace. And we're seeing prices on per foot basis to be eclipsing where we're seeing L.A. right now, so the cap rates comparable price per square foot lower.

Do you -- as you look at that market, do you think there is better rent growth potential in Seattle than there is in Southern California, I mean, given that you don't have a lot of -- you don't have any assets there now? What makes that market attractive from a return perspective versus what seems like maybe comparable pricing in Southern California? Is it just the availability of product versus Southern Cal?

Well, no, I think it's a balance of our portfolio that we are evaluating right now in pipeline is equally weighted to Northern and Southern California with the specific portfolio that we're looking in the Seattle marketplace. I think the specific to rental rate growths, we like some of the fundamentals in Seattle right now. I do think, as I mentioned in Craig's comment, we wouldn't do a one-off asset. I think if we can enter this marketplace, it's going to be a unique entryway, and the quality in the tech assets that we're looking at are going to be very high end with some good estimate rents over near and midterm. I think lastly, we're seeing pretty substantial rent growth in specific marketplaces here in Los Angeles, namely the ones we're in Santa Monica, West L.A. and in Hollywood. We're seeing some pretty substantial rent rate growths that is indicative, I think, of where the movement is going to be.

Okay, that's helpful. A question for Mark -- probably for Mark. The CapEx level in the quarter was -- it moved up. I presume that, that's driven by a lot of [indiscernible] leasing that you did end of last year and this year. As we think about going forward, how should we look at sort of that $15 million of CapEx spend as a quarterly run rate? Is that about the right number? And is there any capital that you're likely to spend this year that would be considered first-generation, that sort of wouldn't hit that AFFO or fund [ph] reconciliation?

Yes. So I think as often as the case, it's not uncommon for the CapEx to kind of phase in a bit behind schedule not to say the tenancy is necessarily lagging, but it's often the case that some of the CapEx, the tenant hasn't expensed it yet even, if say, for example, they have a hard start, a good example of that is 275 Brannan, for example, and others. But I would say, this current CapEx spend amount is a little lighter than what I think the quarterly run rate will for be 2013, maybe just orders of magnitude somewhere around maybe 40% light, give or take, on a quarterly run rate. And it will be a bit lumpy, Brendan, in part because the CapEx tends to be lumpy. But in some quarters, we're going to get hit with, say, for example, fair amount of leasing commissions, and then you will have made that leasing commission payment or payments. And then in ensuing quarters, you're going to get hit with more [indiscernible]. So it can be fairly lumpy. In terms of below the line or, if you will, CapEx that's nonrecurring, yes, there is a fair amount of nonrecurring CapEx. It's going to be incurred this year. We have base building upgrades that are occurring in several assets, most significantly in 2013 1455 Market, which is going to see a fair amount of nonrecurring CapEx in the form of upgrades to the exterior for windows and some lobby upgrades and so forth. And so yes, we will be seeing below AFFO, if you will, a fair amount of CapEx, nonrecurring CapEx this year as well.

Okay, that's helpful. So the 40% light number, was that sort of including the above and below the line number or was that just the above?

No, that's the above. And just to give you a rough run rate for the year -- and Brendan, it could be a little bit, to go slightly further, we're working on -- we either have some -- from a capital availability point of view, because this often comes up, we have some construction funds available, both at 275 that's still undrawn and at 901 Market still undrawn. We also could potentially have construction funds available as it relates to Element LA, which is going to require considerable amount of nonrecurring CapEx. And so I just want to point you to the fact that some of the stuff that's going to be coming through and there are certain things that -- and certain capital availability that we have unrelated or aligned or cash on hand that's going to be there to meet some of those most requirements.

Okay, that's helpful. And then just a follow-up on Craig's question about Dexter. I think you guys mentioned at last call, but I think there are 4 stages. So if we sort of look at that show, is it ratable to take them 4 of, I think, 18 stages or perhaps -- just to try to get a magnitude of it?

Well, there are 3 stages, and they have office utilization. And as for ratable use, it's not -- that's probably not a bad way to estimate it. But remember, timing is going to be a big factor. Right? And as we sit this moment, while we expect it -- them to phase out at some point later this year, with a precise phaseout date, it hasn't quite been identified yet.

Okay. And then I don't know if maybe Howard wants to answer this, but are there -- what's the process like for backfill?

Yes, sure. We're looking at a couple of things right now. The networks might not take that only because of the timing. So most likely, it will cater to a cable audience, which, again, is less seasonal. And so there's possibilities that we may backfill that with another Showtime potential show there or, again, another cable series. So we continue to mark -- we're definitely marking the space right now for Q3.

[Operator Instructions] Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.

I guess, I'm hoping you guys can talk a little bit about your appetite for disposition. I know markets have come in and debt capital markets are picking up. Any thoughts on selling more assets here?

Jamie, we have a couple of assets and, I mean, really a couple. There's really 3 in the whole portfolio that we would look at, at the appropriate time. One of the assets, we actually were in conversations with a potential bidder. And we can get over the hurdle, which is probably more beneficial to us because pricing is sort of coming in a little better. There really isn't a ton in the portfolio that we're prepared to sort of disclose at of this time. It all fits in our overall strategy and structure other than the 3 assets that are sort of outliers, and that we would look at, at least potentially 2 of them right now. So I think it's always in the radar, but it's not something that -- with the exception of this one that we're going to probably come back to the marketplace sometime in the fall or late summer, that we're looking to do disposals.

Okay. And then I guess back to Seattle, I mean, I know of several REITs have been looking there and having a hard time finding either good deals or the right assets. Is there something unique about what you guys are looking for that, not too different than what we've seen?

In terms of that marketplace or just assets in general, Jamie?

Either unique submarkets or unique assets that -- I mean, it seems like in some markets have been pretty tough in finding good deals.

No, I think -- listen, we've got -- as I said, there's nothing unique that we're looking at or looking for that's going to jump off the page and say this is something that's different than what we looked in the past. And I want to sort of state the obvious from our standpoint that we've been very successful in acquiring assets in the markets that we're comfortable in, and we still feel the pipeline we have is very active and confident that we're going to get our fair share. So I would say that we're close on a couple of things right now, and I would say that it's not been difficult to identify the kind of stuff that fits in our portfolio.

Okay. And then, Mark, I guess your comments on -- it sounds like you've got some credit lines or debt lines that you can use for capital. What acquisition volume do you guys need to raise more?

I think we've got our credit facility fully untapped right now. We've got $160 million, $170 million in cash unlevered there. I mean, we've got some pretty good weight ahead of us, the $300 million to $400 million range. I think, right now, $20 is sort of what we're looking at before we have to come back to the marketplace or look for other alternative sources of capital.

Our next question is a follow-up from Brendan Maiorana with Wells Fargo.

So I just had a couple of follow-ups. First, probably for Mark, rent spreads for the quarter, it looked like I'm assuming that the spreads were just related to the Square deal at 1455 Market and CashCall at City Plaza. And one, I guess, can you confirm whether or not that's the case? And then, two, it seems like the spreads are probably better than what my expectations were, given that I thought you guys are likely rolling down at City Plaza, not up, which would suggest that Square lease was significantly higher than the 20%-plus positive cash spreads?

Yes, City Plaza is relatively flat. You're rolling down from $2.12 to $1.96 on 38,000 feet. So far more significant to the result is the 81,000 feet to Square. By the way, you pin both the meaningful leases. You're rolling up from $21.24 net. And part of the problem, too, is the fact that we're looking at base rents. But you're rolling up from $21.24 net on the BofA space, up to $30 modified on the Square deal. And that's what's largely driving that 20-plus percent cash and straight-line rent on difference.

Okay, great...

And wait, by the way, one final point of that would be, that BofA space, the 81,000 feet, there's only a small amount of that, that's podium. The larger amount of that is tower space, which happens to be a higher price point rent for BofA space than the podium. So that's why it's a somewhat higher net rent as to BofA than, say, for example, on some of the other get-back space the BofA has had, which was more podium space, which has a lower in-place rent.

So I think we've talked a little bit about this in the past. But if we look at the spread on Square's leases versus what BofA is giving back, is it north of 20% overall?

Oh, yes. If you look at on a weighted average basis on, say, close to 250,000 feet, some of which has already been given back, a good amount has already given back, if you look at the weighted average spread on the incoming rents and the expire rents on an apples-to-apples basis to, say, net, the roll-up is 45%.

Okay, great. And then this is probably for Victor. Any update on tenant prospects for Element LA and maybe how soon you guys could get something signed there?

I mean, we've got tons of activity to the point of about 1 million square feet of tours. We've got 2 very large prospects for, one, for the whole thing and, one, for almost the whole thing, that we're going back and forth. But I think, we're launching a marketing event first week in June. But I think we're still very comfortable for sort of a year-end completion of the parking structure, sign lease and move in, as we said, some time for second quarter of '14. The good news is, I guess, other than all the activity we have is, is that any competitive space in the marketplace for the most part has been taken off the marketplace. There's really only one other location that's competitive for the size of tenants that we have. And so we're sort of in the holdout right now on a large chunk versus several smaller guys to add them up.

And do you still feel comfortable at 350,000 or higher net rents per monthly?

Yes.

Thank you. Mr. Coleman, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Thank you very much for participating this quarter, and we look to see or speak to all of you sometime in the near future. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.