Hudson Pacific Properties Inc (HPP) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Hudson Pacific Properties' second-quarter 2012 earnings call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, August 6, 2012. I would now like to turn the conference over to Kay Tidwell, Executive Vice President and General Counsel. Please go ahead.

Good afternoon, everyone, and welcome to Hudson Pacific Properties' second-quarter 2012 earnings conference call. With us today are the Company's Chairman and Chief Executive Officer, Victor Coleman, and Chief Financial Officer, Mark Lammas. Howard Stern, the Company's President, is also available to answer questions.

Before I hand the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, August 6, 2012, 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 earning release, which was released this afternoon and is available on the Company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the Company believes such non-GAAP financial measures are useful to investors.

And now, I would like to turn the call over to Victor Coleman, Chairman and Chief Executive Officer of Hudson Pacific. Victor?

Thank you, Kay. Welcome, everyone, to our second-quarter, 2012 conference call. The second quarter was an extremely active period for Hudson Pacific Properties, highlighted by key strategic acquisitions, a successful common stock offering, and strong leasing activity. During the quarter, we continued to execute on our asset growth strategy by completing the acquisition of a property in San Francisco and executing a purchase agreement to acquire an office campus in west Los Angeles. Both of these properties present tremendous opportunities to create value by leveraging our design, repositioning, and leasing expertise. Located in markets that happen to be among the strongest in the country, these properties fit squarely in our strategy of building a high quality portfolio with an emphasis on catering to traditional media, new media, and technology tenants.

We completed the acquisition of 901 Market in early June for a purchase price of $90 million. 901 Market is approximately 212,000 square feet, consisting of approximately 149,000 square feet of office space and 63,000 square feet of ground floor and lower level retail space. Located at the intersection of Union Square and South of Market, which is SOMA sub-markets, 901 Market enjoys access to San Francisco's rapidly growing technology and social media-oriented tenants, as well as Union Square's retail visitors. At the end of the second quarter, this property was approximately 65% leased to a diverse tenant base. Importantly, the current vacancy rate is below the market in-place rents, given to us the opportunity to take advantage of the current market conditions to significantly enhance future income. Early tenant interest in the available space, especially with respect to the retail component, has been strong, and we're encouraged by the activity we're seeing.

Also, during the second quarter, we completed an agreement to acquire the Olympic Bundy Media campus in west Los Angeles for $89 million, which we expect to close toward the end of the current quarter. Located on approximately 11.5 acres with four existing buildings totaling approximately 234,000 square feet, this asset presents an exceptional opportunity to renovate and reposition a large-scale office location into a modern, creative office campus. Approximately 85,000 square feet of this project is currently available for office tenancy, of which 64% is currently leased through May of 2013. Design development for site improvements and renovation of approximately 150,000 square feet of this project is underway and on schedule to capitalize on west Los Angeles's growing technology, entertainment, and media tenant demand by early 2014. Early marketing efforts by our leasing team have already resulted in tours with more than one million square feet of prospective tenants with requirements ranging from 20,000 to 250,000 square feet, underscoring the depth of demand for well-located, authentic, creative office space.

To finance these acquisitions, we completed a common stock offering in May, which included the full exercise of the underwriters' over-allotment option to successfully raise approximately $190.8 million. This offering not only succeeded in matching proceeds with compelling additions to our portfolio, but the level of investor interest in this offering once again corroborated investor confidence in our operating platform and quality of our investment decisions.

Turning to our leasing activity, improving fundamentals in Orange County and an unremitting tenant demand in San Francisco propelled tenant activity in the second quarter. In the second quarter, we executed new and renewal leases at our office properties totaling 214,000 square feet. As a result, our office portfolio, excluding our 275 Brannan and recently acquired 901 Market Street properties, had a weighted average leased rate of 93.6% at the end of the second quarter, up 92.5% at the end of the previous quarter. I'm particularly pleased with the signing of a new 125,000 square foot lease at our City Plaza property located in Orange County, California to CashCall Incorporated, a leading consumer finance lender. The new seven-year lease has starting rents at $1.96 full service gross with [$35] per square foot tenant improvement allowance is on seven floors of the building with a staged occupancy beginning in September of 2012. This lease is a significant transaction for our Company as it backfills nearly 87,000 square feet of an expiring lease with Condor Capital Corp, the building's largest current tenant, with minimal down time. The completion of CashCall's lease restores the building to a stabilized lease percentage of approximately 92%, substantially outperforming the 17% vacancy rate in this sub-market.

Moving to our leasing activities in Northern California, we continue to see healthy tenant demand and rising rents for our San Francisco properties. Scarce supply of large blocks of space in the financial district, and especially in the SOMA sub-markets is causing this region's tech and social media companies to push geographical sub-market boundaries, driving absorption for both tech and social media companies as well as traditional office users. The Mid-Market area, where our 1455 Market Street property is located, is benefiting from this trend. During the quarter, we signed 24,440 square foot lease with the Department of Energy at 1455 Market. In addition, we're in early negotiations for a 225,000 square foot requirement with a potential tenant for our 1455 Market property as well, and have another 220,000 square feet of proposals outstanding. Starting rents and terms for this activity reflect the exceptional market trends witnessed across San Francisco.

Unlike previous cycles, technology companies have been pioneers in the Mid-Market area, preferring to lead the revitalization of this market rather than venture into suburban sub-markets. The transformation underway in this market is exerting upward pressure on rents, which have increased by over 10% over the past year and driving up values for owners. A notable example of this shift, in the last week of June, Dolby Laboratories announced its acquisition of 1275 Market Street to house its new 354,000 square foot headquarters for $110 million, or $311 a foot, which is 238% above the $92 per foot per price of our property that we purchased at 1455 Market a little more than 18 months ago.

Now, I'm going to turn the call over to Mark, our CFO.

Thank you, Victor. Funds from operations after specified items for the three months ended June 30, 2012 totaled $9.5 million, or $0.22 per diluted share, compared to FFO after specified items of $8.4 million, or $0.26 per diluted share a year ago. Specified items for the second quarter of 2012 consisted of expenses associated with the acquisition of 901 Market Street in San Francisco and the pending acquisition of the Olympic Bundy Media complex in west Los Angeles of $300,000, or $0.01 per diluted share, and a one-time supplemental property tax expense for periods prior to the current year of $900,000, or $0.02 per diluted share, which I'll touch on more in a moment.

Second-quarter 2011 results reflect $800,000 of property tax savings, stemming from reassessments on several of the Company's properties for periods prior to that year. FFO, including the specified items, totaled $8.2 million, or $0.19 per diluted share for the three months ended June 30, 2012, compared to $8.4 million, or $0.26 per share a year ago. Net loss attributable to common shareholders was $5.2 million, or $0.13 per diluted share compared to net loss of $2.1 million, or $0.07 per diluted share 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 second quarter of last year will not be comparable to the current period operating results, largely due to the significant property acquisitions during the second half of 2011. In the second quarter of 2012, total revenue increased 21.6% to $40.6 million from $33.4 million a year ago. The increase in total revenue was primarily attributable to a $5 million increase in rental revenue to $28.4 million, a $500,000 increase in tenant recoveries to $6 million, and a $1.2 million increase in parking and other revenue to $2.5 million, largely resulting from the acquisition of office properties during the second half of 2011, and a $500,000 increase in other property-related revenues to $3.7 million, resulting from higher production activity at the Company's media and entertainment properties.

Total operating expenses increased 30.8% to $37.9 million from $29 million for the same quarter a year ago. The increase in total operating expense was primarily the result of a $4.2 million increase in office operating expenses to $13.8 million and a $3.1 million increase in depreciation and amortization to $13.7 million. In both cases, primarily attributable to office properties acquired in the second half of 2011, and a $1.1 million increase in general and administrative expenses to $4.2 million, and a $500,000 increase in media and entertainment operating expenses to $6.3 million, largely resulting from higher production activity at the Company's media and entertainment properties, compared to the same quarter a year ago.

The increase in operating expenses also reflected one-time property tax savings in the second quarter of 2011 for periods prior to that year, and the supplemental property tax expense for periods prior to the current year on our Technicolor property of approximately $900,000, for periods dating back to its completion in 2008. $600,000 of these supplemental tax reserves are attributable to the period prior to the Company's initial public offering. The remaining $300,000 attributable to the 2011 tax lean year. Property tax reassessments are expected to reduce properties taxes on the Company's Sunset Gower property, including the connection to the change of ownership stemming from the Company's initial public offering remaining pending. As a result of this activity, income from operations decreased 39.1% to $2.7 million for the second quarter of 2012, compared to income from operations of $4.4 million in the same quarter a year ago.

Interest expense for the second quarter increased 1% to $4.6 million, compared to interest expense of $4.5 million for the same quarter a year ago. At June 30, 2012, the Company had $350.3 million in notes payable, compared to $361.1 million as of March 31, 2012 and $275 million as of June 30, 2011.

Looking at our results by segment, total revenue in our Office Properties segment increased 27.5% to $30.6 million from $24 million in the second quarter of 2011. The increase was primarily the result of a $4.8 million increase in rental revenue to $22.6 million, a $600,000 increase in tenant recoveries to $5.6 million, and a $1.2 million increase in parking and other revenue to $2.5 million, largely resulting from the acquisition of office properties during the second half of 2011.

Property operating expenses in the segment increased 44.5% to $13.8 million from $9.5 million for the same quarter a year ago. The increase was primarily the result of office properties acquired in the second half of 2011 and the property tax items already mentioned. At June 30, 2012, our office portfolio was 90.8% leased including our 275 Brannan and recently acquired 901 Market properties, compared to 90.8% a year ago. During the quarter, (inaudible) we executed 17 new or renewal leases at our office properties totaling 214,154 square feet.

Total revenue in our media and entertainment properties increased 6.5% to $10 million from $9.4 million for the same quarter a year ago. The increase was primarily the result of a $500,000 increase in other property-related revenue of $3.7 million relating to higher [production] activity, and a $200,000 increase in rental revenue to $5.8 million, resulting from higher occupancy compared to the same quarter a year ago. Total media and entertainment expenses increased 9% to $6.2 million in the second quarter of 2012 from $5.8 million in the same quarter a year ago, primarily as the result of higher operating expenses associated with higher production activity. As of June 30, 2012, the trailing 12-month occupancy for the Company's Media and Entertainment portfolio decreased to 69.6% from 73.8% for the trailing 12-month period ending June 30, 2011. The trailing three-month occupancy significantly improved over the first quarter of 2012 with occupancy reaching 71.5% for the quarter ended June 30, 2012, up from 69.7% for the quarter ended March 31, 2012.

Turning to the balance sheet. At June 30, 2012, the Company had total assets of $1.3 billion, including cash and cash equivalents of $102.5 million. At June 30, 2012, the Company had total capacity of approximately $167.4 million on its $200 million secured credit facility, of which nothing had been drawn. During the quarter, we completed the public offering of 13.225 million shares of common stock including the exercise of the underwriters' over-allotment option at the public offering price of $15 per share. The net proceeds from the offering after deducting underwriting discounts were approximately $190.8 million. Proceeds from the offering were used to repay $10 million of indebtedness under our secured revolving credit facility and to finance the acquisition of 901 Market Street. The remaining proceeds are expected to be used to finance the pending acquisition of the Olympic Bundy property.

During the quarter, we paid a quarterly dividend on our common stock of $0.125 per share, and we paid a quarterly dividend on our Series B accumulated preferred stock equivalent to 8.375% per annum. On August 3, 2012, we replaced our $200 million secured revolving credit facility with a $250 million unsecured revolving credit facility with a group of lenders for which Wells Fargo Bank acts as administrative agent. A detailed description of the new facility appears in our earnings release and will appear in our pending quarterly report. In addition to lowering our cost of funds for the previous rate of LIBOR plus 250 to 325 basis points to LIBOR plus 155 to 220 basis points, depending on our leverage, the new facility also increases our immediately available proceeds to approximately $208 million, of which nothing is currently drawn.

Turning to our outlook. As highlighted in our earnings release this afternoon, we are reaffirming full-year 2012 FFO guidance in the range of $0.83 to $0.87 per diluted share after specified items. This guidance reflects the issuance of 13.225 million shares of common stock, the acquisition of the 901 Market Street, and the anticipated acquisition of the Olympic Bundy property, excluding acquisition-related expenses associated with such acquisitions, the 125,208 square foot lease to CashCall, Inc, and the turn for the $250 million unsecured revolving credit facility, all as described above. This guidance also reflects the Company's FFO for the six months ended June 30, 2012 of $0.48 per diluted share after specified items.

The full-year 2012 FFO estimates reflect 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 exclude any impact from future unannounced or speculative acquisitions, dispositions, debt financings 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. To summarize, we are quite pleased with our progress over the first half of 2012, and looking ahead, we continue to see very attractive acquisition opportunities in both northern and southern California and remain bullish on the fundamentals throughout our key markets. We obviously always appreciate your continued support in Hudson Pacific Properties and look forward to updating you on the progress again next quarter.

Now, Operator, I'm going to turn it over to you for any questions.

Thank you, sir. We will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Craig Mailman, KeyBanc Market. Please go ahead.

Hello, guys. Jordan Sadler is on the phone with me as well. Victor, maybe we could start with your last point there? On the acquisition environment, and you're seeing good stuff in northern Cal and southern Cal. In Northern cal, just given where pricing is, are you still seeing good opportunities in the CBD? Or, you have to go maybe north of the city? Or, maybe down the peninsula? Just maybe additional color on what the landscape looks like?

So, the city itself is, obviously, given the [comps] that I cited in my prepared remarks on market where Dolby ended up doing an asset for their own corporate headquarters, is showing obviously some levels of frothiness. We've seen some comps in the city, as well, in excess of $800 a foot. So, obviously those aren't the kind of opportunities that we're looking for, we're looking at some select opportunities with some value-add, and we are looking down the peninsula. We are looking in other areas of the Bay area as well. Not in the East Bay, per se, but in the peninsula and some of the other surrounding marketplaces, where we do see some opportunities and some cap rate benefit and upside.

The other opportunities in the pipeline are here in Southern California, we're seeing a handful of unique deals priced what we think are substantially below replacement costs at some value-add opportunities, as well as some cap rates that are much more attractive than we're seeing in Northern California. And, with the momentum in leasing in both marketplaces, it's making us excited about some of these opportunities, and hopefully, we'll have some deals at the end of the quarter, this quarter. And, by year-end, that will be accretive to our pipeline and existing portfolio.

In SoCal, is it mostly LA, or would you go San Diego or Orange County? And just curious, the Cabi portfolio is getting a lot of talk. Is there anything there that you think could trade, and anything you'd be interested in taking a look at?

So, in southern California, most of the stuff we're looking at is in the two spheres. The San Diego, we're seeing a few deals right now. We've actually looked at a couple specific deals, spending a lot of time down there. We are also looking here in west Los Angeles, and in Los Angeles in general, and Hollywood, and select parts of the San Fernando Valley and the Tri-Cities marketplace. Less in the Orange County marketplace. There are a few deals. I don't see the fundamentals.

As I said, we've seen leasing in our City Plaza building, but we're not paying the fundamentals really materialize to make it worth our while to look at acquiring assets in Orange County at this time. Obviously, if something came by that really was an attractive asset at the right price level, we would consider it. We're looking at all of the markets in southern California, but we're still very bullish on the Los Angeles marketplace, and now even more so on San Diego.

[Anything on the Cabi?]

In terms of the Cabi stuff, obviously -- no hidden secret, but every one of those assets I've owned at one period or time through our predecessor Company. There are a -- I would say -- I'm looking around the room, maybe three or four assets in that existing portfolio that we would be excited to own. And, maybe another four or five that potentially, depending on where the deferred maintenance and the maintenance has been since transfer of ownership, that we would probably consider. But, there's not a lot in that portfolio that we would say, gee, that's something we have got to have in our current portfolio of ownership.

Okay. And then, just lastly on leasing, the 225,000 square foot requirement at 1455? Is it safe to assume that BofA is going to exercise the [order] of termination in '13? And, that's the space you are going to lease? Or, is that other existing space in the building?

It's both. We have some vacancy now, and then, we're also assuming that they're going to vacate in '13, as well as 2015 vacancies. We're using some of their space there. The space that we're talking about specifically with this one tenant that we're in negotiations with is existing space that we can give to the tenant right away, and then some future space that we know BofA will relinquish.

Okay. What do the rent bumps potentially look like there?

We're going in higher than we currently are in place right now, and we have annual increases.

All right. Great. Thank you.

Our next question comes from line of Chris Caton with Morgan Stanley. Please go ahead.

Just to follow up on 1455. I think last call you talked about market rents being in the $28 to $30, full-service in that market. Has the market moved at all in three months, given how quickly the rent seems to be moving, based on your comments?

Yes, Chris, you know what -- it has really moved. I think a good range is $30 to $35. So, we see a substantial move at 1455, just given the activity around us, and the deals that we signed recently. And, the stuff that is being populated at our assets, has enabled us to push the rents up another $5 from the high end.

Thanks. And, just in terms of economics, what's the condition of that space? How much work do you think you'll need to put in from a TI perspective?

Yes, you know what -- it will all vary from anywhere in the low end of the $35 range, probably to a high end of $50.

Yes. Thanks for that comment. I was listening closely on your prepared remarks, you were going pretty quick, so tell me if you already spoke to this. But, on 275 Brannan, are you in the market now actively looking to lease that property. I guess you might be a year out now from completion? Or, is it still kind of premature to look into that -- into the leasing prospects for that asset?

No, we are absolutely in the marketplace. We're negotiating right now. We're trading paper with two different prospective tenants for the entire building. We've not made a decision to multi-tenant the building yet because we've got good activity. We are under contract with our contractor right now to build out the preliminary space, and we're working toward an occupancy on time at the end of '13.

Thanks very much for your comments.

Thank you.

(Operator Instructions)

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

Thanks. Good afternoon. Victor, do you think now that you've got City Plaza up to 92% leased, that's a candidate for disposition?

Brendan, I think -- obviously, without showing our hand -- considering where we currently have said in the past about our position in Orange County and the level of occupancy and the consistent cash flow at City Plaza, I think our guys are considering their alternatives and would look to lease up some of the other vacancy that's in place today. And then, consider their market alternatives and valuation by fourth quarter this year.

Okay. And, is it -- so, am I reading the comments correctly that -- so, is Condor? The 87,000 square feet that they're giving up, are they retaining -- what is it, 38,000 or 40,000 square feet when their lease comes up in '13?

Yes. So, they're retaining two floors, which is about 38,000 feet, and then the differential is going to CashCall plus the additional amount.

Plus additional [players], Brendan, but we don't have additional churn on that 38,000 feet. For now, they've just retained it, and it currently is terming out end of March next year.

So, do you have an indication of whether or not they are likely to renew? Or, have they given you what their expectations are?

Yes, they told us they're likely to renew the two floors

Okay. At, I assume, comparable economics to CashCall?

Correct.

Okay. Great. And, I guess, Victor, judging from your comments, it sounds like given the leasing activity, whereas maybe last quarter you were a little bit less comfortable going out in acquisitions, lease-up acquisitions, value-add acquisitions. Now, given the level of activity that's happened within the portfolio, it sound likes you're comfortable taking on value-add or significant leasing on acquisitions again? Am I reading that right?

Historically, we've balanced between stabilized [acquisition] and leased up value-add assets, and I think we'll continually balance with that. What we're seeing now with 1455, what we're seeing with Brannan, what we're seeing with 901 in the early stages, the activity -- we haven't even closed Olympic Bundy. The activity we have there, we're very comfortable that the space that we'll have available in the next 12 months will be very desirable at rates that we'll be very happy with. So, that will enable us to maintain that balance versus saying more of a stabilized occupancy of assets going forward. So, the pipeline we have is probably, I would say, more weighted to stabilized assets on the basis of 65/35, but it would obviously depend on the opportunities that are out there. We're always looking for the ones that make sense for us to acquire based on our existing portfolio.

Sure. I think you shared some of the economics that you were looking at 901 and Olympic Bundy last time -- last conference call. I guess with response to your earlier about 1455 Market with rents up there. Are rents still in line with the original pro forma at 901 Market? And then, is that the same for Olympic Bundy as well?

Well, Olympic Bundy -- it's too early for us to tell you where the rents are. (Inaudible) we've underwritten (inaudible) we're pushing to the marketplace given the fact that our prepared materials will be released September 1 to the marketplace, we're comfortable with our underwriting there, and the market is responding very favorably to that. In terms of 901, we are in the marketplace. We're touring space on the retail side, and we are well in line with where underwriting is, and we're pleasantly surprised about the activity.

Okay. It looked like -- I think you had some occupancy drops, maybe at a couple of assets. I think Rincon dropped a little bit. It looked like 9300 Wilshire dropped a little bit. Were those tenant-specific issues? Was there anything that was driving that because I guess I wasn't expecting those two to go down?

At 9300, we actually had one default, and we backfilled that so that's back up now. Over at Rincon, we actually have activity. The one that you're referring to was a retail restaurant tenant, and we actually have activity on that space right now. One of the restaurants is going to take -- one of the potential tenants is taking two of the vacant -- one of the two vacant spaces that's available. So, there was nothing surprising in terms of those two assets

Okay. Just last for me. Victor, are you -- it sounds like in Mid-Market, you're not seeing any [brobs] come off the market, if you will. Are you getting a sense that tenants have any less urgency about taking space in SOMA or some of the other sub-markets in San Francisco? Or, do you still find the same level of activity and frothiness within that market from a rent perspective and a tenant activity perspective?

Listen, it's obviously a question everybody is asking. Because we went from basically zero to 100 very quickly in San Francisco in the city. I think we've seen a stabilized increase in rental rate movements in the last two quarters that is consistent with the demand in the marketplace. The demand and the activity is strong. I do think that we are seeing the effects of a summer extension period where people are taking more time looking at space.

There is still much more demand out there than there is space available. I do think the process goes through every type of cycle like this over a cyclical basis, where it takes a little longer. Our guys are telling me pretty consistently that they're very comfortable with the flow, they're comfortable with the tenant credit, and the ability to execute. Obviously, we're not going to see a 30%, 40% rental rate increase like we did in the last 18 months, but I think when I mentioned in my prepared remarks that quarter-over-quarter, we're seeing a 7% rental rate increase, that's pretty good given the last six months of activity and what we're seeing going forward now.

I believe that the Mid-Market area, where we're seeing a lot of activity right now, is a result of available space versus the SOMA. Part of SOMA right now really has nothing available for the kind of size of tenants that are there. I do know that our 901 asset, we are going to have space available in the office component there that we're already getting people asking about, and tenants in advance of a potential move-out. We don't even know if it's going to be a vacancy or not. But, people are being prepared well in advance, more so than in the past.

Okay, that's great. Thank you.

Thank you. We have a follow-up question from the line of Chris Caton with Morgan Stanley. Please go ahead.

Victor, wanted to follow up on a topic from last call in terms of joint ventures. I think we were specifically referring to the media assets and the potential to either JV your existing assets, or grow with a partner. And, while sources of capital aren't really -- given the success of your offering, aren't really a topic here. I'm wondering if you continue to have dialogues on the studio side, and what that might look like a year from now?

The answer is yes, and I don't know. A year from now, I don't know what it's going to look like. The current position today is we are in conversations with two specific entities on various different JV structures that we had contemplated. The acquisition pipeline for those assets -- for those light-type assets going forward is something that we said we would do with a partner. We've been approached by one group. I think we are excited about some meetings that we have coming up next month, and hopefully by year-end, we may have the decision-making [tree] that will align with markets that we can release information about.

And, without maybe being too specific, because you still have a lot in the air, but what are some of the key levers that would affect the potential outcomes there? Is it whether or not they agree with your appraisal of the value of the assets? Or, if there are acquisition opportunities in the market to grow the platform? Is there anything that you can provide to give us some insight into how to think about it?

It doesn't have anything to with the value of the portfolio. It's more specific to the relationship of the two companies and how we can interact together, and roles and responsibilities first and foremost. And then, where we take the vehicle going forward, which is the latter part of what you said. How do we acquire other things together or build on this platform versus just the two facilities that we have? There is a third part of this, which is becoming more and more prevalent in our discussions, and considered more and more valuable from Hudson's standpoint, which is the ability for us to continue to grow the existing facilities on a new development basis for office and the demand for office in Hollywood. And so, for us to value that, [and we are in the inception phases now of conversations with potential tenants that want campus-like facilities in Hollywood, that does create a venue for us to have other conversations.]

Thanks very much.

You got it. Thank you.

Thank you. I'm showing there are no additional questions. I would like to turn the call back to Victor Coleman for closing remarks.

Thanks so much for participating, and have a good rest of your summer.

Thank you, ladies and gentlemen. This concludes the Hudson Pacific Properties' second-quarter 2012 earnings conference call. Thank you for your participation, and you may now disconnect.