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Hudson Pacific Properties (HPP)
Q3 2013 Earnings Call
November 04, 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
Craig Mailman - KeyBanc Capital Markets Inc., Research Division
Brendan Maiorana - Wells Fargo Securities, LLC, Research Division
Vance H. Edelson - Morgan Stanley, Research Division
James C. Feldman - BofA Merrill Lynch, Research Division
Richard C. Anderson - BMO Capital Markets U.S.
» Hudson Pacific Properties Management Discusses Q1 2013 Results - Earnings Call Transcript
» Crawford's CEO Discusses Q3 2013 Results - Earnings Call Transcript
Kay L. Tidwell
Good afternoon, everyone, and welcome to Hudson Pacific Properties' Third 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, November 4, 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 in 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 welcome everyone to our third quarter 2013 conference call. This past quarter was another important chapter in the growth of our company. I'm very pleased that during the third quarter we successfully closed our previously announced acquisition of the approximate 836,000 square foot office portfolio in Seattle. As I mentioned on our last call, this high-quality portfolio gives us meaningful presence in the region, with a significant foothold in the top submarkets in Downtown Seattle. Also during the quarter, we completed the previously announced disposition of our City Plaza property and used the proceeds from the disposition towards the acquisition of the Seattle portfolio pursuant to a like-kind exchange under the Internal Revenue Code Section 1031.
Third quarter leasing activity remained active. In addition to the 43,122 square feet of new and renewal leases that we executed at our office properties during the quarter, we also successfully negotiated a 12-year lease with Deluxe Entertainment Services Inc., a leading provider of services and technology for the global digital media and entertainment industry, for our entire 63,400 square foot 3401 Exposition Boulevard property in Santa Monica, California. This lease was executed on October 22, 2013, a mere 5 months following our acquisition of this exceptional renovation property. As you may recall, we completed the acquisition of 3401 Exposition Boulevard during the second quarter for $24.7 million. Situated at the corner of Exposition Boulevard and Centinela Avenue in the heart of the Olympic Media Corridor, 3401 Exposition is currently undergoing a full base-building redevelopment. The structure has been stripped to its core framing and has been structurally reinforced. Significant upgrades include, new exterior facades, a new roof, and new mechanical and electrical systems. The renovation process is on schedule and on budget and is expected to be complete by the first quarter of '14. The Watt is expected to commence the tenant improvements within the next 60 to 90 days in time for an early third quarter 2014 lease commencement. In addition to our efforts at 3401 Exposition, the redevelopment of our Element LA project in West Los Angeles is on track to deliver one of Southern California's premier creative office campuses. Toward the end of the quarter, we successfully purchased a building immediately adjacent to our Element LA project, and with the addition of this fifth building, the 12-acre campus will now include approximately 285,000 square feet of creative office space, along with a 5-story, 830 stall parking garage. The building is located on Bundy Avenue, along with the parking structure, remaining on schedule to be completed during the second quarter of 2014, with the Olympic building scheduled to be completed during the third quarter of 2014. To date, we've had over 1 million square feet of tours from prospective tenants, which primarily consist of entertainment, media, technology and social media companies, the same industries that have been driving growth in the Los Angeles office market.
Turning to our Sunset Bronson Studio development project, I'm pleased to report that we've achieved an important milestone during the quarter with the receipt of Planning Commission approval, without appeal, of our 14-story, 315,000 square foot office tower; a 5-story, 9,000 square foot production facility and a 9-level, 1,635 stall parking structure. We've commenced design drawings and other preconstruction efforts subject to pre-leasing, expected to be in position to commence construction as early as the fourth quarter of 2014. In terms of leasing trends in Los Angeles, we remain encouraged by improving conditions, particularly in West Los Angeles. Overall, the West LA office market saw stronger levels of activity compared to the rest of the market. In fact, the 2 largest leasing transactions were recorded in West Los Angeles and Santa Monica, with the third largest transaction in Burbank, all submarkets where Hudson has been focused its energy and investment strategies. Third quarter net absorption levels in Greater Los Angeles were strong, with 570,000 square feet of positive net absorption during the quarter, more than 75% of which was recorded in West Los Angeles. Overall asking rates in Greater LA also showed growth, improving 2.4% over the last 12 months, led by West Los Angeles, which improved by 4.8% over the same period. Although many submarkets are fairly segmented in the recovery cycle, the areas with higher concentration of technology, entertainment and media companies continue to fuel the submarkets that have led the recovery. These companies tend to prefer a more creative style of building. As West Los Angeles continues to see large demand from users requesting creative office environment, we expect that landlords such as Hudson will continue to have the ability to tighten concession packages and continue to increase asking rental rates.