Image source: The Motley Fool.

DATE

Wednesday, Nov. 5, 2025 at 12 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer and Chairman — Victor Coleman

President — Mark Lammas

Chief Financial Officer — Harout Diramerian

Executive Vice President, Leasing — Arthur Suazo

Need a quote from a Motley Fool analyst? Email [email protected]

TAKEAWAYS

Office Leasing Volume – 515,000 square feet of office leases were executed in Q3 2025, with 67% representing new deals.

Portfolio Office Occupancy – 75.9% in-service office portfolio occupancy, an 80 basis point sequential increase.

Studio Leasing – Trailing twelve-month leasing for in-service studio stages was 65.8%, up 220 basis points sequentially; Coyote stages were 48.3% on a trailing twelve-month basis, up 90 basis points sequentially.

Revenue – $180.6 million in the third quarter, a decline from $200.4 million in the prior year, primarily due to asset sales and lower occupancy.

FFO (Funds From Operations) Excluding Specified Items – FFO excluding specified items was $16.7 million, or $0.04 per diluted share, up 17% year-over-year, with higher share count offsetting per-share benefit.

G&A Expenses – $13.7 million, a 30% reduction from $19.5 million in the prior year, attributed to efficiency initiatives.

Same-Store Cash NOI – $89.3 million same-store cash NOI, down from $100 million in the prior year due to office occupancy declines.

Liquidity – $1 billion of liquidity, consisting of $190.4 million of unrestricted cash and $795.3 million of undrawn credit facility capacity.

Capital Markets Activity – Over $2 billion year-to-date, including $285 million refinancing of 1918 Eighth, and amendment and extension of the credit facility.

Debt Structure – 100% fixed or capped, with no maturities until the third quarter of next year.

Q4 FFO Guidance – $0.01 to $0.05 per diluted share of FFO, with expected lower studio NOI due to seasonality and slightly higher G&A expenses.

Leasing Pipeline – 2,200,000 square feet in the leasing pipeline, with nearly 600,000 square feet in advanced negotiation stages.

Touring Demand – 2,100,000 square feet of unique requirements toured, representing a sequential increase of nearly 20% and a year-over-year increase of 60%.

New Tenant Activity – Over 80% of office leasing concentrated in Bay Area assets, including a deal exceeding 100,000 square feet with an AI tenant at Page Mill Center in Palo Alto.

Acquisitions – Acquired the partner’s 45% interest in Hill 7 office property, assuming $45.5 million in debt and receiving $1.4 million of cash on hand.

Studio Operations Profitability – Studio NOI, adjusted for one-time expenses, increased by $4 million sequentially and became positive for the first time in over a year.

California Film Tax Credit Impact – Since July, 74 new productions were allocated tax incentives versus 18 in the prior year period; 18 television series and 10 feature films are expected to shoot in Los Angeles.

Development – Sunset Pier 94 Studios in Manhattan remains on time and on budget for year-end delivery and first-quarter grand opening.

Culver City Entitlement – Received entitlements to redevelop the 10,900–10,950 Washington office asset into a mixed-use project with roughly 500 residential units and ground-floor retail.

Lease Expirations – Only 140,000 square feet of 2025 expirations remain, all below 20,000 square feet; 2026 expirations total 1,000,000 square feet, approximately 8% of in-service portfolio, about 40% lower than the average annual expirations over the last four years.

SUMMARY

Management emphasized that office leasing reached its highest annual rate since 2019, with positive net absorption and a sequential increase in occupancy, indicating an inflection point in portfolio performance. The call detailed a pronounced recovery in leasing demand fueled by AI and technology sector expansion, specifically in West Coast markets, and highlighted concentration of new leasing in the Bay Area, especially from growth-oriented AI tenants. The studio segment showed improving occupancy and positive sequential NOI, driven by cost reductions and increased tenant activity at flagship properties, while California’s newly expanded tax credits substantially increased the pipeline of future productions. The company significantly improved liquidity, achieved all-fixed/capped debt, and extended maturities, resulting in ample financial flexibility for further operational and external growth opportunities. Management issued Q4 2025 FFO (non-GAAP) guidance reflecting conservative assumptions for seasonal studio activity, and pointed to a robust deal pipeline and positive leasing leading indicators across major markets.

President Lammas stated, “Touring at our assets accelerated significantly, comprising 2,100,000 square feet of unique requirements, up nearly 20% sequentially and 60% year over year.”

The acquisition of Hill 7’s outstanding partnership interest was partially motivated by Hudson Pacific Properties’ greater willingness and ability to invest in leasing capital to capture upside as the Seattle office market improves.

Management relayed that 75% coverage on forward expirations exceeding 50,000 square feet, ahead of historic norms.

Studio tax credit effects are not expected in fourth quarter production numbers, as recipients have up to six months post-allocation to commence filming.

Leasing spreads on new and renewal office leases were affected by certain large transactions rolling down from pre-pandemic peaks, but net effective rents on a trailing twelve-month basis remain about 10% below pre-pandemic levels, signaling stabilization.

INDUSTRY GLOSSARY

CMBS: Commercial Mortgage-Backed Securities; fixed-income instruments collateralized by pools of commercial real estate loans, used for portfolio refinancing.

NOI: Net Operating Income; a commonly used real estate metric representing property income after operating expenses but before depreciation, interest, and taxes.

FFO: Funds From Operations; a REIT-specific performance measure excluding gains/losses from property sales and certain non-cash expenses, used to gauge recurring earnings.

LOI: Letter of Intent; a non-binding document outlining principal terms of a potential lease or transaction in commercial real estate negotiations.

TIs: Tenant Improvements; capital provided for customization or build-out of leased commercial space to tenant specifications.

Full Conference Call Transcript

Victor Coleman: Thanks, Laura. Good morning, everyone. Thank you for joining us today. I’m pleased to report another solid quarter of execution for Hudson Pacific Properties in regards to our strategic priorities. We’re on track for our strongest office leasing year since 2019, having locked in another quarter of signed leases north of 500,000 square feet, bringing year-to-date leasing to 1,700,000 square feet. With significantly lower expirations in 2026, our office occupancy is squarely at an inflection point as we achieve positive absorption in the third quarter. We’re seeing clear evidence of a recovery taking hold in the West Coast office, particularly as we benefit from the continued expansion of AI and tech technology companies in our markets.

And on the studio side, even as the broader production environments remain challenging, demand for well-located best-in-class assets such as our Hollywood studios enabled us to drive sequential occupancy improvement in the third quarter. From a capital structure perspective, we’ve significantly strengthened our financial foundation. On the heels of our office portfolio CMBS financing and significant equity raise in the first half of the year, we successfully refinanced our 1918 Eighth Street Seattle office asset and amended and extended our credit facility, bringing total capital markets activity year-to-date to well in excess of $2 billion.

With $1 billion of liquidity, 100% of debt fixed or capped, and no maturities until the third quarter next year, we are now in a position of strength to capitalize on ample embedded growth opportunities or said otherwise, leasing, leasing, and then more leasing. Looking at broader market dynamics, ongoing transformation across our West Coast markets reinforces our strategic positioning. U.S. Venture capital investment remains strong in the third quarter with year-to-date deal value already tracking about 15% above full-year 2024 levels. This marks one of the strongest funding environments since the 2021 peak, with AI accounting for nearly two-thirds of the U.S. deal value year-to-date, San Francisco Bay Area capturing more than half.

Reaffirming the region’s leadership in innovation and capital formation. These trends underscore growing optimism which in turn sets a constructive backdrop for the industry’s driving markets as well as the need for West Coast office space heading into 2026. In San Francisco and the Peninsula, leasing accelerated sharply in the third quarter, led by tech and AI tenants such as Roblox, while Silicon Valley recorded its fourth consecutive quarter of declining vacancy as demand from AI software and hardware firms expanded. In Seattle, AI investments surpassed $1.5 billion to date, contributing to the first decline in availability in nearly four years.

These are encouraging indicators that venture-backed tenants are once again growing, hiring, and leasing space in the very markets where Hudson Pacific Properties is most deeply embedded. Over 80% of the third quarter leasing activity occurred at our Bay Area assets, including a 100,000-plus square foot AI tenant at Page Mill Center in Palo Alto. Exactly the type of growth-oriented tenant that validates our market thesis. Our portfolio stands poised to capture the resurgence in demand as AI companies scale operations and require more substantial teams.

Turning to our studios, while Los Angeles shoot days declined 13% in the third quarter relative to last year, we remain confident in our long-term prospects with California’s recently expanded and extended film and television tax credit already creating strong momentum. Since July, the program is allocated to 74 new productions compared to only 18 the same period last year. These include 18 television series and 10 feature films expected to shoot in Los Angeles, with tax credits recipients required to begin filming within 180 days of allocation.

While it’s difficult to predict future show counts, this represents a sizable pipeline, especially when compared to the 80 to 85 production filming in Los Angeles on average over the last several quarters. We feel our Los Angeles studios and services are well-positioned to capture our share of future demand. Regarding acquisitions, in the third quarter, we acquired our partner’s 45% interest in our Hill 7 office property in Seattle. In consideration for which we assume the partner’s $45.5 million share of the joint venture’s debt and received $1.4 million of cash on hand. This acquisition gives us multiple paths to unlock value at a Class A well-located property like Hill 7.

By proactively restructuring the existing loan and ultimately growing occupancy and cash flow as the Seattle market recovers. We have seen a notable increase in inquiries, tours, and proposals for available space at Hill 7. And we remain committed to operating a best-in-class portfolio in Seattle over the long term. Our approach to asset sales remains disciplined and strategic. We’re under no pressure to transact and will move only when it clearly enhances shareholder value. When we see compelling pricing, particularly for non-core properties or those requiring significant reinvestment, we’ll look to recycle that capital into our highest conviction assets and markets.

It’s a selective purposeful approach that positions Hudson Pacific Properties to capitalize on the recovery gaining momentum across our West Coast footprint. For our development pipeline. And with that, I’m going to turn the call over to Mark to discuss our office and studio operations and updates.

Mark Lammas: Thank you, Victor. I’ll walk through our third quarter office leasing performance, which demonstrates the strong execution and market momentum Victor highlighted. We executed 75 office leases totaling 515,000 square feet during the quarter, 67% of which were new deals, underscoring our continued success attracting new tenants to our high-quality assets. Our in-service office portfolio ended the quarter at 75.9% occupied, up 80 basis points sequentially, and 76.5% leased, up 30 basis points sequentially, representing steady progress in our leasing efforts. GAAP rents were 6.3% lower compared to prior levels, while cash rents were 10% lower.

This primarily reflects 40,000 square feet across six smaller leases in Palo Alto, rolling from peak market pre-pandemic rents to still healthy close to $80 per square foot triple net rents. Importantly, we’re seeing clear signs of rental rate stabilization across The Peninsula and Silicon Valley with improving tenant demand and space absorption positioning us well for future rent growth. While our 2026 expirations are about 3% below market, quarterly rent spreads always reflect a snapshot of backfilled leases expired over the last twelve months. As we saw this quarter, geography, tenant size, and other factors influenced these results. Our various leading indicators of future strong quarterly leasing activity continue to show positive momentum.

Touring at our assets accelerated significantly in the third quarter, comprising 2,100,000 square feet of unique requirements, up nearly 20% sequentially and 60% year over year. This reflects growing demand across our markets, two-thirds of which is technology-related and a third is specifically AI. Our leasing pipeline of deals and leases proposals or LOIs stands at 2,200,000 square feet with nearly 600,000 square feet in advanced stages. We’re now seeing on average 20,000 square foot requirements for tours, while within our pipeline, average requirements are approaching 25,000 square feet, underscoring that companies are becoming more confident about their growth trajectories and space needs.

Hudson Pacific Properties’ lease expiration profile is now very favorable, allowing our team to focus more on occupancy growth opportunities rather than simply defensive renewal. We only have 140,000 square feet of remaining 2025 expirations, all less than 20,000 square feet, and we’re in leases or negotiations to address close to half of that footage. Looking forward to 2026, we have 1,000,000 square feet expiring, representing approximately 8% of our in-service portfolio. That’s about 40% less square footage expiring than our average annual expirations over the last four years. Given our strong leasing momentum, we’re already in leases or active negotiations on approximately 50% of 2026 expirations, which is ahead of our historical pace.

Notably, we have 75% coverage on our forward expirations exceeding 50,000 square feet. With only 30% of our in-service portfolio subject to pre-pandemic leases and 75% of our availability is in quality assets and barrier markets leading the West Coast recovery, we are poised to grow occupancy and cash flow. Turning to our studio operations. We continue to make strides in positioning our business optimally for the current environment, while preserving upside potential as a production recovery takes hold. On a trailing twelve-month basis, our in-service studio stages were 65.8% leased, representing a 220 basis point sequential increase driven primarily by additional occupancy at Sunset Las Palmas and to a lesser extent Sunset Glen Oaks.

Our Coyote stages were 48.3% leased on a trailing twelve-month basis, representing a sequential increase of 90 basis points. We are now seeing the benefits of our cost savings initiatives. And in the third quarter, despite sequentially lower revenue, studio NOI adjusted for one-time expenses increased by $4 million sequentially, finishing in positive territory for the first time in more than a year. This represents yet another step forward in alignment with our overarching goal of positioning our studio business and Coyote in particular to operate profitably in any market environment. On the development front, Sunset Pier 94 Studios, Manhattan’s first purpose-built studio, is on time and budget for a year-end delivery and first-quarter grand opening.

As we approach completion, we have strong interest from multiple high-quality productions looking to lease significant portions of the facility for six months to a year with a potential to renew for additional term thereafter. The quality and location of Sunset Pier 94 is unmatched. And we expect demand to further accelerate as we approach completion. In the third quarter, we received entitlements to redevelop our 10,900, 10,950 Washington office property in Culver City into a mixed-use project with approximately 500 residential units and ground floor retail. With housing in short supply, 910950 offers a premier multifamily location where the demand and rents achievable make for an extremely compelling development site.

We are evaluating our options to maximize value, which could include bringing in to develop the site with Hudson Pacific Properties contributing the land or selling outright. Look forward to providing additional updates on this unique value creation opportunity in the coming quarters. And with that, I’ll turn the call over to Harout for our financial results, capital structure, and outlook.

Harout Diramerian: Thanks, Mark. I’ll take everyone through our third quarter financial results, which reflect solid operational execution amid our ongoing focus on leasing. Total revenues for the quarter were $180.6 million compared to $200.4 million in the prior year, primarily resulting from asset sales and lower occupancy as we continue working through our lease-up process. G&A expenses improved substantially to $13.7 million compared to $19.5 million in the prior year, representing a 30% reduction. This savings reflects the successful implementation of various organizational efficiency measures and underscores our commitment to rightsizing our cost structure while maintaining operational excellence.

We generated FFO excluding specified items in the third quarter of $16.7 million or $0.04 per diluted share compared to $14.3 million or $0.10 per diluted share in the prior year. The year-over-year 17% increase resulted from improved G&A, interest expense, and studio NOI, partially offset by lower office NOI. Note that third-quarter FFO per diluted share reflects the share count increase following our second-quarter common equity offering. Specified items in the third quarter totaled $2 million or $0.00 per diluted share and primarily consisted of one-time expenses associated with cost-saving initiatives and financing activities. In the prior year period, specified items were $7.5 million or $0.02 per diluted share.

Our third-quarter same-store cash NOI was $89.3 million compared to $100 million in the prior year, mostly due to lower office occupancy. As Victor highlighted, we significantly strengthened our balance sheet and capital structure. In the third quarter, our activities included the $285 million refinancing of 1918 Eighth, which underscores our ability to access the debt markets on favorable terms for assets with our high-quality portfolio. We also amended and extended our credit facility, which provides us with $795.3 million of capacity through the end of next year and $462 million through 2029, with continued strong participation from our core banking group.

Our liquidity position is strong, at $1 billion comprised of $190.4 million of unrestricted cash and cash equivalents and $795.3 million of undrawn credit facility capacity. We have another $15.9 million at HPP’s share of undrawn capacity under the Sunset Pier 94 construction loan. 100% of our debt is fixed or capped, providing for predictable debt service costs that support our financial planning and cash flow management. Looking ahead, our next debt maturity isn’t until the loan secured by our Hollowed Media portfolio owned jointly with Blackstone matures in 2026.

In anticipation, we continue to focus on operational enhancements at those assets and have a plan in place with Blackstone to approach the refinancing in the first quarter of next year with a goal of maximizing our financial flexibility. Turning to outlook. For the fourth quarter, we anticipate FFO of $0.01 to $0.05 per diluted share. To bridge from our third-quarter FFO of $0.04 per diluted share, we expect lower studio NOI due to typical seasonality. We do not expect fourth-quarter average show counts to reflect the benefit of tax incentives as productions receiving allocations have up to six months to begin filming.

We also anticipate slightly elevated G&A in line with our full-year G&A expense assumptions, which remains unchanged from last quarter. Lower stage occupancy and potential ongoing challenges required the Sunset Glen Oaks joint venture to reconsider the risks associated with the underlying project financing and treatment of the venture as consolidated for accounting purposes. Based on these considerations, Sunset Glen Oaks has been deconsolidated, leading to the following adjustments to our full-year outlook assumptions: lower interest expense, lower FFO from unconsolidated joint ventures, and higher FFO attributable to non-controlling interests. Our full-year same-store cash NOI growth assumption also remains unchanged from last quarter.

As always, our outlook excludes the impact of potential dispositions, acquisitions, financings, and/or capital markets activity during the remainder of the year. And now I’ll turn the call back over to Victor for closing remarks.

Victor Coleman: Thanks, Harout. As we wrap up today’s call, I want to emphasize that Hudson Pacific Properties is uniquely positioned at the intersection of the AI-driven technology expansion, the West Coast office market recovery, and the return of a more robust studio demand. Our strategic focus on high-quality assets in innovation hubs is already paying dividends with our strongest leasing year since 2019 and positive absorption inflection point. While our strengthened balance sheet, $1 billion in liquidity, 100% fixed debt, and no maturities until Q3 2026, provides the financial flexibility to capitalize on embedded growth opportunities.

The momentum we’re seeing from record AI investment to expanding venture capital activity reinforces our conviction that we’re in the early stages of a meaningful recovery. Hudson Pacific Properties is ready to capture this opportunity. Now we’ll be happy to take questions. Operator?

Operator: We will now begin the question and answer session. If you have dialed into today’s call, please press 9 to raise your hand and 6 to unmute. Your first question comes from the line of Alexander Goldfarb with Piper Sandler and Company. Your line is open. Please go ahead.

Victor Coleman: Alex, are you there? Operator, let’s go to the next question, please.

Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Your line is open. Please go ahead.

Ronald Kamdem: Hey, can you hear me?

Victor Coleman: Yes, we can, Ron.

Ronald Kamdem: Okay. Great. Just a couple quick ones for me. Just starting would love I see the leasing coming through. I love sort of an update on just high level where you think occupancy trends. Over the next sort of twelve, twenty-four, thirty-six months? And if you could tie in sort of any high-level commentary on the implication for same-store NOI, that’d be great as well. Thanks.

Mark Lammas: Yes. Thanks, Ronald. We indicated in our prepared remarks, you know, where our expirations are, right, with a hundred and forty, the fourth quarter, about a million. Next year, 67% of the activity just this quarter is all new leasing. And we’ve got 50% coverage on next year’s expirations ahead of where we would typically be at this point. So all indications are we are heading in a positive net absorption territory. And hopefully picking up steam. Right? Because, you know, at 500 plus thousand per quarter, for, you know, quite some core sequential quarters now, we’re gonna we’re gonna be outpacing those expirations by quite a bit. So I’m trending in the right direction.

Not gonna get too specific here about exact percentages on where we’re gonna land. On either year-end or heading into next year. But I think reasonable to expect that gonna you’re gonna see and you saw it this quarter. You’re gonna see more positive net absorption. On the on the NOI, same-store NOI, I think those are obviously correlated. You’re seeing a little bit of a lag. We third quarter average, same-store office center, occupancy dipped a little bit. Right? We sequentially went down from, like, seventy-three to seventy-two eight. The and in comparison to last year, you’re really you know, you’re comparing yourself to higher occupancy in that previous year, right, in a higher seventies. Shop at sixty forty.

Those are the main With some, you know, pretty high rent paying tenants, not the least of which were Uber at fourteen fifty-five. We had Amazon in that park north. We had contributors to the prior year NOI that are no longer flowing through the number. In the same way that office occupancy is trending up, so we finished actually higher sequentially, at seventy-five nine, so higher even than the average occupancy. The average occupancy flowing through the same store is also gonna go up. Well, we need to get somewhere, I think, north of 76 in fourth quarter, we were 76.3% average occupancy. In the same store.

So somewhere higher than that plus, you know, the studios need to come, you know, either be stable or improve a bit. And then, gonna start to see that pause you’re gonna see same-store NOI start to move in a positive direction.

Ronald Kamdem: Really helpful. If I could just ask a follow-up on the studio. trying to understand the shape. You know, I think we’ve been talking about sort of the recovery path and It sounds like you are seeing more activity, but just in terms of, like, what are the key sort of milestones and data points that we should be looking for to get a sense that this is the recovery is really getting going. In a way that’s favorable. Thanks.

Victor Coleman: So a couple points on that. I mean, listen. The content spend is still constant and going up. I think you’re you will see, some pretty impressive numbers with the Skydance Paramount purchase at the end of the day now. Their new content spend is sort of rivaling the numbers that Netflix is, which is in excess of $20 billion a year. So, those numbers are gonna are gonna obviously permeate in. It’s specific to California. As we sort of mentioned in our prepared remarks, with the new tax credits in place and the number of productions that have to commence within the first six months of approval, you’re gonna see that number just organically grow.

And I think we’re gonna be able to capitalize on that in the production side, not just from the, OpCo side, but the PropCo side as well, which we’re already seeing. In our in our Hollywood assets, which we’ve seen the we’ve picked up occupancy there to almost a 100%. We only have, two stages vacant now. And that is also, leading a leading indicator in the production we’re seeing in the activity, right now early on. It’s very attractive, as Mark mentioned in his remarks, over at Pier 94. So it’s it’s trending that way. I think that the effectiveness of the credits are doing what they should be doing. We still have some work to go, though.

Ronald Kamdem: Right. That’s it for me. Really helpful.

Victor Coleman: Thanks, Ron.

Operator: Your next question comes from the line of Dylan Burzynski with Green Street. Your line is open. Please go ahead.

Dylan Burzynski: I think, I don’t know if it Victor Coleman or Mark Lammas that mentioned how rents are sort of stabilizing across Silicon Valley and The Peninsula. Just sort of curious how rents are sort of trending across the rest of the portfolio. You know, if you can provide comments as it relates to San Francisco given the strong depth of AI demand there as well. Versus what you’re seeing in Los Angeles and Seattle, that’d be helpful.

Victor Coleman: Yeah. I’ll let Art jump in. Yeah. I’ll jump in right now.

Arthur Suazo: Yeah. They so they’ve been holding steady pretty much across the portfolio. We’re even seeing improvement in some of the submarkets, specifically in San Francisco. With the tech demand so high in AI. Growth, so apparent. We’re seeing the growth really in the, North And South Financial District, more than the other submarkets at this point, but we’re we’re really starting to see, the growth in other submarkets as well. Seattle is holding pretty firm. Again, we can talk about you know, the growth of tech and AI there that’s going to, you know, cause the cause the race to increase over the next several quarters. But, think for now, it’s it’s it’s really, standing path.

Dylan Burzynski: Right.

Arthur Suazo: And in LA, you know, this building that we’re in, 111, which is our headquarters building, we’re seeing a tremendous increase in rental rate in rental rate growth. We don’t have any leasing, on the West Side Of LA. And so that’s really our only, look in into the rental rates.

Dylan Burzynski: And then, Victor Coleman, you mentioned, you know, obviously not having the need to sell anything. Given where the balance is at and the and the capital raise you guys did quarter. But just sort of curious, I think in the past, you guys have talked about just bringing noncore assets to market and just doing the normal process of capital recycling. So just given what seems to be an improving backdrop, obviously, on the fundamentals front, potentially leading to an improvement on the capital market side of things, just do you guys still have continued desire to bring assets to market that you guys sort of no longer deem a fit?

Within the context of your guys’ go forward portfolio?

Victor Coleman: Yeah. Dylan, listen. As the market continues to stabilize, you know, we’re gonna make further progress on our occupancy as you’re seeing right as we speak. And of course, I think we’re all very pleasantly surprised with the activity specifically in the Valley and how strong it has been. And as you saw by the prepared remarks that Mark said, I mean, our average tenant size is going up. And that’s leading us to having the ability to evaluate some of the assets that we can now look to sell in the marketplace at numbers that could be much higher than they were, let’s say, twelve or eighteen months ago.

So that’s always gonna be someplace that we’re gonna reflect into. And see what the opportunity is to capitalize on, you know, some form of external growth and disposing of assets. So we’ve got a list of a few assets that are there. You know, as I said in my remarks, you know, we’re not planning on selling some assets, but there will be assets that will be sold. We’re just not gonna identify them until at the end of the day, it’s gonna be a number. That we’re gonna probably, you know, look at that’s gonna be a combination of assets that we could have sold in the past, and now we’re gonna try to sell them going forward.

And, you know, I think those opportunities are gonna come fast and furious, specifically in the Valley. Because everybody’s focused on the city right now, and I think now the Valley is also opportunistic.

Dylan Burzynski: Great. Appreciate those comments, guys.

Arthur Suazo: Have a good one. Thanks, Dylan.

Operator: Your next question comes from the line of Blaine Heck with Wells Fargo Securities. Your line is open. Please go ahead.

Victor Coleman: Victor Coleman, we’ve been talking about the influx of demand in San AI for several quarters now. And

Blaine Heck: clearly, you guys have benefited as evidenced by the XAI lease. But we’ve also more recently seen some layoffs coming through that could be attributed to AI displacement. So I guess my question is, do you see any of your sub or tenant industries as more susceptible to that, that potential negative trend as we look ahead?

Victor Coleman: So Blaine, listen, I

Mark Lammas: of course, everybody’s focused on AI. But if you look at the leases that we’re signing, they are tech and tech, related leases. But we’ve signed a lot of fire related tenants. And the expansion of those tenants, I think, is evident currently today. There is obviously a backdrop of what’s the initial impact on labor for AI going forward. But what we’re seeing right now, it’s not impacting the core businesses that are signing which is, you know, legal firms, insurance firms, which you would be impacted. They still are signing leases and taking space is on a positive basis. You know, a lot of education is coming to the marketplace at the same time. Don’t underestimate that.

I think the financial institutions have yet to really show up on specifically in San Francisco the way they had in the past. So they’re they’re less active, and that would be more of an impact. And, clearly, you’re hearing and seeing a lot of the financial institutions shipping, employees to secondary markets where they can have lower cost of rents and the likes of that. And so I think we’re finding that the impact is not as great immediately.

One true sign, though, and Art can get into some statistics, which is, I think, very, very unique to this past quarter’s data that we’ve seen, is now we’re seeing a drop in sublease dramatically impacted in some instances in throughout all of our markets, but really in the Peninsula and in the cities. The sublease space is coming back to the tenants because they realize they want that space now for future growth.

Arthur Suazo: Yeah. Victor Coleman, I was gonna say, to your point, you know, it’s it’s AI and tech really grabbing the headlines everywhere because a sexy thing to say. But it’s not a 9010 situation, Blaine. It’s six you know, it’s really 55 of, percent of our pipeline is tech, and half of that is AI. There’s 45% of our pipeline is fire sector, professional service firms, education, that we’re, availing ourselves of as well.

Blaine Heck: Great. That’s really helpful color Just switching gears with respect to Quiote. You guys have done a good job of improving efficiencies in that business. Can you just give us an update on how much more you can cut on the cost side or whether that effort has kind of run its course at this point? And any color on your ultimate plans for that business would be helpful.

Victor Coleman: Yes. Listen, I think we’re making some headway, as you said. We’ve got more to go. We’ve got things in plan. Obviously, I’m not gonna disclose the exact numbers and the and the timeline, but it’s in the works right now. You know, we’re on the precipice of breaking even. That’s been the objective for the, you know, for ’26. And we’re we’re getting there along the way. And comfortable that I think that we’ll achieve that. You know, from that point on, we’ll have to look at where the market is, where the show counts are, what’s the absorption, from our market share from the OpCo side, and then see what’s the next phase in that business.

You know, we’ve we’ve always said we’re gonna be reacting to where the future of this business is going to go. We’ve gone through, you know, what we would call is the, you know, the hundred year storm. And, hopefully, we’re coming out of it and maybe better off than we think. We’re not optimistic yet, but we’re at least seeing the positive signs. Mark, you wanna comment?

Mark Lammas: No. Yeah. I think you summed it up. I would just say, you know, Blaine, in our prior call, we mentioned cost saving of approximately 23 per annum. Form a, 23 to 24. And if you look at our, most recent results, it bears that out perfectly. Last year, in the third quarter, we had 25,000,000, nearly 25,000,000 of expenses for Coyote. And this quarter, adjusted for those onetime items, we’re at $19,000,000 And so if you run the run rate on that, you’ll see it supports the annual savings target that we had mentioned, which I think is you know, for us, a nice confirmation that our cost savings coming through.

Blaine Heck: Great.

Victor Coleman: Everyone. Thanks, Blaine.

Operator: Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Your line is open. Please go ahead.

Victor Coleman: Rich, are you there?

Mark Lammas: Excuse me. Sorry. I’m okay. I’m on now, I think.

Victor Coleman: I thought you were with Alec.

Rich Anderson: Yeah. I know. She’s

Victor Coleman: But we’re gonna use Zoom. I was gonna I did say, by rating on the Zoom execution here, I like it a lot except for the fact that I know how to unmute myself. So I was looking at the leasing stats sequentially, and I was trying to, you know, do this quickly while you were talking. But when was the last time in the office space that leasing sequentially went up both from an occupancy perspective and a lease percentage perspective because it wasn’t in 2024, and it wasn’t at least in a lot of 2023. That’s as far as I got before I asked the question. I’m just curious how substantial you see that sequential move, albeit small.

Know, is that something that’s sort of signaling to you, you know, you know, part of this bottoming that you’re you’re hoping to see?

Victor Coleman: Well, as Mark sort of checking the stats because I don’t think it was I think the last time was probably in two, but he’s gonna look. But we’re he probably doesn’t have it. But I can tell you, you know, we did say on our last call, I think somebody had asked the question, you know, where’s the bottom? And I think I commented that we were at it. And so that sequential move, yes. It’s listen. It’s positive. We’re nowhere near satisfied to where going to be.

As you know, the indications, as we said what we have in our pipeline and deals that are out to be negotiated both on the 50% of the deals that we have for next year that we’re already in negotiations on and new leasing. We’re moving on that track. But I don’t I don’t really know what that number is Mark. I mean, it’s I there may have been a blip in there somewhere, but it’s gotta be a

Mark Lammas: you know, two, if not more than two years since we’ve had a sequential positive quarter both on leasing and occupancy. We, you know, we bottomed out, as Victor Coleman said, essentially, two quarters ago. We were at seventy-five one, and then we sequentially did another seventy-five one in occupancy. And, of course, we’re 80 basis points higher than that this quarter. So you can easily discern that bottoming and then sequential improvement But that’s been a long time in the making. It’s you know, We can get it to you, Rich, but it’s gotta be over two years since we’ve had that.

Rich Anderson: Okay. Great. Second question for me. You know, understanding your you know, you got a lot going on besides AI, but I’m curious, about the kind of the shared knitting of an AI leap AI oriented lease. Are companies maybe taking less lease term or maybe you know, different types of assets, maybe not high rise, but more low rise, suburban, you know, just not making an overcommitment yet to AI in terms of the space there the type of space in commitment they’re making time wise? I’m wondering if it’s different with AI than it is for your other know, more conventional office tenants.

Victor Coleman: I think the only thing that and then Art’s gonna jump in tell you about the stats around it. The only thing that’s different is looking for growth. Right? They’re they’re much more growth oriented. If they want a 100,000 feet today, they want a line of sight for another 50 or a 100 tomorrow. And that is, you know, obviously gonna be correlated to quality buildings with some potential role that they could absorb when tenants move out or vacancy in place. And that’s been consistent throughout. But I think that theme is also been always with tech.

You know, they want the ability to grow, but, also, they want the ability to have their own security and safety amongst their employees. They’re spending a ton of money on personnel. Wanna make sure that the environment is conducive to their and not other companies. And there’s a there’s been a big negotiation now, which we hadn’t seen until early on the tech years, where, the competitive landscape of other tenants going in the same building, they refuse to have similar tenants. In similar, working class or proprietary information being in their buildings.

Arthur Suazo: Yeah. K. Victor Coleman Victor Coleman hit the nail on the head. It’s really about path to growth, being able to control their growth, being able to control their security. You know, there’s talk about high rise versus low rise. I don’t It they’re looking for quality class a or trophy assets with growth top of mind. No question about that. They also are looking more for kind of richly amenitized space. That’s that’s a big driver. For the AI users. And, you know, which is another reason they’re looking at second generation, really high quality, second generation space. A, to cut cost, and, b, to move in quicker. So those are really the key items.

Rich Anderson: K. And then if I sneak on one quick one. On the tax credits for studios, obviously, the improvement but do you think it’s enough? Versus other areas of the world in terms of, you know, trying to move production elsewhere? Was outside of LAD. You think that you enough has been done, or do you think you need to be something even more substantial to keep, production in California. Listen. I never think it’s enough. You know, this is a captured business

Victor Coleman: that I think, the leaders both on the, statewide and city and countywide took for granted for a very long time. And realize now that they have to be competitive. I do believe that there is going to be more changes that are just more than beyond just tax credits. Both above the line and below the line, and the below the line is really important for the unions right now, and they’re focusing on that. There is other things that we have talked about and we’re seeing implemented like fees, license fees, filming fees, ease of production.

Right now, it is feeding the markets that, really took a lot of infrastructure away from us, like the Georgias and the New Mexico’s and the, and the New Orleans of the world. But at the end of the day, you can always do more, and we’ve been pushing very hard with the all the all the entities, both in the federal and the state side, of film commissions, and the city and the mayor and the governor to help enhance this. And it’s clearly evident that they recognize they need to do more. We just hope it’s gonna be, you know, enough and quickly.

Rich Anderson: Great stuff. Thanks very much.

Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler and Company. Your line is open. Please go ahead.

Alexander Goldfarb: Yes, thanks, Victor Coleman. I’m unmuting new challenge with this new technology. Are you talking now, Alex?

Victor Coleman: Can I hear you? Sorry. Alex, are you there?

Alexander Goldfarb: Yes.

Victor Coleman: Okay. Thanks. I do feel like a dinosaur.

Alexander Goldfarb: My kids would have fun, call me a fud. So two questions here. Art, just going to Northern California specifically, we hear a lot of talk that more of the AI and more of the growth is in San Francisco, but your overall comments suggest that the Peninsula is picking up with activity. So can you just give a sense of the dynamic between what the leasing is like in San Francisco itself and then how the leasing is going in the Peninsula and if it’s big tech in the Peninsula or if you’re starting to see a lot of the smaller start up and other smaller tenants active in the Peninsula?

Arthur Suazo: Sure. You know, couple quarters ago, I mean, the talk was it was chiefly you know, two, three quarters ago, chiefly, it was the big the big AI users in the city. And then, you know, I would say over the last quarter and a half, we’ve really start to see know, the migration of some of these larger users who are taking two, 300,000 feet in the city. Now taking fifty hundred, 150,000 square feet. Down across the valley and the peninsula. So it’s really I think it’s really evened out in terms of growth.

And, obviously, in the Valley, we see more of know, kind of the early stage tenants, incubator stage tenants that are growing into five, 10, 15,000 which will become the next, you know, 25, 50,000 square foot tenant. So we’re really seeing brisk activity across all of Northern California at this point.

Alexander Goldfarb: Okay. And then, Victor Coleman, just going back to the entertainment and the tax credits. By your comments in the one hundred and eighty day sort of shot clock, if you will, it sounds like we really shouldn’t expect a material pickup until the back half of next year. I realize Harout Diramerian’s not giving guidance yet, but just from sort of getting our expectations in line for how the studio ramp would go, it sounds like it’s really a back half next year based on that one hundred eighty day shot clock. Is that fair or you think it could be sooner?

Victor Coleman: Listen, never want to go earlier on comments, especially if you’re giving me a lifeline to go longer. But I think the one eighty sort of takes us to the second quarter of next year. And you’re not gonna see it right now. Obviously, we’re in November, and December is obviously the quietest month of the year for production. So by the time they start filming, it should be really effective for the second quarter and then clearly going forward. There will be another launch of shows that are approved. I believe it’s November 19. So you’re gonna see that. Then you take that one eighty from that timeline is really gets you almost till you know, May.

So at the end of the day, yeah, you’re gonna see the second half of the year for sure, but I do think you’ll have an impact after the first quarter.

Alexander Goldfarb: Okay. Thank you.

Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Your line is open. Please go ahead.

Vikram Malhotra: Morning. Thanks for taking the questions. It was pretty simple. I just got unmute request, so I think I clicked it. But this is great. I think this format is pretty cool, so I like that you did it. Just maybe just going back to the core office side, you talked a lot about Fire AI. I’m just wondering bigger picture, like, as your strategy evolves to grow from the bottom, with so much vacancy in other peer buildings and just the markets, like, how do you gain share consistently? Are there pockets you’re saying we’re giving up on price? Incentives? Are there, like, specific buildings that you’re, you know, looking at and We need different strategies.

Like, I’m just trying to figure out, like, in this environment as you bottom, but to grow from the bottom, just how competitive is it? What are your peers doing? Is there just a price war? Thanks.

Victor Coleman: Yeah. Vikram, I think that’s a that’s a great sort of astute point that, you know, is it really just, you know, pricing to the bottom? And, you know, we don’t see that for 75% of our portfolio. It’s because the because that part of the portfolio is class a. There’s a demand there. We’ve seen us compete with maybe one or two other projects. It’s not a list of 10 that we’re competing with, and we’re gaining more than our fair share. And it looks like going forward, gonna continue to get much more than our fair share given what we’ve seen on the pipeline going forward. But I would say we’ve talked about this in the past.

There is 20% or so of our portfolio. We have assets that are gonna fight the fight with other assets in the marketplace. And, hopefully, we’ll get more than our fair share, but we’re willing to take our fair share at the end of the day. And whatever it takes, to go out and lease those assets, we’re we’re not going to turn anything down. Now we’re not giving it away by no means because the market gonna dictate that across the board.

But at the end of the day, I think it’s it’s safe to say that we will be a much more, further ahead given where, as you can see with all the statistics that have come to market, the lack of development, is coming to the marketplace, there is zero in all three of our major markets, which is the Bay Area, Pacific Northwest, and here in Los Angeles. So those marketplaces have zero new development Organically, as you see the