Good afternoon and welcome to the Hudson Pacific Properties Fourth Quarter 2021 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Please go ahead.

Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing. Yesterday, we filed our earnings release and supplemental on an 8-K with the SEC and both are now available on our website. An audio webcast of this call will be available for replay on our website. Some of the information we will share on the call today is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call and in those materials. This morning, Victor will discuss macro trends across our markets and our 2022 priorities, Mark will review 2021 business highlights, along with upcoming opportunities, and Harout will discuss our fourth quarter financial results and provide initial guidance for 2022. Thereafter, we will be happy to take your questions. Victor?

Thank you, Laura. Good morning, everyone and thanks for joining us. Hudson Pacific accomplished a great deal in 2021, staying true to our core strategy. We further expanded our office and studio portfolios within global centers of innovation. We delivered an exceptional value of creating redevelopment opportunities like One Westside. We grew our studio platform by acquiring new production service lines as well as by adding another large scale, purpose-built studio to our development pipeline and all of this while successfully capitalizing on our office leasing expirations and maintaining a strong and flexible balance sheet. The long-term outlook for the unique type of properties and experience Hudson Pacific provides for its studio and office tenants has never been brighter. For over a decade, we have remained diligent in our focus on high barrier-to-entry markets, propelled by growth of tech and media, where the related industry infrastructure, be it capital flows, talent or services, is entrenched. We have also put ourselves at the forefront of owning and operating production studios, whose operational complexity and unique relationships also create significant barriers to building a platform at scale. Our strategy has proven out and remains well intact as the pandemic has only accelerated pre-leasing demand trends, driving an abundant amount of capital to the tech and media industries. Venture capital investment reached $330 billion in the United States last year. This is the highest year on record and almost double the prior year, with California receiving the lion's share of more than 3x any other market. We expect this to continue with venture funds raising nearly $130 billion last year, up 50% year-over-year, and eclipsing the $100 billion mark for the first time ever. Software and other non-biotech investments surged in 2021, which, coupled with increased early stage fundings, are poised to further drive leasing velocity at our smaller tenant focused Peninsula and Silicon Valley office assets, where we’re already seeing demand accelerate. Content production spend for the addressable U.S., UK and Canadian markets totaled approximately $175 billion in 2021. That’s a 14% increase from the prior year with studios like Comcast, Disney, Netflix, Apple and Amazon spending more than $100 billion. Production spend is anticipated to increase again this year as the battle for streaming service subscribers further intensifies the U.S. and global markets alike. This bodes very well for the demand at both our studios and our strategically located office assets. Several of these companies have sizable requirements, not only for Los Angeles, where the location, quality and studio adjacency of our office portfolio and development pipeline is unmatched, but within our other markets as well. Improving public commentary around return to work is beginning to reflect the reality of our tenant discussions and it has accelerated leasing activity across all of our markets. For media and tech tenants and creative office companies, where culture and collaboration is essential, the terms hybrid and flexible are not translating into less workspace. In fact, fan-type tenants, which have long been the bellwether on workplace trends, have been accumulating large blocks of space throughout the pandemic. This activity has accelerated in the most recent months as Meta platforms, LinkedIn, Pinterest, Upstart, Zillow, Amazon, Twitter, Indeed, Riot Games and Roku have all signed significant leases across our markets. Big picture, with this favorable backdrop in 2022, Hudson will continue to do what it does best, creating significant shareholder value by transforming underperforming real estate in global tech and media markets, and leasing that space to meet the modern workspace needs of today’s and tomorrow’s leading companies. We are specifically focused on five key objectives this year. First, to successfully address our 2022 office lease expirations, while capturing double-digit mark-to-market on rents; second, to execute successfully on our near-term value creation office and studio developments including Sunset Glenoaks and Washington 1000; third, to recycle capital from non-strategic asset sales into high-yielding strategically aligned acquisition opportunities, be it office or studio assets, production service businesses, or repurchase shares; fourth, to maintain a strong, flexible balance sheet with ample liquidity to run and grow our business; and finally, to continue to undertake innovative and impactful ESG endeavors that further differentiate our company, Hudson Pacific, in the areas of sustainability, health and equity. With that, now I am going to turn it over to Mark.

Thanks, Victor. Our strong performance in 2021 speaks to the resilience of our strategy as well as our team’s incredible ability to execute across all our verticals. Last year, we signed over 1.8 million square feet of office leases with healthy 14% GAAP and 7% cash rent spreads. GAAP and cash rent spreads were further elevated in the fourth quarter at 16% and 11%, respectively, for the 448,000 square feet of deals signed, which contributed to the 150,000 square feet of positive net absorption. Today, even after signing nearly 0.5 million square feet last quarter, our leasing pipeline comprises nearly 2 million square feet of deals in leases, LOIs or proposals, a level of activity 35% higher than our long-term average. Our 2022 expirations are 12% below market. Regarding our largest expirations, we’re in late-stage leases for 100% of the NFL space in Culver City. We’ve backfilled KPMG space with Amazon in Denny Triangle. We plan to reposition the Burlington Coat space as office in San Francisco, enabling us to capture a very significant markup on the sub-$10 annual rents. We are already in discussions with both Auris Health and Stanford to renew along the Peninsula for upcoming fourth quarter expirations. And we now expect that Qualcomm, which expires in the third quarter, will vacate their space, which we will look to reposition as we market it for lease. Excluding known vacates, Qualcomm, Dell and Burlington Coat, we have 45% coverage that is leases, LOIs or proposals on our remaining 2022 expirations as well as another 25% in discussions. Most of those in discussions represent smaller sub-10,000 square foot tenants along the Peninsula and in Silicon Valley with late third or fourth quarter expirations, who would be unlikely to engage more fully until later in the year. That said, among all our markets, Peninsula and Silicon Valley fundamentals are tightening most swiftly, including a combined 2.6 million square feet of positive net absorption in the fourth quarter. We continue to create value through our pipeline of exceptional redevelopment projects. At the end of last year, we delivered One Westside, a 1980s era shopping mall we converted into a spectacular urban campus nearly two months early and fully delivered to Google for tenant improvements. From start to finish, this project serves as a case study for visionary and sustainable adaptive reuse. We are in leases and expect to sign imminently with a tenant for the balance of Harlow, our stunning 130,000 square foot office development on the Sunset Las Palmas Studio lot. Upon stabilization, anticipated year-end 2022 for Harlow and mid-2023 for One Westside, these projects will generate approximately $45 million of combined NOI annually. We have taken advantage of opportunities to acquire a high-quality, strategic and immediately accretive asset like 5th & Bell in Seattle’s dynamic Denny Triangle submarket. In less than three years, through a series of acquisitions, we’ve tripled the size of our Denny Triangle portfolio to over 1.9 million square feet and added Amazon to our top tenants. We now own some of the best assets in that market, which continues to benefit from its South Lake Union adjacency as well as the $2 billion Washington State Convention Center addition and related retail public space and streetscape improvements, all set to deliver in less than a year in January 2023. We are awaiting the convention center’s delivery of the podium for our fully designed and permitted 538,000 square foot Washington 1000 office development, after which construction should take about 18 months. Upon stabilization, we expect this project will generate approximately $27 million of NOI annually. We successfully accelerated the growth of our studio platform in 2021 as well. Our goal has always been to build a premier forward-looking studio portfolio, uniquely positioned to meet future demand from leading content creators, be it through location, the right product fit for stages and production office, fully integrated service offering or a combination of all three. Our ability to vertically integrate our studio business to not only deliver and operate studio facilities alongside strategically located office assets, but to acquire and run operating companies like Star Waggons and Zio Studio Services, all under one global brand greatly enhances our ability to meet tenant demand and create value. Combined, Star Waggons and Zio generated $32 million of EBITDA last year, significantly above our underwriting. And in 2022, we expect EBITDA to grow to approximately $35 million to $37 million. Construction is now underway at our Burbank adjacent Sunset Glenoaks, which we expect to deliver by third quarter 2023 and generate approximately $15 million of additional annual studio related NOI upon stabilization. We are also making progress on public approvals for our Sunset Waltham Cross development in the UK, which we could receive by year-end. Collectively, the addition of these two studios will expand our global platform to five facilities with over 60 stages. We have continued to opportunistically repurchase our stock under our $250 million share repurchase authorization, taking advantage of pricing dislocations alongside pursuit of embedded and external growth opportunities. In the fourth quarter, we repurchased another 1.3 million shares of our stock at an average price per share of $24.07. Throughout the entirety of 2021, we repurchased a total of 1.9 million shares at an average price per share of $23.82. As of year-end, we have identified four non-strategic office assets for potential disposition. These include 6922 Hollywood in Hollywood, Del Amo in Torrance, Northview Center in Lynnwood, and Skyway Landing in Redwood Shores. For all these assets either the location, tenancy or asset quality is no longer a fit for our strategy and we believe our capital is better allocated to higher-yielding investments, whether it would be funding our development pipeline, making strategic acquisitions or continuing to repurchase our stock. With that, I will turn the call over to Harout.

Thanks Mark. Fourth quarter FFO, excluding specified items, was $0.52 per diluted share compared to $0.44 per diluted share a year ago. Fourth quarter specified items consisted of transaction-related expenses of $1.5 million or $0.01 per diluted share and a one-time prior period supplemental property tax reimbursement of $700,000 or $0.00 per diluted share, compared to specified items totaling $4.8 million or $0.03 per diluted share a year ago. I’ll note that last year, despite the pandemic challenges, we achieved the high end of our 2021 FFO guidance range with full year FFO of $1.99 per diluted share. Fourth quarter AFFO once again grew significantly compared to prior year, increasing by $90.3 million or 37% compared to FFO increases by $16.8 million or 27% during the same period. Again, this positive AFFO trend reflects the significant impact of normalizing lease costs and cash rent commencements on major leases following the burn off of free rent. Fourth quarter NOI at our 42 consolidated same-store office properties increased 4.6% on a GAAP basis and 2.8% on a cash basis, whereas full year NOI increased 0.7% on a GAAP basis and 4.9% on a cash basis. Fourth quarter NOI on our three same-store studio properties decreased 9.5% on a GAAP basis and 17.3% on a cash basis. However, adjusting for the one-time prior period property tax reimbursement, NOI would have increased by 17.7% on a GAAP basis and 6.9% on a cash basis. As of year end, our in-service portfolio was 91.8% occupied and 90.8% leased, representing 120 basis points and 160 basis points quarter-over-quarter increase respectively. Following the $1.1 billion refinancing of our Hollywood Media portfolio in late summer, we returned to the capital markets in the fourth quarter to further fortify our balance sheet and increase our liquidity. We raised $413 million through a successful preferred stock offering, which we used to repay a $25.2 million loan secured by 10950 Washington coming due March 2022. Along with amounts outstanding under our credit facility with additional funds available for other corporate purposes, we also recast our credit facility, increasing availability from $600 million to $1 billion and extending the term until the end of 2025. At the end of the year, we had $1 billion in liquidity with no material maturities until 2023 and average loan term of 4.8 years. In addition, we have access to $263.9 million of undrawn capacity associated with construction loans for One Westside and Sunset Glenoaks. Now I’ll turn to guidance. As always, our guidance excludes the impact of any new opportunistic acquisitions, dispositions, financings and capital markets activity. In addition, I remind everyone of potential COVID-related impacts to our guidance, including variants and government mandates. That said, we are providing initial full year 2022 FFO guidance in the range of $2.01 to $2.09 per diluted share, the midpoint of which represents a 6% increase over that of our initial FFO guidance last year. There are no specified items in connection with this guidance. We expect same-store office cash NOI growth of 2% to 3%, which includes the full impact of Qualcomm’s expiration without renewal or backfill of their entire space at Sky Plaza. Adjusting for this expiration, we would have guided to 3.5% to 4.5% growth. We expect same-store studio cash NOI growth of 15% to 16%. Note that our 2022 full year guidance reflects for the first time, the full year benefit of certain transactions and milestones, our acquisitions of Star Waggons and Zio Studio Services, both of which occurred in the third quarter and our purchase of 5th & Bell and the delivery of One Westside to Google for tenant improvements, both of which occurred in the fourth quarter. Now, we will be happy to take questions. Operator?

Thank you. The first question is from the line of Craig Mailman with KeyBanc Capital Markets. Your line is now open.

Hey, guys. Victor, one quick one, I know in the news, there has been some talk about the $150 million tax incentives that Governor Newsom passed. Is Glenoaks — are you guys anticipating getting any of that allocation for Glenoaks and is that sort of in the 7.5% to 8% yield expectation?

So, it’s not in the 7.5% to 8.5% yield expectation. Hi, Craig. The $150 million is for development allocated for studio development and we will apply for that. I am not sure we fall into the category; I am not sure of the status that we would really fall under Chris Pearson and Chris Barton's area, but the answer is yes, we’ll apply for it. I am not sure if we’ll get it or not, but it’s not part of the yield.

Okay. And then the assets held-for-sale, how far are you guys along in the process on those few assets you guys put in the bucket there? And I know, you guys have been pretty steady capital recyclers. As we think about maybe what’s in guidance for this year, what level of these non-core assets could be in there versus maybe some joint ventures of your better lower cap rate assets?

So, let’s not assume that we are going to do any JVs at this time and we have had conversations on a few of the assets under that direction, but nothing is reflected obviously in guidance as Harout pointed out. Of the four, in no particular order, Del Amo, our final offers are coming in next week, I think it’s Tuesday. 6922, today is the first day of offers. Our team is expecting somewhere between six to ten offers or so. Those two are relatively imminent. Northview, I believe is slated for March 1 for the packages to go out and then they will probably call for offers near the end of March. We are evaluating a couple of alternatives around Skyway. I believe the data is exactly the same as March 1, but there is an interesting play around life sciences that has been approached to us. We are going to evaluate that with the tenancy and the available vacancy and the transformation of that asset. If everything goes really well, end of second quarter, everything should be closed and so it will be impacted for the second half of the year, which is maybe how the team would think about it.

Just to be clear, in our guidance, we assume we hold them for the whole year just because we don’t know the timing. So, the guidance reflects owning those assets throughout 2022.

And I don’t know if you guys have run this, but just assuming maybe something happens in 2Q or late 2Q relative to maybe your expectation, is there a way to give a blended potential impact that wouldn’t give away what your pricing expectations are? Do you guys have a sense of what the drag would be if you execute it from Del Amo specifically?

A suggestion would be the range of gross proceeds there is somewhere between, call it, $3.25 and $3.75 hundred million collectively. Recall that Del Amo has no current tenancy and you can gauge through the percentage leased on the other three what the leasing status is. So, you could throw a relatively low cap rate at the number, assume you disposed of those assets sometime within the middle of the year, you would get close to the NOI associated with those assets. And then the real question is what do we do with the proceeds, do we redeploy quickly into a new acquisition and so forth, but that should give you a pretty good way of estimating the impact.

No, that’s really helpful. And then just one last one for me, on the Burlington space, what’s the plan? Does it stay retail and how much do you think you have to spend, and what type of tenant are you envisioning for the ground floor and the office conversion?

Hey, Craig. It’s Art here. The project is 95,000 square feet, currently all retail. It’s going to be virtually half office and half retail, probably a big box user down below. The rates we are looking at: our gross rents on that asset were close to $8 annually and we are looking for kind of low 60s rent on the office portion.

Is that location fared well with everything going on in San Francisco from a retail leasing perspective? Will it be easy to get a retailer in there for the ground floor or do we need a little cleanup first?

Yes, absolutely. It’s a great location in SoMa. There have been hints of inquiries for big box retail and office in that class. So, we feel really good about the activity for higher-end space in SoMa.

Great. Thanks.

Thank you, Mr. Mailman. The next question is from the line of John Kim with BMO Capital Markets. Your line is now open.

Thanks. Good morning. I just want to clarify, are you suggesting that guidance can come down based on dispositions or is this a base case just given the timing and the likely low cap rate that you are going to sell out?

So, the answer is it can go down or up, because if we redeploy the amount into accretive assets, it can actually go up. That’s why we don’t guide either way, because we don’t know the timing and we currently don’t have these proceeds figured out yet. So it can go down if we sell, but if we buy back stock, that might be much more accretive than the underlying FFO that it was providing.

Okay, that makes sense. On your 2022 expirations you discussed having 45% in coverage, another 25% in discussions, excluding the known vacates. How much of that is renewal leases versus new leases where there might be some vacancy downtime?

Do you mean backfill? I would say about a third of it is backfill that we are already working across the entire portfolio.

If I could just ask one more, the Dell, I think you mentioned that’s a known vacate, so that was the lease that was extended on a part-time or short-term basis from October to earlier this year. I just want to clarify that Dell will be leaving that space?

That’s correct. They are leaving three floors and we are in discussions on one of those floors currently. The backfill in the market is about 52%.

Great. Thank you.

Thank you, Mr. Kim. The next question is from the line of Manny Korchman with Citi. Your line is now open.

Hey, everyone. Maybe a combination of what Harout and Victor said earlier: it sounds like you are going to get a bunch of excess capital from these dispositions and I am not sure how big your acquisition pipeline is. You also did the preferred offering, which brought a bunch of excess capital in. What is the plan? Do you have a big acquisition pipeline? Do you want to be cash heavy at the moment? What drove you to do the preferred offering now?

A couple of things, Manny. We have a very extensive development pipeline that we are aggressively pursuing; some we have announced and some we haven’t. We have allocated dollars not yet specified for other accretive uses of capital. As always, we want a very strong balance sheet to maintain flexibility. I wouldn’t read too much into one funding or another; we have always looked to capitalize on opportunities to access capital. These four assets are not core to the portfolio. Timing is right. Hopefully pricing will be right and we will execute on those deals. If we don’t get the right pricing on these assets, we are not going to sell them. That’s why we haven’t altered our numbers for 2022.

Victor, in the press release last night, you pointed out growth in the studio portfolio as one of the focuses for the year. That’s not that different than before, but is there a reason it’s front and center?

There are a lot of opportunities we are evaluating in the studio space right now. We are probably evaluating more opportunities with our JV in that product type than what we are seeing in office in our markets, so yes.

Thanks, Victor.

The next question is from the line of Jamie Feldman with Bank of America. Your line is open.

Great. Thank you. I was hoping you can follow up on comments regarding capital flows, VC investment and how it’s translating into better leasing, especially for your smaller tenant portfolio. Can you talk specifically about submarkets that in the fourth quarter or in the pipeline seem to be improving? And then as you think about the portfolio following these four asset sales, how might the trajectory and expiration risk look differently?

If you think about the amount of capital raised in California, that equates to capital being distributed to companies that want to be near their capital providers or partners. That’s always been the trend. In the Valley, we did 145 deals in Silicon Valley in 2021 versus 74 deals in 2020. The majority of those deals are in the 10,000 to 30,000 square foot range. That is driving activity on the ground. The top large tenants in the Valley were Apple, Meta, NetApp, C3, LinkedIn. We are seeing activity and market strength reflected in on-the-ground leasing. Art can comment further.

We see it on the ground, especially across the Valley where we moved that portfolio about 130 basis points quarter-over-quarter, and that’s driven by deal volume in the sub-10,000 square foot range. Our market share is about 10% of all the deals we’ve done over the last two years in the Valley while our footprint is about 4%. So we’re doing more than our share of deals.

To your question about the four assets, Skyway is the only asset in the Valley we have that we have been purposely evaluating higher and better use for, including life sciences. Del Amo is 100% vacant. 6922 has had some leasing interest. Northview is roughly mid-80s percent leased. If we execute on these sales, it will take some exposure away from future vacancy in the portfolio.

These comments make sense given VC funding, but you’ve also seen the stock market fall and concerns about growth stocks. Have you seen a shift at all in leasing volume or deals falling out due to broader concerns?

I gave you a snapshot of top deals in the Valley alone—over 3 million square feet by high-profile tenants. Peers in the markets are active. We are seeing zero set back or pushback on that activity. Our portfolio doesn’t have a ton of tenants expiring who are in those names, and those that are expiring are looking to renew. We are in leases on two large spaces already.

Close to three quarters back we started reporting increases and strengthening in fundamentals, starting with tenant demand in the Valley. Gross leasing is up sequentially quarter-over-quarter. Our square footage from 2020 to 2021 increased 165%, which speaks to velocity and our ability to capture deals.

So you haven’t seen any change in appetite based on the stock market?

No. If anything, we’re seeing an acceleration in deal activity.

Okay, great. Thank you.

Thanks, Jamie.

The next question is from the line of Blaine Heck with Wells Fargo. Your line is open.

Okay, thanks. Good morning. Victor, you talked about using proceeds from sales to fund high-yielding office and studio investments. On the studio side, is it more of the vertical integration and service business acquisitions like Zio and Star Waggons? On the office side, are you seeing more value-add opportunities with higher yields or was your comment directed more towards development?

High-yield opportunities will be more development related or operationally related, consistent with what we project on the studio and office development sides. We expect Washington 1000 to be one of the highest-yielding development deals in Seattle. Core deals trade at aggressive cap rates; we are seeing some value-add deals that make sense and we are evaluating them as they come in.

Okay, great. Maybe for Mark or Harout, with respect to timing of Google revenue recognition at One Westside, can you walk through the major milestones? My understanding is you turned the property over to Google to build out tenant improvements and GAAP rents commence upon delivery, with cash rent starting after tenant abatement. How are you feeling about Google getting the TIs completed by the third quarter?

We delivered the space in 2021 in December, so we did start GAAP revenue recognition at that time. From a GAAP and FFO perspective, that will continue regardless of the timing of their build. In terms of their build and cash rent payment, they have that amount of time. If they build sooner or later, cash rent still starts per the lease terms. After nine months there is cash rent starting.

There is one month of free rent that starts in the third quarter of this year, then eight months of abated rent, and then all of the cash rents begin after that eight-month abatement.

It’s a bit confusing because there is a large gap in terms of cash rent, but for GAAP purposes, recognition starts immediately upon delivery.

Great. That’s clear. Thank you.

You can see that described in Footnote 14 on Page 20 of the supplemental if you want to reference it.

The next question is from the line of Caitlin Burrows with Goldman Sachs. Your line is open.

Hi, good morning. Starting with a broader one on return to office: what are tenants telling you about their latest plans? How has that evolved over the past six months and what could be different now?

It’s a day-to-day moving target with mask mandates being lifted in many places. That has been a catalyst; kids going back to school and increased vaccination for children have led tenants to have game plans that are imminent, some as early as March 1. Companies may not make public announcements but are bringing people back quietly. Our largest tenants are actively engaging to return imminently.

Got it. On the studios, you had positive same-store cash NOI growth in the fourth quarter and your guidance assumes an acceleration in 2022, but same-store occupancy is down. How is same-store NOI and revenues accelerating even if occupancy is declining?

That occupancy decline was driven by non-stage-using office tenants—some space is occupied by tenants who want proximity to stages like casting agents, and that tenancy trailed off during the pandemic. The real driver of studio revenue is stage utilization and utilization of services and support. Strong stage usage can drive revenue even with some weakness in non-stage-using office tenants. As things normalize and tenants return to the office, that part of the studios will also normalize and come back.

Got it. Thanks.

The next question is from Rich Anderson with SMBC. Your line is now open.

Thanks. Good morning and congrats on the Super Bowl for any Rams fans out there. Speaking of the NFL, what is the mark on that expected to be, assuming you get the late stage lease to finish, and I understand this doesn’t expire until the end of this year. Given the TI build-out and everything, we’re really talking about this becoming a 2024 event from the standpoint of cash flow. Is that correct?

This is Art. It’s 170,000 square feet, and we are very close on final lease negotiations. The mark is about a 26% increase relative to the expiring rate.

Yes, that’s relative to the expiring rate.

There is an eight-month build period from execution, so it will be late 2023.

As for Qualcomm, what’s the risk this goes the way Cisco did a few years ago where it seemed like a vacate but ultimately didn’t happen? Do you feel the market is in a different spot now and you won’t have a similar outcome with Qualcomm?

Those are apples and oranges. That was one asset in a different marketplace then. This is a highly sought-after asset in North San Jose. We did not find out they were leaving until late; they did not tell us earlier. We now assume they will vacate and we are positioning it to be marketed. Art will add color, but we are confident.

Victor hit the nail on the head. It’s a great, newer two-building asset in a great market in North San Jose. There were ten deals over 100,000 square feet in 2021 and right now we are tracking about 12 more over 100,000 square feet. We feel positive about the prospect of signing leases, likely building-by-building rather than a two-building user.

Appreciate that. Harout, you mentioned the 37% AFFO growth in 2021. How much of that was unsustainable and what should we think about AFFO growth for 2022?

It is directly attributable to cash rents coming up across assets, burn off of free rents, and stabilization of TIs and leasing commissions. Google starting cash rent will contribute to future AFFO. Growth of 37% is unlikely to be sustainable every year, but the level of AFFO now should be relatively sustainable.

Last quick question, Victor. I was reading about the opening of Great Point Studios in Yonkers—one million square feet with Lionsgate as the base tenant. To what degree do you see early-stage opportunities like that where you could get in before entitlement stages, and is that the kind of thing your JV might pursue?

Yes, we saw that facility. They are ready to open some office space March 1. We are looking at similar opportunities—ground-up purpose-built facilities in Vancouver, London, New York and here in Los Angeles—and some other markets we are evaluating. The JV will pursue some of these opportunities aggressively.

You probably need to be a year early in the case of Great Point before installation?

Yes, there are entitlement issues on some of these and we are working through those on existing deals we have not announced yet.

Okay, thanks very much.

The next question is from the line of Vikram Malhotra with Mizuho. Your line is open.

Thanks. I wanted to clarify with the early delivery of One Westside: what was the impact to 4Q and what is the impact to 2022 versus earlier expectations? I know there is interest expense you will start recognizing as well.

In the fourth quarter, our share of FFO gave us roughly $300,000 of additional FFO in Q4, so it wasn’t material. For 2022, there really isn’t an impact—it's just starting a month earlier from a GAAP perspective. Cash may come in a month earlier, but for the balance of 2022 there is no impact from the early delivery. It was always expected.

Okay. The spreads on the office side still seem robust. Given market conditions, what is the portfolio-wide mark-to-market today for the office segment?

It’s just shy of 10% spot mark-to-market.

Last question: with additional capital from asset sales, two areas come to mind. One, peers have moved into Austin and the Sunbelt—are you considering those markets? Two, with the quality divide across markets, is there more desire to do redevelopment and amenitization?

We have been asked about other markets. We are currently laser-focused on our core markets from Vancouver down to Los Angeles. We are not considering Austin—it's not a market for Hudson at this time. We have spent the last two years during COVID looking at a number of our assets and spending capital on systems, beautification and adaptation to our quality portfolio. The four assets we are disposing of are ones that do not fit our strategy. There is a flight to class, which has proven true in our portfolio.

So to clarify, you’ve spent two years doing that work and now if incremental assets don’t fit, the primary strategy is disposition?

The primary strategy is to finish the redevelopment work we’ve been doing. There are a substantial number of projects our redevelopment team is working on. The only assets currently identified for disposal are the four mentioned; no others at this time.

Okay. Thanks for the color.

The next question is from the line of Ronald Kamdem with Morgan Stanley. Your line is now open.

Just a quick one. Can you talk about utilization of the portfolio? As utilization starts to return to normal, are there variable expenses we should be mindful of as more people use the properties?

Utilization is improving and accelerating, but measuring physical occupancy via elevator swipes or parking is less useful as hybrid work normalizes. Buildings will be in high utilization but suites will be less densely occupied. We may need to recalibrate what ‘fully occupied’ means. Incremental variable costs should be limited; buildings remained operational during the pandemic with heightened janitorial services and those costs are largely recoverable. The real impact will be parking revenue; normalized parking revenue has not yet materialized. Variable expenses for parking are modest but the revenue upside is more significant.

Got it. Thank you. All my other questions have been answered.

The next question is from Dave Rodgers with Baird. Your line is open.

Hi everyone, thanks for taking the time. You quoted 41% leverage with the preferred. When you think about $350 million of asset sales at the midpoint, and $100 million of cash after the dividend, that gives you liquidity. From the perspective of known capital spends and commitments this year, how much is that? And how do you think about leverage and the buyback program?

Quickly, the 41% is only on Preferred Unit A; it doesn’t include Preferred C.

Leverage can be measured different ways. On an undepreciated book basis, we are closer to the mid-30s. Every dollar deployed into our development pipeline will add gross asset value, so leverage will remain manageable; we might increase net debt to undepr. book by perhaps 100 to 200 basis points at most and stay in that manageable mid-30 range. On buybacks, there are limits on everything, but we are not constrained—we have ample room on the balance sheet to do a meaningful buyback if we choose to focus capital there.

On liquidity, known capital commitments for the year relative to anticipated inflows?

Putting aside speculative acquisitions, it’s not that much. We have a $90 million construction loan for Glenoaks that covers the spend for the year. One Westside has only TI allowance and retainage left covered by construction loan. The meaningful spend that could hit and isn’t covered by constructed debt will be Washington 1000 when we begin. We don’t know how much will hit in calendar 2022; maybe $70 million to $80 million at most, perhaps $100 million when you include the land takedown. The only other spend is ordinary TIs, commissions and recurring CapEx, which historically averaged around $25 million a quarter over the past four years.

Okay, thanks.

We are running late so we will take a couple more questions.

The next question is from Daniel Ismail with Green Street. Your line is open.

Thanks. We’ve been discussing strength in Silicon Valley and the Peninsula. Do you think that translates to San Francisco CBD this year?

Our San Francisco exposure is limited; aside from Burlington’s early termination, our portfolio is about 94% leased. I remain relatively bullish on San Francisco and believe it will recover faster than many expect. Tenant demand is rising; we’ve seen 7 million feet of gross leasing in the city in the last 12 months and sublease space has come down notably. There’s work to do, but the trend is improving and political atmosphere changes are helping. San Francisco still has some issues to resolve over the next 24 months, but we are optimistic on its trajectory.

It remains a tale of two markets; highly amenitized, desirable spaces are seeing rents tick up and less pressure on TIs and free rent. Those are positive signs and we are paying close attention.

Got it. Thanks.

Operator, we will take one more question, please.

Certainly. The last question is from Nick Yulico with Scotiabank. Your line is open.

Thanks. Is it possible to get the occupancy growth that’s assumed in guidance? I know Qualcomm is about 250 basis points of vacancy, so any perspective would be helpful.

We haven’t provided that number, but we’ve reviewed post-quarter numbers and it looks to us that occupancy by the end of 2022 is essentially identical to where we ended the in-service portfolio at the end of 2021.

Okay. And that’s inclusive of the Qualcomm vacate?

Yes, that’s for all of the in-service portfolio, which Qualcomm is part of.

Thanks. Just a follow-up on Qualcomm: do you have insight into what affected the leasing decision? Was it related to flexible work? Also, how does increased vacancy in that submarket impact Cloud 10 and future development demand?

Qualcomm’s decision is not tied to COVID or flexible work; they had been debating staying or leaving for years. This is how they operate. It doesn’t reflect a market shift over the last two years. Regarding Cloud 10, we are discussing it with two interested tenants; it’s a new project designed by Gensler and should attract continued interest, though timing and delivery will vary.

We had about 3.1 million square feet of deals in the Valley in 2021 and we’re tracking another 12 deals greater than 100,000 square feet. We expect likely single-building users rather than two-building users. We are repositioning the asset with modernized amenities, landscaping and tenant experience improvements and feel very good about capturing market activity.

Okay. Thanks everyone.

Thanks so much. I’m sorry we went over by 10 minutes. I appreciate all the support and the dedication and hard work of all Hudson employees and a great quarter and accomplishment in 2021. We will see you all soon.

The conference call has concluded. You may disconnect.