Hudson Pacific Properties Aktie

Hello, everyone. Thank you for joining us, and welcome to the Hudson Pacific Properties First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Laura, please go ahead.

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, Chairman and CEO; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing.

This morning, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website, along with an audio webcast of this call for replay. Some of the information we'll share on the call today is forward-looking in nature.

Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss our first quarter results and current market trends. Mark will provide detail on our office and studio operations, and Harout will review our financial results and updated 2026 outlook. Thereafter, we'll be happy to take your questions. Victor?

Thanks, Laura. Good morning, and welcome, everyone, to our first quarter call. 2026 is off to a strong start, building on decisive actions we took last year. We delivered improvement in both occupancy and cash flow, sequentially growing FFO in total and on a per share basis.

We signed over 500,000 square feet of office leases, our third consecutive quarter of occupancy gains, supported by leasing pipelines that remain robust. On the studio side, prime locations are performing and operational streamlining at Quixote continues to drive annualized savings.

We also achieved substantial year-over-year reductions in G&A, maintained total liquidity in excess of $930 million with our credit facility fully undrawn and advanced an active pipeline of FFO accretive dispositions. From a macro perspective, a record $267 billion of venture capital was deployed in the first quarter, fueled by large-scale AI financings and broad investment across adjacent sectors.

That capital is translating into leasing activity. Well-funded tech and AI-focused companies are accelerating demand across our West Coast markets, while more traditional office users are reengaging on either new leases or expansions.

The Bay Area, obviously, is leading. San Francisco had a record 2.3 million square feet of positive absorption, capping the strongest sixth quarter run of occupancy growth to date. Leasing activity reached 4.1 million square feet and AI-related tenants accounted for nearly 60% of total volume and asking rents rose close to 4% year-over-year.

Silicon Valley extended its momentum with a sixth consecutive quarter of occupancy growth. The Peninsula is also showing further signs of positive inflection, particularly in Redwood City and Foster City, where our assets are concentrated. The Puget Sound posted its second consecutive quarter of positive absorption.

Downtown Seattle is beginning to capture its share of AI and tech demand and our portfolio quality positions us to benefit as activity further extends from the east side to the urban core. In Los Angeles, fundamentals remain challenged, but with our own limited near-term availability concentrated in one well-leased top-tier asset, we can be patient as conditions strengthen.

Turning to Studios. U.S. production activity remains subdued, but the flight to quality is real. Our Hollywood stages are 97% leased and Sunset Pier 94 reached 100% leased within the first quarter of operations. The leasing results made it clear. These are the right assets in the right locations. We're actively refining our studio portfolio to focus on the highest performing assets and lines of businesses.

And on Quixote, we're making the necessary and quite frankly, difficult decisions. As announced, Quixote will wind down leased sound stage facilities and Atlanta area operations. We remain committed to ensuring Quixote is earnings neutral by year-end.

On capital recycling, we're in various stages on asset sales targeting approximately $200 million this year, and these are all FFO accretive noncore dispositions. We have a buyer and agreed price at 10950 Washington as well as another asset under contract.

As we look ahead, both occupancy and our leasing pipeline should remain strong. We're making the hard calls and continue to ensure our overhead is controlled. Our disposition pipeline remains on track, and we have ample liquidity and a clear executable path to FFO growth through the balance of the year. And with that, I'll turn the call over to Mark.

Thanks, Victor. Our leasing momentum continued to translate into tangible occupancy gains in the first quarter. We signed 554,000 square feet of leases, 49% of which were new leases, driving our in-service office portfolio occupancy to 77.8%, up 150 basis points sequentially and our lease rate to 78.4%, up 140 basis points sequentially.

Occupancy improved across our core regions, except for Vancouver, where the lease percentage increased 110 basis points to 94.3%. On lease economics, GAAP rents increased 1.8%, while cash rents declined 2.4%, representing sequential improvement in these metrics by 140 and 660 basis points, respectively. Net effective rents rose 4% sequentially, though were down 2% year-over-year with the latter comparison influenced by the large prior year lease with the City and County at 1455 Market.

We have excellent visibility into continued occupancy growth. Our leasing pipeline increased again to 2.4 million square feet, up 13% year-over-year, and we had 2.2 million square feet of tours in the quarter, up over 30% year-over-year. Our third lease with the City and County of San Francisco, which effectively absorbs the remaining vacancy at 1455 Market remains on track to be finalized in the second quarter.

We have close to 60% coverage deals in leases, LOIs or proposals on approximately 600,000 square feet expiring for the remainder of the year, including full coverage on PayPal at Fourth & Traction and 80% coverage on Dell at 875 Power.

At Washington 1000, tenant interest has increased meaningfully. We now have coverage for approximately 60% of the project. To meet demand for prebuilt space, we will deliver 70,000 square feet of move-in ready suites in the second quarter. We're in late-stage negotiations with an amenity provider for the first and second floors to further enhance the property's marketability.

Beyond that, we're in negotiations with 7 office using tenants, primarily growth-oriented tech and tech-enabled companies with requirements ranging from under 10,000 to over 100,000 square feet. Turning to studios. Our in-service stages were 72.8% leased over the trailing 3 months. Excluding Pier 94, which was placed in service this quarter and where stages went from 0 to 100% leased during the quarter, our in-service stages would have been 78.2% leased, up 370 basis points sequentially, driven by the lease-up of Sunset Las Palmas.

As Victor noted, our Hollywood stages, Sunset Bronson, Gower and Las Palmas were 97% leased over the trailing 3 months, up 280 basis points. Studio revenue was off $2.4 million sequentially, attributable to lower demand for f Quixote's Lighting and Grip Prosupplies and fleet.

Despite expenses being $2.1 million lower, this led to a sequential $300,000 decrease in studio NOI to $1.5 million. That said, Sunset Studio NOI, excluding Quixote, increased $1 million sequentially and was up $1.8 million year-over-year to $7.4 million, driven by the lease-up at Sunset Las Palmas and increased production activity at Sunset Bronson. On Quixote, the wind down of lease sound stage facilities and Atlanta area operations would equate to approximately $5.8 million of annual cash NOI improvement.

Finally, we continue to actively explore adaptive reuse opportunities across our portfolio. In the second quarter, we'll submit for reentitlement of 901 Market's 164,000 square foot office component as residential with expected resolution by year-end. We're also evaluating the potential to redevelop excess surface parking at select assets across Palo Alto, Redwood Shores and Foster City as mixed use.

These initiatives, along with others under evaluation, allow us to better align our portfolio with market demand while leveraging our deep entitlement and redevelopment expertise. And now I'll turn the call over to Harout.

Thanks, Mark. I'll walk through our first quarter results and updated 2026 outlook. Total revenues were $181.9 million compared to $198.5 million in the prior year, primarily due to the sale of Element LA and office tenant move-outs, most specifically Uber's departure from 1465 Market midway through the first quarter of 2025, with studio production activity remaining stable.

G&A declined 32% to $12.6 million compared to $18.5 million in the prior year, further reflecting the progress we've made to streamline our cost structure. Core FFO increased to $16.5 million or $0.25 per diluted share, up from $12.9 million or $0.61 per diluted share in the prior year. Adjustments to FFO totaled $1.5 million or $0.02 per diluted share compared to $9.8 million or $0.47 per diluted share in the prior year. Same-store cash NOI was $85.2 million compared to $92 million in the prior year, driven by lower office revenues from tenant move-outs, again, largely Uber's departure at 1455 Market, partially offset by higher studio revenue from increased production activity at our Hollywood assets.

On our balance sheet, total liquidity of $933 million includes $138 million of cash and full availability of $795 million on our credit facility. Interest expense was 13% lower year-over-year, representing $5.5 million of savings, and all of our debt was fixed or capped. We continue to work with our partner on a resolution for the Hollywood Media portfolio loan maturity. Conversations with the lender as well as those with Netflix regarding their long-term space needs are productive and ongoing.

Turning to our updated 2026 outlook. We're increasing our full year core FFO range to $1.10 to $1.18 per diluted share, up from the prior range of $0.96 to $1.06. This revised range reflects 2 key drivers. First, approximately $0.04 of outperformance in the first quarter compared to our initial expectations. Super parking revenue, lower repairs and maintenance expense and favorable CAM reconciliations account for the outperformance. Second, a $0.09 benefit from the reclassification of Quixote's leased sound stages and Atlanta area operations as discontinued operations beginning in the second quarter of 2026.

Note, the $0.09 benefit is based upon projections for the discontinued operations included in our previously provided full year outlook. As always, our outlook excludes potential dispositions, acquisitions or capital market activity. With that, I'll turn the call over to Victor.

Thanks, Harout. Let me bring it together. The first quarter demonstrates that our markets are recovering. But importantly, the deliberate decisions we're making ensure Hudson Pacific can capture this recovery better than most. Our outlook is up, occupancy is growing. Prime studios are performing and Quixote's drag is being addressed.

And we're doing all this while keeping our liquidity and balance sheet intact. Each of these actions reinforces the same outcome, a clear incredible path to FFO growth through the balance of 2026. That's what we're committed to do. Thank you for your continued interest in HPP. Operator, now I'd like you to open the line for any questions.

[Operator Instructions] Your first question is from Dylan Burzinski with Green Street.

Maybe if you can sort of just talk about just what you're seeing in the overall capital markets environment. Has pricing changed at all? Are you seeing any change to buyer appetite? And then maybe if you can just talk a little bit further about the deal that you said you have a pricing set.

I think in the past, you've talked about various ways that can go, but it sounds like you guys are now going to fully dispose of that piece. Is that sort of correct?

Yes, Dylan, it's Victor. Thanks. Let's -- first of all, we'll take the second question first. On 10950, we're fully disposing of it. We indicated on our last call, we had a series of offers on JVs and on outright sales. On the outright sale number that we've agreed upon and are about to go under contract, but the diligence time frame has been clicking. It's a deal that we just felt compelled that it was a good enough price, better than good enough and it exceeded our expectations to where a JV structure would have been more applicable.

And so yes, we are selling that asset, and that's going to -- currently today, that's going very well. In terms of the overall marketplace, I can give you sort of a high level in the 3 markets that we're in, start in Seattle, 505 First as an example, had a series of people that were interested at a fairly high price per foot on a leased asset that is probably 50% of it needs repositioning in the marketplace.

Pleasantly surprised at the activity around that. There has been a couple of deals in Bellevue that are priced relatively aligned to what we would say is the new market cap rate pricing in the 5.5% to 6.5% range for stabilized WALT assets.

And then people are looking right now at a couple of assets in Seattle at more buying vacancy. I think that trend started in the Bay Area, where we've seen quite a number of assets trade that are vacant assets that are more inclined for value-added upside than we used to see WALT assets. But the material numbers in both those markets are still nowhere near where peak activity is. There's a few more coming to market second half of this year that we were indicated will come out at some pretty good pricing levels.

We mentioned that we have an asset on the market right now. We've got 120 NDAs signed and a lot of activity. That's a value-add asset in the Bay Area. So I think that's indicative of where the market is. I would say closer to home in Los Angeles, where our corporate offices are, as you know, we're really seeing very little activity on the West side, very little activity in all of the markets even in the South Bay of sales at this time.

So we haven't seen that. There's a couple of deals that are being tossed around at some good price per foot numbers, but not good yield numbers right now in the Southern California marketplace.

That's helpful, Victor. I really appreciate that color. And then just maybe one on sort of the overall demand environment. It sounds like things continue to pick up and you're seeing increased activity in Seattle coming out of Bellevue. Can you just talk about sort of any of the reasons why you think or what is sort of causing this continuation of accelerated leasing activity across your guys' footprint?

Yes. As I mentioned in my prepared remarks and then Mark followed up on it, sort of 50-plus percent of it is tech and tech-related and AI-related leasing activity. I think the most interesting aspects are -- you know what's happening in the Bay Area, but if you really permeate down into the Silicon Valley from Foster City, Redwood City, Redwood Shores all the way through to Palo Alto, Mountain View and then even North San Jose, what we're seeing is an influx of larger tenants.

I think last quarter, our team said there was 6 transactions over 100,000 square feet and 2 were 450,000 square feet. So we're seeing that activity start to permeate to take space off the marketplace. The kind of space that's getting off the market is 2 levels. One is space that is built out and ready to occupy. And two is space that has energy efficiencies for additional power. And fortunately, from our standpoint, we have an asset like that in the market today that's getting some pretty interesting activity around that because we have a lot of power on our asset in North San Jose.

So we think the marketplace is shifting to that. I think you're seeing in San Francisco, the same trends of tech and AI related. But fire-related from our standpoint, has been very consistent. In Seattle, we are finally seeing that turn of Puget Sound positive absorption. It was led by Bellevue clearly. And we're seeing the activity in that marketplace consistently pick up quarter after quarter. And then lastly, in Los Angeles, I think it's definitely bottomed out. We have little exposure here, but the exposure that we do have is very active. We've got a couple of hundred thousand square feet of proposals in the marketplace today, and the rates are as good as we've seen them since 2019. Art, do you want to comment any further?

No, I think you said it.

Your next question is from the line of Alexander Goldfarb with Piper Sandler.

Great to see vibrancy back in office. So well done. So 2 questions. First, Harout, can you just go through the mechanics on the Quixote wind down, the $0.09 discounts, like just what the mechanics are of how that impacts the guidance.

Clearly, I understand the outperformance, the strong leasing, that makes sense for raising guidance, but it's the $0.09 part, just want a little bit more clarity on.

Sure, Alex. So all that is in our previous guidance, we had assumed $0.09 related to the items that we're specifying and winding down. So all we're doing is removing that from our continuing operations or core FFO, and that's what we're going to remove effectively. It's really that simple. So on a go-forward basis, that's no longer going to drag earnings.

Okay. Got it. Got it. So that drag that's no longer there. Perfect. Okay. And then Victor, bigger picture, Netflix, they were in the news a few weeks ago, possibly buying the Hackman CBS studio.

Can you just give a little bit more color on what you think that would mean? Obviously, you guys built a very nice project office, et cetera. I don't know the age of the CBS Studios. It sounds like it's been there a long time given the shows that have been produced. So I don't know what the physical plant is like and if that's even something that they conceivably could consolidate to, but would certainly appreciate your perspective.

So from a color standpoint, I'm going to sort of get it out of the way, so we don't get asked throughout the call, Alex, and I appreciate the comments.

With the conversation around Netflix, obviously, in difference to the tenant and our conversations with them, I can't talk about what's going on. But suffice to say that our relationship is intact and it's positive.

On the Radford situation and what their intent is, I know we've had conversations with them. Again, it's a 21 sound states facility that is really directed to production and creative production as a campus. There's very little office on that campus right now, and the office that is intact is leased to CBS for a long period of time.

And so whether or not they buy it is really up to them, and it's going to be a campus facility for sound stages, that's their call. But it's not going to interfere with our relationship with them and our conversations with them going forward.

Your next question is from Seth Bergey with Citi.

I guess just the first one on the Washington 1000 comment. You mentioned some activity kind of on that space, which is a positive. But kind of can you give some color on what stages those kind of negotiations are in?

Yes. I'll sort of talk top level and let Art jump in, in terms of the activity. The activity has increased dramatically. We mentioned on our last call, we're in the final phase this month of opening up our spec suites there, which the activity around those has been very strong.

A couple of floors of negotiations on that. As we mentioned, ready space is ready space and people are interested in moving in a ready space. The building is in phenomenal shape. The amenities that we're putting through the building are very well accepted in the marketplace. And we're starting to see not just smaller tenants and what I mean by smaller is 15,000 to 40,000 square footers, but now we've got 400 or 500 over 100,000 square foot tenants that are in the marketplace that we are their first, second or third choice.

Art, you can comment on where we stand.

Yes. Victor touched on a couple of things that are important to note. Just the greater demand, we talked about earlier, greater demand in Seattle has picked up tremendously. We're benefiting from the tightness of the market in Bellevue. We're benefiting from -- we have benefited from the diminishing trophy subtly space that had been on the market, and we're starting to see these tenants out in the market that were kind of greater people now focusing on the downtown core.

By comparison, our tours have increased, and we talked about tours increasing, well, they haven't increased anywhere more than in Seattle. The tour activity was up, quarter-over-quarter, it was up 20%. And in the pipeline, the pipeline is now 25% of our entire pipeline is in Seattle.

So that tells you about kind of the depth of the demand out there and our team's ability to pull those deals forward. Washington 1000 is also benefiting from this. We've got 7 deals, as we mentioned in the prepared remarks. 4 of these deals, these are deals in negotiation. 4 of these deals are on the ready move-in ready suites that Victor just alluded to. They'll deliver this month. And as that is approaching tenants are getting more -- really more excited about the delivery of this space.

These are high-growth tenants that perhaps weren't in the market before or have a small presence, mainly tech, and we're capturing that activity in a big way. Your question at the top of the call was what is the stage of these deals. I will say that they're all in negotiations. 2 of the deals, which are for the ready-built suites are in later-stage negotiations. We're not in leases, but we are hopeful that with the momentum we've had thus far that in the coming quarters, we'll execute on the ready-built suites.

Great. And then just a bit more broadly on kind of the pipeline. Just how much of that pipeline is kind of the -- kind of AI tech demand that you cited? And for those types of tenants, what's kind of the average deal size? And then just any changes in terms of how quickly that's kind of converting or late stage versus early stage?

Yes. So it's really market to market, it's all over the board. But we are -- I would say, for our pipeline and the deals that we are negotiating on right now and even the deals that we're touring are some of the smaller deals, some of the smaller deals are early-stage funding. There are -- and we have captured some larger deals that is to say, 50,000 square feet or greater.

I would say, but the bread and butter is really closer to about 10,000, 15,000 square feet. A lot of these tenants, especially the smaller ones, are looking for ready-built space. They're looking for space that is high-end second-gen build-outs. Obviously, the spend is top of mind for many of these tenants, highly amenitized space, which really is our wheelhouse.

And so we've done a great job across the portfolio of capitalizing on these AI tenants. It has increased in our portfolio from 10% of our deals in negotiation [ RSA ] pipeline to about 25% of all the tech deals that we're seeing.

And that's just across the board. Obviously, across the Valley and in San Francisco, the number is greater than that.

Yes, Seth, just a little follow-up to that. As I mentioned earlier, if you look at the entire Bay Area, we are benefiting from these larger deals that have finally come to fruition. And as I said, there's 6 deals that were completed last quarter at big numbers. So that's taken a lot of space off the marketplace, which helps our portfolio and all our peer portfolios around. And we're seeing that impact immediately.

Your next question is from Ronald Kamdem with Morgan Stanley.

Great. Just 2 quick ones. Starting with the same-store NOI guidance, just in terms of the cadence, maybe can you talk about sort of the rest of the year when we should expect that inflection to get to the middle of the range? And is that primarily driven by commencements?

Ron, good talking to you. So yes, so I think we previously said the first quarter was going to be our weakest quarter, primarily driven by 455 Market Uber specifically moving out last year and that reflected.

And then we expect the rest of the year to improve primarily. We expect the third quarter to be -- sorry, we expect the second quarter to improve, maybe a bit weaker in the third quarter and then again to improve again in the fourth quarter. So that's kind of the cadence for the rest of the year. But obviously, much stronger than the first quarter.

Got it. That makes sense. And then just a quick one on the AFFO. Obviously, negative because of the elevated recurring CapEx. Just any line of sight as you're getting through a lot of these leasing when that CapEx run rate could start to sort of moderate and how we should think about that?

Ron, yes, we were looking at it the latest sort of estimates just recently. For the rest of the year, it looks to us like it's going to average pretty close to where first quarter TILC and recurring CapEx shook out.

If you kind of do the math on core FFO for the balance of the year, it points to higher FFO per quarter than we posted in the first quarter. So assuming the TILCs recurring are close to what first quarter results are, but FFO is modestly higher, our expectation is that AFFO for the balance of the year should be at least as good, if not modestly better than first quarter results.

Your next question is from Rich Anderson with Cantor Fitzgerald.

Any impact from your disposition activity on the occupancy and lease gains that you've seen during the quarter?

Not dispositions. We did, as we announced sort of, I want to say, at least a quarter ago, we are repositioning and reentitling 901 Market, so we took footage off for repositioning just the office component. And then 60-40 likewise, is going to be fully repositioned.

It was used for decades as a post production. Neither of these assets are particularly big. They were in our fourth quarter results. If you remove and they're not in our first quarter results, but if you remove them, just to kind of give you an apples-to-apples comparison from our first quarter, you're still sequentially higher.

So the 150 on the lease percentage drops to 140 if you pulled 60-40 and 901 out of the fourth quarter results and the 100 sequential increase drops to 80 without either of those 2 assets.

Okay. So 10 or 20 basis points impact. When you talk about the wind down of Quixote, I think it was mentioned $5.8 million of upside from just exiting the leases.

I just correct me if I have that wrong. But I'm curious along -- as you get to that point, are we looking at potential some onetime lease termination fees or costs to you or anything like that, that's going to make it a sort of a nonlinear process to get?

Yes. I mean it's just the nature of discontinuing operations, right? We're going to wind down revenue. We're going to wind down expense. We're going to manage that as cost effectively as we can.

Lease -- as you look at getting out of leases early, that often entails some kind of payment. So I would say, over the course of the year, we'll be incurring some expense associated with discontinuing those ongoing leases and other wind-down expenses -- towards that number, yes.

And so at the end of the day, is it -- should we just think of you guys sort of keeping the fleet but not the leases? Is that the way to think about it outside of Atlanta?

Yes. So far, based on what we've announced on discontinued ops, the fleet is still part of our continuing operations.

Okay. And then last question for me. Mark, you mentioned 60% coverage on the remaining 600,000 square feet. I assume you'd rather see 100% or more on that. But I mean, what -- with the sort of the leasing pipeline that we've talked about in the past, 2 million square feet or so, I mean, how quickly can that 60 ramp up to something in the triple-digit territory by this time next quarter?

Yes. I'll answer that, Rich. This is Art. Yes. So first of all, the pipeline has grown to 2.4 million, so significantly 2 million square feet, just to clarify that. Just remember, so we have -- of the remaining 606,000 square feet, roughly 70% are second half of the year.

Although we are engaged earlier with the smaller tenants roughly averaging about 6,000 square feet. Once we start negotiating with those tenants, we feel good that we can increase that number. But again, some of these smaller tenants wait until kind of last minute. And the good news is that we are engaged with them right now in discussion, whereas years past and certainly through the pandemic, it was really -- there was really no early discussion with these tenants. So we are encouraged about that. They just feel more confident.

Yes, Rich, I would also just comment. I mean, emphasize that we just announced some first quarter numbers. We have 3 more quarters. The expirations aren't all in the first quarter. They're spread out for the year. And we've consistently increased occupancy quarter-over-quarter and signed at least 0.5 million plus square feet a quarter.

So that number match to what we've done in the past and what we foresee in the future compared to the 600 is not that material.

Your next question is from Andrew Berger with Bank of America.

Congratulations on the strong quarter. So it sounds like Seattle is definitely improving. And you've said in the past that Seattle is typically 12 to 18 months behind San Francisco. I'm curious if you could talk about how much of this improvement in Seattle is existing tenants that are now starting to get more active versus new-to-market tenants.

And if you're seeing given your scale in San Francisco Bay Area, if you're seeing smaller AI tenants, I guess, who are already in your portfolio in the Bay Area now grow into Seattle.

Drew, that's a good question. And I think we look at it in 2 levels. One, name brand tenants are entering Seattle or expanding in Seattle, a combination of both. Apple, as an example, people know they're in the marketplace. REI, they're in the marketplace. You're looking at Microsoft in the city and in Bellevue, they're in the marketplace.

Amazon has not clearly been growing. They've been contracting. But the big name guys, XAI, example, are in the marketplace. Now you're seeing a shift because of the labor pool of other smaller tech and tech affiliated companies and then support companies around that are expanding and looking to expand because Bellevue is populated itself to a point where there's not a lot of space that's quality that's left. So they're coming to the city in the core aspects of South Lake Union and Denny and Pioneer Square. And that's sort of the area that we're tackling.

I think if you look at our pipeline right now, we've got more tenants in the [ 15 to 40 ] range than we've had in a long time. There's a couple, as I mentioned earlier, large 100,000 footers and their ability to execute leases on an expedited basis is based upon the fact that there's access to space immediately. That's what we're trying to accommodate with our portfolio.

And success-wise, I think we're positioned very well. I sort of laugh at the comment about -- because I've said it now on 3 calls that Seattle is 12 to 18 months behind San Francisco. So that time line should hopefully blossom in terms of the 12 months expiring, but we should see it this summer because that's really where it is. It is slower than that. I would lean more to the 18 months than the 12 months, but we're still seeing it, and it's at least on a positive trend.

Great. And I wanted to get your view on Bellevue actually. So a lot of great momentum there, and it sounds like there's good spillover into Seattle proper. Is Bellevue a market that you would like to have a presence in as we think over the medium term? And what would be your strategy to entering just kind of given the dynamics you've talked about so far?

So it's seamless for us to enter that marketplace. And the answer is every time we sort of looked at it, the market popped. And every time we sort of said, let's not go in, it's gone the other way.

I would say, yes, as an owner in the area, I think we're top 4 owners in Seattle right now. And so yes, it would make logical sense for us to eventually enter that marketplace at the right time.

Right now, though, there's not a lot of product in the product that's there is just being held and leased. Our goal in Seattle is to lease up our portfolio. I think we're going to be right on track on doing that. Once we get through that, we'll address the expansion if that's the direction we want to go in. But Bellevue has proved to be a very, very strong marketplace and the benefactors of Bellevue have done very well. We're just hoping now that we get to see the flow to the city.

[Operator Instructions] Our next question will be from Caitlin Burrows with Goldman Sachs.

Maybe to stay on Seattle some more back to Washington 1000. I think you mentioned 7 deals in process, 4 could be for spec suites where someone could move in. I guess for the other potentially larger leases, say, 100,000 square feet or more, how long do you think it would take them to build out their space and be ready to move in if they signed a lease near term? Like would that take 1, 6, 12 months?

Yes, that's exactly right.

12 months, call it.

Okay. And then earlier in the call, you mentioned that you could be looking at some surface parking redevelopments in the San Francisco Bay Area. So just wondering if you could talk about that a little bit more.

Perhaps it's still early stages, but would that be like a retail type outparcel or ground lease of land? Or what could you be thinking?

Yes. I mean, as you know, a lot of cities throughout California are undersupplied on housing. And those municipalities are looking for ways to be -- to work with landowners to add density where there's land availability.

And so we have several locations, Palo Alto, Redwood Shores, Foster City, where the configuration of the land and the goals of the municipality to add density sort of line up very well. And so we are exploring opportunities in most cases, just to like add density where we can. There may be limited opportunities for conversion. But really, the emphasis is on adding densification.

Your next question is from John Kim with BMO Capital Markets.

I wanted to ask a similar question on your resi conversion at 901 Market. Is it safe to assume that you are planning to entitle the residential development and then sell it to a developer? And can you discuss timing as well as other resi conversions that you see either in your portfolio or in the city?

Yes. So I mean, I think we mentioned in our prepared remarks the timing for securing the entitlements we're targeting somewhere around year-end. As for the...

Yes. I think, John, listen, we like at 10950 and we're looking at Palo Alto, we're going to address what our decision tree is based on when we get the entitlements. It will be worth a lot more once the entitlements are in play.

And that process, as Mark said, is ongoing right now, and we feel good about year-end on that. At that time, we're going to look at the market. We're going to look at the amount of product coming in the marketplace, whether it's a JV, whether it's a sale or we do it ourselves, but we'll make that determination at that time.

Okay. And can you clarify your statements on the city of San Francisco taking your remaining space at 1455 Market? I'm just wondering what the confidence level you have on them signing that lease transaction and if that impacts your occupancy guidance for the year?

Well, we've talked about that deal quite extensively. I mean the impact on occupancy has been outlined. And in terms of the status of that deal, I don't see the pen in the hand of the mayor, but we hope that it's getting to that point relatively soon. And I think we're confident that we're going to execute that as we said this quarter.

There are no further questions at this time. I will now turn the call back to Victor Coleman, Chief Executive Officer and Chairman, for closing remarks.

I thank you very much for participating in today's call. I appreciate the team at Hudson for all the hard work, and we look forward to talking to everybody next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Victor, we'll now turn it over to you to introduce your company and team, provide any opening remarks, tell the audience the top reasons that investors should buy your stock today, and then we can get into Q&A. You just tap the -- there we go.

Thank you, Seth. Welcome, everybody. It's great to be here at Citi's Annual Conference. To my immediate right is our President, Mark Lammas; to my immediate left is our Executive Vice President of Leasing; Arthur Suazo, and to left of art is our Executive Vice President of Marketing Investments, Laura Campbell. And it's a pleasure to be here, as I mentioned.

Hudson Pacific is a West Coast founded REIT owning high-quality office and studio assets in innovation and content epicenters. Our 19 million square foot portfolio spans the Bay Area, Los Angeles, Seattle and Vancouver with a recently opened studio in New York. I'm going to frame this conversation briefly around 2 themes. First theme is the 2025 reset that the foundation of the company, Hudson Pacific has put in place. And then second, how 2026 is capturing our flight to quality and driving our earnings growth. We just had our conference call -- quarterly conference call last Thursday. So there's obviously, current information is straight out there. It's only 48 hours old.

But starting in 2025, this was truly a foundation year for the company. We strengthened our balance sheet through $330 million of asset sales and over $2 billion of capital transactions and reduced our net debt by 22% and nearly doubling our liquidity to $934 million. So we materially improved our financial flexibility and extended our runway. We optimized our cost structure in the company by achieving $26 million in G&A and interest savings and locking up $25 million of annualized reductions in our Quixote investment.

Our leasing momentum accelerated with 518,000 square feet of leases that were signed in the fourth quarter, and our occupancy increased by 40 basis points sequentially, and we achieved our second highest quarter of positive net absorption. And for the full year, we signed 2.2 million square feet, which is our second longest -- strongest annual leasing quarter since 2019. And in terms of our studio business, it continued to perform our Hollywood business, which is the Sunset Studios. We're over 86% leased and Sunset Pier 94, as I said, we just started and we're fully leased out of the gate on that asset in New York.

So with '26, the position is our balance sheet strength, lower cost and improving our fundamentals. And I'm going to focus on the execution because that's the priority here. We're going to accelerate our occupancy growth, which we mentioned. We have 2.3 million square feet of pipeline, up 15% year-over-year and only 1 million square feet of assets that are -- leases that are expiring in 2026. So we have strong coverage throughout our portfolio. Our objective is very clear and concise, and we mentioned this on our call. We're going to push our occupancy beyond 80% to 82% on average for the outlook at the year-end. And second, we're going to unlock our embedded NOI in the company. As lease-up converts to cash flow, we expect sequential FFO growth as we progress through the year.

Third, we had mentioned our Quixote investment, which has not been our best investment. We're going to target for that company a breakeven by the end of the year through operational improvements, which we have many alternatives. And fourth, we're going to have a disciplined capital recycling plan. We target somewhere between $200 million and $300 million of FFO accretive sales to further delever the company, and we're going to deploy capital within the existing portfolio only when returns are clear, attractive and risk-adjusted.

So as we see market tailwinds in our markets like San Francisco, which posted a 2.5 million square foot absorption, third highest on record, our Silicon Valley, which is our second largest marketplace with 2.9 million square feet of positive absorption and obviously, the AI-driven formation in the Bay Area and Seattle. So for our investors, the story is very straightforward. We will deleverage our balance sheet. We've done that very well in '25. We're going to continue in '26. Our embedded occupancy, which is going to be consistent with last year, West Coast office fundamentals, which everybody sees as a tailwind, which is a clear path to our FFO accretion and inflection, which is on the upswing. So we're positioned very well so far, the quarter has been good. Our quarterly call was excellent, and we have meaningful upside for 2026.

So with that, Seth, I'll turn it back over to you.

Great. Maybe just following up on a few of those points. You reinstated full year FFO guidance for the first time in nearly 2 years. What specific macro or market signals kind of gave you the conviction to issue the full year outlook now?

So first and foremost, I think it's the stability of leasing. As I said, with 2.3 million square feet in the pipeline and the lowest year we've had in 6 years on expirations, we felt very comfortable on our execution. We've been executing approximately 0.5 million square feet a quarter. So that gets us well within the range of our FFO accretion and for us to feel comfortable with our year-end guidance. Secondarily, I think our lower cost, as I mentioned, between interest expense and our G&A, which is stabilized now going forward and potentially it could be lower, but in terms of the model, we've stabilized that.

And then third and most importantly, the flattening of Quixote. We sort of feel by the end of this year with our multiple opportunities, we're going to turn around and make that at worst-case scenario is 0, and from that point on, we'll see where it goes.

Great. And then how much of kind of the 2026 FFO uplift is recurring NOI versus nonrecurring items like lease termination payments?

Yes, there's no nonrecurring items in the guidance.

And then you kind of mentioned HPP is a fundamentally transformed company. What are the kind of 3 most kind of material structure changes investors should underwrite kind of going forward about the company?

So listen, I think there's a lot more than 3 but I'll just highlight a few of them, as I said. So first and foremost, you have to look at 87% of our portfolio is office. We get 95% of the attention in the studio business, of which 13% over 60% of it stabilized leased in our Sunset vehicle. The remainder, which is going in deteriorating growth mode, which is our Quixote business, which we say we're going to get to 0. The market is valued that at less than 0. So we feel at 0, we're in pretty good shape. But focus on the upside, which is the leasing, which is the West Coast office market, which is the fundamental increases that we have in our opportunity here. You're seeing our FFO growth and our FFO growth last year, obviously improved. And next 2 years, it looks like it's on a trajectory well beyond anybody's current underwriting, and we feel comfortable with that.

I think lastly -- or secondarily, the return to office has been a lag on the West Coast. We finally have the wind behind us in all major markets that we're in, we're seeing activity with the exception. I think the worst market would be Los Angeles. Our Los Angeles portfolio is 100% leased for the most part. And so we don't have a lot of concerns there. But in terms of the Bay Area, specifically in the Valley and in San Francisco, we're seeing that upshift. And in Seattle now, we always said Seattle was going to be a 12- to 18-month trail to San Francisco, and now we're seeing that capacity. And Art and his team are seeing more 100,000 square foot tenants in that marketplace, which absorption in Bellevue is virtually 100% and the vacancy in Seattle is moving now to almost flat with sublease space.

So we're seeing that momentum shift. And so we're going to capitalize on that. We have Class A assets in Class A markets. We don't have a lot of peripheral marketplaces that we have any exposure in. And so we can see that growth prospect to be very high for us.

And then you referenced kind of a line of sight to sequential FFO growth starting in the second quarter. What specifically happens in 2Q? Is that rent commitments? Anything on the studio business with the uplift there or kind of any cost savings?

Yes. It's all rent commencements. There's nothing special going on either in cost reduction or in the studio business. It's really just an uplift in second quarter commencements. And importantly, as we've mentioned in the past, the city of San Francisco lease.

And the expiration in the end of first quarter. That shifts...

That's on same-store. Yes, that's -- you're asking about FFO cadence and yes, it's rent commencements. But what Victor is referring to, if you're interested in, is in shifting over to the same-store NOI year-over-year comparison, we do -- first quarter of last year included Square. It expired in that quarter. So when you look ahead on same-store comparison, we'll -- starting in the second quarter, we'll no longer be sort of weaned down, if you will, by the prior year block lease as of the end of the first quarter.

And then you've talked about kind of accelerating leasing activity in all your markets. AI has obviously been very topical among the headlines over the past couple of weeks with some job reductions. How is that kind of framing your outlook as you think about the markets? And is that coming up in any of your conversations with tenants as they think about future needs for space?

So obviously, the catalyst of AI growth is in the Bay Area, right? That's #1 in the country. I think Seattle is and Boston are sort of a close second and third, second, depending on what markets you're in. Our underwriting has been consistent throughout. We're always going to underwrite the credit of these tenants, and we're always going to have a consistent game plan around that. Our AI consumption of tenants in the portfolio is fairly limited. But we believe it's a massively strong point for the Bay Area. I think it's very early on in people evaluating cost cutting and the likes of that. We look at the formation of the core businesses that people aren't talking about in our markets, right? It's education, it's government, it's healthcare. These businesses are growing and flourishing. I mean we're talking about maybe a component of FIRE, which is potentially legal and accounting.

And to date, we've seen no impact. We've seen no tenants coming back to us for shrinking space. It's quite the contrary because of AI and the growth in the markets, the ancillary businesses are growing in all of our marketplaces. Our average lease terms are up year-over-year for the last 3 consecutive years. And our size of leases that we're seeing is also up year-over-year. So I think it's consistent with our portfolio. It's a quality play. Quality assets are going to lease up. Given the complexity of the tenants, we'll see what the credit is. But we're not going to look at a classification of saying AI, and we're not going to lease to them. And we're also going to evaluate every tenant as they come.

And then kind of on that with continuing with leasing a little bit. Your guidance is the 80% to 82% being a bit maybe back half weighted or second -- starting in the second quarter, that kind of implies you end the year at higher than 82%. How much of that kind of uplift from where you are now, which is the 76.3% is already signed versus -- is any of that kind of speculative or based on renewals? Or does anything need to happen to kind of get to that target?

Well, lots needs to happen to get to that target, clearly. But the tenants that are in play right now, so we classify them whether they're in leases in LOIs or they've toured space. And so when we're talking about a sort of a stabilized 82% by average for the year-end, that's just assuming the tenants that are negotiating with right now make. And we have a strong indication that the majority of the tenants are going to make. I mean a lot of it depends on a couple of large leases that we're working on right now and the comfort level of those getting executed is very high.

And then kind of -- on kind of that same topic, your expiration schedule at a 4-year low, so very kind of favorable heading into the year. What expirations or renewals represent kind of the biggest swing factors? And can you kind of walk through any maybe upcoming move-outs or things we should be aware of there?

Well, I don't want to negotiate our hand in public as to which tenants we're talking to and which we're not and what we're doing. But I can tell you, we've been conservative in our renewal. It's roughly around 50%. We think we're going to renew higher than 50%. It's going to be closer to the mid-60s. But the reality is, as you mentioned and as we pointed out in our prepared remarks, we only have 1 million square feet effectively expiring. If we do 0.5 million a quarter, which is what we've been doing, as I said, for the last 2 years, every single quarter on average, that means we renew effectively half of our renewals, then we have 3 quarters of stabilized space. It equates to the same thing. We think we're going to exceed that substantially, but that's where the averages come in.

And then of the pipeline, the 2.3 million square feet, maybe just breaking that down a little bit. What is kind of late stage of LOI in your decision? And like how are you thinking about that converting in the executed leases?

Sure. So we talked about the pipeline, 2.3 million square feet. Currently, it's very dynamic. But currently, we've got close to 500,000 feet of deals in late-stage LOI or leases. Our execution rate on those is roughly about 95% once you get there. That number is dynamic. So we're going to get those done and the deals that are early stage, the team has done an excellent job of moving them forward, which is why we have all the confidence in the world about getting more into leases and executed.

And then maybe shifting gears a little bit to the studio business. You took the impairment on Quixote this quarter. Is that kind of just a clearing of the decks and then you have kind of the breakeven by year-end. But just kind of what's your outlook there? Can you talk a bit about kind of the tax credits and the pipeline of activity that you're seeing from that? And then maybe just layering on kind of there's obviously been transactions discussed with some of the large media companies. Just how does that inform kind of demand for space? And what is your thoughts there?

Sure. I'll take the first part, and I'll flip over the Quixote right down to Mark in a second. So if you look at the overall industry, clearly, there's a ton of eyeballs on it. The #1 M&A transaction in this year, whether it closes this year or not, Netflix was in the pole position. They're clearly out now. It's paramount. It's a much better situation for Hudson. We've got 775,000 square feet of office expiring in Netflix but not until 2031. Our conversations with them are fluid. I think there is definitely going to be some impact on consolidation with Paramount and Warner Bros. The impact is going to be a lot less than it would have been with Netflix but because they're buying the entire company and all the food groups of that company.

I think that the sort of the confusion around the conversation in studio business is clearly deals with just quality of information. So we have 2 companies. We have a Sunset platform and we have Quixote platform. In our sunset platform, we're virtually 100% leased high-quality space. We've got high-quality tenants. There's very little short-term leasing, and that consistent pattern has really proven out for us all the way through, whether consolidation or not. Second of all, you've got some pretty smart guys who are buying a $100-plus billion company. They're not thinking that the production world is going away, which the rest of the world has been mimicking and talking about that there's going to have to be any more production. Well, that's obviously not the case.

L.A. and New York have seen a rise in production with the downfall of other markets like Albuquerque, New Mexico, New Orleans, Louisiana, Atlanta, Georgia and a little bit of Chicago and Illinois. Those markets are much more depressed. The tax credits in both Los Angeles and New York have enhanced what we see is the production flow. The first part of this year is a little slower. We kind of feel that the input is going to go further. But we've looked at managing expectations around show counts at what they are right now, which is the all-time low. If it's better than that, then we're going to achieve a lot more.

As I mentioned earlier, the third business we have is Quixote. Yes, we've taken a write-down in that business. It's effectively -- when we bought Quixote, it's effectively one large office building of ours. It gets a tremendous amount of vision but it's one large building. That's all it is. And if we take a write-down on that, it's like making one bad deal. Obviously, clearly, it was not the best deal we've ever done. But if you compare that to everything else we've done, then we're doing okay. We think that we have multiple alternatives with that asset that we can make it 0 or at least flat at the end of the year. And those alternatives are, as I said, multiple. There's not just one course of action. There's many courses of action, and we're going to pick the right course of action over the near term, and we'll execute on that.

In terms of the depreciation, do you want to comment on that?

Yes. I mean, well, you kind of said it does, to some extent, clear the deck, not entirely but it does better align the operating results for the Quixote business to the impact that having depreciation relative to what was previously a much higher basis, the impact that not being able to add that back under the SEC sanctioned definition of FFO had to that metric, right? So you write it down, you lower the impact that the depreciation for that asset has on FFO. And I think it more closely aligns to its actual operating results now. You could argue that perhaps we ought to create a definition of core FFO that ignores the depreciation associated with that business as well. I would say the impairment gets us a little closer to that result in any event. And like I said, kind of better aligns it to its operating performance.

And then you've kind of mentioned several alternatives. Can you kind of elaborate on what you're thinking about now in terms of what that asset could look like? And then just how are you thinking about the cost structure of the Quixote business?

Well, I don't want to open my hands since we negotiate our position with certain constituents. But if you look at the business, the business is made up of 2 aspects. We've got assets that we lease and we have assets that we own. The beauty of the position we're in is both the assets that we lease and the assets that we own are unencumbered. So we have no debt in that business. So we have a tremendous amount of flexibility around the owned assets and the leased assets and the obligations of each. And so that should sort of lead you to sort of what we think we're going to work on based on lease-up and based on alternatives. And as I said, we're going to make the right decision on an asset-by-asset, lease-by-lease basis, and we've already accomplished that. I mean, we closed our offices in Albuquerque. We closed our offices in Louisiana. And so we've already made some effective decisions that have lowered the expenses on that business, and there's more to come.

Can you comment at all on how you think about maybe the stabilized earnings contribution from that?

Well, as we sit today, as we said, right now, it's a negative, and our goal is by the end of the year, it will be flat.

How are -- what are kind of the -- as you're thinking about kind of the Hollywood Media portfolio loan maturing, what kind of terms are under discussion? And what kind of contingency plans are there as you kind of engage with lenders?

Well, as I mentioned in our call in our prepared remarks on Thursday, I'm not going to negotiate in an open form our conversations with the lender that would open our hand. I think it's suffice to say that the loan itself is in conversation with us, our partner at Blackstone and with the lender at various different forms and functions at the stage. But it's like us saying who would negotiate with a tenant that expires in 5 years and 6 months from now, what tenant is going to talk to you. We have rent with the tenant until 2031 for 100% of the office. We have rent with the tenant through the studio business until almost 2028 across the board.

So we've got a lot of flexibility. There's a tremendous amount of cash flow, which exceeds any obligation with whether we rightsize the loan or not. So there's cash there. And I think our comfort level is to sort of sit down and be pragmatic and look at alternatives around the cash flow. And you would assume that, that will probably be some form of a cash sweep and an extension.

Maybe just turning back a little bit to kind of the office portfolio and leasing. Kind of going back to the pipeline, is there a way to measure how much of that is kind of true new net demand versus enter market relocations? And what's the kind of mix between expansions and renewals?

Yes. Expansion -- well, let me just start with your first part of the question. We're seeing about 30% to 35% of the pipeline being net growth, okay? We're seeing about 1/3 of that -- just about 1/3 of that is new to a market, right? Again, that's across the board. Obviously, those numbers are higher. They're escalated in San Francisco and in the Valley. But that's what we're seeing across the board. In terms of how much of the pipeline is new versus renew, it's currently at 75% new, 25% renew as we sit today. But again, it's very dynamic.

And then you mentioned kind of some of the technology and AI driving demand. How much of -- is there a way to quantify how much of the pipeline is AI or AI adjacent? And has that kind of accelerated over the past year?

It's definitely picked up over the last year. We're -- of our pipeline, 50% of our pipeline is tech, just general tech. And again, of that, we'll call it, roughly 1/3 is AI. And slightly higher in the city, in San Francisco and in the valley but we're not seeing much tech growth in Vancouver but we're very stable. We're seeing 30% tech now in Seattle, which sounds low compared to the Valley in San Francisco, but it's growing, right? We're kind of 12, 18 months behind but we're starting to see tech leak into Seattle plant their flags and grow and things like that. So...

And then our tech tenants and AI tenants, what type of spaces are they looking for? Are they looking for largely spec suite, smaller spaces, larger spaces? Any differences there in terms of lease terms that you're negotiating with those types of tenants?

Yes, I don't think there's any differences. But yes, I mean, the smaller tech tenants are looking for move in right away, right? So we have a spec suite program that we've been extremely successful. We've got 400,000 square feet of spec suites coming online. It's all being looked at by various different companies, not just tech or AI but all different companies. But that seems to be the sweet spot because they're smaller tenants. Obviously, the larger tenants are looking for much more improved space, customized space, a lot more open area. You've seen the increase of space to employees have gone up considerably to the low points. And so we're seeing that consistent going forward.

And then kind of as you drive occupancy, how do you kind of balance wanting to kind of have better kind of rent lease economics versus kind of just positive space absorption. Is there any way you're kind of changing the way you think about pricing or leasing activity just based off of.

Yes. That's a dynamic answer. It's going to change market to market. Those ideas are not mutually exclusive, right? We're always pushing rent. We're always trying to get a better deal. Some markets like Palo Alto, where tenants have urgency, obviously, you have a little bit more leverage, not all the markets there, even though we're recovering and we've turned -- we feel like we've turned the corner, right? There is still not a lot of urgency in some of these markets. So we continue to push. But again, we're obviously subject to a particular market, submarket or even type of space within a building.

Maybe switching gears a little bit towards capital allocation. You've completed $330 million of sales. You've executed a lot on capital transactions and increased liquidity. How are you thinking about the appropriate level of leverage for the company?

Go ahead.

Yes. Look, we're going to continue to just chip away and get leverage down back to sort of, let's just say, industry levels in terms of debt to EBITDA. So the ingredients are there even without the capital transactions you're mentioning, right? If you just map out a relatively conservative growth trajectory on occupancy on the office, what you would find is you get somewhere into the mid-6s by 2029. And that's without any other efforts to delever quicker. So for example, if we complete the $200 million to $300 million that we announced on the call for this year, that's going to accelerate that delevering effort considerably.

And that's how we're thinking about it. We want -- it wasn't that long ago, say, pre-pandemic, we were generating debt-to-EBITDA ratios at a point in time in the mid-5s. I'm not saying that we're necessarily heading as low as that level. But I do think in the relative near term here, and here, I mean, maybe a couple of years, you're going to start seeing ratios in the 8s and then before -- not long after that, 7s. And like I said, by 2030, we could be in the mid-6s.

And then on just the $200 million to $300 million of asset sales, are those kind of assets that you've already identified and started marketing? And how much of that is noncore office versus studio assets if those are potentially -- and how are you thinking about pricing for those assets?

So we've announced 2 deals already. One is being marketed as we speak right now. As I mentioned, the assets we're talking are noncore assets. They're FFO accretive. Some of them are vacant. The markets have shifted specifically in some of the markets that we're looking to sell these assets, people are looking to buy vacancy when before people were just looking to buy WALT, and so we're positioned well there. As Mark said, it's -- the use proceeds are going to go to pay down debt and operating expenses and the likes of that. We're comfortable with that number. We can exceed it, but I think that's going to be the number we're going to be looking at. And I don't think you're going to see any, if at all, impact other than potentially accretive on FFO when we sell these assets.

And how is the buyer pool composition kind of changed and demand change for those assets?

Well, so we have 2 different types of assets. One is obviously specific to the marketplace because we're selling a 508-unit fully entitled resi with either a JV or a sale. The buyer pool, our NDAs are over -- I think it's over 80 NDAs are signed, and it's virtually a who's bidding on it now. There's 20 high-quality bidders at either a JV, either an outright sale or a combination of both or both. And that's because it's in Culver City. And so it's a lot more flexible, a lot more business friendly. It's not city of Los Angeles. And so we feel very comfortable about that.

I think the other is the buyer pool, as I said, has changed from the last couple of years, people were only buying assets with WALT, some stabilized income stream and now people are realizing that the upside is potentially better and their IRR returns are going to be better. And so we're seeing interest level in vacancy and people willing to take a little bit more risk return on assets and specifically in the Bay Area. But there is also interest in Seattle to a certain extent. There's a couple of big deals that have come to market just recently. So we'll see where pricing comes into play. Los Angeles has been pretty quiet. There's only been a few transactions. So I think it's too early to tell where the valuation shift in demand is going to be in that marketplace.

And then -- how are you thinking about the L.A. market has seemed to lag San Francisco. Is that just -- or technology has kind of driven San Francisco? Or are you seeing anything specific to L.A. that's kind of been a headwind to that?

It's a loaded question, Seth. You know that, right? I think the political environment in Los Angeles has detracted a lot of people from investing in the current position. And it's what you guys cover. We're in a very strange timeline with an election coming up in November. Our current mayor has now become a moderate mayor, at least on paper because the opposition is extremely left of her. And so there's been a shift. At the end of the day, I think what you've seen in San Francisco with Dan O'Leary or with Matt Mahan in San Jose is the direction that we would like to see Los Angeles go in. I'm not so sure it's going to happen in this election but it can't get much worse if the current administration gets elected. But it's all around safety. It's all around pro-business. It's all around homelessness. And so those are the areas by which people are going to focus their attention on. And if they get a handle on that, I think the city has got some upswing.

Lastly, Los Angeles does have some tailwinds, clearly, with the amount of activity and events between FIFA World Cup, Super Bowl and the Olympics over the next 24 or 30 months, I guess. It's -- there's going to be a lot of capital invested in Los Angeles.

Do you -- have you started to see signs of that capital translating into any demand for the office or studio business?

Well, in terms of the office building business, the answer is yes. I mean we're about to sign 2 different leases with those agencies that I mentioned, some of those agencies I just mentioned, which are more short term. But the amount of capital going in renovations, the nice thing is there's not a tremendous amount of capital needed for the Olympics, which you would normally have to see in almost every single city. Los Angeles has already got -- every major facility is already built. So infrastructure is already in place. I think you have to deal with the village, which is at UCLA. So there will be some construction dollars and some input around that. But yes, there's -- I mean, there's a lot of momentum because these events are happening with or without the current administration or lack thereof. So people understand that.

This kind of the wealth tax initiative that's on the ballot. Is that coming up in conversations?

It's not yet on the ballot.

Okay.

So yes. I mean the answer is no, it's not come up. The polling still seems like it's not going to pass but it still has to get on the ballot. There is a TPA, which is Tax Protection Act that is hopefully approaching the ballot, which will constitutionally make it such that in all of California, you need 66% to get any taxation, any implementation approved, and that should override. And that looks like that will be on the ballot because we've been spending a lot of energy and effort, myself and lots of our brother and landlords in Southern California and Northern California. And we feel that, that itself will have an upswing to help rectify some of this instability in the political markets.

Great. And then one of the questions we're asking all the companies are kind of what AI solutions are you using? And how do you decide what solutions your company either builds or buys from some of the top kind of AI companies that are out there?

So we've implemented a number of tools. I think it's been very successful to date. We've obviously implemented through Copilot and cloud. Those 2 are working both on the website and also on the company side. I think from a commercial office standpoint, leasing tools have been very prevalent from our standpoint. We're spending a lot of time working through some leasing tools with Yardi. And I believe that we're going to see some pretty impressive movements around that. We've not implemented a ton on the legal side yet. We're still relying on our third-party vendors for that. And I believe on the accounting side, with Yardi and what we're doing there, there seems to be a lot of progression around that. It's a moving target. It's absolutely efficient. It's not caused us to let go people per se on that basis. I don't foresee that to be the case in the parent company.

On the studio side, yes, I mean, everybody knows what Sara is doing but it hasn't launched to a point where we're seeing a tremendous amount of impact on the studio production world. And these micro dramas that I mentioned on our call seem to be much more AI-driven, which is a positive. It's going to be a whole new asset class, and we think that could be somewhere around a $10 billion or $11 billion business annualized in the United States.

Okay. Maybe moving on to some of our rapid fire before we get to the end here. What will net effective rent growth be for the office sector overall in 2027?

Well, I think we're coming from a downside going to an upside. So we would maybe be a little bit more bullish. But I would say net effective rental growth would be somewhere around 3%.

3%, okay. And then will the office sector have more, fewer or the same number of public companies?

Same number.

Same number. All right. And then maybe just going back to AI in the last kind of 30 seconds here. You mentioned some of the leasing tools with Yardi. Do you think that AI in terms of how it's going to change the office sector? Is it primarily going to just increase the velocity of leasing? Do you think it's going to change kind of just a lot of drafting of the documents? Or what's kind of the biggest overall change?

I think it's untold as to where we're going to go with this, but I can tell you emphatically that the easy thing is the lease documentation is going to get leaner. It's going to get shorter. It's going to get much more efficient. I mean we were at, at one point, 80 pages, and I think we're going to be down to [indiscernible]. Objectively, we're going to get down to 15 to 20 pages and maybe even better than that. I think the attachments and the amendments are going to be a lot better. In terms of documentation, that's the main one. I also think just the access. So knowing what your peers are charging and what amenities are there and how you can do leasing, I think that's an invaluable tool going forward.

Great. Thank you so much.

Thanks for the time, everybody.

[Audio Gap] earnings conference call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions]. I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Laura, please go ahead.

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman, Mark Lammas, President; Harout Diramerian, CFO, Art Suazo, EVP of Leasing, and Ken Young, SVP of Leasing. This morning, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website along with an audio webcast of this call for replaying. Some of the information we will share on the call today is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call.

Today, Victor will discuss our 2025 accomplishments and priorities for 2026, along with industry and market trends. Mark will provide detail on our office and studio operations and development, and Harout will review our financial results and 2026 outlook. Thereafter, we'll be happy to take your questions. Victor?

Thanks, Laura. Good morning, everyone, and welcome to our fourth quarter call. 2025 was a breakthrough year for Hudson Pacific. We didn't just positioned the company for a return to earnings growth, we fundamentally transformed our capital structure and significantly enhanced our operating efficiency. We executed nearly $330 million of strategic asset sales and attractive valuations and completed more than $2 billion of proactive capital transactions that extended our maturity runway and nearly doubled our liquidity. Our balance sheet now affords us the ability to fully execute on our business objectives, paramount of which is the lease-up and stabilization of our best-in-class Office portfolio.

In 2025, we drove a combined $26 million in G&A and interest expense savings. Beyond that, we continue restructuring Quixote and to-date, we have locked in $25 million of annualized expense savings. And we delivered our strongest leasing performance since 2019, signing more than 2.2 million square feet of office leases across our West Coast portfolio. Strengthening market fundamentals continue to validate our thesis. San Francisco generated over 2.5 million square feet of net absorption for the year, the third highest annual total on record. Silicon Valley recorded 2.9 million square feet of positive absorption, marking 5 consecutive quarters of occupancy gains.

The [indiscernible] Sound posted its first positive absorption quarter in 3 years. And in Los Angeles, our Office portfolio is essentially fully leased long term, positioning us well as the broader markets recover.

In our Studio businesses, we're operating in a recalibrated environment. But let's be clear, media industry consolidation favors the best located, best operated assets, and that's exactly what we own. Los Angeles and New York remain the epicenters of domestic production and our Hollywood Manhattan Studios continue to lease because productions need premium creative environments, not commodity space.

Now let me address the AI narrative head on. Yes, AI is reshaping workflows. But in the Bay Area and Seattle, AI is driving explosive company formation, record venture capital deployment and aggressive hiring across multiple sectors. The narrative of AI reduces office demand ignores the reality. Well-funded, fast-growing companies need space, and they're choosing our buildings. In Studios, AI is a production tool, not a replacement for physical infrastructure. The dominant theme in both sectors is in contraction, it's flight to quality, and we're the beneficiary. Mark is going to provide details, but our office leasing pipeline has grown to 2.3 million square feet, fourth quarter tours accelerated more than 50% year-over-year, and we are entering 2026 with the lowest office expiration schedule we've had in 4 years. We're not hoping for a recovery. We're already capturing it.

Following our significant derisking in 2025, our priorities are clear and executable. Drive occupancy growth to unlock embedded NOI expansion, eliminate Quixote's earnings drag by year-end and maintain capital discipline through value-driven assets, sales and strategic de-leveraging. On our capital recycling, we sold Element LA in the fourth quarter at a strong valuation. In 2026, we're targeting $200 million to $300 million of additional sales while prioritizing transactions that are FFO-accretive through further de-leveraging.

For example, we're currently marketing 10900 and 10950 Washington in Culver City, which we successfully re-entitled for 508 residential units, and we have a very strong buyer and joint venture interest throughout. Here's the bottom line.

We're sharpening our focus on what we do better than anyone else, owning and operating highly selective office and studio assets in only the best locations. We're deploying capital within our existing portfolio, only where returns are clear, attractive and risk adjusted. By executing on priorities, we have a direct path to FFO per share inflection as we move through 2026.

And with that, I'm going to turn the call over to Mark.

Thanks, Victor. Our leasing momentum once again translated into tangible occupancy gains in the fourth quarter. We signed 518,000 square feet of leases, driving our Office portfolio occupancy to 76.3%, up 40 basis points sequentially, while our lease percentage increased 50 basis points to 77%. Excluding the sale of fully occupied Element LA, occupancy and lease percentages would have increased 90 and 100 basis points, respectively. This marks our second consecutive quarter of positive net absorption, with improvement across all our major markets, except Los Angeles, where we have one multi-tenant asset with stable occupancy. More importantly, we have excellent visibility into continued occupancy growth. We have only 1 million square feet expiring in 2026, and we already have 60% coverage, deals and leases, LOIs or proposals on first quarter expirations with 55% coverage on the remainder.

On our few large expirations, we have full coverage on Picture Shop's 115,000 square feet at 6040 Sunset and PayPal's 132,000 square feet at [indiscernible]. We also have 60% coverage on Dell EMC's 84,000 square feet at 875 Howard, and we recently renewed Weil, Gotshal & Manges covering 80% of their 76,000 square foot lease. Underlying this execution is accelerating tenant demand. Our leasing pipeline now stands at 2.3 million square feet, up 15% year-over-year, and we had 2.1 million square feet of tours in the fourth quarter, up more than 50% year-over-year. What's particularly notable, average requirement size increased to 25,000 square feet. In short, tenants aren't just leasing they are expanding.

On lease economics, fourth quarter GAAP rents increased 0.4%, while cash rents decreased 9%, a sequential improvement from third quarter. Full year spreads improved year-over-year, and our 2026 expirations are 3% below market with in-place rents essentially at market, positioning us for spread improvement as we continue to lease up. For Studios, our operating results reflect steady progress in a disciplined production environment. Our in-service trailing 12-month stage occupancy increased 330 basis points quarter-over-quarter to 69.1%, driven by full lease-up of stages at Sunset Las Palmas.

Specific to our in-service Hollywood stages, trailing 12-month occupancy was notably higher at 86.2%, while Quixote stages reached 53.3%, up 500 basis points quarter-over-quarter. Studio revenue increased $3.6 million sequentially and Studio NOI increased $2.1 million.

As Victor outlined, we are evaluating additional targeted cost reductions to mitigate Quixote's earnings drag by year-end. On our two development projects at Washington 1000, we're in early discussions on several large requirements ranging from 125,000 to 200,000 square feet. In the second quarter, we'll deliver 70,000 square feet of prebuilt spec floors, and we have strong activity from midsized growth-oriented tenants for that space. Sunset Pier 94 Studios delivered on time and under budget, achieving 90% occupancy within the first quarter of operations. Our pipeline of productions looking to film at the studio underscores the demand for high-quality purpose-built studio space in Manhattan.

Now I'll turn the call over to Harout.

Thanks, Mark. I'll walk through our fourth quarter results and 2026 outlook. Total revenues were $256 million compared to $209.7 million in the prior year, driven by Element LA lease termination fee. G&A was 33% lower at $13 million compared to $19.5 million in the prior year, representing a substantial improvement in our cost structure. FFO, excluding specified items, was $13.6 million or $0.21 per diluted share compared to $15.5 million or $0.74 per diluted share in the prior year.

Specified items totaled $213.6 million or $3.27 per diluted share, primarily consisting of noncash Quixote impairment and the Element LA lease termination fee net of transaction costs. Same-store cash NOI was $84.8 million compared to $94.3 million in the prior year, primarily reflecting lower average office occupancy.

On our balance sheet, we fundamentally strengthened our capital structure in 2025. We reduced our share of net debt by 22% and debt to undepreciated book value improved 680 basis points to 31.9%. Cash more than doubled to $138 million and undrawn revolver capacity increased to $795 million, giving us total liquidity of $934 million. We also saved over $5 million of interest expense, mitigating any remaining flowing rate exposure and drove broad improvement across our covenant metrics. This gives us significant financial flexibility to execute our strategy, as Victor mentioned.

For the Hollywood Media portfolio loan, together with our partner, we are working on a resolution ahead of the August 2026 maturity date. We remain fully engaged with Netflix and believe this portfolio is the optimal long-term solution for their L.A. office needs, given the quality, location and expansion potential of these assets.

Turning to our 2026 outlook. Due to the progress Victor and Mark described, we are reinstating full year FFO guidance at $0.96 to $1.06 per diluted share. We anticipate slightly lower FFO in the first quarter relative to the fourth quarter 2025, followed by steady sequential growth throughout the year as our leasing pipeline converts to cash flow. We are introducing annual average in-service office occupancy guidance of 80% to 82%. Clearly, our year-end occupancy will exceed this range. This assumes completion of a third lease with the City and County of San Francisco at 1455 Market by midyear, with additional material occupancy gains weighted to the fourth quarter. This also reflects the removal of 901 Market and 6040 Sunset from our in-service due to change of use. We have re-entitled the office portion of 901 Market for residential and repositioning 6040 Sunset from a post production to a Class A office to meet existing tenant demand.

We expect full year same-store property cash NOI growth of negative 1.75% to negative 0.75%, a significant improvement versus 2025 as our office occupancy ramps up and strong studio NOI growth offset near-term pressure.

On Quixote, we're assuming only modest NOI improvement in 2026 driven by completed or planned cost savings. However, the fourth quarter noncash impairment drives $23 million in annual depreciation savings at midpoint, meaningfully benefiting FFO in 2026. Due to our balance sheet optimization and cost discipline, we're projecting interest expense of $151 million to $161 million and G&A of $49 million to $55 million, representing $15 million and $6 million in savings at the midpoint, respectively, versus 2025. As always, our outlook excludes potential dispositions, acquisitions or capital markets activity.

With that, I'll turn the call back to Victor.

Thanks, Harout. Let me direct about where we stand. First, we fundamentally transformed Hudson Pacific in 2025 through $330 million of asset sales and $2 billion of capital transactions. We extended our maturity runway, nearly double our liquidity and reduce cost by tens of millions of dollars annually. We're not just surviving in a challenging environment, but aligning the company to fully realize embedded growth.

Second, demand is accelerating, and we're capturing it. Office tours are up 50%. Our pipeline has grown to 2.3 million square feet and Prime Studios continue to lease despite production headwinds. With only 1 million square feet expiring in 2026, we have strong coverage in hand. We have a clear line of sight to occupancy growth and NOI expansion.

Third, our execution road map is clear and achievable. Convert our leasing pipeline, eliminate Quixote's earnings drag and maintain capital discipline. This gives us line of sight to sequential FFO growth starting in the second quarter of this year and the strengthen in earnings power in 2027 and beyond. The structural advantages of our markets remain intact. What's changed is our cost structure, balance sheet strength and the ability to capture the flight to quality. To provide greater transparency and detail on our multiyear strategy, we'll be hosting an Investor Day in the second half of 2026, and we look forward to sharing more details soon on that. With that, I'm going to turn the call over to you, operator, for any questions.

[Operator Instructions] Your first question comes from the line of Blaine Heck with Wells Fargo Securities.

Great. Victor, I wanted to ask if there's really anything to read into the write-down of Quixote with respect to your ultimate plans for that business? Would you be open to exploring a sale during the year? And do you think they're interested buyers in the market? And then similarly, on the studio portfolio side, would you guys be kind of open to broader sales in that segment?

Blaine, Listen, let me -- so specific to Quixote, and Glenoaks, as we mentioned in our prepared remarks. Quixote, we're looking to manage that business down. So it will be a flat business by the end of the year. Alternatively, there's nothing to read into on Glenoaks in terms of our current situation there. I mean that asset has not performed to our liking. And I think at the end -- by the end of the year, we'll evaluate what our alternatives are going to be with that asset.

In terms of the marketplace and selling off in the marketplace, it's still early in evaluating all of the Studio business. There is some green shoots as we've commented on. There's also some slowdown I think we're proving out that the asset quality is performing in our location. Given our Sunset portfolio is virtually 100% leased, and the track record has been very strong. So we continue to evaluate the alternatives, and we don't have a set game plan at this stage to say this is the direction we're going to go in.

And then for the Quixote business, the write-down, because it's an operating business, there's different accounting rules that govern that and you're required to evaluate that business on a regular basis, and that's what drove the write-down in the fourth quarter.

Great. That's all very helpful. Just a couple of questions on the upcoming CMBS maturity on the Hollywood Media portfolio. Can you just talk about kind of the tenor of those conversations with the lenders. Do you see an extension as a potential outcome? And would you expect to need an equity infusion of any sort for the refinancing or potential extension there?

So Blaine, we're unable to just discuss specifics over our loan extension negotiations because currently today, there's ongoing dialogue, and we're focused on the best outcome for us and our shareholders. including the respect of capital allocation. So we're not going to get into an open dialogue on a conference call as to the status, but we're in constant communication, and we're happy with the progress so far.

Fair enough. Last question. The city has an option to purchase 1455 from no less than $200 a square foot by the end of '27. Wanted to ask if there's any opportunity to monetize that asset prior to that, if and when the additional leasing is executed, would the City have a right of first refusal? Can you just talk through the terms of that agreement?

So first of all, the structure of that deal with the City is a floor of $200. So it's a fair market value purchase. And it's a onetime window of opportunity. We are looking at obviously expanding them, which you know of right now and very confident on the ability for us to execute that in the near term. At which point, the City has not indicated any interest at all to buy it and they would have to flow a bond, but they do have that in their current agreement. And our assessment of the value of that is well in excess of $200 a foot.

That being said, we have been approached by multiple JV partners who are interested in participating in some form of a JV on that asset once it's stabilized, and we will review that at the right time. And it will not impair the conversations around the city. And if they decide to purchase it, it will be obviously, the valuation that we've created with a JV partner, which is a win-win for all of us.

Your next question comes from the line of Alex Goldfarb with Piper Sandler.

You hear me?

Yes, we can now.

Excellent. So thank you. And obviously, I appreciate the return of annual guidance. That's a good thing. So two questions. The first up is as you guys look at the leasing costs of what you've signed already and the pipeline that you've outlined versus asset sales, do you feel comfortable that you'll have enough cash generated internally from asset sales and cash on hand to do all the leasing? Or do you think that they'll -- you'll have to contemplate some other sort of capital event?

Alex, this is Mark. Yes, we saw that in your note. I think your estimate of $250 million to $300 million is a decent estimate. I would just say when you do a complete sources and [indiscernible] and you look at all cash flow relative to capital requirements, including a fully loaded amount for all TI, both renewal and new leasing and preferred dividends and the like. What you see is you peak out on the line balance at about $160 million on -- and then thereafter, that line balance just goes down on its own. And that's without assuming any asset sales of any kind. So we never even get sort of -- we have more than ample liquidity to just get the portfolio into the low 90s. And even -- and could obviously improve that liquidity quite a bit if we did any kind of capital raise like an asset sale or anything like that.

Okay. And then the second question is on the Studio business, I think last time you spoke about the tax credits and there was sort of a shot clock in when people had to start production versus when they were granted the tax credits. With that in mind, should we expect a strong ramp in sort of the back half of this year on the studio production? Or are things taking a little bit slower even though there is the shot clock?

It's possible, Alex, that we'll see improvement. You should know, though, that the guidance we've given you does not assume an improvement. It holds show counts in line with average show counts that we saw in 2025, which were in the high 70s.

So is the shop clock, is that not applicable then? I thought people had to go into the production once they're granted.

It is applicable, and we've seen little fallout from the tax credits that have been granted to the ones that have not started production at this stage, but they are allowing it to be a little bit longer in terms of pre-prep, stage prep and the likes of that. So we think, as Mark said, we've underwritten this as a minimal amount of growth, with the upside in a potential green shoot that this will kick in second half of this year, and we're confident that, that's going to happen, but we've been very conservative in our underwriting.

One other thing though, there is one green shoot, which is the proliferation of these micro dramas which are really led here in Los Angeles. And just by the way of background, I mean this was a marketplace in 2021, that had a total of $500 million of revenue for micro dramas. In 2025, that number increased to $7 billion and is projected to be $11 billion in '26. We're going to capitalize on that in the production business in Los Angeles. So that is not included in our numbers, but we look to that to be a potential good sign.

Your next question comes from the line of Richard Anderson with Cantor Fitzgerald.

Okay. So on the Quixote wind down, as you described it, how does that happen? I mean are you allowing leases to expire unrenewed, or like what could you -- could you provide any color on what that might look like? And what might be left behind as we fast forward to this time next year in the Quixote platform?

So Rich, listen, obviously, you know I can't discuss our game plan on an open call like this, right? Because we have fiduciary obligations and we have obligations with specific landlords that we are tenants of. Suffice to say, this business has no debt on it. So it's a unique opportunity for the company to retain certain assets that are debt free and get out of certain obligations that we can get out of in a clean manner, and so we're evaluating which are the obligations that we want to get out of. And at the end of the day, we'll still have an OpCo business that, as I said, is debt free, that we'll have revenue producing. And if if it's on track to where we look at the current usage rate right now, we make some money on that business. If it's greater than that, we make a lot more money in that business. And so I just can't sit here and tell you this is what we're going to drop and this is what we're going to work with because that would be obviously a disadvantage to the Quixote enterprise and to Hudson in general.

Fair enough. The with regards to the office space and the 1 million square feet or thereabouts of expiring in 2026, what is your expectation on the retention rate in that process? And with regard to the 2.3 million square feet of leasing pipeline, like how much of that is stuff outside of this exploration schedule? How much of it is vacant space, existing vacant space. Is there any way to sort of -- sort of paint that picture for us. I'm wondering if the demand is sort of going towards a flight to quality type of movement that we're hearing a lot in the office space these days?

So you took the words out of my mouth. I mean what we're seeing is flight to quality, which is the asset quality that we own as a company has been attractive and we've seen that momentum shift upward. I think overall, and we mentioned this, we started seeing it highly at the end of last year. Overall, we've seen our portfolio have a tremendous amount of interest in tours over the renewal process and the new tenant process.

Specific to your question, I'm going to have Art jump in here and sort of address some of the facts. But suffice to say, we're very confident given we have 1 million square feet of expirations, in '26. And the activity on those expirations has been very strong. Some are going to be front ended, some are going to be back-ended, but we're comfortable that we're going to get higher in terms of our retention rate. And overall, to the square footage, we're well on track for that for this year, given the activity in some of the large tenants that we're negotiating with right now. Art, jump on in.

Rich, to put a final point on it, we're really -- we feel great because we're pacing well ahead of last year. over the previous years because tenants are engaging. This is the key. Tenants are engaging much earlier and with more conviction and more confidence in what the requirement is. So that's really the reason we're pacing well ahead of schedule. And we have -- as we mentioned, we have much lower expirations this year. And the average tenant size -- the average tenant renewal size is 7,800 square feet. And we're managing that process very well.

What amount, if any, is being early renewals into out years, '27 and '28 from that pipeline?

It will be -- the average tenant size in 2027 is likewise pretty small, and they don't tend to engage nearly that early. So the 2.3 will have a very small component of that would be early '27 renewals.

Your next question comes from the line of Ronald Kamden with Morgan Stanley.

Great. Hopefully, you can hear me. Just two quick ones. Thanks on the guidance. Just starting with sort of the occupancy guidance, just trying to get the apples-to-apples on sort of the delta of this 80% to 82%. Is that comparable to the $76.3 million reported? And just can you talk about just the trajectory of that build? I think you said it was second half weighted and so forth.

No, that's right. The -- you're exactly on. It does start from the 76% that we reported -- 76.3%, sorry. And it grows from there. And so that is a comparable -- and in fact, back weighted, like I said in my prepared remarks, it has an influence on the City deal that we've been talking about as well. The fourth quarter being the strongest as momentum builds throughout the year.

Great. So my follow-up to that was just on the same-store NOI, and I know that that's not, same-store occupancy trajectory. Just if occupancy is up, is it just the spreads that are keeping it negative? Just maybe some of the pieces into the same-store NOI number?

Sorry, Mark, is -- sorry. That's a great question. There's a few pieces to that. One, we're still carrying in the first quarter of '25 a drag from the Square lease. So that's still carrying a negative trend. In fact, once you go past Q1 '25 versus Q1 '26, we're going to see a positive same-store NOI, cash NOI throughout the rest of the year. The second part of it is also free rent in some of our leases in 2026. So that's also dragging it. So yes, we're going to have great occupancy and it's being dragged a little bit by the free rent. But you're going to see a constant improvement in our same-store cash NOI starting in Q2.

Great. If I could just sneak a quick one and just an update on Washington 1000 and the leasing there would be great.

Yes. I mean, listen, the activity on Washing 1000 has picked up. We're starting the process of our spec suite business. And so we've got a fair amount of activity around a few floors of activity there, specific to size, I mean, Art, do you want to talk about some of the range of size tenants that we're looking at Washington 1000.

Yes, the increase in activity, Victor, is on the larger side, the over 100,000 square foot large block size. We've got 4 tenants that were in discussions with, 1 in proposals and on the kind of ready-built move-in ready space for high-growth tenants. We've got proposals out for 4 of those tenants. They range from 8,000 square feet to 50,000 square feet. And so over the last -- literally over the last quarter as Bellevue has tightened and the greater [indiscernible] Sound has shown positive absorption, the high-demand tenants coming from the Bay Area has really added to the increase in demand. As a matter of fact, our tour activity spiked in the fourth quarter to set up over 700,000 feet, which is 35% of our total tour activity. So that usually is a precursor of what's to come.

Just as a sidebar, Ron, at the end of the day, because you brought it up, Washington 1000's input for our overall leasing is very small for 2026 in terms of the overall number.

Your next question comes from the line of Jana Galan with Bank of America.

Following up on the occupancy comments and the 81% guidance. In the past, you've talked about a mid-80% lease target at year-end '26. I was just curious if that's still intact or is that conservative now?

The range implies ending the year higher to get to that average. I would leave it at that.

Okay. And then congrats on the success of Sunset Pier 94. I'm just curious if there's something that New York City is doing to kind of incentivize or encourage the media industry that maybe L.A. should implement it?

That's a great question. I can tell you -- what we said all along when we were building this project, it was a first purpose-built studio. We've got a tremendous amount of eyes on it. The 2 tenants that we put in are very high-quality tenants. It's going to show very well on the production side.

I do think the activity in New York has picked up greater than we thought. We're monitoring, obviously, all of our competitive set in that marketplace right now. And the activity just seems slightly stronger. In terms of the tax credits, I think they're equal for Los Angeles and New York. I believe overall, what you're going to find is the two barbells of the country, which is Los Angeles and New York, are really doing much better than anywhere else when it comes to production. I'll sort of hold my comments to leadership because I think, we're -- both cities are in the same boat when it comes to that.

And then maybe just real quick on the FFO guidance. I just want to clarify, that excludes debt refinancing. But curious if you could just give us some type of thinking around the spread between where the CMBS or whatever path you choose to refinance kind of what the difference in spread there could be?

We're not prepared to comment on that. It's part of the negotiation, and we'd like to keep that outside of our -- we've never provided any speculative financing in any of our FFO guidance.

Your next question comes from the line of Tom [ Catherwood ] with BTIG.

All right. Victor, following up on the comment that you made that you're not hoping to recover, you're seeing it. If that continues and let's say, everything goes according to plan in 2026. What does HPP look like this time next year? What's that longer-term vision?

Well, I think -- this is [indiscernible]. At the end of the day, what we're looking at is you're going to have a stabilized occupancy. I think we've been conservative, even though the numbers are large coming from the base of a mid-76 number in terms of occupancy to an average of what we think is year-end and somewhere in the low to mid-80s. You're going to see the stabilized portfolio perform the way we've sort of envisioned it in the last few years to where we get into that point. In a year from now, the focus is still going to be on the core business, which is somewhere around 87% of the portfolio is our core office business, and it's going to even greater when it comes to the revenue stream.

So the banter and conversation around the studio business if it's just flat to down, we'll go away relative to where the performance of the office building business is. We are a pure-play office company with a studio component. And I think in the last few years, with the massive headwinds we've had with return to office with COVID and with the strike around studios, people have stated their thought process and focused a lot of attention on the studio business, where really from a revenue standpoint, it's less than 15% of the company, and that will be even less a year from now as a company, you'll see we're going to be a best-in-class office REIT, which is what we've always strived to be.

I appreciate those thoughts and thinking bigger picture, Victor. I guess what has us a little concerned is, if you execute as expected, but for whatever reason, whether it's AI fears or whether it's broader economic slowdown, whatever it maybe the market doesn't recognize the progress and you don't get a cost of capital that you think is appropriate? What do you do then? Like if you achieve everything you're set out to and you don't get recognized for, what happens next?

Well, I think what happens next is exactly what we've been evaluating all the way through, which is depending on the capital structure in the markets, we will look -- the Board always looks for alternatives for the highest value of the company. And in the last few years, those alternatives have not been on the table. Those alternatives are on the table now and the reverse inquiries have been coming our way in a much more feverish pitch. And so we'll evaluate it at the time.

I'm confident that we're going to execute on all forms of our platform. And as you've seen in the past, literally in the past 90 days, we haven't made an announcement on anything and yet our stock has been affected dramatically. And so it's not based upon the fact that what we're doing a so give us the chance to get it done, and then we will visit the process at that time.

Your next question comes from the line of Seth Bergey with Citigroup.

I guess just going back to Quixote, should investors kind of think about the impairment as a final true-up? Or is there a risk of additional impairment if utilization and show counts are below expectations?

And then just curious on kind of the shift from hoping to get to kind of breakeven by 1Q '26 to kind of now at year-end. What changed? And I believe you've talked about kind of 95 show counts as the KPI to get towards breakeven. Is that still the right way to think about it?

Well, so Seth, let me just clarify, we never came out and said 1Q '26 to be breakeven. We're tracking down at the year-end '26. We've always said that, that we would be at breakeven. I think -- and nothing has changed on that process, and it does not include us looking at like show counts going up, as Mark said, we're going to be consistent and conservative on the show count basis.

I do think that there will be a thought process, and I'm not saying that we're going to have any further write-downs. So I'm not saying we're not going to have further write-downs. But we've taken like effectively goodwill to 0. And there's a ton of name recognition and marketing value in these enterprises that we own. And we've taken those to 0 from a conservative standpoint. We'll see where we sit in 6 to 12 months from now. I think that's been always the thought process is we're going to ride this through '26, and at that time, I think we'll be in a much clearer position to discuss actual valuation and actual growth or flat lining or what the statuses of that business. But we're confident by year-end, we'll be at best sorry, at worst flat.

Okay. Great. And then maybe just as we think about kind of the leasing momentum, how should we kind of think about CapEx for this year and next year as that kind of picks up?

Well, think about how -- you should expect a run rate spend quarterly somewhere in the range of where we came out in the fourth quarter, which was roughly $31 million that's a -- from an average run rate point of view, that's probably a decent estimate for where 2026 TILs in recurring should shake out. Yes. It gets lumpy, as you know, right? Because but you know, you know that. But on average, that's a decent run rate.

Your next question comes from the line of Dylan Burzinski with Green Street.

Most of my partner ones have been asked, but just, I guess, diving into Seattle as a market, obviously, where we're seeing the strong trends in demand growth in San Francisco. I know Seattle has sort of been a market of really 2 different cities that being Bellevue and the Seattle City. So just sort of curious if you're finally starting to see further green shoots as it relates to your guys' portfolio being located primarily in Seattle CBD? And maybe if you can layer on any sort of concern associated with what seems to be a changing political environment that sort of leaned more progressive this last election cycle?

Yes. Dylan, thanks. So let me take your first part of your question. We've always sort of been in the thought process that it's a 12- to 18-month lag to San Francisco. And I think -- we still feel that's exactly the direction. There are two large tech companies, one of the largest in the world, is going to sign a 300,000 square foot lease almost any day now in the city. Another large tech company is going to sign over 125,000 square foot lease in the city, effectively takes the remaining space in that marketplace that's been subleased space and low commodity price space off the market.

Bellevue is Bellevue as we all know. It's performed very well. and it virtually has no vacancy of any size for large tenants in that marketplace. The last bigger block is under negotiation right now, which is also 400,000 square feet. So it's trending the right way. The labor force is exactly what we thought it would be. It's strong, it's tech-related. It's AI-centric and I think the growth prospects there have shown us that we are on the precipice of seeing Seattle turn this year sometime.

You bring up the political situation. If you take a look at San Francisco and Mayor Lori or San Jose and Mayor Mahan, I mean the progressive growth around being sort of centric has really helped pro business in those markets. I think it's early for us to look at the city and the current Mayor standing there. But so far, the word that our teams on the ground are telling us is that there is some pro business growth.

Now this millionaires tax, this bill -- it's a very complicated bill. I think the bottom line is, and I can get into a little bit. But the bottom line is we just don't think -- we're optimistic that this is not going to pass, the writers of the bill included a word, which is the terms of the receipt in front of the word income. And effectively, this is an excise tax, not an income tax. And as a result, it's like, I don't know, you could say it's like tax on sleeping guests based on how many shoes they have in the closet, should be a tax on the shoes, not on the guest. So effectively, this is going to go away in what we're seeing as a negative could turn to be flat and maybe positive. So overall, we're optimistic. And as our prepared remarks and as Art mentioned earlier, we're seeing a lot of tenant activity right now in what we have not seen, which is the larger space.

Your next question comes from the line of John Kim with BMO. Maybe having trouble getting to John. So we'll just move on to Caitlin Burrows with Goldman Sachs.

I guess this is the first time in a while that you've had full year guidance. So could you go through what you think has changed that gives you confidence in issuing full year '26 guidance versus recent years?

Sure thing. Caitlin. So I think we feel a lot more comfortable in our ability to look beyond maybe a quarter of Quixote, we feel comfortable of our ability to project. And that's really the main driver that's been holding us back for a while from providing full year guidance. I think the other components of our guidance have been actually already been provided, right? We're providing a grid that provided all the other components, including all the other parts of guidance. So that's it.

Okay. And then on the office side, realize there, I think the main focus is probably on occupancy and leasing. But on the rents and pricing side, can you give your updated thoughts on how in-place rents compare to market and maybe how that varies by market?

Yes. I think we mentioned in our prepared remarks, but we're 3% below on expiring '26. We're a little bit above on '27, so blended slightly above on a combination of '26 and '27. That's why we feel like we're -- there's a chance we're going to see a quarter or maybe more sometime this year where we actually post positive cash spreads. It will just depend on the makeup of the whatever flows through that quarter in terms of the lease composition, but I think we're heading in that direction.

Okay. Got it. And then maybe just a quick one on Pier 94. You guys mentioned that it's 90% leased now. Could you give any other detail on, A, how long are those leases and, B, like what we should expect in terms of contribution for 2026?

Well, let's talk, first of all, about our size, right? We're only a 25% holder of that asset. And yes, we have management fee income and the likes of that. So that's going to be constant throughout our ownership. We have 2 tenants right now occupying 100% of the space. One is a longer-term lease. The other is a shorter-term lease. We've got back up for the short-term lease right now. I think the downtime, we're looking potentially will be maybe 1 month or 2 from the move out to the move in of the new tenants. And the activity around the new tenants is also a longer-term lease. So we're comfortable that like our Sunset portfolio is doing in Hollywood. We're going to outpunch our competitors in terms of the progress. I don't believe there's -- I've looked at the stats in New York. There's not a studio out there, but one, that's even remotely close to the occupancy levels and has the activity that we do. So we're confident we're going to consistently see that going forward. And if you get a chance Caitlin, you should go see it. It's pretty impressive.

I've definitely driven by, but I haven't been inside, but it sounds good. Thanks.

Your next question comes from the line of Vikram Malhotra with Mizuho.

I guess you've given a lot of information on the trajectory, very low expirations, as you say, you hope to build occupancy. Obviously, software is in the crosshairs of at least fear, if not reality at this point. We don't know what's going to happen. But I'm wondering if you've been able to just look through your tenant list, can you give us a specific -- more specifics to what's your exposure, not to IT, but more specific software? And if there's any kind of, I guess, bucketing you've done and what may be deemed as a watch list for you guys?

Yes, absolutely. And by the way, we obviously read your note with a lot of interest. I thought it was a really good comprehensive note. Anyway, on our side, identifying which companies may face hiring freezes or ultimately downsize is challenging. I would say, particularly since we haven't seen a broad-based indications of AI-driven disruption across the sector yet, but that said, we have reviewed our tenant base carefully, and we estimate that somewhere between, say, 1.5 points and 2.5% of our total ABR is associated with software tenants that might at some point experience AI-related pressures.

Okay. That's helpful. Just going back to the Quixote business. I understand it might be tough to predict breakeven or improvement in shows, but more just from a valuation perspective, like how we should think about valuing your cash flows and ultimately when the NOI is -- when it's positive. At this point, like is there anything you can share in terms of comps? Or how we should just think about separating that away from the core office business just in terms of valuation? Because it seems like -- like you said, we focus a lot on it. It's a smallest part of the business. But given the uniqueness of the Quixote business, it's just hard to value, any thoughts on like how I would think about that?

Well, the fact that you're actually mentioning the word Quixote and value in the same sentence is more than anybody in The Street has mentioned. I mean the market in The Street gives us zero value for it. And quite frankly, they give us negative value. So we look at it, as we said, if we get to a flat level, that will determine it. We've not put anything in 2026 in terms of value to the bottom line for Quixote to the company overall. I think that's where we've evaluated our full year guidance based on Quixote not contributing value. And that's been the variable in the last couple of years that we've been impacted by.

As I said, we've got a 6- to 12-month timeline internally to determine where that company goes and what the value of that company is. But because there is no debt, there will be some value. We just haven't attributed to this time. So you can look at it that way.

Okay. And then, can you just clarify, as you have more, I guess, leases or deals being struck on new stage requirements. Like is there anything changing in the the structure of these agreements or leases versus, say, like 2 years ago?

No, that's a good question, though. I think people have sort of thought about that. No. overall, the demand still is primarily for [indiscernible] and then the ancillary revenue, which is lighting and grip trailers, all the services, whether it's catering, whether -- whatever the equipment rentals are. That's all been consistent, and it's packaged in a vertical integration for the leasing of the studios. That business has not changed. The demand for that business has not changed once the production starts.

As I mentioned earlier, the micro drama business is going to change that a little bit because set design and the likes of that will not be the same. There will already be -- there are [indiscernible] sets that will be designed and in place and the revolving production on that will be a much quicker turnaround, but the revenue stream should be the same.

And we will try one more time with John Kim from BMO. [Operator Instructions]

Well, operators John is busy today. Thank you.

Okay. Thank you. We will -- that concludes the question-and-answer session. I will now turn the call back to Victor Coleman, Chief Executive Officer and Chairman for closing remarks.

Thank you for participating in our call today and appreciate all the input from everybody. We'll keep you posted and updated as the quarter continues and the year continues. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the Hudson Pacific Properties Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Laura, please go ahead.

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing.

This morning, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website, along with an audio webcast of this call for replay.

Some of the information we'll share on the call today is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call.

Today, Victor will discuss industry and market trends, Mark will provide an update on our office and studio operations and development, and Harout will review our financial results and 2025 outlook. Thereafter, we'll be happy to take your questions.

Victor?

Thanks, Laura. Good morning, everyone, and thank you for joining us today. I'm pleased to report another solid quarter of execution for Hudson Pacific in regards to our strategic priorities. We're on track for our strongest office leasing year since 2019, having locked in another quarter of signed leases north of 500,000 square feet, bringing year-to-date leasing to 1.7 million square feet.

With significantly lower expirations in 2026, our office occupancy is squarely at an inflection point as we achieved positive absorption in the third quarter. We're seeing clear evidence of a recovery taking hold in the West Coast office, particularly as we benefit from the continued expansion of AI and technology companies in our markets. And on the studio side, even as the broader production environments remain challenging, demand for well-located best-in-class assets, such as our Hollywood Studios, enabled us to drive sequential occupancy improvement in the third quarter.

From a capital structure perspective, we've significantly strengthened our financial foundation. On the heels of our office portfolio CMBS financing and significant equity raise in the first half of the year, we successfully refinanced our 1918 8th Street Seattle office asset and amended and extended our credit facility, bringing total capital markets activity year-to-date to well in excess of $2 billion. With $1 billion of liquidity, 100% of debt fixed or capped and no maturities until the third quarter next year, we are now in a position of strength to capitalize on ample embedded growth opportunities, or say it otherwise, leasing, leasing and then more leasing.

Looking at broader market dynamics, ongoing transformation across our West Coast markets reinforces our strategic positioning, U.S. venture capital investment remained strong in the third quarter, with year-to-date deal value already tracking about 15% above full year 2024 levels. This marks one of the strongest funding environments since the 2021 peak, with AI accounting for nearly 2/3 of the U.S. deal value year-to-date and the San Francisco Bay Area capturing more than half, reaffirming the region's leadership in innovation and capital formation. These trends underscore growing optimism, which in turn sets a constructive backdrop for the industry's driving markets as well as the need for West Coast office space heading into 2026.

In San Francisco and the Peninsula, leasing accelerated sharply in the third quarter, led by tech and AI tenants such as Roblox, while Silicon Valley recorded its fourth consecutive quarter of declining vacancy as demand from AI, software and hardware firms expanded.

In Seattle, AI investments surpassed $1.5 billion to date, contributing to the first decline in availability in nearly 4 years. These are encouraging indicators that venture-backed tenants are once again growing, hiring and leasing space in the very markets where Hudson Pacific is most deeply embedded.

Over 80% of the third quarter leasing activity occurred at our Bay Area assets, including 100,000-plus square foot AI tenant at Page Mill Center in Palo Alto, exactly the type of growth-oriented tenant that validates our market thesis. Our portfolio stands poised to capture the resurgence in demand as AI companies scale operations and require more substantial teams.

Turning to our studios. While Los Angeles shoot days declined 30% in the third quarter relative to last year, we remain confident in our long-term prospects with California's recently expanded and extended film and television tax credit already creating strong momentum.

Since July, the program is allocated to 74 new productions compared to only 18 the same period last year. These include 18 television series and 10 feature films expected to shoot in Los Angeles, with tax credits recipients required to begin filming within 180 days of allocation. While it's difficult to predict future show counts, this represents a sizable pipeline, especially when compared to the 80 to 85 production filming in Los Angeles on average over the last several quarters. We feel our Los Angeles studios and services are well positioned to capture our share of future demand.

Regarding acquisitions. In the third quarter, we acquired our partner's 45% interest in our Hill7 office property in Seattle, in consideration for which we assume the partner's $45.5 million share of the joint venture's debt and receive $1.4 million of cash on hand. This acquisition gives us multiple paths to unlock value at a Class A, well-located property like Hill7 by proactively restructuring the existing loan and ultimately growing occupancy and cash flow as the Seattle market recovers. We have seen a notable increase in inquiries, tours and proposals for available space at Hill7, and we remain committed to operating a best-in-class portfolio in Seattle over the long term.

Our approach to asset sales remains disciplined and strategic. We're under no pressure to transact and will move only when it clearly enhances shareholder value. When we see compelling pricing, particularly for non-core properties or those requiring significant reinvestment, we'll look to recycle that capital into our highest conviction assets and markets. It's a selective purposeful approach that positions Hudson Pacific to capitalize on the recovery gaining momentum across our West Coast footprint.

And with that, I'm going to turn the call over to Mark to discuss our office and studio operations and updates for our development pipeline.

Thank you, Victor. I'll walk through our third quarter office leasing performance, which demonstrates the strong execution and market momentum Victor highlighted.

We executed 75 office leases totaling 515,000 square feet during the quarter, 67% of which were new deals, underscoring our continued success in attracting new tenants to our high-quality assets.

Our in-service office portfolio ended the quarter at 75.9% occupied, up 80 basis points sequentially and 76.5% leased, up 30 basis points sequentially, representing steady progress in our leasing efforts.

GAAP rents were 6.3% lower compared to prior levels, while cash rents were 10% lower. This primarily reflects 40,000 square feet across 6 smaller leases in Palo Alto, rolling from peak market pre-pandemic rents to still healthy close to $80 per square foot triple net rents.

Importantly, we're seeing clear signs of rental rate stabilization across the Peninsula and Silicon Valley with improving tenant demand and space absorption, positioning us well for future rent growth.

While our 2026 expirations are about 3% below market, quarterly rent spreads always reflect a snapshot of backfill leases expired over the last 12 months. As we saw this quarter, geography, tenant size and other factors influence these results.

Our various leading indicators of future strong quarterly leasing activity continued to show positive momentum. Touring at our assets accelerated significantly in the third quarter, comprising 2.1 million square feet of unique requirements, up nearly 20% sequentially and 60% year-over-year. This reflects growing demand across our markets, 2/3 of which is technology related and 1/3 is specifically AI.

Our leasing pipeline of deals and leases proposals or LOIs stands at 2.2 million square feet with nearly 600,000 square feet in advanced stages. We're now seeing on average 20,000 square foot requirements for tours, while within our pipeline, average requirements are approaching 25,000 square feet, underscoring that companies are becoming more confident about their growth trajectories and space needs.

Hudson Pacific's lease expiration profile is now very favorable, allowing our team to focus more on occupancy growth opportunities rather than simply defensive renewals. We only have 140,000 square feet of remaining 2025 expirations, all less than 20,000 square feet, and we're in leases or negotiations to address close to half of that footage. Looking forward to 2026, we have 1 million square feet expiring, representing approximately 8% of our in-service portfolio. That's about 40% less square footage expiring than our average annual expirations over the last 4 years.

Given our strong leasing momentum, we're already in leases or active negotiations on approximately 50% of 2026 expirations, which is ahead of our historical pace. Notably, we have 75% coverage on our 4 expirations exceeding 50,000 square feet. With only 30% of our in-service portfolio subject to pre-pandemic leases and 75% of our availabilities in quality assets and Bay Area markets leading the West Coast recovery, we are poised to grow occupancy and cash flow.

Turning to our studio operations. We continue to make strides in positioning our business optimally for the current environment while preserving upside potential as a production recovery takes hold. On a trailing 12-month basis, our in-service studio stages were 65.8% leased, representing a 220 basis point sequential increase, driven primarily by additional occupancy at Sunset Las Palmas and, to a lesser extent, Sunset Glenoaks.

Our Quixote Studios were 48.3% leased on a trailing 12-month basis, representing a sequential increase of 90 basis points. We are now seeing the benefits of our cost-savings initiatives. And in the third quarter, despite sequentially lower revenue, studio NOI adjusted for onetime expenses increased by $4 million sequentially, finishing in positive territory for the first time in more than a year. This represents yet another step forward in alignment with our overarching goal of positioning our studio business and Quixote in particular, to operate profitably in any market environment.

On the development front, Sunset Pier 94 Studios, Manhattan's first purpose built studio is on time and budget for a year-end delivery and first quarter grand opening. As we approach completion, we have strong interest from multiple high-quality productions looking to lease significant portions of the facility for 6 months to a year with a potential to renew for additional term thereafter. The quality and location of Sunset Pier 94 is unmatched, and we expect demand to further accelerate as we approach completion.

In the third quarter, we received entitlements to redevelop our 10900-10950 Washington office property in Culver City into a mixed-use project with approximately 500 residential units and ground floor retail. With housing and short supply, 10900-10950 offers a premier multifamily location where the demand in rents achievable make for an extremely compelling development site. We are evaluating our options to maximize value, which could include bringing in a partner to develop the site with Hudson Pacific contributing the land or selling outright. We look forward to providing additional updates on this unique value-creation opportunity in the coming quarters.

And with that, I'll turn the call over to Harout for our financial results, capital structure and outlook.

Thanks, Mark. I'll take everyone through our third quarter financial results, which reflect solid operational execution amid our ongoing focus on leasing.

Total revenues for the quarter were $186.6 million compared to $200.4 million in the prior year, primarily resulting from asset sales and lower occupancy as we continue working through our lease-up process.

G&A expenses improved substantially to $13.7 million compared to $90.5 million in the prior year, representing a 30% reduction. This savings reflects the successful implementation of various organizational efficiency measures and underscores our commitment to rightsizing our cost structure while maintaining operational excellence.

We generated FFO, excluding specified items in the third quarter, of $16.7 million or $0.04 per diluted share compared to $14.3 million or $0.10 per diluted share in the prior year. The year-over-year 17% increase resulted from improved G&A, interest expense and studio NOI, partially offset by lower office NOI.

Note that third quarter FFO per diluted share reflects the share count increase following our second quarter common equity offering. Specified items in the third quarter totaled $2 million or $0.00 per diluted share and primarily consisted of onetime expenses associated with cost-saving initiatives and financing activities. In the prior year period, specified items were $7.5 million or $0.02 per diluted share.

Our third quarter same-store cash NOI was $89.3 million compared to $100 million in the prior year, mostly due to lower office occupancy. As Victor highlighted, we significantly strengthened our balance sheet and capital structure.

In the third quarter, our activities included the $285 million refinancing of 1918 Eighth, which underscores our ability to access the debt markets on favorable terms for assets with our high-quality portfolio. We also amended and extended our credit facility, which provides us with $795.3 million of capacity through the end of next year and $462 million through the end of 2029, with continued strong participation from our core banking group.

Our liquidity position is strong at $1 billion, comprised of $190.4 million of unrestricted cash and cash equivalents and $795.3 million of undrawn credit facility capacity. We have another $15.9 million at HPPs share of undrawn capacity under the Sunset Pier 94 construction loan. 100% of our debt is fixed or capped, providing for predictable debt service costs that support our financial planning and cash flow management. Looking ahead, our next debt maturity isn't until the loan secured by our Hollywood Media Portfolio owned jointly with Blackstone matures in the third quarter of 2026.

In anticipation, we continue to focus on operational enhancements at those assets and have a plan in place with Blackstone to approach the refinancing in the first quarter of next year with the goal of maximizing our financial flexibility.

Turning to outlook. For the fourth quarter, we anticipate FFO of $0.01 to $0.05 per diluted share. To bridge from our third quarter FFO of $0.04 per diluted share, we expect lower studio NOI due to typical seasonality, we do not expect fourth quarter average show counts to reflect the benefit of tax incentives as productions receiving allocations have up to 6 months to begin filming. We also anticipate slightly elevated G&A in line with our full year G&A expense assumptions, which remains unchanged from last quarter.

Lower stage occupancy and potential ongoing challenges required the Sunset Glenoaks joint venture to reconsider the risks associated with the underlying project financing and treatment of the venture as consolidated for accounting purposes. Based on these considerations, Sunset Glenoaks has been deconsolidated, leading to the following adjustments to our full year outlook assumptions, lower interest expense, lower FFO from unconsolidated joint ventures and higher FFO attributable to noncontrolling interests. Our full year same-store cash NOI growth assumption also remains unchanged from last quarter. As always, our outlook excludes the impact of potential dispositions, acquisitions, financings and/or capital markets activity during the remainder of the year.

And now I'll turn the call back over to Victor for closing remarks.

Thanks, Harout. As we wrap up today's call, I want to emphasize that Hudson Pacific is uniquely positioned at the intersection of the AI-driven technology expansion, the West Coast office market recovery and the return of a more robust studio demand. Our strategic focus and high-quality assets in innovation hubs is already paying dividends with our strongest leasing year since 2019 and positive absorption inflection point.

While our strengthened balance sheet, $1 billion of liquidity, 100% fixed debt and no maturities until Q3 '26, provides the financial flexibility to capitalize on embedded growth opportunities. The momentum we're seeing from record AI investment to expanding venture capital activity reinforces our conviction that were in the early stages of a meaningful recovery and Hudson Pacific is ready to capture this opportunity.

Now we'll be happy to take questions. Operator?

[Operator Instructions] Your first question comes from the line of Alexander Goldfarb with Piper Sandler & Co.

Alex, you there? Operator, let's go to the next question, please?

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Can you hear me?

Yes, we can, Ron.

Okay. Great. Just a couple of quick ones from me. Just starting I would love -- I see the leasing coming through. I love sort of an update on just high level where you think occupancy trends over the next sort of 12, 24, 36 months? And if you could tie in sort of any high-level commentary on the implication for same-store NOI, that would be great as well.

Yes. Thanks, Ronald. We indicated in our prepared remarks where our expirations are, right, with 140,000 the fourth quarter, about 1 million next year on 67% of the activity just this quarter is all new leasing, and we've got 50% coverage on next year's expirations ahead of where we would typically be at this point. So all indications are, we are heading into positive net absorption territory and hopefully picking up steam, right, because at [ 500-plus thousand ] per quarter for quite some sequential quarters now, we're going to be outpacing those expirations by quite a bit.

So trending in the right direction, not going to get too specific here about exact percentages on where we're going to land either year-end or heading into next year, but I think reasonable to expect that you're going to see -- and you saw it this quarter, you're going to see more positive net absorption.

On the NOI -- same-store NOI, I think those are obviously correlated. You're seeing a little bit of a lag. We -- third quarter average same-store office occupancy dipped a little bit, right? We sequentially went down from like 73.3% to 72.8%. The -- and in comparison to last year, you're really -- you're comparing yourself to higher occupancy in that previous year, right, in the higher 70s with some pretty high rent paying tenants, not the least of which were Uber at 1455. We had Amazon and Met Park North. We had Picture Shop at 6040. Those were the main contributors to the prior year NOI that are no longer flowing through the number.

In the same way that office occupancy is trending up. So we finished actually higher sequentially at 75.9%, so higher even than the average occupancy. The average occupancy flowing through the same store is also going to go up. While we need to get somewhere, I think, north of 76% because in fourth quarter, we were 76.3% average occupancy in the same store. So somewhere higher than that, plus the studios need to come -- either be stable or improve a bit, and then you're going to start to see that -- you're going to see same-store NOI start to move in a positive direction.

Really helpful. And if I could just ask a follow-up on the studio. I think we've been talking about sort of the recovery path and trying to understand the shape. It sounds like you are seeing more activity, but just in terms of like what are the key sort of milestones and data points that we should be looking for to get a sense that this is -- the recovery is really getting going in a way that's favorable?

So a couple of points on that. I mean, listen, the content spend is still constant and going up. I think you will see some pretty impressive numbers with the [ Skydance Paramount ] purchase. At the end of the day now, their new content spend is sort of rivaling the numbers that Netflix is, which is in excess of $20 billion a year. So those numbers are going to obviously, permeate in.

And specific to California, as we sort of mentioned in our prepared remarks, with the new tax credits in place and the number of productions that have to commence within the first 6 months of approval, you're going to see that number just organically grow. And I think we're going to be able to capitalize on that in the production side, not just from the OpCo side, but the PropCo side as well, which we're already seeing in our Hollywood assets, which we've seen that we've picked up occupancy there to almost 100%. We only have 2 stages vacant now. And that is also a leading indicator in the production that we're seeing in the activity right now. Early on, it's very attractive, as Mark mentioned in his remarks over Pier 94. So it's trending that way. I think that the effectiveness of the credits are doing what they should be doing. We still have some work to go, though.

Your next question comes from the line of Dylan Burzinski with Green Street.

I think I don't know if it was Victor or Mark that mentioned how rents are sort of stabilizing across Silicon Valley and the Peninsula. Just sort of curious how rents are sort of trending across the rest of the portfolio. If you can provide comments as it relates to San Francisco, given the strong depth of AI demand there as well versus what you're seeing in Los Angeles and Seattle, that would be helpful.

Yes, I'll let Art jump in.

Yes, I'll jump in right now. Yes, so they've been holding steady pretty much across the portfolio. We're even seeing improvement in some of the submarkets, specifically in San Francisco, with the tech demand so high and AI growth so apparent. We're seeing the growth really in the North and South Financial District, more than the other submarkets at this point, but we're really starting to see the growth in other submarkets as well. Seattle is holding pretty firm. And again, we can talk about the growth of tech and AI there that's going to cause the rates to increase over the next several quarters. But I think for now, it's really standing path.

And in L.A., this building that we're in 11601, which is our headquarters building, we're seeing a tremendous increase in rental rate growth. We don't have any leasing on the west side of L.A. And so that's really our only look into the rental rates.

And then, Victor, you mentioned obviously not having the need to sell anything, given where the balance sheet is at and the capital raise you guys did last quarter. But I'm just sort of curious, I think in the past, you guys have talked about just bringing non-core assets to market and just doing a normal process of capital recycling. So just given what seems to be an improving backdrop, obviously, on the fundamentals front, potentially leading to an improvement in the capital market side of things. Just do you guys still have continued desire to bring assets to market that you guys sort of no longer deem a fit within the context of your guys' go-forward portfolio?

Yes. Dylan, listen, as the market continues to stabilize, we're going to make further progress on our occupancy, as you're seeing it right as we speak. And of course, I think we're all very pleasantly surprised with the activity specifically in the Valley and how strong it has been. And as you saw by the prepared remarks that Mark said, I mean, our average tenant size is going up, and that's leading us to having the ability to evaluate some of the assets that we can now look to sell in the marketplace at numbers that could be much higher than they were, let's say, 12 or 18 months ago. So that's always going to be some place that we're going to reflect into and see what the opportunity is to capitalize on some form of external growth and disposing of assets.

So we've got a list of a few assets that are there. As I said in my remarks, we're not planning on selling some assets, but there will be assets that will be sold. We're just not going to identify them until at the end of the day, it's going to be a number that we're going to probably look at that's going to be a combination of assets that we could have sold in the past and now we're going to try to sell them going forward. And I think those opportunities are going to come fast and furious, specifically in the Valley because everybody is focused on the city right now. And I think now the Valley is also opportunistic.

Your next question comes from the line of Blaine Heck with Wells Fargo Securities.

Victor, we've been talking about the influx of demand in San Francisco from AI for several quarters now. And clearly, you guys have benefited as evidenced by the ex AI lease. But we've also more recently seen some layoffs coming through that could be attributed to AI displacement. So I guess my question is, do you see any of your submarkets or tenant industry as more susceptible to that potential negative trend as we look ahead?

So Blaine, listen, of course, everybody is focused on AI. But if you look at the leases that we're signing, they are tech and tech-related leases, but we've signed a lot of fire-related tenants. And the expansion of those tenants, I think, is evident currently today. There is obviously a backdrop of what's the initial impact on labor for AI going forward. But what we're seeing right now, it's not impacting the core businesses that are signing, which is legal firms, insurance firms, which you would think would be impacted. They still are signing leases and taking space that is on a positive basis.

A lot of education is coming to the marketplace at the same time, don't underestimate that. I think the financial institutions have yet to really show up on -- specifically in San Francisco, the way they had in the past. So they're less active, and that would be more of an impact. And clearly, you're hearing and seeing a lot of the financial institutions shipping employees to secondary tier markets where they can have lower cost of rents and the likes of that.

And so I think we're finding that the impact is not as great immediately. One true sign, though, and Art can get into some statistics which is, I think, very, very unique to this past quarter's data that we've seen is now we're seeing a drop in sublease dramatically impacted in some instances in throughout all of our markets, but really in the Peninsula and in the city. The sublease space is coming back to the tenants because they realize they want that space now for future growth.

Yes. Victor, I was going to say to your point, it's AI and tech really grabbing the headlines everywhere because it's a sexy thing to say. But it's not a 90-10 situation, Blaine. It's really 55% of our pipeline is tech and half of that is AI. This 45% of our pipeline is fire sector, professional service firms, education that we're availing ourselves up as well.

Great. That's really helpful color. Just switching gears with respect to Quixote. You guys have done a good job of improving efficiencies in that business. Can you just give us an update on how much more you can cut on the cost side or whether that effort has kind of run its course at this point? And any color on your ultimate plans for that business would be helpful.

Yes. Listen, I think we're making some headway, as you said, we've got more to go. We've got some things in plan. Obviously, I'm not going to disclose the exact numbers and the time line, but it's in the works right now. We're on the precipice of breaking even. That's been the objective for first quarter of '26, and we're getting there along the way and comfortable that I think that we'll achieve that.

From that point on, we'll have to look at where the market is, where the show counts are, what's the absorption from our market share from the OpCo side and then see what's the next phase in that business. We've always said we're going to be reacting to where the future of this business is going to go. We've come through what we would call is the 100-year storm. And hopefully, we're coming out of it and may be better off than we think. We're not optimistic yet, but we're at least seeing the positive signs.

Mark, do you want to comment?

No. Yes, I think you summed it up. I would just say, Blaine, in our prior call, we mentioned a cost saving of approximately $23 million per annum -- pro forma $23 million to $24 million. And if you look at our most recent results, it bears that out perfectly. Last year, in the third quarter, we had $25 million -- nearly $25 million of expenses for Quixote. In this quarter, adjusted for those onetime items, we're at $19 million. And so if you run the run rate on that, you'll see it supports the annual savings target that we had mentioned, which I think is, for us, a nice confirmation that our cost savings is coming through.

Your next question comes from the line of Richard Anderson with Cantor Fitzgerald.

Rich, you there?

Excuse me, sorry. Okay, I'm on, I'm now I think.

I thought you were with Alex.

Yes, I know. I did say I buy rating on the Zoom execution here. I like it a lot, except for the fact that I don't know how to unmute myself. So I was looking at the leasing stats sequentially, and I was trying to do this quickly while you were talking, but when was the last time in the office space that leasing sequentially went up both from an occupancy perspective and a lease percentage perspective because it wasn't in 2024, and it wasn't at least in a lot of 2023. That's as far as I got before I asked the question. I'm just curious how substantial you see that sequential move, albeit small, is that something that's sort of signaling to you part of this bottoming that you're hoping to see?

Well, as Mark sort of checking the stats because I don't think it was -- I think the last time it was probably in '22, but he's going to look, but he probably doesn't have it. But I can tell you, we did say on our last call, I think somebody had asked the question, where is the bottom? And I think I commented that we were at it. And so that sequential move, yes, it's -- listen, it's positive. We're nowhere near satisfied to where it's going to be. As you know, the indications as we said, between what we have in our pipeline and deals that are out to be negotiated, both on the 50% of the deals that we have for next year that we're already in negotiations on and new leasing, we're moving on that track. But I don't really know what that number is, Mark?

I mean there may have been a blip in there somewhere, but it's got to be 2, if not more than 2 years since we've had a sequential positive quarter, both on leasing and occupancy. We bottomed out, as Victor said, essentially 2 quarters ago, we were at 75.1, and then we sequentially did another 75.1 in occupancy and of course, we're 80 basis points higher than that this quarter. So you can easily discern that bottoming and then sequential improvement, but that's been a long time in the making. It's -- we can get it to you, Rich, but it's got to be over 2 years since we've had that.

Okay. Great. Second question for me. Understanding you got a lot going on besides AI, but I'm curious about the kind of the shared knitting of an AI-oriented lease. Are companies maybe taking less lease term or maybe different types of assets, maybe not high rise, but more low-rise, suburban, just not making an overcommitment yet to AI in terms of the space -- the type of space and the commitment they're making time-wise. I'm wondering if it's different with AI than it is for your other more conventional office tenants.

I think the only thing that -- and Art is going to jump in and tell you about the stats around it. But the only thing that's different is they're looking for growth, right? They're much more growth-oriented. If they want 100,000 feet today, they want a line of sight for another 50,000 or 100,000 tomorrow. And that is obviously going to be correlated to high-quality buildings with some potential role that they can absorb when tenants move out or vacancy in place. And that's been consistent throughout. But I think that theme has also been always with tech. They want the ability to grow, but also they want the ability to have their own security and safety amongst their employees. They're spending a ton of money on personnel. They want to make sure that the environment is conducive to their people and not other companies. And there's been a big negotiation now, which we hadn't seen until early on in the tech years where the competitive landscape of other tenants going in the same building, they refuse to have similar tenants in similar working class or proprietary information being in their buildings.

Yes. Victor hit the nail on the head. It's really about path to growth, being able to control their growth, being able to control their security. There's talk about high-rise versus low-rise. I don't -- they're looking for quality Class A or trophy assets with growth top of mind. No question about that. They also are looking more for kind of richly amenitized space. That's a big driver for the AI users. And which is another reason they're looking at second-generation really high-quality second-generation space, a, to cut cost, and b, to move in quicker. So those are really the key items.

Okay. And then if I sneak on one quick one. On the tax credits for studios, obviously, an improvement. But do you think it's enough versus other areas of the world in terms of trying to move production elsewhere outside of LA? Do you think that enough has been done or do you think it needs to be something even more substantial to keep production in California?

Listen, I never think it's enough. This is a captured business that I think the leaders, both on the statewide in city and county-wide took for granted for a very long time and realized now that they have to be competitive. I do believe that there is going to be more changes that are just more than beyond just tax credits, both above the line and below the line. And the below line is really important for the unions right now and they're focusing on that.

There is other things that we have talked about, and we're seeing implemented like fees, license fees, filming fees, ease of production. Right now, it is beating the markets that really took a lot of infrastructure away from us, like the Georgias and the New Mexicos and the New Orleans of the world. But at the end of the day, you can always do more, and we've been pushing very hard with the -- all the entities, both on the federal and the state side, film commissions and the city and the mayor and the governor to help enhance this. And it's clearly evident that they recognize they need to do more. We just hope it's going to be enough and quickly.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler & Co.

Victor, I'm unmuting, new challenge with this new technology.

Are you talking, Alex? Can I hear you? Sorry, Alex, you there?

Yes. I feel like a dinosaur. My kids would have fun, call me a fud. So 2 questions here, Art, just going to Northern California specifically, we hear a lot of talk that more of the AI and more of the growth is in San Francisco, but your overall comments suggest that the Peninsula is picking up with activity. So can you just give a sense of the dynamic between what the leasing is like in San Francisco itself and then how the leasing is going in the Peninsula? And if it's big tech in the Peninsula or if you're starting to see a lot of the smaller start-ups and other smaller tenants active in the Peninsula?

Sure. A couple of quarters ago, I mean, the talk was it was chiefly -- 2, 3 quarters ago, chiefly it was the big AI users in the city. And then I would say over the last 1.5 quarters, we've really started to see the migration of some of these larger users who are taking 200,000, 300,000 feet in the city, now taking 50,000, 100,000, 150,000 square feet down across the Valley and the Peninsula. So it's really -- I think it's really evened out in terms of growth. And obviously, in the Valley we see more of kind of the early-stage tenants -- incubator stage tenants that are growing into 5,000, 10,000, 15,000 feet, which will become the next 25,000, 50,000 square foot tenant. So we're really seeing brisk activity across all of Northern California at this point.

Okay. And then Victor, just going back to the entertainment and the tax credits. By your comments on the 180-day sort of shot clock, if you will, it sounds like we really shouldn't expect a material pickup until the back half of next year. I realized Harout's not giving guidance yet, but just from sort of getting our expectations in line for how the studio ramp would go, it sounds like it's really a back half next year based on that 180-day shot clock. Is that fair? Or you think it could be sooner?

Listen, I never want to go earlier on comments, especially if you're giving me a lifeline to go longer. But I think the 180 sort of takes us to the second quarter of next year. And you're not going to see it right now. Obviously, we're in November and December is obviously the quietest month of the year for production. So by the time they start filming, it should be really effective for the second quarter. And then clearly, going forward, there will be another launch of shows that are approved. I believe it's November 19, so you're going to see that. And then you take that 180 from that time line is really gets you almost till May. So at the end of the day, yes, you're going to see the second half of the year for sure, but I do think you'll have an impact after the first quarter.

Your next question comes from the line of Vikram Malhotra with Mizuho.

It was pretty simple. I just got an unmute request, so I think I clicked it, but this is great. I think this format is pretty cool. So I like that you did it. Just -- maybe just going back to the core office side, you talked a lot about fire AI. I'm just wondering, bigger picture, like as your strategy evolves to grow from the bottom with so much vacancy in other peer buildings and just the markets, like how do you gain share consistently? Are there pockets where you're saying we're giving up on price incentives? Are there like specific buildings that you're looking at and saying like, "Hey, we need different strategies." Like I'm just trying to figure out, like in this environment as you bottom, but to grow from the bottom, just how competitive is it? What are your peers doing? Is it just a price war?

Yes, Vikram, I think that's a great sort of astute point, is it really just pricing to the bottom. And we don't see that for 75% of our portfolio. Because that part of the portfolio is Class A. There's a demand there. We've seen us compete with maybe 1 or 2 other projects. It's not a list of 10 that we're competing with, and we're getting more than our fair share. And it looks like going forward, we're going to continue to get much more than our fair share given what we've seen on the pipeline going forward.

But I would say we've talked about this in the past. There is 20% or so of our portfolio, we have assets that are going to fight the fight with other assets in the marketplace. And hopefully, we'll get more than our fair share, but we're willing to take our fair share at the end of the day. And whatever it takes to go out and lease those assets, we're not going to turn anything down. No, we're not giving it away by no means because the market is going to dictate that across the board. But at the end of the day, I think it's safe to say that we will be much more further ahead given where, as you can see with all the statistics that have come to market, the lack of development that is coming to the marketplace, there is 0 in all 3 of our major markets, which is the Bay Area, the Pacific Northwest and here in Los Angeles. So those marketplaces have 0 new development. So organically, as you see the demands continue to drive in fire and other related businesses that are outside of tech and AI, those buildings will lease.

And Vikram, if I can add to what Victor said, regarding the assets that you're referring to, the type of asset you're referring to, if I could add kind of a tactical piece to this thing that gives us a competitive edge is we have -- in those assets, we have over 300,000 feet, closer to 350,000 square feet of ready-built spaces for these tenants that are in great condition and move-in ready condition that really have carried the day for us. And it allows -- especially now allows tenants to move in a lot quicker. And so that's been the difference maker in those assets that you're referring to.

Okay. And then just on the studio side. So like if I take the 3 big segments, your long lease, long duration lease stages, ones that are shorter in the Quixote business. Just assuming Quixote doesn't come back for a while, for whatever reason, it's more variable. Can you remind us of the stickiness of the other 2 businesses, what's the variability there? Like how should we think about sort of from here on a downside scenario?

Well, if you look at the Sunset portfolio, virtually with the exception of Glenoaks right now, it's almost 100% leased. And the stickiness is those longer-term leases take us until almost '31 for the most part. I mean there are a couple of shows that go through 2026 and '27, but the lion's share goes through '31 with our Netflix leases, which is almost uniformly that way. Clearly, the show by show, the ones we have currently have right now have all gotten picked up for the next seasons. So we're feeling good about that stickiness for those shows. And that's the directional force of what we're seeing. We're looking right now at 40%. Tenant it's taking 40% of our Pier 94 asset, which is a show that will go at least a couple of seasons. And so that, I think, is sort of the future of where this industry is going and the competitive landscape at the end of the day, it's going to be a show by show versus a long-term lease. On the Quixote side, we have the same thing. We have some sticky shows right now, and we have some vacancies.

Your next question comes from the line of Tom Catherwood with BTIG.

Great. You guys hear me?

Yes, we can.

Perfect. Perfect. So I wanted to go back to Alex's question on demand in the Peninsula. And Art, I think last quarter, you mentioned discussions with 4 tenants looking for something like 100,000-plus square feet each in San Jose. Can you provide an update on those and your kind of overall leasing expectations in that market?

Yes. Sure, Tom. Those -- we did talk about there were 4 tenants across the Valley and the Peninsula, one of which we executed on and the other 3 are still in process. We're starting to see more demand in the kind of 50,000 square foot range at the airport, which I think was going to carry the day. And our team there has got demand drivers kind of in hand relative to those deals.

So is your expectation that we could see an acceleration in leases executed in that airport market in the near term?

Yes, we're definitely going to start to see an acceleration of that, and we've already started to see that in the Peninsula as well.

I think we've been pleasantly surprised with the size increase of tenants in the Peninsula in the last 6 months. And the line of sight for future tenants, including the 3 that we're referring to, there's many behind them in that sort of 40,000 to 80,000 foot range that are in the marketplace.

Great. Perfect. And then second one for me, going up to Seattle on Hill7 specifically, what's the leasing outlook for that building? And how much did the need for incremental leasing CapEx play into the buyout of your partner's position?

I'll talk about the activity at Hill7. And currently, we're in negotiation with 3 multi-floor tenants, totaling about 139,000 square feet, and there are various stages, but it would address nearly all of the existing vacancy.

Yes. And in terms of the economics around that, listen, it's -- we look at it as an opportunity. We have an allowance that is already in place for TIs to a certain amount of the leasing that Art's referring to. So it won't be coming out of pocket. It's already allocated to the building. And we just think that the asset with the quality space that's in place right now, it's going to need very little TIs. The build-out is very, very impressive, and that's why the demand is there. This would be an asset that we would have to reposition, but fortunately, we don't. And so I think the opportunities with the tenants that we're looking at is really like a plug and play. And we're optimistic that we're going to get some of those deals done relatively quickly.

And so again, that sounds very positive, Victor. Great to hear that. But that being the case, then what drove the buyout of the tenant? Was it concerned -- it can't be refinancing concerns that debt doesn't come up until '28. What was the kind of catalyst that brought that to a head at this point in time?

No, it's a good question. It is putting in capital in the future, and we're better positioned for that and we see a bigger upside than our partner did. And so that's -- you're exactly right, it's exactly that.

And this is not new for the partner to exit. They've done this with other -- specifically other REIT partners, they've just walked away from assets.

Your next question comes from the line of Jana Galan with Bank of America.

Just a quick one on the office leasing this quarter. It looks like the average lease term came down for both new and renewal leases. Were there any large one-offs influencing this? Or are AI firms just prone to shorter lease term? And as this segment increases in your portfolio, how should we think about kind of the TIs, leasing commissions and maybe faster lease commencements?

Yes. The tenant -- the large tenant we signed a deal on in Palo Alto was really what underlied the sequential downtick, if you will, in term. I mean just in terms of overall economics leasing is holding up well. I mean you may have noticed that net effectives came down a bit sequentially, but they stayed in the same range of where they landed now for quite some time. Where if you look at net effectives on a trailing 12-month basis relative to pre-pandemic, we're approximately 10% off, which has kind of been -- that towards the upper end of the range of where we've been for quite some time now. I still think things are trending back towards closer to pre-pandemic net effectives. It's just we had this quarter a little bit of a dip.

On other economic fronts, rates are holding fine. TIs, you'll notice ticked up a little bit. Again, same lease associated with that. I think where we'll see the benefit in terms of that TI spend is that, that was first-generation space. We completely repositioned that asset, taking it offline. So the spend sort of correlates with the condition of that space to get that tenant move in. And I think we'll see a benefit from that when we renew that tenant, we'll get a sort of more bang for our buck, if you will. But in terms of overall TIs, if you look at TIs per annum for the -- on a trailing 12-month basis, they're actually 14% lower than pre-pandemic trailing TIs per annum. So again, a good sign that lease economics are holding.

Your next question comes from the line of Lauren McNichol with Citigroup Global Markets.

Lauren, are you there?

[Operator Instructions]

All right. We'll come back to Lauren. Let's move on to John.

Your next question comes from the line of John Kim with BMO Capital Markets.

I wanted your thoughts on Mayor Mamdani. No, I'm just joking. There was a Mayor race with a socialist front runner similar to what we had in New York. But I was wondering if you believe that has impacted leasing decisions or any economic decisions in Seattle over the last couple of months?

Listen, I'm getting live updates, John, right now as we speak. And as of the last -- there's going to be a poll drop, I think, at 11 a.m. this morning. But I think if it was a 54-46 in favor of Bruce. And so -- and it looks like it's -- the City Council is going to be [ 6 3 ] still as a firm hold. I think we're going to see -- it was an amazingly low turnout. I think historically low turn out in Seattle. So we're going to see what the impact is at the end of the day. Clearly, you know where our position is on that.

At the end of the day, Seattle, the shift on this potentially could be impactful only because not based on the politics, just based on the background of the potential new mayor, if she gets elected, I mean she has no background in terms of running any governmental agency or any history of that. And so I think the process in Seattle could be slowed, but let's hope that Bruce gets in, and we'll know that in the next couple of days.

Fingers crossed. Okay. Second question is on your economic and leased occupancy, they both trended in the right direction this quarter. But it seems like you've walked back from the target that you mentioned last quarter of high 70s, low 80s by year-end. I was wondering if that was still on the table. And as part of that, if there's any update on 1455 Market since that seems to be a pretty big needle mover?

So I'll start on that because it was -- I think if you recall, I said, leased -- I specifically said leased, and I said some time by year-end or first quarter, and I know you like to hold us to specific correlated numbers. The trajectory is there. Whether it gets there by December 31 or it gets there by March 1, it's there. And so I wouldn't worry about is this immediate and impactful on a moment in time. And so specific to 1455, negotiations are moving along at the pace that we are very happy with. But it is a city entity, and the process will take time. But I believe our team is extremely confident that, that deal will get done in a matter of time.

That being said, as you heard by our prepared remarks and by what you've seen with our pipeline, we're very comfortable with our renewability for the remainder of '25 and all of '26 and the percentages around that, and the new tenant absorption and the activity around that, we're very comfortable with that as well. Mark, do you want to jump in?

No, I think you summed it up.

1455?

Yes, that's what I said, I was talking about the city. That's what I was referring.

Your final question comes from the line of Lauren McNichol with Citigroup Global Markets.

This is Seth Bergey. Is the line unmuted?

Yes, you are. You kicked Laura out...

No, she's here with me. I guess my first question is on the 4Q guide, $0.01 to $0.05. At this point in November, kind of what gets you to the low and high end of the range?

Seth, it's Harout. It's -- I think we -- in my prepared remarks, I mentioned that the driver at this point is really around the studio business. It is slower activity in the fourth quarter. So if that were to tick up, I think that puts us in the higher end of the range. And if that were to tick down, it would put us in the lower end of the range. That's really the biggest driver at this point of the year.

Okay. And then I guess just on that, how should we think about the recovery, the shape of the recovery? I think you mentioned some seasonality in the fourth quarter. And then they have 6 months. So is that kind of a 6 months kind of where you would expect to kind of see the pickup? Or would you kind of expect to see like a steady increase until that time period?

Yes. That's about -- that's the right time frame. The new -- the enhanced credit went into effect in July. There was a round of awards right out of the gate, roughly, I don't know, 20-something awards. More recently, there were another, I don't know, 40-plus awards for a total of 74. They -- we think, and our numbers are pretty good on this, that roughly 15% of that is currently in production. So there is squarely a lag between the amount of shows that have been awarded and those that are under production. So we -- that should hit within that 180-day time frame from the 2 different awards starting in July.

Okay. Great. And if I could ask just one more. I believe on the last call, you kind of mentioned there are some pickup in tour activity Washington 1000 and some space requirements that you were kind of engaged with there. Could you just kind of give us an update on that activity?

Sure, Seth. You're absolutely right. But this tour activity we talked about last quarter has increased even more based on the demand drivers -- the positive demand drivers we're seeing in Seattle. Tour activity increased 171,000 square feet quarter-over-quarter, which is to say it went from 200,000 feet to 371,000 square feet. We're currently in some form of negotiation with 4 tenants with requirements of 50,000 square feet or more. And 2 of them are in later stages. So we feel really good about that. And as the competitive landscape continues to improve in Seattle, we feel that we're even better positioned now than we ever have been.

There are no further questions at this time. I will now turn the call back to Victor Coleman, Chief Executive Officer and Chairman, for closing remarks.

Thank you again for participating in our third quarter call. We look forward to giving you updates as we go. We'll speak to you after the New Year, hopefully.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon. My name is Alex, and I will be your conference operator today. Hudson Pacific Properties Second Quarter 2025 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the call over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Please go ahead.

Good afternoon, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing. This afternoon, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website. An audio webcast of this call will also be available for replay on our website. Some of the information we'll share on the call today is forward-looking in nature.

Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss industry and market trends. Mark will provide an update on our office and studio operations and development, and Harout will review our financial results and 2025 outlook. Thereafter, we'll be happy to take your questions. Victor?.

Thank you, Laura. Good afternoon, everyone, and welcome to our second quarter call. We are energized by the progress year-to-date on our strategic objectives as well as the positive trends across our portfolio, sectors and markets. Importantly, leasing, which is one of our top priorities, resulted in a 1.2 million square feet of office leases signed year-to-date. And we're on pace for our strongest office leasing year since 2019 and poised to grow occupancy with -- among the sector's lowest expirations over the next 2 years.

Our studio occupancy is also improving, and California's significantly expanded film and television tax credit is finally in effect. Since the start of the year, we have also executed on operational enhancements, asset sales and capital transactions, all of which are contributing to the rebuilding of our foundation to drive future cash flow growth.

Following our successful CMBS financing and follow-on capital raise, we have over $1 billion of liquidity and and the refinancing of our only 2025 maturity is well underway. We are also starting to realize positive results from our ongoing efforts to enhance the company's cost profile Specifically, we have meaningfully improved G&A and further streamlined our studio business to achieve profitability.

Moving to the state of our markets. The West Coast office recovery is taking hold, led by emerging AI and tech companies. Tech and leasing in San Francisco drove the single largest quarter occupancy increase in 7 years and the third consecutive quarter of positive net absorption. Given year-to-date leasing activity and demand in the market, the city is also on track to have the highest annual gross leasing since 2019. In Silicon Valley, occupancy also improved for the third consecutive quarter. Over 1 million square feet of positive net absorption was driven by the tech sector, new leasing and for the first time in a long time, deals of 100,000-plus square feet.

AI and AI-enabled businesses are the next wave of economic growth on the West Coast and billions of venture capital dollars once again flowed into the sector in the second quarter with no signs of stopping despite tariff uncertainty. AI job postings credited further upwards and the war for the best talent is on. For AI start-ups especially, proximity to the broader ecosystem is the key. And this explains the reason that 60% of AI's current footprint is located in the Bay Area and why we anticipate West Coast gateway markets which have always had a unique mix of talent, networks, funding and research will be the primary beneficiaries.

Today, core AI tenants that is companies creating, selling and licensing AI models, platforms, infrastructure or chips represent only 10% of our ABR and are located exclusively throughout the Bay Area. Given the funding available of these companies, their office cultures and the current offerings within our portfolio, we see a considerable runway to expand both core AI and AI-enabled companies with our tenant mix. On the studio side, there are multiple reasons we are gaining confidence in the business despite weaker overall production activity in the second quarter.

Pilot shoot days were up 11% year-to-date and 48% on a trailing 12-month basis. There are 134 productions in active development or prep in California during the second quarter, the most in any quarter since the 2023 strikes. In the first half of 2025, $375 million was allocated under the previous California film and television tax credit program, nearly exceeding total dollars allocated during the entirety of 2024. And of the 110 allocations made so far this year, 51 of them occurred in June alone.

Productions are only just beginning to apply for the more than doubled $750 million California tax credit, which among other new features provides for larger allocations to more types of productions, and we expect to see increased allocation activity in the near term with the potential for show counts to begin to benefit as early as the fourth quarter of this year. Finally, turning to asset sales. We continue to strategically pursue the disposition of noncore assets. We completed the sale of 625 2nd for $28 million during the second quarter and we are in various stages on a handful of other potential dispositions. We evaluate each transaction within the framework of our broader capital allocation priorities, seizing the opportunities to increase liquidity while optimizing our portfolio to create long-term shareholder value.

And now I'm going to turn the call over to Mark.

Thanks, Victor. We have signed 558,000 square feet of office leases in the quarter. 60% of which were new leases and 60% of which were in the Bay area. We improved occupancy across all our major markets, but for Seattle, where, as expected, a single tenant at Hill7 vacated approximately 100,000 square feet. Quarter-over-quarter, our in-service occupancy was stable at 75.1% and our lease percentage dipped only 30 basis points to 76.2%.

Our rent spreads trended upward, increasing 4.9% on a GAAP basis and decreasing 1.8% on a cash basis. Our trailing 12-month net effective rents were 2% lower compared to the prior year and 11% lower versus pre-pandemic. Our tour activity increased 8% compared to the first quarter to 1.8 million square feet, the highest level in more than 2 years, driven by additional tours at our San Francisco Peninsula and Silicon Valley assets. Tax as a percentage of our tours grew from 35% to 53%, and core AI tenants as a component of tech demand increased from 7% to 61%.

Our leasing pipeline is healthy at 2.1 million square feet, including over 0.5 million square feet of later-stage deals. Average requirement size continues to grow, approaching 20,000 square feet, both for tours and our pipeline. We have approximately 50% coverage, including deals and leases, LOIs proposals or in discussions on our 547,000 square feet of remaining 2025 expirations, including 100% coverage on our only remaining expiration greater than 50,000 square feet.

Most of our 2025 expirations are smaller tenants averaging around 5,000 square feet and thus, decision-making typically occurs within the quarter of lease expiration. As we have noted, from this point forward, due to both increased office demand and significantly lower expirations, we anticipate our in-service office occupancy to remain stable and should begin to grow as we move through the coming quarters. We have, on average, 270,000 square feet expiring per quarter through 2029 which is only about half the roughly 500,000 square feet of leases we've signed per quarter over the last 2 years.

Turning to studios. On a trailing 12-month basis, our in-service studios were 63% leased with related stages 63.6% leased. The quarter-over-quarter change for these metrics was driven by the inclusion of our Sunset Linos development for the first time. But for Sunset linacs, our trailing 12-month in-service total and stage lease percentages would have increased to 74.3% and 80%, respectively, due to improved occupancy at Sunset Las Palmas, where 9 of 11 stages are leased. Our Code Studios total and stage trailing 12-month lease percentages also improved quarter-over-quarter, up 340 basis points to 40.2% and up 410 basis points to 47.4%, respectively.

Quarter-over-quarter, our studio revenue increased 3% to $34.2 million, primarily due to additional studio occupancy and transportation utilization at [indiscernible] even without an improvement in show count. Studio expenses decreased by 11% to $36.6 million quarter-over-quarter, mostly due to elevated expenses in the first quarter associated with various onetime cost reduction initiatives at Cote. As a result, our studio NOI improved by $5.4 million quarter-over-quarter.

Turning to development. Construction at Pier 94 studios in Manhattan is on time and on budget for delivery by year-end. We are in discussions with tenants regarding longer-term leases and expect so by show demand to pick up in the fourth quarter of this year as productions typically book 2 to 3 months out. Regarding Washington 1000 in Seattle, discussions with various potential tenants are ongoing, and we have 2 are scheduled for several new mid- to large-sized requirements. This project's exceptional quality positions it favorably in that market, especially given a diminishing pool of truly competitive supply. And with that, I'll turn the call over to Harout.

Thanks, Mark. Our second quarter 2025 revenue was $190 million compared to $218 million in the second quarter of last year, the change primarily due to asset sales and lower office occupancy. Excluding $14.3 million of onetime expenses associated with the forfeiture of executive noncash compensation, our second quarter G&A expense improved to $13.5 million compared to $20.7 million in the second quarter last year and $80.5 million in the first quarter this year or nearly a 35% and 27% improvement, respectively. In alignment with our ongoing efforts to reduce costs. Our second quarter FFO, excluding specified items of $8 million or $0.04 per diluted share compared to $24.5 million or $0.17 per diluted share in the second quarter of last year.

[indiscernible] items for the second quarter totaled $19.2 million or $0.09 per diluted share, including onetime expenses associated with profited noncash compensation agreements, debt repayment, curity cost cutting and transactions. My comparison specified items for the second quarter of last year totaled $1.2 million or $0.01 per diluted share including income related to transactions and onetime due fair value adjustment. Excluding specified items, the year-over-year change in FFO was mostly attributable to factors affecting revenue.

Our second quarter same-store cash NOI was $87.1 million compared to $104.1 million in the second quarter last year, mostly due to lower office occupancy. Turning to the balance sheet. We continue to execute on a multipronged approach to enhance our maturity profile, increase liquidity and strengthen key debt metrics. In the second quarter, we repaid all of our private placement notes, Series B, C and D totaling $465 million, addressing significant maturities in 2025, 2026 and 2027. We also raised $690 million of gross proceeds through a common equity offering and used net proceeds to fully repay our credit facility and for general corporate purposes.

In connection with this offering, we secured commitments to increase capacity under our credit facility by $20 million through the end of 2026, including extensions and to extend $462 million of capacity through year-end 2029, including extensions. At the end of the second quarter, we had $1 billion of total liquidity, comprised of $236 million of unrestricted cash and cash equivalents and $775 million of undrawn capacity under our credit facility.

We had another $22.3 million of ATB share of undrawn capacity under the Sunset PR94 construction loan. Regarding our only remaining 2025 maturity, the loan secured by 1988 we expect to successfully refinance the loan. We will pursue the most cost-effective structure with closing anticipated this quarter.

Turning to our outlook. For our third quarter, we expect FFO per diluted share to range from $0.01 per share to $0.05 per share. Comparing our second quarter FFO of $0.04 per diluted share to our third quarter outlook, we expect gross FFO to increase largely due to full order impact of deleveraging following the recent equity offering. This increase will be partially diluted by the higher weighted average share count of approximately 456,750,000 shares for the third quarter.

Regarding our full year assumptions, we anticipate both improved interest expense range of $168 million to $178 million and G&A expense ranging from $57.5 million to $63.5 million as we continue to execute on previously announced cost-saving measures. Estimated weighted average share counts now range from $319 million and $321 million for the full year.

Finally, please note that consistent with this quarter's filing, our full year same-store cash NOI now reflects the inclusion of our Metro Center office property, resulted in a range of negative 11.5% to 12.5%, which would have been identical to last quarter's range of negative 12.5% to negative 13.5%, but for that adjustment. As always, our outlook excludes the impact of any potential dispositions, acquisitions, financings and/or capital market activity.

Now we'll be happy to take your questions. Operator?

[Operator Instructions] our first question for today comes from Blaine Heck of Wells Fargo.

So it seems has known the building blocks are in place for office occupancy growth now that you're effectively past the no move-outs. But just wanted to make sure that there were no incremental concerns that came up this quarter around significant move-outs in future years or tenant credit situations that could make it a more bumpy recovery?

Not at all -- yes, go ahead. No, not at all. There aren't any significant issues with any tenant in the portfolio on any level that would change the dynamic around what we've announced and what we have going forward with leasing..

Okay. No, that's helpful. I guess following up on that, Victor, I guess, how do you think about the pace of which you can recover this occupancy? Is this it certainly seems like a multiyear rebuilding effort, but maybe give us a little bit of color around how we should be thinking about this..

I mean, listen, Blaine, I think you heard in the prepared remarks, specifically around Mark, with we have had quarter-over-quarter sequential increase in leasing. We've had quarter-over-quarter, more importantly, tours and activity and pipeline has been stable. We've gotten -- I shouldn't say we mark got in trouble onetime for sort of projecting where leasing was going. I think we feel very comfortable given the activity, the deals we have in the pipeline that we're shooting for somewhere around a low -- a high 7 handle year-end and then '26, a mid- 8 handle, given everything we're working on right now. And it was indicative of sort of the playbook that we laid out with the tenant occupancy and leased differential, I'm referring to a lease number there..

Yes. Okay. That's really helpful. Clearly, you guys accomplished a lot with respect to the balance sheet this quarter. So do you feel as though you've completely kind of shifted your focus to leasing and occupancy growth in both office and studios kind of driving an improvement in your overall cost of capital as that comes through? Or is there anything substantial that you're working on with respect to the balance sheet in the near term that we should be aware of, obviously, outside of 1918, which touched on?.

Yes. I mean, indicative around 1918, I think as Harout said in his prepared remarks, we're very close to finalizing that deal. On a balance sheet standpoint, we have excess liquidity that we've not had access to in some time. And there really isn't any next major step on the balance sheet/liquidity basis. for us to accomplish everything we need to accomplish on the ops and studio side over the next 36 months, probably with the exception of us renewing the media loan a little over a year from now. I think that it does put us in a much stronger position to work on the execution, which is clearly around leasing and ops. And that's where we see the upside here. And that's why I think we're very confident. And we've clearly bottomed out in every market we're in. and more than just bottoming in some of the markets, it's really made a dramatic turn, as you can see by the activity, not just within our portfolio, but also in our peers' portfolios in the similar markets..

Okay. Great. That's helpful. Last one for me with respect [indiscernible], it seemed as though there were some lease terminations and sales of the fleet. I guess can you talk about the drivers behind those lease terminations and just give us an update on maybe how much more you can cut on the cost side and your ultimate plans for that business?.

Yes. So Blaine, it's the downsize of the fleet, the lease terminations all part of that cost-cutting efforts that we've been underway on. Last quarter, the update on that front was that we had cut about $14 million of expenses on a pro forma basis, we thought relative to, say, 2024 actual results, that $14 million of cost cutting translates into about $10 million of improved NOI pro forma to '24. That effort continues. In the latest quarter, we cut another $10 million that was largely downsizing of the fleet, including the location services part of that fleet.

So we're at the current annualized expense cutting efforts come in at around $24 million. The update on the NOI side, again, pro forma to 2024 results is $14 million of NOI improvement, cash NOI improvement. I think importantly, when we last updated you, we thought that breakeven, based on those cost-cutting efforts were like mid- to upper 90 show count levels. Based on the latest cost cutting, we think that's now down into the low 90s. gets us closer to breakeven. And I think last but not least, we still think we're in that $30 million to $40 million cash NOI range if we can see show counts get somewhere back to the 110 to 120 level.

Our next question comes from Alexander Goldfarb of Piper Sandler.

So Mark, maybe just sticking with Blaine's question on [indiscernible] and the studios. I think if memory serves, there was about $100 million of EBITDA that went away when the studio shut down a few years ago. Obviously, you've retooled the business and it's great Victor to hear about the increasing show counts and the tax credits. Where should we think about -- I don't know if it's $100 million that you guys will get back to, but where should we think about that revenue or that EBITDA recovery? And if we think about the length of time, is it 2 years, 3 years? Do you think it'd be quicker? Just trying to get a sense of how much we'll get back and a timing of when you think it will get back based on how productions are coming back..

Yes. So the last point I was making, Alex, really points to where we think it could trend to at that 110, 1.20-ish level. 120 was average so counts in 2022. In '21, in 2019, we saw show counts above 130 even in certain months 140. But I don't think we're thinking that that's peak television is necessarily in the cards. But with the tax credit now more than doubled to the 750 level and officially in the budget, hopeful that we could see show counts get above, say, the 110 level, which should get us somewhere in the neighborhood of about $30 million of NOI.

I don't know that it makes sense to revisit the initial pro forma back when we purchased the company starting in 2021, which is that $100 million or so that you're pointing to. For now, I think the key is getting closer to breakeven, which I mentioned is around that 90-ish show count level and trying to get back into positive EBITDA territory like that $30 million, $40 million range that I think we could potentially get to..

Okay. And then the second question is, Victor, I think you mentioned that you guys -- and obviously, a nice job on the capital raise. that you have the capital that you need for the next 36 months, but I just want to make sure I understand. As you think about the leasing CapEx, the free rent and everything that you need to do to get the portfolio back into, I guess, sort of the low 90s on the office front. Is that correct that you don't need any additional capital? I just want to make sure I understand that correctly..

I mean I think what we're referring to is just that we've got a plan in place that can access additional capital it need be. And the balance sheet will shape up that way. I'm not saying we're not selling any more assets because that's not the case because you heard in my prepared remarks, we have a few assets that we are working on. I think the expediency of selling a couple of quarters ago was ramped up and now we're taking more of a moderate time line on that because we don't need the capital today. It doesn't mean we're not going to be pruning the portfolio as we typically do..

And then as part of that, the line of credit, which I think [indiscernible] undrawn. Is your view to use like maybe a little bit of that? Or as you think -- as we think about this plan, the line of credit would form a meaningful part of the capital spend?.

I mean, typically, we use the line of credit on an EV basis. Right now, there's no need as we have -- we have cash on the balance sheet in excess of almost $200 million. So we're in good shape there. And we've always used the credit facility when we need it, if there are opportunities that we have to access it, we will. There's no set game plan as to when we're going to draw down on it.

Our next question comes from Caitlin Burrows of Goldman Sachs..

I guess I was wondering if you could just comment on the leasing environment. It seems like you guys have been maintaining this kind of average quarterly pace in the 500,000 square foot range for a while now. I feel like also in line with what you guys were saying that there's a lot of commentary about West Coast picking up. So I guess I was wondering if you could just comment on -- are you seeing a pickup? Are you seeing what you've been seeing sustaining just how those volumes are going?.

Caitlin, this is Art. Yes, so that takes that magical 500,000 square feet. We -- well surpass , if you look at the last 2 quarters, I think we're averaging about 590,000 square feet. So yes, to answer your question, it is picking up, not only is it picking up, but we're starting to see the front end of that engine, which is tours pick up as well. We were up 10% quarter-over-quarter and just up to 1.8 million square feet, which is really the highest we've had in probably about 6 years. So that's the good news behind what's in our pipeline and what we're executing on. And additionally, the tour activity, the average deal size is increasing. That's telling us that's informing us that the midsized deals are really back into the market, and we're availing ourselves of them..

Got it. And then I guess maybe could you just differentiate by some of the markets? I know you were talking before about the strength in tech and AI, mostly in the Bay Area. Would you say that's driving the strength? Or would you say the kind of pickup that you were just talking about is across markets?.

No, it's 100% driving the strength across the Bay Area, San Francisco in particular. It's the tech, it's the relationship to the tech into the pipeline itself. It's up in the valley, it's up to about 68%. In the city, it's up very close to 60% and I roughly about 25% of that and growing, by the way. In Seattle, a little bit more modest increases, but increases nevertheless, we've seen year-over-year, probably 25% increase in demand and gross leasing. And the tech pipeline, though, again, a little bit more muted than San Francisco, we're starting to see migration.

We're starting to see the front end of some of the top main tech companies, AI companies getting a foothold in Seattle or [indiscernible] themselves of the talent pool in Seattle, for example, open AI, anthropic [indiscernible] to name a few. And so we're seeing these tenants take 8,000, 10,000, 50,000 feet and then grow. So if you're penetration in the last cycle, that's precisely what happened and drove the engine in Seattle.

Our next question comes from Seth Bergey of Citi.

I just wanted to touch on third quarter guidance. What kind of is at this point and where we said in August, what July kind of already in the books kind of gets you towards the lower end or the higher end of guidance?

Yes, thanks for the question. I think a lot of this stems from the studio business. I think if we get surprised and the activity increases more than we expect, we can get to the higher end of the guidance. And I think if the [indiscernible] is slower than we expect, it may go to the lower end of the business. Obviously, we get some different type of leasing if we execute on leases that give us more beverage occupancy that can also help on the higher end of the range.

But as it relates to other costs and interest, I think those things are pretty well known as we fix our interest and our G&A costs are pretty low at this point.

Okay. Great. And then I think in your prepared remarks, you said that there's around 500,000 square feet of the leasing pipeline is kind of in later stage. Is any of that Washington 1000?

Yes. So I think it was -- the number is actually closer to $600 million. I think we said 500,000 but it's moved up. Not at Washington without no later stage deals, the deals that we have and Washington 1000 is based upon the market information I shared with [indiscernible] us a second ago, we're starting to see more multi-tenant deals in the market on which we are touring. So tours are up significantly quarter-over-quarter. And then we have -- there's 3,000 100,000 square foot deals in the market right now that we're engaged with. So not later stage lease or LOI [indiscernible]

Our next question comes from Tom Catherwood of BTIG.

following up on Alex's leasing CapEx question. With the incremental capital on your balance sheet, right now, can you get more aggressive pursuing new leases and kind of capturing more of the 2 million-plus square foot pipeline that you have? Or is the plan to hold more cash for other uses in the next 12 to 18 months?.

Thanks, Tom. Good question. Listen, we've never detracted our business plan around spending capital if the quality and size and quantity of leasing is available for ourselves. So it's not about whether we have capital or not. We've never constrained ourselves from not doing deals because of capital at the end of the day. So we're trying to expedite the process. We're not losing deals because we're being aggressive or not being aggressive. We're losing deals to competitors who may have space that's readily accessible and that marketplace has been drying up dramatically, specifically in Seattle.

I mean, the deals that we've lost in Seattle have been to move in ready space. So the majority of that sublease space in the marketplace is now gone. In the Bay Area, both in the Peninsula and in San Francisco, we're in a massive level playing field there right now, the activity, as Art mentioned, and Mark in his prepared remarks, has never been higher. So we're comfortable in the ability for us to execute. It's really just a timing situation. And I do think that the comment about we're a month into the quarter. Remember, it's also the quietest quarter being summer.

We've already seen great activity for this quarter in leasing, and we expect September to be a pretty strong month for us.

kind of when we think of institutional investor interest in West Coast, CRE, but especially office, seems like that's ramped recently, whether they're owner users, whether they're financial investors, what have you seen in terms of valuation improvements across your markets? And is that changing how you're approaching asset sales? Are you moving certain assets in or out, just depending on the change in values recently?.

That's an excellent question. I think you've got to look at a couple of factors right now that are sort of lean towards the valuation and institutional capital coming into specific office, but in general, into CRE overall on the West Coast, the venture capital drive has put the capital forefront into the Bay Area specifically, and then Seattle secondarily, I mean, the area is 6% of the AI is going into Bay Area. And the DCs are funding companies that are putting their companies and corporations and headquarters in the Bay Area. And so that has taken a very positive shift in terms of valuations and increased price per foot.

The number of transactions has picked up in terms of sales in dispositions or sales which riverside of the table you're at. but it's materially changed quarter-over-quarter to a point where you're seeing massive decrease in cap rates and a valuation shift. We think that's coming clearly, those who ventured into the marketplace in the Bay Area, both in the Peninsula and the city, 12 to 18 months back all the way through until the beginning of this year, have made really, really solid buys for the most part. And so we're seeing those valuations increase. But I think it's still a little too early to sort of capture -- well, this is where cap rates have gone from too. but that is coming.

In terms of your latter part of your question, right now, we have really looked at only 1 asset in the Bay Area that could be a disposition candidate left in our portfolio. that would make some sense and be priced out of a good number. So we're not reevaluating that, and I don't see us doing so. I'd rather see the leasing pick up and then maybe look down the road of a more stabilized asset.

. And last 1 for me. Mark, you mentioned Sunset Las Palmas I think it was 9 out of the 11 studios are leased. But in the sub, it's still sub-50% from a leased percent is there a lag when it comes to when a stage is spoken for to when the actual occupancy has taken and that percentage ramps? How do we think through it with Las Palmas specifically?.

Yes. For all the stages, we track occupancy on a trailing 12-month basis, which is how we've done it historically since 15 years now. is origin relates to really the period of time of really show-by-show occupancy on the stages in the trailing 12 months, occupancy looks were designed to give more sort of robust look at ongoing occupancy unaffected by temporary on expirations and then backfills across different stages. So what you're seeing there is really just lower occupancy in earlier periods at Sunset Las Palmas.

So then at the end of the quarter, what did the here the percent lease look like for last fall?.

Well, on 9 of the 11 stages were leased, I don't know. It's probably in the neighborhood of about 80% leased right now.

Next question comes from Peter Abramowitz of Jefferies. Please go ahead.

Yes, thank you. Just want to go back to Victor's comments around increasing occupancy, and I think you mentioned the target for getting leased occupancy back to the mid-80s by the end of next year. Obviously, the Bay Area, despite the pickup in activity is still kind of trailing the rest of the portfolio. So just curious what's kind of a realistic target for stabilized occupancy in the Bay Area in your view? And how long do you think you can take to get there?.

So when you're defining the Bay Area, are you defining the entire marketplace from San Francisco all the way down to the Venisula? Are you looking at just as.

kind of looking at both.

Yes. I mean the lag has really been candidly, in the airport area, Santa Clara at the end of the day. I mean the numbers we're looking at right now, if you look at the entire marketplace, it's right around 70%. And if you look at the city, it's Palo Alto being the high -- sorry, like 92, Redwood is like 73%, and foster cities like 87% and Santa Claris like 90%. And then on the low end, you've got North San Jose, which is bringing everything down in the mid-50s. But the activity in North San Jose right now has been exceptional. And as Mark made -- sorry, a [indiscernible] made the comment, we're seeing -- we were doing 7,000 to 20,000 square foot deals. We're now seeing 30,000 and 40,000 square foot deals and even some even higher.

Yes. So that's really the average, Peter. This is Art. When you're talking about the Valley, you talked about an increase in deals that are 100,000 square foot or more. There were 8 a year ago, there's 18 today. seeing -- Mike, we're talking specifically about the airport with our portfolio. we're seeing -- there's 4 deals over 100,000 square feet that we're in discussions or negotiations on. As you know, that's a small tenant market. The average tenant size in our portfolio is roughly 7,000 to 8,000 square feet, right? And we're in discussion and negotiation with 4 tenants over 100,000 square feet. That's really going to move the needle in a big way. And as you move north, the 2 biggest vacancies that we have, we're negotiating one is 80,000 square feet, the other 50,000 square feet. We're negotiating both spaces with multiple users.

we feel pretty bullish about leasing that pace of lease-up over the next 1.5 years. And then, of course, as you get into the city, our largest vacancy is 1,455, and we're in discussions right now nafta space. So we're feeling -- again, we're feeling good about what's in the pipeline and what's behind it in terms of tools.

Okay. That's helpful. I appreciate the color. And maybe just a follow-up on the tour activity. I think you mentioned it was up 10% quarter-over-quarter. Could you just specify outdoor activity trending specifically in Los Angeles..

Yes. So let me start with our -- Yes, it is up 10%, but I'll give you numbers. It's up to 1.8 million square feet. At the same time, quarter-over-quarter, the average deal size popped 30%, right? So it just closing in -- closing it on 20,000 square feet. Those are the tours we're seeing. That's what's going to feed the pipeline, which is going to inform what we closed downstream. And our -- actually, our hit rate on tours is pretty high, it's about 30%. So we can start to look favorably about what's going to happen in the coming quarters. In L.A., we really only have this 11,601 billion that we're sitting in right now. We're 96% leased. It's really become a small tenant building, and we're garnering the highest rents in the market.

But the LA market, in general, is really driven by West L.A. It always has been certainly well through the pandemic. The demand drivers are there, right? The demand is probably up 20% year-over-year. More importantly, the gross leasing still remains robust. So not that concerned about L.A. and certainly not this building at the moment because we have a pipeline about 50,000 square feet, which doesn't sound like much, but we're -- again, we're closing on a 97% leased.

Our next question comes from Vikran Malhotra Holt of Mizuho.

I guess just going back to the point about target occupancy or next year. Maybe if you can just step back and give us a sense of like over the next 2 years, let's say you're able to achieve this occupancy, you do have a fair amount of expirations over the next 3 years. Is it fair to say that once you achieve this occupancy, cash flow growth or AFFO growth will probably still be a probably 27, 28 time at the earliest?.

So Vikram, let me just clarify your comments because they're not accurate. Okay. First of all, we're not talking occupancy. The numbers I talked about was leasing and specifically said leasing versus occupancy. Second of all, we have the lowest amount of exploration in the next 3 years than we've had in the last 8. We averaged around 500 to 600 a quarter -- sorry, yes, $500,000 to $600,000 a quarter. We are sub-$250 million. So if you look at that and you look at what we talked about earlier and you correlate to leasing, not occupancy, we're very comfortable that 26 year-end will be at the range that we're talking about right now, which will correlate to occupancy and cash flow that will increase in a substantial amount from an FFO and an AFFO basis.

Okay. Yes, I mean, I was just looking at the expirations as a percent over the next several years. kind of '25 to '28.

You said 3 years. So it's several years could be 3. But if you look at 3 years, it's about $750,000 to $800,000 versus $1.5 million to $2 million.

Okay. Just going back to the studio business, you talked about reaching hopefully, there's the number of shows and then reaching sort of a run rate breakeven NOI level or rent level. I just want to go back, I guess it was 2 quarters ago. Part of the plan was maybe looking at it more strategically. It is a challenged business today, but is divesting it still on the cards? And if not, I guess, do you look for more partners? Or do you just -- are you still focused on the [indiscernible] business as part of the company?.

I don't recall member talking about divesting. What we talked about, which we've executed on, is divesting on certain leases and obligations that are not income producing to lower the overhead and cost which we've accomplished and we've outlined and in Mark's prepared remarks, he reiterated again. We have not talked about divesting out of the Coty business, the Sunset portfolio business or the real property of the opcos.

Our next question comes from John Kim of BMI Capital Markets..

I just wanted to clarify your guidance for the year, I guess, for Harout, Same-store NOI is basically unchanged from last quarter. G&A assumption is down, interest expense is down yet it doesn't look like earnings are moving that much. I know it's a pretty wide range. But what are the offsets to the positive contributors in your guidance? And what would you bring you to the low end of guidance, the $0.01 to $0.05 in the third quarter?.

Sure. Just to clarify, the annual numbers, obviously, some of which are reflected in the third quarter numbers, right? So there's still the fourth quarter. But I think I touched upon this a second ago, for the third quarter, what the biggest variable numbers would be in the studio business, right? I think if show counts improve, if things are more active and more robust, that will get us closer to the higher end of the range. And then if things are weaker than we expect it will bring us closer to the lower end of the range. That to us is the biggest X factor in our guidance for the next quarter.

Okay. On the Studio business with Sunset 194 looking to complete looking for completion date this quarter. When do you expect occupancy to commence? And if you could break down the stages that you're in negotiation with as far as the longer-term leases versus the show by show. And also if there's any services component as part of the NOI of the studio..

Well, listen, right now, John, we are in conversations with a couple of shows that are year-to-year. name shows that have come to us. It's still a little early because some are trying to film as of Jan 1, which means that we'd be an office space prior to that. And so that's still in limbo. For the most part though, we've indicated we are going to -- the activity is around show to show. There's not a lot of long-term leasing that is available in any of the marketplaces throughout the states right now in the 3 main markets in Atlanta and Los Angeles and New York. But we are seeing some very solid activity around name company shows that will have, hopefully, repetitive seasons.

To answer your second part of your question, the economics around that are fully integrated with how we do every one of our deals, which is going to be packaged deals, which include all services, all amenities, all sound stages, all offices and all of our lighting and grip packages. So that will be a total number at the end of the day. we will have no differentiation between PR94 or any of our other studio facilities in terms of how our revenue collections and charges are.

That's helpful. And then my final question is on the leasing activity. It was pretty healthy this quarter. It looks like your '26 aspirations actually went up this quarter versus which last Were there a lot of short-term leases that you've done or just like short-term renewals that got you there because it's a little bit of.

It would have slightly -- Yes, it went up slightly, but some of the tenants are holding over or in the short-term situation.

Next question comes from Ronald Camden of Morgan Stanley..

Just wanted to circle back to the last 1,000. Just wondering if you could provide just a little bit more commentary on just the activity in the market overall and how that asset is differentiated. And I think it sounded like you're leaning more towards sort of multi-tenant versus maybe a big tenant and so forth. Just would love to dig in there a little bit more..

Yes. We're exploring all. I mean, at this point, there's an uptick in multifloor tenants -- multifloor deals, as I said. We're touring -- the touring has picked up. There are 3 -- there are really 500,000 square foot tenants in the market, 3 of which we are in front of 4 Washington 1000 and the other 2 are really a Pioneer Square kind of location that we're in negotiations with, which is the good news. So we continue with tech of those 300,000 square foot tenants actually 2 or tech.

One is Biomed, and we're going to see in the coming quarters, we can't execute all in one of these. But the good news is behind it, the tours that we have lined up already as we come kind of through the summer. Well, I really think it's going to start to pay dividends for us there. But to answer your question on the building, it's one of one. It is, if you want new construction, state-of-the-art assets, especially if you need more than 200,000 square feet, we're one of one. So we feel really good about our prospects.

That helpful. And then my second one is just going back to the same-store NOI sort of guidance. I guess when you're thinking about when we're connecting the dots with the occupancy commentary, what are some of the higher level sort of takeaways in terms of what that does for same-store as you're going to '26 and '27, right? Because presumably, the comp is easier and you're gaining occupancy. So how should we think about just high level what that same-store should be doing?.

Well, I'll take this is Mark.. Yes, I mean, they're obviously correlated. You're going to see GAAP same-store NOI begin to improve typically sooner than cash, typically a reflection of the component of the leasing activity that has front-loaded free rent. But hard to pinpoint precisely when you see the turn. But our sequential flat occupancy of 75.1%, I think sort of reinforces our belief that we -- we've likely hit the bottom on occupancy. We'll see a steady march of positive net absorption that should first materialize in GAAP, like I said, and then you'll start seeing it show up in cash rents..

Our next question comes from Dylan Burzinski of Green Street.

Just sort of on the sort of lease trajectory. It looks like you guys noted that PayPal has executed a lease termination starting next year. Are there any other larger potential move outs that we should be aware of as we think about the 2026 ramp?.

No. No, we need to answer that. That was the first question that was asked. No, there's nobody else there.

Great. And then I guess given the limited amount of near-term lease signings that seem to be expected at Washington 1000, can you kind of talk about how we should expect that to sort of roll into earnings. It seems like that should sort of come off capitalization sometime towards the end of this year, but is that sort of incorrect?.

No, that's right. I mean it will -- at the end of this year, we'll no longer be capitalizing interest on it. And then you'll see in our supplemental, but as we sit today, stabilization on it first quarter of '27, which that's 92-ish percent cash paying occupancy. So you can kind of ramp your way up towards that because we would obviously expect there to be occupancy absorption and cash rent paying rent before that time. That gives you sort of a time frame over which we expect to see it stabilized.

Final question for today comes from Blaine Heck of Wells Fargo..

Yes. We're hearing a lot about the streaming platforms pushing to have more of a foothold in the sports entertainment area. I was wondering if you guys had any view on how that could impact dynamics in the studio space and just overall demand there.

You're hearing accurately. And what you're finding is live content has been an additional driver of capital for the streaming companies. And so it's in all forms. But yes, the majority of the capital is going towards sports and sports-related content. It is not though taken anything away from the budgetary issues that they've allocated for all the other content, whether it's features or shows that are streaming. So it's just -- it's an addition too. And Netflix is the biggest contributor. It started with the Anabelle now there's follow-ons with Apple and soccer and lots of American football, European football, et cetera. But there's a lot of those examples that are coming to play.

We have commented on this blame on the last call. Amazon, as an example, which does [indiscernible] football, as everybody knows, has decided to make their sports center here in Los Angeles. So as to the tune of Netflix. So their desks that they're going to be reporting from and conducting the live sports commentators are going to be out of L.A. Others are in New York. And so that's going to continue. And I think you're going to see more and more capital driven that way. But to date, the capital has not shifted on a budgetary basis, away from them creating new content.

There are no further questions at this time. I'd like to turn the call back to Victor Coleman, CEO and Chairman, for closing remarks..

Thank you so much for participating in our call, and we look forward to speaking to everybody sometime in fall.

This concludes today's conference call. You may now disconnect your lines.