Hudson Pacific Properties Inc (HPP) 2013 Q1 法說會逐字稿

Greetings, and welcome to the Hudson Pacific Properties Incorporated first quarter 2013 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 my pleasure to introduce your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you, Ms. Tidwell, you may begin.

Good afternoon, everyone, and welcome to Hudson Pacific Properties first quarter 2013 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, May 6, 2013, 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 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, and thank you everyone for joining us today. We are off to a solid start in 2013. Our first quarter was highlighted by a very successful common stock offering and a healthy leasing activity. Overall, the underlying fundamentals in our key California markets remain very strong, and set the stage for another very productive year for the Company. On the financing front, during the quarter, we completed a public offering of 8 million shares of common stock, and the exercise of the underwriters over allotment option to purchase additional 1.2 million shares at the public offering price of $21.50 per share. Total net proceeds from the offering were approximately $189.9 million, which will help support our growth initiatives in 2013. Suffice to say, I was extremely pleased with the level of investor interest in this offering, and appreciate the vote of confidence in our investment decisions.

Turning to our first quarter leasing active, conditions in our key California markets continue to push up the lease rate of our portfolio to rental rates well above the expiring and underwritten rents. As we and other have observed for sometime now, trends toward open and more collaborative work environments continue to fuel the demand by technology, media, entertainment and social media tenants for office space which caters to these sectors. Higher density and amenities tailored to a dynamic work force have been the hallmark of tenancy by these industries. This trend is not confined to these sectors, as more traditional industries are increasingly adjusting work environments to the changing needs of today's emerging work force. But it is more than just work environment. It is both companies in both new and traditional sectors recognize that workers want to work close to where they prefer to live, typically in locations with access to public transportation benefiting from (inaudible) surroundings. Our portfolios have been assembled with this very trend at the forefront of the investment strategy.

In San Francisco, the trend of tightening vacancies and rising rents continued during first quarter of '13. San Francisco county's unemployment rate of 6.3% was among the lowest in the state for the month of February. This is down 150 basis points from one year ago, and compares with 9.7% unemployment rate state-wide for the same period. This gain is largely due to growth within the technology sector, which has experienced 60% of job growth over the past few years adding 15,000 jobs. Strong growth continues to fuel leasing momentum. Marketable (technical difficulties - no audio) percent during the first quarter, with the lowest vacancy rate in this city currently in the south of market sub market at 4.5%.

Similarly, rental rates continue to improve during the first quarter. Market-wide asking rates climbed to $50.79, a 4% increase over the fourth quarter, and an 18% increase over the first quarter of last year. In Los Angeles, markets fundamentals are projected to continue to rebound as the economy improves. During the past few months jobless claims have decreased, consumer confidence has strengthened, and overall employment has grown.

The general consensus is that the commercial real estate industry is -- has rebounded passed its low point, and is growing consistently with the economy. The overall vacancy rate in greater Los Angeles was 17.4% at the end of the first quarter of '13. This rate was relatively flat compared to last quarter, but has decreased by 40 basis points compared to the first quarter of 2012 rate which 17.8%. Overall, the market is continuing to recover at a measured pace.

Importantly, our West Los Angeles sub market continues to be the bright spot for the region, capitalizing on high demand for creative office space. West LA has lodged a positive net absorption for the past four quarters, recording the highest positive net absorption in any sub market at 213,405 square feet. Vacancy in the first quarter was at [14.8]%, a drop of 70 basis points over the past five quarters. With a proven track record of positive net absorption and decreased vacancy, the market has moved to tighten concession packages and increase asking rental rates. These trends continue to support our goals for our Element LA project at the corner of Olympic and Bundy in West Los Angeles, and underscore the strength of our growth strategy of targeting assets in Santa Monica through West Los Angeles, and in Hollywood, and more recently in Burbank's Media District.

A couple of recent sales transactions further underscore the strength of creative office assets in West Los Angeles and Santa Monica. The recently completed sale of the Clock Tower building in Santa Monica for $655 per square foot, and recently announced sale of the campus at Playa Vista for $671 per square foot demonstrate that well-located assets catering to media, entertainment, and technology tenants and similar to our Element LA and 604 Arizona projects continue to lead the market in terms of valuation. We expect this trend to continue as employment growth in those key sectors outpaces other sectors in the economy. The Orange County office market has also been a steady amount of activity in the past with absorption -- with net absorption continuing the positive trend experienced across the county since the middle of 2010. The first quarter ended with nearly 750,000 square feet of net absorption. This represents an increase of nearly 93,000 square feet to the previous quarter.

Class A space generated the majority of absorption, and contributed roughly 480,000 square feet to the total. Orange County continues to hold one of the lowest employment rates within the state of California, falling to 6.5% in February from a January rate of 7.1%. Over the past four quarters, Orange County's employment has grown at an average annual rate of 1.1%. And industry analysts predict that employment will grow 2.1% in Orange County over the next two years, with professional and business services employment sector expected to post the best job growth. Occupancy gains have helped stabilized rental rates throughout the county. The overall full service gross average asking lease rate has held steady at $1.91 per square foot, consistent with the $1.91 to $1.93 per square foot range and asking range since the beginning of 2010.

Turning to our portfolio, we continue to enjoy healthy leasing activity during the first quarter, with significant leases in each of our key markets. In the first quarter, we executed 16 new and renewal leases in our office portfolio of properties, totalling 212,178 square feet. And as a result, our stabilized office portfolio reached 94.5% leased at the end of the first quarter. Highlights of the first quarter leasing include Square, Inc.'s exercise of its option to lease an additional 81,354 square feet of space in our 1455 Market Street property in San Francisco.

In connection with the exercise of the option, Square also increased its square footage under its lease by an additional 5,060 square feet. Recall that in November last year, Square signed a lease encompassing 246,078 of initial occupancy at 1455, with the 81,354 square feet expansion option. The exercise of this option and expansion brings Square's lease at 1455 to a total of 332,492 square feet of occupancy. 181,805 commenced in March of '13, 20,801 commenced in April of this past year, and the remaining 129,886 square feet is scheduled for commencement in early '14.

Another first quarter leasing highlight was a new 45,496 square foot lease with Nordstrom's, Inc. at our 901 Market Street property. Encompassing a portion of ground floor and the entire second floor, the new lease will furnish two stories of prominent retail scheduled to commence with opening of new Nordstrom's Rack store in February of 2014. In Orange County, we signed an expansion at our City Plaza property with CashCall, Inc. for an additional 38,391 square feet scheduled to commence in June of this year. This expansion brings CashCall's totaled leased square footage to City Plaza to 163,329 square feet and entirely backfills the lease to Kondaur Capital scheduled to expire this month with little down time.

Turning to our first quarter results for our media and entertainment properties. As of the conclusion of the first quarter, the trailing 12 month occupancy for our media and entertainment properties increased to 74.1%, from 69.2% for the trailing 12 month period ended March 31, 2012. As suggested by the significant improvement in trailing 12 month occupancy, demand for television production in Los Angeles remains very strong. That demand accounts for some or more of the 30% increase in year over year revenue at our media and entertainment properties. Of greater significant to the year over year improvement is increase in property-related revenue, which increased by more than 70%, and accounts for more than 75% of the year over year increase in total revenue.

The increase in other property-related revenue largely reflects the unseasonably high level of production activity at our Sunset Gower property due to the accelerated production schedule for the showtime series Dexter which is scheduled to end its successful run later this year. Production activity for Dexter is expected to curtail during the second and third quarters. As a result, we anticipate that the revenue we have been generating from this tenant, including the other property-related revenue principally generated in the second and third quarters will decrease, resulting in a corresponding temporary decrease in the net income of media entertainment segment on account of the expiration.

Allow me to briefly update you of the status of our acquisition pipeline. We are currently looking at more than 4 million square feet of properties in both northern and southern California, as well as Seattle, with the gross value in excess of $1 billion. The pipeline consists of the combination of stabilized and value add opportunities in target markets which would complement our existing portfolio. We are encouraged by this transactional activity and potential acquisitions we are seeing, and we hope to be in a position to announce our next acquisition in the future.

Before I turn the call over to Mark to discuss our first quarter's results, I want to mention something that we are pulling together for the purposes of our investor presentation for the upcoming [Needham] conference. We expect to make those materials available on our website in connection with the conference. As you know we have completed more than 700,000 square feet of new and renewal leases in the fourth quarter of 2012, and another 212,000 square feet in the most recently completed quarter for a combined 912,000 square feet, or more than 20% of our current office portfolio.

In many cases, this leasing activity involves substantial increases in the base rents compared to expiring rents. Since leases are typically signed several months in advance of their anticipated lease commencements dates, and often entail a period of rental abatement, this high level of leasing activity has resulted in an increase in our lease percentage without an immediate correspondence increase in our lease percentage. However, the executed leases commence -- as they commence and the rental abatement periods expires, we expect that the increases in the economic lease percentage will result in substantial increases in the net operating income generated by the affected properties. We anticipate providing further information regarding the embedded [net] operating income growth stemming from this extraordinary leasing activity in our investor presentation materials at the upcoming (inaudible) conference, which will simultaneously be on our website for complete access to all. And now I am going to turn the call over to Mark, our CFO.

Thank you, Victor. Funds from operations excluding specified items for the three months ended March 31, 2013, totalled $14.1 million or $0.26 per diluted share, compared to FFO excluding specified items of $9.4 million or $0.26 per share a year ago. The specified items for the first quarter of 2013 consisted of an early lease termination payment from Bank of America related to our 1455 Market Street property of $1.1 million or $0.02 per diluted share, and a property tax reimbursement stemming from reassessment of the Sunset Gower media entertainment property of $800,000 or $0.01 per diluted share, both of which I will touch on in a moment. Specified items for the first quarter of 2012 consisted of expenses associated with the acquisitions of operating properties of $100,000 or $0.00 per diluted share. FFO including the specified items totalled $16 million or $0.29 per diluted share for the three months ended March 31, 2013, compared to $9.4 million or $0.26 per share a year ago. Net loss attributable to common shareholders was $2.9 million or $0.06 per diluted share, compared to net loss of $2.6 million or $0.08 per diluted share for the same period a year ago.

Turning to our combined operating results for the first quarter of 2013, total revenue increased 29.2% to $49.4 million from $38.2 million a year ago. Total operating expenses increased 33% to $43.6 million, from $32.8 million for the same quarter a year ago. As a result, income from operations increased 6.3% to $5.8 million, compared to income from operations of $5.5 million in the same quarter a year ago. I will discuss the primary reasons for the increases in total revenue and total operating expenses in connection with our segment operating results. Interest expense during the first quarter increased 14.3% to $5.6 million, compared to interest expense of $4.9 million for the same quarter a year ago. At March 31, 2013, the Company had $530 million of notes payable, compared to $582.1 million as of December 31, 2012, and $361.1 million at March 31, 2012.

Looking at our results by segment, total revenue in our office property segment increased 28.8% to $38.5 million, from $29.9 million in the first quarter in 2012. The increase was primarily the result of $6.3 million increase in rental revenue to $28.6 million, a $1.8 million increase in parking and other revenue to $3.9 million, and a $500,000 increase in tenant recoveries to $5.9 million, largely resulting from the acquisition of office properties during the second, third, and fourth quarters of 2012. The parking and other revenue increase also reflects the impact of an early lease termination payment received during the quarter from Bank of America at the Company's 1455 Market Street property for approximately $1.1 million or $0.02 per diluted share, which amount includes the write-off of the straight-line rent receivable and below market lease liability associated with this early termination.

Operating expenses in our office property segment increased 24.3% to $14.1 million, from $11.4 million the same quarter year ago. The increase was primarily the result of office properties acquired during the second, third and fourth quarters of 2012. At March 31, 2013, our stabilized office portfolio was 94.5% leased. During the quarter, the Company executed 16 new and renewal leases totaling 212,178 square feet. Total revenue at our media and entertainment properties increased 30.5% to $10.9 million, from 8.4 million for the same quarter a year ago. The increase was primarily the result of $1.9 million increase in other property-related revenue to $4.5 million, a $300,000 increase in rental revenue to $5.8 million, and a $200,000 increase in other revenue to $200,000 resulting from higher occupancy and stronger production activity compared to the same quarter a year ago.

Total media and entertainment expenses increased 16.7% to $5.6 million in the first quarter of 2013, from $4.8 million for the same quarter a year ago, primarily as a result of higher operating expenses associated with higher occupancy and stronger production activity compared to the prior year. The increase in operating expenses was partially offset by an $800,000 property tax reimbursement stemming from the reassessment of the Company's Sunset Gower media and entertainment property resulting from the Company's initial public offering and attributable to prior year property taxes. As a result of this reassessment, the Company expects an ongoing property tax savings of approximately $300,000 per annum, compared to property taxes incurred in 2012. As of March 31, 2013, the trailing 12 month occupancy for the Company's media and entertainment portfolio increased to 74.1% from 69.2% in the trailing 12 month period ending March 31, 2012.

Turning to the balance sheet. At March 31, 2013, the Company had total assets of $1.7 billion including cash and cash equivalence of $141.6 million. At March 31, 2013, the Company had total capacity of approximately $203.8 million on its unsecured credit facility of which nothing 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 cumulative preferred stock equivalent to 8.375% per annum.

Turning to our outlook. As highlighted in our earnings release this afternoon, the Company is reaffirming full year 2013 FFO guidance in the range of $0.90 to $0.94 per diluted share excluding specified items. This guidance reflects the February 2013 common stock offering and leasing activity referenced in this release and all previously announced acquisitions, including the anticipated contribution of the Pinnacle II building, but excludes acquisition-related expenses associated that acquisition This guidance also reflects the Company's FFO for the first quarter ended March 31, 2013 of $0.26 per diluted share excluding specified items. Importantly, guidance reflects the anticipated expiration of our lease for the production of the Showtime series Dexter, as Victor mentioned earlier.

As is always the case, the Company's guidance does not reflect or attempt to anticipate any impact to FFO from speculative acquisitions. The full year 2013 FFO estimates reflects management's view of future and current market conditions, including assumptions with respect of rental rate, occupancy levels, and the earnings impact of events referenced in this release, but otherwise exclude any impact of future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital market activity or similar matters.

Before turning the call back over to Victor, we would like to call your attention to the current status of the pending Pinnacle II contribution. As you may recall, we currently hold a 98.25% interest in a joint venture formed last year to acquire Pinnacle I for a total gross purchase price of $212.5 million, subject to a $129 million 10 year project loan bearing a fixed annual rate of 3.954%. That acquisition closed on November 8 of last year. The loan assumption with respect to the Pinnacle II building remains in process, and we expect completion on or before the end of this month. Upon completion of the loan assumption, the Pinnacle II building will be contributed to the existing joint venture.

Other than for purposes of funding closing costs and prorations, the Company will not be required to make a capital contribution in connection with the contribution of Pinnacle II building. But as a result of the contribution, the Company's 98.25% ownership interest will automatically and immediately adjust to an approximately 65% ownership interest in the joint venture. Thereafter, the joint venture will own both the Pinnacle I and II buildings for a combined purchase price of $342.5 million, subject to approximately $218 million of project level financing including an existing approximately $89 million project loan on Pinnacle II bearing interest at a fixed annual rate of 6.313%. And now, I will turn the call back to Victor for some final thoughts.

Thanks, Mark. To summarize, our first quarter was highly productive and equally rewarding. Leasing activity continues demonstrates strength across all of our sub markets. As always, we appreciate your continued support of Hudson Pacific Properties, and we look forward to updating you on progress again next quarter. Now operator, let's open it up for questions.

Thank you.

(Operator Instructions)

Thanks you. Our first question from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.

Good afternoon. Just on guidance, Mark, curious how the $0.26 compared to what you had in the model for 1Q? And kind of, does the Dexter move-out in 2Q and 3Q completely offset that? And that is why guidance didn't move at all?

Yes, I mean, right, you are right on point. As you know, we guide to a full year, and we had anticipated -- the impact on -- of the -- of Dexter, which is really reflects the timing difference, right? Compared to early -- a previous year quarter -- first quarter. So for example, we would typically see a show like that would ramp up its production towards the end of the second quarter, and it would really be on -- in high production mode by the third quarter.

In this case, because it is their final season, they actually accelerated that schedule such that, we really recognized a high, high level of production-related revenue. And you can see it in the year-over-year number, right, Craig? So if you look at the year-over-year difference in other property-related revenue, first -- the first quarter last year to this quarter, you see that very significant step-up.

And so, we -- while we had a very strong first quarter in the media segment, we anticipate that we will see a waning -- or we are projecting to see a waning, who knows, we might do well, better than potentially projected. But for the time being, we have reason to expect that we will see a waning in that other property-related revenue when Dexter rolls out. So that is why our guidance has remained static.

Okay. And looking back, I guess maybe last year, how much did Dexter pay you on a per share basis?

Oh, well, that is an interesting question. We never -- we have never tried to reduce to a single tenancy on a -- from the media-related tenants a per-share amount. Say it is something we are considering, but we have never done it.

Okay. And then just on Pinnacle, when the loan closes from an economic perspective, you basically have all of the NOI coming from Pinnacle I? We shouldn't expect too much of a variance when Pinnacle II closes, correct?

Well, they have -- that is more by the virtue of the fact that they happen to have a pretty similar cash on cap return. That is to say, they are being acquired at a pretty comparable NOI. Such that when the NOI -- when the NOI from Pinnacle II is contributed, and we simply adjust our respective ownership interests, the cash NOI impact is relatively nominal, if you follow my point.

Yes. Okay. And then, just Victor, on Seattle, just curious, kind of are you looking at Bellevue, or Seattle proper? Would you go in there with just one asset, or do would you look to do more than one?

We are looking at all of the areas in Seattle and greater Seattle area right now, and we are looking at a couple of assets combined. One asset in an entree in a market like that, is not going to get to where we want to be. So what we are looking at right now, is several assets that sort of fit the bill of the same property type and mix and tenant make-up that we currently have in our portfolio right now, Craig.

Great. Thank you.

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

Thanks, good afternoon. So Victor, just on Seattle, how do you sort of look at pricing in Seattle versus where it is in Southern California, Northern California?

I think Seattle right now is comparably priced to what we have seen some Southern California pricing. On a price per pound basis, it is relatively less, but on a cap rate basis, it is probably equal. Clearly, it is not -- and by listing some of the comps that I talked about on --in my prepared remarks in LA, you can hear that there a price per pound push in southern California, specifically in the west LA marketplace that is comparable to San Francisco on a cap rate basis.

So San Francisco is still much more of an aggressive marketplace, and we are seeing prices on the [periphery] to be eclipsing where we are seeing LA right now. So I think cap rates, comparable, price per square foot, lower.

Do you -- as you look at that market, do you think there is better rent growth potential in Seattle than there is in Southern California or? I mean, given that you don't have a lot of -- you don't have any assets there now, what makes that market attractive from a return perspective, versus what seems like maybe comparable pricing in Southern California? Is it just the availability of product versus Southern Cal?

Well, no, I think it is a balance of our portfolio that we are -- that we are evaluating right now in pipeline, is equally weighted to northern and southern California, with a specific portfolio that we are looking in the Seattle marketplace. I think the -- that specific to rental rate growth, we like some of the fundamentals in Seattle right now. I do think, that as I mentioned, (inaudible) we wouldn't do a one-off asset. I think if we come into this marketplace, it is going to be an unique entry way, and the quality in the media and tech assets that we are looking at, are going to be very high-end with some good estimate rents over near and midterm.

I think lastly, we are seeing pretty substantial rent growth in specific marketplaces here in Los Angeles, namely, the ones we are in, Santa Monica and west LA and Hollywood. We are seeing some pretty substantial rent rate growths that is indicative of I think of where the movement is going to be.

Okay. That is helpful.

Question for Mark, or probably for Mark. The CapEx level in the quarter was -- it moved up. I presume that is driven by a lot of all the leasing that you did in the last year and this year.

As you think about going forward, how should we look at sort of that $15 million of CapEx spend as a quarterly run rate? Is that about the right number? And is there any capital that you are likely to spend this year that would be considered first-generation, that sort of wouldn't hit that AFFO or FAB reconciliation?

Yes, so, I think, as often is the case, it is not uncommon for the CapEx to kind of phase in a bit behind schedule. Not to say that tenancy is necessarily lagging, but it is often the case, some of the CapEx, the tenant hasn't spent it yet, even if say, for example, they have a hard start. So a good example of that, is 275 Brandon for example, and others.

But I would say this current CapEx spend amount is a little wider than what I think the quarterly run rate will be for 2013. Maybe just orders of magnitude, somewhere around -- maybe 40% light, give or take on a quarterly run rate. And it will be a bit lumpy, Brendan, in part because CapEx tends to be lumpy.

But in some quarters, you are going to get hit with, say for example, a fair amount of leasing commission. And then you will have made that leasing commission payment or payments. And then in ensuing quarters, you are going to get hit with more say, TI, so it can a fair -- it can be fairly lumpy.

In terms of below the line or, if you will, CapEx that is non-recurring, yes, there is a fair amount of non-recurring CapEx that is going to be incurred this year. We have base building upgrades that are occurring in several outfits. Most and significantly in 2013, 1455 Market, which is going to see a fair amount of non-recurring CapEx in the form of upgrades to the exterior, for windows and some lobby upgrades and so forth. And so, yes, we will be seeing below AFFO if you will, a fair amount of CapEx, non-recurring CapEx this year as well.

Okay. That is helpful. So the 40% light number, was that sort of including the above and below the line number, or was that just the above number?

No, that is the above. And just to give you a rough run rate for the year.

And Brendan, to be a little bit -- a little -- delve slightly further, we are working on -- we either have some -- well, just think from a capital availability point of view because this often comes up, we have some construction funds available, both at 275 that is still undrawn, and at 901 Market still undrawn. We also could potentially have construction funds available as it relates to Elements LA, which is going to require a considerable amount of nonrecurring CapEx.

I just want to point you to the fact, that some of this stuff is going to be coming through. And there are certain things that -- certain, capital availability that we have, unrelated or our line or cash on hand that is going to be there to meet, for those requirements.

Okay. That's helpful. And then I just, the follow-up on Craig's question about Dexter.

I think you mentioned it last call, but I think there are four stages. So if we sort of look at that show, is it ratable to take them, 4 of I think 18 stages? Or how should -- just to try to get a magnitude of it?

Well, there are three stages on -- and they have office utilization. And after rateable use, it is not -- that is probably not a bad way to estimate it. But, remember, timing is going to be a big factor, right? And as we sit this moment, while we expect it -- them to phase out at some point later this year, a precise phase-out date hasn't quite been identified yet.

Okay. And then, I don't know if maybe Howard wants to answer this, but are there -- what is the prospect like for backfill?

Yes, sure. We are looking at a couple of things right now. The networks might not take that over because of timing. So most likely, it will cater to a cable audience which, again is less seasonal.

And so there is possibilities that we may backfill that with another even Showtime potential show there, or get another cable series. So we continue to market -- we are definitely marketing the space now for Q3.

Okay. Thank you.

(Operator Instructions)

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

Okay. Thank you. I guess, I am hoping you can talk a little bit about your appetite for disposition?

I know markets have come in, and capital -- debt capital markets are picking up. Any thoughts on selling more assets here?

Jamie, I mean, we have a couple of assets, and I mean really a couple. There is three in the whole portfolio that we would look at the appropriate time. One of the assets, we actually were in conversations with a potential bidder, and we didn't get over the hurdle, which is probably more beneficial to us, because pricing started come in a little bit.

There isn't a ton in the portfolio that we are prepared to dispose of at this time. It all fits in our overall strategy and structure, other than the three assets that are sort of outliers, and that we would look at, at least potentially, two of them right now. So I think, it is always on the radar. But it is not something with the exception of this one that we are probably come back to marketplace sometime in the fall or late summer, that we are looking to dispose of.

Okay. And then, back to Seattle. And I know several REITs have been looking there, and had a hard time finding either good deals or the right assets. But is there something unique about what you are looking for, given what we have seen?

In terms of that marketplace, or just assets in general, Jamie?

Either unique sub markets or unique assets that -- I mean -- it seems like in some markets have been pretty tough to find good deals.

No, I think, listen, we have got, as I said, there is nothing unique that we are looking at or looking for, that is going to jump off the page and say this is, something that this is -- that is different than what we looked at in the past. I want to sort of state the obvious from our standpoint. We have been very successful in acquiring assets in the markets that we are comfortable in, and we still feel that the pipeline we have is very active, and confident that we are going to get our fair share.

So I would say that, we are close on a couple of things right now. And I would say, that it is not been difficult to identify the kind of stuff that fits in our portfolio.

Okay. And then, Mark, I guess, your comments on -- it sounds like you got some credit lines or debt lines that you can use for capital -- what acquisition volume do you need to raise more?

I think we got our credit facility fully on tap right now. We've got $160 million, $170 million in cash, unlevered there. We have got some pretty good weight ahead of us, the $300 million to $400 million range, I think right now, whole dollars is sort of what we are looking at, before we have to come back to the marketplace for -- (Multiple Speakers) -- for other alternative sources of capital.

All right. Thanks.

Thanks, Jamie.

Thank you. Our next question is a follow-up from Brendan Maiorana with Wells Fargo. Please proceed with your question.

Thanks. So I just had a couple of follow-ups. First, probably for Mark. Rent spreads in the quarter, it looked like, I am assuming that the spreads were just related to the Square deal at 1455 Market and CashCall at City Plaza. And one, I guess, can you confirm whether or not that is the case?

And then two, it seemed like the spreads were probably better than what my expectations were, given that I thought you were likely rolling down at City Plaza, not up. Which would suggests that the Square lease was significantly higher than the 20%-plus positive cash spread?

Yes, City Plaza is relatively flat. You are rolling down at -- yes, you are rolling down from $2.12 to a $1.96 on 38,000 feet. But so far more significant to the result is the 81,000 feet to Square -- by the way, you pinned both the meaningful leases.

You are rolling up on from $21.24 net on -- and part of the problem too, is the fact that we are looking at base rents. But you are rolling up from $21.24 net on the BofA space, up to $30 modified on the Square deal. And that's what is largely driving that 20%-plus percent cash and straight-line rent difference.

Okay. Great.

And wait, by the way, one final point about -- That BofA space, that 81,000 feet, there is only a small amount of that, that is podium. The larger amount of that is tower space, which happens to be a higher price point rent for BofA space than the podium. So that is why it is a somewhat higher net rent as to BofA, than say for example on some of the other give-back space that BofA has had, which was more podium space, which has a lower in-place rent.

So if -- because I think we have talked a little bit about this in the past. But if we look at the spread on Square's leases, versus what BofA is giving back, is it north of 20% overall?

Oh, yes, when you look on a weighted average basis, say it is close to 250,000 feet, some of which has already been given back, a good amount has already been given back, and you look at the weighted average spread on the incoming rents, on -- and the expired rents on a apples-to-apples basis, and say net, the rollup is 45%.

Okay. Great. And then this is probably for Victor. Any update on tenant prospects for Elements LA and maybe how soon you can get something signed there?

I mean, we have got tons of activity to the point of about a 1 million square feet of tours. We have got two very large prospects for, one for the whole thing, and one for almost the whole thing, that we are going back and forth.

But I think, we have got -- we are launching a marketing event first week in June. I think we are still very comfortable sort of a year-end completion of the parking structure, signed lease, and move-in, as we said, sometime for second quarter of 2014.

The good news is, I guess is, other than all of the activity we have, is that any competitive space in the marketplace, for the most part, has been taken off the marketplace. There is really only one other location that is competitive for the size of tenants that we have. And so we are sort in the hold out right now on a large chunk, versus several smaller guys to add them up.

Do you still feel comfortable at $350 or higher net rents per Company?

Yes.

Okay, great. Thank you.

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

Thank you very much for participating this quarter, and we look to see or speak to all of you sometime in the near future. Have a good day.

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