Greetings and welcome to Hudson Pacific Properties Fourth Quarter 2017 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. It is now my pleasure to turn the conference over to your host, Laura Campbell, Vice President, Head of Investor Relations. Thank you. You may begin.

Thank you, operator, good morning everyone. Welcome to Hudson Pacific Properties' fourth quarter 2017 earnings call. Earlier today, our press release and supplemental were filed on an 8-K with the SEC. Both are now available on the Investor Relations section of our website, hudsonpacificproperties.com. An audio webcast of this call will also be available for replay by phone over the next week and on the Investor Relations section of our website for 90 days. During this call, we will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results in our press release and supplemental. We will also be making forward-looking statements based on our current expectations, which are subject to risks and uncertainties discussed in our SEC filings. Actual events could cause our results to differ materially from these forward-looking statements, which we undertake no duty to update. With that, I would like to welcome, Victor Coleman, our Chairman and CEO; Mark Lammas, our COO and CFO; and Art Suazo, our EVP of Leasing. Victor will give an overview of our performance, Art will discuss leasing activities at our markets and Mark will touch on the financial highlights. Note, they’ll be joined by other senior management during the Q&A portion of our call. Victor?

Thanks, Laura. Hello, everyone. Welcome to our fourth quarter 2017 call. 2017 was a great year for Hudson Pacific. We grew FFO by 11%, our same-store property NOI by 13% and our dividend by 25%. We had one of our best years for leasing. We signed 2.1 million square feet of deals with 34% cash and 50% GAAP spreads. We had 1.6 million square feet of expirations in 2017. We had stabilized office portfolio lease percentage ended up 30 basis points for the year at 96.7%. Our in-service office portfolio lease percentage ended up 90 basis points at 92.1%. Our same-store media and entertainment portfolio trailing 12, lease percentage was up 160 basis points for the year at 90.7%. We took advantage of the strong market conditions to improve our portfolio, and sell $437 million of non-core assets; all were sold at premiums to our basis, making significant capital available for future growth. We delivered 754,000 square feet of development and redevelopment projects, nearly 80% pre-leased, and we expanded our Sunset Studio portfolio with the acquisition of Sunset Las Palmas for $200 million. Through that acquisition, we gained access to an additional 500,000 square feet of studio adjacent development opportunities in Hollywood. Specifically in the fourth quarter, we signed 558,000 square feet of deals, 17% and 28% cash and GAAP spreads respectively. Our biggest deal in the quarter was a two-year extension of NFL at 10900 and 10950 Washington in Culver City. This deal has a smaller mark about 11% since we only recently signed their extension to 2021. NFL will now occupy buildings in 2023 and this along with the capital they've recently invested to upgrade interiors, is just another sign of our continued commitment to this asset. Also in the fourth quarter, we broke ground on EPIC, our…

Thanks, Victor. In Silicon Valley, large deals are supplementing small deal activity and driving absorption, even with the 3.9 million square feet of new deliveries Class A vacancy of 11.7% and asking rents of $66 per square foot, remained unchanged in the quarter. The unit volume was up 63% quarter-over-quarter and a 145% year-over-year at 2.4 million square feet. We've got late activity in campus center. Last call, we referenced six proposals representing 1.4 million square feet of net new requirements. This was before we even completed improvements to adequately show the asset. Those deals went elsewhere but they were all signed in Milpitas, all adjacent to Silicon Valley market. Outside of those proposals, we've seen another 6 million square feet where 22 large block deals in the market, all met new demand and mostly targeting Santa Clara or North or Downtown San Jose, about 2 million of that site which takes even more product off the market. So, right now we're looking -- we're working with 15 requirements representing an aggregate of 4 million square feet. Those range from about 50,000 square feet to 4 billion users truly our sweets spot. We are well positioned as we get ready to formally launch Campus Center into the market with a huge broker event in mid-March. The asset has been transformed and shows exceptionally well. I've a couple of other comments about the valley. Over the last several quarters, we've consistently seen lots of demand for smaller sub-10,000 square foot users. We have completed 29 deals at those assets this quarter and the average deal size was about 4,000 square feet, but now we are also seeing resurgence in demand for medium size blocks. We have 12 10,000 to 25,000 square feet spaces for lease with about 82% of those in…

Thanks, Art. FFO excluding specified items for the fourth quarter 2017 totaled $81.7 million or $0.52 per diluted share compared to $68 million or $0.46 per diluted share a year ago. Specified items for the fourth quarter 2017 include a $1.1 million write-off of the regional issuance costs associated with the pay down of two five year term loans in connection with the October covered debt offering and the sale of our interest in Pinnacle I and II. There were no specified items for the fourth quarter of 2016. FFO including specified items for the fourth quarter of 2017 totaled $80.6 million or $0.52 per diluted share versus $68 million or $0.46 per share a year ago. At the end of the fourth quarter, our stabilized office portfolio was 96.7% up 80 basis points relative to third quarter, our in-service office portfolio was 92.1% leased, up 60 basis points compared to third quarter. Our cash same-store office NOI increased 7.9% in the quarter and 13% over the year. On a GAAP basis those percentages were 10.2% and 9.9% respectively. The trailing 12 months lease percentage at our same-store media and entertainment properties ended the quarter at 90.7%, up 10 basis points in the quarter. Our cash same-store media and entertainment NOI increased 15.5% in the quarter and 13.1% over the year. On a GAAP basis those percentages were 12.9%, and 7.4% respectively. At the end of the fourth quarter after accounting for asset sales, the remaining 20 former EOP properties were 88.3% leased. If you factor in our lease with Orbital Insight, a fairly significant deal signed just after the first of the year. Those assets were 88.9% leased. As a point of reference, those same 20 properties concluded the third quarter at 88.5% and we had 270,000 square feet…

Thanks, Mark, and thanks Art. The fundamentals of our markets remain very strong. We are well positioned to continue to realize value from within our existing portfolio and look forward to taking on some exciting new growth opportunities in 2018. As always, I want to take the time to thank the entire Hudson Pacific team and especially our senior management for their hard work and dedication for this quarter and for the entire last year. And everyone listening, we appreciate your support at Hudson Pacific Properties and we look forward to the upcoming quarters to come through our 2018. And with that, operator, I will turn it over to you for the line to be opened for questions.

[Operator Instructions] Our first question is from Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.

Just two questions here and certainly Victor, the perennial, where you guys are trading and certainly how the market hasn’t been kind to reach year-to-date. So as you guys think about the disposition proceeds to 255 million, how do you way that about looking at a stock buyback? And then also just given out the stock has been depressed for the past year, how is this changed your investment hurdles and your thoughts on new need capital allocations?

As you know and if you don’t, you'll recall we have a stock buyback plan in place. We're authorized to o buy back stock at any given levels that we deemed appropriate and that will continue to be in place. And unfortunately with the blackout windows that have occurred at these substantial downturns, we were not able to execute on that basis but we will always continue to evaluate that's based on our user proceeds and they access to capital, and what's more accretive for our shareholders whether it's a development or redevelopment acquisition or the opportunity to buy back stock. And that will never change, it hasn’t changed and they are not as similar or mutual exclusive, they’re going to be one and the same. That being said, our return hurdles have really not changed much. I mean we’re buying to or redeveloping and developing to what we perceive to be Alex's team to stabilize 7. That sort of what we’re looking at as a company that’s what our stocking ironically I think was at the low point train, you're right around the 7 cap. So, I think there -- as I said, they’re not going to be mutual exclusive and we’re going to look at those alternatives and we store evaluating redeploying capital from the dispositions as well as our existing capital LA that we have excess capital right now for opportune opportunities, that are going to be very conducive to the existing portfolio.

But do you think Victor at some point that you start to wait more toward, I mean, you guys have been reporting to the press as maybe doing ideal out there was another REIT. But do you think at what point, do you say, hey, look buying back stock mix is the better use of capital than a new commitment that given the environment?

Well, as I said I think if we’re underwriting new deals north is that, it’s going to be more compelling to use that capital. If we’re not underwriting deals north to that, we will always consider buying back stock and it’s definitely always on the stable.

Okay. And then the second question is just more of a specific. The Downtown LA project that you said you are going to take a different crack at by breaking up the space. Was that just one of the buildings or was that both? And then, how does that impact the economics of the deal, if you have to break it up in the smaller space versus leasing bigger blocks?

So, let me take the second question first. On the economic side, it won't change the economic return on the assets. The interesting thing, so listen, I think our team should have taken a hit on the Art District. That had been pretty challenging for the entire team for management to leasing, both internal and external leasing guys. They know what my feelings are in some opportunities that we missed. A couple of things is the rental rate in that marketplace is not changed, so we’ve not lost the deals off of rate. The first part of your question I think is related to both assets. At Mateo, we are looking right now, there is an interest level for the entire tenant and for the whole building, that’s the building that I think we’re still going to use a single user. Ironically, our prepared remarks are based on us breaking up the space at fourth interaction. We’ve got plans to do tech space, which won't change our gain plan to break up on an e-commerce standpoint and yet as soon as I mentioned that this morning, we got a call, I found out from a tenant who wants the whole building. So it’s based upon the fact that there are less large users out there for fourth interactions that we had initially thought, maybe we waited long to break up the space. But I’m confident with the amount of leasing activity to have anywhere from 5 to 15,000 square foot tenants, just over 100,000 right now. My guys are telling me that I shouldn’t be wary. I think the optimism is on the plus side.

Our next question is from Dave Rodgers with Robert W. Baird. Please proceed with your question.

Maybe with regard to the Silicon Valley assets and just going back to your comments, I think you said about 350,000 square feet of exploration maybe 250,000 square feet of demand. But curious what you are seeing just in terms of the need to use the VIP program, and how much of that kind of exploration this year in your mind is going to have to re-tenant it versus how much you could kind of make round up on some of the under leak that in the market?

Dave, I am going to have Art runs you that for you, okay.

Yes, so listen, just across the market I mean we’re seeing an uptick in overall activity and with our commitment to repositioning the assets that we've outlined in our VSP, which we've been really aggressive at, we're currently taking advantage of the increased market demand. We see that everywhere. We've started to see this quarter-over-quarter. And I feel like we've poised ourselves to do that. Listen, we've done a 118 VSP to-date, we've leased 70% of those, most of those are in our some of our priority assets, and the balance of those we've got somewhere in the neighborhood of 55% activity on which means LOI proposals or leases. So, we feel good, we feel like we put ourselves in the right place and we see a lot of activity.

And the other part of that was just on the explorations. What type of retention are you looking for, in that particular -- those particular submarkets this year?

Well, as every year, we have known vacate that come up. Right now, we're looking at as we sit here in February, we've got probably 15% of our known vacate, of our explorations either renewed or backfilled. So 16% already, we've got 32% of those in negotiations right, and probably another 30% that are in discussion, some level of discussion but we feel good right now where we sit.

Yes, I mean Just to cut -- I mean to reassemble that data, it's probably looks to shake out around 70% of renew and backfill to relative to 2018 explorations in EOP portfolio.

And then maybe just follow-up for Victor in combination with Mark as well, how much of the asset build proceeds do you plan kind of putting through the 1031 versus maybe just kind of putting back in to the balance sheet? And when you talk value add Victor, how deeper are you willing to go in some of these projects? Are you willing to convert some retail assets etc that are being in the news? Or is this kind of more a lease up assets in the office space?

So, on the tender -- listen -- we put it into accommodate, but we don't have to accommodate. It's really at our option. Mark has managed the balance sheet to the point where these assets that we will not have 1031 if we so choose not to, so that could just deferring into use that capital virtually everything, and we're seeing some very interesting opportunities in Seattle in the Bay Area, and here in Los Angeles on a redevelopment play and obviously I am not going to comment on any deals we haven't announced.

Our next question is from Jamie Feldman with Bank of America. Please proceed with your question.

How do we think longer term about your market concentration? And how you are thinking about it? And how big you do want Silicon Valley and Peninsula to be in terms of the whole company?

Jamie, it's interesting, I think I'll take that a little differently. We've made a pretty clear determination on the office side, Seattle in the markets we're in the Seattle there's ample opportunity for us to grow. In the San Francisco and the Valley, there is growing ample opportunities for us to grow. And the particular markets that we're in Los Angeles, there's ample opportunities for us to grow and get a lot bigger, if we so choose to do so in those markets. And there's still in our opinion the best markets in the country for a company like ours to invest and the economics and metrics that we're looking at same to support that. So we are not afraid of going the Valley to continue to buy assets. I mean we or sell assets in that market place to upgrade another assets, I mean we're seeing deals, Alex and there team are still seeing deals in power also that we think we're opportunistic and we just saw, we're about to close another dealer. We will consistently do that in the office portfolio and I think the depth of markets are going show that we clearly have room to grow in those marketplace and we’re comfortable with it.

And then as you think about projects, I mean how large of projects would you go after here in terms of like total size of your portfolio today, in terms of -- I mean sounds like, you have some redevelopment projects out there. Just what's your appetite for magnitude?

Listen, I think that's kind of -- I don't know I think that sort of an ambiguous sort of question, as it's probably nothing dollar amount, it's going to be the project amount, right. So it's going to be the valuation of project, the IR that we think we're going to be able to obtain, is going to lead in. So that could be $100 million or it could be $500 project. I don’t think there is a benchmark around that. Remember we do have significant joint venture partners beyond our current relationship with CTP and that has come to us with opportunities that they want to share and we will evaluate this deal as its by self and evaluate that will also buy back program, so it’s a combination of the entire totality of what's the highest and best use of our dollars today.

And then Art you had mentioned, six tenants looking at Campus Center and ended signing elsewhere in the region and a nice pipeline behind that. Can you talk about where the six went? And maybe how close they were on Campus Center? And maybe what they like or didn’t like?

Yes, I mean I think a lot of it was coming, but it's we're not getting this specific detail. I mean you can do it off line but it's all greater Silicon Valley. And on the timing, I think was probably at where we're right in the middle of positioning which will be finished and we're going to showcase kind if mid-March with huge broker event as I said. And I think it could to be poised to get a lot of traction.

Our next question is from Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.

Mark just curious, you kind laid out your full availability the dispositions. Just curious what you're thinking total or kind deployment capacity will be, once the assets you have on your contract both?

Yes, I think on a levered basis its stay within kind of the debt ranges that we target. There is 600 million of total capacity funded on the debt side either through the line or we have over 200 million of availability on or Gower and Bronson facility as well. Then we think we end up at a comfortable range I thought at deployment level.

Maybe a follow-up or a different way to ask Jamie's question. Victor, you laid out that there the message you’re looking at in a bunch of different markets, we referenced some of the bigger repositioning opportunity in LA. Just curious how you kind bucket stuff from a, maybe just an easier lease up or repositioning of an asset versus a longer term redevelopment play that may have a higher magnitude overtime? And kind how you look at, kind how much want to deploy today into each type of bucket to not have the balance sheet get to a point where everyone know you need to raise capital with where the stock price is today?

So let me -- there is sorry two points to that, well I make up one related back to Jamie, but your last point is, we have zero intent to raise capital at this levels, and we've been very strict in terms of our process and policy, and we raise capital when we need the capital and the stock is at a point where we think it's opportunistic for our deployment and that is not clear even remotely at these level. So and then going back to sort of to your point, but first what I've sort of maybe Jenny was going at. Listen, we've talked about building-up into diversification in the general marketplace in Los Angeles marketplace to get those barbells to a point where they are more closely aligned to the Bay Area, and as that means we sell more assets in the Bay Area that's what we do, and we deploy the capital most markets are as we buy in the Seattle and Los Angeles marketplace to help grow this portfolios. But remember I mean our portfolio is going to take a little bit of a change when we have EPIC online, and when we have fourth interaction in all five and Harlow online, CUE is coming online now. And so the size of that portfolio will change, and I think the numbers will be determined as to see more ways in those markets. Specifically due to the redevelopment and development side, we've made it clear Chris and his team have gone out and filed for the expansion of Sunset Gower for us to get an additional 0.5 million square feet, that's public now, that's a multiyear process for us to get done. We're doing the exact same thing at Sunset Las Palmas for an additional 450,000 square feet or breaking ground on the 100,000 square feet at Harlow, which is just a small building. And Bill and his team there have already had reversed increase from multiple tenants that want to take that production space. From a redevelopment standpoint, there are some unique opportunities of taken existing assets and repositioning in those creative office campus file that we typically look at, both in Seattle and Los Angeles. And we're going to continue to look at those based on the year over requirements and the tenant needs. This has been very little new development and development in the Los Angeles area that had those type of assets, and there is a huge demand in backlog with the existing tenants that are looking for space. In the next two to three years and beyond, and we've got a pretty aggressive leasing team that knows who those tenants are and the exploration schedules are in play. And we're going to capitalize on that with whether it's EPIC or something else that we do.

And just, if you guys are looking at a mixed use, would you guys -- I know with KeyArena there could have been some resi and retail involved. Are you guys comfortable, if you find something to do that on your own? Or is that where you bring in the more of a strategic partner versus the money partner?

Yes, I think we have full capacity and the development teams here to tackle and the extremely successful on the mix used process, and so if we are not going to shy away from it. It's not something that we are looking to do if, it comes with that's something that we've evaluate at the time. I mean currently you referenced the KeyArena that was unique opportunity with the partners of that was going to be office, and there was going to be some resi and we would have don’t that alone with our partners at the time, which was AEG who has capacity and capabilities that would be aligned both on our capital side. As the stuff we're looking at right now, I can only think of one project that has got mixed used component on it, and we're not even remotely close to doing that deal. So I don’t think we're going to cross that bridge right now.

[Operator Instructions] Our next question is from Rich Anderson with Mizuho Securities.

Mark, you said you remarks that there is 547,000 square feet expiring in the office portfolio in '18. Is that -- as I'm looking at your lease expiration schedule first part of the question is I see over a million square feet, is that -- have you done some stuff already this year to tackle that? Is that the net number?

Rich, sorry, that I was referring specifically in the prepared remarks to the same-store portfolio.

Okay.

You're speaking the numbers exactly right that that is to say, it’s a 1 million portfolio wide, it’s again the 29 after the same-store it’s the 547.

So then leading to my next question, maybe as a way to enhance the same-store growth profile, to what degree do you think you guys will start looking or going to include early lease expirations, in other words '19 and '20 even expiring leases? I know you do that as a normal course, but I'm wondering how significantly those rents are below market, and if there's a chance to see the same-store growth profile you know kind of accelerate as you go through the year because of that dynamic?

Hey Rich, this is Art. Yes, so in advance of '19 -- we're in '18, so in advance of '19, we're already talking to some of the large movers that you'll see kind of posted that are coming up and we've done a lot of traction on those. So yes I mean, we're out in front of that already even we have the late '18 renewals, kind of that is 14.5 really especially if they're large trade multitenant happily talking to this guys.

Hey Rich, just a little follow on that. I think as you recall '19 we have some a couple of fairly larger guys '19 and '20 in Seattle and in Technicolor in Los Angeles that are fairly below, and so these already in conversations now.

But not considered at this point in your guidance.

No, no, no, no.

Okay terms of CapEx and specifically that which you would use to derive an AFFO number. Do you see that sort of trending down now on a year over year where do you think CapEx lands you know just maybe up or down versus '18?

Rich, I can't tell you how satisfying it is to get a question we prepared for. It would seem like it was not part of our prepared remarks or anything like that, yes. So just to give you a sense of it on a year over year basis for recurring TI information, that actually stands to trend down a bit not quite 10% somewhere between 9% and 10%. On recurring CapEx that is to say CapEx that has a depreciable life of less than 10 years, but it's TI or commission, that is just a little bit of trend upward on that in part associated with some of our bundled projects and some of the other stuff we continue to do to enhance say the VOP portfolio. And when -- as overall component, it's not that -- it’s much of the overall spend. And so, we actually are modeling about being more or less flat year-over-year on a combined recurring TI commission and CapEx so down about a 1% year over year.

Okay, and then last question maybe for Victor or any one I suppose. But it sounds like maybe a little bit of incremental activity in Silicon Valley and Peninsula. I know that's been an area of frustration for your guys in terms of getting the message out there. But is there a common thread to all this net absorption that you're seeing from tenants, is there something maybe systemic or broad-based that is causing people to make a move or is there anything you comment in terms of the conversations you’re having with folks about, why we’re starting to see more activity in those two areas?

Well, I think a couple of things Rich, first of all, there was a huge moment to large tenant users in Bay Area, I mean, into the city. And now there's very little space available for them, so they – we always talked about the larger users, even though our space was not as conducive, except our campus to the larger users and the numbers I just gave on the amount of square footage of the 6 million square feet, those are all large users, 2 million have signed, 4 million are still in the marketplace. Because I can't go into the city, so they're coming back to the marketplace there. I mean, last year -- as much as I think people were for questioning the valley, I mean, the statistics at end, year proved out that the valley was very strong. I mean the numbers are the strongest what we’ve seen and we talked about that in our prepared remarks in many years, instances. It's been the best statistics that we've seen since before 2000. The interesting thing is that if you look at the IPO and the venture-capital marketplace in the valley, those are extremely strong. It’s the strongest IPOs start of the year so far. And there is very little -- very little change in that coming out, I mean, at the end of January, companies raised over $8 billion, over 17 billion -- 17 deals on that basis. And you don't have names like Dropbox or Spotify there yet and that looks like it’s going to go. And the most important statistic is the fourth quarter -- third straight quarter of $20 billion plus VC investments. And it wasn’t too long ago that people were questioning us and everybody else about, VC debt and there's no more VC capital, I mean those statistics are very, very impressive. And 2018 is expected to see the similar level of optimism with VC funding -- the gap in the IPO marketplace is starting to shrink. And so I think clearly, it’s tech related, it’s the larger companies we’ve talked about, they’re continuing to grow and they have a bad vision of, not 3, 4, 5 years, but it’s 5 and 10 years. And we’re seeing that with Amazons, the Googles and Hulus of world up in those marketplaces and you’re going to see more of that. And we’re seeing that in the flow of traffic. And so, it’s nice to see that they’re not leaving those marketplaces like people kind of perceive them to do.

Our next question is from Blaine Heck with Wells Fargo. Please proceed with your question.

Thanks. Probably for Mark, one of your West Coast peers recently talked about higher your utility and payroll cost that were causing a headwind to their same-store NOI growth in 2018. Are you guys seeing those same pressures and just generally, I guess, what’s your outlook for expenses going through 2018?

I mean we’re not seeing it in terms of erosion to margin, which I think is where you would primarily discern it. I mean, union costs are tend to be trending up a bit higher, a bit higher. I'm sort of looking towards Josh to see if he has some further commentary on that?

Yes, I think, overall, union labor increases have gone up, but we largely recover these costs. So we will not have a material impact.

Yes. So the answer is that well, I don't know we see anything contradictory to that. I don’t think we would note that as a particularly troubling trend or anything.

Okay and then on a similar vein, the medium margins this quarter were good and not higher than they were in the fourth quarter last year, seems like demand from content providers continues to grow. Do you think we should expect better margins from that business as we look forward?

I mean I think if we Bill and his team continue to just hit recover of the fall and on pushing rents, maintaining high occupancy. There is a natural opportunity to improve the margins right because there are bigger expense have a fixed right probably cash returns so forth, largely fixed expense. So as we improve that top line those margins I think can steadily improve.

Ladies and gentlemen, we've reached the end of the question-and-answer session. I'd like to turn the call back to Victor Coleman for closing comments.

As obviously apparent I want to thank the team and people around the table here and Hudson Pacific and the entire company for all the support and all you investors and people who cover us. Thanks for participating today and we look forward to talking you on our next call.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.