Greetings, and welcome to the Hudson Pacific Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode, and interactive question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. I’d now like to turn the conference over to your host Ms. Kay Tidwell, Executive Vice President and General Counsel. Thank you. You may begin.

Good morning, everyone, and welcome to Hudson Pacific Properties fourth quarter 2016 earnings conference call. With us today are the Company’s Chairman and Chief Executive Officer, Victor Coleman; and Chief Operating Officer 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, February 16, 2017, 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 morning 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?

Thanks, Kay, Good morning, everyone. Welcome to our fourth quarter call. The last three months of 2016 capped off a terrific year for Hudson Pacific and let’s talk about some of the highlights. We signed over 2.9 million square feet of leases in 2016, while it seen the 2 million square foot benchmark we offered up on one of our calls earlier this year. The total activity for the year was also nearly double the number of deals we signed in 2015. GAAP and cash rents for these transactions were 45% and 37% respectively. We increased the lease percentage of our Q4 2015 lease up assets by 240 basis points up from 79.5% to 81.9% and we did this despite nearly 18% of the footage at those assets rolling during the same time period. Sizable new deals like Qualys and major renewals like Nutanix and Qualcomm and a lot of velocity in the sub 10,000 square foot range really help move the needle of those assets. We did more than 600,000 square feet of pre-leasing on our development and redevelopment projects which is almost two times our active unleased pipeline of such projects. We delivered 12655 Jefferson are 100% pre-leased in the fourth quarter and ICON was delivered 100% pre-leased in Q1 2017. And remember both those projects are here in Los Angeles where pre-leasing is the exception not the rule. Even with all this activity, our leasing pipeline remains very strong consistent with prior quarters. We still have around 1.5 million square feet of deals throughout our portfolio where we're trading paper and in leases or LOIs. We also completed more than $1 billion of capital recycling and very selective investments in our core markets in 2016. This included about $370 million of dispositions which resulted in us being…

Thanks, Victor. Funds from operations or FFO excluding specified items for the three months ended December 31, 2016, totaled $68 million, or $0.46 per diluted share compared to $64.8 million, or $0.44 per share a year ago. There were no specified items for the fourth quarter of 2016. Specified items for the fourth quarter of 2015 consisted of acquisition-related expense reimbursement of $100,000, or $0.00 per diluted share. FFO including specified items for the three months ended December 31, 2016, totaled $68 million, or $0.46 per diluted share compared to $64.9 million or $0.44 per diluted share a year ago. Despite nearly 1.5 million square feet or role throughout our in-service portfolio in 2016. We increased the lease percentage at both our stabilized and lease up assets year-over-year. As of December 31, 2016, our stabilized and in-service office portfolio was 96.4% and 91.2% leased, respectively, compared to 96.5% and 90.7% at the end of the third quarter and 95.3% and 90.1% a year ago. As Victor mentioned, I want to take a minute on this call to dig into the drivers of our GAAP and cash rent growth for new and renewal leases signed in the fourth quarter in case anyone harbors a concern whether the decline in these metrics quarter-over-quarter is an indicator of deteriorating market fundamentals. First, to be clear GAAP and cash rent spreads at 15.5% and 9.5% respectively are strong regardless of prior period comparison. That being said the new and renewal GAAP and cash rent spreads are associated with approximately 317,000 of the 560,000 square feet of total fourth quarter activity. Over half of that 317,000 square feet was itself comprised of 168,000 square foot earlier renewal with NFL Enterprises at 10900 and 10950 Washington Boulevard in Culver City that deal was signed at in-place…

As I said in the beginning of our call, the fourth quarter wraps up a terrific year for Hudson. As we kickoff 2017, we’re well positioned. I'd actually say uniquely positioned to capitalize on our markets continued strength in core growth drivers, as always we're focused on proactive management across all aspects of our business, whether would be working through our tenant explorations, ensuring that we have excellent capital access and flexible balance sheet or recycling capital to enhance our portfolio and provide ample opportunities for growth. A big thank you to the entire Hudson team and a terrific senior management, and everyone of this call, we appreciate your continued support of HPP. I look forward to updating you next quarter. Now operator, let's open the call for questions.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from David Rodgers from Robert W. Baird. Please go ahead.

Yes, good morning out there guys. Victor, I wanted to just start with you maybe some more questions following up on the Silicon Valley assets. The lease up over the course of the quarter was fairly flat and just wanted to dive a little bit deeper. It sounds like you're pretty positive on the pre-built suite program. You talked about kind of more and more activity that you're seeing there and give us some confidence that kind of where that's going throughout the course of 2017?

Yes, absolutely, thanks for the question. And overall, as I indicated in our prepared remarks earlier, we're seeing a consistent flow of activity in Silicon Valley on our assets, and differentiators is two things as I mentioned, our VSP program, which is really proven itself to be extremely effective and the size of our tenant base and the expiration for the next two years typically is tenants that are under 10,000 feet. So the demand drivers are such that those tenants are looking at potentially what you would call the low cost provider relative to the higher square footage tenants that are looking for the newer big [indiscernible] and we have a variety of locations for them on our existing portfolio to renew and the other locations that we seem to have a fairly good static program there. I do think that doesn't underestimate the fact that some of the big guys are still growing in those markets and yes, there seems to be a demand – conversation and demand around the future development in the projects that are in the mix right now. I am cautiously optimistic that you're going to see the continued absorption, the continued upswing indirect movement in a valley overall and more importantly the discipline around the development projects that if there isn't demand they're not going to turn around and build. There is also just a small little adjunct there because we just saw this adjunct like just came out with a study that Silicon Valley had the strongest momentum of any metro city in the United States last month. They did a report and it looked at both the economy and the real estate there was more aggressive and more productive than anywhere else in the U.S. And this is the third year in a row they've done that. So it's not just around job and real estate, but it's about the entire metro of the valley. So, that's another positive indicator that we're happy with our position there in the prospects.

Would you characterize your level of the demand for your portfolio is stronger, equal to or lesser than maybe six or 12 months ago?

I would say it's probably stronger than it was six months ago for two reasons. As I said, one the VSP point which I won’t reiterate again, but I think more importantly I think the fact that we have established ourselves as the leader in that marketplace and the largest layer of that marketplace and the ability to transact. We've proven ourselves that with the transition of the Blackstone portfolio and how we sort of adjusted that portfolio. I think we've got more of a presence there than anybody else in terms of the execution and deals that we've done, and I think that’s where we are going to flow through 2017 and 2018 on that basis. We've got an exceptional team there. I know everybody would say about their team, but we have an exceptional leasing team and we've done some things in that marketplace that have really paid off. We have a consistent marketing plan and our $100,000 and the likes of that had really taken off in that market and we've got a lot of legs out of it.

Great. And then maybe just a second question for me, you’ve got about four leases I guess by my count over 50,000 square feet that come up this year via AIG, Bosch and then you’ve got the Cisco early termination option right at the end of the year. Any updates from the last quarter on those four leases? Thanks.

Yes, sure. I mean I’ll give you just a snapshot. I touched upon it also in the prepared remarks on San Francisco, so that’s both the AIG and the BOA leases. On AIG we’ve got two tenants negotiating for the entire space at numbers that are pretty spectacular in terms of the mark-to-market, and we are achieving that, it’s well beyond our expectations of what we budgeted for so. We touched on that before. We are negotiating with both tenants right now, trading paper on both and they're both Fortune 100 companies and so I think we're pretty pleased about that space. In terms of the BOA space, I think you guys have seen Mark produce the numbers and he has commented on and Alex has mentioned it as well. That space is I think on average across the board almost 90% plus below market, 90% or more maybe a fourth of market.

,:

Yes. So there is optionality there, there is tower space, podium space and lower level space all of it really has activity in the service station were a little bit inside of the year and we are creating paper with several prospects.

And then the other two you mentioned were Bosch and Cisco. We are uniquely positioned on Cisco right now to take over that space if they notify us at all, and as a result I think their terminations notice is March 31. We did not get formal terminations from them, but if we can get it we have about a year – we have nine months advance notice plus a year's worth of rent plus additional capital on that space and Huds team is fully in place right now getting compared to market that. I think it's early to tell if we have any activity on that space, but I think we're very well positioned where we're going to get it back and where it is at market. And lastly on the Bosch space, we're in negotiations right now for the entire 70,000 feet that’s in Palo Alto, so the market there is extremely strong and then managed very high.

Great. Thank you, Victor. Thanks guys.

Our next question is from Jim Feldman from Bank of America. Please go ahead.

Great, thank you. Mark, I was hoping you could provide some of the assumptions around guidance in terms of maybe same-store NOI, acquisition activity, leasing spreads, year end occupancy just help us frame the big pieces?

Well, I mean I give you some of the transactional matters I mean there's no assumptions built into guidance that's transactional nature that's not laid out. I mean we don't attempt to try to forecast for acquisition activity or capital market activity that's not already reported on. So there's nothing to talk about on that prime. On same-store NOI we know that our peers at times will provide some benchmarks on that, I think maybe the closest and obvious one is Douglas Emmett as you know provides the range on same-store cash at NOI growth. We haven’t historically done that Jamie if only because historically our same-store has been – hasn’t been as nearly as meaningful of that benchmark in terms of where we foresee our projections heading. In all candor, just give you a little bit of behind the scenes. Victor and I and others sort of debated whether or not there might be enough interest in hearing that that we could you know presenting a number on that and I guess for the time being we chose not to revise our guidance methodology for that. Although I do think there will come a time when it will be meaningful and not as a benchmark that will probably provide that. So well I think it would be a little unfair to try to provide that on this call, maybe we'll revisit that after this call and maybe on the next call we can provide that benchmark. I can tell you having run the number. I think we are confident it will be not - there's not a reflection of Emmett, but I do think it will be better than Emmett’s same-store expectations. I'm not remembering all the other things you rattled off, Jamie. Anything else you want me to try to touch on the guidance.

Okay.

Yes, if you look at last year or Q4, yes, if you look at 2015 it's modestly higher, but it’s really is more or less in line. I want to say and it’s going to quickly pull it off, but I want to say it's maybe 2% or 3% higher for 2017 both cash and non-cash over 2016 some of like that. Anything else you can go from that.

I mean you mentioned higher than Emmett, I think Emmett is staying like 5.5% to 6%.

You are saying 5% or 6% same-store cash NOI if I not mistaken and then like I said maybe we could be great more specifics on this next call after revisiting with Victor expand by could say fame start casting a life but if I'm not mistaken then like I said maybe we can give even great more specifics on this the next call after revisiting it with Victor. I missed so I think we're confident we will see better than that on a same-store basis cash NOI growth in 2017 for the full-year it will see better than that percentage.

Okay and then maybe as we think about the different regions. Can you talk about your year-end occupancy assumption like where you think you will be year-end 2017 versus year-end 2016?

I maybe not on a call Jamie. I mean I'm prepared to answer a thousand questions, but I didn't breakdown by region where any leasing percentages by region. I'm happy to put that on the list and try to provide that to you in a phone call.

Okay. Maybe just year-end occupancy. If you have that?

Well, I want to do that smarter way right I mean as you know we breakdown our portfolio between stabilize and service lease up. We’ll also be inventory will be coming into those portfolios throughout the year. So I don't want to just throw out a number without being able to give everyone a clear understanding of what exactly that number includes, right, and we also have asset potential, we have one announced asset sale and so I’d rather do that in a moment in historic way.

Okay. All right then I guess your switching gears one more question. The Silicon Valley, Peninsula supply can you just maybe talk us through the project I know you said because your tenant side in your pre-build program, really doing it competitive but maybe talk us through some of the project that are out that would consider possibly competitive or maybe people think it might be competitive.

Well I mean currently right now, Jamie the projects that are out there that are deliverable for 2017 are off 50% or greater pre-release and for the ones that are talking 2018 and beyond, it's a little early to sort of determine that. As I said I mean we don't have any substantial large blocks of space that we're going to be competing with any of the new product out there and the preponderance of the new stuff that there is going to be tenant builds and user oriented. There's a very little spec stuff that's coming out. The numbers are substantial in the marketplace across the whole valley, but the stuff that we're looking at other than Cisco, if we get that back, which we’re anticipating at the end 2017. Now that will be probably from our standpoint, I mean walking through with the guys, but my guess is that's a year lease up process. We're probably not looking to stabilize that till early 2019 as probably what I'm assuming the market had in his numbers and then staggers throughout because it's multiple assets in a business park and whether it's single tenant or multiple tenants, that you have to be determine. If you look at Palo Alto, which is where our large concentrations, we had zero supply coming in that marketplace and everything we're rolling is rolling up into mark-to- market. I mean the biggest exposure we had, we've talked about a force Pacific office prop portfolio and we’re about to announce another reason in that marketplace take it to high 80%. I think mark is like 87%, 88% occupancy. Then we were in the low 70s, we’ve a tremendous job there achieving our expectations. And in the last piece would be down in the North San Jose and I think I mentioned in our prepared remarks a little bit about what we've done in Gateway, would the VSP program there and then the renovation here, we’re about the launching another 30,000 feet of that VSP specifically around that project in the demand and the average size tenants between 5,000 and 10,000 feet. So we’re not going to be competitive on that. I'm super comfortable. We're not looking at disposing of many assets in that marketplace on a recycling basis. I mean Alex’s team has come up with a game plan and we will visit it based upon demand and our ability to execute on the assets that we can recycle for higher and better use of capital.

Okay, all right. That’s helpful. Thank you, guys.

Thanks, Jamie.

Our next question comes from Blaine Heck from Wells Fargo. Please go ahead.

Thanks. Good morning. Victor, just to follow-up on Cisco, obviously they need to tell you whether they're planning on moving out at the end of the year by late next month. So I guess I would guess you guys have been in discussion. Can you just mainly maybe handicap their likelihood of moving out at this point?

Yes, I mean listen the answer is Blaine that as I said we've not received formal notice from them, but we're fully ready in the event that they do intend to terminate. We have gone toward the space. We've gone and engaged architects and internal construction came around Chris to go out and reevaluate the existing space as well as the additional space that we can build there and reposition the campus from a new single asset, single building complex to a campus facility, we've spent. I think lot of time understanding what it would take capital wise and what it would take a positioning wise for us to turn around and get that base back. It's a much lower price point been any new development and I think as a result, we will have an advantage there. It's also we have the ability because of its size that we can offer pretty aggressive TI package and capital spend throughout and then materially move tenants in existing space and then build space around them that will be higher and better use. So we can accommodate short mid and long-term growth there. I’m not going back to your initial sort of question on our comfort level or understanding if they're going to move out. If you were to ask me on one do under 100 being they're moving up for sure. I think that we're almost triple digits that they are going to move out and they're going to give us notice, but you never know they may miss our notification period and we have leverage on that as well. Lastly, this is a [indiscernible] marketplace, which is a low cost provider marketplace where the growth in some of the other companies in the market. We're going to be competitive. I think by far the best product in that market and we've got a lot of ability to write some pretty aggressive lease terms and make a lot of capital on this deal. And we basically have a two year window to get it done.

Okay, helpful. So I guess the follow-up on that. How long downtime do you think you might have for kind of renovation in leasing that back up and I guess it sounds like it will be a multi-tenant building versus trying to find larger tenants, is that fair to say?

Yes. I’ll just jump in here. One thing maybe just to let you know when the Hudson was underwritten back in late 2014, Alex and his team as we've often made the most conservative assumption on that asset mainly without knowing one way or the other what the future plans for Cisco was. It was underwritten as a known vacate. They assumed no renewal on it. So our own valuation on it started from the premise that they were going to vacate, early vacate better say at the end of 2017 and our valuation reflects that assumption. In terms of what we're now assuming, of course we wouldn’t get the space back officially until 2017, but the team is if they did excess growing terminations, but we've already done programming, Chris’s team and done full programming with respect to repositioning the existing three assets. And also if you recall there's added density that would allow us to expand the campus to over a million square feet. There was a big enough user out there and they've done a full master plan for an expanding campus there as well. With respect to the assumption on the backfill of this three buildings that comprise the 470,000 feet, we've programmed in a staggered absorption more or less in three tranches that correspond to 170,000 foot of building side is give or take. And the first one I believe that we assumed stabilizing was 12 months after the end of the lease term that is to say not until the beginning of 2018. And then we staggered into the next tranche, I believe 15, 18 months and then the last one we assume is like 24 months. So we've given ourselves quite a bit of latitude for the full stabilization of the 470,000 feet following us officially getting back to the space at the end of 2017. Having said that, if we get early enough notice, we're going to do we can tell you, obviously the short net absorption timeframe by jumping on whatever we can do on repositioning as early as possible. And as Victor already mentioned, we already have a team on the ground, we're already geared up for the marketing effort, so we're going to do everything we can to compress that absorption timeframe.

Okay. Very helpful color. Victor you talked a little bit about the lease up properties and then you gave us 1.5 million square feet deals in the pipeline throughout the portfolio, but do you guys know how much of that 1.5 million square feet in the leasing pipeline is related directly to that lease up portfolio and maybe whether that’s up or down from previous corners?

It’s and interesting question. The answer is mainly again to your second part of your question. First, the flow of the 1.5 million square feet has been consistent, I think could be seven or eight quarters between 1.2 million and 1.7 million square feet of that activity. Now that we've leased up all of Hollywood both Q and icon, we've taken out the interest level on that and it's pretty well spread. I do think that you're going to see a preponderance of that activity is in Northern California and we have a substantial amount of activity in Seattle of that 1.5 million square feet. I think the rest of it is here in LA only because of the availability that we currently have in place right now. So we are probably more weighted to do the Peninsula first, Seattle second, San Francisco third, and Los Angeles fourth. My guess is the rating is probably 50% in the Peninsula right now is what we're seeing and then spread between the remaining 50% more weighted heavily to Seattle and then equal for Los Angeles.

All right. Great. Thanks.

Our next question comes from Tom Catherwood from BTIG. Please go ahead.

Thank you very much. Good morning out there. I know you guys don’t make any acquisitions in your guidance, but how would you classify the acquisition market now versus say the last few quarters and how do you weigh acquisition verses development start at this stage of the cycle?

So Tom, we’ll look at it a little bit more organically. We don't weigh it out quarter-to-quarter for the annual process of the year. If you look at last year, I think we transacted approximately a little over $1 billion of transactions, 350 million roughly disposition in 650 million was in external growth on acquisition basis. But as you saw it was heavily weighted two large deals in the fourth quarter, only because of the accessibility of those deals. I would classify SSA being a net buyer on the opportunities that were seen and the opportunities or - the partners of the opportunities are consistent with how we've done deals which our half market transactions. I think that the second part of your question on the development side from our standpoint we've announced our current development projects we have obviously our Q project is to being completed we've got a 450 Alaskan Way project that we are going to be done at the end of 2017 ready for occupancy. And then we got our two renovation projects in the Arts District which one is ready to go in the next 50 days and then one we are just trying to destruction and we won’t be ready to go for a little over a year from now. Then we have planned out our epic projects which is 300,000 plus square feet fully entitled then we're going to look at some form of pre-leasing before you break ground there. The demand has been exceptionally high in the level of product that is competitive in the marketplace is rather diminish your Los Angeles. That being said the remainder of our development opportunities are all assets that we have land plays and we are a position it for the demand in the marketplace. And we're not speculative developers and we never have been it's a smaller part of our external growth process but he is going to be extremely important part of our external growth process as the markets that we're in continue to have need for the type of product that I think we've designed in the past which is much more indicative to the media tech and social media markets and tenants of the likes of that. So there's not a specific example hey we're going to external growth this year you know of $1 billion and 20% of it's going to be development and 8% is going to be asset level it's going to be a case by case and I think we've consistently performs of the levels of a creatively buying asset that match our portfolio and I still see value add assets out there that our team is bringing to us that we're excited about buying or at least evaluating and trying to buying and I don't see that going to enroll for 2017.

Got it. It make sense. Speaking with development for second. Do you guys any potential impact to your portfolio or your development plan in LA if the neighborhood every initiatives happens to pass there?

It’s a great question. Listen, I think a lot of people are very, very educated I Measure S but I think a lot of people have basically put in the back burner and I know our team is very engaged in that process. On a political standpoint there's no hidden secret that we are against Measure S. I think it is bad form and function by which a proposition is being proposed in the city of Los Angeles and I think as a company. It does not bode well if it comes through. That being said two things I think are readily apparent around Measure S. I think the first is if passes the value of the real estate that we and everybody else has in Los Angeles is going to be work a lot more. Secondarily, if it passes the value of your entitle real estate is going to be word exceptionally a lot more. So when you would - [indiscernible] said, hey I own land is entitle and it’s worth $100 in FAR. There is no limit as to what that's worth because you have a two-year moratorium and there's going to be very little development. Come on that it is from a standpoint of where we sit in the marketplace today. I look at it after my comments on the financial aspects in the fundamentals around it. I look at it is in a relevant process because no matter what happens if it doesn't pass the regulations and process to get it land entitled going forward is going to be - is challenging has been or even more so because the scrutiny around whatever you want to call pay to play with the politicians in the city of LA and the likes of that is going to be very challenging. So any project you want to entitle it is going to be challenging no matter what. So I don't a two-year moratorium it's can be challenging. I think it's a win-win for values I think it's a win-win for entitled land and it's you know a bad precedent for the city of Los Angeles to have this proposition being on the forefront.

Got it. Appreciate the color on that and your kind of development in LA over the next year or two especially epic, that’s all fully entitled and would have no impact kind of starting to get off the ground if this were to pass. Correct.

Yes, exactly we are fully entitled there and everything else that we have made by rice Los Angeles so we will not be effected by it.

Got it. That’s it from me. Thanks guys.

Thank you.

Our next question is from Craig Mailman from KeyBanc Capital Markets. Please go ahead.

Hey guys, Victor, just curious on the pre-built program kind of what's been the history in terms of you guys have the whole cycle time between getting it, built out, leased up. Just trying to get a sense of when we could expect that 120 to be leased and how much the 235 or so could be done and ready to leave 2017 versus had shift in 2018?

So we've been very aggressive in terms of our bid process. I think we've been very aggressive into the team if there. So we have a team in place, the design is done and we're banging the work out Craig. And as a result, I would classify this way. The major lifting is already behind us in that. We put the plans in place and we now have to execute. The 130 was exactly on our time frame. I think the remainder 230 probably we're looking at finishing the construction across the board by thematically by the end of staggered over the three quarters is that what we're looking at over the next three quarters and then as a result, we'll start seeing leasing near the end of that process, which would be end of the third quarter, beginning of fourth quarter of this year much more apparent because it's ready to go plug and play. That's not to say Craig that we're not getting leasing done on this space. I mean even that we're starting the capital work and building it out. Our team has seen a lot of transactional velocity around that space and we can stop or start at any time if you need to re-modify.

How much of the space in the lease up portfolio you think is kind of candidate for this type of pre-built versus just traditional were tenants actually have architects and one build out their own?

So I mean the number we show sort of now there is a 0.5 million feet between what we've done and what we're going to do. It's initially I think the program is roughly almost a 0.5 million feet. I think after that the teams going to go out and evaluate the next phase. But that seems to be the quite 400,000 to 500,000 EBITDA something like that, so yes, it’s sort of capped out around 0.5 million feet.

That's helpful. Then just moving to EPIC, you had mentioned earlier that previous in sort of the exception of the norm in LA, just given the kind of the track record you guys have with ICON and CUE why not start that speculatively?

Well, you can look at Chris Barton crossing right now. He just still happy to say that, so you seem to make all guys happy when you calling Craig, the interest is will we be prepare to start when my guess is I think we could probably break around early at this spring April or May if really wanted to we can start going in April or May. Well I think there is a little bit of magic around our marketing. We have not got our marketing sweet to a point that we think it should be ready to launch. It’s in the marketplace people are aware of it, but we've not really shown with this as it’s going to look like probably. It’s a pretty spectacular development and I think in itself it will market itself very well. I'm confident that we're going to get a lot of comfort level and I do think that either whenever we start, we're looking at 18 months max to be completed on that sort of thing after we start. So we could get this thing pre-leashed and when I referred to pre-leased I’m not looking at it from a 100%. I think we’ve always talked about as a company, if we get to 25% to 40% of the asset pre-leased. It’s a green light, no matter of what. If the activity we seems to be strong. We’ll consider breaking ground and going more on a spec process. The beauty is as I said lots going to change in two weeks with [indiscernible] behind us and a lot’s going to change in terms of if we’re looking competition. Right now we don’t have any competition. There is nobody breaking ground our new commercial office building anywhere in – of this magnitude in the near future.

What do you – I know it's early to give yield estimates, but just relative to what you guys were able to get on ICON. What do you think it kind of shake it out, we’re asking rent for probably coming out?

I don’t know the final numbers of ICON are going to be, but there are great than and I think than nine…

Yes, so we’re not going to get that. So don’t expect that, but I think we're probably talking about a seven. I think that's a pretty fair estimate as to what we're looking at and that's underwriting based on the current deals that we did it to in ICON in terms of rental rate, I think we're right there at the same number. So we can be a little conservative on that maybe if rental rates continue to push up the way we expect. I think Mark sort of has a benchmark to seven.

Okay, and then just lastly Mark, what do you guys expecting for interest expense in guidance?

I’m looking over it. Craig, I’m looking at – he’s got the model of.

So we see an increase in interest expense of around $20 million year-over-year and that primarily related to capitalized interest dramatically slowing down as a result of the ICON development coming online and various debt transactions we did in 2016 having a full-year effect of the private placements to held seven acquisition and debt related to the Page Mill Hill acquisition. So combination of all that and assumed little higher interest rates based on the LIBOR curve has increased our assumption to about $20 million increase year-over-year.

Great. Thanks guys.

Our next question comes from Alexander Goldfarb from Sandler O'Neill. Please go ahead.

Still I guess it’s good morning out there. There are two questions. First, on the studio mysterious side, can you just walk us through how you guys see the economics, if you have a dollar to put to work how you see it in studio versus office?

As far as new investment?

Yes. As for as new investment, I mean I think we're familiar with office returns, but studio seem to be more of an operations business for efficiency, so just wondering when you think about putting new investment, obviously there was a news article a bit ago, but if you guys think about your opportunities to acquire new assets. How you view the tradeoff between office where you can see sort of a mark to market and what's going on in that submarket for the demand for office space versus the studios where it sounds to be more like an operational business?

Alex, it’s Alex. As you know we obviously like the business, we've always said that if we saw an opportunity to expand that area of the company, we certainly would. But as you also aware there's a finite number of those opportunities that exist in LA. We're not going to look in tertiary market where it expands the business would be here. So there's just limited opportunities to begin with and each one really is a case by case basis based on previous ownership what we think the kind of business strategy would be both from an operational perspective as well as a potential development opportunity. I would say that stabilized office in LA is trading somewhere between four and five caps. We would expect a high return on studios, but each one like I said it would be a case by case basis and what’s the going cap rate would be more and what we think the stabilize cost should be once we've implemented our business plan and we would expect premium. That being said, I think it came up in one of the calls that if this trend continues like we are seeing at Bronson with long-term leases getting done with the likes of Netflix and companies of that credit. I think the expectation how people look and value studio asset should start to fall more in line with office as you start to see longer term credit.

Alex, can you give us a sense of what the spread has been historically or where it is now?

I mean back in the day as a rule of thumb, we used to say it probably be somewhere between 100 and 150 basis points from stabilized office, but there weren’t a whole lot of comps that we could point to, some of that was just our own internal view of what we thought the appropriate spread should be relative to the short-term nature of the leases, even though as you know those leases tend to be sticky historically, but that's what we typically would say back in the day.

Okay. And then the second question is, Mark I know you don't have any additional transaction activity in the guidance, but you guys seem to be stepping up your recycling, but also it seems like you guys are focused on growing the Company not sort of flat lining it through a lot of sales. So as you guys think about it is there some sort of earnings growth that you want to hit and then you'll do recycling around that or how do you gauge how much to sell relative to be able to reinvest and grow earnings?

We really go look to drive earnings through some acquisition target. Our goal both on the acquisition side and on the recycling side has been a case by case analysis of where we either seen an attractive acquisition opportunity well priced complementary to our existing holdings and where there some value proposition by putting our expertise to work and likewise on the disposition front all – assets are look that in terms of where we feel like we’ve optimizer maximized value whether or not we see an opportunity kind of capture profit for the shareholders and so forth. And so while it has been true that dispositions have been complementary in terms of capital raising recycling and redeployed an acquisition. There's not we don't fit in to some kind of accusation disposition ledger and try to balance how dollars on either side we really are looking at each of them in terms what's the best proposition for the shareholders on both sides of the equation. And so really no rule of thumb to provide for you as it relates to how that translates to guidance.

Okay. But as we think about potential for like Cisco coming out in numbers next year. It's now like that means that you would sell less you look at each thing individually it's not like you're trying to look for an overall earnings growth and drive year decision space.

That preciously right I mean as you know earnings its short-term benchmark and are fundamentally were in the business of making the smartest decisions both acquisition and disposition for the long-term benefit of our shareholders. And then you know we are not going to stray away from that just to try to drive the short-term earnings goal.

Okay. Thank you, Mark.

Our next question comes from Vikram Malhotra from Morgan Stanley. Please go ahead.

Thank you. So just a clarification on the leaser properties particularly in the Bay area. I know you don’t have a specific leave the occupancy sort of number that you can provide in terms of what’s the big thing for guidance. But if you just look out pass 2017 if I just sort of take two or three year view. Can you sort of give the range sort of what are you expecting specifically in the Bay Area for the use of properties to do in terms of occupancy?

Yes, I mean Vikram thanks for the question. You kind of Jamie sort of touched on that too. I would say obviously if we take our model and isolate those assets. There is number that spits out and I would prefer though and maybe we do this next call because I'd want to make sure that the full group has seen it and they are aware of what that number is. I preferred maybe the table back to the next phone call.

That’s fair.

And Vikram if the people want to see a group of stabilized in service lease-up, however they want to see it, we can do a grouping on that. The other danger there to Vikram is even over the last quarter, the population were more constitute the lease of assets has changed, right. So I wouldn’t want mislead anyone. The time there’s been a focus around the nine – lease-up assets. That itself has changed. We now have 11 lease-up assets. And I’d want to be clear with everyone exactly what the composition is of that portfolio and where up things are heading directionally and be able to talk with everyone about with this even the subcomponents are the lease up. What's in the Bay Area? What's outside the Bay Area and so forth? Like Seattle 11601, they're both running to that population right now.

Got it, I guess it could be a definitely a meaningful part of the growth. I’m just trying to understand what the trajectory could look like even if we sort of forget 17s numbers if you could give us some sense of how it could be? But that’s fair whenever you have the number…

Vikram, it’s a perfectly reasonable question, I agree with your overall view and Jamie's as well and now that it's been asked twice. I think we'll be responsive to it and we’ll provide it. I guess don’t think it twice and helpful to do it sort of one for it.

That’s fair. And then just on the expiration, you’ve made some comments, so alluded to the fact that rent spreads are still pretty strong obviously this quarter, there was some variation. I’m just wondering relative to last year when you sort of looked out and said how would spread rent over the next two years? Are you are you seeing some moderation or your own expectations are lower versus 2017 particularly where you were versus where you were last year?

I mean actually the rent spreads, Vikram, are actually for 2017 and 2018 are higher than it was last year. So we're not seeing any falloff at all. I think we're looking at numbers that are substantially higher than last year and fortunately that the mark to market on what we have in the barrier still is just outlaying everything in terms of the numbers been across the board.

Yes. Just to give you one point of reference on that. There are two largest expirations in 2017, although one of them doesn't happen till the bitter end. But in the San Francisco CBD and our current mark to market on the 2017 expirations in the San Francisco CBD is just a bit north of 50%, 51%.

What I was just trying to characterize that you assessment of 2017 has not changed as you moved throughout the last 12 months.

Yes. No not at all. Actually as Mark indicated it is actually – it’s higher than it was. And we anticipated and as I said in my prepared remarks, we've got headroom there for the spreads that are rolling right now, but even if we saw the slowdown in the marketplace I think in the material basis, it's still be crazy good spreads. Actually I provide – slightly misspoke and I wanted to make sure you are absolutely clear. Our current mark to market in San Francisco CBD is slightly north of 50%, in fact 50.6%. On 2017 expirations in the San Francisco CBD is close to 100% mark to market, in fact 96% mark to market. So that’s not going to be the only mark to market that runs through our new and renewal numbers over 2017, but it's going to be a larger contributor in 2017 that it was say for example in 2016 given the couple of sizable expirations that will occur this year.

Okay. And then just last one. Going back to the article that was referenced around I think it's Hollywood centers studios I'm just curious whether you are or not looking at it. What type of investors would you run into, who else would be bidding on these types of assets?

Well I think we're not going to comment on articles that we've not substantiated ourselves in terms of future acquisitions or potential acquisitions. I could say if there was an asset out there that will compete on then we would love to say that there – everybody else is going to look at that, anybody else is going to look those same assets are going to be guys that are smarter than we are.

Okay. Thanks guys. End of Q&A

Thank you. This does conclude the question-and-answer session. I would like to turn the floor back over to management for any comments.

Thank you so much for participating in our fourth quarter call and we look to reaching out here before or at the end of this first quarter. Thanks again.

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