Hudson Pacific Properties, Inc. (HPP) Q3 2026 Earnings Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Hudson Pacific Properties third quarter 26 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Laura Campbell, executive vice president, investor relations and marketing. Laura, please go ahead.

Laura Campbell: Good morning, everyone. Thanks for joining us. With me on the call today are Victor J. Coleman, chairman and CEO, Mark T. Lammas, President; Harout Krikor Diramerian, CFO and Arthur X. 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 will share today on the call 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 focus on current industry and market trends. Mark will provide detail on our office leasing and studio operations, and Harout will review our financial results and 2026 outlook. Thereafter, we will be happy to take your questions. Victor?

Victor J. Coleman: Thanks, Laura. Good morning, everyone, and welcome to our third quarter call. This was another quarter of steady progress for Hudson Pacific. We signed 534 thousand square feet of new and renewal office leases and our in service office occupancy grew for the 5th consecutive quarter approaching 86%. Together with improved studio performance, that contributed to growth of 8% in same store cash NOI and a core FFO per share year over year, and we are once again raising our full year outlook. We also continue to execute on our disposition plan and strengthen our balance sheet. Pro forma for our fourth quarter asset sales and senior notes repurchase total liquidity stands at $840 million with our share of debt reduced by 14% year-over-year. And looking ahead, our leasing pipeline stands at 2.1 million square feet with 1.1 million square feet now in advanced stages nearly twice the level of a year ago. A pipeline of similar size set the stage for a very strong 2026. And its greater maturity today further positions us to extend our earnings growth into 2027. Touching on our markets, I am going to begin with the capital fueling demand. US venture backed companies raised $98.4 billion in the third quarter. While below the outsized first half totals it was roughly double the quarterly levels of 2023 and 2024. Year to date investment now exceeds $515 billion already more than 60% above full-year 2025. With over 70% of it deployed in our West Coast markets. AI remains the primary driver accounting for 20 US rounds of $1 billion or more in the quarter while software also has captured a record share of venture dollars this year. Several indicators support continued funding. US VC fundraising reached over $100 billion through the third quarter already ahead of all of 2025 and a record acquisition exit values are recycling capital back into the ecosystem. We are mindful of the recent volatility in tech stocks, which is largely centered on the capital spending of the largest platforms, that is a different part of the AI economy from the 1 driving demand in our markets. We will continue to watch how public market sentiments affect private funding, but so far, we have not seen it in our pipeline or tour activity. On the ground, demand continues to build. AI and tech driven leasing is broadening the office recovery across the West Coast with virtually no new supply coming online. San Francisco posted its 8th consecutive quarter of positive net absorption adding 1.3 million square feet Citywide vacancy has improved 660 basis points over the past year, and asking rents are up nearly 10%. The South Financial District continues to lead having absorbed more than 2 million square feet so far this year. With large blocks in the South of Market quickly disappearing, we expect tenants to widen their searches into adjacent submarkets which should benefit our assets greatly. Silicon Valley delivered its strongest leasing quarter since 2019. At 4.1 million square feet It also absorbed more than 1 million square feet and active tenant demand rose to 12.4 million square feet with Santa Clara among the leading submarkets. On the peninsula, net absorption turned positive led by Redwood City, Redwood Shores at more than 40% of the region's total, while neighboring Palo Alto remains 1 of the Bay Area's tightest office markets with rents among the highest in the country. Further north, in Seattle, net absorption reached its highest level since 2021. While Downtown Seattle recorded its first positive quarter in nearly 5 years on the strength of the CBD. Pioneer Square has been positive both for the quarter and the year to date. Los Angeles by contrast remains more mixed. Leasing volume rose nearly 12% year-over-year, but net absorption was modestly negative. West Los Angeles captured roughly 40% of all leases. In Los Angeles while with Brentwood posting positive absorption this quarter. And in Vancouver, class a vacancy downtown fell for the 5th straight quarter to its lowest level since 2022 with no new downtown supply expected until at least 2032. Conditions are setting up for upward pressure on premium rents. Turning to our studio business, production levels in Los Angeles and New York continue to move in different directions. But as Mark is going to discuss, our prime locations are performing well in both. Third Quarter Los Angeles on location shoot days were 5% lower year-over-year and remained 29% below the 5-year average. New York, meanwhile, is surging with third quarter production spending up 87% year-over-year to $1.6 billion approaching California's $1.8 billion. Filming permits in New York City were up 27% year-to-date as of September. Looking ahead, see potential catalysts for Los Angeles production At the federal level, legislation introduced this fall would create a 20% to 30% film and TV tax credit that stacks on top of the existing state credits and supporters are pushing to pass this before year end. In a bold move this week, governor Newsom proposed raising the state's annual credit from $750 million to at least $1 billion and for the first time extending eligibility to above the line compensation. Closing the gap with competing states. This proposal will require legislative action and will likely carry into the next administration, but it is a clear signal of the state's commitment to bringing production back. We are also continuing to sharpen the portfolio through opportunistic asset sales and year to date, we closed nearly $190 million of non-core, FFO-accretive dispositions. That includes $90.5 million from the sales of 2001 Gateway and 75 and 99 Howard in the third quarter. 75.5 million of sales for the Skyport Plaza in the fourth quarter and $23 million of sales of the non core assets from Coyote across both quarters. The office sales took largely vacant capital intensive assets off the books allowing us to focus on capital leasing at our highest potential properties. Consistent with our capital allocation priorities, we use the majority of the net proceeds to delever, which Harout is going to discuss shortly. As we refine the portfolio, its quality continues to be recognized externally. We were named as a GRESB sector leader for the 6th consecutive year and earned a 5-star rating in the 2026 real estate assessment. We also ranked first among US listed office companies for the 2nd consecutive year and 1st among all listed participants in The Americas. That recognition reflects the investments we have made to keep our portfolio young, modern, efficient, and resilient, as well as our management team's commitment to quality and discipline. Now with that, I am going to hand it over to Mark to talk through leasing and operational details.

Mark T. Lammas: Thanks, Victor. We signed 74 leases totaling approximately 534 thousand square feet in the third quarter with activity evenly balanced between new leasing and renewals. Tech tenants provided a significant source of demand at 28% of activity roughly 2-thirds of our leasing was in the Bay Area where Palo Alto led all submarkets at over 110 thousand square feet. This included a 65 thousand-square-foot renewal and expansion lease with Rivian and Volkswagen Group Technologies at Clock Tower Square which addressed 1 of the 2028 expirations over 50 thousand square feet. Our in service occupancy increased 310 basis points sequentially to 85.6%, our 5th consecutive quarter of gains and our lease rate climbed 330 basis points to 86.1%. Adjusted for asset sales and the temporary removal of Fourth & Traction in our Los Angeles Arts District from our in service portfolio, our occupancy and leased rate increased 80 and 100 basis points, respectively on a like for like basis. Regarding Fourth & Traction, the City of Los Angeles adopted seismic retrofit requirements several years ago that applied to the building, so this is work we needed to do. PayPal's recent expiration gives us a window to complete it and we have several prospective long term tenants with requirements of up to 75 thousand square feet interested in the building. that is precisely why we are moving quickly now so the work gets done before they move in. We expect to finish the seismic work by Q2, at a rent spread of negative 5.6% on a GAAP basis and negative 0.4% on a cash basis. Driven by new and renewal leasing at our Peninsula and Silicon Valley assets. Third quarter net effective rents increased 30% year-over-year, and on a trailing 12-month basis were up 9%. Tour activity remained strong with 116 tours covering nearly 2 million square feet in the third quarter. Tour count was up 13% year-over-year, and the average requirement of 17 thousand square feet remains well above the roughly 10 thousand square feet typical in 2023 and 2024. Average requirement sizes grew most on the Peninsula and in Silicon Valley where they roughly doubled this quarter, and in Seattle where they rose almost 50%. Even after signing 2.4 million square feet year to date, up 40% from last year, our pipeline has remained above 2 million square feet for 7 consecutive quarters. Roughly 25% above our long-term average. Almost 60% of the pipeline is new leases supporting continued occupancy gains while the renewal portion has grown to over 800 thousand square feet the highest level we have tracked. And as Victor noted, more than 1 million square feet is in late stage negotiations. The quality and momentum of our pipeline are as strong as we have seen and we are highly confident in our ability to convert a significant portion of it. Turning to our expirations. We have approximately 50% coverage on both the remaining 144 thousand square feet expiring in 2026 and the 1.1 million square feet expiring in 2027. We define coverage as deals and leases, LOIs, or proposals. For the first half of 27, coverage is over 50% including full coverage on the Salesforce and Twilio space at Rincon Center in San Francisco, where we are in late stage negotiations. Second half 27 expirations are mostly smaller leases, averaging about 6 thousand square feet, and those tenants typically do not engage until about a quarter before expiration. At Washington 1 thousand consistent with last quarter, we have coverage on approximately 65% of the building with active negotiations across 10 tenants whose requirements range up to 125 thousand square feet, including over 60 thousand square feet of late stage deals. Activity at our move in ready spec suites has increased meaningfully since their June completion and plans and pricing are complete for the next phase of spec suites on the 5th and 6th floors. Beyond our current pipeline, tour activity has picked up noticeably from tenants with near term occupancy needs most of them new to the market. As has been reported, while Weil, Gotshal & Manges, our tenant at Towers at Shores Center in Redwood Shores is winding down operations. Weil occupied 89 thousand square feet across 2 leases. 38 thousand square feet expired after quarter end and the remaining 51 thousand square feet runs through 2038. While recently completed an estimated $700 per square foot build out leaving pristine space that ranks among the Peninsula's best for professional service firms. With in place rents at market. Beyond the public announcements, we have not heard from Weil about its plans for the Redwood Shores lease. Given the quality of the space and the demand for both the asset and Redwood Shores more broadly, we are confident we could release it efficiently. In our studio segment, our in service stages were 74.7% leased on a trailing 3-month basis in the third quarter stable compared to the prior quarter. Our Hollywood stages remained well leased at 95% and Sunset Pier 94 continued to ramp with its lease rate up another 370 basis points to 82.2%. In contrast to the broader Los Angeles market, our prime location stages in production fleet saw higher production activity and spend compared to the same quarter last year, though activity softened from the last quarter. Together with lower operating expenses, both sequentially and year over year, and the continued wind down of noncore Coyote operations, our share of core studio NOI improved to $4.3 million from $2.2 million last quarter and up considerably from negative $2.5 million a year ago. Lastly, in terms of additional avenues for value creation, after quarter end, we secured entitlements to convert approximately 164 thousand square feet of office space at 901 Market in San Francisco into 136 residential units above the existing retail. As we did at 10.9 thousand Washington, we have created real optionality giving us multiple paths to respond to market demand and maximize value. We are advancing construction drawings and evaluating pricing and we will determine the best path forward in the coming quarters. This remains part of a broader effort as we continue to evaluate residential and mixed use opportunities alongside our office assets in Palo Alto, and across the peninsula. And now Harout will take you through our financial results and outlook.

Harout Krikor Diramerian: Thanks, Mark. In the third quarter, total revenues were $180.9 million compared to $180.6 million in the prior year primarily due to asset dispositions most significantly the sale of Element LA, partially offset by improved office occupancy and increased studio production activity. G&A improved 10% to $12.3 million compared to $13.7 million in the prior year resulting from cost cutting initiatives. We reported net loss of $218.1 million or $3.38 per diluted share compared to $130.5 million or $2.12 per diluted share the prior year. Primarily driven by noncash impairments of Skyport Plaza and Hill 7 and a loss on the sale of 875 And 899 Howard. Deconsolidation loss related to Sunset Glen Oaks accounted for the loss reported in the prior year period. Excluding these items, our underlying performance continued to strengthen. Core FFO grew to $18.6 million, up approximately 11% from $16.7 million in the prior year and increased approximately 8% on a per diluted share basis to $0.28 from $0.26. This was driven by higher same store NOI across both our office and studio properties and lower non real estate depreciation from the wind down of noncore Coyote operations, partially offset by asset sales. Adjustments to FFO totaled negative $2.8 million or negative $0.04 per diluted share primarily reflecting gains on non core Coyote lease terminations. A prior period property tax refund, and the sale of nonreal estate assets partially offset by noncore Coyote costs. This compares to positive $2 million or $0.03 per diluted share in the prior year. We grew same-store cash NOI 8.3% to $85.2 million, compared to $78.7 million in the prior year. Driven by improved office occupancy and increased studio production activity. Turning to the balance sheet. We ended the quarter with $956 million of liquidity, including $161 million of unrestricted cash and full availability of $795 million on our revolver. Net debt to undepreciated book value was 32.1%, and our debt was 100% fixed or capped. At a weighted average interest rate of 4.9%. During the quarter, together with our joint venture partner, we extended the $1.1 billion Hollywood Media portfolio CMBS loan to November 2027. Providing additional flexibility as we continue to execute our business plan for the portfolio. The extension required no principal pay down. The spread is unchanged, and we fixed SOFR at 3.5% through the extended maturity slightly better than the swaps it replaced. Subsequent to the quarter end, we repurchased $200 million of senior notes $100 million each of our 2027 and 2028 notes at a discount to par. We funded the repurchase with cash on hand and borrowings under our revolver. We then closed sales of Skyport Plaza and a non-core Coyote asset and used the net proceeds to pay down the revolver to $30 million. Pro form a for these transactions, HPP's share of debt is $700 million, a reduction of $425 million or 14% from a year ago, and HPP share of net debt to cash adjusted EBITDAre improves to 11.4x from 11.8x at quarter end. Pro forma liquidity is $840 million consisting of $75 million of unrestricted cash $765 million of revolver availability. Which includes $333 million of commitments expiring this December. Beyond the senior notes, our remaining 27 maturities are nonrecourse, Property level joint venture loans primarily the Hollywood Media portfolio CMBS, which we just extended. For our 2027 and 2028 maturities, we expect to utilize a combination of liquidity, asset sales, and capital markets in a disciplined manner. Interest expense for the quarter was $40.9 million, which improved modestly from the prior year. $117.4 million year-to-date, a 12% improvement versus the first 3 quarters of 2025. Wrapping up our 2026 outlook, we are increasing and narrowing our full year core FFO to a range of $1.15 to $1.21 per diluted share up from the prior range of $1.12 to $1.20. This updated range reflects at the midpoint approximately 1 cent of outperformance in the third quarter compared to our initial expectations as well as approximately 1 cent attributable to improved expectations for the fourth quarter. While we have received no indication that Weil Gotshal will stop paying rent, we have taken a conservative approach and excluded their rent from our guidance for the balance of the year. The 200-basis-point improvement to average in service office occupancy reflect actual results for the first 3 quarters and estimates for the fourth quarter. The 175-basis-point improvement to same store property cash NOI growth reflect the full year estimates of the properties which now contribute to the same-store pool. In both cases, the improved estimates are essentially attributable to sales of 875 Howard and Skyport Plaza, and the temporary removal of Fourth & Traction from the in service and same store portfolio. For seismic upgrades ahead of re-leasing. After these changes, the company would have likely maintained its prior outlook on both metrics. As a reminder, this updated range excludes the previously announced wind down of noncore Coyote operations from core FFO. And as always, our outlook excludes potential dispositions, acquisitions, or capital markets activity, beyond those completed to date. With that, I will turn the call back to Victor for closing remarks.

Victor J. Coleman: Thank you, Harout. This was another quarter of steady execution. Leasing remains strong. Occupancy continues to grow, and we further strengthened our balance sheet. With improving demand supporting the recovery in our markets, a healthy pipeline, and potential tailwinds from proposed federal and state production incentives were well positioned heading into 2027. We look forward to sharing more on our Investor Day on December 1st, where we will provide a deeper look at our long term strategy, the outlook for our office and studio businesses, and our capital allocation priorities heading into 2027. Thank you to the entire Hudson team for their hard work and to our tenants, partners, and shareholders for their continued support. Operator, with that, let's turn it over for questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Blaine Heck with Wells Fargo. Blaine, your line is open. Please go ahead.

Blaine Heck: Great. Thanks. Good morning out there. You have made additional progress with the asset sales and subsequent note repurchases. But I was hoping you could walk us through just a general overview of the sources uses for the remainder of upcoming unsecured maturities how much you are expecting can be addressed with available cash and additional asset dispositions? And whether you expect to need to raise debt or equity capital for any significant portion of those maturities?

Victor J. Coleman: So thanks, Blaine. I will start with we are not remotely interested in raising equity at these levels, and we do not need to raise equity to address our debt issues. Our first maturity of the debt comes due at the end of next year, And as you noted, we have already taken care of it, $200 million of the $750 million. So we are down at $550 million. We have got multiple areas that we are evaluating. And, if you come to our investor day, we are going to outline a plan that is going to detail it throughout all of 2028, and we are comfortable on our plan. To give you some highlights, we do have some additional assets, which we are not talking about now. Very few that are going to fall in the disposition category, and we also have JV opportunities with additional assets that we are going to announce lease up on for fully leased assets and long term maturities with credit tenants. That are unencumbered that we can also convert. So we have lots of optionality, as we said, We are attacking this plan methodically as we have dictated. And to date, we have executed it exactly how we have looked.

Blaine Heck: Okay. Great. Thanks, Victor. And you executed on the CMBS extension this quarter. So I was hoping you could provide a little commentary on any further discussions you have had with Netflix and whether you have gained any insight on how they are thinking about their futures space needs between your properties and potentially Sanford.

Victor J. Coleman: Yeah. I cannot comment on San Francisco other than the fact that Netflix has not closed that transaction. And, they are not deciding to close it until, sometime maybe later in the year. Or not. that is not a concern of ours. I can tell you that the replacement of San Francisco for their existing office does not fit the footprint as we have talked about in the past. We have and continue to have very fruitful, very productive conversations with them. I think we will have some resolution on some levels of that hopefully, by year end. And continuing these conversations, positively for them to extend beyond 2031 is looking in the direction that we are comfortable with. Thanks, Victor.

Operator: Your next question comes from the line of Jana Galan with Bank of America. Jana, your line is open. Please go ahead.

Jana Galan: Thank you. Good morning, and congrats on the quarter. I appreciated all the leasing commentary and being that it was about 2-thirds in the Bay Area. I am curious for the forward $1.1 million pipeline, if you could comment on geographic distribution and maybe mix of new and renewal within that?

Arthur X. Suazo: Sure. This is Arthur. You know, so the mix of new and renewal is in the. Within the pipeline is also 60-40, 60% new Growth tenants. And relative to the distribution of the pipeline, again, 2-thirds of the pipeline is in the Bay Area, The quickest growing portion of our pipeline and tour activity for the last 2 quarters has been Seattle. And so the next large movers will be in Seattle and I believe will continue to be in Seattle. And, of course, Seattle, Vancouver, and LA make up a small portion of that pipeline.

Jana Galan: And anything new on Washington 1 thousand or anything you can share on kind of the activity of the larger space?

Arthur X. Suazo: Yeah. Absolutely. So, you know, we continued the momentum that we had, you know, last quarter. Currently, there are 10 deals in negotiation, 3 of which are on the 3 remaining, market ready suites. 1 of those deals is in late stages. for 15 thousand square feet. The remaining 7 deals in negotiation, 1, 50 thousand square feet is in late stage late stage leases. And the restaurant is in various phases behind that Behind that, you know, we have 6 tenants who are looking for more market ready suites that have really started to tour and be in discussions with us. So we have planned and we have priced the next phase call it 2 floors of market ready suites that we are going to be ready to go once we are in leases with, the others. Thank you.

Operator: Your next question comes from the line of Tom Catherwood with BTIG. Tom, your line is open. Please go ahead.

William Catherwood: Thank you, and good morning, everybody. Mark, maybe in your prepared remarks, you mentioned strength in Redwood Shores. Multiple times, that is been 1 of the markets that has sort of lagged behind the recovery of your other Peninsula assets. Can you talk a little bit about what is changed there in terms of demand? And then maybe how much progress do you think you can make there in the near term?

Mark T. Lammas: Yes. We are well leased. Generally speaking, in Redwood Shores. I do not know that a lot has changed. I mean, we have seen steady demand from smaller tenants throughout that market and well diversified, you know, professional services, tech, obviously, given its location. And so I think we have just benefited from what has been core, steady quarter over quarter demand. We have captured. We have outpaced the overall market consistently I, you know, I do not know what else to say about it. I mean, I. Arthur can add some further color on it, though.

Arthur X. Suazo: Yeah. Absolutely, Tom. You know? So I think the strength of that market for us is a small tenant in our market-ready, move in ready suites, You know, we have deployed probably over 200 thousand square feet over the last several years. Right now, we have well over I would say, close to 100 thousand square feet of move-in ready suites. With great coverage, and that is how we are outperforming the market. We understand the size of the tenant is, as Mark indicated. They are generally under 20 thousand square feet. And that is precisely how we are meeting the market.

William Catherwood: Let me just follow-up on that. I get the, you know, things are getting better. But if we go back to a year ago, I mean, you know, yes, you have added 500 basis points of leasing there, but you have added a lot more in other parts of the peninsula. So is this something that you think you can get into the mid 80s as we move forward? Historically, it has tended to lag behind. How much how deep is that potential demand that you are looking at?

Arthur X. Suazo: Yeah. I mean, we were we were well into the eighties. I feel like we can get back well over 80 as well. there is been lift, as you know, on the Peninsula there is been significant lift with Palo Alto. With Redwood City, and we are now seeing this wave of you know, small to midsized tenants you know, that we are, you know, aggressively pursuing. So yeah, we could get well into the eighties. Okay.

William Catherwood: And then just last 1 for me. Maybe moving over to Quixote, With the $23 million sale, what is left, and then kind of what is the timeline for resolving the remainder of non core? And I get it could be lumpy. But in general, what are your expectations for resolving what is left there?

Mark T. Lammas: In terms of just the wind down, we are down to just a few more leases associated with the noncore Coyote business, and we think those will be wrapped up by year end. I think, you know, just in terms of a scorecard, we are on schedule, if not a bit ahead, and we have been able to. Actually, ourselves at a at a price, if you will, below what we had initially targeted. So we think we are executing extremely well on the wind down. Once it is that wind down is complete, we will be. At that point, will be a transportation company exclusively based in New York and largely in LA. Roughly 1 thousand vehicles of various types. With 6 or so locations. To either house those vehicles or maintain those vehicles. And importantly, and you see it in our third quarter results, even with show counts sort of stubbornly for now, at least stuck at 70, We almost hit the breakeven target. We were at the negative $600 thousand for the quarter, which is darn close to where we hope to get. And with a. Just a touch of improvement in show count, we think we are we would be at breakeven. So that is kind of where the business we think looks like when the wind down process is over and we will. And once that is done, we will have to just step back and, you know, kind of assess what comes next.

Victor J. Coleman: Yeah. And just lastly on that piece, Tom. You know, we are still maintaining our market share, which is extremely high for that business. Got it.

William Catherwood: Appreciate the answers. Thanks, everyone.

Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald, your line is open. Please go ahead.

Ronald Kamdem: Great. Just starting on the same store NOI. Just in the quarter that you sort of posted. You are thinking about sort of flipping the calendar, what are some of the puts and takes to how same store NOI should evolve with sort of occupancy and commencements and everything. Just trying to get a sense if this level is sort of the right run rate going forward.

Harout Krikor Diramerian: Hey Ronald, great question. So I do not know if we are ready to talk about 2027, but I will give you some high level amounts. But you know, as leasing continues to improve and as free rent burns off, we expect the same store cash NOI to continue to improve. So that is the trajectory. There may be some, you know, additional free rent for new leases in the upcoming year. But, ultimately, the trajectory should be growing. on a go-forward basis.

Ronald Kamdem: Great. And then my second 1 is just the leverage. It looked like it ticked up a little bit during this quarter. Maybe can you talk about just as you are thinking about whether it is funding some of the CapEx for the leases or asset sales and so forth. Just where do you think that should trend to as NOI comes online and you are managing sources and uses? Thanks.

Harout Krikor Diramerian: Sure. So the leverage increased quarter over quarter, but again, below our expectations, and it is almost entirely due to the PayPal lease expiring at Fourth & Traction. So all within our expectations, in fact, we beat our expectations. And I think we said in our prepared remarks when you pro forma in the note repurchase and asset sales, leverage ticked back down. it is going to be a little up and down in the short term, but overall, we expect it to start dropping. And that is our plan. So, again, similar to the same store cash NOI, as free rent burns off, those leverage metrics will definitely increase. and be helpful. that is it for me. Thank you. Yes. Yep. I got you. Thank you.

Operator: Your next question comes from the line of John Kim with BMO Capital Markets. John, your line is open. Please go ahead.

John Kim: Thank you. You talked about 50% coverage on next year's expiration. Was wondering if you could provide some more, commentary on what that comprises of. So, like, renewal versus the new leases, renewal will have no downtime. And then how much of those leases are in documentation versus LOIs or proposals?

Arthur X. Suazo: Sure. This is Arthur. Let me start with kind of the largest the largest 5 deals we have out there, the most significant of which is a Rincon Center with Salesforce and Twilio combined, it is 163 thousand square feet. We have 100% coverage on that To round out the top 5 deals, you know, we have very close to 70% coverage on those deals. Behind that, John, you know, as we as we move through the year and you know, we cater to a lot of small tenants, very hard to get a read a further read on, you know, what their decision is you know, more than, you know, more than a, you know, 3 months out. So our total. Our, you know, our total coverage right now is 50%. However, we will be. As we move through the year, we will be getting more commitments from these smaller tenants who usually wait till the end. So we feel like we are in a really good shape. Then moving into 2028, you know, our largest tenants make up about 550 thousand square feet, and right now, we have 100% coverage on those. Okay.

John Kim: And if you do that leasing occupancy, trended positively. But when you look at AFFO, today, it is negative. Can you just walk us through the bridge and how that gets how it gets positive, the timing of that? I realized that leasing CapEx, a lot of it is front end loaded, but at the same time, you have a fair amount of debt maturities over the next couple of years. So just. If you could just provide some more color on AFFO turning positive going forward.

Harout Krikor Diramerian: Sure. I feel like a broken record here. A big part of the AFFO turning positive again is free rents burning off. And you are right. it is a timing issue. Once again, our AFFO results this quarter well exceeded our expectations. The timing of CapEx is very lumpy, as you said, and that is not always easy to predict. However, this is good news capital. So as we spend the money, we are going to be receiving additional NOI in future periods that will help reduce that, AFFO burden. So we expect it by the back half of next year to turn around. It is challenging to do exact timing only because the timing of the CapEx is volatile by nature. Yep. Okay. Thank you.

Operator: Your next question comes from the line of Dylan Brzezinski with Green Street. Dylan, your line is open. Please go ahead.

Dylan Burzinski: Good morning, guys. Thanks for taking the question. And appreciate your comments around the demand pipeline and leasing and whatnot. But I guess, I think you alluded to it in your prepared remarks around just sort of everything going on in the world of AI, a lot of these stocks being down mass massively. A lot more uncertainty sort of the direction of the industry over at least over the near term. I mean, as you sort of look at the leasing pipeline, have you guys seen any sort of pause or lack of communication going on amongst those tenants that sort of operate within this industry. Just trying to get any sort of gauge on whether or not we could see, you know, either a pullback or a slowdown in terms of the appetite of space demand from these companies over the next few months?

Victor J. Coleman: Hi, Dylan. it is Victor. Listen. I think a lot of people are perceiving that to be the case. I can tell you from a front row seat, we are not seeing that at all in the deals that we are doing. But a lot of the deals we are doing are big tech companies, and so they are not just AI correlated even though the preponderance of the growth of AI is obviously in the Bay Area. But we are seeing a tremendous amount of support around FIRE-related tenants And as I said, I think you are gonna see when we talk about the coverage we currently have, I mean, our coverage is deals that are in leases, and these are tech companies. These are not AI companies. And they are credit quality companies that we are gonna announce deals. it is gonna support, I think, what we are seeing on the ground with the amount of activity and the amount of backfill that we see with new tenants coming to the marketplace or expanding tenants. So we are comfortable as we sit right now, and I do not think much is gonna shake the tree on deals we are working on and about to announce in the next quarter or 2. I think that will give you sort of a feel of the market.

Arthur X. Suazo: Dylan, if I could add to that, you know, a lot of these tenants are smaller, you know, smaller tenants. In the market, and they are looking for near term opportunities. that is why, you know, obviously, our market ready suite. Move in ready suites have been so successful. So on the contrary, you know, they are looking to move in quicker not prolong the process. that is helpful.

Dylan Burzinski: Then maybe just on capital markets, obviously, a lot has happened since you guys sort of executed on those dispositions or at least first took those out to market. And you kind of alluded to looking to sell additional assets. Guess, have you put anything on the market today? And if so, have you seen any changes to buyer appetite, buyer underwriting, or anything like that?

Victor J. Coleman: Well, listen. I think we have been very fortunate. The deals we have closed have had zero renegotiation given the app. Given the, interest rate environment. I think we are very happy about those executions. And, you know, in for the most part, we would have probably thought we would have some portion of retrading, but that was a zero for the deals. Now the 1 deal that, is still about to. it is in the process of our disposition plan, which we have talked about, which is $109.50. Has had impact. I think directly correlated to multifamily and the returns on multifamily and the interest rate levels that, that were quoted, let's say, you know, 6 to 12 months ago versus where it is today. I think we are very happy with the price, range that we are getting on that asset. it is better than we thought it would be. So we do have some room there, but that would be the only thing that correlates to some form of renegotiation. Other assets in the marketplace currently today that we are looking at. there is only a few, and those really, I think, we are pretty, solid around pricing around that things could change. Nothing's gonna close this year probably. it is gonna be next year, so we will have to see where sort of shakes out from. Demand and interest level. Great. Appreciate that color, guys. Thank you. Thanks, Dylan.

Operator: Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin, your line is open. Please go ahead.

Caitlin Burrows: Hi, everyone. I guess just on the topic of residential conversions in San Francisco, I know you have the 901 Market project. Can You Give An Update On That Project? And Then Also More Broadly, Are You Seeing More Resi Conversions Happen In San Francisco or not so much?

Victor J. Coleman: You know, I think. Listen. I will take the latter part first, Caitlin. We are not seeing that much activity, and I think that is why 901 has got a lot of interest and activity. We are confident that we will get that approved. Whether we, sell it as a conversion or sell the asset or lease it up, that is gonna be determined. But right now, it is going in the right direction. Where the interest level is very high, and the location is changing. Right? I mean, it was not a location that, during COVID, was a lot worse than it is today. Some of the stuff around us has already been cleaned up, and what the city is doing literally across the street is also helping out the, the future viability of that asset. So we are comfortable with it. We do not have a specific timeline as to decision making, but we have a lot of interest of multifamily people who want to, invest and either buy that asset from us. Got it. Okay.

Caitlin Burrows: And then just on the Hollywood Media extension, I feel like we were talking about that for a long time going into it. So congrats But perhaps that also suggests it is already time to be thinking about what happens in November 2027. So can you go through what needs to happen between now and then for you to be able to refinance that debt assuming that is the goal?

Mark T. Lammas: Yeah. I think, Caitlin, you know, our first priority is to continue our conversations, which as Victor mentioned, have been very productive with our largest tenant there. And that we need to follow through on that. The extension gives us ample time to do that. We need to follow through on that conversation, and it. Only after we have know, clarity around that their requirement and how that ultimately shakes out will it ultimately be productive to then reengage with the with the lender? Got it. Okay. Thanks.

Operator: Your next question comes from the line of Seth Bergey with Citi. Seth, your line is open. Please go ahead.

Seth Bergey: Hey. Thanks for taking my question. I guess just on the first 1, with the kind of alluding to potential asset sales or JVs. Could you just broadly talk about where you think pricing is for maybe some of the core assets with high quality credit that you mentioned? In various markets? In terms of pricing, you mean cap rates or price per square foot? Or Cap rate.

Victor J. Coleman: Yeah. I think. Listen. We are not going to openly discuss cap rates on a on a call like this because that obviously puts us in a situation where we are gonna be backed into a valuation. I would just say that, you know, today, if you look at the market conditions, on the assets we are looking at, people are paying a premium right now for vacancy because of the demand and lack of future development. For the next 3 to 5 years. And so that is 1 cap rate and 1 return that is not in place. it is gonna be a future IRR. And then still today, there are lots of capital and capital providers and interest level for acquisitions that want stable, Walt related assets with high credit that will range as well. I. But as I said, I mean, even when we go out to the marketplace publicly with a broker, we do not come out with a price. So we are not gonna talk about cap rate. Cap rates. But suffice to say, the asset qualities that we are looking at are, you know, some of the best that would be entered in the market right now. Thanks.

Seth Bergey: Then I guess just my second 1. You have kind of used the term coverage on some of the activity on Washington 1 thousand and some of the kind of upcoming lease expirations Just kind of what level of confidence do you have that kind of coverage either translates into assigned leases or can you kind of define that in terms of how much of the coverage is leases that are out or you know, in earlier stages of kind of the lease execution process?

Victor J. Coleman: I think it is I think it is important to sort of note what the past has sort of delivered for the company. As we said in our prepared remarks, you know, again, we had a great quarter with leasing. Excess of 500 thousand square feet. Consistently, we have done that quarter over quarter for almost 8 or 9 quarters in a row, and we are ahead of our expectations on leasing. We thought the year would be roughly around 2 million square feet. We are over that through 3 quarters and so we still. When we look at the term coverage, we are confident that we are gonna execute on the-- either in leases either in leases in LOIs, in negotiations. I would say of the 50% coverage, which is the comment that we had made, we are in leases for 50% of those. 50%, the entire 50% of those deals. At some form or function. So we are comfortable that either in the fourth or the first quarter, that will be executed. Great. Thank you.

Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander, your line is open. Please go ahead.

Alexander Goldfarb: Oh, hey. Good morning. Morning out there. Just a few quick questions. First, Harout, obviously, you guys did a pretty successful oversubscribe debt tender. Just curious, your thoughts on that being a pathway forward as you think about additional maturities and just, is that solely timed with asset sales, or are there other fundings that you would think about doing the debt tender with?

Harout Krikor Diramerian: So you know, we will always explore opportunities to go to the capital markets if they are beneficial, I e, a tender and other items. And, yes, this last 1 was based upon asset sales. However, if the opportunity presents itself and we have capital available either for asset sales or asset level financing or anything else, and the tender market is available, and we would explore it for sure. But as we get closer to maturity, I think that becomes less and less likely. Yeah.

Victor J. Coleman: Alexander, you have the interest level in that transaction was much higher than what we executed, but we had committed to $200 million at the time. We did not know where the market conditions would be. And we are happy with the execution. We will always look back to revisit now that we have done that once. It enables us to, you know, evaluate it going forward for multiple opportunities. Okay.

Alexander Goldfarb: And then understanding that you are not providing 27 guidance but as we think about your business plan, dispositions have clearly been a part of that. And as we think about 27, there is obviously the sign but not yet commenced leases that will be coming online. But are there should we anticipate a decent amount of dispositions next year that would be offsets? Or you think next year from a platform perspective, most things should be additive apart from, obviously, you know, balance sheet debt items.

Victor J. Coleman: Yeah. As I mentioned, I mean, we do not have a game plan for 2027 to be an excessive disposition year. Of assets. So it is gonna be more on the organic growth the performance on the leasing, and cash flow and getting to AFFO positive. And then alternatives around the assets that we currently had that are unencumbered. Which will create multiple avenues for us to address the latter issue, which is the upcoming debt. End of 27, early 28.

Harout Krikor Diramerian: Just to add to that, the asset sale, at least the last few have been non income producing asset sales, and I think those are the type of assets we have been targeting. So they would be accretive to FFO. The future and AFFO.

Alexander Goldfarb: Okay. Thank you, Victor. Thank you, Harout. Thanks, Alexander.

Operator: Your final question comes from the line of Richard Anderson with Cantor Fitzgerald. Richard, your line is open. Please go ahead.

Richard Anderson: Thank you. So on Coyote, you know, I see the numbers. The studios are down from a $3.6 million loss last quarter to $1.9 million So it looks like it is pacing as you mentioned, Mark. But then, you know, the services is still, you know, a minor loss, 600 thousand. But even if you get breakeven on the services, what. what is the bull case to owning that long term? I mean, do you have a view that can actually start to pick up? I know you are banking on show counts, but I am just curious what your long term thesis is on the, on the service side of Coyote.

Victor J. Coleman: Listen. I think, you know, Richard, the long-term vision on the services side is always gonna be under a conversation. I mean, we have some, tailwinds now given the federal bill that is gonna be presented and should come through. Maybe even as early as December, if not, 1st quarter of next year. And with, you know, as we said in our prepared remarks, with the a new announcement that was this week by governor Newsom, on increasing the California tax credits to $1 billion, but more importantly, including the above and below the line, which is a huge windfall for the industry and the business. I think it is still-- we are accomplishing what we wanna accomplish, which is getting this to breakeven or comfortable with that. And then from that point on, we will see where the valuation of the business is and what transpires from a show count. And what transpires from a demand standpoint. But things are not gonna get worse. They are only gonna get better. Okay.

Richard Anderson: And then secondly, on Glenoaks, I do not know if this was mentioned so I apologize if it is repetition. But I know you have, it is in the Blackstone JV, and, you know, I the longer term plan is perhaps a sale. But is there an alternative use of that asset if it is not working as a studio asset?

Victor J. Coleman: Yeah. We have looked at alternative uses. There are a few areas. There is obviously some entitlement changes that we have evaluated and whether it is worth capital outlay to that. Given the asset and what is happening. I think in the near term, we will have some resolution around that asset and whether or not it is part of our portfolio or not. So we are looking at all different avenues at the same time. We are, you know, trying to lease it out as best we can. Yep. Okay. Thanks very much.

Operator: There are no further questions at this time. I will now turn the call back to Victor J. Coleman, chief executive officer and chairman for closing remarks.

Victor J. Coleman: I wanna thank everybody for participating. I wanna thank the Hudson team for all the hard work in the last quarter, and we are gonna strive to end the year at the same success levels. Thanks very much.

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