Hudson Pacific Properties Inc (HPP) 2012 Q3 法說會逐字稿

Greetings and welcome to the Hudson Pacific Properties Incorporated third quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Kay Tidwell, Executive Vice President and General Counsel for Hudson Pacific Properties Incorporated. Thank you, Ms. Tidwell. You may begin.

Good afternoon, everyone, and welcome to Hudson Pacific Properties third 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, November 5th, 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 earnings release, which was released this afternoon and is available on the Company's Website, presents reconciliations to the appropriate GAAP measure and an explanation of why the Company believes such non-GAAP financial measures are useful to investors.

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

Thank you, Kay, and welcome, everyone, to our third quarter 2012 conference call.

This past quarter was a very productive period characterized by the completion of important acquisition and financing transactions and critical leasing activities culminated in the execution of several significant leases shortly after the quarter end, which I will discuss more in detail in a moment.

During the quarter, we continued to execute our asset acquisition growth strategy with the completion of the Olympic Bundy Media Campus in West Los Angeles for $89 million.

Totaling approximately 241,000 square feet of office space, this asset presents an exceptional opportunity to renovate and reposition a large-scale office location into a modern creative office campus.

Approximately 53,000 square feet of this project is currently leased at significantly below market rent through 2013 of May.

The design for site improvements and renovation plans for the buildings is underway and on schedule to create a best-in-class creative office campus for use by early 2014 to capitalize on West Los Angeles's growing technology, entertainment, and media tenant demand.

Marketing efforts by our leasing team have already resulted in tours with more than 1 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.

Leasing activity in the greater Los Angeles office market over the recent quarter continues to support our plans with respect to Olympic funding and point to the strength of our target Southern California submarkets and strategy of catering to entertainment, new media, and technology tenants.

40% of the top 10 lease transactions in greater Los Angeles during the quarter were driven by media and entertainment companies on the west side of Los Angeles, including a 95,000-square-foot lease with HULU, 58,000-square-foot lease with 72andSunny, and a 40,000 square foot lease with YouTube.

Current vacancy in West Los Angeles decreased by nearly 3% to 13.6% compared to the prior quarter. And leasing rates likewise continued to show improvement in West Los Angeles, asking rents increasing 3.35% over the prior quarter.

In short, strengthening fundamentals in West LA bode well for our Olympic Bundy project.

As for market conditions affecting our Northern California portfolio, office fundamentals in San Francisco remain strong, among the strongest in the country, and are expected to remain so as we look ahead over the next several years.

Strong employment growth in professional and business services and technology sectors have been a boom for the San Francisco economy, leading to the creation of 29,700 new jobs between August 2011 and August 2012.

As a result, office-using employment rose 3.5% during the period, far outpacing the US average of 2.3%. And according to Cushman and Wakefield, San Francisco is projected to outperform much of the rest of the country through 2014 with an annual average employment growth rate of 2.6%, ahead of the US's projected 1.8% average annual increase.

The overall vacancy rate is expected to drop to a low of 9% range in the next 15 months with rental rates increasing at 8% growth rate in the medium term.

Leasing activities throughout our portfolio has reflected the strong fundamentals in our key submarkets in both Northern and Southern California. And in the third quarter, we executed 16 new and renewal leases at our office properties, totaling 148,000 square feet.

As a result, our stabilized office portfolio, excluding our 275 Brannan, our 10900 Washington, and recently acquired 901 Market and Olympic Bundy properties, reached 93.3% leased as of the end of the third quarter compared to 90.4% leased a year ago.

While the pace of leasing activity remained steady during the third quarter, the fruit of much of our third-quarter efforts was realized shortly following the quarter's end. This included a lease completed in October with Square Inc. for its new corporate headquarters at 1455 Market Street property in San Francisco.

The lease encompasses approximately 246,000 square feet of initial occupancy with an expansion option for an additional 81,000 square feet for a combined total of 327,000 square feet.

The 246,000 square feet of initial occupancy backfills approximately 207,000 square feet of space occupied by the project's largest tenant and also takes an additional 35,000 square feet of net absorption.

The 81,000-square-foot option would backfill a like amount of space also currently occupied by the project's largest tenant.

At starting rents above our underwritten and expiring rents for the same space, this space represents a long-term commitment with occupancy scheduled to begin in early 2013 and continuing through early 2014.

Clearly, this is an important transaction, as Square is among the San Francisco Bay Area's most innovative and dynamic companies and is an excellent addition to our roster of strong tenants at 1455.

Our success in attracting exceptional tenants like Square to 1455 Market continues to unlock this asset's value potential.

We also signed a new lease at our newly acquired 901 Market property. This new lease encompasses approximately 17,500 square feet at starting rents well above our underwritten rents for a term of six years and expected commencement in December of this year.

When we acquired this asset in June, it was approximately 62% leased. With the completion of this lease, the project is currently approximately 76% leased with the remaining vacancy consisting solely of the retail availability.

As for activity on the 90,000 square feet of retail component, we're currently in discussions on proposals with five retail tenants with combined requirement of over 254,000 square feet ranging from 30,000 to 90,000 square feet.

Our supplemental report filed with the SEC this afternoon includes a schedule of annual lease expirations at the end of the quarter. Leasing activity following the quarter has significantly improved the expirations reflected on that schedule, especially with respect to the 2012 to 2013 expirations.

More than 75% of 190,000 square feet shown as expiring over the remainder of this year consist of two expirations, a 51,000-square-foot expiration with our largest tenant in 1455 scheduled to expire on December 31, half of which has now been backfilled with the lease to Square, and a 31,000-square-foot month-to-month lease with a retail tenant in 901 with respect to which we are in the process of negotiating a long-term lease.

More than 80% of the 802,000 square feet shown as expiring in '13 or 656,000 square feet consists of seven expirations, including 156,000 square feet with AT&T at Rincon, all of which we're in negotiations to backfill, and 236,000 square feet with our largest tenant at 1455 Market. All but 38,000 square feet is now subject to the lease with MTA or recently signed lease with Square.

The remaining five material expirations of 263,000 square feet include the early termination right under the 95,000-square-foot lease with Burlington at our 875 Howard Street property, which you'll recall occupies that space at a significantly below-market rent, leaving four expirations for a combined 169,000 square feet, all but 54,000 of that of which we are currently in discussions with prospective tenants to backfill.

In short, our leasing efforts have either been backfilled or resulted in proposals or lease negotiations with respect to more than 70% of the 2012 expirations and more than 79% of the 2013 expirations shown in our most recent report, in most instances at rental rates well above expiring or underwritten rents.

A few final words about our recent finance and acquisition activity before I turn the call over to Mark. In addition to the previous announced replacement of our $200 million secured revolving credit facility with a new $250 million unsecured revolving credit facility, following the quarter, we closed financings on two of our San Francisco office properties, $15 million construction loan for our 275 Brannan properties to fund base building and leasing costs associated with the renovation and lease up of this property, and a $61.5 million loan at our 901 Market Street property, $49.6 million of which will be funded at closing with an additional $11.9 million available to fund base building and leasing costs associated with renovation and lease up of that property.

The new credit facility and the property financings considerably increase our immediate availability of capital while significantly lowering our overall cost of funds.

Finally, our acquisition opportunities remain healthy with off-market assets and those very targeted marketing continuing to make up much of our current pipeline. We're currently working on an acquisition opportunity in the submarket with a tenant composition that would be a very strong fit for our growth strategy.

While at this time we cannot provide much detail on this potential acquisition, we're looking to complete a joint venture in which we would be the majority controlling member to own assets with a gross value in excess of $300 million, including project-level financing.

We hope to be in a position to announce a closing and provide complete details, including 2012 FFO guidance update very soon.

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

Thank you, Victor.

Funds from operations, excluding specified items, for the three months ended September 30th, 2012, totaled $10.5 million or $0.21 per diluted share compared to FFO, excluding specified items, of $9 million or $0.25 per share a year ago.

The specified items for the third quarter of 2012 consisted of expenses associated with the acquisition of the Olympic Bundy Media Campus in West Los Angeles of $500,000 or $0.01 per diluted share.

Specified items for the third quarter of 2011 consisted of expenses associated with the acquisitions of 604 Arizona in Santa Monica, 275 Brannan Street in San Francisco, and 625 Second Street in San Francisco of $800,000 or $0.02 per diluted share.

FFO, including the specified items, totaled $10.1 million or $0.20 per diluted share for the three months ended September 30th, 2012, compared to $8.2 million or $0.23 per share a year ago.

Net loss attributable to common shareholders was $3.4 million or $0.07 per diluted share compared to net loss of $2.7 million or $0.08 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 third quarter of last year will not be comparable to the current period operating results, largely due to the significant property acquisitions throughout the second half of 2011 and second and third quarters of this year.

For the third quarter of 2012, total revenue increased 13.9% to $42.1 million from $36.9 million a year ago. The increase in total revenue was primarily attributable to a $5.5 million increase in rental revenue to $29.6 million and a $1 million increase in parking and other revenue to $2.6 million, largely resulting from the acquisition of office properties during the second half of 2011 and second and third quarters of this year and higher rental revenue at the Company's media and entertainment properties related to higher occupancy, all partially offset by a $1.2 million decrease in tenant recoveries to $5.4 million stemming from a combination of factors, which I'll discuss in a moment.

Total operating expenses increased 15% to $37.7 million from $32.8 million for the same quarter a year ago. The increase in total operating expenses was primarily the result of a $2.5 million increase in depreciation and amortization to $13.6 million and a $300,000 increase in office operating expenses to $13 million, in both cases primarily attributable to office properties acquired during the second half of 2011 and second and third quarters of this year, and a $1.3 million increase in general and administrative expenses to $4.2 million and an $800,000 increase in media and entertainment operating expenses to $6.9 million, largely resulting from higher occupancy at the Company's media and entertainment properties and to a lesser extent higher rent under a ground lease on a portion of our Sunset Gower property compared to the same quarter a year ago.

As a result of this activity, income from operations decreased 5.4% to $4.4 million for the third quarter 2012 compared to income from operations of $4.1 million for the same quarter a year ago.

Interest expense during the third quarter increased 10.8% to $4.5 million compared to interest expense of $4.1 million in the same quarter a year ago. At September 30th, 2012, the Company had $359.5 million of notes payable compared to $350.3 million as of June 30th, 2012, and $298.7 million at September 30th, 2011.

Looking at our results by segment, total revenue in our office property segment increased 16.2% to $31.1 million from $26.7 million in the third quarter of 2011. The increase was primarily the result of a $4.6 million increase in rental revenue to $23.6 million and a $1 million increase in parking and other revenue to $2.6 million, largely resulting from the acquisition of office properties during the second half of 2011 and second and third quarters of this year, partially offset by a $1.2 million decrease in tenant recoveries to $5 million, resulting from a combination of factors, including abatements with Bank of America at 1455 pending commencement of the lease with the Metro Transit Authority, lease expirations at Rincon Center, and a reconciliation for prior-year recoveries at our First Financial property, among other items.

Property operating expenses in this segment increased 2% to $13 million from $12.8 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 second and third quarters of this year.

At September 30th, 2012, our office portfolio was 87% leased, including our nonstabilized portfolio consisting of our 52,000-square-foot vacant 275 Brannan, 10,000-square-foot vacant 10900 Washington, 212,000-square-foot recently acquired 901 Market Street, and 241,000-square-foot recently acquired Olympic Bundy Media Campus properties, all of which the Company is in the process of renovating in anticipation of new tenancy.

During the quarter, the Company executed 16 new and renewal leases totaling 148,048 square feet.

Total revenue at our media and entertainment properties increased 8.1% to $11 million from $10.2 million for the same quarter a year ago. The increase was primarily the result of a $900,000 increase of rental revenue to $6.1 million, resulting from higher occupancy compared to the same quarter a year ago.

Total media and entertainment expenses increased 13.2% to $6.9 million in the third quarter of 2012 from $6.1 million for the same quarter a year ago, primarily as a result of higher operating expenses associated with higher occupancy and to a lesser extent higher ground rent under a ground lease for a portion of our Sunset Gower property.

At September 30th, 2012, the trailing 12-month occupancy for the Company's media and entertainment portfolio decreased to 71% from 73.1% for the trailing 12-month period ended September 30th, 2012.

But, the trailing three-month occupancy significantly improved over the second quarter of 2012, with occupancy reaching 77% for the quarter ended September 30th, 2012, up from 71.5% for the quarter ended June 30th, 2012.

Turning to the balance sheet, at September 30th, 2012, the Company had total assets of $1.3 billion, including cash and cash equivalents of $27.3 million.

At September 30th, 2012, the Company had total capacity of approximately $202.2 million on its $250 million unsecured credit facility, of which $10 million had been drawn.

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 cumulated preferred stock, equivalent to 8.375% per annum.

As Victor touched on earlier, on August 3rd, 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 facility appears in our pending quarterly report. Among other improvements over our prior facility, the new facility increases our access to immediately available funds, while lowering the cost of funds from the previous rate of LIBOR plus 250 to 325 basis points to LIBOR plus 155 to 220 basis points, depending on our leverage.

Subsequent to the end of the quarter, we closed financing secured by our 275 Brannan and 901 Market Street property in San Francisco. More detailed descriptions of those loans can be found in the earnings release filed this afternoon.

Turning to our outlook, as highlighted in our earnings release this afternoon, the Company is reaffirming full-year 2012 FFO guidance in the range of $0.83 to $0.87, excluding specified items, per diluted share.

This guidance reflects completed acquisitions, including the acquisition of the Olympic Bundy Campus, but excludes acquisition-related expenses associated with acquisitions and reflecting financing and leasing activity discussed earlier.

This guidance also reflects the Company's FFO for the nine months ended September 30th, 2012, of $0.68, excluding specified items, per diluted share outstanding over the nine-month period.

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. Good job.

To summarize, our third quarter was highly productive and equally rewarding. Leasing activity continues to demonstrate strength in our submarkets, especially the most recent activity in our San Francisco portfolio.

As always, we appreciate your continued support of Hudson Pacific Properties, and we look forward to updating you on our progress again next quarter.

Now, operator, we'll open the call up for questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Craig Mailman of KeyBanc Capital Markets. Please proceed with your question.

Good afternoon. Jordan Sadler's on with me as well.

Victor, maybe -- I know you said you didn't have a lot of details to give us on that joint venture, but it sounds like it's more office oriented. Is that a fair assessment?

Yes. First of all, thanks for the question. But, before I answer that, I just want to make a comment. We -- as you know, the prepared remarks that we make prior to the questions are both live and Webcast. And we understand that our Webcast -- our third-party provider was not at least legible or audible for people to understand. So, I apologize for that. It's unfortunately out of our hands. And I recommend that anybody who didn't get a chance and they're now on the live who want to go back, the recording will be up and running for this 30 minutes after our call.

In terms of your question, yes, the answer would be, obviously, we can't get into details about this at this time, but it is an office-related acquisition.

Okay. Separately, I guess, there's -- we've been talking about a potential media JV. Is that still on the table here, or is this other joint venture kind of taking front burner?

No, they're distinct and separate. And we are in conversations on a media -- a concept of a media JV on -- that we are consistently working through right now.

Okay. Then just on the Square lease, do you guys have a sense of how that's going to ramp for '13 earnings from either straight-line perspective? Have you guys had that conversation with the auditors yet?

Not -- yes and no. Craig, you'll find on page 13 of the supplemental that we've outlined how the square footage phases into bankfilling Bank of America. And there's net absorption as well, not a lot of net absorption, like 35,000 feet or give or take of net absorption.

But, you can otherwise get a sense for how it impacts 2013 and into '14, at least compared to how Bank of America contributes in 2013. And then I think that'll give you a general understanding.

They -- we -- one thing that might be of use to you, and we can't go into too great of detail because different footage is being backfilled that is at rents at different levels, right, because some is tower space and some is podium space, and they have different rent amounts that B of A is in.

But, just to give you a general indication, on a net basis, the going-in rates for Square is about a little bit more than $22 net. And the expiring rents, and these are all weighted-average rents depending on the footage involved. But, the weighted-average expiring rents are $15.50 net.

And so, that should give you a general understanding of how the rents compare of what B of A's leaving and what Square is taking. And then, like I said, you can look at that footnote on page 13 to get an idea of the square footage as it phases in.

Okay. That's helpful. And then just lastly, on the media and entertainment, it looks like occupancy kind of ended the quarter much higher than sort of the average for the quarter. Is that trend going to kind of persist, or do you guys have move-outs going into the fourth quarter that we should see that tail off?

It was very high, Craig. And just to give you some perspective on it, that trailing three-month number was actually the second highest trailing three-month number we've had since -- in a three-month period since January 2010.

In the fourth quarter 2010, we actually hit a weighted average trailing three-month occupancy of 77.6%. So, we're just shy of that.

I don't -- things can change, as you know. And space rolls over in more of a short-term timeframe than, say, for example, office. But, that said, I think it's safe to say we don't -- it's not like we're anticipating any sort of major expiration in the near term. And so, we're hopeful that we'll be able to maintain a fairly high level of occupancy in the foreseeable near term.

Okay. And then just one last quick one for Victor, I know you hit on sort of tech and the outlook for San Fran. I'm just curious. Square was a big lease. You guys sound like you're working on something at Rincon. Is there a bunch of tech requirements, media requirements behind Square that you think are going to start to hit, or is it going to go back to more traditional economy-type demand?

Well, Craig, right now, we currently have, as I mentioned in my prepared remarks virtually -- the majority of our space in San Francisco is being looked at by both media tech and in mainline businesses across the board. I think, obviously, the tech push is substantially higher than the rest. But, we're seeing everything right now in that area, and the flow of deals is just as strong as it's been last quarter as it was the first two quarters of this year.

Great. Thanks, guys.

Thanks, Craig.

Thanks, Craig.

Thank you. Our next question comes from the line of Jamie Feldman of Bank of American Merrill Lynch. Please proceed with your question.

Great. Thanks. Can you talk a little bit more about the acquisition pipeline? I know beyond the JV, but just kind of what else is out there? What's interesting to you guys?

And then also, kind of following up to Craig's question, just how are you guys thinking about the duration of tech demand here? I think in other conference calls, there's been a lot of questions over why we should still be comfortable.

Well, thanks, Jamie. Let me sort of take the latter first. So, in terms of the tech demand, as I said, we are in negotiations and on multiple spaces. And we see that the tech demand still has a tremendous amount of legs from what we're seeing.

But, that being said, we're also seeing support from other fire-related businesses and the likes of that in our space and not to mention our retail component at 901. As I mentioned, we've got up to 90,000 feet available. We've got 255,000 feet of proposals, which none of them are tech related. They're all mainstream businesses.

So, that being said, the rental rate growth this year looks like it's on tap to be a mid-teen rental rate growth from year over year in San Francisco. And what we're finding is virtually everything we have under negotiations in conversation is on a rollup basis.

So, I think we're very comfortable with what we're seeing, with the kind of product we have available and the deals that we're working on right now. I think we're going to be pleasantly surprised by the end of the year with some of the announcements we're going to make.

In terms of the acquisition market in our pipeline, we are focused on both Northern and Southern California. I think the value-add Northern California opportunities are a lot more limited than they have been in the past. We're obviously looking at transactions and very cognizant of going in and short-term, medium-term valuations and returns.

As I mentioned in my prepared remarks, though, here in Southern California and specifically West LA and surrounding areas of the West LA, Hollywood, Tri-Cities marketplace, and the likes of that, we're seeing some interesting opportunities at some very good cash flow return assets that are coming off market. And we are pursuing a number of those deals and comfortable that I think we're going to have our fair share of acquisitions by year end.

Okay. Can you talk a little bit more about Hollywood and just all the new development there and what you think it means for your assets and what you think it means for your competition?

Well, there isn't a lot of new development so to speak. I mean, there is nothing immediate down the road. The most recent deal that was ever bought -- built, excuse me, was our deal. There is not a lot of office in the marketplace in Hollywood and nothing truly that's concerning to us.

I think there's a lot of mixed use of multifamily development that's going on right now. You may be referring to maybe a one or two publicized deals that are in the marketplace that's more of a mixed-use office with some multifamily that is coming out. But, nothing is on the imminent breaking ground.

In terms of our competition, I believe that our locations that we have from our vacant lots and potential future development that we talked about is as good a location if not the best in the area. And I'm comfortable that, on a previous basis is what we've always discussed. We're going to look at those opportunities at the appropriate time to make some economic sense in the valuations.

I mean, that being said, our portfolio in Hollywood is 100% leased. Any time we have vacancy, it goes right away at higher rents. And we're seeing as good a growth there as we've ever seen in the concessions. And TIs are at an all-time low.

Okay. And then where would you guys put your current mark to market for the portfolio?

We'd be net below market in, obviously, no small part, Jamie, due to the ramp up in rents at San Francisco. At the time of acquisition, which as you know, the bulk of them occurred in '10 and '11, we were probably about at market, maybe across the board slightly below. But, we're now substantially below market in San Francisco.

LA and indeed most of the expiring rent activity that you see in the supplemental, all but 2,100 square feet of that activity is Southern California activity. And you'll see that we -- there was actually a slight uptick in expiring compared to new and renewal rents.

So, LA is sort of key. We're not really rolling up substantially or down substantially in LA. And to the extent that activity is skewed in any one quarter toward San Francisco, we tend to see substantial rollup.

Okay. All right. Thank you.

You got it.

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

Thanks. Good afternoon, everybody.

Hi, Rich.

Hi, Rich.

So, what do you -- what is the opportunity with buying opportunistically, to use a word twice, versus more core and fully leased? I mean, at the end of the day, what's the stabilized yield look like? What's the spread? What's the -- what -- how do you get compensated for taking on that opportunistic element of many of your assets or your acquisitions?

I think that's a great question. I mean, right now, as, Rich, we've always said sort of our balanced approach of acquiring real estate has been both opportunistic and stabilized. And on a stabilized basis, we're looking at assets going in cap rates in the mid to low sixes and on an unlevered basis IRRs around high eights, mid to high eights, so to speak, maybe even, if we get lucky close to a nine.

You're going to have to see an opportunistic buy. Obviously, time, value, money's going to take into account there, probably 100 to 125 basis points differential for it to make a lot of sense. And obviously, it's going to take, as I said, the time, value, and money. You're going to look at when the expiring, either existing tenants are expiring, rolling out to market, or when you're going to be able to access the vacant space from a renovation standpoint and bring it online.

And so far, I think we've been very diligent about acquiring those assets and especially in the markets, like San Francisco and in SOMA specifically, where we've got a couple of deals that are coming online right now that are rolling up beyond where we thought our underwriting expectations were from rental rate underwriting. And we're seeing probably a greater spread than 150, probably more like 200 to 250 basis points in some of our stuff.

Okay. I know you don't want to talk about the joint venture specifically, that specific transaction you referenced. But, as a general rule of thumb, are you more inclined to have it be new assets, or are you going to use joint ventures also as a form of dispositions in the future? You're putting aside the studio business. I'm talking about the office side.

I think, just as a general comment to that, we would probably not do dispositions on a JV. If we're going to dispose of an asset or recycle capital, we're going to just cleanly get out of that, just because of the residual exposure that we would have some sort of an ongoing knowledge of that asset. It probably would not be in our best use of capital and resources for us to do that. I think, in terms of JVs going forward, it's really going to be on new products.

Okay. The dividend, you're running about a -- our estimate, about 75% payout on 2013 FFO. I don't know if our numbers are exactly right, but that's what we see. How do you feel about dividend growth, or is now just not the time because you have some capital to still spend to lease up some of those assets?

I think the dividend conversation will take place next year. We've got a lot of capital outlay specific to redevelopment and capital expenditures that are already earmarked for at least the first couple of quarters of '13. I think once we get into when we're going to get the occupancy levels in place with the tenants like Square and some of the other tenants that we are working with in transactional -- in sort of a transactional timeframe right now that are not yet completed leases but we're working through leases, we'll have a better indication in the beginning of '13 for us to have that conversation.

Okay. And, Mark, maybe you have the answer to this question. But, the 8375 on the preferred B, were is the market now for you in that -- in the preferred -- ?

-- Yes, we're -- it's -- we've been balancing. Depends on if we go (inaudible) dividend, but we've been balancing somewhere between, let's say, 26 and 27.

I think closer to 27.

Okay. Okay. Okay. Take a look. And then finally, trading at over $19 a share, could you just describe your potential need for new equity? Maybe it's not needed now, but obviously $19's better than $12. So, just curious what your comment might be on that issue.

$19's better than $12. I think that's an accurate statement. So, we'll go with you on that one. Right now, we have about $265 million of available capital. Some of that capital's going to be taken up with some deals that we're hopefully going to make in the near future, at which point we will evaluate our capital needs and then make a decision whether we're going to have a need sooner rather than later, given where our pipeline is and what deals that we're working on.

Perfect answer. Thank you very much.

Thanks.

Thank you. (Operator Instructions). Our next question comes from the line of Brendan Maiorana of Wells Fargo. Please proceed with your question.

Thanks. Good afternoon. Mark, question for you with looking at the guidance. You guys have done $29.4 million of FFO so far this year, ex the items. If I look at what your average share count is supposed to be for the year, it looks like your implied midpoint of guidance is $7 million of FFO in the fourth quarter. And you did $11.5 million in the third quarter. What's the change from the third quarter to the fourth quarter?

Yes, I don't think the -- the weighted average per share amount is going to influence, of course, the impact of that, whatever that quarterly -- that ultimately what that quarterly amount is.

But, if you -- I think if you extrapolate, say, for example, from the current quarter to the fourth quarter, and it's a little danger because of weighting, but we did $0.21 this quarter. We posted $0.68 for the nine-month period. If we stayed roughly in line with that $0.21 or went to $0.22, it would suggest somewhere on the higher end of our -- on our higher end of our range.

But, there's activity that's influencing the fourth quarter, and not the least of which, for example is Bank of America is going to lease some space in the fourth quarter to accommodate for Square before Square's rents actually commence on that, and other items that are impacting that quarter, which we've factored into our expected -- the fourth quarter impact.

I don't -- so, I don't foresee any sort of material drop off with the exception of some of this leasing activities. Brendan, Harout is here with me. I don't know, Harout, if you want to help weigh in on that.

No, I think this sounds primarily like a weighted-average share count issue. We don't anticipate a drop off to $7 million. I think this is clearly just a share -- the shares that we issued earlier in the year dragging down weighted average.

What's your average share count projected for the year? Isn't like a little less than 45 million shares average for the year?

Well, Brendan, we don't -- I don't have a model. I don't have that number -- .

-- Yes, we could take it offline. That's fine.

Okay. And you know what our current outstanding share count amount is. And bar -- if you were to just carry that forward, you can find that, by the way in the corporate data section of our supplemental. You were to carry that forward as if there were no further equity offering through the balance of the quarter, I think you probably could get darn close to the weighted average number for the full year.

Yes, and that's what I was doing. So, I was just taking that 49.7 million shares that you'd have in the fourth quarter. If you do $0.815, I think that implies that it's $36 million, a little over $36 million of NOI, which would be $7 million up from the $29 million you've done year to date.

Yes, for the year, the weighted average share count would be probably in the 46s.

Something like that, right.

Yes, it wouldn't be 49. But, for the quarter, it'll be 49.

All right. Fair enough. Have you guys spent anything on the development that you've done, anything on 901 Market or Olympic Bundy in line with kind of what we talked about originally when you guys acquired that stuff back -- or at least we talked about it back on the first quarter call?

We've started some expenditures at 901. It's not a lot at this point. There's -- just to give you an idea, the base building expenditures are -- the full amount is roughly $3 million with the balance of what ends up being all in $12 million going to TIs and commissions. And very little of that has actually been incurred at this point.

And likewise, on Olympic Bundy, some of the predevelopment costs and design-type related expenses have begun to be incurred. But, it's not very material at this point.

Okay. Victor, at 275 Brannan, it sounds like -- I know we've talked about it for the past couple of quarters. And you guys have very good activity there. I mean, maybe we would've expected either something to get signed by now. Is there anything that's holding that up, or is it just maybe our expectations are a little bit too optimistic from when a deal actually gets signed for that building?

I would definitely say that the act -- without talking about details and specific, the activity has been exceptional. And an announcement on a signed lease is imminent.

Okay. And then City Plaza, do you guys view that as a source of potential funds, given that it's now a stabilized asset and it's -- I know you've talked optimistically about Orange County, but it doesn't seem like an area where there's as much focus for the Company now as maybe there was a couple of years ago.

I think that's consistent with our thought process. And quite frankly, even though it's not an area that we would want to -- we're even currently seeing any transactions that are similar to what our business plan is, it's also a challenging marketplace to sell at the right time.

And I think, given some of our transactional discussions that we're having, we have entertained some offline conversations with some very particular potential buyers. And I'm hopeful in the next couple of quarters that we can maybe move those conversations along.

Okay. And then just last, this might be a tough question to answer, but it sounds like you've got very good activity on all the -- or almost all the spaces where you have vacancy or pending vacancy or tenants that are going to move out. What is the likely hit rate when we're talking about deals that you're negotiating or proposals that you have just as we kind of look at the proposal activity that you discussed on the call?

Well, I mean, listen, you've got to look at property by property. But, I'm very cautious about what I -- how I deliver the message. And the message that we're delivering, at least at the end of this quarter is the deals that we're talking about are beyond conversations of trading paper.

We are in -- for the most part, the deals that we're referring to were in leases. Now, that doesn't mean they're going to transact from a lease to a signed lease. But, I think our hit ratios are extremely high when you end up spending the kind of time and energy that our leasing team has on putting potential tenants in leases that our hit rate's I would say 80-plus percent.

Okay. Great. Thank you.

Thanks.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Coleman for any closing comments.

Thank you so much. And I wanted to reiterate my initial comment. For all of those who had to come over from the Webcast to the live call, we apologize. There will be a recording. So, you can hear the recording or read the transcript. And I appreciate, as always, the support for Hudson Pacific. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.