Hudson Pacific Properties Inc (HPP) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Hudson Pacific Properties' fourth quarter 2010 earnings conference call. (Operator Instructions)This conference is being recorded today, Tuesday, March the 15th, of 2011. I would now like to turn the conference over to our host Mr. Andrew Blazier, please go ahead.

Good afternoon everyone and welcome to Hudson Pacific Properties' fourth quarter 2010 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 it 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, March 15, 2011. And Hudson Pacific Properties 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?

Thank you, Andrew. And welcome everyone to our fourth quarter conference call. I'm going to provide more color on our results in a few minutes, but first, let me say we have productive end to 2010, both in terms of asset acquisition activity, and operating performance.

On the strength of the fourth quarter acquisition and success, we now have extended our presence in San Francisco by an additional 1.7 million feet and our holdings of desirable West Los Angeles office assets by and additional 160,000 square feet for a combined of $360 million. All of these assets are strategically located with quality buildings with solid occupancies and amenities meeting our investment criteria. From an operating perspective, we experienced strong performance on our existing assets, especially in our Media and Entertainment campuses where we continue to see steady improvement in occupancy. Overall we're pleased with our results and expect to build on the positive momentum we've created.

Conditions in our target markets continue to improve particularly in Northern California. In general, our property occupancy rates are better than the rates in their respective sub-markets, and office property occupancy rates overall have improved in the majority of our markets. In the fourth quarter, we executed seven new and renewed leases totaling 23,000 square feet. Leasing activity has an increase in the current quarter, as we have signed new and renewed leases totaling more than 62,000 square feet at Rincon Center and 222 Kearny San Francisco. This leasing activity demonstrates our ability to track and retain sizable tenants at these strategically located quality properties, which have amenities tailored to San Francisco's unique office mix tenant. As a result, occupancy at 222 Kearny is 94%, compared to 79% when we acquired this asset in October.

Leasing activity and interest at 875 Howard, our redevelopment property in San Francisco, continues to increase, and we now have approximately 40,000 square feet of leases in serious negotiations. Strong tenant demands, particularly among the city's high tech businesses, has fueled increased asking rent in most prominent San Francisco sub-market, and current leasing activity and rent in our San Francisco assets have exceeded the expectations we held at the time of acquisition. At 6060 Sunset in Los Angeles, we recently added 15,000 square feet of space, 9,400 square feet of which we have now leased to Cannon USA.

Including our recent completed acquisitions as of today, our portfolio now consist of investments and assets totaling over 4 million square feet, and 4 properties that may support future commercial development of up to 1.4 million square feet. These are located in primary areas in our target markets of Los Angeles, Orange County, San Diego, and San Francisco. The office portfolio has a weighted average lease rate of 87.7% during the fourth quarter, up from 86.3% during the third quarter. At our Media and Entertainment properties, improved fundamentals resulted in increased operating performance. Sunset Gower and Sunset Bronson experienced an increase in combined occupancies, up 3.6 percentage points from third quarter.As Mark is going to discuss shortly, the fourth quarter results provide a clear indication of improvement at these assets.

The television industry continues to display a strong demand for content and we continue to market our state-of-the-art facilities to a broader range of media and content providers. Beyond operating performance, the major driver for our growth continues to be asset acquisitions. We discussed the purchases of 222 Kearny and 10950 on our third quarter call. To review, we acquired 222 Kearny in San Francisco's financial district in October for $35 million. This property comprised of 148,000 square feet in 2 buildings, a 10 story 222 Kearny office tower, and 5 story 180 Southern Street building.

We closed the acquisition of 10950 Washington in West Los Angeles for $46 million, including assumption of a $30 million loan in December. This is a 159,000 square foot office building which is nearly 100% occupied. The main tenant is the NFL Network, which has a lease that runs through 2015. For those of you who have been following the current labor disputes between the NFL players, we do not believe that this will affect any tenancy of the NFL Network. Also in December we completed the $93 million acquisition of 1455 Market Street, a 1 million square foot office tower in San Francisco, and a transaction with Banc of America. This 22 story office property is located in the Civic Center mid market area, a primary location for government and government related agencies in San Francisco.

Banc of America will continue its operations at the property in approximately 836,000 square feet, while 9,000 square foot lease is in place with the Army Corp of Engineers and additional retail tenancy will continue to support 92% total project occupancy. 1455 was benefited from a proposed city payroll tax break that is aimed to keeping Twitter in San Francisco and attracting new businesses in the mid market area. For us and our property, this could provide a pricing advantage of $6 to $8 per square foot, compared to other buildings not located in the tax exemption zone, as we seek to attract new tenants. Already a large corporation and a boutique hotel has discussed the tax break with San Francisco officials as they consider moving their operations, so the plan is certainly having an early impact.

Our fourth transaction, during the quarter was a $40.3 million investment to acquire 51% of 1 and 2 Rincon Center in San Francisco's south financial district, and assume a ratable share of its existing $106 million loan. This is a 581,000 square foot project, which we own in a joint venture. The joint venture includes a put call arrangement for the Company to acquire the remainder of Rincon properties for a combined gross total purchase price of $185 million upon completion. We exercised that option right, during the first quarter we expect to close the transaction by May 1.

Since our June IPO, we've now completed transactions on assets with a combined gross purchase price of more than $400 million. All of these transactions have been off market, stemming from our experience and our relationships in the marketplace and demonstrate our ability to execute our growth strategy by consistently accessing our pipeline opportunities. Even with this recent activity, our pipeline is growing deeper. We're promising negotiations in several additional office and Media and Entertainment properties, that we have valuations consistent with what we previously detailed. As has been our record, these are mostly off market opportunities stemming from relationships we've built up over two decades of involvement in our core markets.

Finally, on December 10, we generated net proceeds of approximately $83.9 million through the public offering of 3.5 million shares of 8.375 Series B Cumulative Preferred stock. The proceeds from the activity were primarily used to facilitate our acquisition activity in the fourth quarter. The Company continues to receive reverse increase for additional participation in the issuance of the Series B Preferred in the same terms and conditions. With that, I'm going to turn the call over to Mark Lammas, our CFO for discussion of our fourth quarter results. Mark?

Thank you, Victor. For the fourth quarter of 2010, funds from operations totaled $5.1 million or $0.21 per diluted share, excluding expenses associated with the acquisition of operating properties of $1.6 million or $0.06 per diluted share, and a one time property tax expense reduction of $1.1 million or $0.04 per diluted share. FFO including these specified items for the first quarter of 2010, totaled $4.6 million. Net loss attributable to common shareholders was $1.2 million or $0.05 per diluted share, compared to net loss of $835,000 for the same period a year ago.

For the year ended December 31, 2010, we reported a net loss attributable common shareholders of $3.3 million, compared to a net loss of $615,000 in 2009. Turning to our combined operating results, it's important to note as you compare to the prior year results, that we acquired several properties in connection with the June initial public offering and during the third and fourth quarters of 2010. These acquisitions largely accounted for the increased revenue and expense at the operating level. For periods prior to our initial public offerings, our prior year results reflected the operation of five assets, consisting of our two Media and Entertainment campuses, and three office assets; City Plaza, Technicolor, and 875 Howard. Since the IPO, the portfolio included in our operating results has grown substantially with our office holdings increasing from the original 735,000 square feet to current holdings of approximately 3.1 million square feet. As a result of this growth, the operating results prior to June 2010, offer little comparison to results of the current period with the exception of our reported Media and Entertainment results. In the future, once we have extended periods of results on a meaningful set of core office assets, we intend to provide same store office comparisons, in addition to the same store Media and Entertainment comparisons we already provide.

For the fourth quarter 2010, total revenue increased 98.9% to $21.1 million from $10.6 million a year ago. The increase in total revenue was primarily attributed to a $7.6 million increase in rental revenue to $14.9 million, a $1.3 million increase in tenant recoveries to $2.5 million, and $1.4 million increase in other property related revenue to $3.4 million. Total operating expenses increased 79.8% to $17.2 million from $9.6 million a year ago. The increase in total operating expenses was primarily the result of a $2.6 million increase in office operating expenses to $4.6 million, a $3.4 million increase in depreciation and amortization to $5.9 million, and a $2.1 million increase in general and administrative expenses with no comparable expense in the prior period, all partially offset by $500,000 decrease in Media and Entertainment operating expenses to $4.6 million, including the one time property tax expense reduction of $1.1 million. Excluding the one time property tax expense reduction, the Media and Entertainment offering expenses would have increased $600,000 to $5.7 million primarily as a result of higher expenses associated with improved occupancy and higher production activities at the Media and Entertainment properties.

Income from operations increased 279% to $3.9 million compared to income from operations of $1 million a year ago. Interest expense during the fourth quarter increased 26.1% to $2.6 million compared to interest expense of $2.1 million a year ago. At December 31, 2010, we had $342.1 million of notes payable relating to some of our properties compared to $189.5 million of notes payable at December 31, 2009. Looking at our results by segment.

Total revenue in our office property segment increased 244.9%, to $11.7 million, from $3.4 million in the fourth quarter of 2009. The increase was primarily the result of $6.8 million increase in rental revenue and a $1.5 million increase in tenant recoveries, which was largely attributable to contributions from office properties acquired in connection with our IPO and during the second half of 2010, along with improved occupancy at our existing office properties. Property operating expenses in this segment increased 138.3% to $4.6 million from $1.9 million a year ago. At December 31, 2010, our office property portfolio was 88% leased and 87.7% occupied, up from 86.3% leased and 81.6% occupied at September 30, 2010. During the quarter, the Company executed seven new and renewal leases totaling 22,344 square feet.

Total revenue at our Media and Entertainment properties increased 34.4% to $9.4 million, from $7.2 million in the fourth quarter of 2009. The increase is primarily the result of a $900,000 increase in rental revenue to $5.5 million and a $1.4 million increase in other property related revenue to $3.4 million. Total Media and Entertainment expenses decreased 9.3% to $4.6 million, including the one time property tax expense reduction of $1.1 million, compared to $5.1 million in the same period a year ago. As of December 31, 2010, the trailing 12 month occupancy for our Media and Entertainment portfolio increased to 72.6%, from 78.3%, I mean, sorry. From 68.3% for the trailing 12 month period ended December 31, 2009. For the month of December 2010, the Media and Entertainment portfolio was 78.7% leased, up from 76.5% for September 2010 and 63.7% for December 2009.

On a sequential basis the improved occupancy drove an increase of approximately $320,000 in base rental tenant recoveries and other revenue, and a $74,000 increase in other property related revenue at Sunset Bronson, which was offset by the seasonal decline in other property related revenue at Sunset Gower of approximately $866,000. Even without regard to the one time tax savings, operating expenses also declined by approximately $223,000 on seasonally lighter production activity at Sunset Gower. On the strength of this improved occupancy, our Media and Entertainment segment experienced a modest increase of approximately $250,000 in operating income before depreciation amortization and one time tax savings, despite the usual fourth quarter slow down in production activity at Sunset Gower.

Turning to the balance sheet, at December 31, 2010, the Company had total assets of $1 billion including cash and cash equivalents of $48.9 million. In addition, the Company had total capacity of approximately $147.8 million, on its $200 million secured credit facility, $36.7 million of which remained undrawn. Subsequent to the end of the year we closed a five year term loan totaling $92 million with Wells Fargo Bank, secured by Sunset Gower and Sunset Bronson campuses. The loan bears interest at a rate equal to 1 month LIBOR plus 350 basis points. $37 million of the loan is currently subject to an interest rate swap agreement that fixes one month LIBOR to a rate of 75 basis points through April 30, of 2011.

The Company is required to hedge at least half the $92 million term loan not later than March 28, 2011. Proceeds from the loan were used to fully refinance a $37 million mortgage loan, secured by our Sunset Bronson campus that was scheduled to mature on April 30, 2011. The remaining proceeds were used to partially pay down a $200 million secured credit facility. The Company now has resulting undrawn availability under -- on its credit facility of approximately $90.6 million.

The Company is currently working with credit facility participants on an amendment, which when completed will, among other things, reduce the unused fee and interest rate, while increasing borrowing capacity under the line. All consistent with improving terms in the credit market. We anticipate completing this process in the coming week.

During the fourth quarter of 2010, the Company's Board of Directors declared a dividend on its common stock of $0.095 per share for the fourth quarter of 2010, and on its 8.375% Series B Preferred stock of $0.12214 for the partial period commencing December 10, 2010, and ending December 31, 2010. Both dividends were paid on December 31, 2010, to holders of record on December 20, 2010. During the current quarter, we declared a quarterly dividend on our common stock of $0.125 per share for the first quarter of 2011. The new quarterly rate represents a 31.6% increase from the prior quarter. The dividend will be made on March 31, 2011, to stockholders of record on March 21, 2011. Our performance in acquisition activity continue to lead expectations since the IPO, and this dividend increase reflects our confidences in the quality of our earnings growth and our strategy to create value for our shareholders.

Turning to our outlook. As highlighted earlier, during the fourth quarter of 2010, we completed several material acquisitions and an issuance of 3.5 million shares of 8.375% Series B Cumulative Preferred stock. We subsequently completed a term loan secured by our Sunset Gower and Sunset Bronson Media and Entertainment campuses. The impact of the two acquisitions, 1455 Market Street and 1 and 2 Rincon Center, the issuance of the Series B Preferred stock and the term loan on Sunset Gower and Sunset Bronson was not included in the Company's previous 2011 FFO guidance given in November of 2010. In light of this recent activity, we're increasing our full year 2011 FFO guidance to a range of $1.01 to $1.06 per diluted share from the previous range of $0.82 to $0.86 per diluted share. This guidance includes the impact of this recent activity, the anticipated completion of the Rincon acquisition, and related project financing within the second quarter of 2011, and related borrowings on our secured credit facility.

This guidance excludes a one time impact of an early lease termination payment we received from a single floor tenant at the City Plaza project of $2.8 million or $0.11 per diluted share during the first quarter of 2011. Except as noted, this guidance excludes any impact from future acquisitions, dispositions, equity purchases, debt financing to repayments, recapitalizations, or similar matters. As mentioned during the first quarter of 2011, we received a lease buyout payment of $2.8 million from a single floor tenant at our City Plaza project. We're already in lease negotiations to backfill that space, through an expansion with an existing tenant at City Plaza.

Finally our growth objectives and capital raising options remain a priority. We continue to evaluate all capital market alternatives to pursue the next generation of growth opportunities. And now, I'll turn the call back to Victor for some final thoughts. Thank you, Mark. We have made significant achievements during the fourth quarter and we're proud of our track record in just more than eight months as a public Company. In the fourth quarter alone, we acquired 1.9 million square feet of assets, nearly doubling our total portfolio square footage. In connection with these acquisitions, we built our infrastructure and personnel to support future growth. We also saw substantial improvements in our operating performance on our existing assets, particularly in our Media and Entertainment campuses, but still there is much work to accomplish. Our pipeline of potential acquisitions is filling rapidly, which we hope the network we've cultivated over many years. We continue to build portfolio position for long-term growth and we're very excited about the opportunities ahead of us in 2011. We appreciate your continued support for Hudson Pacific Properties, and we look forward to updating you on our progress again next quarter. Now operator with that, we will open the call for questions.

(Operator Instructions)Chris Caton, Morgan Stanley.

I was hoping you could give us a little more detail on the Media and Entertainment sector. 2 questions. 1, how is the cycle shaping up? I see the occupancy gains, at what type of gains are you kind of expected in the short-term or guidance? And 2, what type of rent renewal, spreads, or rent growth are you seeing in the market? And then the second question is you talked about having Media and Entertainment assets. in the pipeline, what's the competitive dynamic for winning one of those situations?

Hi, Chris, it's Mark. I'll take the first question. The, in terms of occupancy expectations for 2011 or rent expectations, or as we noted in our prepared remarks, our December occupancy on a weighted average basis was close to 79%. We, for 2011 guidance purposes, we're really focused on a, on a ground up estimate, which is not directly linked to some expectation on occupancy, but rather a forecasting of where we expect to see both revenues and expenses for the coming year.

And so while we do think demand has been strong and our, on a sequentially, I think in the numbers that we prepared and gave to you demonstrate that we have seen steady improvement on occupancy and we expect to see that that may continue. For guidance purposes at least, we were rather not tying it to a definitive percentage occupancy, but rather an expectation that we'll see an improvement in net revenues, and so by way of comparison, our 2010 results in comparison to what our 2011 expectations are for guidance purposes is roughly an improvement on a cash NOI basis of roughly 6% to 7% net. And so hopefully that answers your question on both occupancy and on rents.

Hey, Chris, it's Victor. In terms of the competitive landscape, we're looking at a couple other Media and Entertainment facilities now. The majority of what we're looking at, with exception of 1, are off market. So 1 is being marketed. The competitive landscape there will be 5 or 6 potential players that they're going to. It's going to be sort of a limited marketing, in a limited time frame. We'll see where our evaluation comes in, but that's the only deal that we're looking at that will be marketed in that sector.

Thank you.

Jordan Sadler, KeyBanc Capital Markets.

Hi, I'm here with Craig Mailman. I just wanted to follow up on the lease termination and guidance. Was this a previously known move out and was it reflected in the original 2011 guidance?

It was not reflected in the original guidance and only came to light very late in the year. We had given guidance in November. We started engaging in sort of full blown discussions with them about a possible early termination at the very end of last year, and finalized it in this quarter.

Okay. So it had a net negative impact. If you could give us maybe the rent for a single year rather than the overall termination fee?

Right. Well, yes. So I, I suppose we could follow-up with that information. I can tell you it was 19,000 feet at 285 full service.

Okay. That's perfect.

Okay. I can back into that. At 285 full service. Okay. And I was just curious separately as it related to, your financing and planned refinancing of Rincon Center come the closing of the second half. And sort of sources, and maybe you, we see the uses, it sounds like the pipeline's building but maybe you could talk about sources of capital?

Well, I'm happy to take specifically the Rincon financing. I think I was following your question Jordan, so as part of the expected take down in the second quarter we'll be replacing what is currently a $106 million loan with a loan of comparable size. I don't want to get too far ahead, but we are, we have a term sheet signed with a lender for $110 million loan at, we have not locked rate on it, yet, so we don't know what the final rate would be, but with the recent advancement in the bond markets has improved the underlying cost of that debt, and at some point we'll lock rate on that and we'll be able to discuss it more completely. I'm not sure I followed the second question, the sources.

Well, your available dry powder today.

So our current --

You discussed is something like the cash plus the new availability on the revolver, and I was just kind of --

Right.

Right.

Our availability, our capacity -- undrawn capacity on the revolver right now is about $91 million.

Plus available free unrestricted cash of --

Well there's some unrestricted cash. It's not at the level that you, that would appear at 12/31. We've used unrestricted cash on the balance sheet net of amounts that we're holding on the balance sheet for various liquidity purposes and known CapEx requirements. So the availability give or take from ebb and flow of cash, available cash on the balance sheet, which again we don't really think of as there for say transactional purposes is really that line availability at $91 million.

How much of that will be spent on Rincon, on closing of Rincon?

$40 million.

$40 million. Okay. So and then, I guess as Victor you were wrapping up, you eluded to some sort of reverse increase related to the preferred, can you just maybe expand upon that or additional sources of capital going forward?

We, in terms of the preferred, we had reverse increase from some of the existing bond holders and some new interest at the same terms and conditions, and we're evaluating those alternatives as well as our other capital alternatives in the market today. And as Mark said, we are in the final throws of redoing our credit facility.

Okay. I think Craig has 1 as well.

Yes, Victor, could you just give a little more color on where the acquisition pipeline stands today and maybe contrast total pipeline versus your visibility for what you guys are pretty far along on and how much could maybe close in 2011?

I don't want to give guidance as to what we can close in 2011. But I can tell you this, we are seeing a steady flow of product from preponderance of the relationships that we've sort of established off market deals similar in 2010, the second half of 2010, we are seeing a few more marketed deals in the bay area and Los Angeles county area than we did, let's say, middle of last year. That have some competitive landscape with some of our peers out there who are looking at the same assets.

I think that we have an acquisition sort of pipeline that we chart on a weekly basis. It's consistently between $500 million and $1 billion of deals, of which I said the majority of those deals are off market that we are at in various different stages of evaluating, underwriting and looking at opportunities. What I can say about those off market deals is there is some interest in currency deals or tax efficient deals that we are also in conversations with certain owners on.

And then just outside of the Entertainment deals, what's the geography of most of the office stuff you guys are looking at?

The majority of the stuff we're looking at right now is both LA and San Francisco.

Alright. Great.

Jamie Feldman, Banc of America.

I was hoping you can dig a little bit deeper into the fundamentals of the different sub-markets you're in. Kind of where you, I guess in the fourth quarter and even year to date in the first quarter, where you're seeing things getting a little better than you expected, where are things kind of weaker than you had expected? And how are you finding acquisitions along those lines?

Yes. Let's start off north and we'll work our way down Jamie. In Northern California the, from a leasing standpoint we are seeing tremendous amounts of activity, primarily revolving around the tech, in Asbury tech businesses, as well as some government support there, both city and statewide.

We are seeing a flow of traffic consistently throughout our portfolio and the assets that we're looking at in that marketplace. Rental rates are starting to stabilize. The concessions and PIs are both going down dramatically. But I say overall the city is the best marketplace that we're looking at. Following on now, we are starting to see a movement in absorption in down of peninsula, and those are the 2 areas we're spending our time on in those markets.

If you shift down to Southern California starting in LA county, we're seeing a much more increase in activity in showings. We have seen no increase really in rental rate at this time, but the concessions are also starting to wane from a matter of TIs and obviously free rent. And, in the overall LA county marketplace. It's specifically in the high end markets. West LA, Beverly Hills and in Hollywood we're seeing that.Lesser in the tri cities. Burbank, Glendale, Pasadena area.

If you shift down to Orange County, what we're seeing in Orange County, it's really, it's probably the worst performing market in Southern California still in our portfolio in terms of where the overall fundamentals are. They're very flat to even, slightly down. If you include where the TIs and the, and the free rent currently is being offered today in the marketplace, and brokers are trying to be pretty aggressive and I think they're pushing deals from a tenant standpoint. In San Diego though, we are really seeing a little bit of a small positive increase in rental rates and movement in showings. Much, much, better than San Diego overall, I mean, in Orange County overall and San Diego and specifically in the downtown and UTC areas, we're seeing a lot more flow of activity than we did, as late as even the beginning of last quarter.

Our activity in the acquisition side is primarily in LA county that we're looking at right now in some of the high various entry markets and it's aligned with where cap rates have moved. I would say overall, cap rate basis has moved in Southern California from, let's say mid last year 50 basis points and in San Francisco in the peninsula, it's more like 75 to 100 basis points since mid last year on a cap rate basis.

Okay. Thanks and then your leasing spreads were pretty sharply negative in the quarter. Can you give a sense of what you're thinking for the rest of year?

Jamie are you referring to our activity page on the supplemental?

Correct. Like your GAAP leads to the GAAP and the cash change in rent.

Right. So let me just shed some light on that. We only had 8,200 square feet of renewal that's running through that number. The, the majority of that, what you're seeing in terms of what otherwise would appear to be roll down is 1 tenant, which rolled down on 3,500 feet from $34 full service to $27 full service at 222 Kearny, which was a deal we did on a short-term basis. Pending a backfill of the tenant which we're now close to, when we're done on, I'm just look over at our, we're done on and so on account of that 1 significant roll down, it would suggest to you that there's a significant roll down on a renewal, on renewal rents but in fact we're not witnessing that. The tenant that did, in fact, take that space for a longer term for example, is on a, before from a re-measurement so you're seeing apples to apples. It rolled, from not unlike what you're seeing, which was $34 to $27, it rolled from $34 to $32 and so I just want to make sure, to kind of give you some kind of color behind that.

And I, in terms of what just to kind of follow-up what Victor's saying, the rents we're seeing in San Francisco which is where you're see a lot of that renewal activity in our supplemental line have been in that, in that kind of $30, we have a lot of space there, but $30 to sort of $34 range. Call it on with, on, on low concessions, 3, 5, and, and at least 1 significant size deal that we got done this quarter, 12 year deal and so we're seeing as Victor was saying, a lot of rent stability there and a steady improvement over what our original underwritten rents were when we underwrote the acquisition.

Okay. And then turning to the Media portfolio, can you talk a little bit about kind of the pipeline of leasing demand or tenant demand at the studios and kind of what you're seeing these days?

Yes, hi Jamie. We continue to witness a good strong demand on the television market is positive right now. Again we don't cater to the feature film as much as we do on the television, which represents most of our revenues generate and that market continues to be healthy. There's still a strong and insatiable appetite for content as a lot of the cable channels, the proliferation of cable channels and increase in original content that they're looking to produce, so they still need stages and they're certainly increasing the demand right now.

Rich Anderson, BMO Capital Markets.

First of all, I just want to make sure the Culver City acquisition was already in guidance last quarter?

No. I think we've briefly touched on a possible acquisition, but we never proceeded ahead with it. And it was not part of our guidance.

Chris, we mentioned it. I'm sorry Rich, we mentioned that, on the call, because we'd already gone hard with the acquisition, but we didn't close until the middle of December.

Okay. So the new guidance includes that as well? Right, not just --

No, it never, it never, it never made. So we had, if it was never in our original guidance because it would have been at best a speculative acquisition at that time, and then, of course, it didn't make and we don't include any speculative acquisition in our new guidance.

Okay. Thank you for clarifying that. So when I look at last quarter versus this quarter 1 of the push backs maybe you felt was the original guidance and how it compared to what people's expectations were and then fast forward to this quarter you raised the mid point of your range by 23%, which I think made up a lot of ground and of course, in the positive. You did that on $130 million of new acquisitions in the guidance and related financings. And the first question on that is, is that the biggest chunk of it? I assume it is.Or did you not assume some of the up lift in occupancy in the Media portfolio and other kind of internal factors in the new guidance?

Right. Right. So hey, Rich, let me just be, my colleagues were straightening me out here. It may be that I took your question regarding Culver, which I took to mean our reference at an earlier point in time to potential Media and Entertainment acquisition and I mistakenly, maybe I'm mistaken. If you were referring to 10950 Washington.

Yes.

Being Culver city.

Yes.

That was both in our earlier guidance and continues to be in our updated guidance.

Thank you. Because I was going to call offline and not sound stupid on-line. So thank you for clarifying.

Then in terms of the impact, and I'm sorry about that. I was off track.

That's all right.

In terms of the updated guidance, the Media and Entertainment component is obviously remains on a component of the 2011 guidance with what our, sort of ground up expectations are, in terms of what we've modeled on those 2 assets, but relative to the earlier guidance, it's in line with how much it was contributing in the earlier guidance. So the more impactful items are the, are the 1455 and Rincon acquisitions.

Right.

And the impact of indebtedness associated with that, and, and by the way, in the terms of Rincon, it's, it's both the, the impact as, as they fold into the portfolio today and then with respect to Rincon, the take down of the second half of Rincon in the second quarter.

Okay.

And then there's indebtedness in the form of refinancing the existing indebtedness there, which is also assumed in our guidance. And then finally there's a draws we were mentioning earlier under the line of an additional $40 million on the credit facility which is also running through our guidance.

Okay. So when we think about the impact on your, your FFO and your guidance, and then looking forward, you're not going to presume what you're going to close on a go forward basis, but can you say this much, that whatever you do close, call it $100 million or whatever the number is, that the type of category will be consistent with what you've done on an average basis, and also the type of financing that you did will be similar and hence the spread that we'll call positive spread investing will be a similar type of number on a go forward basis?

Well, let me address the cap rate first, because as I mentioned, the cap rate, there's definitely cap rate compression, and that has been offset by the market debt that we're underwriting right now with reference to Rincon and the loan that we're looking at putting in place May 1. In terms of, guidance on assets, as Mark has mentioned, we're not go to give guidance on, or indication on amounts or cap rates of deals that we're looking at or speculating for 2011 at this time.

Okay. But is it fair to say that what you've done that is newly in guidance has a spread of about say, 150 to 200 basis points over your cost?

Some, some would be within that range and some would be higher.

Higher, okay. Fair. And then last question for me is, on the 1 time tax benefit in the fourth quarter, there is no rollover effect. I know you call it 1 time I just want to make sure, there's no rollover effect of that into 2011?

That's precisely right, it relates to a historical assessed amount which we rectified with the county assessor and so it does not bear, it has no ongoing re-assessment impact. I should mention to you, of course, just to be absolutely clear, we are still working towards the re-assessment stemming from the IPO and so that there is still the possibility of a future re-assess.

Okay. Great. Thank you.

Brendan Maiorana, Wells Fargo.

So Victor, just wanted to start out with you. Question.It sounded like you mentioned that a couple of transactions that you're looking at could be I think tax efficient which I'm assuming is unit deals; is that correct?

Yes.

So given kind of your comments on where cap rates have moved, moving down 50 to 75 basis points, it sounds like in your markets, and then where your stock price has moved down, I mean, what sort of the, how do you guys think about using units as a currency to get some of these deals done versus kind of cash transactions, and then relay that into kind of sources of capital, how do you guys think about potentially doing equity this year as well if some of the acquisitions of the $500 million, if you guys close a fair amount of that in your pipeline?

Well let me take the second part first. We're evaluating all the capital alternatives based upon what deals we think are potentially going to come to fruition versus not. At the appropriate time we're going to look at where our stock price is and evaluate what's the best course of action. In terms of first part of your question, the unit deals that we're, that we have had conversations with, are not at current values where our stock is today. They're at what we perceived to be much more of an NEV value, which is traded above, because of the benefit that somebody is looking at our stock today at this value, which we don't think merits where the true value of the Company is. And so we've had those conversations. To be quite candid, we're not going to do a direct unit deal at this level, unless the cap rate also is relevant to increased to where our market would be.

Okay. Yes. No fair enough . And then can you just kind of refresh our memories on the sort of leverage coverage targets that you guys would like to get to? Because I kind of think about --

Yes.

-- the lease up potential that you have got versus the room you've got to increase either on the preferred side or on the debt side before -- .

Yes, we always talked in the mid, mid to high 40s as sort of our comfort zone on leverage, sort of approaching that 50% at the end of the day when we're stabilizing the occupancy basis. And so that's sort of the benchmark that we're looking at.

And what does that kind of get you to from a coverage standpoint or fixed charge coverage or debt to EBITDA or how do you guys look at it in that regard?

Right above a 2. So we're trying to stay right around that.

Okay. And then I think you mentioned just in the prepared remarks that there were, there was a fair amount of leasing that you guys had done, kind of post year-end, can you, I think I missed a few of those, can you guys just give us an update on what's maybe been signed since after 12/31, but that you've got signed but may not necessarily be in place?

Right.

You want me, sorry. So right, in our prepared remarks we highlighted 62,000 feet in at 222 Kearny and Rincon. And 9,400 square feet at 6050 Sunset at our Media campuses. There are some additional leases which we've completed in this quarter. Smaller leases in sort of isolated in kind of an asset here or there. There's a smaller lease at First Financial, the combined total of signed new and renewable deals is about 86,000 feet. And of course, the quarter's not over.

Yes. Okay. That's new plus renewal right, though, right Mark?

That's new and renewal, right.

Do you have a break out of how much of that would be new versus renewal?

60,000 new. 26,000 renewed.

Okay. So as you guys are kind of putting into your assumptions into the updated assumptions you've obviously got occupancy numbers on the office portfolio that are moving up throughout the year?

Yes. On a, right, right. I mean, just, I mean, we re-looked at our market lease assumptions and our absorption of vacancy as part of generating our updated guidance and it's obviously takes into account the leasing activity, the most recent activity at the time we updated our guidance expectations.

Sure. And if you guys look at just kind of, just the San Francisco portfolio, if you bring that number up to stabilization, say, kind of low to mid 90% occupied, how much NOI growth do you think you generate?

The incremental NOI growth from the net absorption at San Francisco?

Yes.

Off hand, Brendan, sorry, I don't know that number off the top of my head.

Okay. Yes. We can follow-up offline then.

Yes.

Alright. Thanks, guys.

Thank you

(Operator Instructions)And I show no further questions at this time. Mr. Coleman, please continue.

Thank you so much for participating in our, in our earnings call and we look forward to some positive news in the next quarters ahead.

Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.