Greetings. And welcome to the Hudson Pacific Properties Inc. Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host today, Kay Tidwell, Executive Vice President and General Counsel for Hudson Pacific Properties. Thank you, Ms. Tidwell. You may begin.

Good afternoon, everyone. And welcome to Hudson Pacific Properties third quarter 2015 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 5, 2015, 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'd like to turn the call over to Victor Coleman, Chairman and Chief Executive Officer of Hudson Pacific. Victor?

Thanks, Kay. Welcome everyone to our third quarter 2015 conference call. We had another solid quarter marked by significant leasing activity and a series of capital transactions which adding to our pipeline of value creation projects and strengthens our balance sheet. We completed nearly 680,000 square feet of new and renewal leases in a quarter, it estimates how quickly our team is moving and strong activity across all of our markets. We close on our secondary development asset in Downtown Los Angeles Arts District and Pruno office portfolio with a sale of a non-strategic asset which combine with refinancing of our Edmond LA property generates significant net proceeds to repay a portion of a floating rate debt. Taking a closer look at our leasing activity at the end of the quarter, our in-service ops portfolio which includes leased up as well stabilize properties was 89.5% lease representing a 70 basis point quarter-over-quarter increase. We continue to achieve significant positive cash and GAAP rents, spreads on new and renewal leases portfolio wide and impressive 43.5% and 62.8% respectively for the quarter. Newly in August we executed 200,000 square feet lease with NetFlix at our under construction ICON office tower resulting in the property for 60% previous nearly a year prior delivery. We’re now treating paper with several tenants with the balance of that building as well as adjacent 90,000 square foot creative office building currently in predevelopment and expected to be delivered in mid-2017. As previously noted the Netflix deal is a largest leased signed to-date in Hollywood and proves out a key part of our investment pieces in that sub market that top tier next generation media emerging companies will see value in premier creative office immediately adjacent for stage in production space. Touching briefly on the leasing specific to…

Thanks, Victor. Funds from operations, excluding specified items, for the three months ended September 30, 2015, totaled $63 million or $0.43 per diluted share compared to FFO, excluding specified items of $20.8 million or $0.30 per share a year ago. The specified items for the third quarter of 2015 consisted of acquisitions related expense reimbursement of $100,000 or $0 per diluted share. The specified items for the third quarter of 2014 consisted of acquisitions related expenses of $200,000 or $0 per diluted share costs associated with a one-year consulting arrangement with a former executive of $900,000 or $0.01 per diluted share and a one-time supplement of net property tax expense for periods prior to the third quarter of 2014 of $1.1 million or $0.02 per diluted shares. FFO, including the specified items, totaled $63.1 million or $0.43 per diluted share for the three months ended September 30, 2015, compared to $18.6 million or $0.27 per share a year ago. Net loss attributable to common shareholders was $3.9 million or $0.04 per diluted share for the three months ended September 30, 2015, compared to net income attributable to common shareholders of $7.6 million or $0.11 per diluted share for the three months ended September 30, 2014. Turning to our combined operating results for the third quarter of 2015. Total revenue from continuing operations increased to 122.4% to $151.6 million from $68.2 million a year ago. The increase was primarily the result of the increases in our office property segment of $75.2 million in rental revenue to $114.7 million and $8 million in tenant recoveries to $20 million, and $1.5 million in parking and other revenue to $6.6 million offset by a $1.2 million decrease in total revenue at our Media and Entertainment Properties to $10.2 million. The increase in rental revenue…

Thank you, Mark. Once again I want to thank the entire Hudson team, particularly our Senior Management team for their excellent work this quarter. And to everyone on this call, we appreciate your continued support of Hudson Pacific Properties and I look forward to updating you on our next quarter. And with that operator, I'm going to turn the call over to you for any questions.

Thank you. [Operator Instructions] Our first question comes from the line of Craig Mailman from KeyBanc Capital Markets. Please proceed with your question.

Hey guys. Mark, just on the guidance. The 375 million being repaid to kind of, what’s the size of the financing that you’re targeting as of 4.6%?

425 million, so it’ll be approximately 50 of net proceeds after repayment of the two year and depending on where we are on deal activity will that may come into play, but assuming there is no other use of proceeds will apply that again whatever revolving balance there is at that time.

Okay. And then the comments were helpful on the leasing side, maybe just nothing 155,000 square feet of demand kind of new deal pipeline. Any of that under contract or LOI?

I just want to clarify our terms in – sort of careful distinction I want to drop. We did not include what we call our force which are deals in leases in that number so that includes deals which are – and there are internal number twos and threes so I don’t know if you want to expand on that?

Yes, all on LOI.

So not under leases but under LOI, Craig.

Okay. The whole 155.

Yeah.

Okay. Is there anything that you guys have done post quarter end on the new side that would kind of go towards the absorption goal or the 90% lease goal.

We picked up, so nothing – [indiscernible] is out there, but certainly there is probably another – I’d call it 50 days proceeds I think if we have the leases right now, certain close.

Okay. So just we wanted the numbers, it seems like that 92% goal is pretty easy at this point. I’m assuming condition stage where they are – if given what you guys kind of have under pipeline of visibility you have is 90% sort of by year end ’15 or we at 92 by second or third quarter of ‘16?

So Craig, let me just jump in. First of all, I’m having two guys pick [indiscernible] when you said it was easy to get to 92.

It seems that way from the commentary.

Obviously, nothing is easy. What we’re doing is – we went from 85 to 90 through 15 and we’re comfortable with that number and I think how Mark should have outlined to get to the 92 is really sort of second quarter of ‘16 is sort of the objective there. And if become then sooner, we’ll know by these are the first quarter, but we’re still holding firmer than 90 and then moving to 92.

Yeah.

Craig, one thing just to make sure not from this track of those commentary is. We have role that continue throughout ‘16 and ’17. What we are trying to do and we’ve always said that our goal is to stabilize within this kind of get to and hopefully hold on to that stabilized level of 92 through ’17. Well, there is certain event flow to that and all we’re trying to do is give some perspective around what level of activity we need to achieve as it relates to get a renewal or backfill in order to get into that 92 range and maintain that. And I think, you can see how that it compares very favorably to the amount of activity we already seen in ‘15. So I think well Victor’s comment I think whole – I just want to be careful to point out to you that if something to gauge over – to say that two year window, right, because of the renewal and backfill activity.

Alright. That’s helpful. Thanks guys.

Thanks, Craig.

Our next question comes from the line of Jamie Feldman from Bank of America. Please proceed with your question.

Great. Thanks. Can you talk a little bit more about the leasing pipeline? You said to backfill [indiscernible] and Rocket Fuel at 1405 market.

Sure. Hey, Jamie. How are you?

Good.

So we’ve got right now two tenants to backfill 100% of that space and I think the mark to market move on that is about 40% higher than the emplace rents today.

Yeah, north of 40%. So it’s really their assets to non-tech tenants.

Yeah. Kind I just clarify, Jamie, right now we’ve got 75,000 feet available because Rocket Fuel doesn’t roll out on one of its floors until the end of the year. So what Victor’s 100% -- right about the 100% on the 75,000 feet, right.

Right.

So we still – I don’t know that we have someone yet to that other 25.

So we have – two tenants right – four deal [indiscernible] deal with rents. One rent above 40% -- well above 40% mark to market.

Okay. I’m sorry. So you’re thinking – 70,000 taken care by …

So Rocket Fuel had two floors and [indiscernible] had two floors that equated to 100,000 feet but Rocket Fuel doesn’t give back one of their floors until the end of the year. Right now we have two tenants for 75,000 feet of that total.

No, Rocket Fuel doesn’t roll out to the end of the year on one floors.

Wait, so sorry, Jamie.

You have tenant for that other 25,000 feet.

There were three floors and one in year we have ten floors 100%.

Okay. Sorry, so I’ve got just updated Jamie. Looks like we have demand for all 100,000 feet.

Okay. Things are happening fast I guess.

Yeah.

So if it is?

Alright. And then, same question for ICON. I think you mentioned the second project build to see you might be working on. Can you give more color there?

So part of ICON, ICON is initially 300,000 and in queue which is production office building next [indiscernible] which is all part of the master development is about 90,000 feet. So the combined almost is 400,000. We’ve leased two. We’ve got activity in the remainder of ICON and we’re starting tour – pretty good volume on activity on the queue building which break around first quarter of ‘17.

Do you think [indiscernible]?

I mean – no, we’ve already designed the building. And we’re building the building but the question is, it maybe single user for the whole thing. That’s what we’ve seen right now.

Okay. So there is activity for the whole – there are users interested in the entire building.

Correct, and the remainder of ICON.

Right. Alright. And then can you talk more about the Downtown LA investment. I know you’ve got several projects there now – what is the leasing activity look like. Tenant that was supposed to move into the fourth factory decided not to go forward with that. So what’s an update on that sub market.

So from our standpoint the sub market is looking very good. As I said in my prepared remarks, I think we’ve got about 1 million square feet of increase we’ve got. One tenant credit quality tenant for one of the entire projects that [indiscernible] and his team are talking to. The reality is on both of the projects we have substantial amount of development and capital improvements work to get done. The occupancy level on both of those building won’t be until at the earliest end of 16, early part of 17. And so we’re pretty confident that the activity that we have right now -- is going to correlate to us getting occupancy well ahead of our – sorry least well ahead of our scheduled timeframes.

Okay. And then finally, can you just update us on your expected CapEx spend? I guess throughout for the whole portfolio I guess more specifically EOP assets.

Well, I can certainly give you an update on all of the EOP assets. I mean maybe we can figure out a time to talk about spend as it relates to rest of the portfolio [indiscernible] little bit difficult to cover and sound by on this call. But on the EOP assets your call that we had given $250 million estimate for the first three years of ownership and now that we’ve got couple of quarters under our belt we can give you an idea kind of where we stand on that. So the current estimate is still right around the 250. It’s ticked up tiny bit. It’s 255 for first three years. It reflects little bit higher TI forecast mostly on what it’s proven to be longer term deals then we had originally underwritten. As where we are on the spend as of 9/30 2015, we had incurred 14.5 million that’s actual out of pocket and we’ve committed another 18.3 million which we expect to spend before the end of the year and then we’ve got some LCEs some leasing commission projected through the balance of the year 1.1 million. So by the time of the year is over we think we’ll be about $38 million into the 255 million of spend the remainder of the 2016 and ‘17 that gets us to the 255. We’re currently estimating 133 million in 2016 and 84 – call it 84.5 million in 2017. As you can imagine the bulk of the stand in 16 really captures most of the CapEx spend. You remember original 75 or so millions of CapEx that we non-TI non-LC spend. We had – about much of that sort of behind us by the time you get to 17 and then 17 mostly reflect TIs and commission.

Okay. And then along those lines, you guys had $0.31 in a quarter, what’s the run rate heading into the fourth quarter based on your guidance?

It’s looks like that’s whole lower than we expected – I mean higher than we expected. We expected more than $0.17 FFO. Although, it’s a very lumpy depending on timing of our lease signings and spending of our CapEx, but we’re expecting $0.17 next quarter.

Okay. Thank you.

Our next question comes from the line of Nick Pulido from UBS. Please proceed with your question.

Thanks. Just looking at the ICON project and the Jefferson, looks like the cost went up for both, but the yield – project yield also went up. Could you just talk about what’s going on there?

Yeah. So Victor mentioned, that 90,000 foot adjacent building that next to the ICON Tower. That lease what we redesigned. We upgraded certain aspects of it, rooftop amenities, other exterior upgrades and that accounts for the change from last quarter. It’s roughly $8.5 million prior than last quarter. But we also on account of both upgrades and the activity we were seeing, we’re expecting to see better rents on that 90,000 feet and so the combined effect of the higher rents relative of higher basis actually drove an improvement in yield of about 20 basis points. So that’s what driving that. We picked up a little parking revenue too. On Jefferson, I think we mentioned in the prepared remarks that we’re talking – we’re actually in leases with tenants there. The increase which is about $6.8 million from last quarter represents largely higher TIs associated with that leasing activity, but not surprisingly – I’m sorry, and Chris points out to. You’ll also notice that the square footage went up by about 6,125 feet and the combination of the incremental rentable square footage which is going to be leased to these two tenants we’re talking to, plus rent higher than originally forecasted rents on those tenants actually drove the yield by 60 basis points notwithstanding the incremental higher cost.

Okay. That’s helpful. And then going back to you gave some good sort of info on how you get up to 92% lease for EOP. But can you just remind us for that original 7% yield on that acquisition. What you guys under wrote for rent growth through the 2015, 2016 and 2017 in those markets because I’m assuming that was some rent growth do you guys are assuming as well?

Yeah. It’s help of some market, so the rent growth we apply to each sub market varies. But it was no higher than 7% in some market than as low as inflation in other markets. Some are between 3% and 7% over the first year or two and then pretty much inflation after that. So fairly diminish rent growth in our assumptions.

Okay. So I imagine year to date the rent growth is tracking above your expectation?

Correct.

Okay. Alright. Thanks guys.

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

Thanks. Good afternoon. Hey, Mark, so to start with you guidance, is that the increase of that higher NOI? Is it lower interest expense combination of the two [indiscernible] increase?

It’s largely driven off of this quarter, third quarter result. Let me just give you a kind of quick rundown of the main contributors. It was about 1 million G&A savings which was accommodate that itself made up of somewhat higher capitalized payroll associated with higher leasing activity that we ended up capitalizing bit more payroll, plus less travel so we had better than expected travel expenses. We have lower professional fees and we had a little lower cost associated with new higher. So that resulted in about a 1 million of better G&A for the quarter. We had interest savings as you’ve already anticipated. About 0.5 million of interest savings that really stand from just timing on the closing of the element loan compared to what we thought the timing might have ended up. And then about 350,000 higher capitalized interest which just relates to timing of the development spend. And then the last two main contributors where we get better studios by about 300k for the quarter that was just a good production activity basically. And then lastly, Bay Park sale timing was a bit later than we had initially anticipated and that asset was accretive to earnings and so we picked up about 400,000 give or take. So the combined amount of that basically drove more or less two pennies if you will better than expected in the second quarter -- in the third quarter, sorry. And then, sort of to get from the all midpoint of $1.59 which was actually a pretty high $1.59 to the current $1.62. There is a little bit of other contributors [indiscernible] above the third quarter results, but there is no one single main contributors that accounts for the difference.

Okay. That’s helpful color. And then just another one on kind of the numbers. So its look like FAS 141 or amortization of the above market leases really drops sequentially from June 30 to this quarter. I thought last quarter most of that was attributable to the FAS 141 on that EOP acquisition, but I wouldn’t think it would drop off from 10.3 million to 3.7, so what drove that change?

Yeah. So, we -- I think last quarter we tried to highlight everyone that we expected to see a significant drop. I mean as you know the -- that's dependent on the composition of the leases and expiration of those leases, right. So, we had anticipated a drop. It was a sizable drop. I would mentioned though Brendan for you and everyone else benefiting this call, if you look just in terms of trying to handle on run rate on the non-cash component of office rent, the combined amount of straight in FASB 141 for the third quarter was about $12.6 million. As we look to the non-cash office rent component for the fourth quarter, straight line and FASB combined, we're forecasting a number very close to that number, that $12.6 million.

That's not, because I would have thought it would have dropped a little more on the straight line because you guys have -- I think elements starts cash paying and it's like October 1.

It will drop -- the straight line will drop and -- but the FASB 141 number is actually higher than third quarter, a bit higher.

Just to add a little color to that. So, the FASB 141 is comprised of both above and below market leases. So, as leases burn off, some which are above market leases and so therefore showing an increase in our below market, right. So, that's part of the equation there.

Yeah. Okay. Sure. Fair enough. And then Victor -- so you guys sold Bay Park, nice execution on that. Anything else sort of planned in terms of dispositions that you guys might about over the next couple of quarters.

So, we got a couple of reserve increase and a few non-core assets that we're looking at. Nothing is imminent, but I think if we were to execute something over the next couple of quarters, it could up to almost $250 million to $300 million.

Okay, great. And then so you put this is in the press release, I think you might have mentioned it in your prepared remarks too. You were evaluating acquisitions, dispositions, refinancing, and then other opportunities to capture additional value. What -- is that something beyond? Is there something else that we should be thinking about in terms of that commentary?

No, no, just development and in development related aspects.

Got you. Okay, all right. Thanks guys.

Thanks Brendan.

[Operator Instructions] Our next question comes from the line of Richard Anderson from Mizuho Securities. Please proceed with your question.

Thanks. Good afternoon. Victor you said, we're watching closely when you went through your discussion about technology, in particular the exits in the IPO market. What -- so you see significant slowdown there, what are your strategic options and what might you do with the company?

I was referring to the technology company's exit, not our company's exit, Rich,

No, I know that. But I mean let's say that -- say it gets worse and there's some sort of impact on the fundamentals of your business. What are some of the reactions you might have as a company to address that?

Well, I think -- listen, like anything else on an ongoing basis, we're underwriting each tenant not matter what the classification of their businesses are on the same terms and conditions which is a complete over-evaluation of their balance sheet, their businesses, and likes of that. In terms of our positioning, we're hopeful that every time we build out space, the space is not just definitive for a specific tenant, but there has a substantial portion of userability at that space. On the exit strategy, we're also hopeful that one of large tenant is trying to go public right now. It will validate their balance sheet even greater than what we think their underwriting be and I think that's going to be indicative of several others of our tenant in that marketplace in the peninsula. Also on the aspects of just normal course of business, we're going to monitor on a regular basis the M&A business because that's going to occur. We've talked about that quarter-over-quarter. We believe that's going to be a fundamental aspect in consolidations part of it and as a result, you'll have -- some space will be come in the market and some space we'll maintain with a new company at better credit.

Okay, fair enough. I don't think you have any exposure to WeWork and first of all, if you can confirm that? And second of all what your thoughts are about that business model and if you'd be willing to do business with WeWork?

So, the answer is no. We do not have any current exposure to WeWork. I think it’s a right opportunity, the executive type space is -- can do super certain assets in certain properties. I don't think that it is for everybody and every type of asset and I don't think it should be also obsolete. I think there are places in market that its conducive and they are going to do well. And I believe from what I've seen and what I've read they do have a business plan that is being copied and mirrored by various other people. So, there has to be at least something right with it. Not necessarily the best business plan that I've ever seen but quite frankly it's just another form of regions or whatever decade you want to go back to and dig myself as to who's done this in the past.

Okay. And Mark you went through good detail about how you've maintained your 92% occupancy in 2016 and 2017 and you identified that 70% retention. But if there is slowdown in tech, it's possible that that 70% retention would be something lower. Have you stress-tested your analysis and looked into what would happen if retention wasn’t 70% but 40% or something like that?

Yeah, we didn’t drop it to 40. I think -- I don't know that there would be -- stress seems little bit extreme. We did strike the 60 and 65 and we -- but we resisted the urge to make the script longer to give even those facts. But let me point out that there's some to the connection between the level of activity that we need at the 70% renewal probability and how that compares to 2015 activity and so far as. If even out of stress renewal probability of 60%, you have -- you still have a lot of headroom between the comparison of 2015 actual activities to what you would need on a backfill even at a 60% renewal probability.

Fair enough. And while I have you, do you have an idea what the -- that deal expected midway or three quarters away through the fourth quarter. What your interest expense number and G&A might look like for the fourth quarter in the guidance?

Yeah. So, first of all, why don't I just give you a bigger picture for the benefit of you and everyone else? We mentioned in our prepared remarks that that rate would be 516 -- I mean 4,613 per annum. So, that's the interest rate [indiscernible]. As it relates to interest in the quarter, our own expectations are that the combine of the new element financing that close basically at the beginning of the fourth quarter and this new financing will ultimately drive the quarterly interest expense to approximately $15.7 million for the quarter. And to be clear about that that does not include -- I just want to be clear that it does not include early extinguishment of debt. So, we may end up having early extinguishment of debt and that's just the interest expense itself.

Okay. And just G&A?

G&A, so -- I -- we mentioned that this quarter we saw from savings from our own expectations to give you a point of reference though. In the second quarter, you'll recall that we had $10.4 million of tax and non-cash G&A. And as we look ahead to the fourth quarter, we see it -- we actually see G&A taking up relative to the second and third quarter. Right now cash and non-cash, we think it will approach somewhere in the neighborhood of $12 million for the quarter.

Okay. And then -- I'm sorry my question, media kind of similar kind of taxed from the second quarter about some of the shutdown for KTLA and all that. When do you expect that to kind of get back into better stead from a year-over-year growth perspective?

So, I mean right now we're pretty much fully occupied both facilities and all stages will be somewhat of a seasonality at the end of December -- at the beginning of December. And it looks like we're going to be back up and running probably under the same pool stabilize basis with one stage. So, we're looking at February basically everything will be up and running with the exception, but new case we always said.

Great. Thanks very much.

Thank you.

There are no other questions in the queue. I'd like to hand the call back over to Victor for closing comments.

Thank you so much for participating and we look forward to chatting with you next quarter.

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