Hudson Pacific Properties Inc (HPP) 2014 Q4 法說會逐字稿

Greetings and welcome to the Hudson Pacific Properties Fourth Quarter 2014 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you, Miss Tidwell. You may now begin.

Good afternoon, everyone, and welcome to Hudson Pacific Properties' fourth quarter 2014 earnings conference call. With us today are the Company's Chairman and Chief Executive Office, Victor Coleman and Chief Financial Officer, Mark Lammas. Other members of the Company's Senior Management Team are also here 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 could 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, February 26, 2015 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 fourth quarter, February 26, 2015 conference call.

The fourth quarter rented at a highly productive year for Hudson and laid the groundwork for our Company's continued growth. We had continued leasing momentum throughout our portfolio, acquired an office property in one of Los Angeles' sought after sub-markets for technology MBE users and it executed agreements to sell a non-strategic legacy asset and to purchase a large portfolio of irreplaceable office properties in Northern California from Blackstone.

Our stabilized office portfolio is now 94.6% leased. We completed 211,000 square feet of new and renewal leases during the quarter with average lease for each higher than expiring rates by 13.6% on a cash basis and 14.1% on a GAAP basis.

Year-to-date we signed 632,000 square feet of new owner leases with an average lease rates higher than expiring rates by 44.9% on a cash basis and 56.6% on a GAAP basis.

The most significant leasing transaction during the quarter was NFLs media lease extension from 2017 through 2019 on our 10900 and 10950 Washington properties. NFL Media remains an anchor tenant of these two assets now occupying a total of 137,000 square feet consisting of office space and two sound stages used to broadcast the NFL network, nfl.com and NFL Mobile.

NFL Media's lease extension exemplifies our ability to not only attract but also retain high profile media and entertainment tenants who require best-in-class office and studio spaces specifically designed to meet their unique needs.

In terms of dispositions, in December we entered into an agreement to sell our 222,000 square foot First Financial property in Encino, California for $89 million including the assumption of an existing $43 million loan. Hudson's predecessor entity acquired the property as part of our IPO and we proceeded to create value through lease renewals and back-filling of office space including a 30,000 square foot lease signed with Luxury Fitness Company Equinox. We expect this transaction to close next week and intend to use the net proceeds from the sale to acquire the EOP Northern California portfolio pursuant to a lifetime exchange under the Internal Revenue Code 1031.

Subsequent to the quarter, in January we formed a joint venture with CPPID, which proceeded to purchase a 45% interest in our 1455 Market Street property for $219.2 million before closing adjustments equivalent to the asset value of a $487 million price. Hudson acquired the property in December of 2010 for $93 million. Going forward we retain a 55% ownership stake and a general partner status along with leasing and management oversight.

The joint venture and sale follows a major renovation and backfilling of over 584,000 square feet of space vacated by Bank of America with tenants including the San Francisco Metropolitan Transit Authority as well and high growth companies, Uber and Square. Our joint venture with CPPIB allowed us to unlock a portion of the value created for shareholders while continuing to participate in additional upside from re-tenanting space with the low market rents and retail repositioning now underway.

We intend to use the proceeds from the transaction to acquire the EOP Northern California portfolio pursuant to a lifetime exchange under the IRS Code 1031.

In terms of acquisitions, in October we acquired our 12655 Jefferson property, a six-story, 88,000 square foot office property, and apply this to some market of Los Angeles for $38 million. Part of this is popularity among leading technology and media companies continue to grow with Yahoo, Full Screen and WPP signing [130,000], 58,000 and 49,000 square foot leases respectively in the fourth quarter.

Google is under contract to purchase 12 acres of land for build-to-suit across the street from 12655 Jefferson and adjacent to the former Spruce Goose hanger where Google signed a 300,000 square foot lease.

We completed plans for the property, its redevelopment as a creative office space and already had over 125,000 square feet of tours and inquiries. We expect to see significant demand for 12655 Jefferson as it's one of only two remaining large blocks of space available for single tenant occupancy in the submarket and offers adjacency to the Playa Vista Development and runway, a 220,000 square foot lifestyle retail center filled with restaurants and amenities.

Now in December we entered into an agreement to acquire by an exclusive direct transaction with EOP Northern California portfolio from Blackstone. As noted on prior calls, the acquisition presents a rare opportunity to own a critical mass of existing office assets and two development parcels in prime various submarkets we've long targeted including Redwood Shores, Palo Alto in San Jose.

Despite a strong diversified tenancy including blue-chip technology companies like Google, CISCO and QUALCOMM, the portfolio is below market rents and occupancy we well as a significant near-term role afford the opportunity to achieve NOI growth by leveraging our in-house leasing and repositioning expertise.

We'll fund the acquisition with $1.75 billion in cash and approximately 63.5 million common shares and operating partnership units issued to Blackstone, which upon closing we'll own approximately 44% of Hudson's common equity on a fully diluted basis and we'll have a representation on our Board of Directors.

We've made considerable progress towards identifying sources of CAT, financing for cash consideration, which Mark is going to discuss in a minute.

Regarding the status of the EOP Northern California portfolio acquisition, we're on track to satisfy customary closing conditions for the end of the first quarter closing. We're taking all necessary steps to ensure a seamless integration with regard to accounting functions, leasing and property management personnel and operations and information technology. After thorough inspections and careful deliberation we're refining the asset-specific business plans and identifying strategic repositioning capital needs.

And finally, since our December announcement we've overseen all major decisions in leasing activity and we're extremely pleased with our leasing progress to date and confident we'll exceed our original underwriting projection.

It's approximately 40% of the current vacancy within the EOP portfolio is concentrated in two assets in Foster City and San Mateo. I'd like to take a brief time here regarding these markets in San Francisco Peninsula submarkets and discuss them.

In Foster City vacancy fell 70 basis points during the fourth quarter and 670 basis points year-over-year, 12.6%, while asking rates remain constant for the quarter and are up by .01% year-over-year at $57 per square foot. Foster City posted 23,000 square feet of net absorption for the quarter and the largest occupancy gains within the San Francisco Peninsula for the year with a net absorption of 225,000 square feet.

As for San Mateo, the vacancy fell 200 basis points during the quarter and 160 basis points year-over-year to 8.7% while asking rates remain constant for the quarter and are up 13.5% year-over-year and $45 per square foot.

The sub-market posted 135,000 square feet of net absorption in the fourth quarter with 81,000 square feet of net absorption for the year.

Most of San Francisco Peninsula's 1.5 million square feet of new construction is focused in the Palo Alto and Menlo Park submarkets. Thus, we expect fundamentals in both Foster City and San Mateo to improve in the near to midterm.

Silicon Valley San Jose airport sub-market, which forms part of the north San Jose submarket accounts for 22% of the existing vacancy and 44% of 2015 to 2017 expirations within the EOP Northern California portfolio.

Average asking rates in North San Jose increased 5.9% for the quarter and 14.5% year-over-year to $32, the highest quarterly increase for the Silicon Valley region.

Vacancy sell 260 basis points in the quarter and 30 basis points year-over-year to 13.8% and North San Jose posted the region's third largest net absorption for the quarter of 223,000 square feet. We expect to see further compression in rents and occupancy with only 650,000 square feet of new product coming on line that will be owned and occupied by Samsung.

In addition, northern markets such as Mountain View, Sunnyvale and Santa Clara continue to tighten pushing activity south for the North San Jose submarket.

Turning back now to Hudson legacy portfolio, in January we broke ground on ICON our 413,000 square foot vertical creative office campus and 1,600 space parking structure at Sunset Bronson Studios.

As anticipated, ICON's construction as well as the ongoing lease negotiations with an existing tenant require us to selectively pursue new leasing activity and take certain billings off line at Sunset Bronson in the fourth quarter. We expect this trend to continue over the next several quarters in order to meet longer-term leasing objectives and complete capital improvements in advance of ICON's delivery in the fourth quarter of 2016.

We continue to see significant demand for large blocks of creative office space in Hollywood, particularly on the heels of the Viacom deal, and have an active pipeline of potential tenants for ICON with total demand in excess of two million square feet at this time.

Similarly to Playa Vista, Hollywood remains one of Los Angeles' strongest submarkets in terms of leasing activity and absorption and in the fourth quarter vacancy fell 40 basis points to 6.8% equivalent to a 530 basis point year-over-year decline and Class A rents increased 3.4% for the quarter to $44 per square foot or 7.3% year-over-year increase.

Finally, we're pleased that the current level of demand for stage and office space at both our media and entertainment properties. Sunset Gower stages were fully leased during the quarter and demand remain high for available stages at Sunset Bronson.

We've got commitments in hand through 2015 with media giants ABC, HBO and Nickelodeon for production of hit programs like Scandal, How to Get Away with Murder and Togetherness. Driven by strong demand for creative office space through the properties we continue to strategically invest capital to transform outdated, underperforming office space and ancillary space into high tech creative space ideal for grown media companies desiring occasional stage access or to be part of a creative production environment.

For example, [Spa Thanks] and [Believe Me] have both well regarded digital media and creative advertising Companies recently signed five-year leases at approximately $42 per square foot for this type of renovated space at Sunset Gower. These long-term leases as well as upgrades like our new commissary and 350 space parking structure expansion slated for 2015 in September, bolster our efforts to drive demand and ultimately generate more stable media and energy and cash flow.

With that, I'm going to turn the call over to Mark Lammas for a discussion of our fourth quarter financial results.

Thank you, Victor. Funds from operations excluding specified items for the three months ended December 31, 2014 totaled $22.2 million or $0.32 per diluted share compared to FFO excluding specified items of $15.6 million dollars or $0.26 per share a year ago.

The specified items for the fourth quarter of 2014 consisted of expenses associated with the EOP Northern California portfolio acquisition of $4.3 million or $0.06 per diluted share and costs associated with a one-year consulting arrangement with a former executive of $1.3 million or $0.02 per diluted share.

Specified items for the fourth quarter of 2013 consisted of expenses associated with the acquisition of our Seattle Office portfolio of $500,000 or $0.01 per diluted share and an early lease termination payment from Bank of America relating to the Company's 1455 Market Street property of $800,000 or $0.01 per diluted share.

FFO including the specified items totaled $16.6 million or $0.24 per diluted share for the three months ended December 31, 2014 compared to $15.9 million or $0.27 per share a year ago.

Net loss attributable to common shareholders was $2.3 million or $0.03 per diluted share for the three months ended December 31, 2014 compared to net loss of $100,000 or zero cents per diluted share for the same period a year ago.

Turning to our combined operating results, for the fourth quarter of 2014 total revenue from continuing operations increased 19.8% to $68.8 million from $57.4 million a year ago.

Total operating expenses from continuing operations increased 21.6% to $57.1 million from $47 million for the same quarter a year ago. As a result, income from operations increased 11.8% to $11.6 million for the fourth quarter of 2014 compared to income from operations of $10.4 million for 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 operating segment results.

Interest expense during the fourth quarter [decreased] (corrected by company after the call) 5.6% to $6.4 million compared to interest expense of $6.8 million for the same quarter a year ago, which reflects the Company's ability to obtain financing at more favorable interest rates as well as an increase in capitalized interest resulted from additional development and redevelopment projects.

At December 31, 2014 the Company had $960.5 million of notes payable compared to $920.9 million as of September 30, 2014 and $931.3 million at December 31, 2013.

Turning to our results by segment, total revenue from continuing operations in our office property segment increased 22.9% to $58.6 million from $47.7 million in the fourth quarter of 2013. The increase was primarily the result of the $6.7 million increase in rental revenue to $41.9 million, a $2.6 million increase in tenant recoveries to $10.9 million and a $1.6 million increase in parking and other revenue to $5.8 million, largely resulting from significant leasing activity and our 1455 Market Street, Rincon Center and 901 Market Street properties, the acquisition of the Merrill Place Property on February 12, 2014 and interest income earned from the Broadway Trade Center note participation purchased on August 20th, 2014.

Operating expenses from continuing operations in our office property segment increased 6.2% to $20.4 million from $19.2 million for the same quarter a year ago. The increase was primarily the result of expenses associated with higher average occupancy, property tax expenses resulting from the reassessment of certain of our San Francisco properties and the acquisition of the Merrill Place Property on February 12th, 2014.

Same store office net operating income for the fourth quarter excluding specified items increased by 28.2% on a GAAP basis and 25.7% on a cash basis. At December 31, 2014 our stabilized office portfolio was 94.6% leased. During the quarter the Company executed 18 new and renewal leases totaling 211,103 square feet.

Total revenue at our media and entertainment properties increased 4.5% to $10.2 million from $9.7 million for the same quarter a year ago due to a $1.5 million increase in other property related revenue to $4.7 million resulting from heightened production activity at Sunset Gower. Despite this trend, rental revenue decreased by $600,000 to $5.2 million in tenant recoveries decreased by $400,000 to $200,000 relative to the same quarter a year ago due to the planned removal and temporary vacancy of certain buildings and stages taken off line at Sunset Bronson to facilitate our ICON Development and other long-term plans for our Sunset Bronson property.

Total media and entertainment expenses increased 22.6% to $7.4 million from $6 million for the same quarter a year ago largely due to additional lighting expense incurred in connection with heightened production activity at Sunset Gower. As a result, same store media and entertainment net operating income in the fourth quarter excluding specified items decreased by 24.9% on a GAAP basis and 25.3% on a cash basis.

As of December 31, 2014 the fourth quarter same store average occupancy for the media and entertainment properties decreased to 70.4% from 70.7% for the same quarter -- same period a year ago, reflecting a net impact of temporary vacancy at our Sunset Bronson property mentioned earlier.

Turning to the balance sheet, at December 31, 2014 the Company had total assets of $2.3 billion including unrestricted cash and cash equivalents of $17.8 million. At December 31, 2014 we had $300 million of total capacity under our unsecured revolving credit facility of which $130 million had been drawn. Subsequent to the end of the fourth quarter the Company fully repaid in outstanding under our unsecured revolving credit facility from credit of proceeds of the January common stock offering. Nothing is currently outstanding under our revolving credit facility.

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. In addition, we completed important financial transactions during and subsequent to the fourth quarter. In October we fully repaid a [$39.7 million] (corrected by company after the call) loan secured by our 6922 Hollywood property with proceeds from a draw under our unsecured revolving credit facility. The loan bore interest at an annual rate of 5.58% and was scheduled to mature on January 1st, 2015. In November we amended our construction loan for our Element L.A. property to, among other things, increase availability from $65.5 million to $102.4 million to fund budgeted site work, tenant improvements and leasing commission costs associated with the [Riot Kings] lease of the property.

In January we completed the public offering of 12.65 million shares of common stock at the public offering price of $31.75 per share. Net proceeds from the offering after deducting underwriting discounts and before other transaction costs were approximately $385.6 million. We contributed net proceeds from this offering to our operating partnership which intends to use them towards the acquisition of the EOP Northern California portfolio for such acquisitions not completed to fund development and redevelopment activities, potential acquisition opportunities and are for general corporate purposes. Pending these applications the operating partnership used net proceeds from the offering to temporary repay indebtedness outstanding under its revolving credit facility.

Turning to guidance, the Company is providing full-year 2015 FFO guidance in the range of $1.42 to $1.48 per diluted share excluding specified items. This guidance reflects the acquisitions, dispositions, financing and leasing activity referenced in this press release and all previously announced acquisitions, dispositions, financings and leasing activity including the Company's pending EOP Northern California portfolio acquisition and the temporary impact on tenancy of construction and leasing activities at our Sunset Bronson property.

For purposes of this guidance, the Company has assumed the acquisition of the EOP Northern California Portfolio will close as of April 1 in 2015. Funding for the EOP Northern California Portfolio's $1.75 billion of cash consideration and $50 million of closing costs is assumed to include $216 million of net proceeds from our joint venture with CPPID with respect to 1455 Market Street and $46 million of net proceeds from our pending sale of First Financial, both of which will fund the transaction pursuant to a 1031 exchange.

Our January equity offering raised approximately $385 million of net proceeds, $130 million of which was used to repay outstanding revolving loan draws. We intend to use the remaining $255 million towards the transaction's cash consideration of closing costs. After accounting for the nearly $520 million of 1031 in equity offering proceeds, approximately $1.3 billion of additional capital is required to fund the remaining cash consideration in closing costs. We are in the process of securing commitments from a syndicate of lenders to fund $750 million of new five and seven-year term debt. We are also pursuing unsecured and secured debt alternatives to fund a remaining $550 million required to close the transaction.

For purposes of this guidance, we have assumed a weighted average rated interest for the combined $1.3 billion of financing proceeds of 3.75% per annum including estimated amortization of deferred financing costs. The Company intends to update its full-year 2015 FFO guidance upon the closing of the EOP Northern California Portfolio acquisition to reflect final funding sources, interest rates, GAAP attorney adjustments and other matters.

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 2015 FFO estimate reflects management's view of current and future market conditions including assumptions with respect to rental rates, occupancy levels and the earnings impact of events referenced in this release but otherwise exclude any impact from future unannounced or speculative acquisitions, dispositions, debt financing to repayments, recapitalizations, capital market activity or similar matters.

And now I'll turn the call back to Victor.

Thanks, Mark. To summarize, our fourth quarter and all of 2014 for that matter was highly productive and in many ways transformational in terms of the setting the stage for our Company's future growth. We appreciate continued support of Hudson Pacific Properties, as always, and we look forward to updating you on our next progress again next quarter.

Now, operator, with that I am going to turn the call over to you for any 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 with Keybanc.

Mark, on guidance that was helpful, the financing kind of assumptions there. What are you guys assuming for the GAAP yield on EOP?

The GAAP yield on EOP, you mean like the going in cap rate on a GAAP basis? Is that what you're referring?

Yes correct.

Well, I'll tell you all we have for the time being are estimates for purchase price accounting purposes, Craig, and until closing we can't calculate the final straight-line rents and probably more importantly, the mark-to-market on rents and so suffice to say we could get into some discussion around GAAP and cap -- GAAP and cash cap rates but I think better than that, Craig, if you'll humor us in about a month's time we're going to actually close this deal. We'll have final purchase price accounting done and I think at that time we're better having a conversation around the GAAP adjustments because then they'll actually reflect the final purchase price accounting.

Okay that's fair. I'm just looking at these seeing the low end of your guidance versus my estimate and I think part of it would be probably the financing costs you guys are assuming and then likely the GAAP yield on that versus kind of the one that I'm trying to get at.

No you're--

You guys have come in better.

No on the financing cost of course there is no debt being assumed so there's no mark-to-market on debt so all the GAAP adjustment is going to be leases in place, right, so -- and again, that's -- that purchase price accounting is pending and we can get in, by the way. The other thing too is we try to give you some foreshadowing on a weighted average cost of interest so you can start to get a handle around what that interest expense would look like but we haven't finalized our debt structure yet. We have a pretty good handle on it. We haven't finalized it and of course rates continue to move until then so again, when we get to closing we'll be able to give you a very definitive idea of the interest expense.

Okay and then just financing, generally you guys have the preferreds I think are callable in December, pretty high rate. I know it's early in the year but kind of what's the thought process there? Do you kind of refinancing with more preferreds or do you take them out on the line?

Yes, Craig, it's Victor. We're definitely going to do something with it. We haven't decided what. We're not going to obviously -- we're going to take it out at the end of the year.

Okay and then I guess just going back to your comments, Victor, about the EOP coming better than kind of pro forma at this point, is it just the velocity of leasing and the depths of demand in the markets that you purchased or is it also lease rates relative to what you guys underwrote?

It's a combination of both. I think our underwriting right now is better. Either the performance is better than what we underwrote out in terms of a lease rates. We're seeing a very solid activity across the board on all the vacancy as well as the renewals. I think as our underwriting has had spoken for when we initially came out, we were looking at a year end 2015 and roughly 85% leased. With the couple of large deals that were done right when we took over the day-to-day leasing and operations in December, those were executed and subsequent were in discussions on a formal basis for 600,000 plus square feet of deals and we are in leases or have signed an additional 400 plus thousand square feet of deals so were way ahead of what we thought our numbers would be from a velocity standpoint and, as I said, the mark-to-markets are exactly in line, if not better.

Well, sounds good. So where do you think end of 2015, that portfolio could be leased at?

You know, I think listen I don't want to be held to anything at this stage until we close and we get into it but I think we will exceed our initial 85% by at least -- don't know -- a low end maybe a couple hundred basis points and on the high end maybe 400 basis points.

Okay great. I will yield the floor. Thanks, guys.

Vance Edelson, Morgan Stanley/

So looking ahead when we think about how 2015 might play out on the acquisition front after EOP is complete, can you comment on which markets now seem most attractive for expansion, which are likely to be a greater part of the mix a year from now? Is it San Francisco and the Valley or more Seattle with more limited opportunities in Southern California? Is that a fair way of looking at it?

Hey, Vance, listen; I think our three core markets were San Francisco and down the valley, Seattle and here in Southern California are still on the forefront. We are seeing deals in Seattle and we're going to continue to hopefully execute on some of the opportunities that we're working on. We are also seeing deals in Los Angeles and we're going to be executing on some deals there. I'd say of the three markets the valley and the city are probably in third place. We're not seeing as many deals and obviously we're going to attack the existing portfolio that we're about to close and for the most part focus our energy and our team on that versus new deals that love the quality of the assets and what we have and so I would say it's sort of a tie between the Los Angeles market and the Seattle market going forward for the short-term.

Okay makes sense and then related to that could you just provide an update on the cap rates you're seeing the liquidity up and down the coast? Are there any signs that in some specific cases the bidding might be getting ahead of the fundamentals or from what you're seeing is everything still quite reasonable?

No I think what we're seeing right now in the Seattle marketplace the fundamentals and the cap rates obviously are -- there is some disparity there. I think in Seattle we're probably looking at a six up to seven range on the cap rates, which is fundamentally in line with the leasing. I think obviously here in Los Angeles in line with what accounts you see in the market you're really talking about somewhere around the four to five range where rental rates are still -- haven't moved into place yet. But I believe there's going to be some substantial comps coming to the marketplace on a rental rate basis, which is going to make that GAAP a lot smaller and cap rates probably in a stabilized five range seems to be where we're looking at going forward.

Okay that's helpful and then just from a procedural standpoint on EOP, can you give us a feel on the integration process? Is the heavy lifting already done would you say? Does it even have to be complete before closing or could there be odds and ends that remain for a while since the full integration isn't really achieved for a year for example?

So listen, I think as we had commented on initially in our December announcement, we started integrating then. We have not stopped. It is a process. I am very confident that it's been as smooth as we could have possible imagined. The retention and hiring is almost complete. I think the heavy lifting, as you would put it, is really mostly behind us but there's going to be a tremendous amount of integration and Hudson culture processes put in place.

I do think from an accounting and operating side we're way ahead of target as to where we were -- where we would have been if we hadn't sort of started this in December. But it is an ongoing process. I am sure, like anything else, when you're taking on 8.2 million feet and a marketplace that we've got a spectacular staff around it day in and day out, we will encounter issues that will be surprising and I think the team is fully prepared to deal with them on a foremost basis and I am confident that the execution is going to continue to probably the first couple quarters of operations but no surprises should derail us from this phenomenal opportunity.

Okay it sounds like you've got a good approach. I'll leave it there. Thanks, Victor.

Ian Weissman, Credit Suisse.

Just going back to the guidance for a second, how should we think about sort of the legacy portfolio, just the comp store revenue growth number?

You know, we ourselves talked about this and thinking it could likely come up. I think the challenge of the legacy portfolio and what the incremental impact of the Redwood transaction has to it is, it starts with a difficult -- the starting point of that can be a challenge because we've done a lot of things that change that underlying legacy portfolio leading up to this transaction so in order to get to a same store point of reference you'd have to make certain decisions around whether or not you assume First Financial is sold, whether or not you assume the JV at 1455 is done.

You'd have to make an assumption around the equity offering and other events that have transpired as it relates to legacy portfolio that have been done and proceeds of which now get redeployed into this particular opportunity but if they -- if there weren't this opportunity then there's other uses of proceeds and so the challenge, Ian, is coming up with what that base case number is. And I think -- but I do think it's a fair question but I just think it's probably deserves a bit of development in terms of what you'd want as your starting point so that we could give you -- use that as the point of reference so you could see the impact.

And I think, by the way, not a month from now we will have -- will give full sets of numbers around the actual final debt structure and on timing and interest rates and everything and at that point what we'll try to do is give people points of reference like the incremental cash NOI, incremental GAAP NOI that came through from the Redwood transaction so you can see what the legacy portfolio did.

I guess what I am struggling with here or trying to figure out is -- I mean if we sit here and we don't know the FAS 141 number, we don't have a good number on the legacy internal growth number, why put out a -- and you guys put out a guidance range way above the Street. I just want to know what that range is based on and how and we can sort of bridge the gap between where the Street is today, which is significantly below that, to that number. Now the financing costs were very helpful. I just want to make sure that I am modeling the Company correctly and there's--

I hear you.

It's basically essentially telling us we need to wait?

Well, I don't know if we need to wait. What I think we could do, Ian, obviously not anything that wasn't discussed on today's call but what we could do is we could spend some time with you. We could focus in on what the non-Redwood portfolio's performance has been off the record and then we can hone in with you on what that would have meant in 2015 but for the Redwood impact and, by the way, as it relates to the current consensus estimate, which I think you're probably seeing the $1.37. That's what we see.

I can tell you the composition of that reflects certain numbers which haven't been updated for quite some time and in fact don't reflect the announcement on Redwood at all. And some have been updated so in itself is sort of a combination of numbers that with a very wide range of estimates in it so I don't really know that our number as it relates to the Street's expectations that the Street's expectations is that good a point of comparison.

Right okay and then just a question, just given your leasing success so far out of the gate in the EOP portfolio, any plans as yet? I know there's a lot to digest there but any plans about thinking about selling some of those non-core assets or markets sometime this year?

You know, that's -- we've addressed that before, Ian, and in the end of the day our position is we've got perhaps one or two assets that we may consider disposing of sometime in 2015 but for the most part the portfolio in place is what we're going to keep and we're excited about the opportunity of having the combined portfolio which makes a lot of synergetic sense going forward to be what we have.

Okay thank you very much. I appreciate it.

(Operator Instructions). Ryan Peterson, Sandler O'Neill.

Yes thanks, a couple questions. First one, since you guys started kind of managing the EOP portfolio in December or leasing it, is there any offset there? Do you guys receive a fee for managing it or do you just benefit from kind of getting in there early and starting to set up the portfolio the way you want?

Good idea, Ryan, maybe we should have asked for that fee. I don't -- didn't think of that one. No the answer is is that obviously we're going to be the benefactors in the capital that we are overseeing is going to come out of us going forward so all the good going forward will be a combined benefit to Blackstone as a shareholder and the current Hudson shareholders in the portfolio going forward. We took over the day-to-day decision making process with a phenomenal team in place and I think the combination has proven itself to be as successful as we could have imagined and, as I said, the capital outlay will be Hudson related dollars once these leases are -- have been executed and the ones that have been executed once the capital improvement and tenant improvement dollars and leasing commissions are deployed so.

Okay and then so is the G&A uptick this quarter I assume is that, the beginnings of the integration.

Is the question that whether or not the G&A is reflected in the current guidance estimate?

Yes well, no sorry, the G&A in the fourth quarter was a bit higher. I am assuming that's because of the leasing of the EOP portfolio?

Oh there's -- it's not exactly. I mean there's maybe some incremental G&A associated with anticipated hires but no that's the G&A is sort of a reflection of a combination of the adoption of a new outperformance plan, which we've been doing incrementally every year and the present value analysis of that is somewhat factored in and then also just its performance related somewhat higher bonuses.

Okay. And then one more question just kind of switching gears on the -- you said the ICON development that you have about two million square feet of demand I think, how are the rents looking on that versus what you were originally underwriting?

So we are seeing rents higher than what we underwrote and that is obviously given the fact that some of the costs set in the area have been higher rents and Viacom being the most specific one was at a higher rent that we had initially even underwrote our assets to be stabilized, which really we're anticipating in September of 2016 as to where there's affected rents would be -- come into play, so we're happy to see the flow of tenancy and we're even happier at what some of the quarter rates that we're looking at and discussions that we're having.

Okay great, that's it for me.

Richard Anderson, Mizuho Securities.

I'm sorry if I missed this. I got on a little bit late but the occupancy level now of the OP portfolio?

We've not quoted occupancy now. I mean going in our occupancy, Rich, was 80%, just a tick over 80%, and we've not quoted occupancy but what we've stated is we in our remarks we've seen a tremendous flow of leasing activity and we've got somewhere in the range of about 600,000 square feet of deals that are in discussions and another 450,000 feet of deals that are either signed or in leases so we've got a lot of activity but we've not quoted a change yet and that's exclusive of the deals that we had referred to when we first took it over which was Walmart and Google, which is an additional 200,000.

Okay and if I can get back to Ian's question, you kind of gave all the pieces of the puzzle to the guidance range except for maybe the most important one which is the yield on the transaction, the GAAP yield. We know what the GAAP--

Well, we had indicated, Rich, at the time of the transaction that we'd projected in place yield on a cash basis it was about five one, 5.1%, and we--

Is that what you're assuming? Is that what you're assuming in guidance then, that 5.1%?

No, no, no, no we've made an assumption around a GAAP adjustment but it is only a preliminary assumption for straight-line rents and mark-to-market on in place. Now, I suppose we could have given an FFO estimate on a strictly cash basis but I think we all -- then the question would have been why didn't you give us some idea of what the GAAP adjustment might be but the -- we can discuss with you what our underlying thinking is but in a month's time we are going to have an actual purchase price accounting done and until that time we won't have true straight-line rents or the actual mark-to-market on rents. So the best case we can do is some estimate for it and it strikes me that it's probably a more useful and more -- it has more veracity once the purchase price accounting is done.

Okay but you don't want to share what that estimate is just so everyone can't, doesn't have to sit around for 30 days? I mean it just seems like okay what's the assumption? We get it, it's an assumption. It might change in a month's time but it might be helpful just to--

Okay, all right. Look I think it's safe to assume that on a GAAP basis that 5.1% cap rate approaches very close to a six cap rate on GAAP basis.

Okay thank you very much. I appreciate that. And then this is small potatoes but I just maybe one of the canary in the coal mine type questions I tend to ask but rocket fuel? I know it's not a huge tenant of yours but it had a tough quarter. Is there anything there that you're worried about for them or any beyond them, any tenants that have kind of had maybe a little bit of a stumble at the gates more recently that are kind of on your radar screen beyond the larger one?

Well, specific to Rocket Fuel, listen we monitor a lot of tenants and we know what's going on with those guys. I think the easy answer to that at the end of the day, which is their space is absolutely perfectly built out and I think their rent off of memory is close to $46 and we're doing deals there at $60 so the spread is substantial enough for us to see what happens in that space because as is we could probably get $60 all day long. And I do know our guys are in conversations with them and I am sure they're very comfortable with the answers they're getting from Rocket Fuel and if not they're entertaining other conceptual ideas with some of the existing tenants who are desperately in need of expansion.

Sure, any others that you're kind of having some conversations about about near-term future plan based on their recent performance?

No.

Okay thank you.

James Feldman, Bank of America.

Can you talk a little bit more about your relationships with TPP? Do you think we'll see more sales or more joint ventures with them? And then also just beyond them specifically, what was the (inaudible)?

We lost -- you cut out, James. Well, we lost James I think. Maybe he'll call back in if he wants to pick up the answer. The relationship with TPP is in specific is around 1455. We have an understanding that we will take a look at some more deals with them. They're interested in some of the existing deals and obviously some new deals that we're looking at together. I think that's a strong long-term joint venture partner with the right kind of structure in place. We're excited about that opportunity and doing other deals together.

Thank you. And there are no additional questions at this time. I'll turn the floor back to Mr. Victor Coleman for closing comments.

Thanks so much and I appreciate the opportunity to present our fourth quarter results and questions and we look forward to speaking to you all again at the end of this quarter. Thank you.

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