Hudson Pacific Properties Inc (HPP) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Hudson Pacific Properties third quarter 2011 earnings conference call. (Operator Instructions) This conference is being recorded today, Monday, November 7th of 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 third 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 financial results to differ materially from these forward-looking statements are described in the Company's period reports filed with the SEC from time to time. All information discussed on this call is as of today, November 7th, 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 that strong 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 third quarter conference call. I'm pleased to report another quarter of successful leasing and acquisition activity. Our strategy of anchoring the portfolio with stabilized assets, favored by traditional office tenancy, and complementary value-add opportunities in the most dynamic submarkets continue to bear fruit.

Establishing a presence in markets for the diverse face of office tenants with an emphasis on media, entertainment, and technology entities has been at the core of our growth objectives, and we continue to experience steady leasing demand throughout those markets.

In terms of leasing we've completed new and renewal leases totaling 113,000 square feet to improve our office portfolio occupancy, excluding third quarter acquisitions, to 91.3%, up from 90.8% last quarter. Among the leases completed last quarter a 30,000 square foot, 20-year lease to a high-end fitness king, Equinox, at our First Financial Plaza property in Encino. This lease was signed at rents well above our underwriting assumption. It takes First Financial to nearly 96% leased and offers tremendous long-term amenity for our tenants. We expect the lease to commence in the latter half of next year, upon completion of a build out.

At our 1455 Market property in Northern California we signed a one-year extension with Bank of America for 25,000 square feet of space that was set to expire at the end of the year. Following [yearend], the quarter, we executed a 40,000 square foot lease with the Metropolitan Transportation Authority for space currently occupied by Bank of America at 1455 Market. This lease entails the early surrender of data center space as to which Bank of America has a right of early termination in December of 2013. The new MTA lease commits this space for a 10-year term at $30.50 modified gross, net [UNJ], starting rent at an amount which is considerably higher than our underwritten rents for the same space of $28.60 full service gross.

So we are also changing term sheets on an additional 100,000 square feet of new leases on this asset, some or all of which we will hope to announce in the near future. This lease activity marks an important transition for 1455. As you recall, we purchased this asset in December of last year for $90 a foot in a transaction involving a leaseback by Bank of America of 836,000 square feet. From the outset our basis has afforded us an inherent advantage to generate outside returns and an opportunity that is only continued to develop since our purchase of this asset.

Pacific Center submarket of San Francisco continues to show steady improvement, as recently demonstrated by the 200,000 square foot lease by Twitter just a block away from our project. Market rents in this submarket have likewise improved, the result of which has been to drive rents on active yields higher than the existing office rents on our original underwritten rents.

The recent lease with the MTA just is the latest indication of that trend. In short, the value enhancement for this asset is already underway through the combination of consumer and occupancy from Bank of America and new tenancy from a diversified base of governmental, technology, and other industries at increasingly higher rental rates.

Turning to our 875 Howard property, we executed new leases for 23,000 square feet, including more than 17,000 square feet to [Cuda], a leading global online [micro lending] firm. These leasings bring 875 Howard to 100% occupancy, well ahead of our plan compared to just 33% occupancy when we went public in June of last year.

As we said last quarter, with respect to leasing fundamentals in San Francisco starting rents and concessions on our leasing activity have been consistently better than our acquisition assumption. This trend is also emerging on the west side of Los Angeles, from Hollywood to Santa Monica, as all of these submarkets are experiencing growth from similar types of tenants and similar industries.

And San Francisco is primarily in SoMa submarket, the growth is coming from technology and social media companies, such as Twitter, LinkedIn, [Xinga], and FourSquare. In Hollywood and the west side submarkets, the Los Angeles growing tenants in technology, social media, and media and entertainment, includes Facebook, Google, Wide Nation, and YouTube, Venture Studios and [TMZ], just to name a few. Office occupancy in buildings that appeal specifically to creative users in these submarkets has pushed past 9%.

The Hollywood and west side submarkets of Los Angeles have greatly benefitted from the convergence of technology, social media, and traditional media companies. As this convergence continues many traditional technology and social media companies that were founded in San Francisco have begun to open offices in Los Angeles, where they can be closer to the more traditional media and entertainment companies.

This demand for creative office space in SoMa and Los Angeles has helped reduce vacancy and put accelerating upward pressure on rents. In SoMa rents are rapidly rising, while in Hollywood and West Los Angeles tenants have (inaudible) quickly which we believe should result in increasing rent in the foreseeable future.

Turning to other activity, we completed the acquisition of three properties totaling 232,000 square feet during the quarter, and executed a purchase contract to acquire an additional 205,000 square foot asset, 6922 Hollywood Boulevard.

On July 26th we completed the acquisition of 604 Arizona in Santa Monica for a total gross purchase price of $21.5 million. 604 is a 44,000 square foot project that's fully leased to Google through July 31st, 2012.

On August 18th we completed the acquisition of 275 Brannan Street in San Francisco's [south of the market] submarket for a total gross purchase price of $12.25 million. Immediately adjacent to 625 Second Street property, 275 Brannan is a vacant three-story brick and timbers building containing 50,000 square feet. We plan to perform substantial renovations on this property and market it through accretive office tenants attracted to the SoMa submarket.

On September 9th we closed an acquisition of 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 a 137,000 square foot office property, also located in SoMa. The property is fully leased to multiple tenants with average remaining lease terms of approximately five years.

Finally, at the beginning of the third quarter we negotaited a purchase agreement to acquire 6922 Hollywood Boulevard in Hollywood, for a total purchase price of $92.5 million, including the assumption of a $42 million loan. 6922 Hollywood is a 206,000 square foot project consisting of 172,000 square feet of office space and 34,000 square feet of highly attractive ground floor retail store space. The property is fully leased to multiple tenants with an average remaining lease term of approximately seven years. We expect to close this asset imminently.

All of these assets are located in submarkets that are favored by a handful of specific industries, including technology and social media in Northern California, technology and social media and media and entertainment tenants in Southern California, all industries that have outpaced the overall economy. On the strength of the presence of these industries we expect these assets to maintain above average occupancy levels and generate exceptional growth.

With that, I'm now I'm going to turn the call over to Mark Lammas, our CFO.

Thank you, Victor. For the third quarter of 2011 funds from operations excluding acquisition related expenses totaled $9 million or $0.25 per diluted share compared to $4.4 million or $0.18 per diluted share a year ago.

Expenses associated with the acquisition of (inaudible) were $800,000 or $0.02 per diluted share compared to $300,000 or $0.01 per diluted share a year ago. FFO including the acquisition-related expenses totaled $8.2 million or $0.23 per diluted share compared to $4.1 million or $0.17 per diluted share in the third quarter of 2010.

Net loss attributable to common shareholders was $2.7 million or $0.08 per diluted share compared to net loss of $200,000 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 third quarter of last year will not be comparable to the current period operating results due to the significant property acquisitions during the third and fourth quarters of 2010 and the third quarter of 2011.

For the third quarter of 2011 total revenue increased 110.9% to $36.9 million from $17.5 million a year ago. The increase in total revenue was primarily attributable to the $12.4 million increase in rental revenue to $24.1 million and the $6.5 million increase in tenant recoveries to $7.8 million.

Total operating expenses increased 111.8% to $32.8 million from $15.5 million for the same quarter a year ago. The increase in total operating expenses was primarily the result of a $10 million increase in office operating expenses to $12.8 million, a $200,000 increase in media and entertainment operating expenses to $6.1 million, a $6.7 million increase in depreciation and amortization to $11 million, and a $500,000 increase in general and administrative expenses.

Interest expense during the third quarter increased 128.3% to $4.1 million compared to interest expense of $1.8 million for the same quarter a year ago.

At September 30th 2011 the Company had $298.7 million in notes payable compared to $94.1 million of notes payable a year ago, and $275 million of notes payable at June 30th, 2011.

Looking at our results by segment, total revenue in our office property segment increased 250.9% to $26.7 million from $7.6 million in the third quarter of 2010. The increase was primarily the result of a $12.4 million increase in rental revenue to $19 million, and a $6.4 million increase in tenant recovery to $7.4 million, which were largely attributable to contributions from office properties acquired in the third and fourth quarters of 2010 and the third quarter of 2011.

Property operating expenses in this segment increased 353% to $12.8 million from $2.8 million a year ago. At September 30th, 2011 our office portfolio including third quarter acquisitions was 90.4% leased. Excluding third quarter acquisitions our office portfolio was 91.3% leased, up from 90.8% leased last quarter.

During the quarter the Company executed 13 new and renewal leases at our office properties totaling 112,673 square feet. Total revenue at our media and entertainment properties increased 3% to $10.2 million in the third quarter of 2011 from $9.9 million in the third quarter of 2010. The increase was primarily the result of a $400,000 increase in other property-related revenue to $4.6 million.

Total media and entertainment expenses increased 2.8% to $6.1 million in the third quarter of 2011 compared to $6 million in the same period a year ago, primarily as a result of operating expenses associated with higher production activity.

As of September 30th, 2011 the trailing 12-month occupancy for our media and entertainment portfolio increased to 73.1% from 69% in the trailing 12-month period ended September 30, 2010.

Turning to the balance sheet, at September 30th, 2011 the Company had total assets of $1.1 billion, including cash and cash equivalents of $20.7 million. In addition, the Company had total capacity of approximately $141.2 million on its $200 million secured credit facility, $33 million of which had been drawn.

On September 1st, 2011 the Company fully repaid a $43 million mortgage loan secured by our First Financial Plaza property in Encino, which bore interest at an annual rate of 5.34% and was scheduled to mature on December 1st, 2011. The Company is currently in the process of securing a new $43 million mortgage loan to be secured by First Financial Plaza, which we expect to close in December 2011.

During the quarter we paid a quarterly dividend on our common stock of $0.125 per share.

Turning to our outlook, as highlighted in our earnings release this afternoon, we have revised our full year 2011 FFO guidance to a range of $1.06 to $1.08 per diluted share excluding acquisition-related expenses. The Company's previously announced guidance of $0.99 to $1.04 a share included the now completed acquisition of 625 Second Street but did not reflect the impact of the other recently completed acquisitions of 604 Arizona and 275 Brannan Street, nor the anticipated acquisition of 6922 Hollywood Boulevard, which the Company expects to close imminently. The previous guidance also did not reflect the early repayment of the $43 million mortgage loan secured by First Financial Plaza, nor a new $43 million loan which the Company is in the process of securing for that property, as described above.

The revised guidance now includes all recently completed acquisitions, the anticipated acquisition of 6922 Hollywood Boulevard excluding acquisition-related expenses, and the refinancing of the $43 million of indebtedness secured by First Financial Plaza. This guidance also reflects the Company's FFO for the nine months ended September 30th, 2011 of $0.83 per diluted share excluding acquisition-related expenses. The Company estimates that fourth quarter 2011 acquisition-related expenses will be $0.02 per diluted share.

The full year 2011 FFO estimate reflects Management's view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of events referenced in this release, but otherwise excludes any impact from future acquisitions, dispositions, debt refinancings or repayments, recapitalizations, capital market activity, or similar matters.

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

Thanks, Mark.

As you can see, we've made great strides during the third quarter and are proud of our progress so far this year. In the last 16 months we've acquired over 2.4 million square feet of assets with a combined gross purchase price of more than $570 million. We continue to grow the office portfolio by focusing on our target markets, acquiring assets with high quality traditional tenancy, complemented by value-add opportunities in our most dynamic submarkets.

This strategy continues to pay-off as leasing throughout the portfolio is running strong, including our progress over the last completed quarter to include our office portfolio occupancy, excluding third quarter acquisitions to 91.3%, up from 90.8% last quarter, and our studio occupancy to 73.1% from 69% a year ago.

We obviously appreciate your continued support of Hudson Pacific Properties, and we look forward to updating you on our progress again next quarter. Now, Operator, we would open the call up for any questions.

(Operator Instructions)

Our first question comes from the line of Craig Melman with KeyBanc Capital Markets. Please go ahead.

Hi, Jordan Sadler on the line with me, as well. Mark, turning to guidance, is there anything specific that would create the penny drag to get you to sort of the midpoint of your guidance for the rest of the year?

You're saying why is there a penny of range in the number?

Yes?

Yes, I mean there's always some degree of uncertainty around media and how well the production revenue comes through and at kind of what expense level. And so we're always a little bit careful not to sort of wed ourselves too firmly on a number without some realization that there can be some -- sometimes it can be a bit better and sometimes a little below. I would say that's probably the primary reason driving the range around the midpoint.

Okay, are there any move outs you guys are going to have in the studio assets, or is it just given sort of the ancillary income and the variability there?

I mean there's no unusual move out. I mean, as you know, we have short-term tenancy there, and so there's always roll-over in any -- throughout any period. But in terms of anything unusual we don't have anything expected in that regard.

Okay, that's helpful. Then maybe, Victor, you can just talk about the availability of product in sort of the LA and San Francisco markets that really cater to more of the creative type tenants? And what's going on with pricing there, just given that those sort of tenants have been driving a lot of the demand in both those markets and really driving the rent growth to the extent that there is any rent growth in those markets?

Sure, yes. Well, let me take the latter part first. There's an absolute rent growth in the San Francisco City and specifically in the South of market area. I think year-to-date we've seen specifically in South of market 25% rent growth in those marketplaces in our portfolio and surrounding assets than our peers or competitors.

Here, in Southern California, for the same type of tenant, which is social media, media and entertainment, and technology related tenants, we've seen obviously a slight pick-up in activity and somewhat of a lowering of concessions and some rent growth in specific markets, such as Santa Monica, West Los Angeles, Beverly Hills, and Hollywood.

But what we're finding in terms of the product out there really looking at the beginning of September the amount of assets that are actually being marketed has gone down. Our sort of bailiwick has been off-market transactions, and we still have a consistent flow of deals and assets that we're looking at.

Ironically, what we're finding is we're seeing that there are a lot less bidders on the portfolio or marketed assets that the brokers have and, quite frankly, some of the assets that we bid on early on in summertime that we didn't get are back in the marketplace at less pricing values right now and probably more like a haircut of 5% to 10% as to where they thought they were going to price it at. And so we're seeing that consistently throughout. I think, overall, generally speaking, the number of assets on the market today is a lot less than it was the first half of the year.

Hey, it's Jordan here with Craig. I just wanted to come back to the guidance question, Mark, if I could for a second? You mentioned the studios, but the clean guidance ex the charges is $0.23 to $0.25 for fourth quarter, right?

The clean guidance ex the onetime related for Q3 is $0.25, yes, for (inaudible).

And so you're saying that studios could be a bit softer?

Well, they're --

Or enough to offset the acquisitions, the run rate of the acquisitions you've just (inaudible)?

Yes, so, Jordan, let me make sure I didn't misstate. On the first question without acquisition related expense in Q3 the number if $0.25, okay? Hopefully, that's the first question you asked.

Yes.

And on the second, if you recall, Q3 can be typically the best performing quarter as it relates at the studios of all quarters, right? Because that's when we see production activity at its height and, in fact, we'll see it [thrown out] in the current numbers for this quarter. And so while it is true that we will have -- we expect to have 6922 added to our inventory and for modeling purposes and for guidance purposes we're expecting that as of mid this month, call it November 15th that that will be additive.

So, you know, and sort of thinking about how additive you have to consider that we're assuming a $42 million loan and we're drawing on our credit facility for the remaining balance of that. And so there's a month-and-a-half of call it, you know, of operations on that assets coming into that quarter, into the quarter that's not in the current quarter. And but then, you know, indebtedness associated with that. And that is -- that is accounted for in our full year guidance, but so is the tapering off of production activity in the fourth quarter compared to the third quarter.

Great. Thanks, guys.

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

Hey, Victor. Maybe for Howard, too. Can we stick with the studios for a second? You talked about some of the seasonality but just overall how is the business doing? Looking at the operating statistics in the supplemental it talked about occupancy being up something like 400 BPS. I think it's down sequentially. And then the rents, the average rent in place that you disclosed there has mostly been flat over the last -- really over the full six quarters that you've been reporting it. So I wonder are you pushing occupancy as a primary kind of revenue growth driver? And are you, at all, able to move rents at this point now that occupancies are higher or should we continue to expect it's a mostly occupancy rate driven story?

So, yes, it's a great question. So let me sort of address the occupancy first. In terms of the rent growth I think we can get maybe the push in rent going forward given the amount of activity that we're seeing and the demand in the marketplace for the midseason pick-up shows, as well as shows that are in place today that have been picked up for the full season. So the lack of space that's out there versus what we can see I think rent growth is going to be there.

I think what you're finding, though, the differentiator between the actual rent in place and the ancillaries, we're picking up additional revenue in the ancillaries, which is therefore moving our needle and it's just become -- it's sort of a timing issue right now. I think Howard and his Team have seen much more negotiations on keeping the rent flat just for the four-wall space and then pushing the ancillary at a higher number, which equates to obviously higher revenues. And what we're seeing going forward in terms of just some of the ancillaries that are in place.

So some production companies like to see rent at a flat number or consistent, and they'd rather pay for the ancillaries at the end of the day, that's a revenue stream, as long as you get the increased revenue that's all we're concerned about.

In terms of overall demand, Chris, we're especially seeing it on the syndicated end right now with the multi-camera projects over at Bronson where there is a strong demand for that type of show right now. So we feel good about that genre right now.

So I guess I just follow-up, right? The occupancy has been -- was it almost 74% for the first half of the year? I guess on a trailing 12-month basis, and then flip in this quarter again on a trailing 12 basis is there something that worked there or do you think that that'll continue to move-up going forward based on some of the quarters you're working on now?

Right. So you mentioned the sequential difference -- this is Mark -- we -- if you recall from our last call, not that I would expect you would, but if you recall we highlighted that there were a couple of stages that we had had an arrangement with ABC on that they never went into production on. And Howard and his Team have been working with them about occupancy on those two stages.

And so what you're in effect seeing in that number on a sequential basis was that -- those couple of stages that ABC never identified a television show for, and us giving, trying to work with them to try to figure out a way to backfill that space. So it's going to -- that's likely to be a temporary trend. And but the occupancy, Chris, has been strong and has remained strong, and going into the final quarter of the year I think while we do have these two stages we are working with ABC on, with that sole exception I think the general expectation (inaudible) will be strong.

Yes, based on demand and the number of showings that we've done in tours we are optimistic about definitely the demand going forward.

Great. thanks. And then just a last question on sources of capital. Victor, I think at the Investor Day you talked about exploring joint ventures. I wonder if those conversations have matured, at all, and if you see that as a source of capital either this year or next year?

Yes, you know, absolutely. We're working on one specific transaction right now which is a JV. Not so sure it gets done by the end of the year, but probably first quarter of next. We have opportunities that we're looking at right now in the JV side that are pretty fruitful, and I think that that will absolutely be a form of capital going forward and a consideration given the structure that we're anticipating.

Thanks, guys.

Thank you. (Operator Instructions)

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

Thanks. Good afternoon, guys.

Hi, Brian.

Hi, guys. So a question as it relates to the portfolio, maybe some of the specifics that are in there, if I look at the occupied percentage of 89% for the office portfolio that you guys have what are some of the embedded themes that you have in there relative -- like so, for instance, the Equinox lease that was announced that doesn't take occupancy until sometime next year? I think there are a few others that are in there. So how should we sort of think about what you have embedded that's going to come into the portfolio over the next several quarters, offset against any known move outs that you guys have over the next few quarters?

Well, in terms of embedded growth, you know, we had the lease up on 875 Howard throughout the year, including what (inaudible) just announced for third quarter. And so there's always a lag on that lease up between the announcement of the signed lease and the commencement of that rent. So there's some embedded improvement on 875. There's, as you just pointed out, there's the 30,000 feet of Equinox which is sort of a second half of next year commencement, depending on the time for their build out.

MTA, which was a post third quarter deal, that -- they're just taking BofA space. There won't be really a net incremental pick-up in the near term, but what they've done -- what was done is we've taken space that had an early termination right in December of 2013 and we've extended it, we set it for 10 years. Rents are roughly comparable to the data center rent that we're being paid, so better than what our office rent assumption was, assuming that data center had rolled. But there's not embedded growth in that per se, but it stabilizes obviously that footage.

The only major move out would be -- which we anticipate and we're negotiating right now for renewal, we've got some people who are looking at the space as backup, is the Google space.

So that's mid next year.

Next year.

Which would equate for either a replacement tenant or Google to renew for a new five-year term. There's no other major tenants that are moving out in 2012.

No, in terms of some positive absorption, we're starting to see some activity over at [City Plaza] with some of that smaller tenant base, it's basically been dormant the last year, and we're in execution on some deals right now and also a lot of negotiations and in proposals more than we were the last couple quarters. We anticipate that in the near future.

Okay, so maybe just to start with 1455, if we look at that one the current level of income that you guys are generating from that asset, as you look out I think the initial expectation is that income was going to go down because you had BofA that was likely to move out of some portion of the space. As you look at it as we stand today, now, do you think that -- can you give us a sense of where you think that asset stabilizes out? Is it more likely to stabilize out at current levels or do you think it still kind of trends down as we look forward?

Yes, Brendan, remember that when we purchased it we had -- it was a 1.1 million square foot asset with 836,000 to BofA and another [100 or] 1,000 to the Army Corps of Engineers and a small retail center. And the only expiration we had for this year was 28,000 feet in December of this year to BofA, which we just pushed them out one more year, 25,000 feet of that. So there's only an insignificant amount of expiration left, like 3,000 feet of expiration. Meanwhile, we just signed 40,000 feet on -- removing that 40,000 feet of what was roughly 276,000 feet of December 2013 expiration, so that's been downsized.

The only other meaningful expiration looking into 2012 was 28,000 feet that BofA had rolling in December 2012. Now that number has increased from the 28 plus, the 25 we just pushed out a year, so now it's whatever, the sum of those two, so low 50,000.

So now we have 50,000 or so rolling in December 2012, that's BofA office space. Unclear just yet what their plans are on that. And then we've got 100,000 feet in outstanding proposals which in large part I think is targeting space which was that 100,000 or so feet of vacancy that we had when we purchased the offer.

So we never anticipated certainly in the near term on significant roll-down. Our general expectation was we would absorb the 100,000 or so feet of vacancy which seems to be materializing, and we have some rolled down, the first roll-down expected at the end of 2013, 40,000 of which we've already taken care of.

So our view is that it's sort of -- it started off stabilized. We had some opportunity to pick-up some absorption, and we're starting to address the roll-downs, you know, and so and we think we're going to address it at rates probably better than what we initially expected.

Okay, that's helpful. And then at City Plaza, I think at your Investor Day you guys had mentioned that there was some occupancy pressure. It sounds like now maybe that you're getting a little bit of traction there with tenants. So is kind of where you stand today a decent outlook for that or what do you think or do you think it's likely to get better or likely to still be a little bit challenged as you look out?

Well, I do think we're going to get a little bit better. I mean where we stand today has been a little lower than where we obviously would like to be. We still exceed the market vacancy there, and with the new deals that we're doing we anticipate bringing that up to levels where we need to be. So we are cautiously optimistic and we are seeing that -- beginnings of that traction, which really has not been there the last year.

Okay, and then for Mark, the rate on the First Financial mortgage, where do you think that's likely to shake out and what do you think the term is likely to be?

We're going to set it long and it's likely to shake out depending on where 10-year swaps hold somewhere between [4.50] and [4.75].

Okay, so when you get the proceeds from that, that would all fall to the bottom line in terms of capacity available then on the line that you'd pay-off?

Right, right, between the time of the closing and today we will have drawn for 6922 and then in all likelihood First Financial would be the next thing to close, and it'll pay-down the line by [$43.9 million].

Yes, okay. Thank you.

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

Thank you. Good afternoon. I just have one kind of follow-up question on the joint venture strategy. I guess when I think about it you don't want to issue equity at these levels, you don't want to lever up incrementally, and so how big can the joint venture program be in terms of capital raising for you? And what other forms, be it maybe preferred equity or other forms of capital raising are you considering, and how big does that number have to be over the next couple of years?

Well, I mean this -- the JV can be as big as we want, depending on what kind of ownership interest we want to go in at. Initially if we wanted to say we're talking a 50, 50 ownership but it's not going to be as big, obviously. we'd be, Rich, at 20% ownership. And so each deal is going to stand alone, and we've got some partners that we are in conversations with, specifically and on an asset-by-asset basis. Where we've got other partners we're in conversations with that are looking at more as an incremental investment program. And so they (inaudible) with the ownership interest and where our decision is to own.

And today we are entertaining other forms of raising capital when the assets came into play and because we have a preferred out there that is performing very well. We've had additional increase on that preferred and will consider looking at that down the road if the acquisition opportunities are available for us.

How many assets are under consideration for a joint venture relationship?

Right now, we're looking at two specific assets.

And could you mention the size, the dollar volume, dollar size of those assets?

No, not at this time.

Okay. Fair enough. That's all I had.

Thanks. No problem.

Thanks, Rich.

Thank you. And there are no further questions in the queue. I'd like to turn the conference back to Mr. Coleman for any closing remarks at this time.

Well, thank you very much for participating in our quarterly call. And we look forward to talking on our next quarter.

Thank you. Ladies and gentlemen, that concludes the Hudson Pacific Properties third quarter 2011 earnings conference call. We thank you for your participation. You may now disconnect.

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