Hudson Pacific Properties Inc (HPP) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Hudson Pacific Properties second quarter 2011 earnings conference call. During today's presentation, all parties will be placed in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Wednesday, August 10, 2011.

And I would now like to turn the conference over to Andrew Blazier. Please go ahead, sir.

Good afternoon, everyone, and welcome to Hudson Pacific Properties second quarter 2011 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 finance 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, August 10, 2011. 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 financials measures are useful to (inaudible).

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 second quarter conference call.

I'm extremely pleased with our leasing during the quarter and encouraged by indications of strengthening fundamentals in most of our markets. In the second quarter, we executed multiple new and renewed leases at our office properties totaling over 80,0000 square feet and improved our lease rates to 90.8%, up from 89.5% in the first quarter.

That positive momentum has continued into the current quarter with seven new and renewal leases executed so far for a total of approximately 58,000 square feet. The recent leasing activity has been especially impactful in San Francisco, where we executed more than 56,000 square feet of new and renewal leases during the second quarter, 39,000 square feet of which was at our 875 Howard property.

We quickly followed up with the execution of another 22,900 square feet of leases at 875 Howard in the current quarter. On account of this progress, we have increased our occupancy at 875 Howard to 100%, compared to 33% at our initial public offering almost a year ago, surpassing our stabilized occupancy expectations a full quarter sooner than our original forecast.

Second quarter leasing activity was also encouraging outside of our San Francisco portfolio, especially at our First Financial property where we executed more than 18,000 square feet of new and renewal leases in the second quarter, taking that asset to 89% leased. While our San Francisco portfolio has experienced higher to date leasing activity, more than 33,000 square feet of new and renewal leases executed this year in our other office properties provided an encouraging indication of improving conditions in southern California, as well.

With respect to leasing fundamentals, starting rents and concessions on our leasing activity have been consistently better than our acquisition assumptions. For instance, the assumptions we made a year ago in connection with our acquisition of 875 Howard anticipated starting rents by this point of $30 modified gross with $50 in tenant improvements and three months free rent. By comparison, the 62,000 square feet of leases signed at 875 Howard in the second and current quarter came in at a weighted average starting rent at $33.22 modified gross with comparable concessions.

Similarly, in connection with our acquisition of 222 Kearny in October of last year, we assumed starting rents by this point of $28.50 gross, with $25 in tenant improvements and no free rent on new leases. By comparison, nearly 22,000 square feet of new leases executed this year at 222 Kearny came in at a weighted average starting rent at $34.16 gross with comparable concessions.

Finally, with respect to our nearly 32,000 square feet of new leases signed this year at Rincon Center, which we acquired late last year, we had expected starting rents of $32 gross and $40 in tenant improvements and five months free rent on a new deal. Those leases were actually completed at a weighted average starting rents at $33 gross with comparable concessions.

Turning to our acquisition activity, the second quarter was extremely productive. We completed successfully purchased contracts to acquire three Class-A office assets totaling 370,000 square feet with combined gross value of approximately $170 million.

All of these assets, which I'll describe in more detail in a moment, are located in our target markets and benefits from strong media, entertainment, social media, and technology tenants. Since going public a little more than a year ago, we have now closed or completed contracts on 2.4 million square feet of assets with combined gross purchase price of more than $570 million.

During the past quarter, we took full ownership of our Rincon Center in San Francisco's South Financial District for a total gross purchase price of approximately $185 million. This includes the joint venture investment we made in December. In connection with that acquisition, we successfully refinanced this existing project with a seven year $110 million non-recourse loan bearing interest rate of approximately 5.134%.

In May, we executed a purchase agreement to acquire 625 Second Street in San Francisco for a total gross purchase price of $56.4 million, including the assumption of an existing $33.7 million loan. 625 Second Street is approximately 137,000 square feet and is located in San Francisco's SOMA submarket. This property is fully leased to a multiple of office tenants with an average remaining lease term of approximately five years. We expect to close this transaction by the 1st of September.

In June, we signed a purchase contract to acquire 604 Arizona in Santa Monica, California, for a total gross purchase price of $21.5 million. 604 is a 45,000 square foot project that's fully leased to Google through July of 2012. We subsequently completed this transaction on July 26th.

Also in June, we negotiated a purchase agreement to acquire 6922 Hollywood Boulevard in Hollywood for a gross purchase price of $92.5 million, including the assumption of a $42.1 million loan. 6922 Hollywood is a 205,500 square feet project consisting of 172,000 square feet of office and 33,500 square feet of highly attractive ground floor retail space.

This property is fully leased to multiple tenants with an average remaining lease term of approximately seven years. Office rents at this property are currently at market while retail rents are well below market. Also, supporting the value of this asset is the substantial amount of parking revenue associated with an adjacent parking garage that caters to both tenants and transient parking.

Current parking rates at this facility are in line with those of our neighboring garages. We expect to close this transaction by the end of October.

In terms of the two million feet acquired since our IPO a year ago, we have been very pleased with not only the better than expected leasing activity, but also the improving market perception regarding real estate values. Transactional activity on comparable assets in our target markets point to a steady tightening in cap rates over the last year.

Nearly all of our acquisition activity was completed before the end of last year at values determined even earlier in that year. Since then, cap rates have fallen approximately 100 basis points driving a corresponding increase in the current value of our assets. We think that the same selectivity and (inaudible) approach that characterized our completed acquisitions similarly typify our current acquisition phase.

Finally, we're currently exploring several media and entertainment acquisition opportunities and hope to be in a position to report progress on one or more of these opportunities in the near future.

And with that, I am going to turn the call over to Mark Lammas, our CFO, for our financial summary.

Thank you, Victor.

For the second quarter of 2011, funds from operations totaled $8.4 million, or $0.26 per diluted share. These results reflect $780,000 of property tax savings stemming from reassessments occurring in the quarter, which I will provide more details about in a moment. Net loss attributable to common shareholders was $2.1 million, or $0.07 per diluted share, compared to net loss of $2.6 million for the same period a year ago.

Turning to our combined operating results, please be reminded that the operating results with respect to our office segment for the period prior to the completion of our June 2010 initial public offering will not be comparable to the current period operating results due to the significant property acquisitions at our IPO and during the third and fourth quarters of 2010.

For the second quarter of 2011, total revenue increased 201.3% to $33.4 million from $11.1 million a year ago. The increase in total revenue was primarily attributable to a $15.2 million increase and rental revenue to $23.4 million and a $5.8 million increase in tenant recoveries to $6.6 million. Total operating expenses increased 211.3% to $29 million from $9.3 million for the same quarter a year ago.

The increase in total operating expenses was primarily the result of a $7.9 million increase in office operating expenses to $9.5 million, a $1.1 million increase in media and entertainment expenses to $5.8 million, $7.7 million increase in depreciation and amortization at $10.6 million, and a $3.1 million increase in general and administrative expenses with no comparable expense in the prior period.

As mentioned earlier, our second quarter 2011 operating expenses reflect property tax savings stemming from reassessments occurring in the quarter. More specifically, we received notices of property tax reassessments resulting in total property tax savings after tenant reimbursements of approximately $780,000 for periods prior to this year.

$380,000 of these savings are attributable to prior year property taxes incurred after the Company's initial public offering on five of our office properties and our media and entertainment properties, while the remaining $400,000 relates to property taxes incurred on our City Plaza and Sunset Bronson properties for periods prior to the initial public offering. Our Technicolor and Sunset Gower properties have not yet been reassessed in connection with our initial public offering.

Income from operations increased 149% to $4.4 million for the second quarter of 2011, compared to income from operations of $1.8 million for the same quarter a year ago. Interest expense during the second quarter increased 94.3% to $4.5 million compared to interest expense of $2.3 million for the same quarter a year ago. At June 30, 2011, the Company had $270 million in notes payable relating to some of its properties compared to $332.2 million of notes payable at March 31, 2011.

Turning to our results by segment. Total revenue in our office properties increased 543% to $24 million from $3.7 million in the second quarter of 2010. The increase was primarily the result of a $14.5 million increase in rental revenue and a $5.7 million increase in tenant recoveries, which were largely attributable to the contributions from office properties acquired at our IPO and in the second half of 2010.

Property operating expenses in this segment increased 482% to $9.5 million from $1.6 million a year ago. At June 30, 2011, our office portfolio was 90.8% leased, up from 89.5% leased at March 31, 2011. During the quarter, the Company executed 13 new and renewal leases at our office properties totaling 80,600 square feet.

Total revenue at our media and entertainment properties increased 27.5% to $9.5 million in the second quarter of 2011 from $7.3 million in the second quarter of 2010. The increase was primarily the result of $600,000 increase in rental revenue to $5.6 million and a $1.3 million increase in other property related revenue to $3.2 million. Total media and entertainment expenses increased 22.3% to $5.8 million in the second quarter of 2011, compared to $4.7 million in the same period a year ago, primarily as a result of higher operating expenses associated with improved occupancy and higher production activity at the media properties.

As of June 30, 2011, the trailing 12-month occupancy for our media and entertainment portfolio increase to 73.8% from 67.1% for the trailing 12-month period ended June 30, 2010. We expect steady occupancy at our media and entertainment properties to continue with the healthy performance of this sector. On a sequential basis, base rental revenues at our media and entertainment properties for the second quarter came in substantially similar to the first quarter rental revenues.

Other property-related revenues were also substantially in line with the first quarter results, consistent with seasonal lows in production activity we typically see at our Sunset Gower properties in the first and second quarters. We continue to benefit from steady demand in the media and entertainment sector.

For instance, during the quarter, a lease for one of our larger Sunset Gower tenants, NBC, expired. We immediately backfilled all their space with commitments from ABC and two of the four stages formally occupied by NBC went into production during the second quarter. With a customary pickup in production in the latter half of the year, we expect other property-related revenues to improve in the current quarter carrying over into the fourth.

Turning to the balance sheet, at June 30, 2011, the Company had total assets of $1 billion, including cash and cash equivalents of $86.9 million. In addition, the Company has total capacity for approximately $141.2 million on its $200 million secured credit facility, all of which remains undrawn.

Early in the second quarter, we completed an amendment to our $200 million credit facility further details of which are set forth in our earlier filings. On May 3rd, we completed the public offering of 7,992,500 common shares and a private placement of 3,125,000 common shares for total proceeds after underwriter's discounts of $156.7 million before other transaction costs. Further information regarding this equity transaction can also be found in our earlier filings.

During the quarter, we paid quarterly dividends on our common stock of $0.125 per share. On June 4th, we updated our full year 2011 FFO guidance to reflect management's view of current and future market conditions and all prior transactional activities, including an indication of the impact of the pending 625 Second Street acquisition.

Since our recent guidance update, we have completed the $21.5 million 604 Arizona acquisition. The pending $56.4 million 625 Second Street and $92.5 million 6922 Hollywood Boulevard acquisitions remain subject to various closing conditions, including the assumption of project level loans.

In addition to these potential acquisitions, the Company continues to focus on additional acquisition opportunities. Consistent with our prior guidance updates, should these pending transactions materially impact our 2011 FFO estimates, we anticipate updating those estimates following the completion of the acquisitions with a goal of providing updates in connection with the completion of meaningful transactional activity or other developments.

And now, I will turn the call back to Victor for some final thoughts.

Thanks, Mark. We had a particularly productive second quarter, especially with respect to our leasing and acquisition activities. Having completed a successful secondary offering only last quarter, we accessed our pipeline through this current growth phase, complete purchase contracts on three office properties, each of which enhances our existing holdings.

On the completion of these acquisitions, we will have acquired over 2.4 million square feet of assets, with a combined gross purchase price of more than $570 million, more than tripling the size of our original office portfolio, and more than doubling our combined portfolio. With few exceptions, these transactions have been off-market opportunities resulting from our relationships throughout our core markets. This acquisition pipeline remains currently strong, as promising negotiations continue on several additional properties, both in the office and the media and entertainment world.

I'm also pleased with the work we have done in our leasing. In the last year, we've increased our office occupancy to 90.8% from 85.9%, and improved our studios occupancy 73.8% from 67.1% a year ago. We have a lot of opportunities ahead of us, and we appreciate everyone's continued support.

Now, operator, we're going to open the call for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Jamie Feldman from Bank of America. Please go ahead.

Thank you, good afternoon.

Good afternoon.

I was hoping you guys could talk a little bit about just how the world feels over the last couple weeks, last week or so. Kind of what are you seeing exactly in your markets? Are you seeing any kind of slowdown as you walk through your major markets and just what's the update sentiment given everything we've seen happen in the market -- the stock market over the last week.

Yes, Jamie, listen, you know, obviously, the volatility in the stock market has had some reverberations in the investment side of the market, but let me talk first on the leasing side because we monitor that obviously on a regular occurrence, the deals that either we're looking at, tenants on renewal or new leases or showings, and really as we sit today, there really has not been any moderate change in any of our core markets of the activity in leasing that's sort of directly correlated from the volatility in the stock market.

That being said, on the investment side, for the most part, the deals that we are working on are, as you guys well know, are off-market transactions or relationship deals. So we haven't seen a fallout on any of those transactions materially in terms of pricing and valuation and discussions that are just in earnest currently today.

But what we have seen is some of the deals that we had passed on in the last couple of weeks are coming back from some of the brokerage companies are calling us and saying if you're interested in your number where you were at before, you would you be willing to resubmit.

We have had that on two specific instances on two transactions that we looked at in the last say 30, 45 days that have just come back in the last week or so. But for the most part, I don't really think we're seeing the kind of impact that's correlated to where the market impact is on the stock market.

How do you think of your acquisition pipeline and pricing you can get relative to where the stock is today versus where it was before things fell?

Well, I mean, listen, the stock price today is -- there's no correlation to where the value of the real estate is. Because our stock is down doesn't mean the value and the cap rates have increased precipitously on that same token. Anything that we're looking at competitively is still going to be competitively bid out and I do think there -- you know, we may see less competition out there, but I'm not so sure we're going to see less value change until we see some sort of a stable process and where the stock market is correlated to where capital and outlay of capital is right now.

There's still a lot of capital looking at deals. There are a lot of deals that we aren't thing looking at but we have followed closely and transactions and bids that we followed closely that still have multiple offers on and deals are still being closed and guys are still going hard on transactions that they committed to. If it's core real estate and it's part and parcel of where our growth process is, we're going to be extremely diligent in trying to get those deals done given where our stock is today or not.

I guess how do you think about your current pipeline and the size of it and then what your capital sources are, assuming the stock price is too low to issue equity here. Like what's kind of your -- you know, what's your run way here and how would you finance it?

Well, right now, we haven't got about $200 million approximately available for acquisitions and if we -- and we've always said that that's going to include some of the deals we're working on right now. Our credit facility, you know, is fully untapped for us and able for us to go out and acquire deals, and we're looking at joint ventures as we had discussed in the past, you know, several months.

We are still looking at joint ventures, which is going to elongate our capital. We feel comfortable given our current pipeline which is always sort of retracing deals -- replacing ones that we were looking at with new ones in the marketplace that we put in, but the number is still between $800 million and $1 billion, and we get our fair share and we hope to get our fair share going forward, either on a direct ownership basis or on a JV basis.

Okay. And then what are the cap rates on the acquisitions you completed in the quarter?

Yeah, so, I mean, you know, we're looking at -- on 604, which is the only acquisition that we could close, it was a 7, 7.5 cap. On our 625 deal, which we hope to close beginning of next month, that's about a 6.3 cap, and on our 6922 deal, which we are hopeful to close at the end of the quarter since we're assuming a CMBS loan there, is about a 6.7 cap.

And then what are they stabilized in your underwriting?

In terms of effective underwriting stabilization?

Yes. Like where do you think they go to?

Yes. Well, the 625 and the 6922 deal is going to be in the mid-seven range and 604 will be about eight, eight-and-a-quarter.

Okay. All right, thank you very much.

You got it.

Thank you. Our next question comes from the line of [Chris Katen] from Morgan Stanley. Please go ahead.

I was hoping you could, sticking with that topic, could you explore the underwriting assumptions between LA and San Francisco? How are those different at this point in time? You talked about how Kearny rent is -- you exceeded your underwriting by 20%, Rincon a bit tighter, 3%. I wonder how the movement in the San Francisco market is affecting competition there and your view of relative opportunity between the markets.

Sure, Chris. I mean, so what we're seeing right now in San Francisco is still consistent in our assets and in the portfolios and transactions in the marketplace that we've looked at in the past.

Since the beginning of the year, effectively, rates have moved anywhere from a low end of 15% to a high end in certain assets up to 30%, and that correlates to -- I would say that the competition up there is not any fiercer than it's been in the last six months with or without the rate change movement. There is a core competent group of individuals, acquirers, out there that are all very bona fide buyers with strong capital sources that are out looking at assets, and we come across them and we have not seen any shift -- any increase in outliers, for the most part, or other sources of capital that differentiate it.

When it comes down to southern California, we have a lot less buyers in the marketplace, but there is still a core competent group there that is still looking at similar assets that we're looking at. We have not seen the movements in southern California nowhere near the rental rate movement in underwriting and effectiveness other than really west Los Angeles/Beverly Hills, which we're starting see some serious tightening right now in those marketplaces.

I think also we are seeing a lot more velocity in the San Diego marketplace right now and in the San Fernando Valley marketplace, specifically, and the Orange County marketplace in terms of the stuff that we're seeing is pretty much flat to down.

Thanks. I guess I just want to follow-up on that. What I was driving at is if you're getting mid-seven stabilized in Soma and in LA, presumably you have different rent assumptions there and kind of the way this environment where -- where are you comfortable kind of placing those -- placing a bet and making a stronger growth assumption in the city or down in Los Angeles where maybe you don't have to be as constructive on rent?

Well, no, listen, the rents that we're looking at in both the west LA marketplace and San Francisco, I mean, we're seeing much more growth potential in Los Angeles because of the kind of tenant mix, the diversified tenant mix, whether it's media, tech, or the likes of that.

So the future growth there is going to be much better I think than has been in the past, but we're still seeing a solid growth aspect in northern California. We're very comfortable with the tenant mix there and I wouldn't say we would make a bet on one or the other. We're absolutely focused on both marketplaces equally.

Thanks. And then just one last for me on your availabilities in San Francisco, either at 1455 or at Rincon. What are the latest plans with some of that availability, either the retail space in Rincon or the few floors you have in 1455.

Well, at 1455, specifically, we're negotiating deals right now with multiple tenants for large use space and we're close to getting one deal signed and we're working on a follow-up with a multiple of others there.

On Rincon, with the retail, we converted -- we're in the plans of converting some of that retail space to office because we've got a back -- a sort of a back-office group that wants some of the space there, and we're seeing strong activity in the retail space. We've replaced our current broker up there with a new broker and we've got interest in some new retail tenants that we're confident that we're going to be able to make shortly.

Thank you.

You got it.

Thank you. Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Please go ahead.

Hi. Jordan Sadler is on the line with me, as well. Victor, maybe to circle back to your comments about joint ventures. Would that be on existing asset you would contribute or would it be just going forward on new deals?

You know, Craig, initially we would be looking at JVs on going forward and some of the assets you're talking about, but we have looked at an asset in the portfolio that we've had interest in on a contribution level and then taking that with a new asset and combining it to, say, a smaller portfolio size. So the answer is really more on the new deals, but we actually have looked at one asset in the portfolio and are evaluating whether or not it makes sense given a potential acquisition of another asset.

So you guys wouldn't consider joint venturing the media and entertainment and then using that as sort of a vehicle to do the next one or two?

Well, as I said, we're looking at it right now and that may or may not be one of the assets that we're talking about.

Okay. Then just looking at the back-end of the year, you had mentioned a couple of the studio assets, but out of the $800 million to $1 billion, how much do you have near-term that could hit in the back half of the year and kind of how do you look at that versus your capital availability?

Well, listen, we've got a balance that's based on our capital and as I said, we've got about $200 million approximately available on the current structure and our debt levels are extremely low given where we have our credit facility and our outstanding debt. You know, we're going to match with what we think are the most productive deals that we're working on and making sure that those are the most accretive for us going forward.

You know, I don't want to put a number on what's there other than the $171 million that we sort of announced that we're going to do. We're real comfortable with those deals. Those deals are committed to go forward and we're looking at some other deals that would take that $200 million down by the end of the year.

Okay. That's helpful. And then just, Mark, on guidance, just to be clear, did you affirm the previous range or is it sort of fluid at this point? Because I know the 625 was included. You guys are doing better on rents on the acquisitions you bought. I'm just trying to get a sense of whether -- how much of your underlying assumptions are changing here or if it's just you want to hold off till you close on the acquisitions.

A little of both. We remain confident on our same store guidance that we gave in June that is to say none of those -- we don't foresee any material difference in any of those as a performance of any of the assets that are making up that June 4 guidance. And at the time we gave guidance, we had 625 in our the contracts, so we were able to give an indication of the impact of 625 on that guidance.

Since then, we've closed the $21.5 million acquisition, which, obviously, is not yet pulled into guidance because we have further acquisitions that are pending that we would like to pull in for purposes of a full 2011 update to guidance. And so it's fluid in so far as there's pending acquisitions not yet closed that if they close and they close within the timeframe we expect, we plan to pull into a full year update, but in terms of the underlying asset performance, we see no difference.

Okay. Then just lastly, Victor, on underwriting 625, were you guys assuming Google was going to stay or have they given any indication what they're going to do?

On 604.

Oh, 604, sorry.

No. We're assuming they're leaving. We've already got activity on that entire space.

Okay. Great. Thanks.

Thank you. Our next question comes from the line of Brendan Maiorana from Wells Fargo. Please go ahead.

Thanks. Good afternoon. So, Victor, what are the costs that you guys think you will have to do to re-tenant 604 and what's the basis you'll get to? And then I think you may have mentioned that the stabilized yields you expect to get would be around eight-and-a-quarter?

Yeah, our stabilized yield is going to be somewhere in the eight pluses. We're looking at -- we underwrote triple net rents there because that market is a triple net rent place, it's three-and-a-quarter, which is on a monthly basis, that we quoted in Santa Monica. Our TIs for that transaction is going to be somewhere around $30 a foot.

Okay. So you're all-in basis is going to be like roughly like $500 bucks a foot or somewhere around there?

Yeah, just under.

Okay. Okay. That's helpful. And then for Mark, the property taxes, did you guys assume that they were going to be in Q2 and was that included in guidance? And then can you give us an outlook for what we can expect for the back half of the year given that you've got a couple of properties that you didn't get the property tax in Q2?

Sure. We actually were -- we secured some of the savings a little sooner than we thought. Since we don't give quarterly guidance, for purposes of our full year guidance, we were accounting for property tax savings in a sense almost regardless when it hit although, you know, we expected the timing to phase in in Q3 and Q4 and we were fortunate to get it kind of a bit sooner.

In terms of our 2011 guidance and kind of where we stand relative to it, at the mid-point we were expecting about $900,000 of tax savings. At this point we have achieved about $780,000 of it, and so that gives you kind of a sense of where we stand at this point in the property tax saving effort relative to our full year guidance and so, look, it's -- there's uncertainty remains in the process. That is to say we have to -- we still have to finish the discussions with the county assessor on Gower and unclear at this point where we will end up on that.

I think I gave you an indication of where we are today and what our full expectations are and what the possibilities might be, but it's difficult to pinpoint it and then we're going to go back in that process and also discuss the Bronson line. We did better than we expected on some of our office assets. We didn't do quite as well as we expected on Bronson; Gower is pending and we're going to take up both Gower and Bronson in the remainder of the year.

Is the remaining [120] a good number or do you think it might be higher or lower?

No. I think it's a good number.

Okay. And then where do you guys think that you're going to end the year from an occupancy or leased rate on the office portfolio?

Well, it's partly depends, Brendan, obviously, on these acquisitions. I mean, a couple -- you know, these acquisitions are coming in at, you know, about 100% lease. That's obviously going to improve the all-in occupancy (inaudible). If we looked at without those occupancies, we'd probably forecast another hundred or so (inaudible)-- 100% or so possible improvement over the current occupancy level.

Okay. So kind of the same store portfolio as of 6-30, maybe up a 100 basis points?

Something like that, yeah.

Okay.

And then, obviously, better than that if these acquisitions that we've announced come through.

Sure. And then on the media opportunities that you guys are looking at, Victor, are you still looking at yields that are a 100 basis points higher than kind of the average office yield? And if that's the case, should we assume kind of that the office yields I think you gave us for the deals which sounds like rough numbers, maybe a seven cap and maybe a 100 basis points higher than that for media?

Yeah, I mean, Brendan, I think you're talking closer to the six-and-a-half to seven range, and the same thing, 100 basis points in media (inaudible) entertainment is seven-and-a-half to eight.

And then I just wanted to follow up on Chris' question earlier in terms of the underwriting. You know, I guess if you look at what buyers are assuming today, and you can either pick LA or San Francisco, when you look out at market rent growth, can you give us a sense of what they're looking for in market rent growth over the next one, two, three years, and then maybe how that compares to how you guys underwrite market rent growth either in the LA markets or San Francisco markets?

And has anything that's happened in terms of the macro-economic indicators over the past couple of months caused you guys to maybe revisit some of those growth assumptions?

Well, I can't tell you what other guys are underwriting because, as you know, first and foremost, whatever they underwrite, they're going to be wrong at. None of us are going to be correct in terms of where we're going to be at. But we, on the other hand, have always underwritten on a much more of a conservative underwriting basis, specifically here in southern California. And obviously, we were conservative in northern California not knowing that we'd see the growth.

But when we underwrite our deals that we're making a concerted effort to buy, I mean, if it's anywhere in the Los Angeles marketplace, you know, a 3% initially year one, and then a [5%, 5%] for year two, three. And in San Francisco, we have done a little bit higher going in, more like a 5% going in year one and maybe a 5.5% and maybe a larger in the third year given where it is (inaudible). It's more like a 7% in year three.

And have you heard of any sellers that have pulled buildings off the market just because they haven't gotten the pricing that they expected in either of those markets?

I mean, there's not any specific cases where guys have pulled off because they haven't gotten pricing. I think, you know, this market is an interesting marketplace and we made commentary on it on our last call. You know, any asset that's truly a embedded marketed asset, regardless of where we are today in the economy and the stock market.

I mean, if it's been embedded and marketed through a process and they haven't received, you know, the expectations that they thought they were going to get, you know, it becomes a tainted asset because there's always another asset behind it.

And so the choice is either you drop your price and you sell or you hold and you come back, but the problem is we have seen it. If anybody who sells in the most recent timeframe, and I'm going to speak in the last seven or eight months, really since the beginning of the year, and they try to come back, people look at those assets and say they're tainted.

And so as a result, they're forced to wait maybe a longer period of time, but we don't see a lot of that, but there are instances in both marketplaces that that has occurred throughout this year, not just at this timeframe.

Sure. That's helpful. Thank you.

You got it.

Thank you. Our next question comes from the line of Rich Anderson from BMO Capital Markets. Please go ahead.

Thanks and good afternoon, everyone. Can you just talk about what you think of in terms of timing of the updated guidance. Are you going to wait till third quarter or is it going to be another interim announcement like you did last time?

I mean, I gauge it off, Rich, off of the timing on 6922 where we think that that's probably going to get done by the end of October. It's somewhat of a happy coincidence that that will probably coincide -- well, that does coincide with -- an earnings announcement will follow shortly thereafter, so my guess is unless something transpires that's very material before then, the timing will work out that we'll update in connection with our next earnings.

And would you be able to say if these announced but not closed deals, would you expect them to be additive to guidance?

Yes, definitely.

Okay. And then on that, following on that question, how will these, without being specific, of course, but your financing strategy, are you assuming -- you are assuming debt, I think, right?

Yes.

Can you comment on the rates you're assuming and what else fill gap you need to undertake to put them to bed?

Sure. So you will see laid out in the press release the debt, but on 6922, there's amortization going on there, but at the time of our predicted takedown, it will have about $42.1 million of debt. The current rate on that debt, I think is 5.855% and I can shore that up at some point but I think that's right. And then on 625, we have $33.7 million of debt on that, also 30 year amortization on that, and the current rate is about 5.7%. Again, I can firm that up, too.

There's no debt on the 604 asset. We took that down with cash on hand. We also have remaining cash on hand, which will get deployed as we phase in these acquisitions. By the time we complete these acquisitions, our forecast is that we will have drawn some of the line somewhere in the neighborhood of around $30 million, maybe lower than $30 million. So, Rich, in our press release, it's 5.5775%.

I see that now.

You got it?

Yes.

Yeah, we got it in there. So we have a little bit drawn on the line by the time we complete this set of announced acquisition at the end of October.

Okay, fair. And then last question. I guess you were referring to, and if you mentioned this exclusively, I apologize for missing it, but the NBC cancellation. That was the event?

Yes.

Okay. And so what's coming in its stead?

Well, so we backfilled all of it with ABC tenant users that are ABC shows. And two of the, as we mentioned in the prepared remarks, two of the four stages went into production in the quarter in the second quarter. We have been -- I'll stop here and Howard can describe where we are in the other two stages.

There's a new show called Scandal that will be starting in the fall, and then on the other two stages, we backfilled it with one existing ABC show called Castle, which is on the air. They took one stage. They're at another facility and needed another. And the other stage, right now, ABC is paying for, but a show is not designated on that stage right now.

Okay. And you feel obviously good about the prospects of these shows? Have you seen them?

No. They're actually just starting, you know, (inaudible) on this shoot, so we have not seen any shows yet.

Okay. Thank you.

Thank you. (Operator Instructions). We have a follow-up question from the line of Chris Katen from Morgan Stanley. Please go ahead.

Hey, Howard, I hope you can spend just another minute on the studios. It looked like the trailing 12-month occupancy was flat in the quarter, so it makes it a bit tough to kind of reconcile growth, but revenues were up just on the rents I think 13%. Obviously your other income was a lot higher. So I'm wondering how much of this pace of growth can continue and how much of it was at 2Q last year? If I remember correctly, there were some shows that were winding down. If you could help us kind of read into the stats a little more and I guess with occupancies rising with 6%, 7% year-on-year, with rents up more, I wonder what your ability to pass on higher rents to tenant is.

Yes. This year, again, it's a little higher than it was last year because we have, again, more shows there in the same number of stages than we had last year. So whereas an event might take two or three or four stages in the last go around, This go around, we're filling it with more shows, which gives you the opportunity, obviously, for more production days, which, again, leads to higher other property-related revenue.

So right now, we're trending towards having -- you know, we have six shows at the studio right now. So, again, the higher number of shows, the higher number of production days. Does that answer your question, Chris?

I think it does, yes.

Thank you. And at this time I show no further questions in the queue. I would like to turn the conference back over to Mr. Coleman for closing comments.

Thank you, and thank you, operator. Thanks for participating in our conference call. We hope to keep you posted as developments occur. Have a good rest of your day.

Ladies and gentlemen, this does conclude our conference for today. We thank you all for your participation and you may now disconnect.