Hudson Pacific Properties, Inc. (HPP) Q1 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Hudson Pacific Properties, Inc. First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Kay Tidwell, Executive Vice President and General Counsel. Thank you. Ms. Tidwell, you may begin.

Good afternoon, everyone, and welcome to Hudson Pacific Properties First Quarter 2013 Earnings Conference Call. With us today are the company's Chairman and Chief Executive Officer, Victor Coleman; and Chief Financial Officer, Mark Lammas. Howard Stern, the company's President, is also available to answer questions. Before I hand the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, May 6, 2013, and Hudson Pacific does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was released this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors. And now, I'd like to turn the call over to Victor Coleman, Chairman and Chief Executive Officer of Hudson Pacific. Victor?

Thank you, Kay, and thank you, everyone, for joining us today. We're off to a solid start in 2013. The first quarter was highlighted by a very successful common stock offering and a healthy leasing activity. Overall, the underlying fundamentals in our key California markets remain very strong and set the stage for another very productive year for the company. From the financing front, during the quarter, we completed a public offering of 8 million shares of common stock and the exercise of the underwriters' overall option to purchase an additional 1.2 million shares at the public offering price of $21.50 per share. Total net proceeds from the offering were approximately $189,900,000, which will help support our growth initiatives in 2013. Suffice to say, I was extremely pleased with the level of investor interest in this offering and appreciate the vote of confidence in our investment decisions. Turning to our first quarter leasing activity. Conditions in our key California markets continue to push up the lease rate of our portfolio to rental rates well above expiring and underwritten rents. As we and others have observed for some time now, trends towards open and more collaborative work environments continue to fuel the demand by technology, media, entertainment and social media tenants for office space, which caters to these sectors. Higher density and amenities tailored to a dynamic workforce have been the hallmark of tenancy by these industries. This trend is not confined to these sectors as more traditional industries are increasingly adjusting work environments to the changing needs of today's emerging workforce. It is more than just work environment, it's both -- companies in both new and traditional sectors recognize that workers want to work close to where they prefer to live, typically in locations with access to public transportation and benefit the improvement in work surroundings. Our portfolio has been assembled with this very trend at the forefront of the investment strategy. In San Francisco, the trend of tightening vacancies and rising rents continue during the first quarter of 2013. San Francisco counties unemployment rate of 6.3% was among the lowest in the state in the month of February, which is down 150 basis points from 1 year ago and compares with 9.7% unemployment rate statewide for the same period. This gain is largely due to growth within the technology sector, which has experienced 60% of job growth over the past 2 years, adding 15,000 jobs. Strong growth continues to fuel leasing momentum. The market [indiscernible] percent during the first quarter, with the lowest vacancy rate in the city currently in the South of Market submarket at 4.5%. Similarly, rental rates continue to improve during the first quarter. Market-wide asking rates climbed to $50.79, a 4% increase over the fourth quarter and an 18% increase over the first quarter of last year. In Los Angeles, market fundamentals are projected to continue to rebound as the economy improves. During the past few months, jobless claims have decreased, consumer confidence has strengthened and overall employment has grown. The general consensus is that commercial real estate industry has rebounded past its low point and is growing consistently within the new economy. The overall vacancy rate in Greater Los Angeles was 17.4% at the end of the first quarter of '13. This rate was relatively flat compared to last quarter but has decreased by 40 basis points compared to the first quarter 2012 rate, which was 17.8%. Overall, the market is continuing to recover at a measured pace. Importantly, our West Los Angeles submarket continues to be the bright spot for the region, capitalizing on high demand for creative office space. West L.A. has lodged a positive net absorption for the past 4 quarters, recording the highest positive net absorption in any submarket at 213,405 square feet. Vacancy in the first quarter was at 14.8%, a drop of 70 basis points over the past 5 quarters. The proven track record of positive net absorption and decreased vacancy in the market has moved to tighten concession packages and increase asking rental rates. These trends continue to support our goals for Element LA project at the corner of Olympic and Bundy in West Los Angeles and underscore the strength of our growth strategy of targeting assets in Santa Monica through West Los Angeles and in Hollywood and, more recently, in Burbank's Media District. A couple of recent sale transactions further underscore the strength of creative office assets in West Los Angeles and Santa Monica. The recently completed sale of The Clock Tower building in Santa Monica for $655 per square foot and recently announced sale of a campus at Playa Vista for $671 per square foot demonstrate that well-located assets catering to media, entertainment and technology tenants similar to our Element LA and 604 Arizona projects continue to lead the market in terms of valuation. We expect this trend to continue as employment growth in those key sectors outpaces other sectors in the economy. The Orange County office market has also been a steady amount of activity in the past, with absorption -- with net absorption continuing the positive trend experienced across the county since the middle of 2010. The first quarter ended with nearly 750,000 square feet of net absorption. This represents an increase of nearly 93,000 square feet in the previous quarter. Class-A space generated the majority of absorption contributed roughly 480,000 square feet of the total. Orange County continues to hold one of the lowest employment rates within the state of California following 6.5% in February from a January rate of 7.1%. Over the past 4 quarters, Orange County's employment has grown at an average annual rate of 1.1%, and industry analysts predict that employment will grow 2.1% in Orange County over the next 2 years, with the professional and business services employment sector expected to post the best job growth. Occupancy and gains have helped stabilize rental rates throughout the county. The overall full-service gross average asking lease rate has held steady at $1.91 per square foot, consistent with the $1.91 to $1.93 per square foot range in asking range since the beginning of 2010. Turning to our portfolio. We continue to enjoy healthy leasing activity during the first quarter, with significant leases in each of our key markets. In the first quarter, we executed 16 new in rental leases in our office properties totaling 212,178 square feet. And as a result, our stabilized office portfolio reached 94.5% leased at the end of the first quarter. Highlights of the first quarter leasing includes Square, Inc.'s exercise of its option to lease an additional 81,354 square feet of space in our 1455 Market Street property in San Francisco. In connection with the exercise of the option, Square also increased its square footage under its lease by an additional 5,060 square feet. Recall that in November of last year, Square signed a leasing encompassing 246,078 square feet of initial occupancy at 1455, with the 81,354-square-feet expansion option. The exercise of this option and expansion that brings Square lease at 1455 to a total of 332,492 square feet of occupancy. 181,805 square feet commenced in March of '13, 20,801 square feet commenced in April of this past year and the remaining 129,886 square feet is scheduled for commencement in early '14. Another first quarter leasing highlight was a new 45,496 square-foot-lease with Nordstrom, Inc. at our 901 Market Street property. Encompassing a portion of the ground floor and the entire second floor, the new lease will furnish 2 stories of prominent retail scheduled to commence with the opening of a new Nordstrom rack store in February of 2014. In Orange County, we signed an expansion at our City Plaza property with CashCall, Inc. for an additional 38,391 square feet scheduled to commence in June of this year. This expansion brings CashCall's total leased square footage to City Plaza to 163,329 square feet and entirely backfills the lease to Kondaur Capital scheduled to expire this month with little downtime. Turning to our first quarter results for our media and entertainment properties. As of the conclusion of the first quarter, the trailing 12-month occupancy for our media entertainment properties increased to 74.1% from 69.2% for the trailing 12-month period ended March 31, 2012. As suggested, the significant improvement in trailing 12-month occupancy demand for television production in Los Angeles remains very strong. That demand accounts for some of or more than 30% increase in year-over-year revenue at our media and entertainment properties. Of greater significance to the year-over-year improvement is the increase in property-related revenue, which increased by more than 70% and accounts for more than 3/4 of the year-over-year increase in total revenue. Increase in other property-related revenue largely reflects the unseasonably high level of production activity at our Sunset Gower property, with the accelerated production schedule for the Showtime series Dexter, which is scheduled to end its successful run later this year. Production activity for Dexter is expected to curtail during the second and third quarters. As a result, we anticipate that the revenue we have been generating from this tenant, including the other property-related revenue principally generated in the second and third quarters will decrease, resulting in a corresponding temporary decrease in the net income from operations from our media and entertainment segment on the account of the expiration. Allow me to briefly update you on the status of our acquisition pipeline. We're currently looking at more than 4 million square feet of properties in both Northern and Southern California, as well as Seattle, with the gross value in excess of $1 billion. The pipeline consists of a combination of stabilized and value-add opportunities in target markets which would complement our existing portfolio. We're encouraged by this transactional activity and potential acquisitions we're seeing, and we hope to be in position to announce our acquisition in the near future. Before I turn the call over to Mark to discuss our first quarter results, I want to mention something that we're pooling together for purposes of our investor presentation materials for the upcoming NAREIT Conference. We expect to make those materials available on our website in connection with the conference. As you know, we completed more than 700,000 square feet of new and renewal leases in the fourth quarter of 2012 and another 212,000 square feet in the most recently completed quarter for a combined 912,000 square feet or more than 20% of our current office portfolio. In many cases, this leasing activity involves substantial increases in the base rents compared to expiring rents. These leases are typically signed several months in advance of their anticipated lease commencement dates and often entail a period of rental abatement. This high level of leasing activity has resulted in an increase in our lease percentage without an immediate corresponding increase in our economic lease percentage. However, the executed leases commence as they commence and the rental abatement period expires, we expect that the increases in the economic lease percentage will result in substantial increases in the net operating income generated by the effective properties. We anticipate providing further information regarding the embedded and/or operating income growth stemming from this extraordinary leasing activity in our investor presentation materials at the upcoming NAREIT Conference, which will simultaneously be on our website for complete access to all. Now I'm going to turn over the call to Mark, our CFO.

Thank you, Victor. Funds from operations excluding specified items, for the 3 months ended March 31, 2013, totaled $14.1 million or $0.26 per diluted share compared to FFO, excluding specified items, of $9.4 million or $0.26 per share a year ago. The specified items for the first quarter of 2013 consisted of an early lease termination payment from Bank of America related to our 1455 Market Street property of $1.1 million or $0.02 per diluted share and a property tax reimbursement stemming from the reassessment of the Sunset Gower media and entertainment property of $800,000 or $0.01 per diluted share, both of which I will touch on in a moment. Specified items for the first quarter of 2012 consisted of expenses associated with the acquisitions of operating properties of $100,000 or $0.00 per diluted share. FFO, including the specified items, totaled $16 million or $0.29 per diluted share for the 3 months ended March 31, 2013, compared to $9.4 million dollars or $0.26 per share a year ago. Net loss attributable to common shareholders was $2.9 million or $0.06 per diluted share compared to net loss of $2.6 million or $0.08 per diluted share for the same period a year ago. Turning to our combined operating results for the first quarter of 2013, total revenue increased 29.2% to $49.4 million from $38.2 million a year ago. Total operating expenses increased 33% to $43.6 million from $32.8 million for the same quarter a year ago. As a result, income from operations increased 6.3% to $5.8 million compared to income from operations of $5.5 million in the same quarter a year ago. I will discuss the primary reasons for the increases in total revenue and total operating expenses in connection with our segment operating results. Interest expense during the first quarter increased 14.3% to $5.6 million compared to interest expense of $4.9 million for the same quarter a year ago. At March 31, 2013, the company had $530 million of notes payable compared to $582.1 million as of December 31, 2012, and $361.1 million at March 31, 2012. Looking at our results by segment. Total revenue in our office properties segment increased 28.8% to $38.5 million from $29.9 million in the first quarter of 2012. The increase was primarily the result of a $6.3 million increase in rental revenue to $28.6 million; a $1.8 million increase in parking and other revenue to $3.9 million; and a $500,000 increase in tenant recoveries to $5.9 million, largely resulting from the acquisition of office properties during the second, third and fourth quarters of 2012. The parking and other revenue increase also reflects the impact of an early lease termination payment received during the quarter from Bank of America at the company's 1455 Market Street property of approximately $1.1 million or $0.02 per diluted share, which amount includes the write-off of the straight-line rent receivable and below market lease liability associated with this early termination. Operating expenses in our office property segment increased 24.3% to $14.1 million from $11.4 million for the same quarter a year ago. The increase was primarily the result of office properties acquired during the second, third and fourth quarters of 2012. At March 31, 2013, our stabilized office portfolio was 94.5% leased. During the quarter, the company executed 16 new and renewal leases totaling 212,178 square feet. Total revenue at our media and entertainment properties increased 30.5% to $10.9 million from $8.4 million for the same quarter a year ago. The increase was primarily the result of a $1.9 million increase in other property-related revenue to $4.5 million; a $300,000 increase in rental revenue to $5.8 million; and a $200,000 increase in other revenue to $200,000, resulting from higher occupancy and stronger production activity compared to the same quarter a year ago. Total media and entertainment expenses increased 16.7% to $5.6 million in the first quarter of 2013 from $4.8 million for the same quarter a year ago, primarily as a result of higher operating expenses associated with higher occupancy and stronger production activity compared to the prior year. The increase in operating expenses was partially offset by an $800,000 property tax reimbursement stemming from the reassessment of the company's Sunset Gower media and entertainment property, resulting from the company's initial public offering and attributable to prior year property taxes. As a result of this reassessment, the company expects an ongoing property tax savings of approximately $300,000 per annum compared to property taxes incurred in 2012. As of March 31, 2013, the trailing 12-month occupancy for the company's media and entertainment portfolio increased to 74.1% from 69.2% for the trailing 12-month period ended March 31, 2012. Turning to the balance sheet. At March 31, 2013, the company had total assets of $1.7 billion, including cash and cash equivalents of $141.6 million. At March 31, 2013, the company had total capacity of approximately $203.8 million on its unsecured credit facility, of which nothing had been drawn. During the quarter, we paid a quarterly dividend on our common stock of $0.125 per share, and we paid a quarterly dividend on our Series B Cumulative Preferred Stock equivalent to 8.375% per annum. Turning to our outlook. As highlighted in our earnings release this afternoon, the company is reaffirming full year 2013 FFO guidance in the range of $0.90 to $0.94 per diluted share, excluding specified items. This guidance reflects the February 2013 common stock offering and leasing activity referenced in this release and all previously announced acquisitions, including the anticipated contribution of the Pinnacle II building but excludes acquisition-related expenses associated with that acquisition. This guidance also reflects the company's FFO for the first quarter ended March 31, 2013, of $0.26 per diluted share, excluding specified items. Importantly, our guidance reflects the anticipated expiration of our lease for the production of the Showtime series Dexter, as Victor mentioned earlier. As is always the case, the company's guidance does not reflect or attempt to anticipate any impact to FFO from speculated acquisitions. The full year 2013 FFO estimates reflects management's view of current and future market conditions, including assumptions with respect to rental rate, occupancy levels and the earnings impact of events referenced in this release, but otherwise exclude any impact from future unannounced or speculative acquisitions, dispositions, debt financings or repayments, recapitalizations, capital market activity or similar matters. Before turning the call back over to Victor, we would like to call your attention to the current status of the pending Pinnacle II contribution. As you may recall, we currently hold a 98.25% interest in a joint venture formed last year to acquire Pinnacle I for a total gross purchase price of $212.5 million, subject to a $129 million 10-year project loan bearing a fixed annual rate of 3.954%. That acquisition closed on November 8 of last year. The loan assumptions with respect to the Pinnacle II building remains in process, with an expected completion on or before the end of this month. Upon completion of the loan assumption, the Pinnacle II building will be contributed to the existing joint venture. Other than for purposes of funding closing costs [indiscernible], The company will not be required to make a capital contribution in connection with the contribution of Pinnacle II building. But as a result of the contribution, the company's 98.25% ownership interest will automatically and immediately adjust to an approximately 65% ownership interest in the joint venture. Thereafter, the joint venture will own both the Pinnacle I and II buildings for a combined purchase price of $342.5 million, subject to approximately $218 million of project-level financing, including an existing approximately $89 million project loan on Pinnacle II, bearing interest at a fixed annual rate of 6.313%. And now I'll turn the call back to Victor for some final thoughts.

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

[Operator Instructions] Our first question comes from the line of Craig Mailman with KeyBanc Capital Markets.

Just on guidance, Mark, curious how the $0.26 compared to what you guys had in the model for 1Q and kind of did the Dexter move out in 2Q and 3Q completely offset that and that's why guidance didn't move at all?

Yes. I mean, right -- you're right on point. As you know, we guide to a full year, and we had anticipated the impact of Dexter, which is -- really reflects the timing difference, right, compared to early -- previous year first quarter. So for example, we would typically see a show like that would ramp-up its production towards the end of the second quarter and really be in high production by the third quarter. In this case, because it's their final season, they actually accelerated that schedule, such that we really recognized a high, high level of production-related revenue. And you can see it in the year-over-year number, right, Craig. So if you look at the year-over-year difference in other property-related revenue, the first part of last year to this quarter, you see that very significant step-up. And so while we had a very strong first quarter in the media segment, we anticipate that we'll see a waning or we're projecting to see a waning, who knows, we might do well, better than potentially project. But for the time being, we have reason to expect that we'll see a waning in that other property-related revenue when Dexter rolls out. So that's why our guidance has remained static.

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

Well, that's an interesting question. We've never tried to reduce to a single tenancy on the -- from the media-related tenants per share amount. Say it's something's worth considering but we've never done it.

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

Well, they happen to -- that's more by virtue of the fact that they happen to have a pretty similar cash return there, as I say. They're being acquired at a pretty comparable NOI, such that when the NOI from Pinnacle II is contributed and we simply adjust our respective ownership interest, the cash NOI impact is relatively nominal, if you follow my point.

Yes, okay. And then just, Victor, on Seattle, just curious, you looking at Bellevue or Seattle proper, and would you go in there with just one asset? Or do you look to do more than one?

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

Our next question comes from the line of Brendan Maiorana with Wells Fargo.

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

Well, I think Seattle right now is comparable priced to where we've seen some Southern California pricing on a price per pound basis. It's relatively less. Our cap rate basis is probably equal. Clearly, it's not -- by listening to some of the comments that I talked about on my prepared remarks, in L.A., you can hear that there is a price per pound push in Southern California, specifically in the West L.A. marketplace, it is comparable to San Francisco. On a cap rate basis though, so San Francisco is still much more of an aggressive marketplace. And we're seeing prices on per foot basis to be eclipsing where we're seeing L.A. right now, so the cap rates comparable price per square foot lower.

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

Well, no, I think it's a balance of our portfolio that we are evaluating right now in pipeline is equally weighted to Northern and Southern California with the specific portfolio that we're looking in the Seattle marketplace. I think the specific to rental rate growths, we like some of the fundamentals in Seattle right now. I do think, as I mentioned in Craig's comment, we wouldn't do a one-off asset. I think if we can enter this marketplace, it's going to be a unique entryway, and the quality in the tech assets that we're looking at are going to be very high end with some good estimate rents over near and midterm. I think lastly, we're seeing pretty substantial rent growth in specific marketplaces here in Los Angeles, namely the ones we're in Santa Monica, West L.A. and in Hollywood. We're seeing some pretty substantial rent rate growths that is indicative, I think, of where the movement is going to be.

Okay, that's helpful. A question for Mark -- probably for Mark. The CapEx level in the quarter was -- it moved up. I presume that, that's driven by a lot of [indiscernible] leasing that you did end of last year and this year. As we think about going forward, how should we look at sort of that $15 million of CapEx spend as a quarterly run rate? Is that about the right number? And is there any capital that you're likely to spend this year that would be considered first-generation, that sort of wouldn't hit that AFFO or fund [ph] reconciliation?

Yes. So I think as often as the case, it's not uncommon for the CapEx to kind of phase in a bit behind schedule not to say the tenancy is necessarily lagging, but it's often the case that some of the CapEx, the tenant hasn't expensed it yet even, if say, for example, they have a hard start, a good example of that is 275 Brannan, for example, and others. But I would say, this current CapEx spend amount is a little lighter than what I think the quarterly run rate will for be 2013, maybe just orders of magnitude somewhere around maybe 40% light, give or take, on a quarterly run rate. And it will be a bit lumpy, Brendan, in part because the CapEx tends to be lumpy. But in some quarters, we're going to get hit with, say, for example, fair amount of leasing commissions, and then you will have made that leasing commission payment or payments. And then in ensuing quarters, you're going to get hit with more [indiscernible]. So it can be fairly lumpy. In terms of below the line or, if you will, CapEx that's nonrecurring, yes, there is a fair amount of nonrecurring CapEx. It's going to be incurred this year. We have base building upgrades that are occurring in several assets, most significantly in 2013 1455 Market, which is going to see a fair amount of nonrecurring CapEx in the form of upgrades to the exterior for windows and some lobby upgrades and so forth. And so yes, we will be seeing below AFFO, if you will, a fair amount of CapEx, nonrecurring CapEx this year as well.

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

No, that's the above. And just to give you a rough run rate for the year -- and Brendan, it could be a little bit, to go slightly further, we're working on -- we either have some -- from a capital availability point of view, because this often comes up, we have some construction funds available, both at 275 that's still undrawn and at 901 Market still undrawn. We also could potentially have construction funds available as it relates to Element LA, which is going to require considerable amount of nonrecurring CapEx. And so I just want to point you to the fact that some of the stuff that's going to be coming through and there are certain things that -- and certain capital availability that we have unrelated or aligned or cash on hand that's going to be there to meet some of those most requirements.

Okay, that's helpful. And then just a follow-up on Craig's question about Dexter. I think you guys mentioned at last call, but I think there are 4 stages. So if we sort of look at that show, is it ratable to take them 4 of, I think, 18 stages or perhaps -- just to try to get a magnitude of it?

Well, there are 3 stages, and they have office utilization. And as for ratable use, it's not -- that's probably not a bad way to estimate it. But remember, timing is going to be a big factor. Right? And as we sit this moment, while we expect it -- them to phase out at some point later this year, with a precise phaseout date, it hasn't quite been identified yet.

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

Yes, sure. We're looking at a couple of things right now. The networks might not take that only because of the timing. So most likely, it will cater to a cable audience, which, again, is less seasonal. And so there's possibilities that we may backfill that with another Showtime potential show there or, again, another cable series. So we continue to mark -- we're definitely marking the space right now for Q3.

[Operator Instructions] Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.

I guess, I'm hoping you guys can talk a little bit about your appetite for disposition. I know markets have come in and debt capital markets are picking up. Any thoughts on selling more assets here?

Jamie, we have a couple of assets and, I mean, really a couple. There's really 3 in the whole portfolio that we would look at, at the appropriate time. One of the assets, we actually were in conversations with a potential bidder. And we can get over the hurdle, which is probably more beneficial to us because pricing is sort of coming in a little better. There really isn't a ton in the portfolio that we're prepared to sort of disclose at of this time. It all fits in our overall strategy and structure other than the 3 assets that are sort of outliers, and that we would look at, at least potentially 2 of them right now. So I think it's always in the radar, but it's not something that -- with the exception of this one that we're going to probably come back to the marketplace sometime in the fall or late summer, that we're looking to do disposals.

Okay. And then I guess back to Seattle, I mean, I know of several REITs have been looking there and having a hard time finding either good deals or the right assets. Is there something unique about what you guys are looking for that, not too different than what we've seen?

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

Either unique submarkets or unique assets that -- I mean, it seems like in some markets have been pretty tough in finding good deals.

No, I think -- listen, we've got -- as I said, there's nothing unique that we're looking at or looking for that's going to jump off the page and say this is something that's different than what we looked in the past. And I want to sort of state the obvious from our standpoint that we've been very successful in acquiring assets in the markets that we're comfortable in, and we still feel the pipeline we have is very active and confident that we're going to get our fair share. So I would say that we're close on a couple of things right now, and I would say that it's not been difficult to identify the kind of stuff that fits in our portfolio.

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

I think we've got our credit facility fully untapped right now. We've got $160 million, $170 million in cash unlevered there. I mean, we've got some pretty good weight ahead of us, the $300 million to $400 million range. I think, right now, $20 is sort of what we're looking at before we have to come back to the marketplace or look for other alternative sources of capital.

Our next question is a follow-up from Brendan Maiorana with Wells Fargo.

So I just had a couple of follow-ups. First, probably for Mark, rent spreads for the quarter, it looked like I'm assuming that the spreads were just related to the Square deal at 1455 Market and CashCall at City Plaza. And one, I guess, can you confirm whether or not that's the case? And then, two, it seems like the spreads are probably better than what my expectations were, given that I thought you guys are likely rolling down at City Plaza, not up, which would suggest that Square lease was significantly higher than the 20%-plus positive cash spreads?

Yes, City Plaza is relatively flat. You're rolling down from $2.12 to $1.96 on 38,000 feet. So far more significant to the result is the 81,000 feet to Square. By the way, you pin both the meaningful leases. You're rolling up from $21.24 net. And part of the problem, too, is the fact that we're looking at base rents. But you're rolling up from $21.24 net on the BofA space, up to $30 modified on the Square deal. And that's what's largely driving that 20-plus percent cash and straight-line rent on difference.

Okay, great...

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

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

Oh, yes. If you look at on a weighted average basis on, say, close to 250,000 feet, some of which has already been given back, a good amount has already given back, if you look at the weighted average spread on the incoming rents and the expire rents on an apples-to-apples basis to, say, net, the roll-up is 45%.

Okay, great. And then this is probably for Victor. Any update on tenant prospects for Element LA and maybe how soon you guys could get something signed there?

I mean, we've got tons of activity to the point of about 1 million square feet of tours. We've got 2 very large prospects for, one, for the whole thing and, one, for almost the whole thing, that we're going back and forth. But I think, we're launching a marketing event first week in June. But I think we're still very comfortable for sort of a year-end completion of the parking structure, sign lease and move in, as we said, some time for second quarter of '14. The good news is, I guess, other than all the activity we have is, is that any competitive space in the marketplace for the most part has been taken off the marketplace. There's really only one other location that's competitive for the size of tenants that we have. And so we're sort of in the holdout right now on a large chunk versus several smaller guys to add them up.

And do you still feel comfortable at 350,000 or higher net rents per monthly?

Yes.

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

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

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