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Hudson Pacific Properties (HPP)
Q1 2013 Earnings Call
May 06, 2013 4:30 pm ET
Kay L. Tidwell - Executive Vice President, General Counsel and Secretary
Victor J. Coleman - Chairman and Chief Executive Officer
Mark T. Lammas - Chief Financial Officer and Treasurer
Howard S. Stern - President and Director
Craig Mailman - KeyBanc Capital Markets Inc., Research Division
Brendan Maiorana - Wells Fargo Securities, LLC, Research Division
James C. Feldman - BofA Merrill Lynch, Research Division
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It's now my pleasure to introduce your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you. Ms. Tidwell, you may begin.
Kay L. Tidwell
Good afternoon, everyone, and welcome to Hudson Pacific Properties First Quarter 2013 Earnings Conference Call. With us today are the company's Chairman and Chief Executive Officer, Victor Coleman; and Chief Financial Officer, Mark Lammas. Howard Stern, the company's President, is also available to answer questions.
Before I hand the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, May 6, 2013, and Hudson Pacific does not intend and undertakes no duty to update future events or circumstances.
In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was released this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.
And now, I'd like to turn the call over to Victor Coleman, Chairman and Chief Executive Officer of Hudson Pacific. Victor?
Victor J. Coleman
Thank you, Kay, and thank you, everyone, for joining us today. We're off to a solid start in 2013. The first quarter was highlighted by a very successful common stock offering and a healthy leasing activity. Overall, the underlying fundamentals in our key California markets remain very strong and set the stage for another very productive year for the company.
From the financing front, during the quarter, we completed a public offering of 8 million shares of common stock and the exercise of the underwriters' overall option to purchase an additional 1.2 million shares at the public offering price of $21.50 per share. Total net proceeds from the offering were approximately $189,900,000, which will help support our growth initiatives in 2013. Suffice to say, I was extremely pleased with the level of investor interest in this offering and appreciate the vote of confidence in our investment decisions.
Turning to our first quarter leasing activity. Conditions in our key California markets continue to push up the lease rate of our portfolio to rental rates well above expiring and underwritten rents. As we and others have observed for some time now, trends towards open and more collaborative work environments continue to fuel the demand by technology, media, entertainment and social media tenants for office space, which caters to these sectors. Higher density and amenities tailored to a dynamic workforce have been the hallmark of tenancy by these industries.
This trend is not confined to these sectors as more traditional industries are increasingly adjusting work environments to the changing needs of today's emerging workforce. It is more than just work environment, it's both -- companies in both new and traditional sectors recognize that workers want to work close to where they prefer to live, typically in locations with access to public transportation and benefit the improvement in work surroundings. Our portfolio has been assembled with this very trend at the forefront of the investment strategy.
In San Francisco, the trend of tightening vacancies and rising rents continue during the first quarter of 2013. San Francisco counties unemployment rate of 6.3% was among the lowest in the state in the month of February, which is down 150 basis points from 1 year ago and compares with 9.7% unemployment rate statewide for the same period. This gain is largely due to growth within the technology sector, which has experienced 60% of job growth over the past 2 years, adding 15,000 jobs.
Strong growth continues to fuel leasing momentum. The market [indiscernible] percent during the first quarter, with the lowest vacancy rate in the city currently in the South of Market submarket at 4.5%. Similarly, rental rates continue to improve during the first quarter. Market-wide asking rates climbed to $50.79, a 4% increase over the fourth quarter and an 18% increase over the first quarter of last year.
In Los Angeles, market fundamentals are projected to continue to rebound as the economy improves. During the past few months, jobless claims have decreased, consumer confidence has strengthened and overall employment has grown. The general consensus is that commercial real estate industry has rebounded past its low point and is growing consistently within the new economy. The overall vacancy rate in Greater Los Angeles was 17.4% at the end of the first quarter of '13. This rate was relatively flat compared to last quarter but has decreased by 40 basis points compared to the first quarter 2012 rate, which was 17.8%.