Hudson Pacific Properties, Inc. (HPP) Earnings Call Transcript & Summary

Welcome to Citi's 2025 Global Property CEO Conference. I'm Nick Joseph here with Michael Griffin with Citi Research. Pleased to have with us Hudson Pacific and CEO, Victor Coleman. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC25 to submit any questions. Victor, we'll hand it over to you to introduce the company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today and then we'll get into Q&A.

Great. Thank you. Well, it's a pleasure to be here. With me is Laura Campbell and Art Suazo. Hudson Pacific Properties is a diversified office media REIT that owns assets in the Pacific Northwest all the way down to Southern California. We own studio facilities, operating businesses around the studio facilities, office buildings, and we own and manage and develop our own portfolio. We are currently today a company that has gone through a series of aspects that have been once in a lifetime in the studio business and in the West Coast office business, and we see that the trends in our leasing, which we'll get into, and trends in our markets are finally sort of what we would say is the headwinds are no longer as strong as they've been, but it looks like the upside is going to be much better than we've seen in the last 24 months with the momentum shift in back to work and in production that looks like the end of '25 and throughout '26 is going to be much better than we've seen in the last 24 months. With that, we can open it up to any questions you guys would like.

Great. Thank you for that, Victor. I think as you said, it feels like things are getting better in terms of fundamentals in West Coast office market. So whether it's return to office mandates, companies finally looking to grow again, how can Hudson capitalize on what seems like improving sentiments in these markets?

Yes. So first of all, I think when markets have gone through the shifts that we have with the latency of return to office and the tech fallout and aspects of companies that look to restructure and downsize, in our markets, you have to look at a few factors that I think are compelling factors that people will realize that the value of the portfolio and specific assets are much higher than the perceived market looks at on an ongoing basis. First and foremost, quality of our portfolio. 85% of our assets are Class A assets in CBD markets or the core markets in all of our markets that we're in all throughout the whole West Coast. The deferred maintenance in our assets is minimal. The fortuitous side of us spending capital in 2021 and '22 was when COVID was in place. We put all that money in these assets. And now they're prime to lease in our marketplaces. And we've seen that virtually anything we currently have today that's ready for occupancy is toured or is in leases. And that's been a shift that we haven't seen in a very long time. I think the other aspect is that we all know where we are in the development of the world. Even if development starts were going to happen immediately, you wouldn't see any new product in any of our markets for at least 48 months. So that gives us a nice little window of getting these occupancy levels up. And it's not going to take a tremendous amount on the office side for us to go from where we sit today to where we were yesterday. And what I mean by that is if you look at our portfolio in the last 24 months, we've had the highest amount of vacancy rolling throughout our portfolio year after year after year. The end of this year, we'll have the lowest amount in the industry, the lowest amount in our peer set. And it will be half what we've had for the last 3 consecutive years on an average basis. So when we're absorbing plus or minus 2 million square feet a year in the past, we're only rolling 230,000 square feet a quarter. So the math adds up very quickly when it comes to occupancy and absorption in our portfolio, and we're seeing that by tours. Our tours right now are the highest they've ever been. And as I said, we've come off 2 years of dismal times, and we've leased over 2 million square feet, both years.

So Victor, you're saying because there's less space expiring, you don't have to lease much space [indiscernible]?

[ John ], talk in the mic, please.

Are you saying that because you have less space rolling, you have -- the leasing environment is better?

No. There's 2 distinct differences. Yes, we have less space rolling and the demand is higher. They're not correlated, but we have much less space rolling year-over-year. We had an average of over 0.5 million square feet a quarter rolling for the last 3 years. Throughout -- our biggest roll just happened this quarter. After that, it's 230,000 a quarter. We are seeing multiple of that consistently quarter after quarter going forward. In the past 8 quarters, we're looking at leasing somewhere between 0.5 million plus a quarter. So the contraction of our space and just the expansion of the marketplace is only going to help our vacancy.

Maybe to that end, as it feels like things are getting better there, is it fair to say that West Coast office fundamentals have bottomed yet? Or I know it's obviously market-by-market and even submarket-by-submarket specific, but does it feel like we've reached a bottom in occupancy and we could see an inflection either later this year or into 2026?

Well, I think they have bottomed [indiscernible] the fact that you've seen that the tech companies have stopped laying off employees. And so you're seeing that we're having a shift on the employment side. You've seen companies that have now gone 4 to 5 days, which was not the case, and now it's followed suit that these companies are realizing that they need more space in the markets that we're in that they've allocated for. They're short on effectively seats for employees. You've seen the proliferation in the Bay Area on AI. We've got another 1.8 million square feet of demand in those markets. You've seen a downsizing of sublease space in every market we're in. You're seeing the first time in 8 quarters positive absorption in most of the markets we're in with the exception of Seattle that we've never had in the last 2 years. So yes, of course, the fundamentals are there. I think the flip side is that you're also looking at -- rental rates are not as high as they were. Concessions are almost right on top of the peak. And clearly, with what we're seeing, whether it's potential tariffs or not, you're going to see an increase in TIs, but not in a magnitude that we've seen in the last 4 years. I mean we saw average TIs go from $75 to $125 to $150. You're not going to see that magnify beyond those levels.

So we do have a question that came in specific to that exact conversation. Can you quantify kind of where TIs and LCs have trended per square foot, I guess, over the past few years?

Yes. I mean, listen, it's 2 sides, right? One would be renewal and one would be on new. On the new side, clearly, we're looking at Class A space at $150 a foot number on the TIs. I think that's been pretty much stable for the last 24 months, maybe a little less, 18 months. And it looks like that's going to be that going forward. On the renewals, it's considerably less. And it depends on the space and the age of the space. But we've had a lot of space come to market recently that's highly improved. And we've had $15 to $25 and some of it maybe is closer to $40, but it's not -- it's nowhere near a complete gut and rebuild.

And then just getting toward kind of the demand within leasing. Obviously, there's been a good amount of built-out sublease space taken off the market in a market like San Francisco, just given the AI demand. But do you really need to see more of that sublease built-out space taken off of the market before you can actually see organic vacancy leasing?

Well, every market speaks differently, right? So if you look at Seattle, clearly, the sublease space in that marketplace has been taken off the market. In Bellevue, you're down to 2 assets left, 2 tenants that were looking in that marketplace. Large tenants just recently decided to shift over to Seattle. The bigger space in Seattle that was coming to market was effectively fully leased. And the tenants were paying the rent, so they were looking to get out at any level. That's been impacted, I think, to a point where now you're seeing demand, specifically in Pioneer Square, that we hadn't seen in multiple quarters. And we're effectively entertaining large leases there that would have gone somewhere else because now the availability of that space has gone away. It's going to be dependent upon quality of space. In San Francisco, clearly, that's the case, and we were at 11 million square feet of sublease space. I think we're now roughly around 7 million or less, but it's not apples-to-apples. That space is not same quality spaces like, let's say, our Rincon or our Ferry Building or the likes of that. It's maybe more akin to something in South of Market or potentially upper market or 1455, which is more comparable to where the market data is. Yes, you have to absorb some of that space, but tenants do have a choice, whether it's short term or long term. And on a short-term basis, sublease space makes a lot of sense. We just saw Apple sign 200,000 square feet in Seattle that -- it was a short-term lease because they're going to do a long-term lease at a much higher-quality building, but they can't get in today. So I think case by case, will depend on what it is. High-quality space is leasing, and it's leasing at some good numbers.

Victor, I was just looking at the supplemental. Correct me if I'm wrong, do you have about 17% of your space expiring this year? Is that right?

16% this year, yes.

16% at $58. I mean what -- do you think a lot of that's going to renew? Or is it going to...

We got 55% coverage right now on all that space.

55% of renewed?

55% coverage for renewal, yes.

That you think will renew.

Yes. No, that we know will renew.

That you know will renew.

Yes. That's in place today. Remember, that's over the whole year, right? We're only in March.

And the $58, do you think you'll do better than that, worse than that?

I think we're charting that right now, [ John ], at mark-to-market slightly down overall with 3% maybe. I think it's low single digits.

And is that $1.25 in TIs and leasing commissions? $125 a foot?

Yes. No, it depends on the space. Listen, the largest space we had coming due this year is with Uber. It's at 1455. That's high-quality space, over $100, all reusable. That's probably less. I mean we are in negotiations right now for 235,000 square feet of that. So it's a much lower number than that. So it's going to be space by space. I can't give you an average on that. Correlate back to what I said.

Well, I'm trying to correlate to $3 a share, which is kind of option value on your stock on office. You're making it sound -- but it sounds like it's not as bad as the stock is saying it is. And I'm trying to reconcile the 2.

I think it's not as bad as I'm saying -- as the stock is saying. Yes, absolutely. I mean, listen, proof is in the leasing and then in our cash flow.

I mean can you sell assets today?

We've sold -- last 2 years, we've sold over $1 billion of assets. This year, we're already $100 million. We've got another 2 deals, one closing tomorrow and another in escrow. And we told the market we'll close another $150 million of sales this year.

Can you extrapolate from that the value of the company per share?

Well, I would just say that the assets we're selling are lowest-quality assets.

So it wouldn't be a good reference point to figure out anything.

No.

We had a couple of questions come in specific to, I guess, the report last week on Netflix. So the question is, can you clarify how conversations are going with Netflix in light of the recent headlines? And is there any risk of them cutting their sunset leases coming due in 2026?

Yes. I'll say this. Listen, I don't know where the story came from, neither does Netflix and neither do their broker. I spoke to the CFO of Netflix on Saturday. We spoke to their Head of Real Estate on Friday. We're negotiating with Netflix right now on an expansion. Who writes a story that says the tenant is moving out in 6 years and 7 months and the same story that says they can buy the asset? I mean it's a very conflicting story. When the writer of the story at Bloomberg called our comms desk and said, you need to comment on it, we said, what's the rush? It's 6 years and 7 months. The story is not accurate. So somebody wanted a puff piece to try to get to Hudson, but it wasn't Netflix and it wasn't us and it wasn't the broker. So you can assume who it is, but it clearly wasn't anybody who has any factual knowledge. Netflix is very happy with us. We're very happy with them. We are in conversations on extending and expanding, and we've had multiple conversations on other sites with us.

Can you maybe expand a little bit on your LA portfolio, and whether it's the office or the studio leasing, just given any impact the recent wildfires might have had on that portfolio?

Yes. I mean, listen, it was a devastating situation there. And the disaster hit home. Personally, I live in the Palisades. And it hit home with multiple people who are our employees and tenants and friends. The circumstance around the office, which will permeate through to retail and mixed-use, obviously, the short term is -- defined as short term here, right? These are people that are moving from -- whether it's the archdiocese, churches, schools, small businesses, they're moving for -- anywhere from 3 to 5 years, right? This is not a short-term move. And some of that has been absorbed immediately in Santa Monica and other markets. Some of it has not been absorbed but will be. The impact on residential real estate is clearly something that we've seen shift dramatically from a rental base and a home sales base, single-family aspects. On a retail basis, the shift has been -- most of these tenants that were displaced and out of business are looking at alternative Santa Monica, Brentwood locations. So from an office standpoint, us personally, we had Army Corps of Engineers and FEMA and some other small tenants come to us for some immediate needs, but it wasn't massive. I think other tenants -- sorry, other landlords are going to see maybe more of an impact because they have vacant space. Fortunately, for us in LA, we don't have a lot of vacant space, especially in West Los Angeles. We have virtually none. We have 1 building that's 93%. So we have a very small pocket. The rest is all full. I think if you look at the studio business, yes, it stopped. And yes, it completely stopped and it was impactful. Like everybody else had the impact. I do believe that it's not -- does not go unnoticed that entertainment industry in general likes to rally and support around aspects that are disastrous correlations, and they're doing the same here. The rebuild -- Revive LA, all the other acronyms that have come out, RISE LA, et cetera, are all turning their attention to production in Los Angeles. I think it is going to permeate through what the governor's bill of $750 million is going to come to fruition as well, which will be in June. So it's all helping the growth prospect of coming back and the genesis of having business in Los Angeles and the entertainment business flourish in Los Angeles that we haven't seen since the strikes.

I want to just ask one more on the office and then we can get over to the studio platform. But we have one come in just related to the Seattle development, Washington 1000. I think on the call, you said some of it might get leased in 2026. Is there any barrier to leasing here? And is there an issue with no parking?

Is there an issue with no parking? No, Seattle is not a parking city. So the answer to the second part is no. There's not an issue there. That's never been a concern. It's the best asset in Seattle by far. It's the newest asset in Seattle, obviously. We have interest level from anywhere from 50,000 to 200,000 square feet of multiple tenants. The time line that we've said is we think we'll have leasing done in '25 and occupancy in '26 is exactly accurate. I think that the tenants, I said, that were looking at some alternative space, that was sublease space that we're competing against. We're about to be their next decision because that quality space is going to be off the market relatively soon, if not imminently. And the bottom line is we haven't lost a deal to somebody that we could have made a deal with. There was a deal out there that we would have made, we would have made the deal. This is a space that has to be built. This is not move-in ready space. And so we are not prepared yet to do our VSP program in that space because we're looking for multiple floors, not single floors.

Maybe we can shift over to the studio platform. Victor, in your prepared remarks, you acknowledged that the sector has faced its fair share of challenges over the past couple of years. But at least it feels like the outlook for 2025 is improving. So whether it's the Sunset platform, whether it's Quixote, can you give us a sense of when and if we will see demand come back? It seems like show counts are picking up some positive indicators for that industry.

So there's a bunch of benchmarks in that business that we try to educate the market on. I mean show counts is one of them. I mean at its peak, show counts were roughly in the 130s. At its low point in the strike, it was down to 80. We're in the high 80s right now. We have seen holds increase precipitously in the last 60 days. And obviously, with the Jan 7 and 8 fires, that slowed. We are in process right now -- in the Sunset portfolio, we leased to a show last night 3 stages and another show for 2 stages. So the activity has been much more well received. On the Quixote side, it's going to trickle through production, right? So we are at 70% of the market share in our transport business for all of Los Angeles. And we're using those units in trailers, in bathrooms. And all of our equipment is being used at production plus alternative sources, which now include us offering them up for some of the construction and fire victims and the likes of that. So there's another alternative that we are evaluating, and we could see a positive increase on that. The momentum definitely has shifted. I do think that there was obviously some repercussions on the strike that the production companies were upset and look to potentially maybe delay greenlighting some shows. That is changing. The momentum shift is changing. Independent production is changing now. There seems to be much more of a demand. So Los Angeles feels like it's made that turn. New York clearly has made that turn. I mean we're getting lots of activity on our Pier 94 project. And so that seems to be a positive trend. Atlanta is slow. We are seeing the slowness in Atlanta. I mean if you're looking at people like Will Packer or Tyler Perry, I mean, they're not producing content nowhere near the levels that they used to. And so that's going to impact that marketplace. It's a smaller market. We don't look at the other markets because candidly, they're just not relevant compared to the 3 markets. And really, Atlanta is a far cry from New York and Los Angeles.

And is there, in your opinion, any threat from AI and what that might do to the studio platform? You referenced Tyler Perry. Obviously, there was that article a number of months ago about kind of his thoughts on AI and the studio business. But do you see it more as a benefit and a complement to the studio platform? Or could we see it zap demand away in some ways?

I think it's too early to tell at the end of the day. I think Tyler Perry's comments, I think you guys have all heard me say before, I don't think they were directed to AI. I think they were directed to Tyler Perry and capitalization of -- his ability to build a studio, which he would never build today because he couldn't finance it. So I think it was de facto -- that's what the answer was versus saying the market conditions aren't conducive to building a studio. That being said, I think it's too early, as I said, to identify the pros and cons of AI. At the end of the day, the fight of the strike was for AI. They won that fight. So it's going to be delayed at least for a period of time. And so you're going to find that like this -- of actors and voice of actors are going to be not produced through AI. They're going to be produced through live feed. This business is a cyclical business, and we forget because we're in the real estate business. And our business is much more sticky and you can project quarter-by-quarter. When you have cycles and you have seasonality, that's always been the educational tree that we've had to deal with in this business. And when you go through a cycle that we've just gone through, which has been much more aggressive and 100-year strike effectively, you're going to see some downside. I do think AI will have its positive attributes that will contribute greatly to the entertainment business. But let's not forget, you've seen cycles where reality TV come up and all of a sudden, there's 100 new reality TV shows and then they go to 0. And so we've seen that, and you're going to see that again on the small screen. And as I said, I hope that we'll get back to some form of feature film production in the United States on a consistent basis and get people back in theaters and we get people back watching the movies that we did 10 years ago.

Can you -- I'm looking here on your debt. Talk about your secured debt, $1 billion, 1.6 years to maturity. What's the outlook on that?

Yes. [ John ], we've got a $500 million CMBS deal that we're imminently about to close. That takes care of one of the secured debt pieces. We've got another CMBS deal that we're about to -- we launched last week in the marketplace that takes care of our 1918. So that takes care of all of our '25 and most of our '26 and part of our '27 with the asset sales we're doing. We have then our studio debt that we have coming due with Blackstone. And it's too early for us to do that. But that debt is easily replaceable with the current value of that portfolio because predominantly, that portfolio is leased to Netflix on a long-term lease, at least through '31 for most of it. And the market conditions are such with us to replace that. There will be interest rate, obviously, changes. But the reality is that loan will be able to get replaced fairly consistently with the amount of equity we have. But on top of that, both Blackstone and us own the bottom dollar piece of that loan that we convert to equity.

So you'll be able to do the financing without adding equity, take all the debt out, the secured debt without adding equity?

That's our hope, yes, because we'll convert our debt piece to equity.

Can you talk about pricing and execution on that CMBS?

No, I don't want to talk about it, but the execution has gone extremely well. The CMBS markets are very strong for quality assets. I mean we did reset our line of credit to accommodate this. That's why we did it. It was accepted by every bank but one. And as a result of that, we can turn around and feel very confident that we'll get that CMBS done by the end of, hopefully, this month.

I'm sorry, you said you're putting your debt in as equity. Can you explain that?

We own the HFF piece. Blackstone and us own the bottom dollar piece of the $1.1 billion in debt for our studio facility. So if we just refinance everything through, we refinance it. But if there was a cash paydown, we can convert our debt to equity.

Yours and Blackstone's or just yours?

Combined, correct.

And can you talk about your unsecured, I guess you have $2.5 billion, and how you're doing on the covenants and the ability to refi that?

Well, we just -- I just mentioned that we just ended up renewing our -- restating our credit facility. So our covenants are fine on that. On the private placements, that's going to be taken out. On some level, whether it's going to be our asset sales or the CMBS, we have capacity to take all that as well. But I don't want to say what we're going to take out first because I want to use my capital as a negotiation point for everything we have to do. The remainder was '27 and '28 and '29 and '30. So what we're doing right now, everything aligned, takes care of almost everything through '27.

And your covenants? How are you doing on covenants?

Absolutely fine.

Maybe just one more question on the media and studio platform. I mean have you seen a pullback, whether it's from legacy media companies or streamers, in terms of content spend? I recall you did the event with the Netflix CFO at NAREIT a couple of years ago. But is there a strong base and willingness for these companies to commit to continued content spend?

100%. I mean Netflix came out, they were spending $17 billion in content. Now there has been a shift for some of these companies to have live content. But that being said, Amazon and Netflix have decided to make their live content facilities in Los Angeles. Amazon is doing it in Culver City, and Netflix is doing it on our property. So their sports group, they're going to build their own soundstages around what we currently have. And as a result, that's going to see the spend continue. Disney is at the same level, so is Amazon and Apple. Nobody's backed off of their spend for content. Clearly, it's consistent, but I do think it's shifted from just pure small screen and film production to also live content, which is a whole array, not just sports. It's other things, too.

Maybe shifting gears toward external growth opportunities. You did the deal last year at 1455 where you bought out your JV partner's stake at a relatively favorable basis. Are there any other opportunities like that within your platform? Or if you're just looking at potential acquisition opportunities, does anything make sense? Or do you need to shore up the balance sheet from a liquidity perspective first before you can pivot to offense?

Well, listen, our #1 concern is our balance sheet. And as I addressed it already, I think we're well on our way to solidifying a lot of that with the things that we're currently in place and about to execute on. That being said, 1455 is a great example. It's an asset we bought for $90 a foot. We ended up selling half the asset at $500 a foot. We ended up buying our partner back at $82 a foot. So we've round-tripped that asset now. And as a result of that -- those opportunities don't come very often. I would say that the transactional market today is not what people perceive it to be. It's just -- there has not been that many deals out there. And I can tell you emphatically, as a company, there's not a deal that I would have -- even if we had the liquidity accessible to us immediately, there's not a deal out there I would say, hey, we missed this deal, and this is something we should have gotten. There just isn't a number of deals that fall into that pattern right now. Not to say it's not going to be because I actually think it is. And there's a lot of people out there on the sidelines looking to invest in office. And San Francisco is the clearest example, right? Some people feel they missed it. I think there's still going to be more opportunities in all of our markets, and you'll see as they come. Our objective is long-term growth. That's what it is, solidify the balance sheet and then grow. And so we have the accessibility of growing with JV partners, which we've done successfully in the past, and we'll look to do the same in the future.

And Victor, as you look to the capital sources that are interested in office, can you give us a sense of who prospective buyers would be? Is it foreign capital? Is it family offices? I mean who's actually looking to transact in office right now?

I can tell you specifically our deals that we've closed to date, it's been a combination of really 2 main groups. One is a user group, right? We sold to a bank. We've sold to an operator. We've sold to Google. We sold to UCLA. So we sold to users throughout the process. And Stanford actually is the fifth one. So they've all been users in those instances. The other group has been small family office or opportunistic buyers. I would say 50% of the deals we've done have been off-market deals and 50% have been marketed deals. And it's been pretty consistent -- the way we used to buy real estate, it's the same way as how we're selling it. And so it's not dissimilar than what we've consistently seen in the past. I have not seen a tremendous amount of foreign buyers come to the marketplace for our stuff. Now remember, we're selling -- with the exception of One Westside, which was a Class A asset, everything we've sold today has been B assets. So you're not going to see foreign buyers look at that. Now foreign buyers did look at One Westside. We just found a domestic buyer instead.

We've had a couple of questions coming here from liveqa. So I'll just get started on some of them. Can you give us a sense of the percentage of the studio assets that are currently active in use?

I'm sorry, that are active...

That are currently -- the utilization rate for the studio platform.

Yes. So it's twofold. The answer is going to be twofold, right? We have -- in our Sunset portfolio, we're effectively 85% leased in that portfolio in terms of this actual -- soundstage facilities. In the Quixote portfolio, it's like 35%, I think 30%, 35%. In the utilization of the OpCo, we're running roughly in the mid- to low 20s right now utilization. That would stabilize -- fully stabilized, that would be roughly around 50%, 55% max. So that's less than half. And our studios were running, up until the strike, on the Sunset portfolio 100%, and now we had the vacancy in Las Palmas, which we, as I said, just signed 1 deal, and we got hopefully another deal done to make it 100%. And on the Quixote side, those were running in the mid- to high 60s. So we're off half there as well.

And then one came in just on the status of Sunset Glenoaks. I think it stopped capitalization maybe this past quarter or in the first quarter this year. And when does the debt, if there's any, on that mature?

Our debt matures there in '26. So it's a construction loan that has 1 year extension on that. So that's where we sit.

Next one, can you please provide an update on the U.K. studio assets? I think it's about $300 million so far you've had in cost. What would this platform be worth now?

So we put that project on hold. Blackstone and us have decided to go to an alternative route on that asset. We are currently entitling that for alternative use. And it's all cash right now, and it's 100 acres. I'm not sure what the value of that would be. But on the alternative use, it is more than what we're into it for. So hopefully, we can get the entitlement process going, and Blackstone is running that process with us.

And just one last one on Quixote. I think just given the issues that the platform has faced over the past couple of years, would it ever make sense to try to monetize the platform just given the negative cash flow that we've seen over the past few years? Or is there a greater long-term value proposition in holding on to it?

Listen, we've had this question on the studio business before. When the studios are doing great, everybody loves the studios. When studios aren't doing great, nobody loves them anymore. So the reality is this. We're sticking to the business plan we're at. Institutionally, I think we've educated the market as best we can on the studio business. It is a cyclical business at the end of the day. And these cycles run. And as I said, when you have proliferation of content, things look great. I think we're getting back to that. There is no new product coming in the marketplace with the exception of what we're building. And so -- and that asset, as I said, is extremely well received in New York. It's the first only-purpose building studio in New York. I think at the end of the day, Quixote's platform adds a tremendous amount of value as it's captured in our soundstage businesses, plus it's captured in virtually every other soundstage business in Los Angeles and other markets like Atlanta and New York. So we have 90 -- sorry, 70% of the market share. When filming gets back up and running, it's accretive to the bottom line. Our fixed rate expenses -- we've lowered our expenses in that business dramatically, like $10 million in -- for fiscal year '25. The expenses aren't going up. Every incremental dollar we're going to make in that business goes right to the bottom line and hits FFO. And on an EBITDA basis, we're looking really good when this thing stabilizes in '26.

Just on kind of the regulatory environment in a number of your markets. I mean it seems like quality of life issues are getting addressed and people are more confident to come back to the office, it feels like. So how do you handle engaging with key public stakeholders to make sure that these quality of life issues are addressed so that you do see greater office attendance, you see people feeling more comfortable coming back.

Our constituent relationship with every city official at the highest level is extremely good. I met with the Mayor of Seattle and he is pro business. He is absolutely on the same page as we thought he would be on. He's been a great hire. I think it's true how we, he and every CEO in Seattle were shocked that the Proposition 1B passed. At the end of the day, it was totally out of -- left field that, that came through. It's not as material as people think. When it comes to Seattle price per foot versus a Bellevue price per square foot, you're talking about a $3 impact effectively, maybe at most. And rates today between Bellevue and Seattle are at least $15 to $20 wide. So it's impactful. But the business decisions around that are very strong. Obviously, what you're reading is exactly what's happening in San Francisco. Daniel Lurie is doing a phenomenal job. He is pro business. We are negotiating with him right now and expanding their portfolio with us in San Francisco. And they are doing exactly which is manageable in that city, which is dealing with the crime and dealing with the homelessness. It's a manageable issue that I believe the city is making the turn. And people are seeing the impact by just going down the streets every single day in San Francisco. I would say the disappointing factor is Los Angeles. Clearly, what you've seen with the leadership or lack thereof on Jan 7 has permeated -- it was not just Jan 7. It's been other things beyond that. I mean addressing the entertainment strike for the markets today, and they could have gone out years ago and had tax reductions for production in Los Angeles, which we begged them to do. Now they're finally coming around to it since we've seen it in an all-time low. That administration is going to be over. It's only a matter of time. I don't care about recalls. I don't even pay attention to recalls. Recalls only mean that the Deputy Mayor steps in. So we don't need that. Let's just get a good candidate back in play. It's the last city on the West Coast that needs to change. And it's got to change because they have manageable issues in Los Angeles and abundant amount of capital that's going to be spent in that city in '26, '27, '28 with World Cup, Super Bowl and the Olympics. Time is now for that city to have a leader to get us through '28. And so I think people in Los Angeles are ready for that, and I'm confident that the right person is going to get elected.

Well with that, we'll end with our rapid fire questions. First one, what is your expectation for net effective rent growth for the office sector overall, so not Hudson specifically, in 2026?

Flat to up.

And will there be more, fewer or the same number of publicly traded office REITs a year from now?

Same.

Great. Thank you so much.

Thank you.