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

Good afternoon, everyone, and welcome to Hudson Pacific Properties Second 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, August 5, 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 welcome, everyone, to our second quarter 2013 conference call. The second quarter was an extremely active period for Hudson Pacific Properties highlighted by key strategic acquisitions, the recycling of capital with the disposition of the City Plaza property and a healthy leasing activity in our core markets. During the quarter, we made significant progress on our strategic growth strategy with the acquisition of a 4-building 836,000 square foot office portfolio in Seattle, which we closed on July 31. We also completed the acquisition of 3401 Exposition Boulevard, a 65,000-square foot redevelopment project located in Santa Monica. And finally, our joint venture with M. David Paul/Worthe completed the acquisition of Pinnacle II in Burbank California. Located in markets that are among the strongest in the country, these properties fit squarely in our strategy of building a high-quality portfolio with an emphasis on catering to media, new media and technology tenants. We announced the pending acquisition of the Seattle office portfolio in early July, which we purchased from Spear Street Capital in an off-market transaction for approximately $368.6 million. This best-in-class portfolio provides us immediate critical mass in the region. With almost 80% of the net rentable square footage located in the South Lake Union and Pioneer Square areas, the 2 premier submarkets in Downtown Seattle. This acquisition represents a unique opportunity for Hudson to gain entry into this exciting market. Included in the Seattle portfolio are 505 First Street and 83 King, which are ideally situated along the waterfront and Pioneer Square. This 2-building, 472,000 square foot property combines a historic brick and timber building with a newly constructed creative office building. Originally renovated and developed by Starbucks, the property is currently 90% leased to high-quality tenants, including Capital One/ING Direct, EMC and Nuance. A third property…

Thank you, Victor. Funds from operations excluding specified items for the 3 months ended June 30, 2013, totaled $13.9 million or $0.24 per diluted share compared to FFO, excluding specified items, of $9.5 million or $0.22 per share a year ago. The specified items for the second quarter of 2013 consisted of expenses associated with the acquisition of the Pinnacle II building in Burbank of $500,000 or $0.01 per diluted share. Specified items for the second quarter of 2012 consisted of expenses associated with the acquisitions of 901 Market Street in San Francisco and 10900 Washington Boulevard in West Los Angeles of $300,000 or $0.01 per diluted share, and a onetime supplemental property tax expense of $900,000 or $0.02 per diluted share. FFO, including the specified items, totaled $13.4 million or $0.23 per diluted share for the 3 months ended June 30, 2013, compared to $8.2 million or $0.19 per share a year ago. Net loss attributable to common shareholders was $6.2 million or $0.11 per diluted share for the 3 months ended June 30, 2013, compared to net loss of $5.2 million or $0.13 per diluted share in the same period a year ago. Turning to our combined operating results. For the second quarter of 2013, total revenue from continuing operations increased 21.2% to $47.4 million from $39.1 million a year ago. Total operating expenses from continuing operations increased 9.2% to $40.1 million from $36.7 million for the same quarter a year ago. As a result, income from operations increased 204.1% to $7.3 million for the second quarter of 2013 compared to income from operations of $2.4 million for 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…

Thank you, Mark. Our second quarter was highly productive marked by several key strategic acquisitions, the successful recycling of capital with the disposition of our City Plaza property and strong leasing activity in our core markets. As always, we appreciate your continued support of Hudson Pacific Properties, and now we look forward to updating you on our future progress again next quarter. Now, operator, we're going to turn the call over for questions.

[Operator Instructions] Our first question is from Vance Edelson of Morgan Stanley.

Remind us on Pinnacle II, which is already fully leased for the next 8 years, how the inherent value creation opportunity is going to manifest itself. Is it more a great asset at a good price? And you look forward to raising the rents in 2021? Or are there any opportunities before then?

So no, Vance, it's a stabilized asset. It was part of the balance that we had announced last December when we were buying it, part stabilization of assets and part value-add. And that falls in the stabilization, high-quality asset, great price per pound in a marketplace that we see a lot of growth in. And as tenants roll, we expect the roll-up in rents and continued growth in that portfolio.

Okay. That's great. And then on the acquisition pipeline, do you feel like you'll slow the pace some, given where cap rates are now and where interest rates might go? Or do you feel like there's a wealth of additional opportunities out there? And in which cities do you anticipate you'll be closing majority of deals over the next year or 2?

So we're pretty active right now in value-add acquisitions since we've done the last 2 out of the 4 deals and the 2 largest ones have been more stabilized. So the value creation assets are the ones that we are focusing our energy on. The majority of stuff we are looking at right now that falls in that category is here in Los Angeles, but we do have some outlier nonmarket deals in San Francisco that we're actively pursuing as well.

Okay. Great. And just one kind of housekeeping question, if I may. The tenant whose lease expired in June, allowing the NFL to expand in 10900 and 10950 Washington, that vacancy, which I guess is going to be pretty short-lived with the NFL expanding, does the vacancy show up in the June numbers as vacant, because the lease expired the last day of the month or does that never appear in the reported vacancy numbers?

It's -- Vance, it's Mark. I think that vacancy is part of what was still considered expiring in the second quarter, right, because it expired in June, right, yes. So anyway, it's not -- if you look at the Q -- the quarterly expirations in the Supplemental, it will not be part of those numbers. The forward quarterly expirations.

The next question is from Brendan Maiorana of Wells Fargo.

Victor, so the Seattle acquisition, it seems like you've got it at a pretty reasonable price per pound, but it's a large acquisition and the yield seems low for what you guys have done in the fairly recent past for a portfolio that seems fairly stabilized. Can you kind of talk about maybe what the more near-term upside potential is to bring that yield from what I think is like a 5 on a cash today to maybe a more stabilized number over the next few years?

Sure. Well, first of all we do have some vacancy. We actually have activity on basically 2/3 of the vacancy we have from existing tenants that are looking to expand. So right when we tied up the asset, we've got a couple of the existing tenants or out for proposals that we hope to expand, so we should get incremental increase on that. Secondarily, we have some near-term rents that are rolling, but as we commented in our prepared remarks when we first announced the deal, the majority of the roll really kicks in from '16 on and all the way to '22 and they're well below, in some instances, 25% below where current market conditions are today, which is why the yield going in is lower than what we would normally have done. The quality of tenant base and the amount of tenant improvement buildout for the tenants who are there, starting '16, we're pretty confident that they're either going to expand and stay or they're just going to stay because of the quality of the buildings and the uniqueness of the assets. So lastly, it's an asset that I think we spoke of in the past. For us to look to do an off-market asset for quality Class-A real estate, which is best-in-class in the area, is sort of our bailiwick. And if we can continually get those kind of deals and then be positioned to grow in a market place like Seattle where we have some follow on one-off assets, it's going to make a lot of sense and synergies are going to help enhance the value of the current portfolio.

Is that -- that's helpful. Does that -- is that a market where you'd think that you'll allocate more resources to over time? And do you think you'd kind of set up an office? And how should we sort of think about the G&A impact of that as a new expansion market for you over time?

So the easy answer is in terms of G&A growth and aspects, we're running -- the senior management is going to be running at San Francisco. Drew Gordon is going to oversee the growth there. He's going to be going back and forth. We only have operating offices up there which is property-related. It is a market that we are going to expand into, but we're not looking at any incremental G&A at this time other than maybe leasing-assisted on the ground leasing person that we've sort of allocated to the portfolio and growth going forward. We're seeing some pretty interesting deals in the same markets that we -- the Pioneer Square area, as well as in Bellevue, which is an area that we'd like to expand into as well. I think we will allocate some more investment dollars in that marketplace as we see fit for value creation deals.

Okay. It's helpful. For Mark, the guidance only raised $0.01, maybe that was a little bit surprising to me, maybe we thought it would have been a little bit more. Can you just kind of go into what were the drivers of the guidance change? And was there anything beyond just the Seattle acquisition hitting that? And I guess 3401 Exposition hitting that?

Yes. Well, importantly you'll recall we sold City Plaza, right? And we 1031 City Plaza into Seattle, and City Plaza was projected to contribute nearly $0.03 for the balance of the year. And so, it's off and let's say Seattle is contributing with the line of credit draw and the Met Park North loan that we closed on it was contributing somewhere slightly north of $0.05. So there was about a net $0.02 gain for the balance of the year there. That's going to, we think, by 2014, that contribution by Seattle is going to be considerably bigger than what the net effect of City Plaza was. It could be as high as a net impact, again, with the same debt assumptions on it, closer to say $0.14 for the full year. But in any event, I think so we're kind of riding between either $0.01 or $0.02 adjustment. And we were looking at what we thought where the studios may be for the balance of the year and it seemed like rather than sort of tip over to that $0.02 midpoint adjustment, we went to -- we did a $0.01 adjustment at the midpoint.

Sure. All right, just last one. Can you quantify how much the Dexter impact was on same-store for the media or what same-store would have been x Dexter on the studios?

Well, you mean if you factored out how sort of the absence of it in the second quarter?

Yes, exactly.

I don't -- you really can't because there are so many other factors running through in any particular period, right? And also, even as, say, the production activity may be sort of waning there's still holding footage and so I mean -- I suppose, I didn't for purposes of this call, try to isolate a number. I think it would be pretty harrowing effort to do it anyway because there's so many other factors at play. So I don't know. I mean, maybe we can try to do it, and maybe in the next call, next quarterly call, maybe we could give you some indication on it.

[Operator Instructions] The next question comes from Craig Mailman of KeyBanc Capital Markets.

Victor, I just want to follow up on Seattle. It sounds like you want to put more dollars there. But just curious kind of how you think about the size of that portfolio over time and then sort of a percent of NOI?

Craig, I don't think we really allocated it that way. It's 1 of our 3 core markets now, being Los Angeles and West Los Angeles and Hollywood specifically and then San Francisco and now Seattle. So I don't think we've really sat down and said with our acquisition team, "Hey, we're going to allocate x amount of dollars to Seattle." It's going to be on a deal by deal basis. But one key to the Seattle acquisition was the quality of assets, the enhancement to the overall portfolio that Hudson currently has. And then for our ability now to look at more one-off assets, which we would never have done in the Seattle marketplace that we saw over the last couple of years because we need sort of a critical mass. Now that we've got that foundation and some great assets in the portfolio, it will lead us to making some more clear decisions as to which assets fit and strategically fit going forward in the portfolio.

Okay. And then from what you guys are seeing up there, is there any value-add type opportunities where you guys can get A+ returns or is a lot of it stabilized?

No. The stuff we're looking at now are specifically value-add stuff and the return hurdle rates are going to be in excess of mid- to high-7s all the way up. And I think we're looking at a couple of specific deals that we think -- we've been earmarking and looking at prior to the Spear Street portfolio that we took down. But now that we've closed the deal, we're gaining a lot of reverse increase in the stuff we've been following.

Okay. That's helpful. Then switching to Santa Monica, Exposition, just curious, the incremental dollars that you want to spend there, could you just remind us? And then any tenant activity at that site?

Yes. So on the tenant activity, we've got -- fortuitously our leasing team is negotiating and transacting paper back and forth with a single-user, which is a credit tenant for the whole property, which should be just fantastic because we could come down to somewhere I think mid- to late third quarter with potentially going into leases if things go well. We've got several multi-tenant users that are interested, but I think if we can make a single tenant deal on that asset, it would be great. Approximately, the size of the single tenant and the kind of TIs and infrastructure that we're going to complete, the construction with, I think it's going to be around $11 million more additional is what my guys are telling me to be all-in in the asset.

Okay. What are asking rents there?

I mean, we're asking -- I think our phase rate right now is 3 50 triple net and my guess is, we'll probably do 3 25 to 3 50 [ph] triple net deal is sort of what we're looking at.

Okay. And then just one last one, on Uber, saw reports that you're obviously looking to do another round of capital raising. Are there any expansion rights in the lease they signed or at least indication?

So both they and Square have -- they have right options for vacant space that comes up and we've got something right now where we've -- I think I should check with Art, but he's gone to them or about to go to them to see if they want the space because we've got a tenant who's looking at some additional space right now. And they may or may not act upon it. It sounds as if they are going to be in an expansion mode and they knew that going in. We've been negotiating that deal really since late winter. And so, they've grown as the requirement has grown. And I think by the time they move in, in the first quarter of next year, they'll be in a position to take down more space. So have to get back to you on that if they're going to expand and what this other tenant does.

The next question is a follow-up from Brendan Maiorana of Wells Fargo.

So a couple of other ones. I don't know if this is Howard or Victor. NFL through 2017, is there any reason why there was a longer-term on that renewal and expansion as opposed to just 4 years?

Well, it's interesting. We went back to them because it was sort of reversing great based upon the fact that the tenant was leaving. So the expansion of 22,000 feet and the fact that they are reviewing some of their existing space and taking on a new expansion space, we went back to them with a pretty aggressive deal. I think we went back to them with 5 years and we ended up on the 4. I'm pretty confident that the NFL, on the 4-year expansion, this is their home for that time frame and more. I think it was a great move on our part, because we got increasing rent, we got additional space. We're going to have the ability for us to also look at where they stand in 2 to 3 years from now and maybe increase this again. And most importantly, the economics on this deal, even though the rent was great, and it was incremental increase for us, the TI is very minimal on this deal.

Okay, so maybe -- yes, maybe in a few years, it's a longer-term deal with longer-term fit out or something.

Yes. I think the growth of the NFL has been so prevalent in our property here. I think they'd like to have the whole building is what our guys are telling us eventually. So as some of the expiration sort of filter out and they incrementally take more space, maybe we do a master -- new master lease for 7 to 10, once they get more space.

Sure. And then I think Stan Tech is up, I think that's the fourth quarter and 901 Market, I think they've got around 43,000 or 44,000 square feet. What's the activity like there, too? I believe they are moving out or there's possibility they may be moving out, so backfill prospects for that building?

Yes. Hang on. Art will jump in right here. He's sitting here to talk.

Stan Tech will be -- they can't fill our rates and they're downsizing. They're going to be moving out at the end of the year. The activity -- we've had anything -- they're in 2 floors. We've had activity single floor and 2-floor activity probably 4 or 5 groups had walked through that would need the space Q2 '14.

Okay. Great. Then last one, just maybe for Howard. The 4 vacant stages at Gower, what are the prospects like there for -- to find tenants to fill some of those stages?

Yes, Brendan. We're still actively pursuing perspective clients to take a more permanent series. We have been backfilling with sporadic commercials and some pilots and some shorter-term productions. But activity is good, and we continue to be aggressive in looking at different types of users.

We have no further questions in queue at this time. I'd like to turn the floor back over to Mr. Coleman for any closing remarks.

Thanks so much and I appreciate your support to Hudson Pacific, and we'll talk to you all if not before next quarter.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.