Greetings, and welcome to the Hudson Pacific Properties Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you. You may begin.

Good afternoon, everyone and welcome to Hudson Pacific Properties third quarter 2014 earnings conference call. With us today are the company’s Chairman and Chief Executive Officer, Victor Coleman; and Chief Financial Officer, Mark Lammas. 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, November 3, 2014 and Hudson Pacific does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in 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 would 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 third quarter 2014 conference call. On today’s report, we have another highly productive quarter as fundamentals in each of our key markets continue to improve. Since our last call, we have seen continued leasing momentum within our office portfolio, made two additional investments in accordance with our core strategy, streamlined our portfolio by selling non-strategic assets, and completed financing transactions to increase liquidity and reduce related costs. Our stabilized office portfolio was 94.1% leased and we are seeing the solid year-over-year net operating growth on both the cash and GAAP basis at our same-store properties largely due to signing of new renewal leases at higher rates. We completed new renewal leases totaling 125,000 feet during the quarter, with an average lease rate higher than expiring rates by 13% on a cash basis and 27.5% on a GAAP basis. Year-to-date, we have signed new renewal leases totaling 421,000 square feet with average lease rates higher than expiring rents by 91.3% on a cash basis and 107.4% on a GAAP basis. New leasing activity remains heightened within our San Francisco portfolio and includes a 15-year lease with the renowned retailer, Saks & Company for 41,000 square feet at our 901 Market Street property. Saks Fifth Avenue OFF 5TH will occupy a portion of the ground floor and the entire lower level, much of which was substantially renovated as part of our successful repositioning of this asset. 901 Market Street is now fully leased in Saks Fifth Avenue OFF 5TH is expecting to take occupancy in the third quarter of 2015. Regarding acquisitions, we continue to source off-market opportunities in our target markets. In the mid-August, we purchased a $28.5 million participation in a $120 million bridge loan originated by Canyon Capital Realty Advisors for…

Thank you, Victor. Funds from operations, excluding specified items for the three months ended September 30, 2014, totaled $20.8 million or $0.30 per diluted share compared to FFO excluding specified items of $14 million or $0.24 per share a year ago. The specified items for the third quarter of 2014 consisted of acquisition-related expenses of $200,000 or $0.00 per diluted share cost associated with a 1 year consulting arrangement with a former executive of $900,000 or $0.01 per diluted share and a one-time supplemental net property tax expense for periods prior to the third quarter this year of $1.1 million or $0.02 per diluted share described more fully below. Specified items for the third quarter of 2013 consisted of expenses associated with the acquisition of our Seattle office portfolio of $500,000 or $0.01 per diluted share. FFO including the specified items totaled $18.6 million or $0.27 per diluted share for the three months ended September 30, 2014 compared to $13.5 million or $0.23 per share a year ago. Net income attributable to common shareholders was $7.6 million or $0.11 per diluted share for the three months ended September 30, 2014 compared to net loss of $5.7 million or $0.10 per diluted share for the same period a year ago. Turning to our combined operating results for the third quarter of 2014, total revenue from continuing operations increased 27.8% to $68.2 million from $53.3 million a year ago. The increase was the result of a $6.2 million increase in rental revenue to $45.7 million, a $5.3 million increase in tenant recoveries to $12.4 million, $1.9 million increase in parking and other revenue to $5.5 million and $1.4 million increase in other property related revenue to $4.6 million. Several factors contributed to this increase, including acquisition of the Seattle portfolio on July…

Thanks Mark. As always, we appreciate your continued support of Hudson Pacific properties, and we look forward to updating you on the progress again next quarter. Now, operator with that, I’m going to ask you to open the call for questions. Thank you.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Brendan Maiorana with Wells Fargo. Please proceed with your questions.

Thanks good afternoon. Hey, Victor, on the deal in Playa, so I think you mentioned it was low $400’s a square foot in terms of where your basis is today, it’s vacant. What sort of the capital cost are you think are likely to go in there? And where are rent levels for a property like that, I gather you probably look to improve the quality of the asset which would suggest that maybe there is some reasonable levels of capital that need to go into it?

Yes, thanks Brendan. How are you doing? So the asset itself will probably be into in somewhere in the mid-5s and my guess is maximum $100 to $150 a foot will stabilize it. I think we believe that we have occupancy in that asset sometime in late summer, early fall of next year. Rental rates on a per foot basis around $450 a foot, full-service is what we are sort of looking on, on that basis per month.

Yes, and what are operating expenses like, so what sort of a triple net equivalent?

And I think you are probably talking 11, 12 through that, maybe 13, I am not sure what the tax, I am looking at (Chris), he is probably referring to somewhere around net rents in the $3 and $20 range, so somewhere like that.

Okay, that’s helpful. And how do you feel about, I think in LA there are several submarkets that are catering to creative office users, obviously you guys have a presence in Hollywood and you’ve got icons, so you’re a believer in that market. There is Santa Monica and then as you move further south down the coast down to apply and some of the submarkets in between. And then I think you had also spoken about downtown LA, is an area that may be of interest. How do you sort of compare and contrast the various creative office submarkets that exist in LA?

It’s a tough question. I think you are going to compare and contrast the markets in LA on the creative office side from where rents are going to be from a high to a low. So your premium rents are going to be Santa Monica and surrounding West LA area, as you’re going to jump over, I think you are going to see higher rents in the Hollywood area and it’s from a pure point creative office standpoint. I think the next phase of that really is the call – I consider Culver City, even though it’s a limited market space. Culver City and Playa is the next areas where you are seeing some pretty progressive rents. It’s a tear down or tear and half down relative to the West LA stuff. But the demand is being very strong there and you know the absorption in those markets has been at an all-time high. So – and the reason is, as they have had access to space. That markets are almost completely sold out right now from a vacancy standpoint and the good news about that marketplace is, it’s very little low, because most of these deals have been done in the last 24 months or 36 months or sooner. And so you’re going to find that will be sort of a close net raise to as I said to the West LA. It does not compare to Downtown LA, I think Downtown LA rents are going to be probably $0.75 to maybe even $1 lower on a rent basis, on a net-net basis.

Okay. And in San Francisco, do you feel like just where prices are and where rents are that buying into these type of deals in San Francisco, it’s just much more challenging to do that up North as it is to find deals that (indiscernible) in LA now?

Well listen, we’ve got some pretty interesting deals we’re looking at in San Francisco, I think they tends a lot great, the rent supports the price. I do think they are very similar in that, we’ve got some value-add transactions we’re working on right now, which are a complete repositioning and then we’ve got lease-up place plays. And both of those have their plays in our portfolio, and I think yes you’ve seen a tremendous appreciation and valuation in the Bay Area, but you’re also seem to support at rental rates that is unprecedented in our market. So, we continue to look and I think we’re going to continue to buy in those markets for the right assets and fit within our existing portfolio.

And just lastly you mentioned 1455 Market, is there any update that you can offer in terms of where you are in the process of maybe finding a JV partner for that asset?

Lot of activity, lot of interest and I think we’re progressing in on a good space.

And is, how much, can you offer how much is Square occupying of the portion of that leased?

All of it. They are occupying all of it.

Oh, they are occupying all of it. Oh, okay. I thought there were some considerations that maybe they were, that they weren’t occupying all of it, but, okay.

They are occupying all the states, they just haven’t got all the bodies in it like UBER does right now, but no the space that they’ve taken down they are occupied.

Okay. And there is no discussion of some of the, for the bodies that they have that their hiring plans are slowing and they could give a little feedback?

I mean between Drew and Josh and they are on top of those guys on a regular basis. We’ve asked the question, we’ve offered them opportunity to come to us and have conversations. And their business plan as we sit today is pretty concrete and they’re very comfortable with the space and their commitment. It’s something changes, we’ll be on top of it, it won’t come as a surprise to us, which is a good news and secondarily we’re going to be in a position where based on our rental rates and what we’re getting in that space today and what we’re getting in the building going forward and the new stuff that we’re looking at, we’re very comfortable with our basis with those guys and the build-out.

Okay, great. Alright. Thanks for the time.

Thank you.

Our next question comes from Craig Mailman with KeyBanc. Please proceed with your question.

Hey guys. Just a follow-up on that Square question, Victor, how far below market using Square?

Looking at hard, I think they are $8, $9 maybe more.

Maybe, they are in the low 30s modified right in the market would probably be.

Closer to 50.

Closer..

So almost 20, let’s say $20, I was off by 50%.

Okay.

Yes, maybe more.

Okay. And other tenants in the building have expressed expansion plans right, if that space wherever come back, is that sort of a fair assessment?

Yes. I think it’s fair to state that the building itself and the spaces built out is a hot commodity for the city of San Francisco for existing tenants as well as other tenants in the marketplace that will be a very desirous of that space.

Okay. That’s helpful. And then Mark on the balance sheet side you guys expanded the line there, but it looks like you paid off the 6922 loan I am assuming that’s on the line. I guess just at this point in a cycle thoughts about re-financing plans I know you guys are trying to go more, stay on security, but just your thoughts on how long in the curve you want to go at this point?

Yes. Just so you know that we actually repaid that 6922 debt off that term line that we took out in the 150 as opposed to the revolvers a bit, the fungibility there, but we really size the term loan to take care of the 6922 debt and floating rate debt that we had on First & King. In terms of going out on the curve, we don’t have a lot of opportunity to re-finance debt in the near term. I think if you look at our maturity table, the next decent sized loan isn’t until really until 2016. But we’re looking at doing something on the $97 million studio loan in connection with obtaining construction financing there, and we'll look to first term there a bit longer and get a 4 plus 1, and then to the extent that we do find opportunity to take down additional debt within the portfolio, which as you know there’s not that many opportunities. We have been striving to push out towards the longer end of the curve. In some cases, we have done 7-year mining like (indiscernible) where we are found what we just got them down to where most competitive quotes were. In others cases, we have gone out to even longer to tenure money and we will continue to pursue a longer end, where the opportunities present themselves.

Okay. That’s helpful. And then just lastly on Icon, Victor, that was helpful, the detail there and the 20% that are just focused exclusively on Hollywood, are those tenants that are currently in the market with expirations coming up or is that sort of organic demand in that, given the fact that Kilroy’s lease another big chunk of Columbia Square. I mean at what point do you think we can see a pre-lease here on Icon?

Well, I don’t want to prognostically, there is a ton of activity the answer is the majority of these guys are new to the market, they are new to the Hollywood market. They are coming from other places, expanding or consolidating from under spots in LA. There is a couple of very large guys that are new to LA on the media side. I’m sure you can – given the activity in the world market today, you can probably figure out who some of those guys are and where they are looking and where the lack of space is. In terms of what's happened with Kilroy, I mean, they are doing a great job, we just want to see them continuing to lease. It sounds like there is some pretty big activity coming our way and I think I’m anxious to see some pen to paper in the near future, but right now we are not going to project when that’s coming.

Great, thank you.

Thanks.

(Operator Instructions) Our next question comes from Rich Anderson with Mizuho Securities. Please proceed with your question.

Hey thanks, good afternoon. Did you guys give the rate on the bridge loan?

On the term loan?

No, on the Broadway?

Broadway, we gave, it’s in our supplemental, you’ll see it we have added it to our debt page of the note receivable, and you’ll see there under the interest rate it’s an 11% per annum rate.

Okay. And what’s the plan there, are you happy collecting interest income or do you have a longer term plan to ultimately own the asset?

No, you know what, we are a passive partner in that deals. We love the interest rate, if we get paid off, that’s fantastic. If something else happens, we will be down the road, but that’s not our game plan.

Okay. Victor, do you think Prop. M is good?

I think Prop. M is good, that’s a loaded question, Rick. Specifically, this is some more of Election Day right. You know what, I think – I will say it this way, I think if you are a landlord and you own space in the City of San Francisco, and you like your portfolio, I don’t think it hurts you. I think if you respect the guy, who wants to come into San Francisco, it’s going to cost you more than you think and you are going to – you position to deal with it going down the road. There are loop holes in Prop. M and a lot of guys are playing in that card and I respect anybody who is trying to make that work. From our standpoint, it’s a non-existent issue, because we don't have development core ground-up development in the city as we sit today. Everything we have and everything we’re looking at is a renovated project basis. And so as a result, I think Prop. M only helps us and will help evaluation of the city, real estate and commercial side overall.

Okay. How big do you estimate the non-core portfolio is today?

You’re referring to assets that don’t fit within our…

Yes, so Tierrasanta happened, I mean what else is there?

I really think there is, I know we’ve mentioned this before on a potential dispo, we’ve got one to two assets in mind that fit, one clearly fits, another one probably fits, and then there is a third that we like to fit, but we don’t put it in, because it’s got some technical aspects around the salability of that asset, until we can figure out – one of the ground leases issues until we figure that out, otherwise everything else is core to the portfolio.

Okay. And where do you think the FFO guidance. What would you say that pretends to be or tends to be on an AFFO or CAD basis, do you think that, I guess the bigger question is what’s CapEx look like relatively speaking and do you think your AFFO number would go up by little bit as well this quarter?

Well I would make it. I think that AFFO was going to continue to move and it’s very difficult to pin down a way on a quarterly basis until we can get through the rest of this CapEx for just because of the lag often between drop on TI allowances and other amounts. And so, but I think given the component parts of that’s running through the bonbon guidance, you can expect it to be to jump right directly into AFFO that is to say it’s largely comprised of the broadly know and the interest rate savings. And so that – none of that is correlated to AFFO so it just drops the bottom-line.

Got it.

And you can expect that.

Okay.

And that at some point as you and I talked about as we did in the past, we will get through all of the heightened CapEx associated leasing activity in AFFO will begin and normalized in a very much more predictable way. And at that point, I think we can have a fruitful conversation about kind of what that normalized AFFO looks like.

Okay. Last question, what do you think the market is for your Studio assets, obviously you’re building around Bronson now but do you think there’s a reasonable market and would you ever consider them to be noncore to you?

You know what, the answer is no. They are core to the, because of exactly that opportunity, we’ve got development and redevelopment opportunity in a marketplace that you’re seeing more office and creative office demand than anywhere else in the city. I think if you ask our team, the amount of development that’s going on in Hollywood it’s probably the highest amount also in California from a concentrated area and the preponderance of that development is retail and residential and so it’s amenity based. So, the core to that portfolio is absolutely part and parts of our core assets going forward. In terms of productivity standpoint, every quarter for the last five quarters, we’ve seen this portfolio just get better and better, I mean the gross income has increased again and year-over-year we’ve seen highest revenue that we ever seen in those assets. And so the combination of that with the land we have and the development that we’re gaining, it makes it pretty exciting to maintain those assets in the portfolio.

Okay, one more. San Diego, are you out for good now or would you reconsider some opportunities in San Diego?

I never want to say we’re out for good because that would not be fruitful of us to always consider opportunities. Right now we have not seen anything in that marketplace that attracts us to the type of tenant base and the type of asset quality that we would want that would be sort of complimentary to our portfolio. That being said, I’m sure there will be opportunities and we consistently revisit that marketplace and look at what’s in the marketplace from a multiple asset opportunity. From a single asset opportunity, I think it would be safe to say that we’re not going to buy one-off assets in San Diego at this time.

Got you. Thank you.

Thanks. Operator, are we done here?

Yes. There are no further questions at this time. I would like to turn the floor back to Victor Coleman for closing comments.

Thanks very much for supporting Hudson Pacific, and we look forward to speaking inherently in our next quart. Thanks operator.

Thank you. Ladies and gentlemen, this concludes today’s conference. You may disconnect your lines at this time. Thank you all for your participation.